Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
New Scaled Tariff Article Published
Jesse Richman, 11/15/2011
Our article The Scaled Tariff: A Mechanism for Combating Mercantilism and Producing Balanced Trade has just been published by the peer-reviewed Journal of International Law and Trade Policy.
The abstract is:
In this article we first discuss whether or not the modern form of mercantilism that contributes to the trade deficit of the United States and other countries is a self-destructive and thus self-correcting strategy. We argue that it is not self-correcting. Then we discuss mechanisms that a trade-deficit country could utilize in order to produce balanced trade. The mechanisms differ in six respects, with the Scaled Tariff excelling in each.
The entire article can be downloaded at the following website: http://www.esteyjournal.com/j_pdfs/richman12-2.pdf
Comment by Ted Birnbaum, 11/17/2011:
I will read your article and your Trading Away our Future soon but first I have a request:.
I hope your website will endorse Buddy Roemer for President...He is the only credible candidate that will confront and correct the suicidal trade policies that have destroyed most consumer product manufacturing in the USA and the BIGGEST reason for our depression. He's also the only one who set a contribution limit of $100 and pledged not to accept any PAC or SuperPac money, making himself Free to Lead if elected.
Check out Buddy at http://www.buddyroemer.com/
It dismays me that some people like libertarians comfort themselves with the notion...that Free Trade abuse is ok, because it will eventually correct itself. As your article said...it is not self correcting...I read that much...and it is asinine to comfort oneself with that thought...we should suffer for decades first waiting for the self correction...NUTS ! The centerpiece of China's trade abuse is currency manipulation and one that voids the free market self correction mechanism.
Comment by Ted Birnbaum, 11/21/2011:
The article is written from strictly an economic point of view which might produce good economic results but be unjust from the Libertarian's point of view. From the viewpoint of Wholistic Libertarianism, policy must respect the Liberty , Equality Before the Law (EBTL) and Nationalism principles. That should be the framework before any solution can be investigated. This should not alarm advocates of Balanced Trade. Here is the framework:
1> While consumers should generally have freedom to buy whatever product they wish unimpeded by government, whatever crosses the national borders must be subject to the scrutiny and control of the Federal government. Likewise, domestic exporters should be subject to this scrutiny and control.
2>Whenever imports are allowed to be sold here, the Federal government incurs an obligation to extend the principle of EBTL to foreign producers and their government to insure a level playing field for domestic producers.
3>Domestic consumers are also entitled to EBTL protection. That is domestic consumers should not suffer to unjustly enrich domestic producers.
4> An exception can be made to EBTL protections for military products for the sake of national security.
Buffett Import Certificate Plan:
I can see a number of scenarios where his plan is unjust: What if we already had balanced trade and none of our trade partners practiced unfair trade. What if all our imports were in noncompetitive products....those products that, there are no domestic producers for? Our exporters would benefit while the importers would suffer and probably consumers of the imported products, too....all withOUT any justification coming from a non level playing field. This violates EBTL for the consumers. And why should the exporters of products, unaffected by unfair foreign competition, be enriched. While this plan might benefit the USA in its current condition, it is NOT ideal and might in the future, establish a privileged group that would impoverish other Americans. One has to wonder too, did Buffett provide any disclosure how Berkshire Hathaway would suffer or benefit?
Targeted Import Certificate Plan:
It is much better than the previous Buffett Plan. Especially considering the phaseout of the certificate requirement as balanced trade is approached. However what about noncompetitive products exported by the targeted country. Consumers of those products would suffer unnecessarily. That may not be a big point because there are probably few noncompetitive products. Here is something more significant: the Federal government would benefit from the auctioning of the certificates instead of the benefit going directly to the domestic producer who suffered from unfair foreign competition...and we all know how government can waste any money it receives.
Currency Rate Reform Bills:
It's practicality would depend upon the ability of the U.S. to determine the amount of Chinese government sales of yuan for dollars.
Per the article the scaled tariff only remains in force if BOTH the overall (all countries) U.S. current account shows a trade deficit AND an unfair trading country (China) has a significant trading surplus with us. The use of the overall U.S. current account is good.....if China were to use all of its huge trade surplus to buy goods from other nations which in turn then bought American products, there would be no problem. Instead China uses a good part of its U.S. surplus to manipulate the currency exchange rates and consequently maintain that surplus. There are other unfair trading practices....like child or prison labor or environmental abuse. These may be hard to measure and consequently hard to determine the proper level of retalitory action. Besides it is probable that long term trade imbalances can only only be maintained by currency manipulation. So the initial focus of U.S. trade policy should be on punishing currency manipulation. The following article language is unclear to me: "rebate Scaled Tariff payments to U.S. exporters to the extent that they were paid on inputs to those particular exports." which exporters?? actually the rebates ought to be directed to domestic producers of goods that suffer from unfair competition by the unfair trading country...say China. Whether they export those goods to China (unlikely) or elsewhere should be irrelevant. The level of rebates should be proportional to the value of their production of the affected products. The affected products can be identified by the sale of Chinese imports. If U.S. producers once existed but currently don't, the money might be used to help unemployed workers in the affected industries and also used for no interest loans to finance new U.S. production. Since affected products have to be identified anyways, it might be good to alter the article statement: "the duty rate is applied across the board to all goods arriving from that country". Instead let a duty waiver be applied to noncompetitive products for which there never was U.S. production. If affected industries have to be identified and rebates made to them, there will be administrative costs, contrary to the article. If China has trade surpluses with other countries, besides the USA and that trade is conducted in dollars, China may have to engage in a lot more currency manipulation than just its American trade surplus would indicate. So it might be better to use China's total trade surplus number as a base for determining the tariff instead of just its American surplus. On the other hand if China didn't engage in currency manipulation, but used all of its U.S. trade surplus to buy...say oil from Saudi Arabia, the Richman formula would be unfair to China. And if Saudi Arabia had no trade with the USA but engaged in currency manipulation...so as to maintain a high price for it oil in terms of the Saudi currency, it would not be subject to the Richman tariff...because it had no direct American trade. So there may be scenarios where the Richman scale tariff works poorly.
No Interest Supplement:
Here is a plan that could supplement the scaled tariff or act by itself to oppose currency manipulation, especially as in the case above where the currency manipulator has no significant trade with the USA.
As with the Currency Reform Bill the Supplement plan would require us to identify foreign purchases of American debt securities...certainly U.S. Treasuries. It can be assumed that foreign governments would definitely prefer to hold dollar denominated interest generating securities rather than just U.S. currency. Also the Supplement plan would only work if our Federal government was will willing to cut its deficit spending....on the other hand it would be forced to do that by the Supplement plan. If a trade surplus country (surplus with the world) is deemed to accumulate U.S. debt securities at a rate corresponding to its world trade surplus, it would forfeit any/ some interest on newly purchased American debt securities. All bond dealers would be required to identify foreign owned accounts.
Questions: Are there legitimate reasons for a country to accumulate U.S. debt securities or U.S. dollars as foreign currency reserves....to provide dollars in years when the country runs a trade deficit and dollars are scarce?? What is Canada doing? per http://www.guardian.co.uk/news/datablog/2011/jan/18/us-federal-deficit-china-america-debt Canada's holding of U.S. Treasuries has risen from 14 to 125.2 billion dollars in the period 10/2008 to 10/2010. They also have a significant trade surplus with the USA, but not always with the whole world ( $4.6 billion deficit (Canadian?) in 2009) see http://www.statcan.gc.ca/pub/11-402-x/2010000/chap/international/international-eng.htm