It has been accurately said that, if the American economy was the 7th Wonder of the World, then American economic ignorance has to be the 8th. And, international trade, protectionism (formerly called mercantilism when the British were doing it to the American colonies) is one of the, if not THE, most misunderstood aspects. — jtl, 419
by Gary North via Reality Check
This is a recent discussion between the Export Tariff Guy and the Free Trade Guy.
ETG: What this country needs is an export tariff.
FTG: How would it work?
ETG: Every exporter would pay a tariff on the retail price of everything it exports.
FTG: So, it’s a sales tax on exports.
ETG: That’s correct.
FTG: And why should the government do this?
ETG: It needs the money.
FTG: So, you are in favor of added taxes.
ETG: Extra export sales taxes, yes.
FTG: So, you want the government to spend more money.
FTG: So, you are a Keynesian.
ETG: Of course not. I am a defender of free enterprise.
FTG: You think that free enterprise is promoted by raising taxes.
ETG: Yes. Sales taxes. On exports.
FTG: Any other taxes?
ETG: Sales taxes on imports.
FTG: So, you want bigger government to help promote free enterprise.
FTG: So do Keynesians.
ETG: But Keynesians are not supporters of real free enterprise.
FTG: What is real free enterprise?
ETG: Free enterprise that is promoted by high sales taxes on exports.
FTG: And imports.
FTG: How do taxes on exports promote free enterprise?
ETG: Because they reduce the number of exports.
ETG: By raising prices to foreigners.
FTG: So, they will buy less from American exporters because post-tax prices are higher.
FTG: Why is that good for free enterprise?
ETG: Because it makes available more American-made goods for Americans to buy.
FTG: Because the goods are not shipped to foreigners.
ETG: Correct. So, consumer prices will fall in America.
FTG: So, this is a subsidy to American buyers of American-made goods.
FTG: This subsidy is paid for by Americans who want to buy foreign goods, but who will cut back because of reduced imports due to reduced exports.
FTG: So, free enterprise requires government subsidies to one group of American buyers at the expense of another group of American buyers.
FTG: But this is not Keynesianism.
ETG: No, it isn’t.
FTG: Why not?
ETG: Because Keynesians want the government to do the spending.
FTG: But you want the federal government to collect sales taxes.
FTG: Won’t the government spend this money?
ETG: Not if it is used to pay down the national debt.
FTG: So, you think Congress will balance the budget.
FTG: And then run a surplus.
FTG: With the surplus, Congress will pay off the national debt.
FTG: Has this ever happened before?
ETG: In 1836. The federal debt fell to zero.
FTG: And you think this will happen again.
FTG: So, in the meantime, the federal government imposes an export tax to increase its revenues and also subsidize American consumers of American-made goods.
FTG: What about the Americans working in the export sector?
ETG: A lot of them will lose their jobs.
FTG: Is this fair?
ETG: You have to break some eggs to make an omelet.
FTG: You mean Congress has to break some privately owned eggs to make its omelet.
ETG: I don’t see it that way.
ETG: How do you see it?
ETG: The American people must restore the free market.
FTG: By increasing taxes, making the government larger, and bankrupting marginal export firms.
FTG: The free market way.
ETG: The true free market way.
FTG: But if foreigners don’t buy American exports, they will not buy dollars.
FTG: But if they don’t buy dollars, the dollar will fall in value.
FTG: You mean you want the dollar to fall?
ETG: So Americans will not be able to afford to buy as many foreign-made goods.
FTG: Is that a good thing?
ETG: Because foreign manufacturers use slave labor.
FTG: You mean Canada? Our major trading partner is Canada.
ETG: I don’t mean Canada.
FTG: What about China? It is our number-two partner. Is it a slave labor society?
ETG: It used to be.
FTG: Yes, it did. But when it was, it did not have anything worth buying. The United States did not trade with China. Almost no one did.
ETG: But it used to be a slave labor society.
