I’d propose a different reason economists have tariff derangement syndrome. It’s culturally coded as nationalist/racist/trump, and most economists are culturally the opposite.
I think that drives 99% of the reaction. The points you make are perhaps 1%.
I noticed this during COVID, when I watched nearly** every “libertarian” economist I know turn into a raging authoritarian that abandoned all cost benefit analysis or philosophical principals because their social class (urban professionals) had decided that that there was a culturally coded response and that was that. A lot of ink got spent rationalizing that response, but it was pretty transparent at the time and many can now look back on it with shame.
Personally, I find income taxes more distortionary than tariffs. Income taxes make me want to work and save less. I’ve responded to high income taxes in this way.
Tariffs basically work like a consumption tax. Cheap dollar store stuff is no longer a dollar, so I buy less of it. This really doesn’t have a big impact on me. Childcare is now cheaper (my income and their income is taxed less) so I consume more of it. Our families entire decision about whether to have a second income or not basically comes down to income taxes and childcare costs (childcare providers also pay income taxes).
In general I think my consumption basket (including work/leisure/saving) has improved under tariffs*. The same would is true of say an alcohol tax. Yes, it distorts my consumption of alcohol, but perhaps that’s a good thing.
I’m not convinced that the current exponentially growing trade deficit is a good thing. I won’t rehash it all in this comment, but I don’t think “borrow ever increasing amounts of money we can’t/aren’t going to pay back from financially repressed Asians so we can consume more” is a good long run pattern of specialization and trade.
*I speak of this pretty theoretically. At 1% or so of gdp, tariffs aren’t really changing anything at all. People are just going to pay the 15%, the impact on overall prices and income taxes rates will be practically zero. $300b a year? After twenty years maybe that will add up to two years of Covid deficits, lol.
The biggest change to my economic incentives was moving to Florida because it lowered my income taxes and gave me school vouchers, the combination of which greatly increased the post tax/expense value of my wife’s career. Go MAGA!
**you can of course find a few economists that signed things like the great barrington declaration. But I speak from observing the orange line libertarian economist class in general, let alone economists in general who tend to be left wing (think of Paul krugman as like a median avatar for your average phd economist).
>economists have tariff derangement syndrome. It’s culturally coded as nationalist/racist/trump, and most economists are culturally the opposite.
A fine analysis.
And the reason red-neck, blue-collar, "Dim/Dere's/Dat's I gots my education in duh school uh hard knocks!" types love tariffs is that they're ultra-nationalist, xenophobic ("it wuz dem foreigners what's took our jobs away from us!"), and pro-Trump.
I'm confused, Brian. You said something insightful in the intro, which you then didn't address in your six reasons: tariffs are a tax, so we should think about them the same way we think about other taxes.
Your six problems apply to any line of economic activity we could tax. What's special about imports? Do you think they're particularly elastically supplied? Are they more susceptible to rent-seeking than many other provisions in the tax code? I don't get why we single these out.
I don't think either of us find "planner-problem economics" generally useful or persuasive. But we're in the minority. And everything I read from normie public finance says that policymakers should at least try to minimize DWL for a given volume of revenue. Presumably that means the "optimal" tariff rate is nonzero. Indeed, doesn't the large-country (terms-of-trade-affecting) trade model say it's 10% or something?
I dont find planner-problems useful for thinking through the basics. It's not the end of the story and I've written a lot more pieces. But its a starting point for normative taxation.
I don't think they are problems for ANY tax. An income tax doesn't violate Diamond-Mirrlees or Atkinson-Stiglitz. The rent-seeking one could possibly apply to an income tax but it seems highly unlikely we see the type of exemptions we see from tariffs. We have the no tax on tips stuff but that's about it. You have the other deductions too, which COULD swamp the tariffs, but I don't think so. But I'll grant you that one.
I say at the end that there are other reasons for tariffs besides revenue.
“That’s not the claim. The claim is that there are simple models where the problems are worse (in an explicit way) with tariffs.”
At the very most, you can claim this - in a meaningful way - only for models where capital is not taxed at all.
But that model is less descriptive of the world we live in, and of the United States tax code, in 2025.
Surely you would concede that taxing capital is worse still than tariffs - especially as your prose talks about the ills of taxing productive investment, would you not?
