Is a tariff always a 'tax'? [No, consumers DO OT pay the tariff always]

World Net Daily ^ | August 31, 2019 | Jonathon Moseley

[Moseley]

The correct answer in economics begins with "It depends ..."

Do U.S. consumers pay tariffs on products imported into the United States? Free traders repeat that a tariff is a tax and that consumers always pay it.

Your child or grandchild will fail his Economics 101 mid-term without an understanding of the elasticity of demand and the elasticity of supply. The demand curve for a particular product can be elastic or inelastic. That is, demand can be sensitive to price or insensitive to price. You have heard of the supply and demand curves. But those curves are different for different products in various markets.

A classic example in economics education (not just my idea) is that you are crawling through the Sahara Desert on your hands and knees, dying of thirst, and come to a food cart. How much would you pay for a bottle of water? The price in Manhattan might be $5. If the food cart charges $500 in the middle of the Sahara, would you be any less likely to buy the bottle of water? You would sell your season tickets to the opera to pay whatever the vendor asks. If he asked $5,000 for a bottle of water in the middle of the Sahara Desert, you would pay it.

In other words, the demand for a bottle of water in the desert is inelastic. It makes no difference what the price is; you are going to pay it. By contrast, if the price of a garden gnome statute for your front lawn doubled, would you still buy one?

I know that from earning my Bachelor of Sciences in business administration and studying law and economics at the Antonin J. Scalia School of Law. So what are all these talking heads on television going on about?

[Moseley]

Who pays the tariff? It depends. Is demand for the product inelastic or elastic, strong or weak? If demand for the product is strong and insensitive to price, then the importer / wholesaler will pass the tariff along to the consumer. If demand is weak and highly sensitive to price, the importer cannot raise prices to cover the added expense of the tariff, and the importer will have to "eat" the tariff out of its own profits or reduce other expenses. Or, obviously, the importer could switch to a different supplier who is not subject to the tariff.

Are all the free traders correct that a tariff is a tax? Well, you don't have to pay it. If you don't wish to pay the tariff, just don't by an imported product. Buy American. If you don't have to pay it, is it a tax?

So how can a chorus of intellectuals lecture us every day about how "Trump's" trade policies are hurting consumers or businesses? Are they lying? Or are they ignorant? Are they just groupies who don't know or care but just repeat the talking points?

We are told – which has me throwing things at my TV – that U.S. farmers are hurting because of "Trump's trade war."

Who stopped eating? On planet Earth, there were roughly 7 billion people who generally speaking want to eat three times a day. Today, there are slightly more. So who stopped eating?

How can U.S. farmers sell less food if the same number of people want to keep eating as before? Well, they could be ineffective at marketing their products. And yes, that includes farmers who know how to farm but are not experts in the sales end (which is the same for me as an attorney, no slight intended).

The. U.S. Commerce Department organizes what it calls "trade missions" to bring company executives and industry leaders to other countries to meet with potential business partners. Every U.S. embassy has a commercial section that is supposed to promote U.S. business interests, primarily helping U.S. companies find buyers for U.S. exports.

So, China stopped buying some U.S. agricultural products and switched to buying from other countries. No problem. Who was buying food from those other countries? Don't those people still need to eat? Who is going to supply them with food now? That's what our U.S. embassies, commercial sections and the Department of Commerce are supposed to be there for. They should research opportunities to sell U.S. food exports.

Suppose China slapped a 100 percent tariff on U.S. agricultural products. Would China's families stop eating? They would complain. They might have to give up other purchases. But they would not stop eating, even if the price of food doubled.

[Moseley]

An excessive devotion to free trade took over the Republican Party in recent decades. They claim to have the only conservative position. They follow their one true god. But tariffs are enshrined in the U.S. Constitution. From 1791 to 1913, high tariffs were about the only source of revenue for the U.S. government. What conservative rejects the Constitution?

Ronald Reagan was a free-trader. Ronald Reagan was a protectionist. Sometimes Reagan was a free trader in one paragraph of a speech and a protectionist in the very next paragraph in the same speech on the same day. Reagan imposed one of the most dramatic, sweeping and largest battery of protectionist tariffs in U.S. history against Japanese imports.

