Remember, a tariff is really just a tax, the cost of which is imposed on the American people. The higher the tariff, the higher the tax. Imagine what a 45 percent increase in the price of goods made, say, in Japan would do to a middle class family shopping for a Toyota or Honda.Isn't this the whole point of tariffs -- to provide incentives to prefer domestic products? If I understand Levin, he thinks that the middle class family shopping for a Toyota or Honda is just going to pay the higher prices. That's the same sort of error that Congress makes when it assumes that raising taxes won't affect economic activity. Of course it will. In this case, the effect on economic activity is the whole point of the exercise.
Make Them Consider Buying A Ford?
Mark Levin is on point when he criticizes Trump's hypocrisy on free trade. But he loses me here:
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Yah, well, Levin's understanding of Econ is kinda limited.
By the way, both Toyota and Honda manufacture cars in the USA, just like BMW, Benz, and KIA (among others.)
Here's the irony on the Ford brouhaha: the UAW demanded that Ford manufacture its TRUCKS in the US, figuring that the trucks will be a "forever" product.
The cars? Not so much.
The UAW's only concern was for the majority of its existing members--who work at the truck plants.
Isn't this the whole point of tariffs -- to provide incentives to prefer domestic products?
That's also the problem with tariffs. The incentives very quickly wash out as prices for the domestically produced products rise to meet the prices of the imports. All that's left is a more expensive set of goods (and services) across the board.
...he [Levin] thinks that the middle class family shopping for a Toyota or Honda is just going to pay the higher prices.
Which they will. For the Ford, too.
Eric Hines
The incentives very quickly wash out as prices for the domestically produced products rise to meet the prices of the imports.
Say Ford costs X and Toyota costs X + 10 (or ten grand, but let's keep the numbers small), and 20 people are going to buy cars. Now Ford is likely to gain most of these cars, so Ford makes 18X, and Toyota makes 2X (and the government makes 20... grand). If Ford raises its price to X+9, though, it's going to end up only making around half the sales. Now Ford might only sell 11X, and Toyota 9X.
If a car sells for $20 and the tarrif is $10, 18X is $360, whereas the X + 9 price only yields $319. If Ford is rational, it makes sense to maximize profits by not trying to capture the whole tariff through price increases.
If Ford is rational, it makes sense to maximize profits by not trying to capture the whole tariff through price increases.
That's why Ford will only raise its price to X+9 (or X+9.9), or some fraction that accounts for folks' preferences for the imported item vs the domestic one--which won't be equivalent, because it's protected by the tariff, and so competition on quality/service/etc will not be as strict as it would be in a tariff-less free market.
Taking Trump's tariff value, Ford will sell roughly 2/3 of the cars Ford and Toyota will sell together, not your ratio, and there's an optimum for Ford a bit above that value. Be that as it may, two things: one is that Ford is charging more for its car in the tariff-protected environment than it would in a free market environment. Also, cars aren't commodities, and so price inelasticity also lets Ford charge more than a straight interchangeable item (commodity) analysis would imply: customers are paying more, due solely to the tariff, than they would in a free, competitive market.
Second, why should the government get any of that money? It's not government's money. Left in the hands of the consumer, that's consumption--jobs--or savings--future jobs. In the hands of even an honest government, it's waste, and it's money taken out of the free market economy--jobs decrements.
And, how will you apply this tariff? Toyota assembles in the US from imported assembly parts the cars it sells in the US. But so does Ford, and in largely the same proportion of imports.
Eric Hines
Second, why should the government get any of that money? It's not government's money.
Why should the government get any money at all? None of it is the government's money. That complaint applies to essentially any form of taxation. Why should the government be able to tack on a sales tax? Why should they be able to charge me money for having made money through a private exchange with an employer? Why should they be able to take money from my children when I die?
Why should the government get any money at all?
This is a non sequitur The discussion here is the appropriateness of a particular source of money for government, not the appropriateness of any source of money at all for government. If you want a government to operate without funds, go for it. You might look into the effectiveness of the government under the Articles of Confederation, though.
