Posted on 10/07/2003 10:53:06 AM PDT by Willie Green
A tariff that imposed zero costs would not function as a tariff to begin with.
Re-read your statement, it sounds like you are starting to agree with me. I never said there had to be a single tariff rate.
Re-read my previous statement. I am simply noting the fact that a tariff's protective capacity does not derive from a generic rate scale where high rates are always protective and low rates are not. Rather, a tariff's protective capacity is directly related to the difference between prices on the two goods.
The cost of goods is determined by supply and demand.
Not when tariffs are at play. They artificially push prices to higher levels that would not exist under free trade conditions by imposing a legal barrier.
What you should be arguing is that it would cut profits.
No. Hiking prices is correct.
Do you think it is a bad thing that most Japanese cars sold here are now made here?
Only if it is inefficient. If it is efficient and gives us some form of price optimality it is fine.
Or would you rather have those Americans give up their jobs
If that labor is inefficient and if the benefits to Americans from lower prices outweighed the costs to Americans from the loss of those jobs then yes. I would rather give them up because that is a net gain for our country's economy.
so that you could continue building Mercado's fantasy land?
Mercado fantasy land?
What? Sounds like you are mixing metaphors.
Not at all. A sovereign nation has the right to set its own trade policy and within the realm of that right is the choice of free trade that we have chosen.
The constitution give the congress authority to collect tariffs.
That it does, and as the founding fathers made very clear, those tariffs were intended to be for the government's revenue purposes - not for providing redistributive protectionist handouts to lazy industries.
Are you not free to buy cigarettes and gasoline because they are taxed, heavily I might add?
I am free to consume those items SO LONG AS I yield to the taxes imposed upon them, but no - that freedom is not a full one. It is wholly conditional and is enforced upon us by a state that imposes those conditions without our consent and exercises its withholding power if we choose not to abide by its unilaterally imposed conditions.
By your logic, you should have the freedom to not pay income tax.
Technically speaking, yes.
And, don't forget, you need the WTO to build your free-trade theme park
No I don't. I simply need Congress to remove the existing trade barriers and abstain from imposing new ones.
If that labor is inefficient and if the benefits to Americans from lower prices outweighed the costs to Americans from the loss of those jobs then yes. I would rather give them up because that is a net gain for our country's economy.
This is the heart of the issue. Show us this net gain for real, not in theory, and don't forget to factor EVERYTHING in.
Not at all. A sovereign nation has the right to set its own trade policy and within the realm of that right is the choice of free trade that we have chosen.
According to that, we have never had free trade in the history of this nation. Is something magic going to happen when we hit 0 tariffs? What about all the other trade barriers? Tariffs kill all? Let's say you get your way and it is a bigger failure than it already is... would you ever admit it, or would you just move the goal posts?
Ricardo is no fantasy land. His is a logically and mathematically sustained model of trade. Only those who misapply it or fail to understand it themselves would ever conclude it was a fantasy land.
This is the heart of the issue. Show us this net gain for real, not in theory, and don't forget to factor EVERYTHING in.
Happily. It is built into the tariff's impact on prices. If you impose a tariff on imports it raises the price of an import from its naturally occurring supply/demand set equilibrium free market etc. world price to a new artificially sustained tariff price. Put simply, the price level shifts up.
Now mathematically, consumers enjoy the geometric area above the price line under their demand curve - this is their consumer surplus (conversly producers enjoy the area under the price line but above the supply curve - the producer surplus). When you shift the price line up (and that is what a tariff does) it takes away a chunk of the consumer surplus between the old price line and the new price line. That is your "negative" imposed by the tariff on consumers when prices rise. SOME of that "negative" is offset because it simply transfers over to the producer surplus as a "positive," meaning the newly protected industries gain economically to offset some of the losses. But this is not true for all of the consumer surplus because the supply curve falls to the left of the demand curve in the area between the freemarket world price and the higher domestic price (the intersection of the two). That section of the consumer surplus that falls inside the area between the supply and demand curves is NOT redistributed to the producer surplus and goes elsewhere. The geometric square goes to the government in the form of tax revenues from the tariff, but the supply and demand curves are not vertical so that leaves additional area. We call that the deadweight loss because it is simply removed from the economy by the tariff and does not transfer back into it.
All that in a word: The total area of the consumer surplus that is lost will always exceed the sum total area of the (a) producer surplus gain and (b) government revenue gain since the remainder is lost in dead weight. That means a net loss for the economy.
According to that, we have never had free trade in the history of this nation.
In the strictest sense, no. But we have approached it at times and continue to approach it now.
Is something magic going to happen when we hit 0 tariffs?
Not necessarily, though it will push our economy closer than it currently is to optimal performance.
What about all the other trade barriers?
Remove them too.
First we remove our own. Second we work through diplomatic means to sign free trade agreements with others.
Not theory. It's a mathematical certainty. The only thing theoretical about it is a simplified approximation of the curve shapes and they all reflect the reality of it. The geometry of the curves as they actually exist AND as they are approximated in the given model makes it IMPOSSIBLE that you could achieve anything other than a net loss.
