Dogs and Cats Living Together
A Tea Party-Occupy Wall Street agenda
Nov 14, 2011, Vol. 17, No. 09 • By PETER J. HANSEN
Restricting imports in order to support a particular industry imposes a hidden tax on the rest of the country and is akin to corporate welfare. Nonetheless, there are some helpful things the federal government can do. China, which exports about four times as much to the United States as it imports from us, and which has been manipulating its (and our) currency for years in order to sustain this imbalance, is the obvious place to start. There is no need for hostile rhetoric, but if China will not allow its currency to float freely on international markets, we should impose a substantial tariff on Chinese products, aimed at producing something like the ratio of imports to exports we have with the rest of the world, which is roughly 1.5 to one. (In recent months China has allowed its currency to appreciate modestly, but nowhere near the level that would produce this ratio.) The Senate recently passed legislation calling for the Treasury Department to increase tariffs on Chinese goods if it determines that China has been manipulating its currency. This is a rather weak response; nonetheless, the Obama administration considers it excessive. The administration’s apparent fear of angering China is pusillanimous. There is little China can do to harm us without doing more harm to itself.
Beyond China, we should consider implementing a modest tariff, in the range of 10 percent, on all imported goods from countries with which we do not have bilateral trade agreements. (We currently have such agreements with 20 countries, including Canada and Mexico. While we run an overall trade deficit with these countries, our trade with them is closer to balance than that with countries with which we have no such agreements, and of course the agreements with these countries bolster friendly relations.) Unlike other forms of taxation, this would increase domestic employment, and thereby decrease dependence on the government. A 10 percent tariff on imported goods would produce additional federal revenue of about $100 billion annually—which is impressive for a form of taxation that voters would actually welcome. If we simultaneously increased the tariff on Chinese goods to 25 percent, we would see $150 billion more in federal revenue than we currently receive.
To be sure, there are arguments against such a -policy. Everybody who has taken economics in college has learned that free trade maximizes one’s advantage, even if other countries follow a different policy. The advantage thereby maximized, however, is total consumption, not total production. In the long run, consumption and production tend to come into balance, but the long run can be very long indeed, especially when the world’s second-largest economy is working to foster an imbalance that favors its exports. In the meantime, damage may be done both to individual citizens and to a nation’s work habits and political system.
Some international trade economists have studied the harm free trade causes workers in developed countries at a time of rapid manufacturing growth in less developed countries. This situation will not last forever, but a 10 percent tariff seems a modest and reasonable way to cushion our economy against whatever external shocks the future may hold. This policy would increase employment and add to the take-home pay of less skilled American workers at a time when they are being squeezed by low-wage foreign competition. We’d all pay a little more for a lot of products, but that’s a price many people would gladly accept in exchange for some protection of domestic manufacturing jobs.
These three items—preventing bank bailouts, eliminating corporate welfare, and adopting tariff protection for American workers—constitute an agenda that could win support from both the Tea Party and Occupy Wall Street, as well as many other Americans. It is an agenda that would make our country stronger, fairer, and wealthier. And it suggests a framework within which to approach other issues as well. The Tea Party and Occupy Wall Street share a desire to help working Americans in ways that do not foster dependence on big government. One might examine immigration policy in this light, since our current high level of immigration puts downward pressure on wages, especially for those who are not highly skilled or educated. Limiting immigration would probably be less welcome to Occupy Wall Street protesters than to Tea Party members, but it would be an effective way of pursuing an objective that Occupy Wall Street supports: improving the lives of American workers. Other issues such as school choice and health care reform might be susceptible to similar thinking.
Our political system sometimes seems to offer a choice between the party of welfare and the party of Wall Street. We can do better. The time is ripe. Political entrepreneurs should look beyond the usual partisan divide, discern the intersection between the Tea Party and Occupy Wall Street, and seize the moment.
Peter J. Hansen is president of Hansen Capital Management, Inc., in Lexington, Virginia.