Must-Read:: Scott Sumner is surprised at how unprofessional Peter Navarro of U.C. Irvine is. So am I. I had always thought of him as interesting but flaky--but here it looks as though he does not even know that he has homework to do:
Scott Sumner: Who Is Peter Navarro?:
Tyler Cowen linked to a paper by Peter Navarro.... It's a complete mess...
Here are just a few examples:
Under WTO rules, any foreign company that manufactures domestically and exports goods to America (or elsewhere) receives a rebate on the VAT it has paid.... turn[ing] the VAT into an... export subsidy. At the same time, the VAT is imposed on all goods that are imported... turn[ing] the VAT into an implicit tariff on US exporters.... Thus, under the WTO system, American corporations suffer a "triple whammy": foreign exports into the US market get VAT relief, US exports into foreign markets must pay the VAT, and US exporters get no relief on any US income taxes paid... giv[ing] our major trading partners a 15% to 25% unfair tax advantage in international transactions.
This is a very basic error.... A VAT is neutral with respect to trade. An across the board 10% import tax, combined with a 10% export subsidy... convert the tax from a production tax to a consumption tax.. that applies equally to all goods, whether made domestically, or imported. This is not even a tiny bit controversial.