2018-03-07 —

There was another way forward. At the start of the Trump presidency, House Speaker Paul Ryan devised a strategy that had the potential to reconcile the president's economic nationalism with his devotion to free trade. He proposed scrapping the corporate income tax altogether and replacing it with a destination-based cash-flow tax (also known as the "border-adjusted tax," or BAT) that promised to make America the world's most attractive place to do business. Though the BAT posed a number of complications, and though it is very unlikely it would have raised as much revenue as Ryan had suggested, it had the potential to greatly strengthen the U.S. tradable sector, the central objective of economic nationalism.

Yet as Joseph Lawler and David M. Drucker reported in the Washington Examiner, the BAT died at the hands of retail interests and conservative advocacy groups financed by retail interests, which insisted that it would harm consumers--a highly misleading claim given that the advent of border adjustment would lead to a stronger U.S. dollar. In the end, the intransigence of the House Freedom Caucus killed a measure that might have scratched the president's protectionist itch without actually hampering global trade.

This certainly gets closer to the real solution for lopsided trade: fixing the "capital account"; i.e., the "recycling" of deficit dollars into the financial economy. This is the true "giant sucking sound" in trade dysfunction, and the way to fix it at its root is monetary discipline (which can come in a variety of forms -- sound money being the most fundamental, but not sole version of that).

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