Trade wars: Maybe the U.S. should declare itself a developing country


By Willy Shih for Forbes

Wait a minute – is the U.S. really a developing country? More than a few friends and colleagues from abroad tell me that the U.S. is quite backward when it comes to infrastructure – roads, mass transit, airports. When you arrive in Boston and ride the MBTA, it would be easy to think that you arrived in a somewhat backward country, at least compared to China, Korea, and Singapore.

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Developing countries often use trade policy instruments like import tariffs and surcharges, export subsidies, exchange rate controls, or quotas and licenses to aid domestic producers. These tools can provide incentives or disincentives to import substitution or export activities. While we typically think of countries like Argentina, Brazil, China, and India when it comes to active trade policies, such policies played an important role in the rise of Japan, Korea, Taiwan, and other Asian “tigers” as well.

Back when the U.S. really was a developing country, we did this as well. The Tariff Act of 1789, the first major piece of legislation passed by the Congress after the ratification of the Constitution, gave Congress the authority to raise enough revenue to service its then large government debt. It did this by imposing tariffs, which became the main source of federal revenues from 1789 until 1815. Britain was the U.S.’s main trading partner at the time and engaged in many discriminatory trade practices against America – some would say the country had hard feelings towards the U.S. after the Revolutionary War. But George Washington and Alexander Hamilton put a high priority on faithfully servicing the nation’s debts, so they refrained from doing things that would imperil overall trade. So when the U.S. was a developing country, we used tariffs aggressively, like other developing countries did subsequently.

But why might the U.S. simply declare that it is a developing country? It turns out that the World Trade Organization (WTO) has three categories of members: developed countries, developing countries, and least-developed countries (LDCs). About two-thirds of the members are developing countries or LDCs. LDCs include Burundi, Mauritania, Myanmar, and Zambia, the U.N. lists 47, and 36 are currently WTO members. The WTO sets the rules for global trade, and the world depends on these rules to provide some stability. Producers and exporters like a stable framework to operate within.

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