Does America Need Tariffs on US Corporations?

ricksfolly said:

The point was about workers being slaves to bosses, not how the bosses treat workers. I agree that some bosses can be dicks and some can be sweeties, but they are still bosses with the power to shape lives... They who must be obeyed...

ricksfolly

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And if you don't want to obey you can quit. I don't think a slave ever had that decision. If he wanted to quit he would be whipped.

We need tariffs in this country to counter the natural desire of greed and screwing over your fellow Noodle.

The Giant Noodle said:

We need tariffs in this country to counter the natural desire of greed and screwing over your fellow Noodle.

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Greed is why we have so much wealth today. If it weren't for greed, why would we work so much? To make the world a better place?

Adam Smith said:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

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So - really - nothing's changed.

Government will always look for new reasons and ways to get money from people - all or some.
People will always look for new reasons and ways to keep that said money from the government - all or some.

Since the dawn of money - this has been the ritual.

Aunt Spiker said:

So - really - nothing's changed.

Government will always look for new reasons and ways to get money from people - all or some.
People will always look for new reasons and ways to keep that said money from the government - all or some.

Since the dawn of money - this has been the ritual.

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No, you're not being persecuted... Just pay your taxes like everyone else and your stomach ache will go away.

ricksfolly

I think we should only have tariffs in very limited cases. Really only to protect certain small developing industries from foreign competition to allow them to become established. This is really limited though, since the US has a very mature economy. Ror almost all of our industries this should not apply, and the benefits of trade should be realized.

drz-400 said:

I think we should only have tariffs in very limited cases. Really only to protect certain small developing industries from foreign competition to allow them to become established. This is really limited though, since the US has a very mature economy. Ror almost all of our industries this should not apply, and the benefits of trade should be realized.

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Because of a barrier to entry? Any industry has a barrier to entry. If it's profitable here we'll produce it here, we'd get foreign investors to do it if we did not have the ability ourselves to do it. Frankly, if it's not here without tarriffs, then it just isn't practical to do here.

phattonez said:

Because of a barrier to entry? Any industry has a barrier to entry. If it's profitable here we'll produce it here, we'd get foreign investors to do it if we did not have the ability ourselves to do it. Frankly, if it's not here without tarriffs, then it just isn't practical to do here.

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Does every industry have a barrier to entry that is same size? no. Does every industry that has a large barrier of entry need to be protected? no. But certain ones could be beneficial. Just look at agriculture and manufacturing in the US during the 1800's. Those industries developed quite well, in fact to be the best in the world. I am not saying we need tariffs on manufacturing and agriculture now (we definetly don't and shouldn't), but for certain and specific developing industries it could be beneficial. Also, we would have to make sure we do get rid of the tariff once the industry does become competitive.

drz-400 said:

Does every industry have a barrier to entry that is same size? no. Does every industry that has a large barrier of entry need to be protected? no. But certain ones could be beneficial. Just look at agriculture and manufacturing in the US during the 1800's. Those industries developed quite well, in fact to be the best in the world. I am not saying we need tariffs on manufacturing and agriculture now (we definetly don't and shouldn't), but for certain and specific developing industries it could be beneficial.

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If it was worthwhile then why wouldn't foreign investors just bring the industries here themselves? And just because we've had tarriffs and industries have done well does not mean that the tarriffs were worthwhile. Who's to say it wasn't mere coincidence that agriculture and manufacturing expanded. Maybe they would have done that if left alone. Furthermore, how do we quantify the negative effects that this has on other industries (and consumers as well)?

drz-400 said:

I think we should only have tariffs in very limited cases. Really only to protect certain small developing industries from foreign competition to allow them to become established. This is really limited though, since the US has a very mature economy. Ror almost all of our industries this should not apply, and the benefits of trade should be realized.

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Ok, but who decides what, when, and how much? You may have to create another government bureau.

ricksfolly

phattonez said:

If it was worthwhile then why wouldn't foreign investors just bring the industries here themselves? And just because we've had tarriffs and industries have done well does not mean that the tarriffs were worthwhile. Who's to say it wasn't mere coincidence that agriculture and manufacturing expanded. Maybe they would have done that if left alone. Furthermore, how do we quantify the negative effects that this has on other industries (and consumers as well)?

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Because it is an infant industry. You are trying to side step the entire argument. The industry has not reached its full potential. I am not rejecting the benefits of comparative advantage, I am saying that barriers are not allowing that industry to develop.

Ricksfolly has a good point, since this policy is much harder to do in practice, but I do not think the basic principle I am getting at is wrong.

ricksfolly said:

Ok, but who decides what, when, and how much? You may have to create another government bureau.

ricksfolly

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Hasn't it historically just been done by congress?

drz-400 said:

Because it is an infant industry. You are trying to side step the entire argument. The industry has not reached its full potential. I am not rejecting the benefits of comparative advantage, I am saying that barriers are not allowing that industry to develop.

