Manufacturing Today - July 2017 - 14

COLUMN BY | MATTHEW WALSH

same result. As a result, there isn't a
disadvantage to a U.S. manufacturer
selling into a country that imposes a
VAT; likewise, there is no impact on
U.S.-based jobs.

One proposal President Trump has
continually spoken of is to impose tariffs on goods imported into the United
States from certain countries that he
feels have policies creating a disadvantage for goods manufactured domestically. Proponents argue the imposition
of tariffs on goods imported from these
countries would drive up the cost and
incentivize American consumers to
turn to options manufactured in the
United States. This approach should
then help drive the need for more U.S.based manufacturing jobs.
Opponents counter that countries
impacted would respond in kind by
raising tariffs on U.S. manufactured
goods. As countries react to these
tariffs and impose their own new or
higher tariffs, the threat of sparking
a global trade war emerges, which ultimately hurts all parties, with little
impact on job growth. Opponents
further argue that as these tariffs are
country-specific, U.S. consumers
could still look for other foreign-made
options. Finally, there is also a threat
that the United States could be sanctioned by the World Trade Organization for imposing barriers to global
trade. So, while tariffs appear to be
an easy, quick approach, this tactic is
generally not considered the best approach for job creation.

B UY AMERICAN

E MPLOYEES

I N T E R N AT I O N A L T R A D E

Import Tariffs

Border Adjustment Tax
Another proposal making its way
through Congress is a Border Adjustment Tax (BAT). In its simplest
terms, the BAT imposes a tax on all
imports of goods and services by not
14

manufacturing-today.com JULY 2017

allowing an income tax deduction for
those costs - which are fully deductible now. However, this approach
would allow those costs to be deducted on goods and services exported.
The BAT system taxes goods and services where they are consumed. Proponents say it acts similar to a VAT,
though using income tax rules to power the system. Since the BAT would
increase the costs of imports, proponents argue it would incentivize
American manufacturers and others
to source their supplies and goods domestically. Considering the tax benefits of exporting and the costs savings
of sourcing in the United States, the
result would be increased demand for
American manufactured goods that
would drive new employment.

one proposal president trump has continually spoken of
is to impose tariffs
on goods imported into the united
states from certain
countries.
BAT opponents argue, though, that
the tax would drive up costs as these
taxes would be passed along, and the
incremental new employment benefit would be offset by higher prices all
consumers would have to pay. Since
U.S. manufacturers often source raw
materials or component parts from
outside the country, the additional
costs of those imported materials
would be ultimately passed on to the
American consumer - even for U.S.
manufactured items.
Industries are split; big exporters are in support, but those that are
typically big importers are opposed.

While recently the President has said
he doesn't support the BAT, the idea
is still being debated and reviewed in
Washington, D.C.

Tax Policy Changes
Impact on Global Supply
Chains and Employment
Global trade is a complex system. Manufacturers look at many factors in determining where to source materials or
set up a manufacturing facility. There
are also many companies with established global supply chains, sourcing
goods and services from around the
world. So can - and will - companies
shift their manufacturing production
back to the U.S. in response to changes
in tax policy? While taxes and tax policy are factors that companies consider when setting up their operations,
many more factors are involved.
If these proposed tax policy changes do motivate manufacturers to
move operations back to the United
States, it would not happen quickly.
Contracts would need to be rewritten
or unwound; facilities would need to
be refurbished or built, and new suppliers relationships would have to be
cultivated. Assuming these tax changes do spur U.S. manufacturing as intended, that doesn't necessarily mean
a significant amount of new jobs will
actually be created. In fact, a study
from Ball State University found that
88 percent of manufacturing jobs lost
between 2000 and 2010 were due to
technology - not international trade.
In sum, even if proposed tax changes
are implemented and manufacturing
does increase in the United States the
impact on job growth in the industry
is not guaranteed. mt
With more than 17 years of experience in tax compliance,
Matthew Walsh oversees solutions for global
indirect tax law compliance at Sovos. Visit sovos.com for
more information.


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Table of Contents for the Digital Edition of Manufacturing Today - July 2017

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