Monday, May 7, 2007

Tariffs are the Equalizer

Many of the 19th Century tariff protectionists such as Friedrich List were not dogmatically so. List believed that protective tariffs were essential for a developing manufacturing economy, and following industrialization the industrialized nations should develop trade liberalization with one another, or 'Free Trade'.
Wilhelmine Germany followed List's advice nearly to the letter of his program outlined in National System of Political Economy: Bismarck built high protective walls in the 1880s and by 1900 Germany was industrially on par with Great Britain in most figures. Thereafter, Germany began reducing tariffs so that by 1913 their aggregate tariff rate was 13% - one of the lowest in the industrial world at that time. By the time of the Great War of 1914, many of the goods on English shelves had 'Made in Germany' on them. This is a clear lesson rebutting the notion of dreamers such as Bastiat that Free Trade prevents armed conflicts between nations as well as the fiction that unhindered trade between nominal 'equals', works.

For instance, the biggest trade dispute going on at the moment is between the USA and Canada - two roughly equal 1st World countries that border one another. Serious disagreements regarding lumber and subsidies,etc. has got the Canadian government up in arms and will take it to the WTO at the end of the summer.Some say that a trade war may result between these two nations who have had a de facto Free Trade agreement with one another for twenty years. Yet the disparities of it have grown and the hidden hand of the market has yet to 'correct' these. Some Canadian folks have an amusing and apt bumpersticker on their cars: *NAFTA - Not Another Free Trade Agreement!*

Free Trade treaties, even between economic powerhouses, seemingly creates more disputes than any tariff rate ever did. After tariffs are reduced or eliminated, they then go through a nation's internal apparatus and seek to cut out what they dub as NTB's - Non Tariff Barriers - such as subsidies, licencing,inspections etc. NTB's is relatively new in the jargon of international trade officials and the force behind it are cosmopolitan globalist corporations who feel that anything in their way to make the most profit as quickly as possible for themselves must be destroyed. Whether it is intentional or not, their end result is geared for the elimination of sovereign nation- states - a nation's right to regulate aspects of their economy within its own territory.

The solution to the dispute between USA and Canada is to admit that FTA/NAFTA/WTO is no way to do business with one another as we have seen clearly. Free Trade must be scrapped immediately and instead pursue trade policies of reciprocal revenue tariffs, say 15%. It is not NTB's that need to be eliminated, but the entire concept of NTB's itself. It is not another nation's concern how another subsidises their agricultural and manufacturing edifice. I say 'revenue tariff' because both Washington DC and Ottawa needs revenue. Since USA/Canada are the largest trade partners with one another, free-trade is depriving each government of copious funds. Corporations should not be the only people making money off of trade bonanzas. Tariffs are not 'beggar thy neighbor' - it is an agreed 'toll'. Free Trade is buggering thy neighbor.

'Tariffs cause inflation!' is the scare tactic that Big Business and their stooge Free Trader economists have used for over two centuries. The reality is that historically this has not been the case. During the late 19th Century when America had tariff rates of over 40% in most years, data has shown that aggregate prices remained rather stable. In fact, the problem in that era was deflation, not inflation. If a nation has competitive domestic markets, the impact of tariffs has little to do with overall long-term prices. And guess what? America has been a Free Trade economy since 1973 and we have had inflation running unabated since then at variable rates. Inflation has grown higher under Free Trade than it ever did when the USA had high tariff walls! This, the Laissez-faire crowd has never been able to explain, or they don't address this phenomena because it busts their own myth that tariffs are the root of inflation. And again, there are more heated trade disputes under the current Free Trade globalist organizations than there ever was when most nations had protectionist based trade dealing with one another. Bilateral tariff reciprocation is 'Fair' trade: 'You pay 15%, and I pay 15%' What's the problem?

Canada and USA must pursue a policy of re-industialization/competitive protectionism within their own respective nations by dirgiste methods. The way to do it is through said revenue tariffs that will fund it and keep the burden of financing internal improvements directly off Canadian and American taxpayers.

1 comment:

Mike Romig said...

"And guess what? America has been a Free Trade economy since 1973 and we have had inflation running unabated since then at variable rates. Inflation has grown higher under Free Trade than it ever did when the USA had high tariff walls! This, the Laissez-faire crowd has never been able to explain, or they don't address this phenomena because it busts their own myth that tariffs are the root of inflation. "

Free trade and inflation are not related here. Free-Market economists argue that Tariffs are one cause of inflation, not the root cause. The root cause is an increase in money supply. The reason we continue to have inflation even with free-trade policies is because of increased global investment in America and the use of intentional inflation to fund public works projects and other federal programs.

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