If you don’t cover deadweight loss at all, then how can your claim be both credible and meaningful?
Of course I don’t deny that “there are simple models where…” can be true.
Because in the case of very low tariffs that lowering high marginal income tax and especially cap gains tax rates there may be such models, but that doesn’t mean that therefore the reality is that such tariffs are worse than the alternative with tariffs.
All taxes have downsides. I’d agree that the downsides of some are worse than others. But tax *levels* also matter.
" tariffs are a tax, so we should think about them the same way we think about other taxes."
No, we should think about EACH tax in ways appropriate to whom/what/when it is imposed, and its effects on EACH participant in the affected markets, including those for substitutes and alternative who/what/whens. Tariffs ARE ONE type of tax.
>Since French brie isn't noticably better than the American stuff...
Who gets to make that decision—you? Suddenly you're a cheese maven? I doubt it. I only consume French brie since it's noticeably better tasting and produced with superior ingredients.
>…despite the fact that laws require it to be pasteurized to be imported
Never said anything about it being legally consumed. Wake up.
>reducing its superior taste
I wouldn't know. Neither would you, despite a pretense at being a maven in all consumer goods and deciding for everyone else which tastes are "superior" or "inferior."
Modesty isn't your strong suit. Neither are logic and persuasiveness.
I’ve had French Brie both pasteurized and unpasteurized, and domestic Brie as well. And unpasteurized is just better. [Though personally, I generally prefer Camembert to Brie….]
I never suggested I knew better what individuals will choose to consume or should choose to consume. Quite the opposite, in fact. Go read my other comments on this post.
But your response to me is clearly that of the authoritarian central planner arguing that you know best what the correct things to produce and consume are, who cares what end user preferences are.
Highly logical, highly persuasive, and backed by the evidence of history.
Could you think of potential benefits of tariffs if "home-island"-resources (labor) is significantly underused? To me it feels like the comparative advantages argument might not work for such a case.
Besides not talking about the deadweight loss costs of all taxes - and only obliquely acknowledging that other taxes have these problems too - there are several other problems with this analysis / explication.
1) You fail to make explicit that most countries have different tariff rates for raw materials / intermediate goods than goods for end user / consumer consumption. I 100% agree with you about the badness of tariffing raw materials and intermediate goods (e.g. the ladders in your example). But tariffs on end user consumption goods are not nearly as harmful, and function much like a sales tax.
1 b) Tariffs also have the advantage that the U.S. federal government is allowed to levy them, while it is not allowed to impose general sales taxes.
2) You neglect to note that *some* of the burden of tariffs falls on foreign producers who are not the tax paying citizens of the country levying the tariff. This is clearly an advantage of tariffs, at least in the case of the U.S. where as we have seen over the course of this year, other countries cannot afford to play chicken and get into a trade war with us and raise tariffs in response, because it would harm them more than it would harm the U.S.
Then you tried to be good for a while and not mention Trump… until you actually did. Which leads to…
3) Well, if you ARE going to mention Trump - and for the record I do 100% agree with you that the rent-seeking aspects of tariffs are indeed very bad, and one of the two best arguments against them - you need to mention the positives for American producers and taxpayers of Trump using U.S. market access leverage to lower tariffs and NTBs in other countries. Which has already happened. Unfair to list only the negatives of Trump’s tariff gambit without listing the unquestionably positive result of lower tariffs and NTBs faced by American exports. Reductions which you know full well would *never* have occurred had not Trump used the threat of higher tariffs against other countries.
To be 100% clear, I am not in favor of high tariffs (leaving China aside for simplicity), and I’m not even saying the net net of what Trump has done and is likely to do here is goodness. But your presentation is one-sided in talking about the negatives of what Trump has done with tariffs while not talking about the positives, and by mostly ignoring or hand-waving away that all taxes, not just tariffs, create distortions and deadweight loss.
And I think tariffs on intermediate goods are a bad idea.
Having said both of those things, all taxes distort and involve deadweight losses.
High marginal income taxes quite arguably cause more deadweight losses than would low tariffs, so the idea of low tariffs as a substitute for higher income taxes or capital gains taxes, in particular, is perfectly sound.
