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 Richmans' Trade and Taxes Blog

Time to Require Reciprocal Free Trade
Jesse Richman, 12/7/2018

The most recent US trade deficit statistics highlight the challenges faced by the piecemeal approach to the effort to balance trade currently under way.  Trading partners' retaliations and a strong US dollar (those are not necessarily separate events) have led to one of the largest deficits in years.  The goods deficit was 77 billion.  https://www.politico.com/story/2018/12/06/us-trade-deficit-china-europe-1047317

It is time for the US to consider rolling out a principled pro-free-trade settlement, one that automatically balances trade irrespective of the mercantilism of the other side. 

There are several good alternatives available to accomplish this objective, some of which could be put in place using existing powers granted by Congress to the President. 

Because of its immediate feasibility and a range of other desirable properties, the best approach is a reciprocal free trade trade tariff or scaled tariff.  http://ww2.odu.edu/~jrichman/workingpapers/MechanismstoBalanceTrade.shtml.   The scaled tariff is WTO compliant, and in effect it formalizes and articulates principles underlying current administration policy.  

In essence this reciprocal trade tariff formalizes the principle that free trade should be reciprocal.  If trade is balanced, no tariff.  But when the US is running large overall trade deficits, this reciprocal free trade tariff steps in as an automatic stabilizer to push trade back towards balance, focusing specifically on those countries that sell the US much more than they buy from the US.

It is an open door invitation to the elimination of tariffs IF trading partners will take down their barriers and balance trade.   

As long as US trading "partners" like China continue to see trade as a one way transaction founded on the principles mercantilism and bent on achieving economic dominance through all means, the scaled tariff is a necessity.  It reasserts US ownership of the moral high ground.  It reminds the world that the resort to tariffs is rendered essential by an economic situation characterized by the dramatic absence of balanced free trade.