Avoiding Obvious Pitfalls

The following article is the sixth in series written by Emeritus Associate Professor W. Raymond Mills.

The next issue to be discussed is what NOT to do when constructing a proposal or a program for reducing the size of the U.S. trade deficit.

This discussion will be preceded with the information that experts in this field think regarding reducing the trade deficit:

1. They think that anything the U.S. does will be met with instant retaliation by our trading partners.

2. They also think that the U.S. public will never support what I will propose because of the fear that it will reduce some of the benefits they now enjoy, such as cheap and good quality goods made overseas.

3. The financial gains current trading practices provide to some U.S. businesses are seen as a barrier.

4. They are certain that any alternative to free trade will be intellectually indefensible.

5. Finally, opposition to increased government interference in the private sector will prevent strong action by the Congress and the president.

In order to answer the nay-Sayers, the proposed solution must be carefully constructed. Below is a list of options to avoid.

1. Reject secrecy and duplicity.

Nations tend to seek some advantage for themselves from international trade. Many nations think that they must disguise their motives and their actions from their trading partners. Informal barriers to imports have become at least, perhaps more important, than formal barriers.

The U.S. is not comfortable with this practice of duplicity and secrecy. The solution proposed herein will be explicit with our motives clearly identified. Tariffs are the most explicit and above-board way to reduce imports and tariffs will be used in this proposed solution.

2. Reject discrimination by product.

In the past, explicit trade barriers, such as tariffs or subsidies, have discriminated by individual product – steel, textiles, etc... That practice grew out of the wishes of domestic industrialists and traders. Individuals and firms sought to protect their own interests by urging the legislature to pass laws that restricted imports of the particular product they had to sell.

The U.S. has no interest in protecting specific domestic producers from foreign competition. What we want is imports balanced with our exports – to reduce our large trade deficit. It is the total of imports relative to the total of exports that is the issue. So, we must deal with all imports.

3. Reject the “Big Bang” approach.

It would be a mistake to assume that the transition from current practice to a more balanced trading system can be accomplished overnight. Time is required to unwind existing trading relationships and establish new production locations consistent with the proposed new system.

This proposal is that restrictions on imports into the U.S. will be implemented gradually. This can be accomplished by establishing a schedule of tariff rates increases over time.

It would also be a mistake to assume that the new system will be perfect as initially established. The Congress will retain the authority to modify the law as experience accumulates.

4. Reject treating all trading partners alike.

Some of our trading partners already have a near equal trading relationship with the U.S. Since our aim is to achieve near equal trading relationships with all our trading partners, it makes sense to exclude many nations from the import restrictions.

Limiting import restrictions to those nations who have the largest trade surplus with the U.S. will simplify administration and it will ensure that the U.S. has a number of nations with which it can trade, if those nations who become subject to the restraints try to retaliate in some fashion.

5. Reject ignoring potential problems.

We expect our trading partners who are subject to new restrictions on imports into the U.S. will try to find ways to avoid the restrictions. They may try:

1. Smuggling
2. Limiting sales to the U.S. of any goods or products that are essential for U.S. survival.
3. Refusing to accept some or all exports from the U.S.
4. Stopping buying U.S. Treasury bonds.

The solution proposed must be designed to support a ready response to likely retaliation efforts.

One of the dangers to be avoided is inflation. If our trading partners who are subject to additional tariffs are able to increase the price of their products in the U.S., the U.S. will have a problem with inflation.

6. Reject the assumption of a bumbling and powerless Federal government.

Ability to establish the conditions under which legal imports will be accepted in the country has long been recognized as the right of every sovereign nation. The Federal government can act reasonably and responsibly to reduce the size of the U.S. trade deficit if a proposed solution is thoroughly debated in the country and a consensus is developed before the Congress is requested to act.

7. Reject negotiations with other nations.

This situation calls for immediate action by the U.S. regardless of what our trading partners think of our actions. Germany did not ask our permission to institute a value added tax that subsidies exports.

Click here to read the first article in this series.

Click here to read the second article in this series.

Click here to read the third article in this series.

Click here to read the fourth article in this series.

Click here to read the fifth article in this series.

W. Raymond Mills is an Emeritus Associate Professor of City and Regional Planning at The Ohio State University. Mills' Ph.D was in Sociology from the U. of Michigan (in 1958), his specialty was forecasting economic and population growth in metropolitan areas in the U.S. He can be contacted via email: wrmills@wideopenwest.com