Second, while I agree that tariffs on intermediate goods are a bad idea, tariffs on end user goods are in fact consumption taxes, and harm growth and productivity much less than taxes on income or capital gains.
A shame you chose not to engage with John Lott’s claims that (low) tariffs in the mix of taxation might actually reduce deadweight losses for a given level of revenue raised.
Separately, it’s also a shame that while you clearly bring up the subject to pour water on Trump’s deals here, you completely and totally ignore the benefits of Trump using U.S. market access leverage to get other countries to reduce THEIR tariffs and NTBs. Surely this is unabashed goodness for U.S. producers - and foreign consumers - yet you leave this important piece of the total package out entirely. Sad and unfair.
Do the first and second points imply we should raise tariffs to be equivalent to domestic taxes, so as not to distort consumption? Should we also account for minimum wage laws/ other additions to the cost of domestic production?
You can tax land up to 100% of its full rental value without distorting production - this was Henry George's great insight. Its supply is fixed and doesn't decrease if you tax it. Beyond 100% and you may dissuade people from using valuable land - but otherwise LVT carries no deadweight loss. One of the great tragedies of our modern political/economic discourse is that a lot of people conflate land with capital.
Thanx very much for that. Also, unlike other forms of capital, land can't be moved, so is production value and taxation revenue stays in the taxing jurisdiction.
I agree that tariffs are not a good idea. Tariff proponents would argue that placing a tariff on bananas encourages the coconut country to plant bananas. Ignoring the fact that it takes a lot of time this eventually works out. Of course a wise man* once said in the long run we all die. * wise man or Iowa Senator?
Yes, but all taxes distort, and so the better, fairer question is what is the proper mix of taxes to raise the desired revenue at minimum deadweight losses and distortion to the economy.
Given that more proper framing, low tariffs might easily be a part of the mix, especially if they included exceptions for what are clearly intermediate goods rather than consumer goods.
So what if the good being consumed is not bananas or coconuts but brie? The US imports brie from France, but domestic producers in Maine and Wisconsin also produce brie. If tariffs raise the price of imported brie, doesn't that simply encourage domestic production? Does overall brie consumption in this scenario fall? Do consumer prices for brie go up?
And if French brie producers wish to remain competitive, doesn't that imply reduced profits, meaning that increased costs are not passed on to the consumer?
My first-order approximation would be that US brie prices rise, US brie consumption falls, US brie production rises, non-US brie prices fall, non-US brie consumption rises and non-US brie production falls, while overall brie consumption and brie production fall. The result is that US brie producers are better off, US brie consumers are worse off, non-US brie producers are worse off and non-US brie consumers are better off.
Why wouldn't it be that overall brie consumption (and prices) stay stable while domestic production rises? Unless there is a distinct quality advantage for foreign brie manufacturers, there's no reason for consumers not to shift to the now-cheaper domestic stuff.
Clearly there is some reason that some US consumers are currently buying French brie, something that makes those consumers consider it a superior alternative to US brie (and it does not matter for the argument what that reason is). So some of those US consumers will decrease their brie consumption as a response to the decrease in supply, as they now have worse options than they had before. And clearly no US consumers will increase their consumption as a response to the decrease in supply, so, in total, US consumption will decrease.
Another way to look at it is that a tax on a certain type of transaction is bound to lead to a decrease in that type of transaction, so we know that overall brie production/consumption will decrease.
Given the costs to transport a perishable product like brie, unless there were in fact distinct quality advantages, it would be unlikely that that much foreign brie would be consumed.
sure, one can make the argument that it is a branding/perception advantage. But unless you believe you are wiser than the public in terms of what the public prefers, that argument holds no water.
And if you know anything about cheese, not only are there terroir differences in the grass the cows eat, there are literally hundreds of cheeses made internationally that have limited production or availability here. So trying to argue from the econ 101 premise that all products are interchangeable commodities really doesn’t work.
"Given the costs to transport a perishable product like brie, unless there were in fact distinct quality advantages, it would be unlikely that there is not such a distinct advantage for foreign brie."
Or, alternatively, given the size of the US domestic market, foreign producers are willing to heavily discount their product to adjust for transport costs. The alternative is not being able to sell in the world's largest market.
"sure, one can make the argument that it is a branding/perception advantage. But unless you believe you are wiser than the public in terms of what the public prefers, that argument holds no water."
