Tariff Won’t Solve Problems, Saving Might

by Lyman Stone

The House of Representatives recently voted 348-79 to pass a bill that allows the imposition of a general tariff on imports from nations that are “currency manipulators.” While the stated reason makes some sense, the driving force for this tariff proposal (as for last year’s disastrous tire tariff) is the familiar face of protectionism.

The argument is this: The U.S. has a huge trade deficit (we import more than we export). Tons of things have “Made in China” written on them. Those things could have been made in the US. China is poor and has lower wages. Therefore, China is stealing “our” jobs. Therefore, China must be punished.

This anti-trade logic is completely wrong. China’s trade surplus amounts to about 2 percent of its economy. Our deficit amounts to about 4 percent of our economy. So obviously our problem is not just China. Moreover, China is not raking in trade hand over fist anymore. They export barely more than Germany and are also the world’s second-biggest importer — right behind us. Countries with similarly high trade surpluses (in terms of export-to-import ratios) would be Finland, Uzbekistan, Namibia, Botswana and Timor-Leste. I suppose we should live in terror of Timor-Leste’s trade surplus.

China’s trade balance is not as extreme as the hyped-up media would lead us to believe. What is extreme is American credit addiction and overconsumption. Our national savings rate is 12.2 percent. China’s is 53.2 percent. Americans don’t save, we consume.

Be it houses, hamburgers, Hondas or college educations, Americans have an excessive appetite for debt and a deficient desire to save. We are culturally nearsighted. The long-term solution for us is to take out fewer loans, buy fewer things and start saving more, beginning right now.

However, there is an obstacle. Our policymakers tell us that we need “stimulus,” not savings. Why defer spending until tomorrow when, with a magic piece of plastic, you can spend today? Indeed, a pro-savings, pro-investment policy will never be pushed by in-power policymakers, just as a union-backed majority will never support liberalized, internationalized commerce. In the long run, American money habits can be a driving force for prosperity and can cause the savings-obsessed Chinese to begin spending as the returns on their investments fall. But no sane politician would advocate the course of free trade at the cost of “good” American jobs, or worse economic numbers on next week’s news cycle. Indeed, the only people with a political incentive to make these short-term sacrifices are obstinate, ideologically stubborn, nay-saying oppositionalists. If only we had some of those.


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