Free but fair trade is an expression which we often hear today from President Trump; just as we hear that millionaires and billionaires must pay their fair share from Senator Sanders. When asked what percentage is fair; since these millionaire and billionaires are in the highest tax bracket and pay the most in taxes, we never seem to get an answer. All we hear is from the progressive left that they have too much and need to pay more.
Similarly, the expression free but fair trade sounds great, but the meaning of “fair” is utterly void of any substantive meaning. The idea of a 25% tariff may be fair, but it is by no means free. So the question is, how can we obtain free but fair trade?
Before we can answer this question, we must first examine the deficiencies in our current trade policies. The first thing we must realize is that we do not currently have free trade. Think about it like this. If we did have free trade why would we need complex trade agreements? The fact is we have thousands of tariffs in the United States. Just like every other country, we seek to protect some industries over others.
Some are for supposed national security reasons, and others are simply to protect an industry in a member of Congress’ district.
The second and most significant reason we do not have free trade is that true free trade is optimal but not politically expedient. For instance, let us use China and the United States as examples and let us say we currently do not trade with each other.
Establishing trade with one another is beneficial for both countries regardless of tariffs. Since trade never existed, an unfavorable trade agreement is preferable over no trade at all. Reasons being both countries will benefit from trade. Industries may open, and some may close, but there will be a net positive for both countries. It is a mutually beneficial arrangement.
Now instead of unfavorable trade agreements, what if we had free trade. All products coming from China into the United States and vice versa are tax-free. In this situation, you will see the greatest mutually benefit as both countries will have positive net growth. If this situation exists for years, you will see a fluid economy as some industries will be created, grow, decline, or shut down.
The problem that arises is not the creating and growth of some industries but the decline or elimination portion.
If a software engineering firm which sells most of its software to China opens up in a congressional district, you will be sure to see that member of Congress at the ribbon cutting ceremony will a plethora of other politicians stating their policies fostered the creating of this software engineering firm.
On the other hand, you won’t see these same politicians at the factory down the street which is packing up and moving to China. The same policies that opened up the software engineering firm eliminated your manufacturing job. What is an elected official to do?
What they will try and do is give tax incentives and add tariffs to prevent the closure. If they succeed, they will once again take credit; even though the biggest net benefit to the economy as a whole is to allow the factory to shut down, though it isn’t politically expedient.
Back in China, they will also try and protect their software engineering firms by adding tariffs and regulations on the US-based company. The result of all this will be less than optimal, but a long-term net benefit is not politically expedient. So protectionism will inevitably begin.
Therefore, how do we create complete free and fair trade? The honest answer is you can’t; as we have demonstrated allowing complete laissez-faire trade policy will never occur because it isn’t politically expedient. Some may be for good reasons and some for bad reasons.
To achieve the most optimal outcome would be to eliminate tariffs. But how do you do that without cheating and allowing politically expedient policies?
Maybe this example trade policy below might help in this endeavor.
All products, goods, materials, and services, entering the United States and its territories shall be free of tariffs. Any fees, including but not limited to docking, storage, and inspection imposed at points of entry shall be uniform at each location regardless of country of origin. Likewise, all products, goods, materials, and services produced in the United States and its territories shall be free of tariffs. Any country that imposes a tax on any of said products shall immediately, have the highest equivalent tax impose on all their goods and services at the same rate plus 10%; until eliminated.
Likewise, any fees should not favor any other country over the United States and its territories. Fees must be uniform or to the benefit of the United States. If fees are to the disadvantage of the United States, those same rates shall be immediately imposed on said country plus 10% until eliminated.
How it works
I postulate this trade policy would allow greater free trade then we have ever seen.
For instance, if China has a combined 20% tariff on mid-sized trucks and 25% on sedans, then since 25% is the highest tax imposed on US products then 100% of all items coming into the United States from China will have a tariff of 27.5% immediately imposed on it. This scheme would also apply to any value added tax or border adjustment tax which would disadvantage the United States over other foreign or domestic products. Therefore, I believe the consequence would be so devastating to China they wouldn’t dare put a tax on American products, and likewise, the United States would not want to engage in a trade war just to protect one industry or factory.
Let us say that we just succeeded in creating Free Trade the vague notion of Fair Trade can never be quantified or defined.
For instance, if China is subsidizing its steel industry and shipping Chinese steel into the United States cheaper than the free market can produce it, is that still Fair Trade?
Is it Fair?
It’s still Free Trade because no taxes or tariffs are imposed but is it fair?
Some would argue that it is not fair for China to subsidize their steel industry because that puts the US steel industry at a disadvantage. The US could impose a tariff but as stated that would eliminate free trade. The only other option would be for the United States to subsidize the US steel industry or let it possibly collapse. Sidenote, we only receive 2% of our steel from China, and U.S. Steel production makes up 70% of the steel used in the United States.
Some might see this as unfair; others see this as a plus benefit to the United States.
