The Crazy Protectionists in the US

September 15, 2006 at 6:33 pm (Economics, US)

The protectionists in the U.S. are going more and more insane. First there are two senators proposing a 29% tariff on all imports from China given that China not appreciates its currency. Then today a crazier idea comes up: another two senators are proposing mandatory certificates aiming at any companies who want to import goods into the U.S.

 

For a country tagged with freedom and democracy, this idea is totally insane, and stupid.

 

On the one hand, the US is playing a significant role at WTO negotiations and in other free trade organizations, on the other hand, there are two democrats yelling at home to impose import quotas on all the goods.

 

 

Under their proposal, if a company exports goods worth $1, it will be granted a $1.4 import certificate in the first year the proposal takes effect, and slowly the ratio narrows to $1 to $1.3 and finally settles to equal. Now we can understand their incentives: the legislators wish this proposal will strictly control the trade deficit and finally reach their ideal–trade balance. The certificate can be traded, so that when companies making less exports want to import more, they have to buy certificates from those who export more. The trade deficit–about $717bilion last year, is way too high, they think. And it’s even more unbearable that a quarter of the deficit is from China.

The proposal deviates from the principles of economic freedom established by Adam Smith and advocated by prominent economists such as Milton Friedman. If this proposal is legitimized, the country will definitely run out of certificates. The prices of the certificates will hike astronomically. No surprisingly, there will be new markets emerging for certificate trading, and I bet their business will dwarf NYSE. On the other hand, when average Americans drive to Wal-Mart or Target, they will witness unprecedented long lines. They have to wait for a whole day for a roll of toilet paper and a T-shirt. There will be inflation, no doubt. Inflation driven by demand. A T-shirt will be $100. Car companies will get bankrupt as they can’t afford the high-price parts made in China. There will be large amount of underground economy. The unemployment rate will rise, instead of falling as the Senators wished, as more and more companies have to move their production out of America in order to buy low-cost supplies from other countries. A proposal like such will invite countless fallouts. Finally it will distort the whole economy, and even the politics.

 

 

As for China, they will sell their products to other countries without such kind of insane laws. And the demand from American companies won’t decrease, because American companies will build more factories in China, and alas, will help Chinese government solve the unemployment headache.

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1 Comment

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