The GOP's border adjustment tax and job creation alternatives

Border Adjustment Tax

The GOP's recent tax proposal included a border adjustment tax that has been said to be good for American jobs as it essentially places a tax on imports. While ideologically speaking the border tax serves as an example of the kind of economic nationalism touted by Trump during the campaign, the actual effect of the proposal is unclear at best and very possibly destructive at worst. This paper examines the issues surrounding the border adjustment tax -- where it came from, who is expected to profit by it and who is expected to be hurt by it, what alternatives are available to help create jobs in America, and which alternative might work best to address the issue of job creation, which the Trump Administration has been so adamant about solving. The thesis of this paper is that while no single solution presents itself as satisfactory (because of the myriad variables surrounding the complexity of trade and job creation), an approach based on ethical consumption laws could prove to be the most beneficial and least damaging compared to the other possible alternatives, including the border tax.

This paper begins with Part I, which examines the Better Way policy paper released by the GOP in 2016 detailing the border adjustment tax and what Trump's team claims it will do. Part II discusses the winners and losers of the tax, its likely effect on American workers, and its intellectual origins. Part III examines three possible alternatives to the border adjustment tax. Part IV describes which of these three possible alternatives might be the best and how it would theoretically impact job creation in America as well as other factors relating to the WTO and trade.

I. The GOP's Border Adjustment Tax Proposal

A. A Better Way

The GOP's border adjustment tax proposal was released by the House in 2016 in a policy paper entitled A Better Way. Its focus was on lowering the corporate income tax rate (currently among the highest in the world -- behind only the UAE and Puerto Rico)[footnoteRef:1] to 20%. To make up the gap, the GOP proposed taxing imports more heavily -- an idea that has correlated with one of Trump's major themes since taking office in January: "Buy American, Hire American."[footnoteRef:2] Companies seeking to offshore and send their products back to the U.S. would face a severe penalty -- as Trump has assured his base of supporters on numerous occasions. [1: Kyle Pomerleau, Understanding the House GOP Border Adjustment, Tax Foundation (2017), https://taxfoundation.org/understanding-house-gop-border-adjustment/#_ftn4 (last visited Apr 23, 2017).] [2: Presidential Executive Order on Buy American and Hire American, The White House (2017), https://www.whitehouse.gov/the-press-office/2017/04/18/presidential-executive-order-buy-american-and-hire-american (last visited Apr 23, 2017).]

The proposal moves the tax from an "origin-basis" to a "destination-basis"[footnoteRef:3] -- the aim being to prevent companies from profit shifting. The border adjustment tax proposal is, therefore, a proposal to change the existing corporate income tax into a destination-based cash-flow tax, as the policy defines it. According to this definition, the border adjustment tax would mean canceling the corporate tax on earned income from exporting: companies instead would be unable to write off costs related to importing. As Pomerleau points out, the border adjustment tax is a common feature of consumption-based tax systems around the world[footnoteRef:4] -- and also in the U.S. itself: "many retail sales taxes in the United States are destination-based and have border adjustments, and most value-added taxes (VAT) throughout the world employ border adjustments."[footnoteRef:5] [3: A Better Way (June 24, 2016), https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf (last visited Apr 23, 2017).] [4: Consumption Tax Trends 2016. Organisation for Economic Cooperation and Development. (November 30, 2016), http://www.oecd.org/tax/consumption/consumption-tax-trends-19990979.htm; William P. Orzechowski, Border Tax Adjustments and Fundamental Tax Reform, Tax Foundation (2017), https://taxfoundation.org/border-tax-adjustments-and-fundamental-tax-reform/ (last visited Apr 23, 2017).] [5: Pomerleau, supra note 1.]

The difference between origin- and destination-based systems is that in the former, goods are taxed based on the country in which they are produced without respect to the country in which they are consumed. A destination-based tax, which is what the border adjustment tax counts as, puts a tax on products based on the country in which they are consumed without respect to the country in which they are produced. In other words, both domestic goods and foreign imports would be taxed in the border adjustment tax proposal. This differentiates it from a tariff, which targets imports solely. The destination-based tax is applicable to goods that are produced domestically too -- so long as they are also consumed domestically.

