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 Richmans' Trade and Taxes Blog

Morici Proposes a Scaled Tariff Variant to Confront China
Jesse Richman, 9/9/2010

In a posting on the CNBC website, University of Maryland economist Peter Morici argued forcefully that inattention to the trade deficit is costing the Democrats this election. 

"Without the second quarter jump in imports—led by consumer goods from China and boosted by an undervalued yuan and export subsidies President Obama neglects—GDP growth would be close to 5 percent, hundreds of thousands of Americans would be finding jobs, and Democrats would be poised to retain their majorities in the House and Senate."

It is a great disappointment that in spite of Obama's relatively strong rhetoric on trade during the campaign, his administration has done little to solve the trade deficit.  The administration has done little to deserve the continued support of industrial workers, and this is likely to be reflected in broad losses in the Midwest this November. 

Morici offers a solution that is very similar to our scaled tariff proposal:

"President Obama should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—in 2009 that was about 35 percent. For imports, at least, that would offset Chinese subsidies that harm U.S. businesses and workers."

An important virtue of this type of proposal (which he does not note in the commentary) is that an automatic adjusting mechanism that ties our trade response to China's mercantilist actions makes it very difficult for China to retaliate with more mercantilism without hurting (further) its own exporters. 

Comment by Howard Richman, 9/10/2010:

Actually, Peter Morici's proposal for a tax on dollar-yuan conversions came first, before our scaled tariff proposal. The two proposals may be very very similar. I just don't quite understand how Morici's proposal would work in practice. I can't find any place where he clarified exactly how it would work.