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 Richmans' Trade and Taxes Blog

Seven Options for Tackling Trade with China
Howard Richman, 6/24/2010

In a June 23 commentary (Five Options for Tackling Trade with China), Bloomberg Businessweek's Economics Editor Peter Coy laid out five options for tackling trade with China. He included two options that would be effective:

1. Block China. Krugman's 25% tariff.

2. Declare an Emergency. Ian Fletcher's across the board tariff on all foreign products.

He also discussed three options that don't work:

3. Use the WTO. Mercantilist countries find ways around WTO rules, such as China's currency manipulations and use of catalogs to keep out foreign products.

4. Talk Talk Talk. The failed strategy of Presidents Bush and Obama.

5. Get America's House in Order. The failed strategy of President Clinton.

Meanwhile, he ignored both of our balanced trade proposals:

6. Import Certificates. Certificates that would only permit the same value of imports as we export.

7. Tariff with Rate tied to Deficit. A China-specific tariff with a flexible rate that would go down as China imports more from us and disappear once our bilateral trade gets into relative balance.

He dismissed each of the effective options by claiming that Krugman's proposal would violate WTO rules, even though it would not, and that Fletcher's proposal would "undermine America's claim to leadership of the global trading system." He completely missed the special WTO rule for trade deficit countries that all of the effective proposals are based upon (see How Import Certificates could balance Trade and Budget).

Peter Coy has done a service by laying out several of the options. Unfortunately, he thinks that America's leadership position in the world depends upon our being an advocate for economic suicide. America could regain its leadership position by becoming a growing economy as an advocate of balanced trade.