If a foreign government subsidizes its manufacturers’ exports, does our government have the right to impose tariffs on imports from that country?
Suppose our country, Freetradia, which imposes no tariffs, has a thriving industry making and selling widgets worldwide at free-market prices. All of a sudden the government of another country, Exportia, begins subsidizing its own widget manufacturers, enabling them to profitably sell their widgets for substantially less than what the price would be without those subsidies. Does the government of Freetradia have the right to impose tariffs or other restrictions on imports of widgets from Exportia, in order to neutralize the competitive advantage that Exportia’s manufacturers now enjoy as a result of their government’s subsidy?
This is a sticky wicket isn't it? I am all for fair and free trade, but any subsidies or regulations that give unfair advantage to domestic producers of any nation, will benefit consumers of other nations. This is all fine and dandy until the subsidies are such that they destroy the jobs of the consumers, wherever they are. No matter how cheap one makes a loaf of bread, if one has no job, and consequently no money at all, it matters not how cheap it is, unless it is free. It is equally true that Trump slapping a 30-35% tariff on Carrier products soon to be made in Mexico and shipped here will hurt American consumers and likely start a trade war.
After much research on this subject, I believe a nation losing its jobs to unfair trade practices should place no tariffs on basic commodities/ natural resources that have little value added and only place excise taxes on value added luxury imports from the offending nation commensurate with the level of unfair subsidy. Exchange rate manipulation can be a national subsidy. Fiat money makes that easier. We should be in the business of removing tariffs, yet not so foolish that we do nothing while foreign governments destroy our producers. The best way to stop the hemorrhage is not to add tariffs, but to remove all punitive taxation and regulation here, so companies stay and invest here. When governments get out of the way on both sides of the trade and let free markets reign everyone benefits.
For forty years we have seen trade deficits, lost manufacturing and shrinking or stagnant wages for middle class America. Now, correlation is not causation, but one must at least consider the probability, long term potential and impress on trading partners that obviously abuse the system, that ultimately destroying their market is not in their interest. At the same time we must convince our own government to stop subsidizing foreign competition with punitive burdens on domestic producers.
When subsidized a company has advantage over competitors and consumers may lose out on better, cheaper alternatives. When a company/product is penalized by regulation or taxation, consumers pay the bill and alternative (often expensive, shoddy) products are rewarded unfairly. Subsidies and tariffs are the same, in that they both unfairly benefit the chosen at the expense of everyone else. It does not matter if production is being rewarded (subsidized) or penalized (taxed). They are simply different sides of the same coin... a means to a cronies, or social engineer's end.
We are presently reliving Mercantilism, which was a large contributor to the impetus for our American Revolution. Sadly, some people never learn from history.
Respectfully,
O.A.
At whose cost?
This is a very intriguing question that possible dictator Trump may make not so hypothetical.
The other thing that happens, though, is that the Freedraidia widget company moves to Exportia and can make more money with the subsidies selling back to it's Freetradia citizens.
Unfortunately, while widgets are cheaper the citizens of Freetradia don't have jobs since the widget factory closed and they can't afford to buy widgets. The widget company is doing really well, though and its stock is trading at high levels.
The subsidizing means higher taxes, so that Exportia manufacturers in the long run don't make more profit. But, because of unemployment, Freetradia buys less, driving Exportia into a depression, which allows Freelandia to resume manufacturing at a profit.
In the long run, government attempts to aid the free market inevitably does the opposite.
If you want to discuss the practicality of tariffs including the mirror image variety that is a completely different question
Reminds me of the test that starts off with Read the directions. At the end when the students have turned it in for their "F" grade they find th last paragraph says place name at top of paper and turn in.
it is the responsibility of "widget" company or industry to deal with "Exportia" by whatever means it is capable of, not to petition to govt to intervene on it's behalf..."Exportia" has lost all justification for it's continued existence...
the govt is limited to defend it's citizens against foreign "military" threat only...
