NCPA - National Center for Policy Analysis

Our Customers are Broke

March 12, 2004

The United States would benefit greatly if there were more strong economies in the world, such as China and India, and fewer laggards like Germany, France and Canada. The latter countries could learn something from China and India, both of which found prosperity only after doing the exact opposite of what Herbert Hoover did in 1930-32 and what the Democratic Party now threatens to repeat, says Alan Reynolds (Cato Institute).

The economies of China and India grew by drastically reducing tariffs and tax rates:

  • China's average tariff on imports has fallen from well over 50 percent in the early 1980s to about 10 percent now, but actual tariff collections average less than 3 percent because so many goods are tariff-free.
  • India slashed tariffs, too, and cut the top income tax rate from 62 percent in 1984 to 30 percent today, becoming just another in a long list of supply-side miracles.

Just as U.S. imports grow only when the U.S. economy is growing (and shrink only in recessions), other countries' imports also grow only if and when their economies are growing. Strong economies, including ours, need more industrial imports and can afford to buy them. Unfortunately, the economies of our biggest trading partners have not been strong, explains Reynolds.

Canada accounted for 23.8 percent of U.S. exports last year, Mexico for 13.7 percent, Germany and France for 6.4 percent, and other Organization for Economic Cooperation and Development countries (mainly Europe) for 17.6 percent. If these economies don't grow, then neither can U.S. exports.

Politicians now proposing that the United Stats should do the opposite of what China and India have done, and instead move closer to emulating Sweden and France, are amazingly slow learners, says Reynolds.

Source: Alan Reynolds, "Numbers Show 'Outsourcing' Is Actually Flat, Not Growing," Investor's Business Daily, March 12, 2004 and www.townhall.com

 

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