[[{“value”:”That is the topic of my latest Bloomberg column, with a big assist from Doug Irwin. Here is one excerpt: In 1971, President Richard Nixon imposed a 10% tax on foreign goods brought into the US, and kept it in place for four months. The best that can be said about this experience, well-documented by
The post Nixon’s ten percent import duty appeared first on Marginal REVOLUTION.”}]]
That is the topic of my latest Bloomberg column, with a big assist from Doug Irwin. Here is one excerpt:
In 1971, President Richard Nixon imposed a 10% tax on foreign goods brought into the US, and kept it in place for four months. The best that can be said about this experience, well-documented by Dartmouth economist Douglas A. Irwin in a 2012 essay, is that the US economy survived it.
That is hardly good news, but it is a partial comfort. At the time, Republican officials were demanding an end to undervalued foreign currencies, better trade treatment of US exports and more spending on defense by US allies. (Sound familiar?) After this rhetoric and policy, however, came an era of trade liberalization. The costs of protection and the incentives for freer trade simply proved too strong, and subsequent presidents of both parties oversaw tariff reductions.
In 1971, Nixon’s key demand was specific: Countries had to let their currencies float upward against the US dollar. The goal was to weaken the dollar in relative terms and thus help US exports.
And these key points:
After imposing the tariff, and much negotiation, the US did receive something concrete in return: More countries allowed their currencies to float against the dollar — notably the yen, the mark and the franc. Those moves then led to a broader collapse of the Bretton Woods fixed exchange rate system, and accelerated the arrival of floating exchange rates with the Smithsonian agreement of December 1971.
Trump has no equivalent concrete demands for US trading partners. Nixon’s demand to let the exchange rates float was something that could happen immediately and was fully transparent. And it was virtually impossible to reverse. Once it happened, the US could remove the import duty. The other demands of the time — better treatment of US exports and more burden-sharing for defense — went largely unheeded, as it is much harder to negotiate over such long-term and hard-to-define changes.
Recommended.
The post Nixon’s ten percent import duty appeared first on Marginal REVOLUTION.
Economics, History, Law, Uncategorized
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