The Natural Strategic Tariff
November 14, 2011
SINCE 1970, American imports have gone from just over five percent of GDP to roughly 17 percent today, and the number of American industrial jobs has plummeted. One compelling argument against a protectionist industrial policy is that it would further empower intrusive and ever-expanding bureaucratic government.
In his book Free Trade Doesn’t Work, Ian Fletcher addresses this issue. He proposes a flat, across-the-board tariff that would be simple to administer and involve no intricate political engineering. He writes:
[O]ne of the great puzzles of American economic history is how the U.S. once succeeded so well under tariff regimes that were not particularly sophisticated. This is where the idea of so-called “natural strategic tariff” comes in. This idea says that there may be some simple rule for imposing a tariff which will produce the complex policy we need. The simple rule will produce a complex policy by interacting with the existing complexity of the economy. All the complexity will be on the “economy” side, not the “policy” side, so all specific decisions about which industries get protection, how much and when will be made by the market. No intricate theory, difficult technocratic expertise or corruptible political decision-making will be required. (pp. 232-233)
There are obviously any number of possible natural strategic tariffs. The one we will look at here (which is probably the best) is actually the simplest: A flat tax on all imported goods and services.
Fletcher later writes:
One is justifiably suspicious of cure-alls. So it is worth understanding why the natural strategic tariff is neither a gimmick nor too good to be true. It is neither a magic trick to make economic vitality appear out of nowhere nor a hammock to enable lazy and uncompetitive American industries to survive. Anyone supporting it for these reasons will be disappointed.
Fundamentally, the natural strategic tariff only works because it interacts with the existing competitive strengths of the U.S. economy. Specifically it works because”
1. The U.S. is closer to being cost-competitive in good industries than in bad ones.
2. The U.S. domestic market is big enough to support scale economy industries.
3. A tariff has different effects on industries at different points on their cost curves. (p. 236)