What we would like to see is empirical evidence of how it IS working instead of further analysis of the model.
That evidence is right in front of you. When protectionist tariffs are imposed the protected industry benefits but prices also go up (and trade often goes down). It happens every single time. The geometry of price curves makes it mathematically impossible for the benefits to that industry to outweigh the costs to society as a whole. In short, protectionism is nothing more than a welfare scheme that takes away an economic good from the country as a whole and redistributes it, though in inevitably lesser ammounts, to a recipient industry.
You always deal with the theory instead of real world evidence.
The real world evidence is there for anyone to see. Just look at the history of protectionism in this country. Take the Morrill tariff of 1861 for example. They imposed it as law, our entire trade halved virtually overnight, and domestic price levels went up. Look at the customs data from our ports of entry and the financial papers if you doubt me. You will find that it took almost a decade after that for trade to get back to 1860 levels. Take Smoot-Hawley during the depression as another example. Trade dropped off there even faster than it had in 1861, sparked retaliatory trade wars, and created the infamous month-to-month downward spiral that bottomed out at virtually nothing in 1932.
Your model means nothing if it is not observable in the real world.
My model is nothing more than a geometrical certainty within the price model. Prices are observed all over the real world and in fact observation of them is exactly where the price model comes from. Do you deny any of this?
Look at some of the schemes inacted by the World Bank.
The world bank is run by a bunch of utopian new world order thugs. They are not free traders in any common sense of the word, but rather are little more than rent seekers trying to get rich in their own way off government policy just like the protectionists.
These guys have the same economic theories you do
No they don't. They're in it for the money just like everybody else in that scheme of things. I'm a free trader in the classical and quasi-austrian sense, and by that I mean for government's involvement in the matter of trade itself to be minimal.
Of course trade goes down, the country is supplying more of its own needs. Are you arguing trade for trade's sake?
The real world evidence is there for anyone to see. Just look at the history of protectionism in this country. Take the Morrill tariff of 1861 for example. They imposed it as law, our entire trade halved virtually overnight, and domestic price levels went up. Look at the customs data from our ports of entry and the financial papers if you doubt me. You will find that it took almost a decade after that for trade to get back to 1860 levels. Take Smoot-Hawley during the depression as another example. Trade dropped off there even faster than it had in 1861, sparked retaliatory trade wars, and created the infamous month-to-month downward spiral that bottomed out at virtually nothing in 1932.
For me, a trade surplus is evidence of protectionism. Likewise, a trade deficit is evidence of giveaway free-trade schemes that benefit corporate bottom lines and investors at a cost to everyoine else. Businesses and labor are competing interests, so it would be nice to strike some sort of balance between the two instead of your own brand of corporate darwinism.
My model is nothing more than a geometrical certainty within the price model. Prices are observed all over the real world and in fact observation of them is exactly where the price model comes from. Do you deny any of this?
What you have very effectively described is the distorting effect that all taxes have on the goods subjected to them. This distortion is the very reason why the founders talked about excise taxes and tariffs. The idea is that if we have to tax something, it should be as invisible to the population as possible, and placed on items that can be thought of as bad or unessential, such as tobacco, alcohol, luxuries, imports, gaming, etc. In essence, what you are arguing for is the complete elimination of taxes. How are you going to fund gov't or the military? Are you a closet libertarian?
Only in lesser ammounts due to the higher prices. That means less economic activity as a whole. Less economic activity can adversely impact consumption.
Are you arguing trade for trade's sake?
No, but I am arguing trade as a means of attaining greater economic efficiency and the maximization of our economic potential.
For me, a trade surplus is evidence of protectionism.
Then you are a mercantilist.
Likewise, a trade deficit is evidence of giveaway free-trade schemes that benefit corporate bottom lines and investors at a cost to everyoine else.
It costs everyone else what? LOWER prices? Yeah, I'll tell you. When I can get the same thing at wal-mart for a cheaper price than economic autarky it sure is a cost to me! Why I don't know what I'd even do with all the money I saved if that were to happen.
Businesses and labor are competing interests
Not always. In many cases such as the steel industry business and labor are complicit in protectionism. The steel business benefits by a government handout and the steel labor unions benefit by keeping their artificially high employment levels at undeserving and inefficient rates.
What you have very effectively described is the distorting effect that all taxes have on the goods subjected to them.
No, not really. This is specifically a case of traded goods because it pertains to market situations where there are distinct world prices and a domestic prices. Other taxes on various goods are still subject to similar pass-through effects that disadvantage consumers but they are not subject to the large dead weight losses incurred in a trade tariff.
In essence, what you are arguing for is the complete elimination of taxes.
That is a strawman representation of my position. In no place did I ever advocate the complete elimination of all taxes, or even all tariffs. I seek to eliminate PROTECTIONIST tariffs and quite frankly would not object to low level revenue tariffs that have only minimal to no noticeable protective elements. I have stated that previously yet you persist in misrepresenting me on it. Why is that?
Are you a closet libertarian?
Just a Goldwater conservative who really despises the exercise of government power.
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