Conservative economist calls for tariffs on China

The solution to the problem of unemployed workers and offshored industries lies in trade rather than tax policy.  The reality is that China manipulates its currency to keep the renminbi sufficiently low to ensure its goods are the lowest priced available in most markets.  Adam Smith has the solution: tariffs.

That's from The Weekly Standard's Irwin Stelzer.  He criticizes Rick Santorum's emphasis on tax reform as the way to revitalize American industry.  Stelzer acknowledges the tax code needs reform, but says that alone won't solve our problems. We need tariffs. 

Free market fundamentalists always cite Adam Smith, the 18th century Scot author of Wealth of Nations, to condemn tariffs and justify unilateral "free trade."  But Stelzer points out that Smith's own theory understood tariffs have a place in the real world.

In fact, the Great Scot concluded, “Revenge .  .  . naturally dictates retaliation .  .  . when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country.” Such retaliation is especially indicated when it is likely to produce the repeal of the “prohibitions complained of.” The job of doing all of this requires “the skill of that insidious and crafty animal, vulgarly called a statesman or politician,” in ample supply here.

Smith also recognized that it “will be generally advantageous to lay some burden” upon imports “when some particular sort of industry is necessary for the defence of the country.” And it is acceptable to tax imports to offset any taxes imposed on domestic firms that exceed those imposed by foreigners on their companies: “When some tax is imposed at home upon the produce [of domestic industry] it seems reasonable that an equal tax should be imposed on the like produce” of foreign companies with which the hometown boy competes.

Finally, Smith pointed out that such restrictions as are imposed on trade should be removed only “gradually, and after a very long warning,” lest workers and capitalists “suffer very considerably.” 

There are, of course, also warnings about the negative effects of some of these measures, and these restrictions are exceptions to Smith’s general rule that free trade in most cases enriches the parties to it. But if currency manipulation doesn’t warrant retaliation, if theft of intellectual property is not a sufficient barrier to the free flow of capital to justify retaliation, if the variety of administrative restrictions on both imports and exports of items such as rare earth metals doesn’t warrant retaliation, if the persistent trade imbalances do not constitute a threat to “the defence” of the nation (all those IOUs in the hands of the Chinese regime surely affect our foreign policy), it is difficult to imagine what would.

Stelzer says a Republican candidate could use a muscular stand on trade policy as a campaign issue.

It’s trade policy, not the tax code, that can achieve the objective of providing American manufacturing a fair playing field. There are those who would accuse him of protectionism. He can respond by distinguishing his limited tariffs in a free trade regime from real protectionism. He can ask what his critics propose instead. And he can help move the debate among Republicans on economic policy in a more realistic direction.

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