The real question is how much the branding matters relative to costs. A "Made in France" label may be worth 25 cents to the consumer, but $2? At that point our prospective cosmopolitan may decide that it's worth it to try out the stuff from Wisconsin.
"And if you know anything about cheese, not only are there terroir differences in the grass the cows eat, there are literally hundreds of cheeses made internationally that have limited production or availability here. "
If you are a cheese connoisseur, sure. But the market is segmented. There are some high-end consumers who care about rare cheeses, but given the difficulty in acquiring those goods in the US I suspect they amount to a rounding error in the overall cheese market.
And again, if they love cheese so much, why wouldn't they just switch to the domestic variety? The price of international cigarettes and pipe tobacco has skyrocketed due to tariffs. As far as I can tell, that simply means smokers have migrated to domestic tobacco blends.
Consumer prices go up, INCLUDING the prices for domestic brie. French producers MIGHT "eat" the tariff and maintain the status quo in the consuming county, OR they MIGHT "eat" half of the tariff, moving the effects toward the middle of their range.
BECAUSE domestic producers will, and do, raise their prices to about the same (higher) price as the imports. Like their imported competition, they will (always) seek the highest total profit. Ask ANY economist.
Meaning that domestic brie producers are a monopoly? The basic idea is that competition forces businesses to keep prices low. Maybe tariffs raise prices on imports, but as I pointed out, there are plenty of brie producers in Wisconsin.
Tariffs DO NOT RAISE PRICES. They raise the COSTS of bringing a product to a market. Prices remain in the seller to set and the buyer to pay (OR not). Prices (and quantities) will settle out to reflect buyers' respective desires and decisions to pay for each version of the "same product".
Not all brie is the same - don't think of it as though it were ("plenty of brie producers in Wisconsin").
The only relevant question here is whether imported brie is markedly superior to the stuff made in the US. As far as I can tell, the quality is about equal.
Since French brie isn't noticably better than the American stuff, if tariffs raise their prices, why wouldn't consumers just migrate to the American stuff?
Assuming that imported brie are cheaper than domestic brie (if not, then the tarrifs are quite meainingless, as domestic goods are already cheaper), applying tarrifs on imports then will hurt comsumers and benefit domestic producers. Based on this simple model, yes, overall consumption should fall. In a real world, this could be even worse. Domestic producers will likely to raise prices up to gain extra profit. Just think of 2018 U.S. tariffs on washing machines.
A less comprehensive but much more concise way of saying it is that TARIFFS ARE A TAX ON MARKET SIZE and Adam Smith showed that market size is the source of the Wealth of Nations. So you discourage whatever you tax (be it income, investment or consumption), so the economic impact is always bad, but probably the last thing you should consider discouraging is market size.
A less comprehensive but much more concise way of saying it is that TARIFFS ARE A TAX ON MARKET SIZE and Adam Smith showed that market size is the source of the Wealth of Nations. So you discourage whatever you tax (be it income, investment or consumption), so the economic impact is always bad, but probably the last thing you should consider discouraging is market size.
"the first endowment model"
WHAT "first endowment model?" I didn't notice it.
I’d propose a different reason economists have tariff derangement syndrome. It’s culturally coded as nationalist/racist/trump, and most economists are culturally the opposite.
I think that drives 99% of the reaction. The points you make are perhaps 1%.
I noticed this during COVID, when I watched nearly** every “libertarian” economist I know turn into a raging authoritarian that abandoned all cost benefit analysis or philosophical principals because their social class (urban professionals) had decided that that there was a culturally coded response and that was that. A lot of ink got spent rationalizing that response, but it was pretty transparent at the time and many can now look back on it with shame.
Personally, I find income taxes more distortionary than tariffs. Income taxes make me want to work and save less. I’ve responded to high income taxes in this way.
Tariffs basically work like a consumption tax. Cheap dollar store stuff is no longer a dollar, so I buy less of it. This really doesn’t have a big impact on me. Childcare is now cheaper (my income and their income is taxed less) so I consume more of it. Our families entire decision about whether to have a second income or not basically comes down to income taxes and childcare costs (childcare providers also pay income taxes).
