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Thursday, February 18, 2016

Free Trade Is for the 99%

Protectionism is for special interest cronies

Here is a recent Bernie Sanders tweet: 

We need trade policies that work for the working families of our nation and not just the CEOs of large, multi-national corporations.

I agree. And that is why Bernie Sanders and other progressives should support free trade: Current US tariff and trade policy is bad for poor working families. Economist Ed Gresser has explained that import tariffs are the most regressive of our taxes: 

Tariffs are highest on the goods important to the poor. The trade agreements and bills of the past 25 years have sharply cut tariffs on luxury products and industrial inputs. But domestic industrial lobbies have fought hard and usually successfully to keep tariffs on cheap consumer goods high.

The result of these bills is that as a percentage of total revenue, tariffs are now lower than at any time since at least the 1950s and perhaps ever; but on a few products, most of all shoes and clothes, the tariff system has changed little since the 1960s.

Therefore, shoes and clothes make up only one-fifteenth of America’s merchandise imports, but bring in almost half of America’s annual tariff revenue. In comparison to other major expenses — education, transport, entertainment, and so on—these goods are relatively small expenses for middle-class and wealthy families, but very large expenses for poor families with children.

This is why tariffs now hit maids and secretaries harder than company vice presidents — the more the tariff system raises money from shoes and clothes, therefore, the more it becomes some thing like a large excise tax on necessities especially important to the poor. Its regressive nature is especially striking in comparison to other federal taxes. 

Getting rid of these regressive taxes should be a priority for anyone truly interested in helping the poor.

Cross-posted from Cato @ Liberty.

  • Simon Lester is a trade policy analyst with Cato’s Herbert A. Stiefel Center for Trade Policy Studies.