I retain my suspicion of tariffs in general, and still hold aloft that my hope that Trump's use of them as a temporary weapon is conditional.
But it's no use saying pigs can't fly when you see them sprouting wings. This shows the tactic was at worst a neutral and political show, and at best a good idea.
Tariffs always have had two separate purposes: one of protectionism, and one of "persuading" another nation to do what the tariff-inflicter wants.
That protectionism historically has been the most common use has only masked the other use. Even at the height of mercantilism, though, tariffs got used to coerce as well as to protect.
"Tariffs always have had two separate purposes: one of protectionism, and one of "persuading" another nation to do what the tariff-inflicter wants."
Three.
Tariffs serve as a form of sales tax, raising revenue on import transactions. Yes, it's unfair. But most state sales taxes have various favors and unfair exemptions -- we may tax soda pop but not sweet tea, for instance. Many localities impose "tourist" taxes on non-voters when they rent cars, hire hotel rooms, or dine in local restaurants. Tariffs tax the non-citizens who sell into our market, and tax the citizens who import what their fellows perceive to be luxuries: Paris fashions, Swiss watches, Turkish rugs... We really mustn't forget the revenue end of the deals.
Even there, though, it's not a done deal that it's the domestic buyer who's paying the tariff bite. As we've seen with the PRC, sometimes it's the tariffed entity that pays, or pays a significant fraction, through its government's currency manipulation.
Actually, stocks have been surging partially because of optimism about the Trum impeachment. It's not due to politics but just because stock brokers are tuned into the media, by necessity. When the media wants to make people afraid, this creates a "market condition dip".
And each individual stock changes behavior based upon a number of factors. But generally, the big dog names have maintained their stock prices or increased it. Particularly microsoft or apple. They are the ones leading the pack, or pulling the market. Although whether the other stocks are trading off or on, is a different issue.
I'll put in my regular plug for Peter Zeihan's view on the US post-WW2 trade policies. Despite all the trade deficit angst, we're the nation least integrated with the global economy because we've used trade as a weapon fom about 1950 to 1990 against the Soviets. We successfully bribed everybody to fight the Cold War on our side, including the ChiComs.
Eric says: " Three. ... " Yes, that's the protectionism bit.
I don't follow your reasoning. Revenue is the same as protection, in your view? Expand, please.
On my side, I reason that any tax begins as a way to raise funds for governments. Any other purpose is secondary -- or tertiary. A tax to raise revenue doesn't necessarily protect anything. For instance, a "property tax" on your home is not protecting other neighborhoods from development. It's funding city streets and schools. A "sales tax" starts as a way to raise revenue but as a secondary feature may be intended to discourage consumption -- particularly if some commodities are more highly taxed than others.
A selective tariff may be intended as protective -- but it's hard to justify unless a general tariff already exists. How would any government go about creating border inspection points, assessment methods, auditors, etc -- just for, say, steel? On the other hand, if the border structures already exist and EVERYTHING is getting taxed at, say, five dollars a pound, ( a bad way to assess things, but easy to measure ) then raising the tariff on STEEL ONLY to fifty dollars a pound is obviously less a revenue thing than a protective and non-competitive thing. Same with persuasive or influencing tariffs, the "most favored nation" status. If all our allied friendly supplies are taxed at five dollars a pound of imports, but adversaries are taxed at fifty dollars per pound, then -- presumably -- we "reward" our adversaries less with our currency than we do our allies. It may or may not work, or be wise if it does work. But it only works at all if a general, pre-existing, tax collection scheme is in place.
No, you're not off base, but I think your emphases are misplaced.
Protectionism isn't the same as revenue raising, because revenue raising isn't a very important purpose of tariffs, protectionist or otherwise.
Taxes can have multiple purposes. I submit that taxes that are tariffs have as their primary purpose the discouragement of imports. That purpose has one or both of two reasons: protectionism and encouragement/coercion of particular behaviors by the targeted nation. Only deeply secondary to that--almost a mere side effect--is raising money for government. Yes, Trump brags about how much the PRC is paying us in tariffs, but the point there is raising the cost to the PRC, not raising money for us. This is borne out by the PRC's currency manipulation to lower the cost to us of their exports to us by approximately the amount of the tariff, which only raises the cost to the PRC exporter of his exports--and not only to us: his other buyers also get the lower price. That's an advantage--to us, anyway, and to most of the world--of having the dollar as the world's reserve/trading currency and not the rouble or the renmimbi or a basket centered on either or both of those.
Next, it's easy to justify a tariff, protective or otherwise, without a general tariff already existing. In your example, you set a general tariff of $5 on everything, and an additional steel tariff of $50 to get a protective outcome (I suggest, also, a persuading outcome). But the same thing exists if the general tariff is 0$ on everything with a $50 tariff on steel (not $45, because the political difference is greater moving from 0 to 45 than it is from 5 to 50: tariffs are political as well as economic, especially when they're coercive rather than protective). The base threshold only matters to the extent it lowers the relative economic cost of the particular tariff. All that's necessary in either event is the existence of a border with mechanisms for inspecting imports. Most nations have that.
The only thing a general tariff does is provide a differential for something akin to a most favored nation status. As a practical matter in the case of the US, that's an almost meaningless status regarding tariffs since we grant most favored nation status to nearly everyone. There are other means of rewarding "most favored," though, than tariff reduction: political rewards, for instance, or we'll guide more of our imports toward "most favored," and so on.
8 comments:
I retain my suspicion of tariffs in general, and still hold aloft that my hope that Trump's use of them as a temporary weapon is conditional.
