New Chinese Taxes May Explain Export Slowdown
from the that's-all? dept
Last week we linked to a story about slowing export growth from China and wondered what it meant about both the US and Chinese economies. Obviously, slower trade could be a reflection of a weakening economy, although it also seemed possible that the mounting concerns over the quality of Chinese goods could be a contributing factor. Today, the Wall Street Journal notes the same trend, but offers a much more sanguine perspective. The claim is that the Chinese government has instituted a new tax on exporters, which will kick in later this year. As such, manufacturers have tried to front-load their sales, squeezing as much of their annual orders out before the tax comes into place. The Chinese government has tried hard in recent years to slow down the economy, which has been on fire. While this tax may result in a temporary slowdown, it's unlikely that it will do much to alter the fundamental economic equation of high American demand for cheap supply from China.
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Filed Under: china, manufacturing, taxes, trade
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does not compute
All of which proves once again that if you laid all the economists in the world end to end they still would not reach a conclusion.
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Does Not Computer
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The more interesting question
"While this tax may result in a temporary slowdown, it's unlikely that it will do much to alter the fundamental economic equation of high American demand for cheap supply from China."
As the WSJ points out, in the long term, the yuan needs to rise against the dollar to balance out that trade deficit. Then the Chinese supply isn't so cheap.
Some economists say the Chinese government's interventions on the currency markets to keep the yuan cheap _ printing yuan and buying dollars _ amounts to an artificial subsidy on exports, and the U.S. should retaliate by imposing tariffs.
The Chinese government figures, better to impose those tariffs ourselves rather than let the Americans do it.
In summary, first it ensures a large trade deficit with the U.S., strengthening the Chinese domestic manufacturing base, then it scoops up the proceeds with higher taxes.
Now it holds lots of dollars and lots of yuans, and Communist Party members are in the catbird seat.
For a 'Communist' state, China's current industrial trade policies sure look more like British Mercantilism or German Fascism than anything else.
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Weird...
Though, for sure, one day they'll have to stop growing (that is common sense: you can't grow all the time)...
Regards from Spain,
Paquito.
http://paquito4ever.blogspot.com
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Taxes wont slow it down?
EBIT - earnings before interest and taxes
Taxes are the reason so many manufacturing jobs moved overseas before demand was even present there- the cost of labor is a very small portion of profits compared to taxes for many industries(especially high tech). So paying 28% on gross profits in the US compared to 10% in Thai Wan when labor was only 5% of total cost was a slam dunk for many companies to move. That and favorable environmental, health care, union, legal laws made it possible to compete with countries who moved their non-union operations state - side. Trimming taxes is exactly what turned Puerto Rico around (see operation Boot Strap in Wiki for proof that this works). Now that the value of the US dollar is down, taxes are cut, and unions are waning many companies are starting to expand in the states again because they can compete. The author's dismissal of the importance of taxes is both disappointing and perhaps ignorant of how business looks at the bottom line in order to keep from going under when competing in a worldwide market.
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Re: Taxes wont slow it down?
There's a lot more than taxes to the Pueto Rico story than you mention - huge incentives.
Corporations want to be treated as though they are actual citizens - except they don't want to pay taxes, and they have no loyalty to any country.
Corporations are created by humans to further the goal of making money. As Buckminster Fuller said in his brilliant essay The Grunch of Giants, "Corporations are neither physical nor metaphysical phenomena. They are socioeconomic ploys - legally enacted game-playing..." Corporations are non-living, non-breathing, legal fictions. They feel no pain. They don't need clean water to drink, fresh air to breathe, or healthy food to consume. They can live forever. They can't be put in prison. They can change their identity or appearance in a day, change their citizenship in an hour, rip off parts of themselves and create entirely new entities. Some have compared corporations with robots, in that they are human creations that can outlive individual humans, performing their assigned tasks forever.
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I have no problem with the above - but let's just not kid ourselves.
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Re: Re: Taxes wont slow it down?
I think if you look into it you will find that the higher European taxes tend to be value added taxes on consumers, rather than taxes on corporations. That, combined with massive European subsidies for some corporations (hello Airbus) explains why the Europeans can compete in the world markets.
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Re: Re: Taxes wont slow it down?
Operation bootstrap took place in the 60's...they have since moved up their tax % and now are suffering similar high unemployment. Like it or not tax % and unemployment appear to have an inverse relationship. The higher the taxes the lower the unemployment.
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Well I'm someone who isn't buying goods from China
I may not be able to completely eliminate my consumption of goods from China because they are in a lot of things that are not labeled clearly but I am looking at the labels now. If I find that it's made in China I look for another product in the category that's made in another country.
There have been too many problems with goods from China and a complete lack of control on the quality of those goods exported. If I have to pay 10 cents more a bushel for wheat grown in my own country at least I don't need to worry about that wheat killing me or my wife and two sons.
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Re: Well I'm someone who isn't buying goods from C
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Slow Economic Growth
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Tax is not the only reason for export
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US consumption slowing
Could be China's tax on exports has little to do with it.
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