USA: protectionism can hide another

Hardly invested, President Donald Trump who has made protectionism a hobbyhorse, with the slogan "America first", threatens to tax manufacturers who relocate their production, attacking them publicly on Twitter, or impose heavy tariffs on imports from Mexico and also from China, a country accused of manipulating its currency. In response, the decision of Ford or Carrier to abandon their relocation project and the announcement of investment on US soil of foreign car manufacturers like BMW or Toyota sound like a victory for the newly elected president with the key to planned relocation (or preservation) of tens of thousands of jobs in the United States. If the number seems ridiculous given the 200,000 jobs created each month in the country, the symbolism is strong by allowing Trump to reaffirm his status as a providential man whose political voluntarism alone is able to upset the order things by imposing a duty of economic patriotism under pain of sanctions. President Trump is outmaneuvering the baton to staged a show and to take care of his communication to his constituents knowing that the carrot promised to businesses with the reduction of taxation and regulatory standards is no doubt foreign to the revival of hoped attractiveness of the American economy, enough to make the candidates think about exile.

So far, the Republican camp, traditionally close to the business community, does not seem to be moved by D. Trump's protectionist offensive. Yet the unilateral reinstatement of border taxes carries the risk of economic retaliation and trade war. Moreover, the massive reduction of the tax on companies wanted by D. Trump (from 35% to 15%) coupled with a policy of major works does not fit well with the doxa of a republican party follower of orthodoxy budgetary. Instead of these radical proposals, the Republicans are trying behind the scenes to impose a deep and ambitious reform of corporate taxation that would introduce a dose of protectionism less visible and therefore less objectionable while allowing to resolve at least in part of the budget equation.

The aim would be to change the current tax system based on the geographical origin of production towards a destination-based system, with products taxed where they are consumed. The corporate tax (currently around 35%) would be replaced by a cash flow tax, at a lighter and uniform rate of 20%, with a tax adjustment at the borders.

Under this principle, imports would no longer be deductible from the taxable base while export earnings would be exempt. For example, if an industry buys locally in intermediate goods for a deductible amount of $ 1,000 then the net cost of tax of its inputs will eventually be $ 800, or 25% less than a business which imports the same amount and can not benefit from such deductibility. Similarly, sales in the United States will be taxed at a rate of 20%, for a turnover of $ 1,000, income net of tax of $ 800, where the exporter will receive the entire product. sales abroad, an increase of 25%. All other things being equal, imports are instantly 25% more expensive while exports are subsidized by 25%, enough to reduce prices at constant margins, all the more so as to gain competitiveness.

Republicans argue that this tax is a form of VAT subject to the principle of border adjustment since all imports are subject to it while exports are not, which weaken the protectionist argument against reform . However, the fact that there is differential treatment between imported (non-deductible from the tax base) and domestically produced (which is deductible) products differs from the VAT principle which similarly strikes imports or imports. local. In addition, the tax base differs significantly in both cases, making the comparison obsolete. VAT is based on the whole value and integrates the costs of labor and capital while, according to the tax reform proposed by the Republicans, wages, but also the entirety of capital expenditures, will be deductible from the tax base. The absence of taxes on wages and on domestic investment expenditure implicitly amounts to subsidizing the labor and capital content of locally produced goods and conversely to taxing foreign work, which is not compatible with the competition rules. the WTO and could therefore trigger retaliatory measures by partner countries. On the other hand, it is an effective means of combating tax optimization with the deterrent effect of manipulating transfer pricing (shifting earnings outside the United States) or relocating head offices in fiscally attractive countries. For its promoters, such a reform can not be taxed by the WTO unfair competition because of the mechanical appreciation of the dollar which should cancel the effects of distortion on the terms of trade. Indeed, the higher prices of imported products should translate into lower demand and reduce the supply of dollars to foreigners, while the increase in exports should increase the demand for dollars, which will induce an appreciation of the currency in proportion equivalent to the competitive advantages provided ex ante.This may be true in theory, but in practice exchange rate adjustments are often lengthy and incomplete and do not respond exclusively to commercial logic, given the importance of financial flows, especially for a currency with a currency status. international reserve. The other great advantage of this reform is to lighten the tax burden on businesses without too much pressure on budget revenues and therefore without increasing the public deficit. All other things being equal, the fiscal adjustment is expected to yield about $ 100 billion a year (the trade deficit of $ 500 billion a year and thus the import surplus being taxed at a rate of 20%) while the decline in IS would result in an annual cost of around US $ 180 billion (not including the repatriation of retained earnings abroad), an annual shortfall of only US $ 80 billion, which could be significantly reduced if the effects growth are sufficiently positive.

Donald Trump, who judges this new tax system too complex, could finally be convinced. It would indeed be a boon for him to be able to keep three promises in a single reform with both a sharp drop in corporate taxation, a taxation of imports and the relocation of production and jobs on American soil, gifts to an electorate fiercely opposed to globalization. This attractive project for the new administration nevertheless meets the hostility of the importing sectors that sell their products mainly on American soil (retailers, refiners or automobile manufacturers). These powerful players, including Walmart and General Motors, stand up against this reform, which risks destabilizing value chains and significantly reducing their profitability, given that "100% made in America" ​​is only 'a lure. The attitude of the US trading partners will also be critical with the likely filing of WTO complaints against the protectionist nature of the reform, or even the introduction of immediate retaliation measures. On the front line are the emerging countries that are likely to suffer double jeopardy, that of a slowdown in their trade and that of the appreciation of the dollar synonymous with higher debt denominated in hard currency, with the key risks destabilization of international trade and global financial stability.