I advocate protectionism. But one standard criticism is that this would just result in politically connected industries getting tariffs raised on the products they produce. This would corrupt our economy, force consumers to pay higher prices, and serve no legitimate economic logic.
Sounds logical enough. As the 19th-century American radical economist Henry George put it, "introducing a tariff bill into a congress or parliament is like throwing a banana into a cage of monkeys."
So let's just cut that Gordian knot right now: what America needs isn't some complicated system of tariffs, but a flat tariff, the same on every imported good and service.
The exact level at which to set the tariff is an open question. For the sake of argument, we can take 30% as a hypothetical figure, because it is in the historic range of U.S. tariffs and is close to the net pressure on America's trade balance due to foreign nations' VAT or value-added taxes. The right level will not be something trivial, like 2%, or prohibitive, like 150%. But there is no reason it shouldn't be 25 or 35%, and this flexibility will provide wiggle room for the compromises needed to get a tariff through Congress.
A flat tariff would be imperfect, but it would be infinitely better than free trade and relatively politics-proof. Above all, it is a policy people are unlikely to support for the wrong reasons (AKA producer special interests) because it does not single out any specific industries for protection. It would thus maximize the incentive for voters and Congress to evaluate protectionism in terms of whether it would benefit the country as a whole--which is precisely the question they should be asking.
A flat tariff would also create the right balance of special-interest pressures: some interests would favor a higher tariff, others a lower one. This is a prerequisite for fruitful debate, as it means both views will find institutional homes and political patrons.
A flat tariff's uniformity across industries would avoid the problems that occur when upstream but not downstream industries get tariff protection. For example, if steel-consuming industries do not get a tariff when steel gets one, they will become disadvantaged relative to their foreign competitors by the higher cost of American-made steel. And why should steelworkers be protected from foreign competition at the price of forcing everyone else to pay more for goods containing steel? The only reasonable solution is that steelworkers should pay a tariff-protected price for the goods they buy, too. This logic ultimately means that all goods should be subject to the same tariff.
A flat tariff would have other benefits, too. For one thing, it would avoid the danger of getting stuck with a tariff policy that made sense when it was adopted but gradually became an outdated captive of special interests over time, always a risk with tariffs. Although it is a fixed policy, it would not be fixed in its effects, but would automatically adapt to the evolution of industries over time. In 1900, it would have protected the American garment industry from foreign (then mostly European) competition. It wouldn't do that today. As which industries are good industries changes over time, which industries it protects will change accordingly.
A flat tariff would trigger the relocation back to the U.S. of the right industries. For example, a 30% tariff would not cause the relocation of the apparel industry back to the U.S. from abroad. The difference between domestic and foreign labor costs is simply too large for a 30% premium to tip the balance in America's favor in an industry based on semi-skilled labor. But a 30% tariff quite likely would cause the relocation of high-tech manufacturing like semiconductors. This is key, as these industries are precisely the ones we should want to relocate. These capital-intensive, knowledge-intensive industries support high wages and have bright technological futures.
Another objection to a tariff is that if any industry is granted protection, it will just slumber behind it. Some industries indeed long to shut out foreign competition, reach a lazy detente with domestic rivals, then coast along with high profitability and low innovation. But a flat tariff resists this danger because it does not hand out a blank check of protection: it gives a certain percentage and no more. Any industry that cannot get its costs within striking distance of its foreign competitors will not be saved by it. This discipline, although unpleasant for the losers, is the price we must pay for having a tariff that actually works, rather than one which eliminates the discipline of foreign competition entirely and protects all industries indiscriminately.
The political bickering that a tariff varying by industry would cause also militates in favor of a flat tariff. The inability of different industries to coalesce around a common tariff proposal sabotaged efforts to achieve a tariff in 1972-74, but this is a policy around which the greatest possible number of industries can unite.
A flat tariff is also more ideologically palatable than most other tariff solutions. Above all, it respects the free market by leaving all specific decisions about which industries a tariff will favor up to the marketplace. It will thus be considerably easier for ideological devotees of free markets to swallow than some scheme in which tariffs are set by a federal agency, leading to that nightmare of free-marketeers: government picking winners. In the real world, zero government intervention in the economy is impossible, so the issue for believers in economic freedom and small government is to design policies that work through the smallest possible, carefully chosen interventions. This is precisely what the natural strategic tariff offers because it operates at the periphery of our economy, leaving most of its internal mechanisms untouched. In fact, the more wisely we control our economic border, the less we will probably need to control the inside of our economy.
(One final note: a flat tariff would need to include a rebate on reexported goods in order to avoid handicapping American exporters. This would include both goods that are transshipped without modification and goods that are exported after value-added processing. The latter includes everything from chocolate made from imported cocoa to computers made from imported chips. This is implied by its intrinsic logic as a tax on domestic consumption. Other nations follow the same logic in rebating VAT to their exporters.)
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Is there any good reason a pair of socks needs to be brought from the other side of the planet? I mean besides someone who wants to pocket the $5.50 they're not paying the Chinese/Bangladeshi/Pakastani worker? This is utter foolishness for the sake of greed.
If we want to keep a middle class, we must fight back against the corporatist and their lies, like free trade is good for us all. Obviously it is not. Bring on the tariffs; protect America from it's internal enemies.
This is most likely what would happen:
-US slaps a 25% Tariff on all Chinese imports into US.
-China devalues currency by 25% more.
-US raises Tariff to 50% on China.
