Economist Robert Aliber, writing in the FT:
The US can help China make the necessary adjustments toward a reduction in imbalances by adopting a uniform tariff of 10 per cent on all Chinese imports, based on their values when they enter the US. Six months after the establishment of this tariff, the rate would increase by one percentage point a month until the Chinese trade surplus with the US declines to $5bn a month.
The precedent is clear. In August 1971 the US adopted a 10 per cent tariff on dutiable imports to induce Japan and several European countries to allow their currencies to float. The measure quickly accomplished its goal – the European countries stopped pegging their currencies immediately and the Japanese allowed the yen to float a week later. The tariff was eliminated after a few months.
Because many Chinese exports contain large amounts of embedded imports, the 10 per cent import tariff in effect is a tax of more than 30 per cent on Chinese value added. With electronics and other high-tech exports, where the import content may be 70 or 80 per cent of their value, the 10 per cent tariff might be equivalent to a tax of 60 or 80 per cent on Chinese content.
Dan Ikenson of Cato responds:
But isn’t the fact that Chinese exports contain so much import content enough to soundly reject Aliber’s plan in the first place? Has he forgotten that we don’t import dangling Chinese value added? What we import are products, some of which comprise 20 percent Chinese value added, some 80 percent, and according to the most recent research, an average of about 50 percent Chinese value added. And what does that mean?
It means that on average 50 percent of the value of components, raw materials, and labor embedded in the typical cargo container from China unloaded in Long Beach, California is other countries’ value added. It means that slapping a duty on imports from China is the same as restricting imports from countries indiscriminately (I know, non-discrimination is what the GATT/WTO rules are all about, but you get my point). It means restricting our own exports to China, which are embedded in the “high-tech” products that we import from China. (High tech is in quotes because the category consists mostly of computers and electronics, like cell phones and iPods, but protectionists like to exaggerate the security angle of our alleged trade follies by pointing to a bilateral deficit in “high tech,” even though Chinese value-added in those goods is well below average, and our imports of them support high-paying U.S. jobs).