Eric Hines
Levin mentions the People's Party, which was AKA the Populist Party. They were around in the late 1800s.
One of the chief complaints of the Populist Party was tariffs. The Republicans tried to protect US industry by putting tariffs on imported industrial products, but this was at a time when agriculture was mechanizing. As Eric points out will happen, US manufacturers had raised their prices to what they thought they could get away with under the tariffs.
So, farmers were paying more for the machines they needed to work their land, but their products were not protected by tariffs and so they weren't making more. Hence, they wanted Congress to either dump the tariffs on industry or put tariffs on agricultural products to help them compete.
The other issues were an economic crash that mostly impacted farmers, complaints of cronyism between big business and government, the difficulty of getting credit (which is essential to farming as a business), and a tight money supply (since we were on the gold standard). Farmers wanted more money printed up, in part so they could pay off their loans easier with inflated dollars.
Part of the solution was the discovery of gold in Alaska, which allowed an increase in currency on conservative terms. Another part of the solution was the Sherman Antitrust Act. A third part of the solution was the distraction of the Spanish American War, or so I've read. However, a lot of farmers just went bankrupt, sold their land to corporations, and moved back East.
This is a non sequitur The discussion here is the appropriateness of a particular source of money for government, not the appropriateness of any source of money at all for government.
It's no more a non sequitur than raising the question as an argument against the appropriateness of the tariff. There are a few taxes that are relatively easy to justify -- tolls on roads, say, where the builder of the road charges you for using the road. But most taxes suffer from the problem you're raising. Tariffs don't seem to me any less appropriate than an income tax, or a death tax, or a sales tax.
If you want a government to operate without funds, go for it. You might look into the effectiveness of the government under the Articles of Confederation, though.
That looks better all the time to me.
If the Government maintains foreign relations and interstate commerce, then it makes sense for them to generate revenue from that stream they maintain which is analogous to the road use tax?
-Michael
customers are paying more, due solely to the tariff, than they would in a free, competitive market.
Those customers will not pay if they do not have sufficient income to purchase, of course. That's why Henry Ford raised the wages he paid, as you recall.
The purpose of the tariff is to encourage production of goods in the US, presumably with US labor. Mercantilism--the PRC modus operandi--spreads poverty, not wealth.
Those customers will not pay if they do not have sufficient income to purchase, of course. That's why Henry Ford raised the wages he paid, as you recall.
No, I don't recall that at all. Ford raised the pay (not wages so much) he paid to reduce labor turnover and the attendant training and productivity costs. In 1913, for instance, the year before he raised the pay, his labor force turnover was 4:1. The raise was to get rid of that. And it wasn't all wage, either; a significant fraction of the raise was "bonus" for doing things like learning English and doing things Americanizedly.
With tariffs artificially inflating prices, wage increases get eaten up by that tax--which is the stuff and substance of mercantilism.
Eric Hines
Prior experience with tariff barriers suggests that Ford would:
1. Increase prices by 30%
2. Scale down quality control
3. Substitute cheaper components where possible
assuming a 45% tariff.
Well, then. I prefer to argue on the "Fair Trade" ground, by which a tariff would be levied to offset BURDEN incurred in the US: taxes, FLSA, EPA, EEOC, IRS, OSHA. Direct Labor cost is virtually irrelevant at ~5% of cost-of-good(s) in a well-run company. None of that claptrap is a problem in PRC.
Or--of course--we could eliminate those laws and agencies! That would give us a solid mercantile advantage.
Or--of course--we could eliminate those laws and agencies! That would give us a solid mercantile advantage.
Indeed. Get government out of our economy, and thereby a long way out of our lives. That would give us a serious competitive advantage. See, for instance, the hue and cry in the EU's governance over Ireland's and Luxembourg's tax rates (especially business') and how unfair it is that their rates are so much lower than the other EU nations'.
We even could rid ourselves of the Department of Justice, a cabinet we did without for 100 years. In fact, the only reason we have a DoJ now is because we have an overabundance of...Federal laws. And an administrative law system? Only from our plenitude of regulations.
Eric Hines
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