Undecided
07-01-04, 05:33 PM
Should the US enact tariffs? I don’t believe in Tariffs because they totally distort the world economy, and have very little positive effect on anyone. But I am being a devil’s advocate here. The US today has a $500+ billion trade deficit with the world, and here is an article from the economist talking about the monster trade gap that the US has today:
…But deficits of over 5% of GDP in America’s current account could not be sustained. Having carried the world economy through the first, crucial leg of recovery from the slowdown of 2001, some economists felt it was time for America to “hand over the baton” to the rest of the world and pause for breath.
----------------------------------
But America is refusing to let go of the baton. It continues to import much more than it exports while investing more than it saves. According to figures released last Friday, its current-account deficit, having narrowed to 4.6% of GDP at the end of last year, has widened again in the first quarter of this year to 5.1% of GDP.
---------------------------------]
A recent study* by economists at the OECD illustrates the difficulty. To narrow the deficit by two percentage points by the end of the decade, they reckon the greenback would have to lose about a quarter of its current value (as measured against the currencies of America’s major trading partners) by the end of this year. …Japan and the euro area would bear the brunt of the dollar’s fall. They would not bear it easily. America is such an important export market for both that neither would cope easily with such a loss of competitiveness.
-------------------------------
Despite what many Americans would like to believe, America’s trade gap is not simply an expression of its faster growth rate. The study found that America’s appetite for foreign goods is so much stronger than the rest of the world’s desire for American goods that even if the other rich countries raised their growth rates to match America’s, they would still sell more to America than it would sell to them.
------------------------------
The OECD’s authors imagine an administration prepared to raise taxes by 4.5% of GDP over the next six years while cutting spending by 1.5%. This would put the government into the black to the tune of 1.7% of GDP by 2009. But even such a massive fiscal turnaround, amounting to 6.6% of GDP, would knock only 2% of GDP off the trade deficit.
--------------------------------
America must beggar its neighbours with a competitive devaluation of the dollar, or beggar itself with a massive fiscal contraction—or both. The consequences of letting America’s deficits continue are certainly worrisome…
Yes you heard it here again, the Bush tax cuts have only done more damage to the US then any temporary gain (if there was any) that the tax cuts accomplished. America has to do something to cuts its truly gargantuan trade deficit. The US has lost much of her comparative advantage to other states with lower labour costs. Now one way the US can change the situation would be to reverse the flow of globalization and impose high tariffs, but the danger with that is that firstly imposing high tariffs on goods depresses the world economy, and will lower demand for American goods worldwide, which would negate any positive effect of a tariff. Secondly if the US imposed a tariff that would mean the US would have to re-invest in industries with a Comparative disadvantage which would lead us back to the 70’s inflationary period. The real thing to do with the American trade deficit would be to cut it down but not to get rid of it period (that’s basically impossible). The US hasn’t been in the black with her current account since 1981 when Reagan came into office. This current financial climate is a direct response to the Reaganomics of the 80’s. Last month in the US over 300,000 Americans filed for unemployment insurance, which negates all those “job gains” that Bush seems to be touting. If America really wants to change this dire financial situation she would have to “beggar” herself or others. If the US currency devalues anymore, then the Euro should become the world standard currency which would represent a huge shift in the economics of the world. Yes the US exports would become more competitive with the rest of the worlds should her currency devalue further, but really by how much? Not much, only by 2%. So should Americans merely resign to the fact that they are borrowing their way to the poor house? Or should a massive re-orientation of world economics have to happen?
…But deficits of over 5% of GDP in America’s current account could not be sustained. Having carried the world economy through the first, crucial leg of recovery from the slowdown of 2001, some economists felt it was time for America to “hand over the baton” to the rest of the world and pause for breath.
----------------------------------
But America is refusing to let go of the baton. It continues to import much more than it exports while investing more than it saves. According to figures released last Friday, its current-account deficit, having narrowed to 4.6% of GDP at the end of last year, has widened again in the first quarter of this year to 5.1% of GDP.
---------------------------------]
A recent study* by economists at the OECD illustrates the difficulty. To narrow the deficit by two percentage points by the end of the decade, they reckon the greenback would have to lose about a quarter of its current value (as measured against the currencies of America’s major trading partners) by the end of this year. …Japan and the euro area would bear the brunt of the dollar’s fall. They would not bear it easily. America is such an important export market for both that neither would cope easily with such a loss of competitiveness.
-------------------------------
Despite what many Americans would like to believe, America’s trade gap is not simply an expression of its faster growth rate. The study found that America’s appetite for foreign goods is so much stronger than the rest of the world’s desire for American goods that even if the other rich countries raised their growth rates to match America’s, they would still sell more to America than it would sell to them.
------------------------------
The OECD’s authors imagine an administration prepared to raise taxes by 4.5% of GDP over the next six years while cutting spending by 1.5%. This would put the government into the black to the tune of 1.7% of GDP by 2009. But even such a massive fiscal turnaround, amounting to 6.6% of GDP, would knock only 2% of GDP off the trade deficit.
--------------------------------
America must beggar its neighbours with a competitive devaluation of the dollar, or beggar itself with a massive fiscal contraction—or both. The consequences of letting America’s deficits continue are certainly worrisome…
Yes you heard it here again, the Bush tax cuts have only done more damage to the US then any temporary gain (if there was any) that the tax cuts accomplished. America has to do something to cuts its truly gargantuan trade deficit. The US has lost much of her comparative advantage to other states with lower labour costs. Now one way the US can change the situation would be to reverse the flow of globalization and impose high tariffs, but the danger with that is that firstly imposing high tariffs on goods depresses the world economy, and will lower demand for American goods worldwide, which would negate any positive effect of a tariff. Secondly if the US imposed a tariff that would mean the US would have to re-invest in industries with a Comparative disadvantage which would lead us back to the 70’s inflationary period. The real thing to do with the American trade deficit would be to cut it down but not to get rid of it period (that’s basically impossible). The US hasn’t been in the black with her current account since 1981 when Reagan came into office. This current financial climate is a direct response to the Reaganomics of the 80’s. Last month in the US over 300,000 Americans filed for unemployment insurance, which negates all those “job gains” that Bush seems to be touting. If America really wants to change this dire financial situation she would have to “beggar” herself or others. If the US currency devalues anymore, then the Euro should become the world standard currency which would represent a huge shift in the economics of the world. Yes the US exports would become more competitive with the rest of the worlds should her currency devalue further, but really by how much? Not much, only by 2%. So should Americans merely resign to the fact that they are borrowing their way to the poor house? Or should a massive re-orientation of world economics have to happen?