B. Team Trump's Claims

Speaker of the House, Paul Ryan has stated that imports are undermining American products and that he "sees the tax as a way to level the playing field for U.S.-based manufacturers."[footnoteRef:6] Rep. Kevin Brady views the border adjustment tax proposal as "a way to end the 'Made in America tax' on exports" as well as a way to reduce offshoring.[footnoteRef:7] Trump himself has indicated that the border adjustment tax "could lead to a lot more jobs in the United States" without offering specifics on how it could do that.[footnoteRef:8] Additionally, none other than Trump's top advisor Steve Bannon has been described as "the most enthusiastic backer of the border-adjustment plan."[footnoteRef:9] White House Chief-of-Staff Reince Priebus, Commerce Secretary Wilbur Ross, and Peter Navarro (Trump's trade advisor) also support the border tax -- the idea being that its implementation could effectively "raise more than $1 trillion over 10 years."[footnoteRef:10] The gist of the proposal is that "the tax on imports will encourage domestic production and cause the already strong dollar to rise, offsetting upward pressure on import prices"[footnoteRef:11] -- though the dollar has declined in recent weeks after Trump indicated that the dollar was too strong[footnoteRef:12] and even Treasury Secretary Steve Mnuchin appears to have agreed with the President, noting that a strong dollar over a short period of time a strong dollar leads to "issues that hurt our exports."[footnoteRef:13] Though not explicitly clear in terms of logistics, the expectation as far as Trump is concerned is that "What is going to happen is companies are going to come back here, they're going to build their factories and they're going to create a lot of jobs and there's no tax."[footnoteRef:14] [6: Naomi Jagoda, 7 key players in the GOP's border tax fight, TheHill (2017), http://thehill.com/policy/finance/320200-7-key-players-in-the-gops-border-tax-fight (last visited Apr 23, 2017).] [7: Jagoda, supra note 6.] [8: Steve Holland, Exclusive: Trump says Republican border tax could boost U.S. jobs, Reuters (2017), http://www.reuters.com/article/us-usa-trump-tax-exclusive-idUSKBN1622J5 (last visited Apr 23, 2017).] [9: Anna Edgerton & Jennifer Jacobs, Ryan and Bannon Forge Unexpected Alliance on Border Tax, Bloomberg.com (2017), https://www.bloomberg.com/politics/articles/2017-02-28/ryan-said-to-forge-unexpected-alliance-with-bannon-on-border-tax (last visited Apr 23, 2017).] [10: Edgerton, Jacobs, supra note 9.] [11: Exclusive: Trump Says Republican Border Tax Could Boost U.S. Jobs, U.S. News & World Report (2017), https://www.usnews.com/news/top-news/articles/2017-02-23/exclusive-trump-says-republican-border-tax-could-boost-us-jobs (last visited Apr 23, 2017).] [12: Ian Talley, Treasury Nominee Steven Mnuchin Backs a Strong Dollar, The Wall Street Journal (2017), https://www.wsj.com/articles/treasury-nominee-steven-mnuchin-backs-a-strong-dollar-1484852511 (last visited Apr 23, 2017).] [13: Financial Times, Subscribe to read, https://www.ft.com/content/2e48c5bc-238c-11e7-8691-d5f7e0cd0a16 (last visited Apr 23, 2017).] [14: Exclusive, supra note 11.]

II. The Impact of the Border Adjustment Tax on American Workers

A. Winners and Losers

According to Julian Emanuel, executive director of U.S. equity and derivatives at UBS Securities, the losers of the GOP's proposed border adjustment tax "are the companies that are very reliant on imports in general...apparel, semi-conductors."[footnoteRef:15] Companies unable to pass on the 20% increase will be hurt on their bottom lines. This includes businesses that were big in the 1980s but offshored "as costs plunged."[footnoteRef:16] Companies in "retail, energy, and auto industries" have labeled the border adjustment tax "outrageous," referring to it as a "trillion-dollar tax break for some corporations that increases the price of clothing, food, and gas for American consumers" -- and as such, big corporations such as Macy's, Nike, Walmart and Best Buy have all come out against the border adjustment tax.[footnoteRef:17] [15: The Winners and Losers of a Border-Adjustment Tax, Bloomberg.com (2017), https://www.bloomberg.com/news/videos/2017-02-14/the-winners-and-losers-of-a-border-adjustment-tax (last visited Apr 24, 2017).] [16: Winners and Losers, supra note 15.] [17: Bourree Lam, Where U.S. Companies Stand on the Border Adjustment Tax, The Atlantic (2017), https://www.theatlantic.com/business/archive/2017/02/companies-border-adjustment-tax/517593/ (last visited Apr 24, 2017).]

Companies that export, however, stand to benefit from the tax -- as evidenced by the letter to Congress signed by 16 CEOs of export-heavy businesses: according to them the tax is a "pro-growth" strategy aimed to foster American industry and eliminate the "unfair advantage for foreign-based companies at the expense of U.S. jobs and economic growth."[footnoteRef:18] [18: Lam, supra note 17.]

While some commentators, such as Pomerleau, have argued that the border adjustment tax would have no impact on trade,[footnoteRef:19] others hold the view that the proposal would in fact ignite a trade war.[footnoteRef:20] The World Trade Organization (WTO) has gone so far as to "warn that if the US makes the tax change, it would lead to a major challenge to the global trading system at a time when its most influential member is tilting towards protectionism under Mr. Trump."[footnoteRef:21] Indeed, the potential for trade war appears evident should the border tax be implemented, as The Wall Street Journal reported in January: "Foreign countries would almost certainly respond if Mr. Trump tried to impose a border tax. They would file cases against the United States at the World Trade Organization, which has the power to authorize retaliatory tariffs on American products, potentially hurting exporters like Boeing, General Electric and farmers in the Midwest."[footnoteRef:22] China is already objecting to Trump's intention to investigate steel imports,[footnoteRef:23] indicating that a border tax would be seen as a further attempt to suppress foreign competition. By all accounts, the border tax would thus benefit American exporters while hurting importers -- but as the Peterson Institute for International Economics has pointed out, "if the reform is found to violate WTO rules by restricting US imports, trading partners could be authorized to retaliate by an estimated $220 billion annually."[footnoteRef:24] Moreover, should the tax be viewed as a means "to implicitly subsidize exports, partners could be authorized to retaliate by an additional $165 billion annually."[footnoteRef:25] How the WTO would react to the GOP border adjustment tax proposal depends ultimately on how the plan is judged by the Dispute Settlement Body should members dispute the tax's legality. [19: Pomerleau, supra note 1.] [20: Tim Worstall, GOP And Trump Beware - EU Planning WTO Case Against Border Adjustment Tax, Forbes (2017), https://www.forbes.com/sites/timworstall/2017/02/14/gop-and-trump-beware-eu-planning-wto-case-against-border-adjustment-tax/#4713ae041c37 (last visited Apr 24, 2017).] [21: Worstall, supra note 20.] [22: The Editorial Board, Opinion | Opening Salvos in President Trump's Trade War, The New York Times (2017), https://www.nytimes.com/2017/01/23/opinion/opening-salvos-in-president-trumps-trade-war.html?_r=0 (last visited Apr 24, 2017).] [23: Trump resorting to unilateralism with steel probe: China Daily, Reuters (2017), http://www.reuters.com/article/us-usa-trump-steel-china-idUSKBN17Q0AY (last visited Apr 24, 2017).] [24: Chad Brown, Policy Brief: Will the Proposed US Border Tax Provoke WTO Retaliation from Trading Partners? Peterson Institute for International Economics (2017), https://piie.com/system/files/documents/pb17-11.pdf (last visited Apr 24, 2017).] [25: Brown, supra note 24.]

