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The Case for Old-Fashioned Tariff Cuts

Summary:
Had governments stood still on trade policy over the last three years, the world would be a lot better off than it is now. Today, policymakers could do worse than return to the post-World War II formula of negotiating the reciprocal elimination of tariffs. WASHINGTON, DC – The “bicycle theory” used to be a metaphor for international trade policy. Just as standing still on a bicycle is not an option – one must keep moving forward or else fall over – so it was said that trade negotiators must engage in successive rounds of liberalization. Otherwise, global openness would gradually succumb to protectionist interests. The Patriot versus the President Chip Somodevilla/Alex

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Had governments stood still on trade policy over the last three years, the world would be a lot better off than it is now. Today, policymakers could do worse than return to the post-World War II formula of negotiating the reciprocal elimination of tariffs.

WASHINGTON, DC – The “bicycle theory” used to be a metaphor for international trade policy. Just as standing still on a bicycle is not an option – one must keep moving forward or else fall over – so it was said that trade negotiators must engage in successive rounds of liberalization. Otherwise, global openness would gradually succumb to protectionist interests.

I don’t know whether the theory was right. In fact, had governments stood still on trade policy over the last three years, the world would be a lot better off than it is now. Trade is faltering – global volumes are down a remarkable 1.1% over the last 12 months – as inept bikers collide chaotically with one another.

Once competent riders are again in charge, they could do worse than return to the post-World War II formula of negotiating the reciprocal elimination of tariffs. The suggestion sounds old-fashioned. After all, another familiar truism is that “shallow integration” – removing obvious trade barriers such as tariffs and quotas – is largely complete, and that further progress now requires “deep integration,” or mutually agreed rules for regulating the business environment. But that agenda, despite its potential merits, now appears too ambitious. 

A classic example of deep integration was the decision by the member states of the European Common Market to go beyond free trade and pursue a full European Union and even a common currency. That was evidently an over-reach politically, at least for the Brexit-plagued UK.

A current attempt at deep integration is the United States government’s demand that China stop requiring American companies to share their proprietary technology as a condition for entering joint ventures with local firms.

Many American economists support this demand, but argue that US President Donald Trump has gone about it all wrong. The sensible strategy would have been for the US to make common cause with...

Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

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