None had ever heard of nor knew how to make a book keeping entry for COG or Cost of government.
None of them considered business taxes to be an overhead expense but viewed it as a voluntary donation to the government if they even had that much of a clue.
I asked what was the point of the profit column if only the share holders, investors , etc. whatever you wanted to call the real owners? After all they paid income tax.
Blank stares.
.
Including from the instructor.
who mumbled ...I think they cover that in a later class.
None of them would accept the idea that taxes are overhead a cost of doing business .
I remember the discussion was a planned demonstration at a bank that had not paid it's business taxes. Of course it had paid them for the most part it's a receive from customer pass through to the government but that does not count the cost of collection and disbursement or any other forms of taxes such as property tax, business licenses, assessments for street and lighting improvements. etc.
My comment was remind me if you walk in my store ask for a job application. We have some pre-stamped 'rejected.'
What's confounded this issue is the cost of regulations, taxes and Union labor costs, not to mention all the other bennies that are attached to the price of goods. Reducing unnecessary anti competition regulations, taxes and unions would alone bring down the costs...and the workers would probably make out better TOO!
However, to answer the underlying question of whether it should or not requires a deeper dive. The first stop on that road is how it could be done and if it would work.
Who pays the tariff? The first part of that answer is "Depends on where it is levied". The apparent desired goal there is to find a way where the foreign company pays it. Of course they will likely want to pass that on to the consumer in the form of a price hike. But does that achieve the goal? Perhaps.
The catch is in properly levying the tariff. To add it to the price of the good means Freetradia citizens actually pay it. So likewise if the importing company is from Frertradia you wouldn't levy it on the importer. Meaning you are left with levying it on the export company - as long as that company isn't owned by Freedtradia citizens. The moment that happens, well you're out of options for tariffs and have to look at limiting the quantity imported.
Limiting the quantity imported seems the most elegant in that it doesn't have the on-whom-to-levy the fees/tariffs problems above. I am sure there are plenty of problems here though - the first of which being where to set the limits. You'd have to come up with a purely objective and formulaic means to determine how much advantage is provided by the subsidy and how that translates into the limits. Otherwise the limits devolve very quickly into political tools and cronyism.
The first whiff of this does smell like protectionism. However, I think it is an open question as to whether that changes once a foreign government is involved - such as in direct subsidies. I suspect that unless it was very strictly defined and limited, what constitutes a government subsidy could become a political football. Does the U.S. Fedgov subsidize aircraft makers by using them for military jet production and NASA's use of them for rockets? I could see an argument in that direction given money is fungible.
It is a tricky question but for me it first comes down to how workable and effective it would be. Regardless of how much it may "make sense" to have a policy in response, if none of them actually work it makes no sense to use them.
For all we know they turn around and subsidize the companies from Freetradia, further escalating the problem. At any rate that doesn't change the calculus of whether they have the right to do so, and only under specific conditions not stipulated above would it affect the calculus of the question of effectiveness.
The former possibility is something pursued by companies normally. It is a risk. It if you can sell lower enough for just long enough that your competitors go out of business you get a larger market share and presumptively better market control. If you fail you go out of business. But if you succeed you have a monopoly, or enough market share to stabilize.
On the gripping hand perhaps it induces Freetradia companies to shift operations to Exportia and Exportia taxes the income and has enough to cover it. Or some combination of the above.
The underlying economics don't change, just the actors and their powers and resources. If Exportia overextended long enough they would suffer indeed. If Freetradia countered with tariffs and Exportia escalated it becomes a wallet war of attrition.
I have an observation and a couple of questions for you.
The observation is that if Freetradia is a sovereign country, they can impose tariffs on anything they want at any time. Then it depends on consequences, local and global ones.
Where is Exportia getting the money to artificially decrease the real costs of producing those widgets and how long can it sustain the scheme?
After Freetradia imposes the tariffs, wouldn't you expect a Freetradian entrepreneur, after observing the market price increase, to start a widget manufacturing business, probably based on a more advanced technology and, as a consequence, being able to beat even the subsidized production costs in Exportia, with a chance of winning a share of the global market?
