Tariffs, Protectionism, and Free Trade

Jim, in our off-blog discussion you asked me to defend what I was saying about tariffs and the playing field between the U.S. and other countries not being even. So here goes.

Tariffs are simply a tax that a country puts on imported goods to give their own companies and workers a more level playing field. If we manufacture TVs or gym shoes or whatever and pay our workers a living wage, those goods will have a certain cost. If the same product is manufactured in another country in unsafe working conditions by workers making pennies a day, they could obviously sell the products much cheaper. If we let them do that, it can (and has) put American companies and workers out of business.

All countries have an ongoing tug-of-war between free trade and protectionism. I suppose you could say the size of the tariffs indicates where you are in the line between free trade and protectionism. The advantage of free trade is that it can provide cheaper goods, which make the consumer happy. The advantage of protectionism is that it allows your workers to earn a living wage and can therefore protect and be good for the domestic economy. As developing countries move towards becoming developed countries and want a bigger piece of the pie, and as the economy becomes more global, the balancing act between free trade and protectionism becomes ever more tricky and complicated. You could make the case that to be in balance we should take in as much in trade as we export.

Iím sure you know all this and I write it here just to give some context of the discussion and as a preface to getting to the defense of my argument that we don’t now have a level playing field. Weíll start with what the U.S. charges in tariffs. Wikipedia actually has a pretty good summary of our tariff history, and a nice chart showing what we collected in tariffs from the late 1700s through the present. From the late 1700s until the start of WWI, tariffs were far and away our largest source of revenue. With WWI they were surpassed by income tax (before we had an income tax, tariffs were how we paid for most of what was in the federal budget). Through the 19th century tariffs provided well over half of our national revenue. Today they are 1.2%.

Thom Hartmann does a great job here and here (in a rant that may or may not be to your liking) of explaining how other countries still use tariffs to their advantage and how we do not. Export.gov has a list of countries and what they generally charge in tariffs. Many have value added taxes. It is true that many countries get as small a % of the revenue from tariffs as we do, and that is a result of the WTO and all the free trade agreements. (Though not all do. As they point out near the end of this great conversation between Thom Hartmann and Dean Baker, the Chinese have 20% average tariffs and we have 2% average tariffs.) The key thing is that with free trade, it will help the developing countries while hurting the developed ones. You can see the huge increase in our trade deficit over the past few decades. The problem is that the WTO has forced the whole playing field down to the lowest level, so the only way to compete is by playing as a third world nation, where workers can’t compete on the international stage unless they accept third world wages. And that is a huge part of what has destroyed the US economy.

I’m not saying we shouldn’t have trade or shouldn’t work to help developing nations grow their economies. I am saying that doing it at the expense of our own–and indeed, are we helping them grow, or are we just bringing ourselves down to their level?–is a bad idea. I have a friend who runs a factory that makes containers–boxes, and he is very conservative, and one thing we do agree on is that he is ever complaining about how hard it is to get good workers and pay them a living wage–where they can live in their community and you know, enjoy the American dream–when the market is constantly flooded with cheaper boxes from overseas because we don’t charge tariffs like we once did.

As I write this I realize perhaps I need to reframe my argument a bit. Maybe it isn’t that we don’t have a level playing field, but that we do, and it has become the playing field of the third world, with low wages, poor working conditions, and little hope for advancement. We built an amazing country, and with all the free trade agreements we have gone too far in just giving it away, in the name of what? Corporate profits. For that is what the WTO and trade agreements that are too free have given us. If you don’t agree, then you have to make the case that things have gotten better for the American worker in the last 15 or 20 years, since free trade has become the be all and end all for everyone from Clinton to Bush to Obama.

It is a very complicated topic, and I’ve just scratched the surface. And I think they like to keep it complicated, because then the American worker won’t understand what happened to them. I look forward to the discussion!

About JP

We're two guys who met in college, in 1980. We've stayed in touch, and like to talk politics, current events, music and religion. JP is nore liberal than Sid, but not in every way. We figure that dialogue stimulates ideas, moderates perspective, and is in general friendly. These are things we need badly in these dangerous times. The blog name is taken from a song by Bruce Cockburn.
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