Opposing NAFTA Is Not 'Protectionism' Jude Wanniski September 8, 1997

Memo To: Chairman Bill Archer, House Ways&Means
From: Jude Wanniski
Re: NAFTA extension

I watched your Thursday press conference on C-SPAN this past weekend and was encouraged by your continued determination to clean up the tax system before the century runs out. I only have one quibble, and that is with your characterization of the opponents of a NAFTA fast-track extension as being "protectionists." The United States has had a tariff at its border from day one of the Washington Administration. At that time, in fact, it was the only tax that produced revenue for the federal government. The arguments regarding the tariffs that have occupied the government throughout our history never have been about eliminating the tariff, which is what the fast-track authority would give the President. The free-traders have always favored a tariff for the purpose of raising revenue while the protectionists have favored a tariff high enough to block imports. If imports are blocked, of course, the government gets no revenue. In other words, the fight has always been over the Laffer Curve, the law of diminishing returns as it applies to the tariff.

I say this, Bill, having openly supported NAFTA when it extended to our neighbors. I think you also know I've been among the most aggressive Republican theorists, arguing for example that the Smoot-Hawley Tariff Act of 1930 was the cause of the Wall Street Crash of 1929, triggering the related events that brought on the Great Depression. That truly was a protectionist tariff, designed not to raise revenues — as the budget had been in surplus for most of the 1920s -- but to shut off imports to protect American industry against foreign competition. What we now have — in the tariffs confronting the "most favored nations" — are ad valorem rates that are so low that further lowering them would reduce tariff revenues. The economic consequences still might be favorable, benefitting our major multinational export industries, which produce high-value added goods. It clearly would cause distress and revenue loss if the tariffs were replaced with non-tariff barriers, designed by organized labor and the environmental extremists. Even if you can prevent such a dubious trade-off, you also should consider that the workers at the very lowest end of the scale will be adversely impacted — especially as the end of the scale will be adversely impacted — especially as the government prohibits domestic employers from hiring them at less than the minimum wage. That is, low-skilled American labor would find barriers to their entry to the work force while the barrier to even lower-income foreigners is coming down. I would give this serious consideration, not wave it off with a derisive "protectionist" label. Pat Buchanan may be a bit intense in the way he makes his arguments, and his economic analysis is at times weak, but in general his views on NAFTA have validity.

If I were you, I would advise the President that the optimum solution would be to pass NAFTA, but at the same time eliminate the capital gains tax altogether, as Alan Greenspan would have us do, so our domestic labor would then be able to effectively compete against the low incomes of foreign labor. The Business Roundtable, representing the corporate capitalists who re-elected the President, are eager to get NAFTA extension. If you would negotiate on that premise, you could get a lot more than the "safeguards" they are already prepared to give, "safeguards" which they will find a way around anyway.