The trade war between America and China is getting very ugly. Both sides are imposing tariffs on imports from the other country.
Most economists and the media writes about tariffs being bad for the global economy. I wish to give a different view. I think that tariffs may be a good tool that governments should be allowed to use.
IN FAVOR
Here are the reasons in favor of tariffs.
a) It allows the governments to protect jobs and ensure that their citizens are employed. The tariffs against imports can be raised to a level sufficient to achieve this goal.
b) The taxes collected from the tariffs is an important source of revenue for the government. Most governments are running very high levels of deficits due to insufficient tax revenue.
NOT IN FAVOR
Here are the reasons given by economists against tariffs:
a) It discourages the efficient allocation of resources. Free trade allows the goods to be produced in countries that has the most efficient means of production and will bring down the cost of the products.
b) The tax will increase cost to consumers.
I agree that tariffs or protectionism will increase the cost of the goods that are produced. But this is an acceptable price for society to pay to ensure that all their citizens are employed.
I also agree that the tax will increase cost to consumers. This is no different from imposing a goods and services tax that is levied on all purchases.
LOWER COST OF TAX COLLECTION
The tariffs is targeted only on imports. It also reduces the cost of collecting the tax as it is collected in bulk on the import, rather than at the retail level for each purchase by consumers.
SERVICES
The tariffs should also be imposed on services. For example, a company that uses an outsourced service overseas should be required to pay a tariff on these services.
The outsourced services are for call centers, accounting, billing and other office functions.
GOVERNMENT SUBSIDY
Some government may give subsidy to their industries to lower their cost of production.
I find this measure to be acceptable. If another government is willing to subsidy the production of goods, it should benefit the consumers of the importing country. Why should the consumers complain about it?
If this affects jobs in the importing country, the government can introduce tariffs to protect these jobs.
EXCISE TAX
If the country is successful in getting most of its production done internally, how is the government going to collect tax to meet its expenses?
It can impose an excise tax on the goods and services that it produces. Unlikely GST, this is collected in bulk for each company and is not done at the retail level on its individual sales to consumers.
REDUCTION OF GLOBAL TRADE
With tariffs and protectionism, there will be a reduction in global trade. This is not a bad outcome.
Local production means the less need for transportation over long distances. It helps to offset the higher cost of local production.
The reduction in global trade will affect countries, like Singapore, that makes a living by providing logistics services. This is a separate matter. Let these countries find other ways to create jobs for their citizens.
CONCLUSION
There is an assumption that global free trade is good.
While this is true in certain aspects, it also has its bad consequences. It causes unemployment, stagnant incomes and large inequality in most countries.
My view is that protectionism also has its good points. It ensures that the jobs of the citizens can be protected and they can earn a higher income to match the cost of living.
Which is a better system? I go for protectionism.
Tan Kin Lian
Most economists and the media writes about tariffs being bad for the global economy. I wish to give a different view. I think that tariffs may be a good tool that governments should be allowed to use.
IN FAVOR
Here are the reasons in favor of tariffs.
a) It allows the governments to protect jobs and ensure that their citizens are employed. The tariffs against imports can be raised to a level sufficient to achieve this goal.
b) The taxes collected from the tariffs is an important source of revenue for the government. Most governments are running very high levels of deficits due to insufficient tax revenue.
NOT IN FAVOR
Here are the reasons given by economists against tariffs:
a) It discourages the efficient allocation of resources. Free trade allows the goods to be produced in countries that has the most efficient means of production and will bring down the cost of the products.
b) The tax will increase cost to consumers.
I agree that tariffs or protectionism will increase the cost of the goods that are produced. But this is an acceptable price for society to pay to ensure that all their citizens are employed.
I also agree that the tax will increase cost to consumers. This is no different from imposing a goods and services tax that is levied on all purchases.
LOWER COST OF TAX COLLECTION
The tariffs is targeted only on imports. It also reduces the cost of collecting the tax as it is collected in bulk on the import, rather than at the retail level for each purchase by consumers.
SERVICES
The tariffs should also be imposed on services. For example, a company that uses an outsourced service overseas should be required to pay a tariff on these services.
The outsourced services are for call centers, accounting, billing and other office functions.
GOVERNMENT SUBSIDY
Some government may give subsidy to their industries to lower their cost of production.
I find this measure to be acceptable. If another government is willing to subsidy the production of goods, it should benefit the consumers of the importing country. Why should the consumers complain about it?
If this affects jobs in the importing country, the government can introduce tariffs to protect these jobs.
EXCISE TAX
If the country is successful in getting most of its production done internally, how is the government going to collect tax to meet its expenses?
It can impose an excise tax on the goods and services that it produces. Unlikely GST, this is collected in bulk for each company and is not done at the retail level on its individual sales to consumers.
REDUCTION OF GLOBAL TRADE
With tariffs and protectionism, there will be a reduction in global trade. This is not a bad outcome.
Local production means the less need for transportation over long distances. It helps to offset the higher cost of local production.
The reduction in global trade will affect countries, like Singapore, that makes a living by providing logistics services. This is a separate matter. Let these countries find other ways to create jobs for their citizens.
CONCLUSION
There is an assumption that global free trade is good.
While this is true in certain aspects, it also has its bad consequences. It causes unemployment, stagnant incomes and large inequality in most countries.
My view is that protectionism also has its good points. It ensures that the jobs of the citizens can be protected and they can earn a higher income to match the cost of living.
Which is a better system? I go for protectionism.
Tan Kin Lian
1 comment:
In some cases, there is need for protectionism.
Take the case of America. Many imported goods from China are produced at low cost, but price sold may be inflated maybe 4 or 5 times by American importers, going thru layers of warehousing, middlemen or distributors before reaching the end users.
Kudos to Trump, raising tariffs by only 25%, which could be easily absorbed by his bloated importers, making only a quarter dent in profit margins, and giving Trump the extra dough to use for America.
What Trump wants is to bring high value American manufacturers back home and create jobs for ordinary Americans, considering businesses like Amazon only low class "virtual businesses" benefiting only its bosses, and only creating low value jobs like warehouse supervisors and delivery men. Such low value jobs insufficient to meet high costs of living. Obviously the President dun like "virtual Businesses" like Uber and Facebook, the latter only a social communication tool, not a real business, dun benefit ordinary working class.
China dun play fair business ethics, protecting their own industries against foreign businesses. Must have distressed Trump to see industries hollowed out and leaving to take root on foreign soil. So
some form of protectionism is ethically necessary for America to survive. Why should the rich controlling 90% of the wealth in America, America have to stop being the perpetual gentleman sacrificing itself for the world. It's pay back time.
Post a Comment