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Fair not Blind Trade

The lingo we hear today is fair not free trade. What exactly does that mean? Mostly it ends up being good sounding rhetoric without much substance. If we want to move away from blind trade to trade that is fairer to American workers, we must have some objective criteria for such decisions. One thing I enjoyed about Murphy’s book was his attempt to address this very problem.

If we accept as a truism that population density is a determining factor in American’s decreasing standard of living, then certainly we should take that into account in our trade policies. If all trade agreements are not bad, then we need tools to determine the good, bad, and the ugly.

Like many when I think of “trade costs” China, Mexico, or Japan come to mind. Murphy broke down the trade deficit on a per capita basis which gives a very individual cost to specific trade agreements. Surprisingly, it was actually Ireland that cost every American $4,306 in 2006. Other top countries were Japan ($778), Israel ($604), Taiwan ($717), Mexico ($336), Korea ($297) and China ($172). All of these countries have a much higher population density than the U.S. which under Murphy’s theory they would have declining per capita consumption. In very real terms that means no market for U.S. made goods.

What Murphy proposes is a tariff system based on population density. Countries that are more dense will pay higher tariffs. The tariff is pretty simple, for population density of 100 and below no tariff, and 5% or each 100 after that. For example a population density of 150 would be (101-200) 5%, 550 (501-600) would be 25%, 1050 (1001-1100) 50% etc.

How would this effect some the countries with the largest “trade costs” to Americans. Imports from Ireland and Mexico would each have a 5% tariff, China would have a 15% tariff, Japan and Israel would have 40% tariffs, and South Korea and Taiwan would each have a 55% tariff. As Murphy makes clear the goal of the tariffs is not revenue generation but making the trade fairer.

It would be a short time of paying 55% more for a car from Taiwan, or a TV from South Korea, that the demand for American manufacturing would increase. Even if only $500 billion was re-invested into the American economy, that would translate into 6.7 million jobs at $50,000 a year.

I know, the blind traders will throw out the accusation of protectionist. I would argue that the blind trader is just as protectionist in the end. Its not a question of one side being protectionist and the other not. Its a question of being a protectionist for whom. Will you be a protectionist for big business or a protectionist for American workers. Blind trade is not free and the costs in jobs, standard of living, and tax revenue is staggering.