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Pat Buchanan Gets the Trade Deficits Right But the Solution Wrong
Raymond Richman, 2/26/2011

It was a pleasure to read Pat Buchanan’s syndicated column entitled “A dismal decade for industry” in the Pittsburgh Tribune-Review on Saturday, February 26, 2011. In it, he cites the bad news that we have been reciting for years on the internet and in our book Trading Away Our Future (Pittsburgh: Ideal Taxes Assn, 2008) namely that the growing trade deficits have been de-industrializing the U.S., costing American workers 5 million good manufacturing jobs, worsening the distribution of income, putting us in enormous debt to countries hostile to us, and weakening the dollar.

Pat points out that in the decade between December, 2000 and December, 2010, American ran a total of $6.1 trillion in trade deficits. Since the trade deficits are a subtraction from Gross Domestic Product, our GDP would be 40 percent higher that it now is and we would have full employment not a deep recession if we had balanced trade during the past decade.

He points out, “With China, the U.S. trade deficit in advanced technology alone  in the past four years has totaled more than $300 billion.” As we have pointed out, many of our imports come from such high tech  firms as Apple, Hewlett-Packard, Dell, etc. etc. many of whom have ten times as many employees producing for them in China than they employ in the U.S. They are more Chinese than American.

He writes about my fellow economists, “If you listen to the scores of economists, none of whom ever built a great Nation, you may think it does not matter who produces what where.” Indeed, Pat is right. I would guess that 99 percent of U.S. economists are free traders and globalists.

When it comes to what we should do about it, Pat is on shakier ground. He writes approvingly of Paul Otellini’s (CEO of Intel)  proposal that we “should offer tax credits or a five to ten year tax holiday to companies, domestic or foreign, that want to set up or expand a factory in the U.S.” How would we finance it? By imposing a value-added tax or a tariff of 20 percent on all imports. That is a foolish proposal that would harm those nations with which the U.S. has a favorable balance of trade and it would violate the World Trade Organization rules.  

We have a proposal that does not violate WTO rules. Under WTO rules a country can impose barriers on imports from a country with which it is experiencing chronic trade deficits. We could impose what we call a “scaled tariff” on imports from such countries as China, Japan, Germany, with which we have had chronic large deficits for a decade or more. While trade is unbalanced, we would gain huge revenues; a trade becomes balanced we will get less tariff revenues but we will have added millions to our job rolls who also pay taxes. 

A week or so ago, I made a number of proposals on this site for a quick economic recovery. I hope Pat has read them. The scaled tariff was one of them.

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]