Thursday, December 22, 2016

Tariffs and border adjustments

Yesterday the Trump transition team said it wanted a 5% tariff on all imports, today it's up to 10%. Who knows, maybe by tomorrow it will be 15% or 20%.

Supposedly this would happen either by executive order or else as part of corporate tax reform.

Any guesses out there regarding whether other countries would retaliate against U.S. goods? Not my field, but I suspect this could be a really major body blow to the U.S. and world economies. If it tanks things sufficiently, Trump may conclude he needs to do something really big to distract voters from the mess. War? Use nuclear weapons abroad? Why not?

Meanwhile, talk continues about the possibility of enacting a destination-based corporate tax, which CNBC says (using a simple example) could "boost the taxes on a sweater from $1.75 to $17."

Among the experts who has been addressing the border adjustment issue is Alan Viard at AEI, who notes that, while exchange rate changes (appreciation of the dollar) would over time wash out the impact on cross-border trade, how fast it would happen is debatable. "Logically, it should be a quick, or immediate adjustment, but economists are not good at predicting speed."  Plus, as he's noted elsewhere in relation to the issue of adopting a VAT (which likewise taxes imports but not exports), there can be (a) temporary discouragement of trade as institutions adjust, (b) a giant transitional giveaway of revenues from U.S. taxpayers to foreign persons, and (c) adverse effects on trade in particular sectors.

Most bizarre of all is the suggestion above, from the article on linking the tariff to tax reform, that Trump wants to do the destination-based corporate tax PLUS a 10% tariff.

He's like a child playing with tinker toys that have bombs attached on the underside.

1 comment:

blissex said...

«needs to do something really big to distract voters from the mess. War?»

It is to understand that NYC Clinton supporters are having nightmares about Trump, but he was the "peace party" candidate in the election, many "progressives" thought him the lesser evil because of that.

One of Clinton's main committed policies was a no-fly zone over Syria, something that keeps being proposed, resulting in USA military airplanes shooting down russian flag-and-pilot military airplanes, over a nominally independent country with a government that is still technically recognized by the international community and that has explicitly invited russian help.
Something probably even more insane than the proposal during GW Bush presidency of nuclear bombing Iran.

Trump may have many grave flaws, but his often repeated policy of peaceful detente with Russian and China, which has earned him vile and insane innuendo or accusations of being a traitor, seems a lot less likely than Clinton's policies to result in war.

«Use nuclear weapons abroad? Why not?»

He did ask why the USA does not use nuclear bombs to settle foreign arguments, but I guess that was because of his "lack of attention to details" rather than conviction. Clinton does not have the same excuse as to shooting down russian military airplanes and the possible consequences.