In fact, Harley Davidson was saved by Reagan’s protectionist tariffs on Japanese motorcycles. Harley Davidson is in business today, able to throw insults at President Trump, only because Reagan’s protectionist tariffs saved their bacon in the 1980s.

Reagan practiced “strategic ambiguity.” In other words, trade policy is a tool, not a god. You pull out a socket wrench when you need one – but you don’t bow down and worship it.

[Moseley]

https://www.nytimes.com/1987/04/18/business/president-imposes-tariff-on-imports-against-japanese.html

[Moseley]

https://www.nytimes.com/1983/04/02/business/us-raises-tariff-for-motorcycles.html

[Principled]

Remember arguing on tax threads that prices would not rise the full tax amount?!

I do.

[AndyJackson]

Who pays the tariff? is no different from the question of who pays any tax.

The example of the bottle of water in the Sahara is inapt. The price is $5000 because there is no market, no alternative supply. The only supply is the guy with the chance bottle of water.

The question of who pays was settled long ago by Ricardo. The first question is what set's the price. If SUPPLY is inelastic, e.g. there is a fixed amount of it, like land, then the rent is set by the market value of the corn [in Ricardo's example] that can be grown on it. When the price of corn is high, rents are high, representing a windfall to the owner.

One theory of social equity holds that governments should tax such market rents because such windfalls do not represent a reward for a contribution made by the fortunate land-owner.

Of course if you apply this to land say in Manhattan, you get disincentives. Sky high rents are incentive to build skyhigh buildings to make extra money off of limited land, and therefore the "windfall" to property owners results in investment to ease the short supply.

In the case of, say China, however, the windfall is the fact that labor in China, which is sort of a monopoly owned by China is inexpensive and so they can take advantage of higher wages in the rest of the world.

[American in Israel]

Ironic to hear the Democrats upset about instituting a “tax”. That is a historic first.

[nathanbedford]

Assuming the effect is passed along to the consumer, the degree to which the Chinese devalue their currency is the degree to which the consumer does not pay the tariff. To the degree that domestic manufacturers raise their prices to very nearly the level of the import tax, the consumer pays that amount more.

By devaluing its currency, the Chinese signal that they are intent on two things: protecting (or buying) the market for those goods which have a tariff imposed upon them; and they signal that they are not prepared to settle this matter at least until after the election of 2020. In effect, the Chinese are subsidizing the consumer and frustrating our domestic manufacturers. This is obviously a political choice, not an economic decision and a commitment to continue to wage this tariff war with Trump.

I expect to see many false restarts in the negotiations, perhaps even some token concessions by the Chinese made for propaganda purposes but no comprehensive substantive agreement before the election and even if Trump wins, perhaps not even then. I think the administration has been remarkably foolish to proclaim victory before they actually have it in hand.

As to the second part of the article which concerns finding substitute markets for agricultural produce after the Chinese shut down, I assume this is been going on for some time. Yet the farmers are complaining bitterly so there must be some friction or inefficiency in finding the alternative market. It may well be that much of the hardship experienced by our farmers this season has to do with droughts and floods rather than Chinese tariff wars.

A word about the inelasticity of demand as it applies to price. The demand for illicit drugs is classically inelastic, therefore every time the government announces a huge multimillion dollar drug bust, they have only succeeded in making the trade more profitable and, thereby, increasing the incentive to smuggle illicit drugs.

The more we wage the drug war, the more we lose the drug war.

[DoodleDawg]

Ironic to hear the Democrats upset about instituting a “tax”. That is a historic first.

Ironic to see the Republicans promoting a tax. Not a first but still disconcerting.

[conservative98]

I heard in the news that my clothing purchases were going to increase by $400. per year due to Trump’s tarrifs. These are scare tactics. My clothing prices and costs have gone down, not up.

[big'ol_freeper]

ECON 101. A complete DUH article. Anyone who has taken and economics course (or possesses a bit of logic) knows that an increase in cost, whether by tax or other cost inputs, effect prices only to the degree the seller can pass the increased costs on to consumer in the marketplace. In other words, all else being equal, the market determines the sales price based on supply and demand, not the offeror rigidly setting price based on their costs.

