Tariffs

The Nation
comment Posted March 24, 2005
Elite Protectionists
by William Greider

There seems to be an effort by 5 Senators along with longtime Free Traders to use the threat of a Tariff against China. The Bill's stated rate would be 27.5% on Chinese imports. The rationale for the Tariff being to save the fiscal stability of the United States. The Bill outlines a 6-month negotiation period before imposition of the Tariff, to impel the Chinese to appreciate the Yuan.

Comment
The fiscal stability of the United States is totally dependent upon raising Taxes on Americans, and curtailing Federal Government expenditures, to eliminate the Federal Deficit; the sole cause of the fiscal instability. Chinese leadership will not be frightened of an American tariff on Chinese products, having developed alternate markets as well as knowing such an extreme tariff rate could not last. The Yuan may not appreciate that much if allowed to float freely, as almost One-Third of Chinese Labor is either underemployed, or employed in Subsistence industries.
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What Are We to Make of the Trade Deficit?
by Stefan M.I. Karlsson
http://www.mises.org/story/1762
[posted March 21, 2005]

Karlsson states that the Trade Deficit and Current Accounts Deficit hold no great cause for alarm, though the Current Accounts deficit reached 6.3% of GDP. He says it is quite acceptable as Foreign Investment is willing to absorb both Deficits. He uses the 'crowding out' principle to state farming out of the Debt Overseas does not restrict Private investment in the U.S. Karlsson provides an Article typical of the Ludwig Von Mises Institute, except for one quote which the Author choses to utilize:

As excessive consumption and/or malinvestments is usually a result of a loose fiscal and/or monetary policy, the only way that trade deficits should be fought is by eliminating taxation on savings and by restoring balanced budgets and sound money

Comment
The present Current Accounts deficit remains the direct result of loose Monetary policy, coupled by spendthrift Government spending. Either and both could have been endured with an effective Tax policy, absorbing excess Private funds and paying for Government spending. The worst element of the Tax Code was allowance of investment tax credits, even when such Investment was conducted Offshore. This directly led to American Job loss and ballooning Trade Deficit.
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Author's Proposal:

A singular tariff against one nation will not curtail American appetite for foreign Imports, even against China. A Tariff of rate 10% should be imposed on all Foreign Products. It's form should be as a National Sales tax of Imports, collected by State Taxing Authorities who would receive 40% of the Tariff revenue to adjust Medicaid payments, with the rest accruing to the U.S. Treasury. The Tariff will curb American consumption of Imports, raise Tax revenues, and provide domestic industry incentive to recapitalize. lgl