Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Terrence P. Stewart calls for balanced trade in Senate testimony
Terence P. Stewart of the Washington-based international law firm Stewart and Stewart called for balanced trade agreements in written testimony to the Senate Finance Committee. I have not yet read his testimony, but I did read his law firm's press release about it.
The title of the press release cites a disturbing fact: "United States Transforms from a Nation with Balanced Trade to a Country that Imports Approximately 50 Percent More than it Exports." The press release elaborates:
The press release recommends the following provisions to balanced trade:
It urges that any agreement "demand tools and triggers which permit much more automatic enforcement mechanisms." Unfortunately, the actual tools and enforcement mechanisms that Stuart suggests would likely fail to achieve trade balance. He would target currency manipulations and discrimination against imports by state-owned enterprises. But neither option is enforceable:
It is impossible to stop governments from manipulating trade if they want to run trade surpluses. It's sort of like campaign finance reform. You can make rules, but campaign contributors will find their ways around them. Past agreements have failed because they have simply focused upon reducing tariffs, so governments, instead, manipulated currencies and put up non-tariff barriers.
In contrast to Stewart, we have proposed an effective way to balance trade (see Fast Track to a Bad Deal). Like Stewart, we demand an automatic trigger in any new trade agreement. In our proposal the trade-balancing Scaled Tariff would be triggered whenever the U.S. is running a trade deficit with a country that also has a trade surplus with the world.
Stewart and Stewart is a Washington-based international law firm with strong Republican connections. If Romney had been elected, he would probably have listened to their advice. They are addressing the right problem -- how to enact agreements that will lead to balanced trade. Unfortunately, they have not yet come up with an effective solution. We have.
Journal of Economic Literature:
Atlantic Economic Journal: