Monday, September 17, 2012

Quotation of the Day: A Duty Is a TAX on Imports

From Don Boudreaux's open letter to Mitt Romney:

Your wish to “label China a currency manipulator” means that you seek a pretext to impose (as your website says) “countervailing duties” on imports from China – which is to say, you seek a pretext for raising taxes on Americans who buy goods and services from China. Yet in other episodes of your campaign you promise (as you did here* last month) “I will not raise taxes on the American people. I will not raise taxes on middle-income Americans.” 

If you keep your promise to impose countervailing duties on imports from China you will thereby break your promise to not raise taxes on the American people. (Americans who buy imports from China are, after all, American people.) But if you keep your promise to not raise taxes on the American people, you must – as I hope you will – break your promise to punitively tax those many Americans who buy imports from China.  

MP: It's a simple, but often neglected point that a tariff or duty on imports is just another word for a sales-type tax on imported goods, and those tariffs/taxes/duties are not imposed on China or other U.S. trade partners, they are imposed on, and paid for by, Americans (consumers and businesses) who purchase foreign-produced goods.   

46 Comments:

At 9/17/2012 7:29 AM, Blogger hancke said...

I don't understand all the negativity towards China. US companies source the majority of imports. As an example, each iPhone accounts for $200 of the total imports. Just campaign rhetoric I guess.

 
At 9/17/2012 8:33 AM, Blogger Scott Drum said...

They teach a lot of nonsense at Harvard. Maybe he picked it up there.

On the other hand, I'll bet when he was working with Staples he would have figured out who pays an import duty on Chinese pencils.

To paraphrase Rahm Emmanuel, you never want to let economic ignorance go to waste.

 
At 9/17/2012 8:48 AM, Blogger Pulverized Concepts said...

Tariffs can be called a tax, perhaps, but they're really two different things. First of all, they're meant to discourage the purchase of foreign produced items in favor of domestic ones. That's supposedly favorable to domestic manufacturers and their shareholders and employees and buys some votes. Second, should the consumer, for whatever reason, decide to bite the bullet and purchase the alien product, the state gets a chunk of the price. So the tariff is as much of an advantage to the state as it is a burden on the consumer.

 
At 9/17/2012 9:27 AM, Blogger hancke said...

I wonder how much of the $174 billion trade deficit with China is due to US companies offshoring manufacturing for products sold to the US market? Why blame that on China? It's not like they are really competing with us, it's us competing with ourselves.

 
At 9/17/2012 9:45 AM, Blogger Jon Murphy said...

I wonder how much of the $174 billion trade deficit with China is due to US companies offshoring manufacturing for products sold to the US market?

Well, final goods from China made up about 1.2% of personal consumption expenditures (Source). If we were to assume every one of those goods were once produced in America (a very dangerous and, most likely, inaccurate assumption, but I'll use it for the sake of simple math), then about $2.1 billion is from outsourcing. That would mean the $173.9 billion left would be in terms of intermediary goods (unfinished products like crude oil that is imported and finished here).

Given the giant assumption I made in that analysis, take my calculation with a large dash of salt, but it is probably not a bad starting poitn.

 
At 9/17/2012 10:07 AM, Blogger morganovich said...

so, if china is a "currency manipulator" what are we?

we can print dollars hand over fist and drop rates to zero to demolish the dollar's value, but that's not currency manipulation?

then, china, who seeks only to peg to the dollar copies what we have done and suddenly they are a manipulator?

the standards here seem insane.

pc-

you are leaving out a key aspect of tariffs.

all tariffs create a dead-weight loss for the imposing economy.

prices go up for all consumers, government takes a chunk, but the overall government, consumer, and producer surplus for the imposing economy shrinks and you are left worse off than before.

this is true of every signle tariff without exception.

http://mjperry.blogspot.com/2011/03/econ-101-protectionism-for-dummies.html

this graph makes it obvious why.

threatening to impose a tariff until a trading partner acquiesces to your demands is like threatening to punch yourself in the face.

tariffs are price supports for producers and a rev generator for governments, but the societal loss to consumers is always greater than the gains to the beneficiaries.

 
At 9/17/2012 10:37 AM, Blogger Buddy R Pacifico said...

