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Richmans' Trade and Taxes Blog
Paul Craig Roberts: Balance Trade and Budgets Now or Dollar Crash Soon
Paul Craig Roberts, head of policy at the Department of Treasury under Reagan, predicted an upcoming dollar crash in an August 16 commentary (The Ecstacy of Empire). He began: "The United States is running out of time to get its budget and trade deficits under control." He goes on to describe the upcoming dollar crash if this is not done:
Part of Roberts' solution is to bring U.S. troops home now. The other part is to switch our tax system to a value-added tax which has two tax rates, depending upon where the value is added. If the value is added abroad, the rate is higher. He wrote:
Assuming that his value-added tax proposal would apply equally to all goods produced abroad, whether by American or foreign corporations, his proposal would not cause American corporations to move their headquarters abroad. If that is the case, then his proposal is actually a tariff in disguise. There would just be one difference between our scaled tariff proposal and Roberts' value-added proposal: The scaled tariff would only apply to products produced in mercantilist countries, while his value-added tax proposal would apply to goods produced abroad, no matter the country.
Roberts has contributed a new idea here. One which could work. However it still needs to be fleshed out:
Essentially, Roberts is arguing that we can either balance trade now through tariffs or we can wait a short while for the dollar crash that would balance trade the hard way.
Roberts has proposed a new sort of tariff, perhaps made more palatable by calling it a value-added tax with two tax rates. The big advantage of our tariff proposal over Roberts' proposal is that our proposal scales the tariff rate to the size of our trade deficits with the mercantilist countries, which gets them to take down their barriers to our products, while Roberts' proposal would likely lead to counter-tariffs.
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