Alberto Mingardi writes (in an email to followers of the Bruno Leoni Institute that he heads),
Nationalism, as political rhetoric, is quite incompatible with a concept which is key to classical liberal. That of the sovereignty of the consumer, as it has been called perhaps with an infelicitous term. It is difficult to ‘nationalize’ consumers, very easy to ‘nationalize’ producers.
In Specialization and Trade, I pointed out that we are much more concerned with conditions in the one market in which we produce than with conditions in any one of many markets in which we consume. If we are going to use our political voice in a market, it is going to be as a producer rather than as a consumer. Economic nationalism, by strengthening political voice rather than markets, is bound to favor producers rather than consumers. In short, Mingardi has a point.
So are you criticizing the farmer’s wailing about the Chinese tit-for-tat tariffs? Or the people who lost their jobs because domestic tax rates made it cheaper to produce offshore and export to the United States? Tyler Cowen’s Bloomberg column today points out that suppliers are already moving out of China and running from country to country chasing the lowest possible labor cost. Tariffs on China may have a side benefit of accelerating growth in developing economies. Even with the new China tariffs, the US is among the nations with the lowest tax rates on imported goods and over 50% of imports enter the country untaxed. Combining this with our corporate tax rates that are still relatively high, and it is not at all unreasonable to consider the foregone revenue from our low or nonexistant taxes a tax expenditure in exactly the the same way libertarians are always wailing about the home mortgage interest deduction.
Calling tax policy “nationalism” is silliness.
There are non-idealogical debates over what tax policy is optimal when it comes to balancing taxes on foreign and domestic producers. Most nations of the world have resolved that problem with a VAT that taxes imports at the same rate as domestic producers and does not tax exports.
US economists, however, in their blinkered simple mindedness, have led the population to believe that the cost of tariffs are borne exclusively by consumers and the cost of domestic corporate income taxes are borne exclusively by investors and owners. Trump’s tariffs are widely unpopular in the US for this very reason and he will lose some non-neglible number of votes for it. If tax exemptions for the “non-profit” think tanks and the like were repealed, I predict we might see a little more sophisticated thinking about taxes and less of this infantile name-calling.
The optimal tax policy is to tax everyone equally. Everything else is the government trying to micromanage society, which inevitably results in misallocation of resources and suboptimal outcomes.
Real life example: I have a friend who runs a small business manufacturing electronic devices domestically using parts sourced in China. Over the past year, the tariffs have cost his business thousands of dollars. (Those taxes, you know are not applied to Chinese firms, they are paid by Americans.) Changing the sourcing of parts is not as simple as you think – there are often not equivalent parts available from a domestic source, or from a different international source. He may have to use a lower quality part, or he may be forced to pay more, or he may be forced to do a redesign to use a different similar part. All of these things have costs, either in terms of price or in reliability of the final product. This becomes a competitive disadvantage for himself when compared with similar products made by foreign competitors. The foreign competitor can access the optimal supply chain and produce the product at the optimal price and quality point, whereas he can’t.
In other words, the tariffs make it cheaper to produce in some country other than China or America, and export to the US, if the third party country can access American markets and Chinese markets with less restriction.
The aspect I don’t understand from Trump voters complaining about tariffs and economic nationalism is:
Trump campaigned on them as much as any issue except border wall. There was endless complaints about NAFTA and the China trade deals. (And what Democrats missed is it was the Clinton’s fault of outsourcing and not private sector.)
Border and trade wars is what won Trump the election so why aren’t his voters lining behind him here?
As far as I can tell, they are.
I’m not a Trump voter, and I don’t believe in “lining up” behind anyone. But it does appear from my viewpoint, that sheeple are indeed dutifully supporting whatever their political leaders say they should support.
I concur wholeheartedly that tax policy should not be used to micromanage society. And I am sorry for your friend. Nevertheless a tax on capital such as the corporate income tax distorts similarly: at some margin someone is not going to be able to access funding that they would put to good use because the government took it. Schumer supports Trump and Pelosi has advocated even stronger action against China. H. Clinton famously claimed Trump stole her economic ideas. Other than a constitutional convention adopting strict federal spending limits and a non-distortion producing tax system, there does not appear to be any practical path to reform.
Edgar,
Honestly, if Trump had run in 2004, it would have been as a Democrat and he might have won if he used the same campaign tactics being against Iraq and free trade by taking OH. (But still losing the popular vote.
The reality is free trade and until 2012 Immigration were not Party defined issues although Democrats were less supportive of free trade due to mostly Midwest Democrats.