In general I think my consumption basket (including work/leisure/saving) has improved under tariffs*. The same would is true of say an alcohol tax. Yes, it distorts my consumption of alcohol, but perhaps that’s a good thing.
I’m not convinced that the current exponentially growing trade deficit is a good thing. I won’t rehash it all in this comment, but I don’t think “borrow ever increasing amounts of money we can’t/aren’t going to pay back from financially repressed Asians so we can consume more” is a good long run pattern of specialization and trade.
*I speak of this pretty theoretically. At 1% or so of gdp, tariffs aren’t really changing anything at all. People are just going to pay the 15%, the impact on overall prices and income taxes rates will be practically zero. $300b a year? After twenty years maybe that will add up to two years of Covid deficits, lol.
The biggest change to my economic incentives was moving to Florida because it lowered my income taxes and gave me school vouchers, the combination of which greatly increased the post tax/expense value of my wife’s career. Go MAGA!
**you can of course find a few economists that signed things like the great barrington declaration. But I speak from observing the orange line libertarian economist class in general, let alone economists in general who tend to be left wing (think of Paul krugman as like a median avatar for your average phd economist).
>economists have tariff derangement syndrome. It’s culturally coded as nationalist/racist/trump, and most economists are culturally the opposite.
A fine analysis.
And the reason red-neck, blue-collar, "Dim/Dere's/Dat's I gots my education in duh school uh hard knocks!" types love tariffs is that they're ultra-nationalist, xenophobic ("it wuz dem foreigners what's took our jobs away from us!"), and pro-Trump.
There's just no other explanation.
I'm confused, Brian. You said something insightful in the intro, which you then didn't address in your six reasons: tariffs are a tax, so we should think about them the same way we think about other taxes.
Your six problems apply to any line of economic activity we could tax. What's special about imports? Do you think they're particularly elastically supplied? Are they more susceptible to rent-seeking than many other provisions in the tax code? I don't get why we single these out.
I don't think either of us find "planner-problem economics" generally useful or persuasive. But we're in the minority. And everything I read from normie public finance says that policymakers should at least try to minimize DWL for a given volume of revenue. Presumably that means the "optimal" tariff rate is nonzero. Indeed, doesn't the large-country (terms-of-trade-affecting) trade model say it's 10% or something?
I dont find planner-problems useful for thinking through the basics. It's not the end of the story and I've written a lot more pieces. But its a starting point for normative taxation.
I don't think they are problems for ANY tax. An income tax doesn't violate Diamond-Mirrlees or Atkinson-Stiglitz. The rent-seeking one could possibly apply to an income tax but it seems highly unlikely we see the type of exemptions we see from tariffs. We have the no tax on tips stuff but that's about it. You have the other deductions too, which COULD swamp the tariffs, but I don't think so. But I'll grant you that one.
I say at the end that there are other reasons for tariffs besides revenue.
Your rent-seeking point I agree is mostly fair.
Your other claims about their not being problems with ANY / most other taxes are not.
That’s not the claim. The claim is that there are simple models where the problems are worse (in an explicit way) with tariffs.
“That’s not the claim. The claim is that there are simple models where the problems are worse (in an explicit way) with tariffs.”
At the very most, you can claim this - in a meaningful way - only for models where capital is not taxed at all.
But that model is less descriptive of the world we live in, and of the United States tax code, in 2025.
Surely you would concede that taxing capital is worse still than tariffs - especially as your prose talks about the ills of taxing productive investment, would you not?
If you don’t cover deadweight loss at all, then how can your claim be both credible and meaningful?
Of course I don’t deny that “there are simple models where…” can be true.
Because in the case of very low tariffs that lowering high marginal income tax and especially cap gains tax rates there may be such models, but that doesn’t mean that therefore the reality is that such tariffs are worse than the alternative with tariffs.
All taxes have downsides. I’d agree that the downsides of some are worse than others. But tax *levels* also matter.
" tariffs are a tax, so we should think about them the same way we think about other taxes."
No, we should think about EACH tax in ways appropriate to whom/what/when it is imposed, and its effects on EACH participant in the affected markets, including those for substitutes and alternative who/what/whens. Tariffs ARE ONE type of tax.
"It’s not that other taxes are perfect."
Land value tax has entered the chat.