[cba123]

Democrats are 100% opposed to what the GOP represents.

100%

When the GOP was ready to sell out the USA in the name of “free trade” I was really worried Dems were going to beat Trump to this issue and hammer him mercilessly, and win over, more importantly, the American people.

Now they are really lost. Naturally they instinctively are on the right side about buying American.

But Trump moved first. In a BIG way.

Now they really are lost, on how to respond.

This next election will be very, very interesting.

[cotton1706]

A tariff is an indirect tax. If you don’t buy the taxed product, naturally you don’t pay the tax.

[bert]

A tariff is a duty paid by importers on imported goods.

A tariff is always a tax paid at a rate specifed on the harmonized tariff schedule and collected by US Customs at the point of entry be that a marine port or border crossing point or airport.

All tariffs on Chinese goods are paid by US taxpayers. President Trump has levied tariffs to raise prices on Chinese goods to make them more costly and thus less competitive with goods from other surces, especially those made in Americaa.

Chna immediately devalued it’s currency thus making the cost to American consumers including the tariff the same as before the tariff.

The President then imposed higher tariffs on even more goods. If China devalues to cover the 25 % the economy will be devistated.

[usconservative]

ECON 101. A complete DUH article. Anyone who has taken and economics course (or possesses a bit of logic) knows that an increase in cost, whether by tax or other cost inputs, effect prices only to the degree the seller can pass the increased costs on to consumer in the marketplace.

Nailed it. Well done.

[poinq]

Tariffs are not consumer paid taxes. They are the cost of production oversees. If you own a factory in America, you pay lots of taxes. Tariffs charge production oversees to equal it out. Tariffs are also a good way to handle currency manipulators like China. Tariffs also help when people like China pollute the world, when their government gives incentives to factories. Its really China paying the tariffs. We should not be getting the low prices from them.

[bert]

That is absolute drivel

You have a complete misunderstanding of tariffs.

Tariffs are taxes imposed on the importers of tariffed products and paid by American importers most of whom resell the products

On the resale, the tariff is included in the price to the consumer or user

[mjp]

If demand is weak and highly sensitive to price, the importer cannot raise prices to cover the added expense of the tariff, and the importer will have to "eat" the tariff out of its own profits or reduce other expenses.

Or reduce the quantity of goods imported. This will reduce the amount of dollars sent to the exporting country, which is what Trump is trying to do.

[GailA]

There needs to be a List of what is a Tax since that is NO longer taught in our schools.

Fees, Levies, tolls, Sales taxes, and more are Taxes. Today’s college idiots don’t even know that part of Econ, Gov, or Civics. Not to mention the most obvious Property taxes which are both county and city imposed.

[Moseley]

“Yet the farmers are complaining bitterly so there must be some friction or inefficiency in finding the alternative market. It may well be that much of the hardship experienced by our farmers this season has to do with droughts and floods rather than Chinese tariff wars.”

Well there are several possibilities:

1) (some) farmers are lying because being the squeaky wheel gets them benefits or goodies.

2) The farmers know how to grow food but they don’t know how to find or open markets for their products. I sympathize. I am a lawyer. I am not a marketer. I don’t know how to market my services the way someone skilled at marketing might do. So no hate in saying that farmers — just like me — may know how to do their day job, growing food, but are not experts in selling and marketing their food especially worldwide internationally.

3) It is possible that the U.S. Government which is supposed to help U.S. exporters — especially those like farmers who are a loose market of many individual growers — research, find, approach, and work with buyers around the world, is lazy and incompetent.

Obviously I would bet on the incompetency and apathy of the U.S. Government.

If China seeks to punish U.S. exporters as part of U.S. foreign policy and trade policy,

the U.S. Department of Commerce and the commercial sections of the U.S. Embassies overseas should be helping farmers find alternative purchasers.

If I have to guess, I would guess that the U.S. Government is completely failing at these functions.

One could question whether the government should be doing those things. But that IS the current law and structure. The government DOES do those things — but incompetently.