Not a single recession goes by without a person shouting 'Lets do mercantilism!!!'
It does not work Vuk. Tried and tested. I would suggest a good macroeconomics book so you can see why.
Some points though:
stop all foreign aid ---> Which means less purchasing power in international markets...ergo larger trade deficit for the US and fall in production. So heaps of unsold goods in the local market and more closed local businesses. (I wont even mention the political side and about what will happen to US tied pariah states like Israel, Iraq and Afghanistan if the buck stops)
allow the market to regulate itself ---> That means that the banking and insurance system will collapse. No savings, no pension funds, no medical insurance. AIG only holds a huge chunk of the
world's liability contracts. Now, until the market regulates itself, firms would have to pay for their own liability so if let's say a worker gets permanently disabled a firm will have to come up with 3-4 millions needed for lifetime care. For most small firms this means bankruptcy...
...so immediately local firms will get another hit.
Also, if the system is not supported and provided with liquidity, firms will have a hard time finding cash when needed and will collapse when their outward cashflow peaks.
Also it is a bit naive to think that markets will regulate themselves. Economic theory has progressed since Adam Smith. Some markets like the medical sector are by nature failed markets and cannot self regulate. Also the current collapse was to a certain extent caused by lack of regulation (banks were allowed to give 0% deposit and also high risk mortgages putting an extreme inflationary pressure to the housing market that led to its eventual collapse.
enforce US standards to imports from other countries, quit taxing businesses for producing in the US, and start taxing them for operating factories and offices overseas, etc. --->
You practically propose an exit from the WTO. There are agreements in place that prohibit such action and for good reason.
Such actions will effectively cause a collapse of trade between the US and the world.
If you give local businesses preferential treatment then the other countries will do so so the net outcome will be taxpayers' money waster and a zero net effect. What is the point of reducing tax for local businesses if your potential market target places an import tariff on US products in retaliation?
Also you have to take
comparative advantage into account. A country cannot produce everything and be efficient. By restricting trade in an effort to boost local business you end up restricting production efficiency and as a consequence you cause a drop in wages (since lower productivity leads de facto to lower possible compensation for your labour).
In short, by enforcing the protectionist policies you propose:
a) You would force other countries to follow suit causing a zero net effect. Your trade level would be greatly diminished.
b) You would hinder your local firms ability to export because you would get tariffs on the way.
c) By neglecting comparative advantage you would cause a collapse in wage rates by causing lower productivity.
d) By taxing overseas production you will cause problems to that country's economy. They will probably react by nationalizing or restricting FDI to the US. Even if that does not happen, there is a good reason why firms produce overseas, HIGHER PRODUCTIVITY (due to location, lower wages, skilled labour or other reasons). By taxing you will eventually ensure that said firms will produce less efficiently and consequently be out marketed by foreign firms.
There is a reason free trade is promoted. It is an instinctive reaction to resort to protectionism when times are hard, but it is not really the best solution.
It is all good and nice to propose such 'solutions' but you need to consider how interconnected the world market is and also the fact that other countries will not stay idle.
My two cents
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