Anti-trade Amer­ica?

Financial Mirror (Cyprus) - - FRONT PAGE -

Repub­li­can pres­i­den­tial can­di­date Don­ald Trump has pro­posed slap­ping a 45% tax on Chi­nese im­ports into the US, a plan that ap­peals to many Amer­i­cans who be­lieve that China is get­ting rich from un­fair trade prac­tices. But, for all its ex­tra­or­di­nary suc­cess in re­cent decades, China re­mains a de­vel­op­ing coun­try where a sig­nif­i­cant share of the pop­u­la­tion live at a level of poverty that would be unimag­in­able by Western stan­dards.

Con­sider China’s new five-year plan, which aims to lift 55 mil­lion peo­ple above the poverty line by 2020, a thresh­old de­fined as just CNY 2,300, or $354, per year. This com­pares with a poverty line of around $12,000 for a sin­gle per­son in the US. Yes, there are sig­nif­i­cant cost-of-liv­ing dif­fer­ences that make di­rect com­par­isons du­bi­ous, and, yes, poverty is as much a so­cial con­di­tion as an eco­nomic one, at least in ad­vanced economies; but the gen­eral point that in­equal­ity be­tween coun­tries swamps in­equal­ity within coun­tries is a very pow­er­ful one.

And China’s poverty prob­lem is hardly the world’s worst. In­dia and Africa both have pop­u­la­tions roughly com­pa­ra­ble to China’s 1.4 bil­lion peo­ple, with sig­nif­i­cantly smaller shares hav­ing reached the mid­dle class.

Demo­cratic pres­i­den­tial can­di­date Bernie San­ders is a far more ap­peal­ing in­di­vid­ual than “The Don­ald,” but his an­ti­trade rhetoric is al­most as dan­ger­ous. Fol­low­ing prom­i­nent left-lean­ing econ­o­mists, San­ders rails against the pro­posed new Trans-Pa­cific Part­ner­ship (TPP), even though it would do much to help the de­vel­op­ing world – for ex­am­ple, by open­ing up Ja­pan’s mar­ket to Latin Amer­i­can im­ports.

San­ders even ham­mers his op­po­nent Hil­lary Clin­ton for her sup­port of ear­lier trade deals such as the 1992 North Amer­ica Free Trade Agree­ment (NAFTA). Yet that agree­ment forced Mex­ico to lower its tar­iffs on US goods far more than it forced the US to re­duce its al­ready low tar­iffs on Mex­i­can goods. Un­for­tu­nately, the re­sound­ing suc­cess of San­ders’s and Trump’s anti-trade rhetoric has pulled Clin­ton away from her more cen­trist po­si­tion, and might have the same ef­fect on many mem­bers of the House and Se­nate. This is a recipe for dis­as­ter.

The TPP does have its flaws, par­tic­u­larly in its over­shoot on pro­tec­tion of in­tel­lec­tual prop­erty rights. But the idea that the deal will be a huge job killer for the US is highly de­bat­able, and some­thing does need to be done to make it eas­ier to sell high-tech goods to the de­vel­op­ing world, in­clud­ing China, with­out fear that such goods will be in­stantly cloned. A fail­ure to rat­ify the TPP would al­most cer­tainly con­demn tens of mil­lions of peo­ple in the de­vel­op­ing world to con­tin­ued poverty.

The right rem­edy to re­duce in­equal­ity within the US is not to walk away from free trade, but to in­tro­duce a bet­ter tax sys­tem, one that is sim­pler and more pro­gres­sive. Ideally, there would be a shift from in­come tax­a­tion to a pro­gres­sive con­sump­tion tax (the sim­plest ex­am­ple be­ing a flat tax with a very high ex­emp­tion). The US also des­per­ately needs deep struc­tural re­form of its ed­u­ca­tion sys­tem, clear­ing ob­sta­cles to in­tro­duc­ing tech­nol­ogy and com­pe­ti­tion.

In­deed, new tech­nolo­gies of­fer the prospect of mak­ing it far eas­ier to re­train and re­tool work­ers of all ages. Those who ad­vo­cate re­dis­tri­bu­tion by run­ning larger gov­ern­ment bud­get deficits are be­ing short sighted. Given ad­verse de­mo­graph­ics in the ad­vanced world, slow­ing pro­duc­tiv­ity, and ris­ing pen­sion obli­ga­tions, it is very hard to know what the endgame of soar­ing debt would be.

Do pro-deficit pro­gres­sives re­alise that the bur­den of any fu­ture debt crises (or fi­nan­cial-re­pres­sion mea­sures) are

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.