Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Mercantilism and Free Trade Aren't the only Alternatives
In his July 17 Foreign Policy blog entry, Daniel W. Drezner (You campaign in mercantilism. You govern as a free trader) excuses President Obama's hypocrisy on trade. Obama accuses Romney of being an outsourcer, even though his own trade deficits are dismal, as we pointed out in the July 12 American Thinker (Who's the Real Outsourcer: Romney or Obama?).
Drezner assumes that there are only two alternatives, the "mercantilist" philosophy of seeking a trade surplus and the realistic "free trade" philosophy. But free trade is not realistic when you let your economy be gutted by mercantilist predators.
In an July 2 OpEdNews commentary (Has Our Defense of Freedom Made America Less Independent), Hugh Cambell endorses balanced trade as a "3rd alternative," one that would work. He recommends Warren Buffett's import certificate plan, as does one of America's premier trade economists Ralph Gomory, as did my father, son and I in our 2008 book, Trading Away Our Future. Cambell writes:
Similarly, in a July 16, Huffington Post commentary, Representative Marcy Kaptur (D-OH) and Pat Choate point out that balanced trade would be a tremendous boost to the American economy (Fair Trade Can Help Close America's Jobs Gap):
Unfortunately, Choate and Kaptur don't have a realistic solution. They continue:
More and more people are realizing that balanced trade is the answer to our current economic problems. But they haven't yet discovered the Scaled Tariff, the solution that we proposed in an academic journal.
Warren Buffett's import certificate plan would also work, but it violates WTO rules, requires the setting up of a new bureaucracy and adds a new element of uncertainty to importing. Furthermore, it penalizes those non-manipulative countries with whom the United States currently has balanced trade.
The Scaled Tariff is WTO legal, requires trade reciprocity from our trade-manipulating partners and increases our imports from non-manipulative countries. It strongly encourages the manipulative countries to change their behavior. It is a simple idea that can be implemented with no additional bureaucracy whatsoever. When we wrote it up as a bill, it was extremely short.
It is a tariff that can only be charged when the United States is running an overall trade deficit. It is only applied to those countries with which the U.S. has a trade deficit, and it is set separately with each country as the rate that would take in half of our bilateral trade deficit with that country as tariff revenue.
Drezner thinks that free trade, though unpopular, is always the best policy. But there is a much better policy. It is called balanced trade. And there is a simple straightforward way that it can be achieved.
Comment by Sebastian De Angelis, 9/7/2012:
I agree completely with you, what are we doing about getting this passed by congress?
Sebastian De Angelis
Journal of Economic Literature:
Atlantic Economic Journal: