Sir, Robert Aliber suggests a uniform tariff of 10 per cent on all Chinese imports (“Tariffs can persuade Beijing to free the renminbi”, December 8).

Prof Aliber correctly highlights the growing disparity between benefits to US multinationals and the US economy, but his proposal is unhelpful as guidance for policy responses.

First, the world of international trade has changed dramatically since 1971 when Richard Nixon used a 10 per cent tariff to pressure Japan and some European countries to move to floating currencies. Today’s World Trade Organisation is far more legally deterministic than the General Agreement on Tariffs and Trade – there is nothing in the WTO rules that would permit the US government to discriminate so blatantly.

Second, Prof Aliber’s proposal fails to analyse the US’s binding WTO commitments on tariffs; nor does he consider the on-going Doha negotiation. So, even if the US administration would want to move along this road, it would be messy and unlikely to produce the expected results. Yes, the US could apply an arsenal of anti-dumping duties, but even such safeguard actions are supposed to be non-discriminatory.

Third, his approach would involve very high systemic risks. As we are still struggling to recover from the first truly global crisis, there is a very real risk that we may enter a new phase of intensifying mutual protectionism. If we decide to go along this road, the most likely scenario is a series of public tariff and regulatory confrontations with the Chinese, increasingly hardening each country’s public posture while frantic negotiations try to mitigate the damage in the background.

Finally, there is no doubt that the bilateral China-US economic relationship needs repair – the gains from growing US-China trade and investment links seem to have slowed, thus forcing a reconsideration, both in China and the US, of the costs and benefits and of the asymmetry of corporate interests and national interests.

But a 1970s-style unilateral imposition of discriminatory tariffs is simply not the right approach, nor is it any longer feasible!

From Dr Dieter Ernst.
Dieter Ernst,
Senior Fellow,
East-West Center,
Honolulu, HI, US

Published: December 23 2009 02:00 | Last updated: December 23 2009 02:00

Source: www.ft.com