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As we launch into the 2018 summer season of punishing tariffs and counter-tariffs and with the present bad feelings between the global powerhouses, perhaps a second look at what we are *actually* trying to accomplish is in order — and if a better way of accomplishing our goals appears — would today’s leaders be bold enough to employ such a change-up?
Taking the American position as an example; U.S. President Trump feels that American steel and aluminum are at a competitive disadvantage to countries like, well, every other country in the world, which is why he has instituted import tariffs of 25% on steel and 10% on aluminum. Different tariffs have been levied by Trump on other imported items. All of which is supposed to help American steel and aluminum companies compete in the international marketplace and overcome decades of less-than-stellar reinvestment in U.S. rust belt industries such as steel and aluminum mining and smelting.
The pushback from exporting countries has been considerable and is expected to be matched on a dollar-for-dollar basis. Trade war, much?
The First Rule in Every Crisis: Don’t Make it Worse!
While there is plenty of angst to go around, President Trump must remember that the entire situation was created by every U.S. president since President Carter, and that countries were never told to stop or slow the exports to the United States, nor told to lower their exports to other Western nations.
That means it’s time for President Trump to ‘play nice’ with exporting countries — which have done nothing more than play by the rules that America itself had set.
The problems of the $862.2 billion balance of trade deficit that America is trying to draw-down can be made worse via bad communications, additional tariffs, or clumsy handling of the situation. Let’s not do that.
Rather, let’s try to improve on trade deficit elimination as time rolls forward.
How to Make it Better
Apart from not making it worse, the present uncomfortable situation could be solved to every party’s satisfaction by designing a tariff regime to solve the fundamental problem instead of trying to address each good or service individually — creating a pathway, not only to solve immediate concerns — but to provide additional revenue to assist the above-noted and other American industries stung by poor vision, poor leadership, and poor management of U.S. trade policy from the 1980’s onward.
Instead of piecemeal (and high) tariffs that are seen as exorbitant in some quarters, President Trump should institute a standardized 5% across-the-board tariff on every single good imported into the United States.
The gross total revenue of that 5% tariff would far exceed the revenue that would be collected by the present bric-a-brac collection of deeply unpopular tariffs.
With an annual tariff revenue pool that would far exceed that of the present tariff regime, the United States could allocate generous and proactive funding to several of America’s poorly-performing economic segments, which spending would be completely at the discretion of the Trump Administration and its successors.
That’s an extra $120 billion (approx) for America annually.
Invite America’s Trade Partners to Drop Their Existing Tariffs and Match the New 5% Standardized Tariff
And then, pour yourself a nice cool drink Mr. President because you’ve won.
End of the trade war, the beginning of accumulating billions of dollars that can be directed to American industries that have suffered as a result of heretofore unrestricted imports from economies that benefit from low-cost labour and lower environmental standards.
Be part of the solution.
Nothing would put a salve on the present air of hurt feelings like a major signing ceremony between the U.S. and China where both countries see it’s in their best interests to drop the existing punitive tariffs and support and abide by a standardized 5% tariff regime.
No doubt that the EU, The Commonwealth of Nations, Russia, and other global exporters would enthusiastically sign a matching and standardized 5% tariff agreement with the Trump Administration.
Problem solved. And everyone makes more money!
That’s how to employ the ‘Art of the Deal’ to turn a negative into a positive.
by John Brian Shannon | April 15, 2016
A long time ago when there were unicorns, there was a justifiable need for international trade agreements in order to spur trade, increase movement of capital flows and to promote movement of labour — but mainly to gain access to potentially larger markets in both developed and developing nations.
International trade agreements like NAFTA and even today’s TPP are throwbacks to a day when we didn’t have all of that. Many global economies then were practically closed markets, with few exceptions.
It’s almost the opposite these days — globalization has certainly prevailed — and it’s the rare country that isn’t buying or selling wares from around the world on a daily basis.
North Korea is a closed market, so is Japan (although it is a huge exporter) and only a handful of other nations could be considered ‘closed markets’ in any substantive sense.
In your home country you can probably buy a car, a music player, clothing, food, and almost anything else — and it likely wasn’t built, created, or grown, in your country.
Globalization has succeeded wildly and we now live in a globalized world.
How’s it working?
For the people in developed nations it has meant 25-years of inexpensive goods on store shelves — goods that were either built, created, or grown, in developing nations, which has been a real bonus for developed world consumers — and it has also benefited workers in the developing world.
Unfortunately, it also led to many high-paying jobs being sent overseas, resulting in higher unemployment and worse social ills than that in some developed nations.
Liberalized international trade has become all that it could be
Which is fine. It’s served it’s purpose and we now have open markets around the world with levelization of trade, capital, knowledge, labour, and general market equilibrium — if not market symbiosis.
But there isn’t much more room for globalization to grow. Other than tidying-up some intellectual and property rights regulations we’ve arrived at our free trade destination. We’re already living in the globalized economy.
Where do we go from here?
There are a number of things that can strengthen our domestic economies without turning back the clock to the (almost) closed economics of the 1960’s.