"If you keep your promise to impose countervailing duties on imports from China you will thereby break your promise to not raise taxes on the American people. (Americans who buy imports from China are, after all, American people.)"

OK, if the U.S. does not impose countervailing duties, as agreed to in the Chinese ascension to the World Trade Trade Organization, then...

the American people should know that trade with China is not the "pretext" of market compeition but rather...

under increasing control of the world's largest faction, China's Communist Party.

"...the overall picture currently presented by China’s WTO membership remains complex, given a troubling trend in China toward intensified state intervention in the Chinese economy over the last five years. Increasingly, trade frictions with China can be traced to China’s pursuit of industrial policies that rely on trade-distorting government actions to promote or protect China’s state-owned enterprises and domestic industries. In fact, in recent years, China seems to be embracing state capitalism more strongly, rather than continuing to move toward the economic reform goals that originally drove its pursuit of WTO membership."

Will Don Boudreaux do more to inform the populace of the loss of market reforms in China to the communist faction?

 
At 9/17/2012 10:51 AM, Blogger Buddy R Pacifico said...

From the New York Times: "U.S. Files Trade Case Against China Over Cars"

In somewhat of a coincidence:

"...China’s commerce ministry announced in a statement on its Web site that it was filing its own W.T.O. case against the United States, alleging unfairness in how the United States calculates the penalty tariffs in anti-subsidy cases."!!!

 
At 9/17/2012 10:59 AM, Blogger Ed R said...

So what should the USA do when a major country pegs its currency at an artificially low rate??

 
At 9/17/2012 11:02 AM, Blogger Jon Murphy said...

So what should the USA do when a major country pegs its currency at an artificially low rate??

Enjoy the benefits.

 
At 9/17/2012 11:22 AM, Blogger Jon Murphy said...

I mean, if a country is willing to hurt itself to give us cheap-as-free stuff, than where's the problem?

 
At 9/17/2012 11:24 AM, Blogger Jon Murphy said...

Would I rather trade be conducted on fair and open terms? Yes. Would I rather all currencies be allowed to float? Yes. But the purely selfish person in me says I am willing to take the free stuff they give me.

Besides, a tariff does not solve the "fairness" problem. Not in the least.

 
At 9/17/2012 11:32 AM, Blogger Buddy R Pacifico said...

"So what should the USA do when a major country pegs its currency at an artificially low rate??

Enjoy the benefits."


Jon, is this advice for all U.S. consumers and producers, or just those not injured by the "benefits" currency manipulation?

 
At 9/17/2012 11:33 AM, Blogger morganovich said...

"So what should the USA do when a major country pegs its currency at an artificially low rate?? "

that's not even a meaningful statement.

what should a country do when a trading partner prints so much money that their currency drops like a rock?

why is our the "natural and correct" rate? after all, they are just pegging to us and moving as we do. it's fine for us to devalue, but not for them? these seems like some pretty extreme double standards.

 
At 9/17/2012 11:46 AM, Blogger juandos said...

Hey jm thanks for that link to the Frisco Fed...

Speaking of which I also see that the Frisco Fed does FaceBook...

The San Fran Fed Asks What People Think Of QE3: The People Respond

 
At 9/17/2012 12:14 PM, Blogger givemefreedom said...

"So what should the USA do when a major country pegs its currency at an artificially low rate?? "

The USA should do nothing. We should be very quiet and just keep accepting the charity from the major country. If they are willing to sell goods to us that are "artificially" lower then they would be without the peg, then we should be very thankful and quiet so that they do not wake up and see the error of their ways.

What we definitely should not do is impose a tax on our citizens who take advantage of their mistake and buy these goods.

 
At 9/17/2012 12:16 PM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 9/17/2012 12:17 PM, Blogger sethstorm said...

"Consumers" are an amorphous entity that is used to shield from criticism. You can't define them specifically, nor can you target them since they can be magically redefined to include friendlies as well as hostiles.

Let the penalties(the 24%+ tariffs) commence so that US products can be a valid choice not left to the few. The more indirect one is in a business and the more offshoring one uses in it, the greater the penalty. There is no sense in empowering a despotic country by feeding it or rewarding the fellow traveller businesses that offshore to it.