(Jokes aside, great article)
>Since French brie isn't noticably better than the American stuff...
Who gets to make that decision—you? Suddenly you're a cheese maven? I doubt it. I only consume French brie since it's noticeably better tasting and produced with superior ingredients.
…despite the fact that laws require it to be pasteurized to be imported, reducing its superior taste compared to the versions available in France.
(But I digress.)
>…despite the fact that laws require it to be pasteurized to be imported
Never said anything about it being legally consumed. Wake up.
>reducing its superior taste
I wouldn't know. Neither would you, despite a pretense at being a maven in all consumer goods and deciding for everyone else which tastes are "superior" or "inferior."
Modesty isn't your strong suit. Neither are logic and persuasiveness.
“Neither would you”
Dude, speak for yourself, not others.
I’ve had French Brie both pasteurized and unpasteurized, and domestic Brie as well. And unpasteurized is just better. [Though personally, I generally prefer Camembert to Brie….]
I never suggested I knew better what individuals will choose to consume or should choose to consume. Quite the opposite, in fact. Go read my other comments on this post.
But your response to me is clearly that of the authoritarian central planner arguing that you know best what the correct things to produce and consume are, who cares what end user preferences are.
Highly logical, highly persuasive, and backed by the evidence of history.
So I yield to your superior wisdom and knowledge.
>I’ve had French Brie both pasteurized and unpasteurized, and domestic Brie as well.
I don't believe you. You'll say anything to protect your reputation as a wine-and-cheese maven.
>I never suggested I knew better what individuals will choose to consume or should choose to consume.
You didn't "suggest"; you stated it as if it were an objective fact rather than a matter of subjective taste.
You also write like someone in junior high school.
As the saying goes: "Your argument is sound—mere sound"; and "Your words fill a much needed gap."
Adieu.
Does anyone have some good book recommendations on the history of tariffs?
Dear Brian,
Could you think of potential benefits of tariffs if "home-island"-resources (labor) is significantly underused? To me it feels like the comparative advantages argument might not work for such a case.
Besides not talking about the deadweight loss costs of all taxes - and only obliquely acknowledging that other taxes have these problems too - there are several other problems with this analysis / explication.
1) You fail to make explicit that most countries have different tariff rates for raw materials / intermediate goods than goods for end user / consumer consumption. I 100% agree with you about the badness of tariffing raw materials and intermediate goods (e.g. the ladders in your example). But tariffs on end user consumption goods are not nearly as harmful, and function much like a sales tax.
1 b) Tariffs also have the advantage that the U.S. federal government is allowed to levy them, while it is not allowed to impose general sales taxes.
2) You neglect to note that *some* of the burden of tariffs falls on foreign producers who are not the tax paying citizens of the country levying the tariff. This is clearly an advantage of tariffs, at least in the case of the U.S. where as we have seen over the course of this year, other countries cannot afford to play chicken and get into a trade war with us and raise tariffs in response, because it would harm them more than it would harm the U.S.
Then you tried to be good for a while and not mention Trump… until you actually did. Which leads to…
3) Well, if you ARE going to mention Trump - and for the record I do 100% agree with you that the rent-seeking aspects of tariffs are indeed very bad, and one of the two best arguments against them - you need to mention the positives for American producers and taxpayers of Trump using U.S. market access leverage to lower tariffs and NTBs in other countries. Which has already happened. Unfair to list only the negatives of Trump’s tariff gambit without listing the unquestionably positive result of lower tariffs and NTBs faced by American exports. Reductions which you know full well would *never* have occurred had not Trump used the threat of higher tariffs against other countries.
To be 100% clear, I am not in favor of high tariffs (leaving China aside for simplicity), and I’m not even saying the net net of what Trump has done and is likely to do here is goodness. But your presentation is one-sided in talking about the negatives of what Trump has done with tariffs while not talking about the positives, and by mostly ignoring or hand-waving away that all taxes, not just tariffs, create distortions and deadweight loss.
Hmmmm….
I’m no fan of high tariffs, to be clear.
And I think tariffs on intermediate goods are a bad idea.
Having said both of those things, all taxes distort and involve deadweight losses.
High marginal income taxes quite arguably cause more deadweight losses than would low tariffs, so the idea of low tariffs as a substitute for higher income taxes or capital gains taxes, in particular, is perfectly sound.