In my opinion, invention, courage and entrepreneurship move the world forward.
Exportia can get the money for subsidies by exploiting other sectors of its economy, either through taxes, borrowing or money printing. It can sustain the scheme until its citizens wise up or its economy tanks (which could be a very long time, look at Venezuela).
Subsidy or no subsidy, innovation will eventually drive prices down. However, the artificially low price of widgets created by the subsidy might delay innovation because it gives producers less incentive to innovate in this particular market.
Actually Venezuelan collapse was relatively fast - less than a generation. It took communist Russia about 70 years, just short of three generations.
If you look at Western art since the beginning if the 20th century, you can tell that that civilization was getting sick.. No serious sign of turnaround yet. That is four generations plus and counting.
It takes long time to turn about a huge aircraft carrier.
Professor Langley's highly subsidized contraption dives off the end of the pier into the Potomac, while the Wrights, the shoestring budget bicycle shop owners, achieve the first heavier than air flight at Kittyhawk.
The 'concept' of free trade means that the nation of Exportia has chosen to cut the price of widgets -- which Freetradia would conceptually accept as a business decision.
The decision to act should necessarily be based on the current & future importance of widgets to the economy of Freetradia.
If Exportia is obviously only subsidizing the price of widgets to harm Freetradia's infrastructure, then a tariff is warranted. If Exportia is/has positioned itself to produce & sell widgets at the new lower price now and forever, then they have simply out-competed the market, and tariffs would be protectionist.
the rest of it is immaterial to the question.
Old Dino has seen competition drive down the prices of PCs, cell phones, monthly phone bill prices, all kinds of stuff. I don't even have USA/Canada long distance anymore.
With the tariff, Freetradia's widget companies will die anyway, AND all of it's citizens will pay more for widgets.
If Freetradia (which had a thriving 100 year old industry for Widgets from such powerhouses as General Widget, International Widget Corporation (Wigicorp), and Pillbug & Sons Widget Co.) decided to put a tariff on foreign Widgets (made by Pzorzia/Zbratznik of Exportia People's Widget Cooperative # 18) it's their right to do so. There's historical precedent (The US Tariff against 750+ cc motorcycles to try to save Harley Davidson from Japanese motorcycle manufacturers flooding the market)
Heck, they could put a tariff on a set of goods because they didn't like the color of the Premier of Exportia's hair.
I would also point out that initially, the entire revenue of the Federal (for some reason my fingers kept wanting to type Deferral...) government was derived from trade tariffs. If we want to get rid of corporate and personal income taxes, we need to go back to this model.
I think that would cause a downward pressure on federal expenditures. Of course, I think there are other factors that would boost this such as returning to Senators being selected by the State, not the people in the state. But having direct billing, as it were, allows for some of the political shenanigans to go away.
For example, right now many are elected based on claiming they brought/will bring so much money from the federal government. And the vast majority of us don't have the data to compare to how much the citizenry of the state pays out in the first place. Having that piece clearly and plainly available makes that comparison possible. As it has been shown in psychology that humans are more loss-adverse. By having the big numbers on how much the state and its people are "losing" in the form of a big fat check to the fedgov, that loss comes a bit back into visibility.
Some will say this will more heavily impact the smaller states. I say it only makes it more visible, rather than making it that way. In my analysis there are enough "smaller states" who have an equal weight vote in the Senate to serve as a counterweight to the eager spending habits of larger states.
While not a silver bullet, this combined with a return to federal focus on excise, tariffs, and fees is a solid route to a lower spending, smaller federal government. On top of that think of all the tricky and twisted games the federal government currently plays with funding. With the above equation visibly balanced, more attention can be paid to those games ("you get this money if you do that thing we can't require you to do").
the more we fund it,
the more it grows,
the hungrier it gets,
the craftier it gets in promising groups benefits in exchange for votes...
