Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Some criticisms of our Scaled Tariff proposal
On Monday (July 19) we published our Scaled Tariff proposal at Enter Stage Right (The Scaled Tariff would Resuscitate the U.S. Economy). Essentially we were proposing a tariff upon the countries that have been practicing mercantilism, as evident from their foreign exchange accumulations. The tariff rate would go up when our trade deficit with that country goes up, go down when our trade deficit with that country goes down, and disappear when trade approaches balance.
There have been 5 criticisms of our proposal in the discussion on the Enter State Right website. Here are those criticisms, and my responses:
1. A reader identifying himself as levin70, commented:
The only problem with your little analysis is that history has proven quite convincingly that trade wars happen to create the real shooty shooty kind.
Here is my reply:
Levin70, Actually, doing nothing may make war inevitable, not the other way around. As we continue to let China have our remaining industries, we grow weaker while the Chinese grow stronger. Eventually they will challenge us.
2. Michael Clark commented:
Forget tariffs. Americans control what they buy. All we have to do is to simply look at the box, wrapper, packaging, etc and when it says "Made in China", "Malyasia", "Indonesia", etc put it back down and buy something similar that says "Made in USA". That is the only effective way of decreasing imports.
Saying "no" is a good idea. But it would not get the Chinese to buy our products. The scaled tariff would accomplish that.
3. Robert Loftus commented:
...Instead of a scaled tariff, which could anger a lot of our trading partners,I would prefer a special tax on all US corporations aboard.
The problem with a special tax on US corporations on profits earned abroad is that it causes them to move their corporate headquarters out of the country, not just their factories.
4. Paul Hanly commented:
And what about circular economic flows.
The circular trade that you are describing is exactly what occurs when countries are not building up their currency reserves. Countries build up their currency reserves so that, overall, they can export more than they import.
5. ironer05 commented:
"If they were to react by rapidly selling off their U.S. Treasury bonds, we could freeze their U.S. holdings, temporarily" -- and, once the US government had so clearly demonstrated the "full faith and credit" it supports its debts with to be worth essentially nothing when the creditors are so silly as to be foreigners, then -- after of course confiscating every penny of US-owned investment in their nations in partial compensation -- what would happen next?
As you can see, I had ready replies to all of the challenges to our Scaled Tariff proposal. It remains the only WTO-compliant, IMF-compliant, and budget balancing method for resuscitating the U.S. economy that is currently on the table.
Comment by HI, 8/5/2010:
Could you explain why your proposal is WTO compliant? I read the beginning of the WTO doc linked from your proposal, and that talks only about temporary tariffs when countries face balance of payment problems. Admittedly I didn't go through the whole WTO document, which is quite large. Could you point to specific article(s) that support your thesis? I agree with the gist of your proposal by the way. I'd go so far as looking into creating a new, post-WTO organization together with other developed economies if the current WTO structure doesn't allow honest countries to deal with the cheaters. But I'm not quite convinced that the proposal is WTO compliant.
Comment by Joseph Hitselberger, 8/28/2011:
Again, it's an extremely good idea, something that I was able to work out separately from you. The negotiations with other countries in the world theoretically should go smoothly. The U.S. is not alone in it's problem with the trade deficit and the accompanying federal government deficit. Other countries that are playing fair and not gaming their currencies are suffering just as much as the U.S., if not more,
A real problem is getting the American politicians to understand the intricacies of American economics. Many are lawyers with little training or understanding of economics. They know how to talk well enough to make voters distinguish their ideologies, but this distinction is not worth much in terms of technical understanding of economics (sorry to say).
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