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The Ten-Percent Solution

By   Follow Me on Twitter     Message Joel Joseph       (Page 1 of 2 pages)     Permalink    (# of views)   1 comment

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President Trump has repeatedly threatened companies considering a relocation to Mexico or China that they would be required to pay a tariff of 35% if they wanted to sell their products in the United States. I agree with the President that the U.S. government should discourage companies from moving offshore. I believe, however, that the better, and more achievable path to attain this goal, is to impose tariffs on Mexico, China and Japan (our three largest trading partners, responsible for 90% of our trade deficit) of ten percent across the board. At the same time, we can use the ten-percent solution to encourage corporations like Apple, Microsoft and Google to repatriate most of the $2.4 that they have sitting in offshore accounts. These new laws could increase the revenues of the U.S. Treasury by more than $300 billion in the first year.

Bill of Attainder

The constitution of the United States prohibits a Bill of Attainder (Article I, Section 9, Paragraph 3). A Bill of Attainder is legislation that singles out an individual, company or group for punishment without a trial. When the President threatens Carrier, Ford Motor Company and other businesses with a 35% tariff, Mr. Trump is proposing a Bill of Attainder. Congress can and should pass a 10% tariff that applies to all imports from Mexico, China and Japan, not just on those companies threatening to leave the United States. Companies who have already left should not be in a better position than those planning to move in the future.

Why a Ten Percent Tariff on Chinese Imports is Reasonable

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The President can negotiate with Mexico, China and Japan about the amount of the tariff that is appropriate for each country, but ten percent should be the target. The Chinese government recently imposed extra duties ranging from 2% to 21.5% on imports of large American-made cars and sport-utility vehicles. At the same time, General Motors is now making the Buick Envision in China and importing it into the United States with no tariff. "Today's announcement by General Motors that they are importing the Envision from China is a slap in the face to U.S. taxpayers and the men and women who worked so hard to save GM during its darkest time," UAW President Dennis Williams said on December 4, 2015. A ten-percent tariff would encourage GM to bring the Buick Envision production to the United States.

According to officials in the Obama administration, Chinese tariffs imposed on U.S. autos affected about two-thirds of the $8.5 billion worth of U.S. auto exports to China. The World Trade Organization found these tariffs to be illegal. According to the World Bank, U.S. tariffs on imported Chinese products average 2.9%, while Chinese tariffs on U.S. goods sold in China averaged 9.7%, nearly four times as high. A ten-percent tariff on Chinese imports would level the playing field.

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In order to avoid a trade war and to keep prices stable, a 10% tariff on all Chinese products is reasonable. Proposed Senate legislation to counteract Chinese currency manipulations suggest a 20% tariff. A ten-percent tariff would be a fair and reasonable compromise.

In 2015, the U.S. goods-and-services trade deficit with China was $336.2 billion. By comparison, our U.S. exports to China totaled $116 billion. The import of goods from China totaled $482 billion. In other words, China sold us four times as much as we sell to them. And this is fair trade?

Mexico

When NAFTA went into effect, the United States had a substantial trade surplus with its southern neighbor. In 2015, our U.S. goods-and-services trade deficit with Mexico was $49.2 billion, about a billion dollars per week. This massive deficit can be attributable to U.S. car manufacturers moving their assembly plants to Mexico seeking cheap labor and relaxed (or nonexistent) environmental regulations. At the time that NAFTA went into effect, there were three pesos to the dollar; now there are twenty. A ten-percent tariff on Mexican goods would bring in more than $5 billion per year, create fairer competition and reduce our massive trade imbalance with Mexico.

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Japan

The U.S. goods-and-services trade deficit with Japan was $57 billion in 2015. Japan does not buy many imported cars from the United States because it imposes large fees on imported vehicles. Japan, like China, has played games with its currency so that it can sell millions of cars and other products into the United States. The United States rebuilt Japan after World War II and has been enriching Japan through trade that has been tilted in Japan's favor. Japan should negotiate with the United States and agree to a ten-percent duty on Japanese imports.

Getting Offshore Money Back Home

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Chairman, Made in the USA Foundation, economist and lawyer, author of ten books and hundreds of articles.

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