Second, while I agree that tariffs on intermediate goods are a bad idea, tariffs on end user goods are in fact consumption taxes, and harm growth and productivity much less than taxes on income or capital gains.
A shame you chose not to engage with John Lott’s claims that (low) tariffs in the mix of taxation might actually reduce deadweight losses for a given level of revenue raised.
Separately, it’s also a shame that while you clearly bring up the subject to pour water on Trump’s deals here, you completely and totally ignore the benefits of Trump using U.S. market access leverage to get other countries to reduce THEIR tariffs and NTBs. Surely this is unabashed goodness for U.S. producers - and foreign consumers - yet you leave this important piece of the total package out entirely. Sad and unfair.
Do the first and second points imply we should raise tariffs to be equivalent to domestic taxes, so as not to distort consumption? Should we also account for minimum wage laws/ other additions to the cost of domestic production?
I am not sure that arguments against capital apply to land; I suspect that taxing land does not reduce the efficiency of production.
You can tax land up to 100% of its full rental value without distorting production - this was Henry George's great insight. Its supply is fixed and doesn't decrease if you tax it. Beyond 100% and you may dissuade people from using valuable land - but otherwise LVT carries no deadweight loss. One of the great tragedies of our modern political/economic discourse is that a lot of people conflate land with capital.
Thanx very much for that. Also, unlike other forms of capital, land can't be moved, so is production value and taxation revenue stays in the taxing jurisdiction.
Great post. Very useful.
I agree that tariffs are not a good idea. Tariff proponents would argue that placing a tariff on bananas encourages the coconut country to plant bananas. Ignoring the fact that it takes a lot of time this eventually works out. Of course a wise man* once said in the long run we all die. * wise man or Iowa Senator?
>Tariff proponents would argue that placing a tariff on bananas encourages the coconut country to plant bananas.
Instead of cultivating more coconuts, which is what they're best at doing. In other words, tariffs undercut Comparative Advantage.
Yes, but all taxes distort, and so the better, fairer question is what is the proper mix of taxes to raise the desired revenue at minimum deadweight losses and distortion to the economy.
Given that more proper framing, low tariffs might easily be a part of the mix, especially if they included exceptions for what are clearly intermediate goods rather than consumer goods.
So what if the good being consumed is not bananas or coconuts but brie? The US imports brie from France, but domestic producers in Maine and Wisconsin also produce brie. If tariffs raise the price of imported brie, doesn't that simply encourage domestic production? Does overall brie consumption in this scenario fall? Do consumer prices for brie go up?
And if French brie producers wish to remain competitive, doesn't that imply reduced profits, meaning that increased costs are not passed on to the consumer?
My first-order approximation would be that US brie prices rise, US brie consumption falls, US brie production rises, non-US brie prices fall, non-US brie consumption rises and non-US brie production falls, while overall brie consumption and brie production fall. The result is that US brie producers are better off, US brie consumers are worse off, non-US brie producers are worse off and non-US brie consumers are better off.
Why wouldn't it be that overall brie consumption (and prices) stay stable while domestic production rises? Unless there is a distinct quality advantage for foreign brie manufacturers, there's no reason for consumers not to shift to the now-cheaper domestic stuff.
Clearly there is some reason that some US consumers are currently buying French brie, something that makes those consumers consider it a superior alternative to US brie (and it does not matter for the argument what that reason is). So some of those US consumers will decrease their brie consumption as a response to the decrease in supply, as they now have worse options than they had before. And clearly no US consumers will increase their consumption as a response to the decrease in supply, so, in total, US consumption will decrease.
Another way to look at it is that a tax on a certain type of transaction is bound to lead to a decrease in that type of transaction, so we know that overall brie production/consumption will decrease.
Given the costs to transport a perishable product like brie, unless there were in fact distinct quality advantages, it would be unlikely that that much foreign brie would be consumed.
sure, one can make the argument that it is a branding/perception advantage. But unless you believe you are wiser than the public in terms of what the public prefers, that argument holds no water.
And if you know anything about cheese, not only are there terroir differences in the grass the cows eat, there are literally hundreds of cheeses made internationally that have limited production or availability here. So trying to argue from the econ 101 premise that all products are interchangeable commodities really doesn’t work.