American economist and Nobel Memorial Prize in Economic Sciences recipient Milton Friedman viewed this as reverse foreign aid. If China wants to tax their citizens to provide US citizens and companies with subsidized steel why not let them. In a Milton Friedman perspective, this might seem unfair to Chinese taxpayers and more than fair to US taxpayers.
Some may argue that US steel production is vital to US national security. Having enough steel is crucial to our national security, but that doesn’t mean that we can’t stockpile Chinese steel. Also, it neglects the fact that other countries like South Korea protect their steel industry by subsidizing steel in their country to prevent monopolization by Chinese firms. The US can also buy from South Korea or even Canada.
Countries may also put strict regulations on how steel is produced in their countries as well as impose those rules on foreign producers. These policies may not have a defined numerical value as a tariff but in a sense act as a protectionist trade barrier. Since there is no quantitative value to these types of regulations, having US laws automatically trigger countermeasures would be impossible.
So can we truly have Free but Fair Trade? As we have seen having Free Trade is possible, but Fair Trade is really in the eye of the beholder. Ultimately, the best interest of the United States and its continued success is by having a free trade policy, maybe something like I have spelled out in this article, as well as, limiting regulations and limiting government interference in the economy.
Nothing can be put in place to be completely fair and balanced, but the most reasonable thing to do for the overall benefit of America and Americans is to maximize laissez-faire economic policies void of politically expedient measures.
A reminder to GOP lawmakers from Justin Amash
When Representative Justin Amash (R-MI) hadn’t been in Washington DC for very long when he said this amazing quote. At the time, many weren’t paying much attention. After all, many Republicans say similar things when they get to DC, but over time they become jaded, corrupted, or start to get used to being in the DC Country Club.
Amash is different. He has remained consistent with his message and views throughout his career. Now, it’s time for other Republicans to remember what they were sent to Washington DC to do in the first place. Defense of the Constitution is their top priority as it’s the best protection against a government that wants desperately to control every aspect of our lives. From healthcare to the internet to how we use our energy, government intervention has become so commonplace, it’s often hard to see the fabric of our nation behind all the layers of bureaucracy that has been placed on top of it.
“I follow a set of principles, I follow the Constitution. And that’s what I base my votes on. Limited government, economic freedom and individual liberty.”
If more Republicans followed the same principles and didn’t just use them in campaign speeches, we may actually be able to return liberties that have been taken and remove layers of government that have been formed unnecessarily.
Larry Elder, Sean Hannity discuss the shutdown
Radio host Larry Elder joined Sean Hannity on Fox News tonight to break down the government shutdown. Elder pointed out that President Obama was being urged by advisers, including Rahm Emmanuel, to abandon Obamacare, but Nancy Pelosi urged him to go big or go home.
Later, they discussed the Speaker of the House’s refusal to meet with Angel Moms. Elder asked what she would say to them. Hannity said she should have given them condolences for their losses.
The talking heads on Fox News keep repeating the same narratives, but it’s not working. This is an example of mainstream media playing to the base by repeating the narrative for cheers from the crowd but failing to present better information the Republican base can use to argue for the border wall.
Many on the right, particularly in media, are failing to make a compelling case for the wall. They need to adjust their talking points if they really want their audience to help sell the idea to the rest of America.
Art Laffer on why a trade deficit is a good thing
Conservative economist Art Laffer has been preaching the benefits of free trade and understanding what the numbers behind the economy really mean for most of his life. He’s taken many progressives to school on how to truly boost the economy and has always been a harsh opponent to the leftist’s favorite trade tool, the tariff.
Unfortunately, he’s having a harder time reaching so-called conservative who have abandoned basic economics in favor of Trumponomics. The concept of free trade has been replaced in the eyes of many conservatives and most Republicans with Trump’s idea of fair trade. The result: a trade war with China that is going nowhere fast and costing American businesses and consumers billions of dollars.
As Laffer correctly points out in this quote, running up a trade deficit is an unavoidable side effect of having a capital surplus. In other words, as American consumers spend more money, American businesses make more money. As American businesses make more money, they buy more products from foreign companies. This fact seems to have slipped over President Trump’s head.
“The trade deficit is the capital surplus and don’t ever think of having a capital surplus as being a bad thing for our country.”
Tariffs on China were considered a far-left progressive notion less than four years ago when Senators Chuck Schumer and Bernie Sanders proposed them. Now that President Trump has adopted their plans down to the letter, tariffs are suddenly the GOP way.
For a better explanation, please refer to this article by Benjamin Powell from 2006. Over a dozen years later, the truths still apply.
As long as our country remains a good place to invest and we have a low saving rate, foreigners are going to invest in the U.S. more on net than we invest overseas. That will generate a capital account surplus and the resulting trade deficit. This is a good thing.
But whether the payment is to a foreigner or to a fellow citizen, the customer’s purchase still indicates that he deems himself better off from the transaction.
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