B. On American Workers

It follows that the effect of the border adjustment tax on American workers would be beneficial to the extent that it leads to job creation and to more companies choosing to build in America -- which is a phenomenon that Trump has touted at every opportunity as part of his "America First" theme.[footnoteRef:26] As Colvin notes, the expected outcome of the tax is particularly shaped by economists' forecasts -- which means that the American worker may not be as effected as the Trump Administration has let on -- namely because "while border adjustment would change effective tax rates . . . it would also change exchange rates."[footnoteRef:27] Should the border tax cause the dollar to appreciate against foreign currencies, importers would likely be paying no more than they already are. However, a strong dollar would hurt U.S. exporters[footnoteRef:28] -- and so finding the right balance to keep American companies productive and profitable could be more difficult than simply adopting a border adjustment tax. [26: Bill Vlasic, Trump, in Meeting, Urges Automakers to Build in United States, The New York Times (2017), https://www.nytimes.com/2017/01/24/business/trump-us-automakers-meeting.html (last visited Apr 24, 2017).] [27: Geoff Colvin, Donald Trump's Border Tax May Not Hit American Importers at All Donald Trump's Border Tax May Not Hit American Importers at All, Fortune.com (2017), http://fortune.com/2017/02/10/the-border-adjustment-tax-may-have-zero-effect-on-american-companies/ (last visited Apr 24, 2017).] [28: Adam Samson, US Exports Take the Strain of a Strong Dollar, Financial Times, https://www.ft.com/content/16c337d0-8d2c-34e4-be3d-23aceace7c4f (last visited Apr 24, 2017).]

The direct impact on American workers is considerably hypothetical -- but there are likely a number of variables that could impact their situation, with the border adjustment tax being merely one of them. Isolated as a mechanism to create job growth in the U.S., theoretically it offers a conduit to that goal; however, as Colvin has stated, there is no real precedent for the tax proposal that the GOP has put forward.[footnoteRef:29] Value-added-taxes have been used in Europe to positive effect, but the outcome of border adjustment tax in America could in fact hurt American workers employed by American exporters as it could "destroy manufacturing jobs, not create them," as Williams reports.[footnoteRef:30] This argument is made by the Motor Equipment Manufacturers Association, which holds that the border adjustment tax "could raise vehicle prices by as much as $2,500"[footnoteRef:31] -- and in an industry that is already over-saturated and in need of deep incentives to move product,[footnoteRef:32] any cuts in margins could lead to cuts in jobs, as "the global automotive supply chain is complex and integrated into almost every vehicle manufactured, including those made in the U.S."[footnoteRef:33] Small businesses that rely on imported parts could equally be hurt by the tax -- unless manufacturing in the U.S. were to suddenly grow exponentially and to such an extent that reliance upon foreign-labor produced parts would dissipate quickly. It is this latter prospect that the Trump Administration appears to be resting its assumptions on. [29: Colvin, supra note 27.] [30: David Williams, GOP's border tax will kill blue-collar jobs and harm consumers, TheHill (2017), http://thehill.com/blogs/pundits-blog/economy-budget/322962-gops-border-tax-will-kill-blue-collar-jobs-and-harm (last visited Apr 24, 2017).] [31: Williams, supra note 28.] [32: Bill Vlasic, Record 2016 for U.S. Auto Industry; Long Road Back May Be at End, The New York Times (2017), https://www.nytimes.com/2017/01/04/business/2016-record-united-states-auto-sales.html (last visited Apr 24, 2017).] [33: Williams, supra note 30.]

C. Intellectual Origins: The True Intention of the Border Tax

Yet, if the actual outcome of the border adjustment tax on the American worker is unclear at best, perhaps the tax is being proposed for an ulterior motive. To understand the GOP's proposal, it is helpful to obtain context -- to identify the intellectual origins of the border tax. The man described as the tax proposal's "principal intellectual champion in the United States" is an economist at the University of California, Berkeley, named Alan Auerbach -- and his goal in promoting the tax is to ensure that "incentives will align with the national interest."[footnoteRef:34] The destination-based tax is one that Auerbach believes "is an adaptation to the modern economy of open borders and advancing technology" -- a system in which multinational corporations are able to shift assets such as intellectual property like patents and software to countries that are tax-friendly as a way to protect profit margins: the border adjustment tax would theoretically, according to Auerbach, eliminate "incentives to game the system."[footnoteRef:35] [34: Steve Lohr, New Approach to Corporate Tax Law Has House G.O.P. Support, The New York Times (2016), https://www.nytimes.com/2016/12/12/business/economy/new-approach-to-corporate-tax-reform.html (last visited Apr 24, 2017).] [35: Lohr, supra note 34.]

