Why a MAC charge on FDI will Stimulate FDI

A common question from ABDC Now! readers: 

"Why not exempt foreign direct investment from the MAC?  Imposing a MAC charge on all incoming capital would discourage investments in physical assets that could improve American manufacturing's productivity and international competitiveness,"

The answer is quite simple and revolves around two issues -- (a) the need to create a level playing field that minimizes the risk of distortions, evasion, and high administrative costs, and (b) the fact that, because of its very design, the MAC creates a natural bias in favor of FDI.

Is a Market Access Charge Better than Higher Taxes on Imports?

Readers have asked why the Market Access Charge (MAC), the centerpiece of this blog site, would work better than the options being considered by Congress, most of which involve currency manipulation taxes (CMTs) -- taxes that would be added to the import duties already paid by the American consumers of various imported goods. 

The MAC approach would be simpler and far more effective for many reasons, reasons that will be discussed in future postings, but let's start by looking at the simple issue of complexity. Maintaining a currency manipulation tax system would be complicated and costly, to say nothing of subjective, debatable, difficult to defend in WTO hearings, and damaging to free trade.

Trade Deficits -- Growth Stimulant or Depressant?

Summary

Understanding the impact of trade deficits and foreign debt on economic growth is vital to understanding the origins of America’s current economic problems and to designing trade and monetary policies that will put America back on the path to prosperity for all in the 21^st century. 

Unfortunately, economists are sharply divided regarding the impact of trade imbalances on growth.

Progressive economists such as Scott and Baker generally say that trade deficits are the leading cause of slow growth, excessive unemployment and growing social inequality in the United States, that trade deficits threaten the nation’s long-term economic viability. 

In sharp contrast, conservative economists such as Riley, Griswold and Ikenson would generally say that trade deficits mean faster economic growth and falling unemployment, that the foreign loans used to finance these deficits are an important vote of confidence in America.

The 2015 Economic Report of the President by the Council of Economic Advisors presents both of these conflicting positions but fails to reconcile them or to provide meaningful policy options for action. 

This note reconciles the conservative and progressive views and presents a possible consensus position on U.S. trade policy for the 21^st Century, one that could simultaneously increase business profitability, stimulate innovation, maximize employment, and reduce income inequality.

A Perfect Storm Brewing for American Manufacturing -- Greek Crisis and Fed Interest Rate Liftoff

Greece has just announced the closure of its banks and stock market for a week. With falling unemployment, rising wages and improved economic prospects, the Federal Reserve is likely to start raising interest rates this year. Together, these developments are a perfect storm brewing  that could derail the hesitant recovery of America's manufacturing sector, push external trade deficits even higher, and throw large numbers of Americans out of work.  Why?

Currency-Based CVD Penalties: Wrong Tool for Solving America's Trade Deficits

The currently proposed legislation that would use currency-based countervailing duty surcharges to help reduce America's trade and unemployment problems will have almost no impact because CVDs are designed to fix firm-level, product-specific problems, not macro-economic imbalances. The note concludes that a macro-level policy designed to correct the dollar's global overvaluation is needed instead.