If tax cuts are to come, they come with expanded jurisdictional enforcement obligations (read: obligated to pursue those that hide) and guarantees of greater opportunity for citizens backed by said obligations.

As for QE3, be prepared to handle that militarily as well as economically in order to deal with the despots of the Far East. Appeasement to China is never the answer, no matter how you justify it with economics.

Let the tariffs begin, and if QE3 is necessary, prepare to neutralize the Far East.

 
At 9/17/2012 12:22 PM, Blogger sethstorm said...


What we definitely should not do is impose a tax on our citizens

Tariff != tax, no matter how you try to redefine things. In addition, being "thankful and quiet" is appeasement of a hostile regime.

I mean, if a country is willing to hurt itself to give us cheap-as-free stuff, than where's the problem?

It hurts us as well by removing opportunity at a faster rate than what can be overcome by the US.

Besides, a tariff does not solve the "fairness" problem. Not in the least.

It does when it removes the incentive to send things to despotic locales.

 
At 9/17/2012 12:26 PM, Blogger sethstorm said...


so, if china is a "currency manipulator" what are we?

An unequaled superpower that is on top of the world, despite the actions of the current President and administration.



 
At 9/17/2012 12:45 PM, Blogger Methinks said...

prepare to neutralize the Far East.

Yeah...except what you think is "neutralizing the Far East" is actually neutering you.

 
At 9/17/2012 12:46 PM, Blogger givemefreedom said...

Wow Setstorm, someone needs to chill a bit.

Selling us things cheaply is not a hostile act, no matter how you try to redefine it. We benefit as a country since we now allocate a smaller portion of our money to buying those things.

You seem to be saying that the response the US should give to China is to attack them militarily???

Personally, I prefer being quietly grateful for the lower priced goods.

 
At 9/17/2012 12:49 PM, Blogger Pulverized Concepts said...

"appeasement of a hostile regime?

Is the US at war with China? In fact, don't hundreds of ships loaded with millions of dollars in goods travel back and forth between the two countries? Don't many Americans visit, for both business and pleasure, China and aren't thousands of Chinese nationals students in American universities? It may well be that the Chinese government and the US government have some sort of differences but those can't possibly extend to the citizens of each country. There's a Chinese church down the block from my house. I see no evidence of hostility from those folks. None of them seem interested in making me throw away my forks and use chopsticks. I don't know anybody in China and have no animosity toward any Chinese. The idea that governments can use the populations of other countries as justification for their own repression is obscene.

 
At 9/17/2012 1:00 PM, Blogger juandos said...

"To paraphrase Rahm Emmanuel, you never want to let economic ignorance go to wasted"...

Ha! Ha! Hi! Very good sd...

I wonder what Rahm Emmanuel thinking now?...:-)

 
At 9/17/2012 1:14 PM, Blogger Jon Murphy said...

Jon, is this advice for all U.S. consumers and producers, or just those not injured by the "benefits" currency manipulation?

That is a tough question, Buddy, but the short answer is "yes."

 
At 9/17/2012 2:48 PM, Blogger sethstorm said...

givemefreedom:
Then I suppose that whatever killed Nortel (Chinese industrial espionage) was not a hostile act. I also suppose that going to China for business wont result in additional things in your electronics that phone home to steal more(which according to you is not a hostile act).

A military response should not be out of the question if QE3 leads to a large dollar selloff. It would stand between life as we know it today and the life of a country like Argentina. Otherwise, stick to economic measures that end offshore evasion.

The Chinese people are not a problem on their own; it is the actions of the influential subset of their population that cause problems between the US and China. The same can be applied to other countries as well.

As for the "cheap goods", the initial acquisiton cost is low but the long-term cost is high.

 
At 9/17/2012 2:49 PM, Blogger Ron H. said...

PC

"So the tariff is as much of an advantage to the state as it is a burden on the consumer. "

In other words, it's a political measure, not an economic one.

 
At 9/17/2012 2:52 PM, Blogger Ron H. said...

"Given the giant assumption I made in that analysis, take my calculation with a large dash of salt, but it is probably not a bad starting poitn."

