Taxing Consumers Won't Fix the Deficit
Posted by Consumers for World Trade Mon, 09 Apr 2007 18:20:00 GMT
Robin Lanier, Executive Director
April 9, 2007 -- Every three months the government issues statistics on the value of imports and exports, and for more than thirty years the news has been all about the U.S. "trade deficit." Basically, for almost my working life, the U.S. has imported more than it has exported.
To listen to the trade deficit hawks, this is like the hemorrhaging our national wealth. These deficit critics have--for as long as I can remember--urged our policy makers to take steps to turn the deficit around. These days the arguments center on trade with China--not because the deficit is new, just because China is now our biggest trading partner and the country with which we maintain the largest deficit. A decade or more ago, the debate was all about Japan.
Nevertheless, today the deficit hawks out there want us to convert our trade deficit with China into a surplus.
But how?
One proposal--introduced in Congress last year--would impose a massive 27.5% tax on all imports from China in an effort to "fix" the perceived "currency manipulation" that deficit critics say lies at the root of our trade imbalance with China. Supporters of this proposal claim that China purposely undervalues its currency in order to keep its exports competitively (some would say "unfairly") priced. But the basic idea of the 27.5% import tax is to discourage Americans from purchasing Chinese products by making them a lot more expensive.
The latest proposal comes from the Bush Administration. The Department of Commerce has recently announced that it may consider treating China's currency policy as a kind of "unfair" subsidy. The latest proposal would impose something called "countervailing duties"--just another name for high tariffs--to make Chinese exports more expensive and to discourage consumers from buying them. The Commerce Department apparently believes that the high border tax will "level the field," making sure that the "subsidy" is erased.
It all sounds faintly justified until you stop and think that proponents of this policy want to tax every blessed thing that comes from China, including products like shoes, clothing, home electronics, not to mention tools, ceiling fans and a wide variety of things you might find at a variety store. Basically, if you put it on or turned it on this morning, chances are it was made in China, and the some folks in government would like to tax it.
Many of these items--shoes come immediately to mind--aren't even made in the U.S., so this is not about protecting U.S. industry. It's about imposing some kind of neat little ledger balance that says our exports have to equal our imports.
Ironically, these proposed taxes won't stop Americans from buying necessities like shoes. They will probably make other import suppliers more competitive--so your shoes might come from Bangladesh or India or Viet Nam instead of China--a move that will do nothing for the trade deficit. These taxes are unlikely to move shoe manufacturing back to the U.S. And no one seriously believes that the U.S. could ever become a competitive world supplier of shoes. Shoe manufacturing isn't our "comparative advantage." We are much more likely to compete on high tech or agriculture. So imposing a neat little trade ledger balance isn't really going to do anything positive for the economy.
One thing is absolutely certain, though, taxing imports will make these products more expensive for every one in America.
If our elected officials truly believe in achieving a trade balance, perhaps they should focus less on punishing American families for buying shoes and socks and spend a little more time promoting U.S. exports abroad. The Bush Administration has focused its export promotion strategy in concluding a string of Free Trade Agreements (FTAs) with over 20 developing economies. While a step in the right direction, the Progressive Policy Institute concludes that together, these recent FTAs only account for about 12 percent of U.S. trade.
