• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Better Stimulus Through Trade

    Reuters reports this weekend:

    Obama’s transition team said it is mulling “buy American” provisions for the stimulus package that could favor U.S. companies over foreign competitors.

    Protectionism is the last thing our economy needs right now. The last time the U.S. reverted to protectionism in a time of economic turmoil President Herbert Hoover’s Smoot-Hawley Tariff helped usher in the Depression. This is not the direction our country needs to go. Meanwhile, University of Michigan economics professor Mark Perry reports:

    Tariffs are usually used to protect domestic industries from more efficient foreign competitors. But domestic firms also buy inputs, raw materials, supplies, parts and inventory FROM foreign producers, and in fact more than half of U.S. imports are industrial supplies and parts, and NOT finished consumer goods. In that case, tariffs are a tax on the inputs of domestic businesses and can put them at a significant competitive disadvantage.

    Case in point: There is a punitive tariff of up to 17.2% on an imported specific micro-denier suede fabric used extensively by Mississippi furniture manufacturers Lane, Bauhaus, and H.M. Richards. This tariff is about to be removed, saving each of these three firms more than $1 million annually, and saving close to 1,000 jobs in NE Mississippi.

    Read about it here, here and here.

    Posted in International [slideshow_deploy]

    4 Responses to Better Stimulus Through Trade

    1. len, Alexandria,KY says:

      Just a small observation, Obama and the Democrats talk about a huge stimulus ( unfunded), and based on the last one I see no good coming out of it other than a possible increase in taxes, he talks about cutting taxes to working people as though $ 500 were alot of money and in addition he is really ignoring retirees whose savings , 401K's and investments have gone sOUTH thanks to the insanity of Frank, Dodd, and Waters among many over the inpending Freddie and Fannie Disasters which those three so stupidly ingnored…So who is going to Throw those Inepts out of office???

    2. Howard Richman, Kitt says:

      You are correct that protectionism is a lousy economic philosophy. It is designed to protect politically-favored industries over other industries. The result is that it often hurts the unprotected industries, especially if they use inputs manufactured by the politically-favored industries.

      In this case, a tariff designed to protect certain fabric manufacturers hurt furniture manufacturers because they faced foreign competition from offshore contracts and there would be no tariff on those foreign contracts.

      However, you are not aware that there are four trade philosophies, not just two. The choice is not just between free trade and protectionism. The four alternatives are: (1) free trade, (2) protectionism, (3) mercantilism, and (4) balanced trade. Balanced trade is a relatively new philosophy that is needed in order to combat mercantilism, the philosophy which purposely imbalances trade.

      In order to achieve balanced trade, a country insitutes a generalized tariff or Import Certificates that apply to all foreign goods or just the goods from the mercantilist countries. Such a generalized tariff helps all American producers.

      For example, take the case where the United States would apply generalized Import Certificates as we recommend. Then the only component of the furniture that would require the purchase of Import Certificates would be the foreign-made fabric. Should Lane, Bauhaus, and H.M. Richards export US furniture, they would receive salable Import Certificates that they could use to pay for the fabric imported, with additional Import Certificates to sell to others who wished to import goods or services into the US. These Import Certificates would make all of these US furniture manufacturers, as well as American fabric manufacturers, much more profitable.

      There is a difference between protectionism and balanced trade. I recommend that you take the time to purchase and read our book Trading Away Our Future, which is the foundational book on the philosophy of balanced trade.

      Howard Richman
      http://www.tradeandtaxes.blogspot.com

    3. Mike Sheahen, Hickor says:

      Once again, another example of isolationism which has in fact been tried more than once before and so very predictably failed at nothing other than "torpedoing" the people and our economy.

      Example: In the era about the turn of the 20th Century, under the guise of responding to "unfair trade practices", "inferior products", and, in no small measure, also in response to a massive influx of LEGAL immigrants, politicians succeeded in demagoguing and pandering enough to impose a "protectionist" (read: isolationist) trade embargo against imports.

      Result? Too many American companies found themselves facing a corresponding lack of competition; that resulted in skyrocketing prices and plummeting quality; that resulted in correspondingly plummeting sales since increasing numbers of customers would not and/or could not pay the price of such products; that resulted in significant loss of both businesses and jobs, and the bottom line was the people, businesses, jobs, and thus also our economy got "screwed" by isolationism.

      In other words, "protectionist" isolationism of all sorts has been tried before and failed miserably at anything but "torpedoing" businesses, jobs, the people, and thus also our economy. And what's the definition of insanity? Continuing to try the same thing, expecting different results!

    4. Mike Sheahen, Hickor says:

      Correction:

      Once again, another example of isolationism which has in fact been tried more than once before and so very predictably failed at nothing other than "torpedoing" the people and our economy.

      Example: In the era about the turn of the 20th Century, under the guise of responding to "unfair trade practices", "inferior products", and, in no small measure, also in response to a massive influx of LEGAL immigrants, politicians succeeded in demagoguing and pandering enough to impose a "protectionist" (read isolationist) trade embargo against imports.

      Result? Too many American companies found themselves facing a corresponding lack of competition; that resulted in skyrocketing prices and plummeting quality; that resulted in correspondingly plummeting sales since too many people would not and/or could not pay the price of such products; that resulted in significant loss of both businesses and jobs, and the bottom line was the people, businesses, jobs, and thus also our economy got "screwed" by "protectionist"/isolationism.

      In other words, "protectionism" of all sorts has been tried before and failed miserably at anything other than "torpedoing" private businesses, jobs, the people, and thus also our economy. And what's the definition of insanity? Continuing to try the same thing, expecting different results!

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×