It's an *excellent* point. You are too modest.

 
At 9/17/2012 2:52 PM, Blogger morganovich said...

""Consumers" are an amorphous entity that is used to shield from criticism. You can't define them specifically, nor can you target them since they can be magically redefined to include friendlies as well as hostiles."

what a preposterous statement.

there is nothing amorphous about consumers. when you buy things, you are a consumer. it's pretty straightforward. when you buy a big mac, you are a consumer of mcdonalds.

what could be simpler?

when you buy a sony TV, you are a consumer of imports. if there is a tariff, then you are made worse off and contribute to the overall deadweight loss tariffs impose upon a society.

then, you really fly off the bars.

as the great chinese philosopher and warrior sun tzu said (and i paraphrase) never interrupt your enemy when he is making a mistake.

following his adice (assuming you think china is an enemy) one should shut up and let them sell us things too cheaply.

that's not appeasement. it's called "getting cheap stuff".


 
At 9/17/2012 2:57 PM, Blogger morganovich said...


"So the tariff is as much of an advantage to the state as it is a burden on the consumer. "

In other words, it's a political measure, not an economic one."

it is also most definitely NOT as much of an advantage to the state as to the consumer. the graph i linked can show you why.

 
At 9/17/2012 3:03 PM, Blogger Ron H. said...

Buddy

"Will Don Boudreaux do more to inform the populace of the loss of market reforms in China to the communist faction?"

Do you mean will DB inform the populace that China is increasingly punching itself in the face?

Don't know. You should probably ask him.

 
At 9/17/2012 3:16 PM, Blogger Ron H. said...

"Speaking of which I also see that the Frisco Fed does FaceBook...

The San Fran Fed Asks What People Think Of QE3: The People Respond
"

LOL - Thanks, juandos. That's great.

I have a feeling that "You suck" isn't the opinion the SF Fed had hoped for, and they probably won't ask for public comment ever again.

 
At 9/17/2012 3:34 PM, Blogger Ron H. said...

Buddy

"Jon, is this advice for all U.S. consumers and producers, or just those not injured by the "benefits" currency manipulation?"

I'm not Jon, but if I squint I can pretend you are addressing Ron.

That would be the advice to all US consumers, as all US consumers benefit from lower prices.

Even those "injured" benefit as consumers, and there are far fewer of them than there are consomers. Lower import prices are a net benefit.

If you mean Chinese people who are injured by artificially low export prices and artificially high import prices, you might want to take it up with them.

Are you generally concerned about someone offering a low price? Do you worry that they may be hurting themselves?

If grocery store A offers a discount on a product do you worry that grocery store B will be hurt by loss of sales?

 
At 9/17/2012 3:39 PM, Blogger Ron H. said...

sethstorm

What did your mother say about the data usage? Is she now in a new billing period?

 
At 9/17/2012 3:47 PM, Blogger Ron H. said...

"I also suppose that going to China for business wont result in additional things in your electronics that phone home to steal more(which according to you is not a hostile act)."

LOL and more LOL.

The only organization spying on me through my electronics is the NSA.

"A military response should not be out of the question."

Good one seth.

 
At 9/17/2012 4:13 PM, Blogger Pulverized Concepts said...

A military response should not be out of the question if QE3 leads to a large dollar selloff. It would stand between life as we know it today and the life of a country like Argentina.

Who would the military response be directed at? People all over the world hold US currency and Americans hold other currencies. If a misguided tactic like QE3 results in problems with the dollar military action should be taken against the Fed.

 
At 9/17/2012 4:24 PM, Blogger Buddy R Pacifico said...

Ron H writes:

"Buddy

"Will Don Boudreaux do more to inform the populace of the loss of market reforms in China to the communist faction?"

Do you mean will DB inform the populace that China is increasingly punching itself in the face?"


No Ron, the communists are not punching themselves in the face. If you promote capitalism and trade then you need to be straight-up and state that the markets in China are eroding.

BTW Ron, did you see the Trojan Horse essay by Don? It is a classic, even for Boudreaux.

 
At 9/17/2012 8:06 PM, Blogger Ron H. said...