Auerbach's ideas found political support in the Texas Republican and chairman of the House Ways and Means Committee Rep. Brady, who is at the center of the GOP's border adjustment tax proposal. Brady's stated aim has been to "level the playing field for made-in-America products."[footnoteRef:36] In effect, the tax proposal is a challenge to the World Trade Organization, to free trade agreements such as NAFTA, and to globalism in general. The ideological nexus of the tax is one that promotes the "America First" theme of the Trump Administration -- but in actuality the effect of the tax will not be felt in a vacuum or, in fact, in a world that is wholly controlled or controllable by Brady, Auerbach or the Trump Administration. The tax proposal is more akin, in this light, to a paring thrust in an economic match of wits in a much larger game consisting of social, political and other economic factors and nuances. Auerbach himself has admitted as much, stating, "Economists don't rule the world; I understand that . . . .You never know when or if your policy ideas will have an impact."[footnoteRef:37] The intellectual origins of the border tax adjustment proposal are thus situated less in perfectly calculated plan to promote the interests of the American worker than in a nationalistic approach to tax code reformation -- one that would challenge decades of trade policies that have promoted offshoring. Whether the tax proposal would in the end actually benefit the American worker or simply lead to more economic devastation domestically as multinationals look for leverage to wield against such a proposal is something that remains in the realm of the speculative for now. [36: Lohr, supra note 34.] [37: Lohr, supra note 34.]

III. Alternatives to the Border Adjustment Tax

Alternatives to the border adjustment tax that could be better be suited for achieving Trump's stated objective of creating American jobs, particularly in the manufacturing sector include: 1) the application of ethical consumption laws, 2) the strengthening of International Labor Organization (ILO) so that labor conditions violations could be referred to the WTO, and 3) reduction of U.S. trade deficits through negotiation with trade partners.

A. Applying Ethical Consumption Laws

As Nicholls states, a "leading form of ethical consumption is Fair Trade."[footnoteRef:38] But as far as the Trump Administration is concerned, fair trade is not what the U.S. is engaged in -- not with the kinds of trade deficits it carries. There is, however, another way to look at ethical consumption within the framework of taxation law: the Trump Administration could pursue legislation that subsidizes the "America First" approach for the domestic consumer who is ethically oriented towards supporting Trump's nationalistic theme. Just as green consumerism has enabled tax legislation to be passed that allows consumers to take deductions for green energy consumption, the Trump Administration could adopt a policy that favors consumption of products "made in America" by allowing consumers to deduct consumption of such products from their taxes. This would be along the same lines as Auerbach's destination-based tax but would be in more of a positive rather than punitive way and would not punish importers, among whom must be counted the numerous small and large businesses that have no choice for the present but to important machine parts as manufacturing in America has diminished considerably. [38: Alex Nicholls, Fair Trade, Wiley Encyclopedia of Management, 9 (2015), 1-2.]

Companies that qualify as "made in America" businesses would be able to verify for their consumers -- just as organically-grown-and-certified producers do for consumers at the grocery store -- that they have met the federal regulations and guidelines overseeing the standards needed to be qualified as "American Made" and thus enable consumers to be eligible for the tax write-off. Not only would this policy be seen as a tax break for the middle class but it would also promote American businesses whose products would be viewed as in-demand following the passing of such legislation. With consumer demand rising for such products as a result of the tax incentive, more businesses would be likely to line up behind the policy and arrange to meet the standards, especially if it means retaining market share domestically. It could promote competition, which is the basis of a fair market economy, and the jobs that would be produced as a result of the increase in demand for this particular type of "American made" product could be touted as a success by the Trump Administration.

As Simoes notes, "public entities worldwide are incorporating ethical concerns in their policies" -- most evident in terms of environmental protection, with legislation being passed to encourages "citizens to adopt a sustainable lifestyle (e.g. incentives to buy eco-friendly vehicles)."[footnoteRef:39] Adopting and implementing legislation that promotes the interests of consumers interested in fostering a revival of the American Made theme would be a way to maneuver around the border adjustment tax by focusing solely on the consumer rather than the producer. This type of cultivation of consumer behavior through the application of ethical consumption laws is already part of the branding exercises that Trump has developed and used over the course of the campaign and now his first 100 days as U.S. President: that branding includes an America First mentality, which appeals to an enthusiastic base that supports nationalistic aims -- none more so than the return of American jobs and American businesses domestically. [39: F. Dias Simoes (1), Ethics and consumerism: legal promotion of ethical consumption?, Springer (1970), https://link.springer.com/chapter/10.3920%2F978-90-8686-784-4_22 (last visited Apr 24, 2017).]