-China devalues currency by 50%.
With considerably less exports to the US, China floods European/Australian/Canadian/South African/Russian markets with goods at a phenomenal rate. Europe/Australia/Canada/South Africa/Russia face a dilemma now; either suffer total de-industrialization or slap a tariff on China.
-Europe/Australia/Canada/South Africa/Russia/etc slaps a Tariff on China.
That's your trade war.
If there is anything other than income taxes that riles one of these people, it is the thought that somewhere there is a person whose path and philosophy differ considerably from their own -- a person that they perceive as far lesser than themselves -- but who commands a decent income that in their minds unfairly reduces their own.
It is, I suppose, a very human need to have somebody to be better than, somebody to be above, and this we have fought for ages, yet still have not suppressed it much. It is kings versus serfs. It is the aristocracy versus the people. It is the old fashioned war of management and labor. The one side imagines that manufacturing is mindless work for unsophisticated brutes, the other side knows better.
It seems that there is nothing we have tried -- not religion, patriotism, democracy, nor reason -- that can make us all stand shoulder to shoulder and grant one another dignity.
The Internet surely distorts economic theory and implementation, because there is no meaningful measure of value imposed upon the information that flows across borders. I cannot imagine a scheme that corrects this. Consider, for instance, the drawings and processes and documents and formulas and custom software that are shared with foreign entities, of nearly priceless value, an accumulation of generations of knowledge and effort, yet counting for nothing in trade calculations. Nondisclosure agreements are meaningless once the recipients have internalized what they learned -- they have jump started their futures and upset the balance. Whether all of that is captured in a fee (never shared with the designers, engineers, chemists, laborers, ...) is irrelevant, because domestic consumers have lost the means of directing their dollars toward the originators whose ingenuity was co-opted or to domestic beneficiaries. A tariff does not help. Similarly, education is exported without assigning value when the foreign student returns home, but no service that he provides via the Internet is subject to tariff to protect his peer hoping to provide the same service here. I think we opened Pandora's box.
Of course a foreign country like, I dunno, China could simply export everything to Japan and Japan could export to the US bypassing the Tariff. But then we slap a higher Tariff on Japan then if they are so inclined towards treachery.
Rather than training their students to compete at the highest levels in the new technologies, the US should under-educate their population and impose tariffs on imported goods so that their citizens will be forced to pay more for goods they are unable to produce themselves. And in the process, start an international trade war.
Good plan I just wonder why nobody thought of it before.
The fact is that when Americans are properly educated they can compete effectively with any other country. It is the abandonment of the exceptional and universal education of America's children that is the root of America's trade problems, not a lack of universal tariffs.
The problem is the overhead dumped on the cost of workers here by the outrageous cost of American Management, and the games they play with shareholders equity to maximize their bonuses.
And Americans should vote for Free Traders because...? Oh I get it, Americans enjoy being insulted and talked down to.
I use the term "populist" in the most general sense: as a political phenomenon, and especially as such a phenomenon within capitalism. So, I use the term to apply to other countries, as well as to other periods of history.
Populism has a nationalist character. Once the American Revolution spoiled the economic relations between England and its wayward colonies, a new nationalist point of view had to develop in the United States. Hamilton's policies probably shouldn't be called populist, because he was solidly an elitist and a recovering royalist; but his policies were protectionist and nationalist--in line with populist thinking (In case you're wondering, I know you didn't refer to Hamilton's policies as populist).
Since the beginning of the current economic crisis, there has been much commentary about the growing populism across the globe. Sometimes this populism is linked to mercantilism. In my first comment, I was thinking about said commentary. In the same context, phrases such as "the new protectionism" appear frequently in the press.
On HP, it's popular for the regulars to refer to themselves as "progressives." I would argue that these "progressives" are populists--that is, populists in the phenomenal sense of the word. In other words, they are simply the passive conduits for particular kinds of ideological thinking.
1) A preference for the small over the large, in a business sense. It's popular for HP progressives to say the "we don't have capitalism now, we have corporatism."
2) Populism tends to be underconsumptionist in its economic thinking.
3) Populists tend to prefer industrialism over finance, and it's common to embroil the latter in some kind of conspiracy theory.
4) Regarding the status of the State in the economy: Populists want to break its links to large businesses, setting the government free to do what's best for the people.
Note: I developed the above 4 characteristics of populism from a Science and Society article in the Winter edition of 1992-1993 (Vol. 56, No 4).
If they want a lower tariff then all they have to do is lower their own tariff on our goods.
But now most everything is made in China, by American producers so all the tariffs are skewed. China has a 25% on us and we have a 2.5% on them.
Most other countries protect their economy by making imported products more costly, but not us. If Free Trade means Economic Suicide, so be it.
I can only assume you are seeking to shock and are not serious.
"Most historians and economists partly blame the American Smoot-Hawley Tariff Act (enacted June 17, 1930) for worsening the depression by seriously reducing international trade and causing retaliatory tariffs in other countries." http://en.wikipedia.org/wiki/The_Depression#Breakdown_of_international_trade
That being said I am not denying that many countries (including the US) both fairly and unfairly impose tariffs on goods to protect their local industry. I am however absolutely dismissing the notion that an international trade war based on tariffs would be a good thing.
See http://rationalargumentator.com/issue37/Henry_George.html, and go read George! He has a lot of useful perspective on our current economic problems, and you'll find all his books and many speeches online.
This is the national conversation we should be having.
Good for you Mr. Fletcher