Problems with the Floating Tariff

Reiterate here that I have no faith, entertain the notion, that tariffs are a magic wand solution to the current economic morass. I find tariffs as mere tools for national economic re-development and a check on the power of the cosmopolitan OverClass that is taking my country down the commode. Without proper financing and coordinated public-private policy, tariffs can be rendered useless. Tariffs should never be used to eliminate foreign competition, investment and create and endure specific industries that will tend to become monopolized and lazy. Capital needs direction, however, and that direction should come from and for the common good that is geared for a harmony of interests of both the Few and the Many.

The Floating Tariff concept is an idea that I would personally not like tread, but it can be a compromise, used for a trial period to see how it works. Fixed rate bilateral tariffs work the best in my view, but tariffs that float is worth a look see. In all analysis, I see problems and bugbears that can arise, and it is needed to address these shortcomings.

Will China still 'piggyback' the dollar if tariffs are also pegged to the fluctuating value? This is a pertinent question since the piggyback of the Yuan on the Yankee dollar seems increase the trade disparity. On the surface, China will more than likely jump off since the amount of tariffs they will pay are yoked to the US Dollar will increase in periods and may take away the urge to even try to piggy-back. Instead, they may run their own currency independently, or try to piggyback the Euro or Yen. But then again, they would probably want to stay on the Dollar when it runs high and play a game of on and off. Either way, China will have to pay somewhere in the game.

Some nations will want the Dollar low, others like the Asian Tigers who are dependent on exporting goods into the United States, will most likely want the value high to beat the tariff. If the Treasury Bond window is closed, they won't have much desire as before to maintain a low Dollar. It maybe necessary to open the Treasury Bond window time to time to keep the equailarium up if the dollar is running too high for any length of time.

Another problem would be that companies exporting into the United States would perhaps be at a loss how to price their projects since the dollar-tariff is always fluctuating. Some may fear they will market products low and lose money, or market their product at a time of higher tariffs that lower by the time they hit American shelves. This would be a legitamate reason why not to employ a floating tariff and an argument for the preferered fixed-rate.

However, with the semi-floating rate tariff that's adjusted quarterly, this would not be too much of a problem in commerce marketing. The Dollar seldom fluctuates radically one way or another in a three month period, so neither will tariffs that are pegged to the Dollar. Since those importing nations factor in the fluctuating dollar anyway in pricing, it would not cause undo duress by marketing their goods based on the re-set rate of the fiscal quarter that they are in, or they could speculate what the next quarter's rate will be. What losses caused by a floating tariff will not be that grand. Theorhetorically, the push and pull of the US Dollar on the international currency exchange will render it roughly stable in value. This may be an argument for having the tariff to float fully free without a quarterly re-set based on the previous trade deficit or revenue surplus generated.

What if those nations on the Euro, Yen, etc, get the same idea and adopt a floating tariff linked to their currency? That could create a currency speculation bust and boom and really be cut-throat, friction maximus. Yet such happening could be beneficial in the long term and could single handedly put the bullet in the head of the globalization monster and Free Trade. At least the Japanese would have no reason to adopt the floating tariff since it is already a high protectionist, neo-mercantilist economy as are most of their Asian neighbors. America and Asia have a co-dependency on one another; there is no other place on Earth that they can market their exports that has the Consumer power than North America and the EU nations. Mercantile nations have to have exports to survive and thrive, so they will pay the tariff regardless if it is fixed or floating. If the USA uses the tariffs to re-industrialize and compete with Asian made goods - Japan and China would feel the 'pinch' ultimately, but the ball would be in their court to enact lowering of their domestic walls: American trade negotiators can always say that our tariffs are based on the currency market's waxing and waning anyway and is not directed at really any economic sphere or nation. If they don't like the tariffs and rival competition - good luck finding another market. Otherwise, they can adopt the floating principle of tariffs too, and tear down some of their existing walls to give Yankee products a chance to compete with them on their turf, as their goods compete with America's on theirs.

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Some Democrats are haggling over attaching labor and environmental provisions to future free-trade treaties such as Peru and Columbia. This may seem like a step in the right direction to some,yet nobody is raising the issue about the senselessness of having free-trade treaties with developing nations in the first place. Free Trade has never turned an agrarian developing nation into a first rate economic power. Developing nations have taken advantage of others that had free-trade economies and pursued a mercantilist, high-protectionist format.

Instead of nit-picking about another nation's environmental and labor laws, Democrats need to support and push the Surcharge Bill sponsered by Congressman Michael Michaud of Delaware. The said Bill's provisions call for an immediate revenue tariff when the trade deficit grows higher than 2% of GNP. The trade deficit is currently at 6% of GNP entitling the President to slap an immediate 20% import surcharge. THAT is a step in the right direction. This is also in full compliance under the rules of GATT. Bush naturally will veto the bill if it passes, but this can make tariff/trade a vibrant issue for 2008. The Dems need more issues-meat besides Iraq and health care.