‘Reciprocal’ Tariffs Make No Sense

How is it in America’s national interest to let other countries decide what duties we pay?

By Douglas A. Irwin. Excerpts:

"It amounts to outsourcing U.S. tariff policy to other countries. They would dictate what our tariffs would be. If other countries put high tariffs on American goods, then we would impose high tariffs on their goods. So much for American sovereignty. So much for deciding what’s in our own national interest."

"A reciprocal policy would enormously complicate the U.S. tariff system. The Harmonized Tariff Schedule of the U.S., which details individual rates on particular commodities, has about 13,000 line items. The U.S. trades with roughly 200 countries. Is Washington ready to impose and manage 2.6 million individual tariff rates? The lobbying pressures for exemptions and exceptions on the U.S. side would be enormous."

"Consider: China exports rare-earth minerals that are essential for the production of many high-technology goods. The U.S. doesn’t export such goods to China. But if China were nonetheless to impose high tariffs on them, would the U.S. then be required to impose real prohibitive duties on mineral imports from China?"

"Some U.S. industries are heavily protected from foreign competition. Will the U.S. match tariff rates on products from countries with lower tariffs on U.S. goods? If New Zealand doesn’t impose any import duties on dairy products, will the U.S. allow all New Zealand dairy into the U.S. duty-free?"

"are two major fallacies. The first is that other countries are taking advantage of us in trade, and we know this because we have a trade deficit. But macroeconomic factors, such as the balance between domestic savings and investment and the flow of capital between countries, determine the trade balance—not tariffs. The U.S.-Mexico-Canada agreement, the Trump-negotiated successor agreement to Nafta, ensures that U.S. goods have duty-free access to Mexico and Canada, as we also provide them. That’s equal treatment, or pure reciprocity, but it doesn’t guarantee balanced trade. The U.S. runs trade surpluses with Australia, Brazil, the Netherlands, the U.K., Singapore and most of Central and South America. Is the U.S. exploiting those countries? Does our trade surplus justify their putting tariffs on our goods?"

"Another fallacy is that other countries’ value-added taxes constitute discrimination against the U.S. Most European countries tax imported goods because they also levy taxes on domestic producers. In the end, VATs are taxes on consumption and don’t discriminate against imports. Even Adam Smith, a champion of free trade, accepted the idea that tariffs designed to equalize the tax treatment of domestic and foreign goods are legitimate"

"Even Mr. Trump’s hero William McKinley said, “Commercial wars are unprofitable.”"