Does your supermarket own part of your income? [TARIFFS ARE DUMB]

Trib Live ^ | Tuesday, Aug. 23, 2016 | Donald J. Boudreaux

[expat_panama]

You work and get paid. To whom do your after-tax earnings belong? Do they all belong to you or does some portion of them belong to the neighborhood grocer whose store you patronize? Who should have first dibs on the money you've earned: you or the auto dealer who sold you the last car you bought?

In both cases the correct answer indisputably seems to be “you.” But not so fast. Typical discussions of trade policy imply that the answers are “the grocer” and “the auto dealer.”

When politicians promise to raise tariffs on imports, they are promising to penalize you for spending too little of your money on products sold by domestic suppliers. The presumption is that domestic suppliers of steel, of textiles or of tires are entitled to a portion of your income. And if you, by buying goods from foreign suppliers, refuse to turn over that portion of your income to domestic suppliers, you must pay a penalty.

Clearly, supporters of tariffs believe that certain domestic producers have a higher claim on some portion of your income than you have.

Does there exist a legitimate justification for this belief? I think not, for none of us supposes that when we patronize a merchant we thereby encumber ourselves with an obligation to continue to patronize that merchant indefinitely.

Suppose that a new supermarket — call it “Jack's” — opens up nearby. Upon your entering Jack's for the first time, the owner informs you that a condition of your shopping at his store is that you must continue, each and every week from here on in, to spend at his store an amount of money that equals the amount of money that you'll spend on your first visit to the store. Would you accept? Surely not.

While nothing in law or ethics prevents Jack from demanding those terms, you'd find it intolerably burdensome to saddle yourself with such a legal obligation.

In fact, while it would be valuable for Jack to secure such a legally enforceable promise from you, he doesn't demand it because he knows that you'd not grant it. Or Jack knows that he'd have to offer to you something remarkably valuable in return, such as his contractual commitment to always charge you prices dramatically lower than those charged by rival supermarkets.

So in reality the deal is that by shopping at Jack's supermarket, you incur no obligation to continue to do so. If Jack wants your continued patronage, he must earn it.

Eventually an even newer supermarket opens just outside of town. This one's owned by Jill. Jill's selection is better and her prices are lower than Jack's. So you start shopping at Jill's supermarket.

Unhappy with your choice, Jack successfully lobbies the city council to slap a special tax on you for every dollar's worth of groceries that you buy from Jill's. You're penalized by the state for spending your money as you choose. The implicit premise behind this special tax is that Jack has a right to a portion of your income.

There is no difference whatsoever between this special tax and a tariff on imports.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.

[Gaffer]

This is rather a one-sided argument, frankly. One has a foreign support network of growers and workers who pay no US income taxes, or SS, Medicare or any of that other support structure taxing that goes hand in hand with say what the other’s supply structure looks like.

In other words it is an argument supporting the writer’s foregone conclusion with no real acknowledgement of the other side of the coin, IMO.

BTW, I am not pro tariff en masse. I personally think tariff impositions should be looked at on a case by case basis to decide whether outside governmental interests are manipulating the market conditions, and cost structure.

[Drago]

Not a big fan of tariffs, but this guy’s argument is is obtuse, convoluted and kinda lame. What is with all the “grocer” references? Grocery items are probably the least imported items in the USA and most all grocers are USA based?!?? There have got to be better anti-tariff arguments out there!

[dp0622]

Great to pick and choose scenarios and industries.

I guess competing with workers who will slave for 12 hours for pennies is fine as long as we get a cheaper product.

I suppose paying a few extra bucks so Americans could have jobs is too much to ask.

I guess China killing dogs and robbing tech ideas when they’re not busy poisoning baby food is cool.

HELL, the CHEAPEST way to get our products down is illegal workers!!

We should let MORE in!!

Wait, that’s wrong you say?

So are all the things corporations and foreign govts are doing to undermine our economy.

[Reverend Wright]

that’s all great.

So in the next war when the USA needs to convert auto assembly lines to military production... no problem, we can just import tanks and trucks from China.

Oops. China is the enemy that just attacked us. I guess we lose the war.

[cba123]

That is EXACTLY the point.

“Free Traders” are borderline traitors. I think.

But that is just my opinion.

[dp0622]

I applaud both your responses to this WEAK, absurd article.

Can be torn apart by a college freshman in five minutes.

Pick and choose, anybody?