Quality remains, forever and ineluctably, in the eye (tongue) of the CONSUMER. EACH ONE. Not you, me, nor Donald Trump Himself.
THEM.
No matter what the Man says.
Why you gotta dis McCartney and the Wings like that? 😏
(I do agree 100% with your point.)
"Given the costs to transport a perishable product like brie, unless there were in fact distinct quality advantages, it would be unlikely that there is not such a distinct advantage for foreign brie."
Or, alternatively, given the size of the US domestic market, foreign producers are willing to heavily discount their product to adjust for transport costs. The alternative is not being able to sell in the world's largest market.
"sure, one can make the argument that it is a branding/perception advantage. But unless you believe you are wiser than the public in terms of what the public prefers, that argument holds no water."
The real question is how much the branding matters relative to costs. A "Made in France" label may be worth 25 cents to the consumer, but $2? At that point our prospective cosmopolitan may decide that it's worth it to try out the stuff from Wisconsin.
"And if you know anything about cheese, not only are there terroir differences in the grass the cows eat, there are literally hundreds of cheeses made internationally that have limited production or availability here. "
If you are a cheese connoisseur, sure. But the market is segmented. There are some high-end consumers who care about rare cheeses, but given the difficulty in acquiring those goods in the US I suspect they amount to a rounding error in the overall cheese market.
And again, if they love cheese so much, why wouldn't they just switch to the domestic variety? The price of international cigarettes and pipe tobacco has skyrocketed due to tariffs. As far as I can tell, that simply means smokers have migrated to domestic tobacco blends.
I was primarily addressing your claim that “there's no reason for consumers not to shift to the now-cheaper domestic stuff.”
In fact there are several reasons.
Consumer prices go up, INCLUDING the prices for domestic brie. French producers MIGHT "eat" the tariff and maintain the status quo in the consuming county, OR they MIGHT "eat" half of the tariff, moving the effects toward the middle of their range.
Isn't this OBVIOUS?
So why wouldn't consumers just migrate to domestically produced brie?
BECAUSE domestic producers will, and do, raise their prices to about the same (higher) price as the imports. Like their imported competition, they will (always) seek the highest total profit. Ask ANY economist.
It's "the price" of brie.
Meaning that domestic brie producers are a monopoly? The basic idea is that competition forces businesses to keep prices low. Maybe tariffs raise prices on imports, but as I pointed out, there are plenty of brie producers in Wisconsin.
Tariffs DO NOT RAISE PRICES. They raise the COSTS of bringing a product to a market. Prices remain in the seller to set and the buyer to pay (OR not). Prices (and quantities) will settle out to reflect buyers' respective desires and decisions to pay for each version of the "same product".
Not all brie is the same - don't think of it as though it were ("plenty of brie producers in Wisconsin").
The only relevant question here is whether imported brie is markedly superior to the stuff made in the US. As far as I can tell, the quality is about equal.
Since French brie isn't noticably better than the American stuff, if tariffs raise their prices, why wouldn't consumers just migrate to the American stuff?
Assuming that imported brie are cheaper than domestic brie (if not, then the tarrifs are quite meainingless, as domestic goods are already cheaper), applying tarrifs on imports then will hurt comsumers and benefit domestic producers. Based on this simple model, yes, overall consumption should fall. In a real world, this could be even worse. Domestic producers will likely to raise prices up to gain extra profit. Just think of 2018 U.S. tariffs on washing machines.
A less comprehensive but much more concise way of saying it is that TARIFFS ARE A TAX ON MARKET SIZE and Adam Smith showed that market size is the source of the Wealth of Nations. So you discourage whatever you tax (be it income, investment or consumption), so the economic impact is always bad, but probably the last thing you should consider discouraging is market size.
But low to moderate tariffs are not in fact a tax on market size.
Quotas and NTBs quite often are, and I essentially agree with your premise there that those are unabashedly bad.
A less comprehensive but much more concise way of saying it is that TARIFFS ARE A TAX ON MARKET SIZE and Adam Smith showed that market size is the source of the Wealth of Nations. So you discourage whatever you tax (be it income, investment or consumption), so the economic impact is always bad, but probably the last thing you should consider discouraging is market size.