Global Tariff

Eliminate the Trade Deficit

Establish a uniform Global Tariff on all imports, set initially at 10% and adjusted automatically each year based on the trade deficit. After any year when the trade deficit has persisted, the tariff would increase by five percentage points for the following year. After any year when trade is in balance or surplus, the tariff would decline by five points the following year.

America’s enormous trade deficits are a double disaster for the nation. First, they represent a mortgaging of the future, as we pay for our consumption of goods and services produced abroad by sending back our assets: ownership of our corporations and real estate and bonds that promise future payments. Second, they represent a shortfall in demand for American industry, because other nations are not increasing what they buy from America as quickly as American consumers have shifted their own purchasing abroad. This shortfall has reduced domestic business investment, weakened supply chains, and transferred our technical know-how to other nations. We are giving competitors and adversaries an advantage while degrading the domestic industrial commons vital to innovation and growth. In the process, we have lost millions of well-paying jobs and devastated communities and entire regions.

Policymakers should welcome international trade only if it is balanced, exchanging goods and services produced here for those produced abroad. Such reciprocal trade is mutually beneficial, maintains domestic industrial capacity, and ensures in turn a balance in capital flows. Trade can still occur at high levels, and certainly should in sectors where other nations have substantial comparative advantages relative to America’s own. With greater balance achieved, fewer government interventions in the domestic free market would be required to correct for distortions created abroad.

Three different policy interventions could create the market incentives to bring American trade back into balance. The first and best option is for the United States to make imports relatively less attractive than domestic products by imposing a Global Tariff that rises until the trade deficit is eliminated. Second, the United States could make foreign acquisition of its assets relatively less attractive than acquisition of its exports by imposing a Market Access Charge on inbound financial flows. Third, the United States could issue Import Certificates (ICs) to American exporters based on the value of their exports, which importers would have to acquire, thus offsetting the value of their imports. ICs would create an implicit subsidy for exporters, financed by an implicit tariff on importers, with the price of an IC rising or falling as needed to hold exports and imports in balance.