Ten Ways to Make Our Country Better and Stronger – While Helping Citizens to Succeed and Live Happier Lives
The Ten Ways: Increasing Intellectual Property Rights, Increasing Government Revenue Streams, Preventing Obscene Government Debt, and Enhanced Government Services Designed to Move the Bottom Economic Quintiles Towards Middle Income Status
- We and our trade partners should sign a simple trade agreement to protect intellectual property rights, one that includes universal patent, trademark and copyright protections. The point is to get it done now while it is still relevant. If we wait, there’s no point in bothering with it, as all the secrets (the patents, trademarks and copyrights) will be ‘out of the box’ and in the general marketplace. (The rule must be that we don’t trade with nations that won’t sign and abide by those laws)
- We and every country we trade with should pass legislation to allow a simple 5% tariff on every imported and exported good — from supertankers full of oil, to consumer electronics, to clothing, to food, — in short, everything. This simple tariff would replace all other import and export taxes/tariffs/levies and related charges. Billions of dollars of goods are imported and exported every month and the tariff revenue stream can be used by the federal government; To improve productivity by funding R&D, and to improve government services and infrastructure — or used to raise national GDP and quality of life for citizens, by reducing unemployment and to lower taxes on the poor and working poor.
- We and our trade partners that don’t already have a national Goods and Services Tax (of 7% for example) on all retail goods, should implement one immediately. This revenue can contribute to the overall economy to improve services and infrastructure, reduce unemployment, and lower taxes on the poor and working poor, and should be shared 50/50 with states or provinces — who after all, would be the parties responsible for collecting it.
- We, and every country we trade with should pass legislation making deficits of more than 4% of GDP illegal, at the federal, state, and municipal level. This prevents obscene government spending and prevents the trap of eternal debt servicing costs, once interest rates rise. Which they always do.
- Our own country and every country that we trade with should no longer charge income tax on those who earn less than the equivalent of $25,000. per year.
- We and our trade partners should pass legislation to the effect that every worker has the right to a minimum of 25 weeks of full-time employment, per year. Yes, it would require a job-sharing programme managed at the state level. Some workers may receive layoff notices in order to accommodate unemployed workers. On the positive side, long-term unemployed people could then contribute to the economy (and to their own personal income!) for a minimum of 25 weeks per year. In countries like Sweden, this is common in industries that can’t keep all of their workers employed, and it is normal for two workers to share the same job for many years (6 months ‘on’ and 6 months ‘off’) so that over the course of a year, every worker in the country will have worked a minimum of 6 months. Which keeps their skills sharp, makes them eligible for automatic unemployment insurance benefits during their layoff, and lowers the welfare rate to near-zero.
- Most government unemployment insurance programmes around the world pay 66% of a worker’s salary during periods of unemployment, often after a significant wait and a worker’s claim can be turned down for any number of strange reasons. It’s inhuman. Workers pay into unemployment insurance — it’s not their fault that there are millions more people looking for work than there are jobs available — because their jobs have been sent overseas since globalization began. In some countries, a brilliant solution exists whereby workers can opt to pay into a private unemployment insurance programme, one that can top-up their unemployment insurance payments to 99% of their normal salary for the equivalent of 1 or 2 cents per dollar earned. The employee merely indicates how much extra unemployment insurance coverage he or she wants to purchase, and the deductions are automatically made from their wages and directed to the private unemployment insurance company. The private insurer also begins paying unemployment benefits from the first day of a worker’s lay-off. Workers no longer need subsist on 66% of their normal income while unemployed. (Imagine working in the fast-food industry, living on subsistence wages, then getting laid off due to a slowing economy, and then having to exist on only 66% of your already subsistence-level wage!) NOTE: In Sweden, both the government-run unemployment insurance plan and the private unemployment insurance plan make a respectable profit, every year. That’s how easy it is to do, when it’s done properly.
- Every city, town, village or county in the country should have the option to receive a free website from the federal government for as long as certain information is continuously updated by the local jurisdiction. Simply by entering the name of a jurisdiction in Google Search, anyone should be able to find the local time, weather, federal, state, city, village or municipal phone numbers and addresses, emergency services and other essential services (like Hospitals and Veterinary Clinics) and employment information for that city, town, or region. Standardization is key so that workers looking for work, or visitors to a region can quickly navigate to and access important services without a frustrating search (or fruitless search, because not all jurisdictions have their own site or mobile-friendly site — but you don’t know that until you do an hour’s searching and discover that there isn’t one!) Quick access to important phone numbers and addresses can save lives and help to increase productivity.
- Streamlined government websites for self-employed people to set-up and begin working in one day with a minimum of confusion, stress and red-tape.
- Legislation to require internet service providers to provide basic internet plans of $10. per month with low entry barriers — enough to check emails, find a job, find rental accommodation, and perhaps practice the preferred local language in hopes of finding a job. The internet is an essential service in our era, and those entering the workforce or returning to work after illness, etc. need to be able to start somewhere.
It’s easy to look around the world to see what’s working well in other jurisdictions and write similar legislation.
Legislators in Sweden and Norway don’t have two brains nor any other super powers, that we know of. If they can manage to get these things done, so can we. And if we can’t, we’re not half as great as we imagine ourselves to be.
But we are! Therefore, all we lack is the will to act. So let us act, and help our country to leap forward by one order of magnitude.
- A Progressive Logic of Trade (Project Syndicate)
- The Secret of Norway’s Success (JohnBrianShannon)
- In Sweden: Nobody Sleeps in Dumpsters (JohnBrianShannon)
- The Silver Bullet for the Economy (JohnBrianShannon)
- The Most Profound Metric of All (JohnBrianShannon)
- Stephen Poloz calls for defence of free trade amid wave of protectionist talk (CBC)