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  • Help Poor People by Cutting Trade Barriers

    In 2011, the U.S. government spent more than $22 billion in non-military foreign aid while collecting $6.8 billion in taxes on imports from the world’s poorest countries. Ironically, the government spent $185 million in “trade and investment” aid while collecting 36 times that amount from tariffs on products from poor countries.

    Does it make any sense for the government to send billions of dollars in aid to poor countries while maintaining high tariff walls that block their ability to do business with Americans?

    A better option would be to eliminate tariffs on imports from developing countries. The government could offset the $6.8 billion revenue loss by cutting foreign aid by the same amount.

    The value of such an approach is easily testable. The United States could pick a handful of countries that receive foreign aid, likeVietnamorBangladesh, and eliminate all trade barriers and foreign aid to those countries. (The average U.S. tariff on products from those countries in 2011 was 9 percent forVietnamand 15 percent forBangladesh, and each country received well over $100 million in aid.)

    Then, four or five years later, we could see how these countries compare with others who received aid but faced trade barriers.

    Want to bet on which group would do better?

    Posted in Economics [slideshow_deploy]

    One Response to Help Poor People by Cutting Trade Barriers

    1. Malick Deme says:

      Whether it is right or not, there is more at stake in any country “foreign aid”, starting with access similar to political donations being an avatar of freedom of speech.
      Often Foreign aid is used as an incentive/coercion tool for US foreign policy like it is by other powers, securing other interests from strategic (i.e securing military bases or defeating militants or impeding drugs trade) to commercial (i.e. protecting oil routes). Most of our funds go to the Middle East, Israel, Egypt, Colombia, Jordan, Pakistan, etal. (http://www.vaughns-1-pagers.com/politics/us-foreign-aid.htm). That being said, your idea of comparative test is intriguing.
      It could be complemented by letting some of the incentive programs run as Congress designed them, without White House, State Department or Department of Defense interfere GWB's Millennium Challenge Corporation which pays country to move toward political and economic systems more compatible with ours (http://www.mcc.gov/)
      The main concept was to apply Quality Improvement Process to the implementation of economic freedom and political democracy. Critical Criteria Identification Measurement, Standards definition and gap assessment, Progress monitoring and reward. One issue is that the monetary reward becomes a goal for itself for the local governing class and for well-connected US businesses to grab part of the pie. Instead the focus of the program should be the transformation of the reality of the country, the measurement only driving policies which change the reality and encourage local entrepreneurship and US business participation.
      A good case is coming up with the Ivory Coast quest for 2012 MCC eligibility after successfully reentering AGOA in 2011 after the civil war which erupted when Mr. Gbagbo, the former President , refused to concede defeat in a democratic election heavily financed and monitored by the international community. The Ivory Coast is on the verge of accessing PPTE status and in a fight to leverage its extraordinary strategic location in the heart of Western Africa, a subcontinent the size of the continental US. It is at the intersection of the oil rich shelf on its East, the mineral rich shelf on its West, the Uranium rich countries on its North. It has ample agricultural production both for local consumption and for export and it is rebuilding historically best in class human and physical infrastructure under the leadership of its President, Dr. Alassane Ouattara, a University of Pennsylvania PhD and a former deputy head of the International Monetary Fund.
      The Ivorian Congress is dominated by a free market leaning political coalition and faces a vigorous socialist opposition which is healthy for democracy. Lawyer Jeannot Ahoussou-Kouadio, the present Ivorian Prime Minister and a former civil right advocate came to Washington DC to pitch Investment opportunities to US businesses and secure the administration support. The Ivory Coast still faces extraordinary challenges, starting with the remnants of a 12 years conflict that left deep wounds in the people psyche, very high unemployment, a bureaucratic mindset and a culture of racket and corruption in public and private organization that its leadership tries to challenge.
      This represents an extraordinary opportunity to demonstrate the universality of the benefits of the US constitution principles when they are effectively set in motion. The MCC should be encouraged to make sure the reality changes there, not only tweaking the parameters: The Heritage Foundation should monitor this experiment and help protect its course from bureaucrats meddling, whether they are here, there, or anywhere else.

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