Instead of encouraging businesses to return to or invest in America by way of punitive border adjustment tax measures, the Administration could do so by appealing to the consumer and building the base through tax relief. Essentially, the ground work has already been laid, as Kotler and Gertner point out: "Widely held country images affect attitudes towards a country's products and services and ability to attract investment, businesses and tourists."[footnoteRef:40] In effect, Trump has already mobilized a significant market segment ready and willing to buy American in order to facilitate the aim -- and a tax incentive to mobilize more American consumers -- and thereby American-based businesses to produce more domestic products -- would further increase the base by appealing to another Trump platform, which was tax reduction for the middle class. [40: P. Kotler & D. Gertner, Country as brand, product, and beyond: A place marketing and brand management perspective, SpringerLink (2002), https://link.springer.com/article/10.1057/palgrave.bm.2540076 (last visited Apr 24, 2017).]

This alternative to the border adjustment tax would be better for American workers precisely because it promotes business through positive incentives rather than through punitive taxation. It promotes competition, which supports growth, industry and job creation. Moreover, this proposal could kill multiple birds with one stone, for if, as Simoes notes, "the State is interested in controlling the social costs of individuals' behaviours that are borne by society at large," the development and application of ethical consumption laws could greatly facilitate Trump's aim to grow job opportunities in America through the support of the America First theme in a way that is not a violation of WTO or directly hurtful to business owners of companies that are required to import foreign parts in order to create their own domestic products.

B. Strengthening the ILO

Another alternative to the border adjustment tax would be to strengthen the International Labor Organization so that it could refer violations of labor conditions overseas to the WTO. This could serve as an alternative to the border adjustment tax, which seeks to end offshoring and return American businesses to American labor through taxation of importers. While this punitive measure has the negative possible side effect of creating a trade war among WTO partners, its aim is to support American nationalism and American job creation. Strengthening the ILO could obtain the same end goal by making it harder for American corporations to exploit cheap labor abroad: strengthening the ILO's role in working with the WTO to crack down on labor conditions that violate international standards would be an efficient way to confront the abuse of corporations that seek cheap labor.[footnoteRef:41] Strengthening the ILO can therefore be seen as a positive alternative to the border adjustment tax because it provides an external measure and system of control/pressure on corporations. [41: Meghan Benton, SphereS of Exploitation, Thwarting Actors Who Profit from Illegal Labor. Migration Policy Institute, Washingtion DC (2014).]

The negative side of taking this approach to the issue of strengthening the American labor force is that it is even more indirect than the process of developing and applying ethical consumption laws. The methodological slowness with which the ILO and WTO work towards addressing such issues as labor violations would mean putting job creation in America back years, while corporations seek alternative means to find cheap labor elsewhere. Meanwhile, it does nothing to address the tax reform situation in the U.S. and offers no incentive to Americans to buy American or to produce in America beyond the potential risk of being pursued by the ILO and WTO for violating labor conditions standards.[footnoteRef:42] Similarly, there is no guarantee that violators would ever be punished sufficiently to make them want to seek a return to using domestic labor. Therefore, while this alternative is a possible solution to the problems inherent in the border adjustment tax, it does not offer a near-term solution that is as directly impactful on American jobs as the ethical consumption laws approach or even as the border adjustment tax approach, barring its own potential hazards in terms of the potentiality of a trade war arising. [42: Werner Sengenberger, Globalization and Social Progress: The Role and Impact of International Labor Standards, Friedrich-Ebert-Stiftung (2005), http://www.newunionism.net/library/internationalism/FES%20-%20the%20Role%20and%20Impact%20of%20International%20Labour%20standards%20-%202005.pdf]

A number of other factors may contribute to the irrelevancy of the ILO having a positive effect on job creation in America as well. As the Organization for Economic Co-Operation and Development (OECD) has noted, "persistent slow growth will continue to dampen employment prospects, while the employment intensity of growth has also been weakened in many countries."[footnoteRef:43] The economic instability present all around the world in the wake of the 2008 crisis has not been reduced through central banking initiatives such as Quantitative Easing. The factors surrounding the present loss of jobs in America have as much to do with financial and credit issues as they do with corporate social responsibility and the lack of oversight in labor conditions and regulatory frameworks for organizations like the ILO. The problems that persist in the ILO can be seen, in fact, to be corollaries of the problems that exist in the economies of the world's developed nations -- a corruption from within that is sustained by governmental institutions supported by corporations already engaged in practices of avoiding corporate social responsibility policies.[footnoteRef:44] [43: G20 Labor Markets: Outlook, Key Challenges and Policy Responses. OECD (2014), https://www.oecd.org/g20/topics/employment-and-social-policy/G20-labour-markets-outlook-key-challenges-and-policy-responses.pdf] [44: Sengenberg, supra note 42.]

Strengthening the ILO could indirectly spur corporations to focus more on American job creation, however, if approached in the spirit of corporate social responsibility policies.[footnoteRef:45] While currently the WTO "defers to the ILO to set international labor standards" this does not mean that any move towards strengthening the ILO would necessarily result in an effective addressing of labor conditions violations.[footnoteRef:46] De Wet similarly indicates that while strengthening the ILO may be ideal in theory, the practice is unlikely to be productive in effect, noting that "the desire to establish links between international trade and labor standards is as old as the standards themselves" and yet nothing has come of them yet.[footnoteRef:47] Like the ideologically motivated border adjustment tax, the actual circumstances in which policies are situated are fluid and without the moral constraints that ideologically-minded leaders typically place on applications. The context in which the ILO exists is one in which the exploitation of labor is a matter of fact -- and, moreover, a matter that is pursued by corporations seeking to profit from cheap foreign labor, as noted by Benton.[footnoteRef:48] [45: P. Castka, C Bamber, J Sharp, Implementing Effective Corporate Social Responsibility and Corporate Governance: A Framework. UK: British Standards Institution (2013).] [46: Brittany Baclawski, NOTE: RE-THINKING THE WTO'S RELATIONSHIP TO INTERNATIONAL LABOR STANDARDS: IS IT FINALLY TIME FOR A GLOBAL APPROACH?, 48 Georgetown Journal of International Law 235 (2016).] [47: Erika de Wet, Labor Standards in the Globalized Economy, 17 Human Rights Quarterly 443 (1995).] [48: Benton, supra note 41.]

