Gongol.com Archives: August 2023

Brian Gongol

August 23, 2023

Business and Finance Cutting the check and paying the price

Some arguments are never really settled, no matter how dispositive the facts and reasoning behind them may be. Economic arguments tend to land among these perpetual debates, in large part because everyone has an opinion about money. As with other matters (like education and health care), it's easy to mistake familiarity for expertise. ■ An especially recalcitrant wing of economic opinion holds fast to the belief that if only we taxed imports hard enough, the domestic manufacturing economy would experience an unprecedented boom. There is nothing in evidence to support this fantasy, and mountains of evidence against it. ■ First, it has to be recognized that tariffs aren't a magical way to tax foreigners at no cost to the domestic consumer. The real cost of any tax is split between buyer and seller; cutting the check isn't the same as paying the price. The incidence of any particular tax depends, essentially, on who wants or needs the exchange more. ■ Without resorting to explanations involving the relative slopes of the supply and demand curves, this can be explained intuitively: Whoever is more eager for a deal to go through ultimately has less bargaining power in an exchange, and the government collecting the tax takes implicit advantage of that eagerness to trade. ■ But the problem with tariffs goes farther than that. Whether observers recognize it or not, the US manufacturing sector continues to grow in value. It just isn't growing as quickly as the service sector. But in any case, the biggest profits in manufacturing are made by assembling complex equipment and systems, rather than by trying to make basic stuff with blast furnaces. It's better to build Boeing jets than to mass-produce paperclips. ■ Assembling complex systems is a lot easier to do when you can have access to the best deals on the component parts. Making it more expensive to import basic goods from abroad only hobbles the efforts of the domestic manufacturers best equipped to turn the biggest profits for domestic industry. ■ And none of the discussion would be complete without recognizing that automation is often at least as disruptive to manufacturing jobs as foreign trade. But that shouldn't stop us from putting automation into service, particularly if machines can do dirty, dull, or dangerous work. As long as we recognize the need for robust transitional support for people displaced from their jobs by automation or by trade, we shouldn't be afraid of bringing in affordable products from the global marketplace. ■ But that won't stop shameless political opportunists -- and dunces -- from pretending that higher import taxes are a silver bullet. That kind of con artistry has a long history, but a despicable track record. A sincere and authentic belief in American manufacturing wouldn't be so eager to embrace stunts in service of growing the sector. High tariffs are a tool adored most by people of low economic sophistication.