But it's no use saying pigs can't fly when you see them sprouting wings. This shows the tactic was at worst a neutral and political show, and at best a good idea.
Tariffs always have had two separate purposes: one of protectionism, and one of "persuading" another nation to do what the tariff-inflicter wants.
That protectionism historically has been the most common use has only masked the other use. Even at the height of mercantilism, though, tariffs got used to coerce as well as to protect.
Eric Hines
"Tariffs always have had two separate purposes: one of protectionism, and one of "persuading" another nation to do what the tariff-inflicter wants."
Three.
Tariffs serve as a form of sales tax, raising revenue on import transactions. Yes, it's unfair. But most state sales taxes have various favors and unfair exemptions -- we may tax soda pop but not sweet tea, for instance. Many localities impose "tourist" taxes on non-voters when they rent cars, hire hotel rooms, or dine in local restaurants. Tariffs tax the non-citizens who sell into our market, and tax the citizens who import what their fellows perceive to be luxuries: Paris fashions, Swiss watches, Turkish rugs... We really mustn't forget the revenue end of the deals.
Three. ...
Yes, that's the protectionism bit.
Even there, though, it's not a done deal that it's the domestic buyer who's paying the tariff bite. As we've seen with the PRC, sometimes it's the tariffed entity that pays, or pays a significant fraction, through its government's currency manipulation.
Eric Hines
Actually, stocks have been surging partially because of optimism about the Trum impeachment. It's not due to politics but just because stock brokers are tuned into the media, by necessity. When the media wants to make people afraid, this creates a "market condition dip".
And each individual stock changes behavior based upon a number of factors. But generally, the big dog names have maintained their stock prices or increased it. Particularly microsoft or apple. They are the ones leading the pack, or pulling the market. Although whether the other stocks are trading off or on, is a different issue.
I'll put in my regular plug for Peter Zeihan's view on the US post-WW2 trade policies. Despite all the trade deficit angst, we're the nation least integrated with the global economy because we've used trade as a weapon fom about 1950 to 1990 against the Soviets. We successfully bribed everybody to fight the Cold War on our side, including the ChiComs.
Eric says: " Three. ... " Yes, that's the protectionism bit.
I don't follow your reasoning. Revenue is the same as protection, in your view? Expand, please.
On my side, I reason that any tax begins as a way to raise funds for governments. Any other purpose is secondary -- or tertiary. A tax to raise revenue doesn't necessarily protect anything. For instance, a "property tax" on your home is not protecting other neighborhoods from development. It's funding city streets and schools. A "sales tax" starts as a way to raise revenue but as a secondary feature may be intended to discourage consumption -- particularly if some commodities are more highly taxed than others.
A selective tariff may be intended as protective -- but it's hard to justify unless a general tariff already exists. How would any government go about creating border inspection points, assessment methods, auditors, etc -- just for, say, steel? On the other hand, if the border structures already exist and EVERYTHING is getting taxed at, say, five dollars a pound, ( a bad way to assess things, but easy to measure ) then raising the tariff on STEEL ONLY to fifty dollars a pound is obviously less a revenue thing than a protective and non-competitive thing. Same with persuasive or influencing tariffs, the "most favored nation" status. If all our allied friendly supplies are taxed at five dollars a pound of imports, but adversaries are taxed at fifty dollars per pound, then -- presumably -- we "reward" our adversaries less with our currency than we do our allies. It may or may not work, or be wise if it does work. But it only works at all if a general, pre-existing, tax collection scheme is in place.
Am I off base here?
No, you're not off base, but I think your emphases are misplaced.
Protectionism isn't the same as revenue raising, because revenue raising isn't a very important purpose of tariffs, protectionist or otherwise.
Taxes can have multiple purposes. I submit that taxes that are tariffs have as their primary purpose the discouragement of imports. That purpose has one or both of two reasons: protectionism and encouragement/coercion of particular behaviors by the targeted nation. Only deeply secondary to that--almost a mere side effect--is raising money for government. Yes, Trump brags about how much the PRC is paying us in tariffs, but the point there is raising the cost to the PRC, not raising money for us. This is borne out by the PRC's currency manipulation to lower the cost to us of their exports to us by approximately the amount of the tariff, which only raises the cost to the PRC exporter of his exports--and not only to us: his other buyers also get the lower price. That's an advantage--to us, anyway, and to most of the world--of having the dollar as the world's reserve/trading currency and not the rouble or the renmimbi or a basket centered on either or both of those.
Next, it's easy to justify a tariff, protective or otherwise, without a general tariff already existing. In your example, you set a general tariff of $5 on everything, and an additional steel tariff of $50 to get a protective outcome (I suggest, also, a persuading outcome). But the same thing exists if the general tariff is 0$ on everything with a $50 tariff on steel (not $45, because the political difference is greater moving from 0 to 45 than it is from 5 to 50: tariffs are political as well as economic, especially when they're coercive rather than protective). The base threshold only matters to the extent it lowers the relative economic cost of the particular tariff. All that's necessary in either event is the existence of a border with mechanisms for inspecting imports. Most nations have that.
The only thing a general tariff does is provide a differential for something akin to a most favored nation status. As a practical matter in the case of the US, that's an almost meaningless status regarding tariffs since we grant most favored nation status to nearly everyone. There are other means of rewarding "most favored," though, than tariff reduction: political rewards, for instance, or we'll guide more of our imports toward "most favored," and so on.
Eric Hines
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