Written By : John Hawkins
March 31, 2011

Question: I would like to hear your thoughts on Tariffs, why not use our trade deficit to attack our fiscal one? I’ve heard Michael Savage advocate a 20% tariff on China until they revalue their currency(which seems extremely excessive) but it did get me thinking that if could address both our outsourcing and deficit problem… — DaytripPro

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Answer: I am less opposed to tariffs than most free traders. In fact, I’d like to see us use them more — but with a specific purpose. I’d like to see us use tariffs to force other nations to open up their markets to American goods. In other words, we’re willing to continue to give you free access to our markets, but we expect the same. If you put huge tariffs on American goods to keep our businesses from making sales in your nation, we’re going to do the same thing to you until you agree to stop putting American goods at a competitive disadvantage. So, I do support a limited usage of tariffs to help American manufacturers sell more goods overseas.

As to putting a tariff on China to attack our deficit, that simply wouldn’t work because it incorrectly assumes that the situation is static. If we put a 20% tariff on Chinese goods, a number of things would happen.

#1) Costs of Chinese goods would rise significantly, sales would drop, and much less revenue would be raised than expected.

#2) China would retaliate. They might stop buying our debt. They might put huge tariffs on the goods we ship there. Perhaps they might seize American businesses in China. What they’d do is hard to say, but what we can be sure of is that they wouldn’t just sit there and take it. Not only would the price we pay for goods from China go up, we’d feel quite a bit of economic pain in some other way.

#3) If this went on for a while, businesses would leave China. People might think this a good thing, but chances are those businesses wouldn’t come back to the US. They’d go to India, Pakistan, or some other nation where they can hire people for $2 an hour.

Here’s the thing; The jobs where someone gets paid to pull levers, work a loom, or stick “slot A” into “slot B” all day long are unlikely to ever come back to the United States. Historically, jobs like that go where the labor is the cheapest until they eventually disappear altogether after they’re replaced by machines.

The good news is that America remains competitive for high-end manufacturing jobs where someone gets paid a lot of money to run an expensive piece of equipment. Still, you need a more educated work force for those jobs. Moreover, our insanely high corporate taxes, overly progressive tax code, unions, and over-regulation make America much less attractive than it would be otherwise to international corporations. One of the prices we pay for the Left’s “get the rich” mentality is corporations creating primo manufacturing jobs in other nations.

That’s not a simple answer to the question, but trade is an extraordinarily complex subject that doesn’t lend itself to easy answers.

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