March 3, 2017

Tools for Balancing American Trade -- The MAC is Best

A variety of measures are currently on the table to solve eliminate U.S. trade deficits including tariffs, border-adjustable taxes, and various currency related measures. Each of these tools is needed for specific tasks. However, the Market Access Charge (MAC) is the best tool for providing the overall foundation of an equilibrium exchange rate that balances total trade.

Conventional Measures 

General tariffs, used as a threat, can be a useful bargaining tool. However, such tariffs are illegal, do not solve the dollar’s fundamental overvaluation, can easily trigger destructive trade wars, tend to escalate as interested parties argue their case for preferential treatment (i.e. higher tariffs), and adjustments as global realities change require politically-charged discussions.

Countervailing and anti-dumping duties are legal, provided specific conditions are met, and can be a very useful remedy for specific products, but they affect such a small part of total trade that they cannot fix the dollar’s overvaluation.

Border-adjustable taxes (BATs) have been proposed in the Ryan/Brady “Better Way” plan are not exactly “conventional” tariffs, but share many of the same characteristics: they are probably illegal, have encountered stiff resistance even within the Republican Party because of the negative impact on importers, would make dollar’s overvaluation even greater rather than fixing the overvaluation, and, like ordinary tariffs, provide no exit strategy.

Once in place, America would be forever dependent on BATs. Furthermore, they have no self-adjusting mechanism to respond to changes in relative global prices and productivity levels. The one advantage of BATs over normal tariffs, which tend to be recessionary because they only suppress imports, is that they subsidize exports. However, this involves a serious loss of potential budgetary revenues, making balancing the budget while supporting necessary investments in infrastructure, for example, even more difficult.

Market Access Charge (MAC) 

The MAC overcomes all the problems of conventional measures. It works quickly. It solves the underlying problem – the dollar’s overvaluation. It encourages the domestic production of expanded exports as well as of import alternatives. It generates billions of dollars of net revenues that are derived, not from the average American family, but from foreign speculators and from increased U.S. economic activity that would not have taken place had the MAC not been implemented. And it automatically adjusts to changing global realities without need for political intervention. (For details on the MAC mechanism, see here.)

America Needs a Competitive Dollar - Now!

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