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 Richmans' Trade and Taxes Blog

How Trump could avoid a Trade War -- We're published in the Washington Examiner this morning
Howard Richman, 5/31/2016

We begin:

Donald Trump argues that recent trade deals and trade deficits have been bad for American workers, and that he could do better. Some have argued that his proposals would start a trade war. But if he comes up with the right BATNA (Best Alternative To a NegotiatedAgreement), he could move trade toward balance without a trade war.

In August 1971 President Nixon used a 10 percent across-the-board tariff as his BATNA in order to force the successful negotiations which brought U.S. trade into balance by 1973. But U.S. trade deficits were small in Nixon's day and huge today. Trump will need a much more powerful BATNA than the across-the-board tariff used by Nixon.

Trump has proposed single-country tariffs against Mexico and China of 35 percent to 45 percent. Such tariffs would indeed provide a very powerful BATNA. They would balance trade, even if the negotiations fail, because the United States would shift its import purchases to balanced-trading countries that buy more from us when we buy more from them. The revival in American manufacturing that Trump desires would occur.

But such tariffs could lead to a trade war. The countries involved would likely place counter-tariffs upon politically-sensitive U.S. products, such as American agricultural goods. Fortunately, there is a BATNA that Trump could choose which would avoid a trade war altogether.

To read it, go to:

http://www.washingtonexaminer.com/how-trump-could-avoid-a-trade-war/article/2592519

Comment by Bruce Bishop, 6/5/2016:

I am grateful to you gentlemen for pushing the idea of balanced trade.  However, I don't think a 45% tariff would be sufficient to bring back U.S. manufacturing.  The infrastructure is gone!  

If there is evidence of manufacturing opportunities that would cause entrepreneurs, or Fortune 500 companies, to build factories and hire workers, I would love to hear about it.

I am still in favor of Warren Buffett's "import certificates," because they would force a limit on imports, which would necessarily force the generation of replacement sources here, or somewhere other than China.

Personally, I believe that China is a criminal enterprise.  We should not be doing business with China at all, much less be allowing them to steal our jobs, our technology, and our intellectual property.  

Response to this comment by Howard Richman, 6/6/2016:
Both the Buffett plan and placing tariffs upon trade surplus countries would work. In 1933, Britain, at John Maynard Keynes urging, almost enacted the Buffett Plan. Keynes would have placed tariffs on imports and used those tariffs to subsidize exports. But, instead, Britain went with the Imperial Preference System, a trading alliance which placed high tariffs upon the trade surplus countries of the day (including the U.S. and France). Britain got right out of the Great Depression in 1934. 

Comment by Ron V, 6/16/2016:

Your article and comments are spot on. As fertilizer in soil is essential for growth, manufacturing jobs in our country are essential for the growth of our economy.

Trump is right about the trade deficit, the largest of any country in the world. The VAT taxes that over 150 other countries use, paid by the US companies, is yet another problem as imports are almost tax free while our corporations have to pay pay almost 25% in VAT taxes to other countries.

Manufacturing would bring back reaserch and development, this then would bring back inovation into our country along with on-the job training etc..