[Mollypitcher1]

Donald J. Boudreaux is a horses ass who has no knowledge of the viability of tariffs which BUILT THIS COUNTRY! He should be fired for his disgusting misinterpretation of the value of tariffs when used properly. He is just another GLOBALIST as is proven by his stupid comments. Conveniently, all these globalists leave out the fact that globalism weakens the financial viability of a country. Would you rather spend your money with your neighbor whom you know, or with someone in China across the world where you have no recourse if the product is foul? Your neighbor will probably wind up buying something from you, but the Chinaman will be busy using your money to buy you out and therefore control you and your country. We are in a very bad situation when we have such an enormous TRADE DEFICIT!!!
China has manipulated their currency in order to completely undersell us repeatedly. That is ILLEGAL, but our government has done NOTHING to hold China accountable. Trump will make ACCOUNTABILITY a WATCHWORD in Washington again.

[Political Junkie Too]

Yes. Comparing a foreign country to a business across the street is a "no borders" argument. The supply chains and infrastructure costs are completely different, as well as labor and environmental regulations.

-PJ

[expat_panama]

Happy Thursday and it's "Market Under Pressure"! 

Yesterday's stock index hit of most of a % was in rising volume and IBD's rating downgrade came w/ the distribution day (traslation available upon request).

Futures traders are looking glum too w/ stock indexes at -0.58% and metals -2.02%; gold and silver continue their declines now down to $1,324.9 and $18.63. 

Stats galore:

8:30 AM Initial Claims
8:30 AM Continuing Claims
8:30 AM Durable Orders
8:30 AM Durable Orders, Ex-Transportation
10:30 AM Natural Gas Inventories

Future FR threads:

Charts Signaling Market Heading to Correction - Sue Chang, MarketWatch
It Only Seems Like the Economy Is a Disaster - Chris Matthews, Fortune
Fed Turns Up Volume, Market Tunes Out Message - Caroline Baum, MW
Treasury Can't See Inversions Aren't Problem - William Shughart, RCM
It's a Happy Norm for Jobs to Disappear - Daniel Gross, Strategy+Busines
Robert Samuelson: The Comeback Of Middle-Wage Jobs
Federal Deficits Explode — Is Anyone Paying Attention?

[odawg]

Article is complete nonsense replete with the usual straw man arguments.

I bought a storm door the other day and it had an American flag on it and displayed a “Made in America” notice. Or as Paul Harvey use to say, “Made in America by Americans.” So the job and the money stayed in the United States, to the chagrin of this writer.

The writer does not bother to explain why, if tariffs are so detrimental to a nation’s economy, that other nations, such as China and Japan, do not get rid of theirs. These people NEVER explain that. For some reason, the United
States alone produces economists and politicians who think tariffs are evil.

So I guess it is up to me to explain it. Tariffs, intelligently applied, protect industries that provide employment. People working create a positive economic cycle.

Remember the reasoning of Henry Ford to raise wages. It was so people could afford to buy his cars.

[Yo-Yo]

Clearly, supporters of tariffs believe that certain domestic producers have a higher claim on some portion of your income than you have.

A backhanded attack on Trump's stated trade policies?

[Steven Tyler]

When a global company (Mylan) contributes heavily to the Clinton Crime Family for the priviledge to conduct business in the US (sell EpiPens) and must double the selling price to fund the Bribe, would that bribe increase the Consumers cost?

Lets eliminate the Clinton Crime Family bribes and the Chinese cheating on Trade agreements.

Citizens can no longer support Criminals nor foreign nations

[4rcane]

tariff is better than business taxes

[bert]

Amen

[iontheball]

The no tariff crowd rail against tariffs while our foreign trade ‘partners’ keep screwing us year after year. As Trump says the trade deficit effectively translates into U.S. foreign aid that has built foreign countries on the backs of Americans and it has been going on for way too long. The no tariff crowd has no solution to get rid of the imbalance other than propose membership in TPP!! I have had it with these traitors.

[bert]

we are not screwed

we get good stuff at a cost that can not be matched by domestic producers for

Junk you say...... It is up to you what you buy. By making good decisions, junk is excluded

[Raycpa]

Trump plan would lower domestic tarrif known as taxes. He said he would threaten tarrif on existing companies and on those products whose governments are attempting a monopoly. I thought liberals hate monopolies.

[Former Proud Canadian]

In a world where free trade=fair trade the writer is correct. Unfortunately we do not live in that world. We live in a world where different living standards reflect different living costs and labor costs. We also live in a world of wildly divergent government tax policies, trade policies, and mercantile policies.

For example, steel producers outside China simply cannot compete with Chinese producers who enjoy low wage rates and government subsidies. A government like China can shift subsidies and trade policies to encourage any domestic industry and virtually destroy any foreign industry. Trump is right, AGAIN!

[HamiltonJay]

Wow engage in hyperbole much? This article is drivel... But our public educational system is failing so badly I have no doubt far to many who read this non argument will buy into it.