All governments must be funded in some fashion, so the premise that we can eliminate government growth by eliminating funding entirely is as poor as the idea that if the government funded candidates we'd get better candidates not beholden to "special interests".
I forget which politician floated the idea, but there was actually a bill submitted that would prevent "ongoing" taxation - ie people having money taken out of their paychecks for tax purposes. They would have to pay Medicate, SS, FICA, etc. in one lump sum at tax time as an emphasis on just how much we pay in taxes. Needless to say it didn't get any traction, but I think that if the American people really saw a breakdown of how much they pay every year in taxes, we'd get a lot more calls for lower taxes.
One reminder: the whole notion of the rule that revenue and spending bills must originate in the House strongly supports the notion you build on that the States should pay shares towards Federal outlays in proportion to their population. I support the notion of proportional taxation. One idea I have floated is the notion of making all of the offices and staffing for elected officials in the House and Senate be paid for by their respective States - not out of a Federal Government slush fund. Aides, healthcare benefits - all of it subject to requisitions and oversight of their respective State legislatures.
There was another Gulcher who alerted me to the notion that the best way of reducing lobbying was to reinstate the secret ballot. I'm still up in the air, but the proposal certainly had enough data behind it to get me thinking. The basic contention is that since the bill which established roll-call voting (so everyone knows exactly how everyone votes), we have seen the explosion in the lucrative area of lobbying because they can directly tie their lobbying efforts to a financial payoff. If they have no way of knowing if a particular elected official actually voted for their proposal, these direct ties evaporate. The contention was that this makes lobbying efforts much harder to quantify, much harder to target, and allows the individual representatives the option to vote their conscience more than to vote for re-election. I can't say I'm 100% sold on the idea, but I couldn't just dismiss it out of hand either.
Retailer has a choice of South carolina grown, milled woven, cut and sewn into a shirt. He Can sell it for $20 to cover all business expenses and a $2 profit. The competition is a from India and for our purposes is of equal quality and cobra egg free. He can sell the import ad the present import duty rate for $10 to cover all expenses and stil lmake $2.00 profit. Without profit there is no reason to work so we'll set that obvious fallacy aside.
SC cotton industry asks their congressionals of a parity tariff.
Now the cost is $20.00 from either source. Business slows though due to higher prices.
However the question is.....ready....
Who loses as a result of this tariff??
If you know the answer or have your own copy of Hazlitt refrain from spoiling the fun.
:let's see If I buy US it's $20 to sell and $2.00 profit. If I buy India it's $20 to sell since there is an added $10 tariff and $2.00 profit.
Buyer pays $20 either way. So it's a case of support the government or support SC cotton industry.
Who loses?
First clause An example - Boeing versus Dassault Air Bus
Second Clause is Yes the answer to the question
Comment? Our Government has that right under any circumstances.
End of conversation
Article one section eight Clause one -
Tariffs were the principal means of funding government prior to the 13th Amendment. modified by the 16th.
Taxing and Spending Clause - Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Taxing_...
The Taxing and Spending Clause Article I, Section 8, Clause 1 of the United States Constitution, grants the federal government of the United States its power of taxation. While authorizing Congress to levy taxes, this clause permits the levying of .... to Washington on the constitutionality of the national bank, was the correct ...
Sixteenth Amendment to the United States Constitution - Wikipedia ...
https://en.wikipedia.org/.../Sixteent......
The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income ... Bill of Rights ... Until 1913, customs duties (tariffs) and excise taxes were the primary sources of federal revenue. .... A bigger government and a bigger military, of course, required a correspondingly larger ...
Tariffs in United States history - Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Tariffs...
Graph: Share of tariff revenues in U.S. Federal budget. Tariffs in United States history have ... Treasury agents collected the tariff before goods could be landed, and what became the Coast .... The U.S. Constitution of 1789 gave the federal government authority to tax, stating that ... It was reestablished right after the war.
The reason why is immaterial to the question.
How is this different than a subsidy?