C. Re-Negotiating Trade Deals to Reduce Trade Deficits

Robert Scott of the Economic Policy Institute has pointed out that "since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs."[footnoteRef:49] The solution to the problem of the displacement of jobs is, therefore, to address the source -- the trade agreements that have encouraged offshoring in the first place. Such an approach, theoretically, is more impactful than a border adjustment tax because it deals directly with the issue at hand -- the problem that has caused jobs to flee overseas: "reviving U.S. manufacturing requires eliminating a jobs-destroying U.S. trade deficit in goods by ending currency manipulation and investing in a series of coordinated manufacturing policies."[footnoteRef:50] Reducing trade deficits by way of re-negotiating trade deals would have a positive impact on job creation in America, according to the Economic Policy Institute. [49: Robert Scott, The high price of 'free' trade: NAFTA's failure has cost the United States jobs across the nation, Economic Policy Institute (2003), http://www.epi.org/publication/briefingpapers_bp147/ (last visited Apr 24, 2017).] [50: Robert Scott, Helene Jorgensen, Douglass Hall, Reducing U.S. trade deficits will generate a manufacturing-based recovery for the United States and Ohio: Ending currency manipulation by China and others is the place to start, Economic Policy Institute (2003), http://www.epi.org/publication/bp351-trade-deficit-currency-manipulation/ (last visited Apr 24, 2017).]

However, as the UK is currently experiencing in the wake of Brexit, re-negotiating trade deals comes with its share of pros and cons. While on the one hand, there is the incentive to develop new terms of trade with WTO members that could be more beneficial to the outsider nation, on the other hand the prospect of securing definitive deals may be exasperatingly slow and in the long run ineffective as other countries maneuver into the gap left behind by the country's exit so as to recalibrate. Trump has made re-negotiating NAFTA one of his main objectives for the Administration and doing so could readily address issues that impact the American worker, such as the readiness of corporations to seek shelter in Mexico for the production of parts. GATT did not in the end support European job growth, just as NAFTA has not supported American job growth -- thus re-negotiating each would suggest a positive effect for the domestic laborer.[footnoteRef:51] Hemispheric free trade agreements can be used to promote workers' rights which can in turn lead to job stability and growth as well as to the expansion of the middle class,[footnoteRef:52] which in America would undoubtedly benefit the Trump Administration's base. However, there is no guarantee that labor unions developed under free trade agreements actually benefit laborers or lead to job creation.[footnoteRef:53] [51: Carol Stump, Free Trade Area of the Americas (FTAA), 4 D.C.L. J. INT'L L. & PRAC. 155 (1995).] [52: Steve Charnovit, Fair Labor Standards and International Trade, 20 J. WORLD TRADE L. 70-72 (1986).] [53: Frederick Englehart, Withered Giants: Mexican and U.S. Organized Labor and the North American Agreement on Labor Cooperation, 29 CASE W. RES. J. INT'L. L. 321, 325-27 (1997).]

One of the downsides of current free trade deals within the WTO are that the organization obliges countries to refrain from applying safeguards on products for "more than four years" and that such safeguards "may only be renewed once for an equivalent period."[footnoteRef:54] The "America First" policy of the Trump Administration can find little footing in such an organization, which posits the question of whether the free trade deals that the U.S. has been part of in the past are really effective in supporting American interests or if they rather serve the interests of corporations who are putting profits before people and demonstrating little regard for corporate social responsibility. [54: Bernard Hoekman, World Trade Organization (WTO): Law, Economics, and Politics, Routledge, New York (2016), 52.]

In the end, the re-negotiating of trade deals to reduce trade deficits and grow American jobs presents itself as a suitable alternative to the border tax in that it addresses the issue of American labor head-on without any roundabout strategy or application of an anti-globalist ideology -- which has been shown to be at the heart of the GOP tax proposal, as championed by Auerbach and Brady.[footnoteRef:55] The promise to re-negotiate trade deals, moreover, made Trump look strong among his base of supporters and to follow through on this promise would be a signal of confidence, which could further promote the interests of businesses looking to see whether the Trump Administration is serious about reducing corporate taxes and looking out for the interests of the American working class. While there may be disadvantages to ending NAFTA altogether, such as the instability that would result in trade, not to mention the WTO's role in containing the fallout, the positive impact on job creation in America could be considerable. [55: Lohr, supra note 34.]

Still, just as with the border adjustment tax, there is no guarantee that the end result would truly be favorable for American workers -- especially if those at the negotiating table are unable to agree on mutually beneficial terms. If, as the Economic Policy Institute has shown, the goal of NAFTA was to give U.S. corporations access to cheaper foreign labor,[footnoteRef:56] ending the agreement is likely to find considerable pushback from the powerful lobbies that have close ties with Congress. These lobbies are present now and are effectively seen in the way opposition to Trump's border adjustment tax proposal is bandied around in the public forum. The fact that lobbies have such tremendous influence in American politics, if not in the global political spectrum, indicates that whatever approach is taken towards addressing the issue of job creation in America, the approach will have to begin at a domestic level with a view towards adopting a policy of corporate social responsibility as a guiding force in whatever legislative aim is pursued. [56: Scott, supra note 49.]

