A fair approach to free trade

Trade policy is a favorite political football; Democrats criticize free trade a lot because of heavy unions’ influence, while the republicans keep on claiming that without it, the United States can’t survive. I’m one who believes that our approach to trade in general is flawed and needs to be reformed. My reason is simple: We’ve been exporting our jobs abroad and our commercial balance is chronically and increasingly in the red. As of 2008, while we’re exporting $1.377 trillion, we’ve been importing close to $2 trillions, leaving a $568.8 billion deficit that represents 41% of what we sell abroad. This is simply insane and this is where my proposal comes in.

The nation’s goal should be to strike a balance between what we sell and what we purchase outside of the U.S. For instance, if we use China – our largest trade partner – as an example, in 2008 China exported $338 billion to the US while we managed to sell them just $71 billion, leaving a $266 billion gap. What I’m proposing is offer free trade (read no custom duties on anything) for Chinese goods entering the United States, as long as we can sell as much goods or services to China. That would mean that to maintain its duty-free privilege, China should have bought and extra $266 billion from us during the 2008 year.

If there is any imbalance for a given calendar year, a duty lasting for one full year would be put in place in the second quarter of the following year. It would amount to the ratio of any surplus divided by the lowest volume of one of the two partners; in that case, we would levy a 375% duty on all Chinese import brought into the USA between April 1, 2009 and March 31, 2010. The following year, a new duty would be established based on the 2009 trade balance and so on.

This would be fair, self-regulating and quite simple and could be implemented by leaving the present custom agreements in place. Each trading partner would monitor its trading activity on a month-by-month basis, watch it and make every possible adjustment to keep, as much as possible, the exchange on a level playing field; the incentive would be powerful and we’d put and end to the endless rhetorical exchange meant to protect a few big US firms that are vehemently defended by their lobbyists before Congress. Before I dig deeper into this proposal’s details, does the concept make sense to you?