AMERICA NEEDS TARIFFS
By Mark Anderson
“Before the income tax was invented, the duty levied on imported goods financed almost the entire cost of America’s federal government—and as much as 80 percent of that duty came through the Port of NewYork, making the New York Custom House a major national financial power.”
That is how the sign reads outside the Alexander Hamilton U.S. Custom House in lower Manhattan, which stands as a stately symbol of what used to be the main tax for federal revenue: the tariff. For the first 125 years of these United States, there was no federal income tax but tariffs were levied on imports as a commonsense source of revenue.
Ian Fletcher, an author and economist on the other side of the nation at the San Francisco office of the U.S. Business and Industry Council, talked with AFP about the hard realities of modern trade. He used to live where he had a good view of the Golden Gate Bridge.
“You could see the container ships coming in—riding very low in the water—because the containers were full; the containers obviously have to go back where they came from, so the same number of boats go back,” he said. “You see them going out of the Golden Gate Bridge riding very high in the water; the reason for that, obviously, is the United States is not exporting nearly as much as it’s importing. So these ships are going back to China and places like that half empty, sometimes entirely empty.”
Fletcher, a former Wall Street economist who served hedge funds, private equity firms “and pirates like that,” as he put it, said that he wrote his new book, Free Trade Doesn’t Work: Why America Needs a Tariff, because “I wanted to give something back to this country.”
Interestingly, he said, “At long last, academic economists in the universities were finally putting together the math that would enable you to prove on a very high intellectual level that free trade is the mistake that most commonsense people think it is.”
He added, “So I thought it was time that this be put before the public, because it’s something they really need to know. . . . Everyone who has looked at [the book] has liked it.” However, many diehard free-trade intellectuals are the exception.
“Those guys just don’t understand that ideology and economics are not the same thing,” Fletcher said of today’s free traders, including Ludwig von Mises disciples and others cut from a similar cloth. “You can believe in any political ideology you want . . . but economics is supposed to be a discipline of facts.”
When asked how much longer “average Americans” must suffer under NAFTA—a demonstrated failure first instituted in 1994—Fletcher gave a startling response:
“Well, I think the good news there is that the free-trade era of the United States is coming to an end”—based in part on the academic world’s newfound realizations about free trade’s fallacies, which may spell the beginning of the end for America’s modern trade regime.
He added: “Free trade, although it’s a mistake, is something that can look like a good policy for nations under certain circumstances. The British thought it was really good policy around the middle of the 19th century. They adopted it, and it knocked them off their economic perch. And I think the United States is being forced to wake up. And it will be dragged, kicking and screaming, back to America’s traditional economic policy, which is protectionist, though a lot people don’t know that.”
Britain began to flirt with free trade around 1860 and eventually saw it fail. Ironically, exactly 100 years later, in 1960, America embarked down the same road, Fletcher noted.
Fletcher agrees with Gus Stelzer, the late General Motors executive and trade writer, that the U.S. Constitution is a protectionist document—that it does not provide for neo-liberal trade policies. Fletcher said: “The U.S. Constitution explicitly grants Congress the right ‘to regulate commerce with foreign nations. . . .”
Thus, the constitutional framework is “black and white,” Fletcher toldAFP, regarding the unmistakably clear protectionist provisions installed for the purpose of “ordered liberty” so Congress can set the ground rules for imposing tariffs not simply to raise revenue, but mainly to protect domestic industry. That, he said, is the ultimate goal of tariffs. The revenue is secondary.
Another black-and-white item—Chinese tires—was addressed by Fletcher. The Obama administration’s support of tariffs on Chinese tires and pipes is, in Fletcher’s assessment, more of a disappointment than many people may realize.
“The Chinese tire situation is pretty indicative of what he is really doing. He is making small, little adjustments here and there, like his predecessors have, to prevent anything little from blowing up into a big flashpoint. He is clearly not a protectionist. The U.S. International Trade Commission recommended a 55 percent tariff on Chinese tires; he only imposed 36 percent.”
Fletcher sees this as a signal to keep the protectionists pacified but also for Obama to indicate, “Fundamentally, I am a free trader.” He said Obama went on to propose the Trans-Pacific Partnership, which is “a whole new free trade area for the Pacific. So there is no doubt that Obama is a free trader.”
Fletcher said The Wall Street Journal “will scream its head off every time somebody imposes a 2 percent tariff on toothpicks,” yet that is mainly theatrics for the masses, since long-existing rules provide for tariffs to be imposed now and then on narrow segments of incoming goods—if pushed
hard enough by domestic interests. Butmany observers read too much into these occasional tariffs, he said.
So, as AFP asked Fletcher, are these “token tariffs” on Chinese tires and pipes a sign of even a small shift away from a free-trade regime?
“Not even remotely,” Fletcher answered, adding that yet another turnaround on campaign promises for Obama is that, as a candidate, he said he would renegotiate NAFTA. “He has since announced that he will not renegotiate NAFTA at all.”
* Fletcher appeared on WhenWorlds Collide, Anderson’s weekly radio show, Jan. 23. See the archive at RepublicBroadcasting.org.To get a copy of his book, go to FreeTradeDoesntWork.com.
Mark Anderson is a longtime newsman now working as the deputy editor for American Free Press. Together he and his wife Angie provide many photographs of the events they cover for AFP. Mark welcomes your comments and inputs as well as story leads. Email him at at [email protected].
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(Issue # 6, February 8, 2010)