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trade

Maybe Tariffs Aren’t All That Bad

We have become so immersed in free market doctrine since the debut of Reagan conservatism that "tariff" has become a dirty word. Between the simple-minded insistence by the right for unadulterated free trade unencumbered by regulation, and the go-along embrace of globalization by the left, we have succumbed to the belief that these mechanisms, left to their own devices, will result in an equitable sharing among peoples. Billions have been lifted out of poverty, yes, but jobs in the millions have been transferred across borders and serious imbalances in deficits and debt have arisen between nations.

Donald Trump, with an anger first aimed at Japan and then at China that dates from public declarations by him unchanged from three decades back, has waded in with a mission to engineer trade parity. Past presidents from Clinton onward have allowed China unrestricted access and exports to the United States, while allowing China to block a broad swath of service industries from entering their country and extracting trade secrets from those American companies allowed in. To his credit, Trump has challenged China head on. He has tossed aside the feckless World Trade Organization and chosen tariffs as his weapon of choice to bludgeon China.

There's comedy in that because Mr. Trump doesn't know how tariffs work, even after a year of imposing them. In November he said in a news conference, "Billions of dollars will soon be pouring into our treasury from taxes that China is paying for us". He said the same on Twitter, adding that if we continue to import tariffed goods, we'll "just make our Country richer than ever before".

China doesn't pay the tariffs. It is American companies that are penalized for importing, and they in turn will pass on the cost to American consumers, raising prices somewhat. But Trump continues to think China is paying tariffs to the U.S. He just said it again. Whether a deal or continued tariffs...

"I'm happy either way. I could live [sic] receiving billions and billions of dollars a month from China...Now they are paying billions a month for the privilege of coming into the U.S."

Nevertheless, he succeeded in awakening us to tariffs, a concept that has been beyond consideration, conjuring only the specter of Smoot-Hawley and the Great Depression. But his methods could use some refinement.

There are always tariffs. We just aren't made aware of them. What if they were re-engineered to serve some purpose other than an arbitrary toll on a given item, most likely going on and on with its original purpose forgotten. What of this instead: What if the United States, with other countries hopefully following suit much as they did after Roosevelt reorganized trade with the Reciprocal Trade Act in 1934, were to install a rating scheme wherein tariff levels were applied to countries individually — Trump's preference over multilateral agreements such as the Trans-Pacific Partnership — according to a demerit system.

The default rate would be 0% tariffs for everything imported from that country, but with possible increments added for each offensive policy it perpetrates. If it subsidizes its industries, that would earn a tariff increment of X%. If it blocks our access to its markets, that would deserve an added Y%. And so forth for violations of human rights, toleration of child labor, environmental transgressions — potentially a sizable list to choose from. The data is already available from the many organizations that currently rank countries. The level of tariffs for our hypothetical country would be the total of its negative assessments. That aggregate of percents, reviewed annually, would then be levied uniformly across all goods shipped to us.

Each country adopting the system would arrive at its own scorecards for countries with which it trades, including the United States, which would get docked for its human rights abuses in separating children from parents at the Mexican border, rates of incarceration, etc.

Such a scheme would result in orderly practices and far greater simplicity than the voluminous tariff schedules with different rates for thousands of items, the product of endless haggling of the sort we now see from the thousands of applications by U.S. firms to the Commerce Department for a waiver of Trump's across the board tariffs on aluminum and steel. Plus, with reasons for tariffs spelled out and quantified, the penalty scheme could have the salutary effect of causing countries to change behavior in order to gain more favorable access to other markets.

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