IV. The Best Alternative

The alternative to the border adjustment tax proposal that best presents itself is the application of ethical consumption laws with regard to adopting tax legislation that provides incentives to consumers who seek to "buy American." While this alternative is not complete in and of itself in the sense that it covers all the shortfalls that would attend any one single initiative, it does appear to be the least damaging in terms of a likely or even possible albeit unintended negative impact on American businesses and job growth.

A. In Light of Gains for American Workers

Consumer activism has been shown to be a significant movement in and of itself in recent years, as consumers have access to more information about a corporation than ever before thanks to the Digital Era and the rise of the Internet.[footnoteRef:57] The gains for American workers who stand to benefit from consumer activism can be considerably significant, especially if there is a legislative or tax incentive to help drive the market for American-made products. Section 199 of the Internal Revenue Code already rewards domestic manufacturers for using goods "manufactured, produced, grown or extracted by the taxpayer in whole or in significant part within the United States."[footnoteRef:58] A tax law that also rewards the consumer of American-made products would help to create a market for these same products -- and when a market is created, companies tend to flock to it, bringing jobs with them.[footnoteRef:59] This same law could apply to software developed in the nation, which would greatly be to the advantage of job creation in the information and communication technologies sector, which the World Bank has shown is a driving industry in today's digital era.[footnoteRef:60] For American workers, an ethical consumption law approach is the best alternative to the border tax because it actually focuses directly on the American consumer and provides an incentive to "buy American." [57: R. Harrison, The Ethical Consumer, SAGE, London (2005).] [58: U.S. Treasury, Tax Code, Sec. 199, https://www.treasury.gov/press-center/press-releases/Documents/notice200514js2200.pdf] [59: Jerry Davis, Capital Markets and Job Creation in the 21st Century, Center for Effective Public Management at Brookings (2015), https://www.brookings.edu/wp-content/uploads/2016/07/capital_markets.pdf] [60: ICTs are creating new jobs and making labor markets more innovative, inclusive, and global -- World Bank study, World Bank (2013), http://www.worldbank.org/en/news/press-release/2013/09/10/icts-are-creating-new-jobs-and-making-labor-markets-more-innovative-inclusive-and-global-world-bank-study]

B. For the Economy

The economy likewise stands to benefit from such a stimulus because it is directly rewarding nationalist aims and reducing the tax burden of middle class Americans while promoting consumption of American-made products. Ethical consumption laws also correspond with the need of government and corporation to show more regard for social responsibility, which can go far in promoting "a less degenerate capitalism" and in effect benefit the economy far more than the current system which seeks primarily to exploit cheap foreign labor for corporate profit.[footnoteRef:61] Stimulating the economy is undoubtedly a correlating aim of the Trump Administration's America-First themed policy and adopting an ethical consumption approach to the issue of job creation is a positive, constructive and rewarding program on numerous levels. [61: P. Ireland, Corporate governance, stakeholding, and the Company: Towards a Less Degenerate Capitalism, 23 J. Law Soc 287 (1996).]

1. Tax Revenues

With regard to tax revenues, this policy has some substantial drawback, as it provides tax relief for consumers of American-made products but does nothing to address the issue of tax revenue for the federal government. Without raising taxes somewhere else, this policy could force the government to reduce spending in other areas -- which would also play in the Trump Administration's campaign promise to reduce the size of the federal government and cut spending. With so much of tax revenue spent on funding wars in the Middle East, slashing spending by pulling out of such conflicts, as Trump proposed numerous times on the campaign rode would align with the spirit of ethical consumption and promote an ethical and socially responsible outlook on the part of the U.S. government with regard to foreign policy and interventionism for once.

Still, this alternative solution will be most problematic in terms of providing substantial tax revenues as it essentially consists of a tax break. Inevitably, it is more than likely that a punitive tax measure will need to be utilized at some point in conjunction with the ethical consumption laws approach, as not all entities will likely be responsive.

2. Political Feasibility

As Jennifer Hill states, corporate governance has become an important matter in international trends with respect to government regulation: the intimate ties between corporate social responsibility and governmental law has been manifested in the "rise of the institutional investment" -- a vehicle which requires stability and predictability.[footnoteRef:62] The political feasibility of the ethical consumption law via the tax incentive for consumers of American-made products is considerably high given the demand among stakeholders for stability in the social, economic and political sectors. If businesses stand to benefit positively from the institution of tax legislation that supports the American consumer's purchasing of American-made products, the political feasibility of such a law is amply apparent. [62: Jennifer Hill, Visions and Revisions of the Shareholder, 48 American J. of Comparative Law 39 (2000).]

The ethical consumption approach is politically feasible -- but because many other alternatives are also politically feasible, the objective reality is such that the greatest possible outcome is that which has been lobbied for most. The extent to which the ethical consumption laws approach is likely to be lobbied for is low, as the nature of business in the modern era is somewhat divorced from social responsibility.

