By David R. Breuhan
Tariffs don’t just raise consumer prices. They also affect capital flows and, on numerous occasions, have triggered stock market crises. What tariffs don’t bring is prosperity.
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By David R. Breuhan
Tariffs don’t just raise consumer prices. They also affect capital flows and, on numerous occasions, have triggered stock market crises. What tariffs don’t bring is prosperity.
Beat me to it by 1/2 hour!!
You pay one way or you pay another. The state is in the business of taking money from Peter to pay Paul and themselves. They can take it by income, excise, property and head taxes. But the taxcollector cometh! Whether you like or want it or not.
It's like we talked about on another post, the tariffs aren't aimed at foreigners. The politicians who implement them couldn't care less who gets hit, as long as the revenue rolls in.
What they know is that the rhetoric of targeting foreigners is more palatable to the voting public.
Yes, for sure. The incidence of the taxation is no different in the cases of tariff and income taxes. They both hit the consumer.
The only decent thing about the tariff is that you can avoid buying that good if you don’t want to pay the tariff. But, let’s face it, a tariff is a tax, only of a special kind.
And, yes, it is always good to say someone else will be suffering the tax, not you!
That is the way the politicians and ELites trick you into consenting to it.
Bingo
Thank you, is there a prize?
I'm a bit on the fence about this.
Many of our foreign competitors get state support while our companies do not.
The textbook answer is: "So what? More and cheaper products for us."
But a side effect is the loss of human capital as an economy deindustrializes and moves to a consumption-based economy financed by (perhaps) money printing and extraction of resources via war.
I don't think we should ignore the social implications either, if certain geographic areas rapidly deindustrialize there comes with it all sorts of social problems and unrest.
One of my advisors had a similar perspective. The dismissive argument is based on the possibility of making side transfers that leave everyone better off, but those side transfers don't always happen.
I'm certainly skeptical of claims that tariffs are welfare enhancing. However, I know the standard trade models (which are extremely accurate for economic models) indicate that a large economy can be a net beneficiary of even pretty large tariffs.
Another issue I have with economists and their side transfers is that it's all based on a flawed model of the human being as a consumer first and foremost.
But I believe that humans derive utility not just out of consumption, but also out of a sense of productivity and contribution. Between two people who consume the same, but one earns it and one receives transfers from the government, I believe that the one who earns it will report higher life satisfaction.
And again, reliance on transfers results in (probably) loss of human capital making future prosperity harder to sustain.
I agree that tariffs are a blunt instrument. Unfortunately, I'm the furthest thing from a trade economist so I don't really have any useful proposals to make. I just wanted to point out some of the flaws in "free trade absolutist" thinking.
What I wonder about is the scenario where it's not a militaristic empire paying for subsidized goods with newly printed fiat, but rather a peaceful free market nation trading with a protectionist regime.
Clearly subsidies will mess with the balance of production, by sending a false signal about comparative advantage. Also clearly, the importing nation will have a reduced cost of living at the expense of the foreign tax payers who fund the subsidy. Why does this mean a loss of human capital, though, or a shift towards a consumeristic economy?
It seems like the new, distorted, comparative advantage could just as easily be in making goods that people find more satisfying to make and the reduced cost of imported goods is essentially the same as a technological innovation. I suppose people say many of the same things about cultural effects of labor saving technologies.
My broader point is that it's hard to know if adverse effects of free trade in our society are about free trade or if they're the result of other pathological institutions.
Yeah, agreed. I think some of my presupposed assumptions are indeed the existence of a pathological welfare state and warfare state.
Result of pathological institutions
The tariff amount matters. Is it 3 percent, 30 or 300?
Tariffs on steel are over 100 percent.
I don't recall having studied models with sector specific tariffs, but there are standard trade models that indicate the US could be a net beneficiary of tariffs as high as 30%.
How high were tariffs before the income tax amendment in 1913?
Don't know. Not a historian.
The commonly accepted 10% rate to bring in tariff money to the government is standard, over that is not fair, according to WTO.
When they are not fair, you can expect retaliation.
But, who is to say what fair is?
Fair is always in August!