What's Right - Column

Tear Down This Wall

President bush has got himself some new economists -- and within a very few weeks, his next State of the Union address will unveil a new economic policy. It's widely expected that this new policy will emphasize new reductions in federal taxes. That's fine. But it's not enough -- not nearly.

The biggest problem the American economy faces in January 2003 is found outside America. While Americans are working their way through a not especially severe cyclical recession, the rest of the world economy is sunk in a prolonged and frightening slump.

The news from Europe and Japan is bad; the news from China is worse; the news from Latin America is worst of all. Argentina has defaulted on its foreign debt; Brazil looks ready to default at any minute; Venezuela hovers on the verge of civil war; Colombia has plunged right over the verge.

In the 1990s, the stock market boomed not just because U.S. corporations were earning more money, although they were. The market boomed because U.S. investors were willing to pay higher and higher prices for those earnings. The old rule of thumb was that a company is worth about 10 times its earnings, maybe 15. In the 1990s, investors willingly paid 20 and 30 times earnings.

Why pay so much more than ever before? Because the future seemed so much more glittering than ever before. The Cold War was won and socialism was discredited. The threat of war that had hung over Americans' heads with only brief interruptions since 1914 seemed finally to have ended forever. From Budapest to Beijing, from Bombay to Brasilia, nations that had isolated themselves from the capitalist world hurried to rejoin it.

So when you bought a share in Coca-Cola in 1995, you were not just buying a share of Coke's existing earnings. You were buying a share of all the earnings that beckoned from the Coke-deprived nations of the world's emerging markets. What could be more bullish?

Today those emerging markets are turning inward and backward. The free- market ideas that inspired the world in the 1990s are now rejected and reviled. No matter how leniently we tax dividends and capital gains inside the United States, the optimism of the 1990s will not return until those emerging markets rediscover the allure of the open global marketplace.

How do we help them do that? Well, we don't do it by putting 30 percent tariffs on steel, that's for sure. We don't do it with farm bills so larded up with price supports that they effectively bar Third World foodstuffs from American tables.

In his first two years in office, President Bush offered a commanding agenda for the domestic economy -- not only tax reductions, but also proposals for energy security and relief from overregulation. He scored some real and important accomplishments.

Now President Bush needs to offer an equally commanding agenda for the international economy -- an agenda that is not utopian, that can be delivered, and that will make a difference. And there is one right at hand. If we're cutting taxes already, why not cut the most regressive and outmoded tax of them all -- the tariff?

Most of us tend to assume that tariffs fell to zero sometime during the Kennedy administration. We tend to think that the important trade issues now all involve sneaky non-tariff barriers to trade. But in fact, as Edward Gresser of the Progressive Policy Institute pointed out in an important article in the November/December 2002 issue of Foreign Affairs, tariffs continue to mulct the poor at home and abroad: "Young single mothers [in the U.S.] buying cheap clothes and shoes now pay tariff rates five to ten times higher than middle-class or rich families pay in elite stores. Very poor countries such as Cambodia or Bangladesh face tariffs 15 times those applied to wealthy nations and oil exporters." While tariff rates have been cut to nearly zero on most products, they remain as high as 15 percent on products like cheap glassware and tableware, running shoes under $20, and so on.

For low-income Americans, a tariff cut will translate directly into lower prices in the stores. For developing nations with goods to sell, a tariff cut is a fair chance to earn their living in the global marketplace. For the Bush administration, a tariff cut is a chance to prove to the world that free trade is not a game that is rigged against the poor.

Tariff reduction does not have to be negotiated with other nations. The United States can act all by itself to reduce its remaining high tariffs to zero over the next six years. The impact on American firms would be minimal, since tariffs apply only to a few relatively unimportant areas of the U.S. economy, but the benefit to poor consumers -- and to America's credibility abroad -- would be immense.

Of course, it is not enough just to cut the tariff. We have to explain to the world what we are doing -- and why. The last Bush economic team never succeeded in doing that. The new one must do better. It must convince America's friends -- and potential friends -- that America is not a selfish giant, that it is managing the world economy not just in its own interest, but in the interests of all. The State of the Union would be a fine time to start.

COPYRIGHT 2002 National Review, Inc.
COPYRIGHT 2002 Gale Group