C. International Trade

In terms of international trade, the ethical consumption law does little to effect any consequence, either negative or positive. It would not be seen as a tariff as it is not punitively directed towards imports, though there may be some trade partners who view it as protectionist, which could lead to the possibility of WTO retaliation. However, this is less likely than with a border adjustment tax, which is a clear strike at imports and an obvious economic weapon against the WTO in general. Nonetheless, as Banerjee indicates, the most likely scenario is that no WTO member is going to respond favorably to any sort of economic nationalist strategy adopted by the U.S.[footnoteRef:63] [63: S. Banerjee, Corporate Social Responsibility: The Good, the Bad and the Ugly, 34 Critical Sociology 51 (2008).]

1. WTO Compliance

Ethical consumption laws would not only support the WTO's positive development overall but would also answer the call of those surveyed for greater corporate social responsibility: "A global survey, released in May 2009 by the Fairtrade Labeling Organisations, showed that shoppers increasingly expect companies to be more accountable and fair in dealing with producers in developing countries. Among those surveyed, almost three quarters of shoppers believe it is not enough for companies to do no harm, but that they should actively support community development."[footnoteRef:64] The ethical consumption laws could be seen as protectionist but could also be communicated in a manner that is promoting of corporate social responsibility. [64: Ethical Consumerism: A Guide for Trade Unions, Department of Foreign Affairs, Irish Aid (2015), http://www.ictu.ie/download/pdf/ethical_consumer_guide_ictu.pdf]

Yet, with the personification of the corporation that has transpired over the past few decades, there has now emerged a need and sense among diverse communities for that personhood to have more of the humane qualities found in real human beings while lacking in the more material character of the corporation. For this reason, the rise of the corporate social responsibility policy among various businesses has received much attention as it addresses the needs of communities to have businesses among them that seek to give back to those same communities that support them and enable them to prosper. However, as Banerjee notes, the WTO is still inherently business-minded and lacks the sense of corporate social responsibility that communities are seeking: indeed, "national environmental legislation, safety regulations, social welfare nets, ethical buying policies are all examples of "unfair trade practices" according to recent WTO rulings"[footnoteRef:65] -- which suggests that ethical consumption laws could in fact become an issue for WTO members after all. [65: S. Banerjee, Corporate Social Responsibility: The Good, the Bad and the Ugly, 34 Critical Sociology 51 (2008).]

2. Workers' Labor Conditions Overseas

In terms of addressing the issue of workers' labor conditions overseas, the ethical consumption law in the context of legislation incentivizing American-made consumption does little. However, it could be used to raise awareness about labor conditions overseas as part of a greater initiative on behalf of corporations and governments to manufacture in ethically-sound conditions and societies where exploitation is non-existent.[footnoteRef:66] Still, this option does not directly address any type of ILO governance or WTO administrative assistance in overseeing workers' conditions overseas. It does, rather, indirectly impact overseas workers' labor conditions in that if more consumers turn towards buying domestically-produced products as a result, working conditions overseas could go one of two ways: either drastically worse through neglect or better through intervention inspired by a spirit of corporate social responsibility. [66: Ethical Consumerism, supra note 63.]

The net effect of the ethical consumption law approach would most likely be similar to the net effect of the border adjustment tax on working conditions overseas: if corporations are drawn through financial incentive to base manufacturing in the States, jobs overseas will be depleted and working conditions will essentially become obsolete if entire hubs are shut down. This is one of the questionable and uncertain aspects of the ethical consumption solution but, as it is an imperfect answer, it is bound to come up short in some departments.

3. On Trade Wars

With regard to trade wars, the ethical consumption laws approach is unlikely to cause any major outbreak of trade wars unless the protectionist viewpoint is adopted by member states who look on the such laws as an attack on their own business interests. It may be unavoidable, as Banerjee points out, that the WTO views any type of economic nationalism as a threat -- for, inevitably, "despite their emancipatory rhetoric, discourses of corporate citizenship, social responsibility and sustainability are defined by narrow business interests and serve to curtail interests of external stakeholders."[footnoteRef:67] The prospect, therefore, of arriving at a solution to the problem of job creation in the U.S. while avoiding conflict with trade partners and/or countries that depend on American corporations for employment may seem more unlikely and far off than possible or near at hand. A partial solution may help in a limited, domestic context for a time but the conflicts that have arisen as a result of globalization have never been resolved and unlikely to be "fixed" with any one single legislative act or reform. Instead, a combination of actions, movements, reforms and initiatives are more than likely needed to address the numerous issues underlying and surrounding the jobs matter. [67: Banerjee, supra note 64.]

Conclusion

The GOP's 2016 border adjustment tax proposal is the manifestation of a policy of economic nationalism championed by men like Auerbach, Brady and Trump -- and while the ramifications of the tax may be unclear, the idea behind it is not: it is meant to serve the interests of America first by supporting job creation at home through taxation on companies that offshore. The end goal may not, however, spark the growth in domestic business that is desired, as many small and large companies depend upon manufacturing abroad. As an alternative solution to the problem of job creation in the U.S. that takes a similar consumer-based approach to the issue is the ethical consumption laws tactic. Unlike the border tax, it is non-punitive and does not punish importers: instead it rewards consumers who purchase American-made products and thus encourages domestic production. While this solution may not be a catch-all that addresses every conceivable negative factor impacting trade and business today, it does offer at least a positive partial solution to the issue of jobs creation in America. However, any policy that promotes economic nationalism is more than likely to be met with resistance from member states of the WTO. In order to achieve the aims of the Trump Administration and work towards a solution that addresses the domestic needs of Americans, a diverse and multi-front initiative will be needed.