FTG: Well, it’s not now. Here are our other trading partners, in order of their total trade with us: Mexico, Japan, Germany, the United Kingdom, South Korea, Brazil, and France. Which of these is a slave labor nation?
FTG: None of them.
FTG: Then which nations are you thinking of?
ETG: North Korea and Cuba.
FTG: But we don’t import anything from North Korea or Cuba.
ETG: I want to keep it that way.
FTG: So, we should raise sales taxes, expand the federal government, bankrupt marginal exporters, and drive down the international value of the dollar so that Americans won’t start spending money buying imports from North Korea and Cuba.
FTG: This is the real free market way.
FTG: So, you really want to reduce imports, not just exports.
ETG: Of course. That’s what an export tariff does. It reduces imports.
FTG: I understand this. But you are the first supporter of tariffs I have met who understands this.
ETG: Sadly, there are a lot of promoters of tariffs on imports who do not understand economic logic.
FTG: I have noticed that, too.
ETG: I also think import tariffs are a great idea. It’s not enough to reduce imports by an export tariff. We need import tariffs to bring in more tax revenue. But with import tariffs low, we need export tariffs, too.
FTG: So, you think most Americans will rally to the idea of export tariffs.
ETG: I do.
ETG: Because they will see that higher sales taxes, a larger federal government, government-subsidized consumer prices, bankrupt exporters, unemployed Americans, a falling dollar, and reduced consumer choice is real free enterprise.
FTG: Then why not prohibit all exports?
ETG: That’s crazy. What do you think I am, a Communist?
FTG: It had crossed my mind.
ETG: I don’t like your attitude. You Austrian School economists are all alike. You think the free market is about unrestricted free trade.
FTG: Well, yes.
ETG: You forget about slave nations.
FTG: That we don’t trade with.
ETG: You forget about managed trade in foreign nations we do trade with.
FTG: We don’t think the solution to government-managed trade in a foreign nation is managed trade in the United States. We can’t solve the problems of government intervention by more government intervention.
ETG: Yes, we can. We should fight fire with fire.
FTG: What about fighting fire with water?
ETG: I don’t follow you.
FTG: Why not reduce sales taxes on imports here, in order to get added trade? Why add more taxes here to stop the bad effects here of more taxes over there?
ETG: You Austrians confuse everything. Nobody can follow your arguments. Anyway, nobody I know can follow your arguments.
FTG: You mean like reducing domestic sales taxes on Americans as a way to offset the negative economic effects of foreign sales taxes on foreigners?
ETG: Exactly! I say you should read less Mises and more Lincoln. Read a real American. Lincoln said it best back in 1832. “My politics are short and sweet, like the old woman’s dance. I am in favor of a national bank, in favor of the internal improvements system, and a high protective tariff.” That man could speak! His words send chills down my spine.
FTG: They send chills down my spine, too.
ETG: Here is what we need: real free enterprise. American free enterprise. None of that imported stuff from Austria.
FTG: So, let me summarize your position. You want tariffs on exports, which you say will reduce the number of imports.
FTG: You want tariffs on imports, which you say will reduce the number of exports.
FTG: You are saying that a sales tax on imports has the same effect as a sales tax on exports.
ETG: Yes. Both forms of sales taxes reduce trade.
FTG: So, you want to reduce international trade.
ETG: But only until foreign governments reduce their tariffs to zero.
FTG: But until then, Congress should impose sales taxes on exports.
FTG: Which no other nation does.
FTG: So, Congress should raise sales taxes on international trade as a way to persuade the rest of the world to reduce sales taxes on international trade.
FTG: That does not sound logical to me.
ETG: You’re not Congress.
FTC: You’ve got me there.
ETG: So, what do you think of my plan?
FTG: I think it is every bit as logical and coherent as anything I have heard from any promoter of import tariffs.
ETG: Thank you!
FTG: You’re entirely welcome.
- Will an Export Tax Restore True Free Enterprise? (teapartyeconomist.com)
- Reality check: Canadian tariffs on Chinese goods (macleans.ca)