PC

"If a misguided tactic like QE3 results in problems with the dollar military action should be taken against the Fed."

LOL

While I'm not generally in favor of military action, in this case I'll make an exception. :)

 
At 9/17/2012 8:32 PM, Blogger VangelV said...

Tariffs can be called a tax, perhaps, but they're really two different things. First of all, they're meant to discourage the purchase of foreign produced items in favor of domestic ones.

That is a tax. You force consumers to pay more for a product that they want to buy so that some producer can get more money and stay in business.

That's supposedly favorable to domestic manufacturers and their shareholders and employees and buys some votes.

But it is still a tax on all consumers who have to pay the duties.

Second, should the consumer, for whatever reason, decide to bite the bullet and purchase the alien product, the state gets a chunk of the price. So the tariff is as much of an advantage to the state as it is a burden on the consumer.

It is a burden on the consumer. Romney lied just as Obama always lies. Both are lawyers by training and know nothing substantive about real world economics. Which is why the US will have trouble no matter which one gets elected.

 
At 9/17/2012 8:37 PM, Blogger Ron H. said...

Buddy

"No Ron, the communists are not punching themselves in the face. If you promote capitalism and trade then you need to be straight-up and state that the markets in China are eroding."

I could have worded my question better. Ill try again:

"Do you mean will DB inform the populace that China is increasingly punching the Chinese people in the face?"

The Chinese people are harmed by their low pegged currency as everything they might import is more costly.

It's not clear how reducing their already low incomes by increasing the price of their exports to the US will make them better off, and it certainly won't make US consumers better off.

And what do you propose they use to buy US exports if they have less income? In reality, it wouldn't matter if they EVER bought another thing from the US.

I'm completely in favor of capitalism and free trade, but what the chicoms do to hurt their own people is beyond our control and only serves to give US consumers better prices.

You are "free to choose" to *not* do business with China to some extent, but please don't try to make my buying decisions for me.

Phooey on the WTO. A strictly political organization that has no legitimate role in global trade, and no reason to exist.

"BTW Ron, did you see the Trojan Horse essay by Don? It is a classic, even for Boudreaux."

Yes, and I loved it. He's right on target, as usual, and makes good use of the English language. :)

 
At 9/17/2012 9:42 PM, Blogger sethstorm said...


The only organization spying on me through my electronics is the NSA.

Not through *your* electronics.

 
At 9/17/2012 9:46 PM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 9/17/2012 9:49 PM, Blogger sethstorm said...


You are "free to choose" to *not* do business with China to some extent, but please don't try to make my buying decisions for me.

Likewise.


I'm completely in favor of capitalism and free trade, but what the chicoms do to hurt their own people is beyond our control and only serves to give US consumers better prices.

That country is empowered by those in business that decide to send work to China. The same thing applies for about any other despotic country that performs formerly-US work.

Rewarding it with permissive policies only makes for a country that is still despotic. You just get a thousand little despots being driven in their Audis and tens of thousands more that have knockoff Buicks. Any attempt to hand freedom to average people in that country results in the person being removed from power.

 
At 9/17/2012 10:21 PM, Blogger Ron H. said...

sethstorm

I'm really concerned. What did your mother say. I don't want to encourage this naughty, juvenile behavior from you unless it's OK with your mom. Please ask her to write you a note.

 
At 9/19/2012 12:04 PM, Blogger morganovich said...

"
That country is empowered by those in business that decide to send work to China. The same thing applies for about any other despotic country that performs formerly-US work."

and to any despotic consumer that chooses to benefit from lower prices and greater selection.

do you own a US made dvd player seth?

why not? we make the best in the world, hands down.

sure they cost more, but if you are going to argue that WE should all pay more to buy american (and try to force us to do so) the very least YOU could do is do so yourself.

you really are an entitled hypocrite and a scary little fascist.

how about we all just trade with whoever we like and the government stays out of the way.

we'll get the best prices, the best selection, and enjoy greater liberty.

what is it about freedom and good prices and selection that you hate so much seth? it's weirdly pathological.

 
At 9/19/2012 6:01 PM, Blogger Ron H. said...

"how about we all just trade with whoever we like and the government stays out of the way."

Oh, happy day!

 

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