Monday, November 12, 2012

The Dog That Rarely Barks in Free Trade Discussions

Is it just me, or are there ANY free trade arguments that could not also be made against income or sales taxes, usually without any rewording at all?  It is almost as if we've totally lost sight of the fact that tariffs were originally a revenue measure, and quite an effective one, requiring far less invasion into people's lives and businesses than sales taxes or especially income taxes.  It is almost as if we have forgotten that belts hold one's pants up and are a fashion accessory for the sartorially inclined and solely discuss them in the context of domestic discipline.

Let's see---deadweight losses due to making transactions no longer profitable to both sides and thus not happening?  Check.
Interfering in patterns of specialization and comparative advantage?  Absolutely
Opportunities for rent-seeking and favored groups?  Yes, on steroids

So why is it that we here so much about these arguments when we're talking international trade and hardly ever when we're talking about intra-national trade?  Why are the 'free traders' so privileged in the discourse?


Alex J. said...

The big problem is not so much revenue-maximizing tariffs, it's beyond-the-laffer-curve tariffs whose purpose is to shut down or cripple trade, rather than to make money from it. Bastiat himself clarified on just this issue: He supported tariffs from 5-15% (necessities/luxuries) for the purpose of generating tax revenues.

Quota systems also create rent-seeking problems larger than a simple tariff high enough to reduce imports to a given quota amount.

As a free trader, I agree that, at lower rates, the problems of tariffs are akin to the problems of other taxes also at modest rates.

Jehu said...

Free traders have largely succeeded in outlawing the revenue tariff in the US. Most of what's left is the passive-aggressive stuff akin to the use of belts for domestic discipline. This wasn't the case in the 1700s and 1800s in the US though---pretty much all of our taxes then were tariff or excise.

Aretae said...

If anyone was arguing FOR tariffs from a revenue Point of View, that might be a strong argument.

As is...folks are arguing for tariffs because we don't like the Chinese, and then putting a thin veneer of respectability over that.

In principle, I am opposed to every tax...and there's only a few small reasons to oppose tariffs as opposed to generic sales taxes.

Jehu said...

Plenty of Paleos would love to replace income/sales taxes with an old-school revenue tariff. Including, ironically, some of the more 'Confederate' paleos. As hard as tariffs might suck, everything else has been proven to suck worse.

fnn said...

It's not that people "hate the Chinese," it's that they hate the rather sudden destruction of the US manufacturing base. 55,000 factories permanently closed and six million manufacturing jobs(one-third of the total)lost since the turn of the century. Can't be explained by a revolution in automation. Libertarians keep saying that US mfg is bigger and better than ever, but my guess is that many suspect that a lot of that mfg is made up of Big Macs, potato chips and the like instead of high tech.

Bill said...

You can tax imports for revenue purposes without violating free trade agreements. You just can't tax them more than you tax domestically produced stuff. Sales taxes are the same for domestic and imported stuff, no problemo.

If your country has a VAT, then you get to assess the VAT on imports. You also get to rebate the VAT on exports. So, free trade agreements forbid an extra distortion on top of the already existing distortion from taxation.

In the old days, governments used tariffs (and not sales taxes, and etc) for revenue generation because it was easier. Stuff had to come into the country via a few, big ports. So you knew where to go to find the stuff that needed to be taxed.

How are you going to tax clothes or food or furniture or whatever which is made by a bazillion individual artisans and sold to a bazillion different consumers? Governments still, today don't (de facto) tax stuff that Bob makes in his home workshop and sells to Jim. The tax system we take for granted was infeasible most places before the industrial revolution.

You can only tax stuff that is hard to hide. Land and internationally traded goods are hard to hide, everywhere and always. So, these are always taxable. Other stuff may be hard or easy to hide depending on production technology, enforcement technology, and how naturally law-abiding your population is.

FredR said...

This is from a profile of Pat Buchanan by Michael Brendan Dougherty, on Buchanan's book "The Great Betrayal":

"Tariffs are not some profanation of the economic gods, as the hysterical reaction of the ideologues suggests, they are a tax policy with economic consequences similar to those of other taxes, like those on income or investment."