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Could I ask you to read the "Petition of candlestickmakers" by Frédéric Bastiat? It's short and very "illuminating" on this subject.

Bastiat's famous Candlestick makers' Petition

phattonez said:

Could I ask you to read the "Petition of candlestickmakers" by Frédéric Bastiat? It's short and very "illuminating" on this subject.

Bastiat's famous Candlestick makers' Petition

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I am not denying comparative advantage, I am not saying we should use protectionism to increase employment, I am not saying we should use protectionism to make competition more fair, I am not saying we should protect the industry indefinetly.

I am saying, if a firms average cost decreases with its size (economies of scale), the firm has large barriers to entry, and the industry can become competitive at a global scale if we allow it to create economies of scale, a temporary tariff can allow a industry currently producing under its potential to reach its potential, and thus shift our PPF outward. This would be beneficial to the economy.

It would be beneficial independent of whether or not the tarriff is put into place. If it is a worthwhile venture, then someone with a lot of capital (such as someone who runs the same industry that you want to develop in another country) would invest it here. If they're not doing it, then it probably isn't worth developing here. Once the tarriff is put into place, that industry benefits while all other industries and consumers suffer. But is it worth the payoff? Consider the fact that once the tarriff is removed that production will tend toward where the market dictates it should be. So if it's not developing on its own (meaning that it's probably not worthwhile), and if after the tarriff is removed production will simply revert to where it should be, then I don't see the benefit in these protectionist policies.

Since I like finding quotes since other people have stated these concepts much clearer than I can:

Robert P. Murphy said:

The infant industry proposals notwithstanding, the free market contains a mechanism by which firms can suffer short-run losses so long as they are compensated by eventual long-run profits. That mechanism is simply a loan. Plenty of new firms, especially sole proprietorships, don't make money in their first few years of operation. But so long as the present value of the firm's expected future cash flows is positive, the firm's owners should be able to borrow money to finance the first few years as they develop experience, name brand trust, etc.

If a firm or group of firms can't achieve funding from private investors to go ahead with their projects because the present values of their ventures are negative, then that is the market's way of saying that their schemes would squander valuable resources in the short run without sufficiently compensating gains in the long run. The advocate of a tariff to promote an infant industry is thus saying that he or she knows better how to determine intertemporal tradeoffs than the average person in his decisions to borrow or lend money at different rates of interest.

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Some Subtler Arguments for Tariffs - Robert P. Murphy - Mises Daily

phattonez said:

Since I like finding quotes since other people have stated these concepts much clearer than I can:



Some Subtler Arguments for Tariffs - Robert P. Murphy - Mises Daily

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I am not so sure this would always be the case and I am not claiming the I am smarter than the market participants, but I can come up with a few example contra to that argument.

For example, when a large barrier of entry exists, maybe a large sunk cost, then this risk might deter any more investment if one does invest and the short run costs (due to economies of scale, r&d, etc) were high.

Also, if other foriegn governments are promoting growth in a specific, high productivity industry for example, we might loose our competitive advantage in that industry. Comparative advantage would still apply, and we would still find goods (low wage goods) to export, but we would not get comparative advantage in the high productivity industry we would have otherwise had. The industry is no longer operating at its potential.

Even if other countries use protectionism, it doesn't matter because their other industries necessarily become weaker.

And the barrier of entry isn't a concern if the long run gains outweigh the short-term costs. The market would perform it if it saw a potential profit.

phattonez said:

Even if other countries use protectionism, it doesn't matter because their other industries necessarily become weaker.

And the barrier of entry isn't a concern if the long run gains outweigh the short-term costs. The market would perform it if it saw a potential profit.

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This does not address my points at all. You are trying to side-step the whole argument again.

If other countries use protectionism to promote growth in a certain high productivity industry, in those industries it will gain a competitive advantage, and we will loose the comparative advantage we would have had otherwise. In turn we would get comparative advantage in lower wage goods, but now that high productivity industry is operating below its potential. Not saying we need to protect the already matured (maybe past mature) auto industry, but I think there is some evidence of this happening (when comparing with japan).

The barrier of entry is a concern if it is large (large short term costs) if sunk costs exist. Despite the fact that there is a potential for profit, the large up front costs that were made to get the market going could deter further investment. People prefer avoiding losses, as opposed to acquiring gains.

drz-400 said:

If other countries use protectionism to promote growth in a certain high productivity industry, in those industries it will gain a competitive advantage, and we will loose the comparative advantage we would have had otherwise.

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Agreed, but not entirely as I will explain below.

In turn we would get comparative advantage in lower wage goods, but now that high productivity industry is operating below its potential. Not saying we need to protect the already matured (maybe past mature) auto industry, but I think there is some evidence of this happening (when comparing with japan).

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I wasn't being non-responsive before, you just didn't understand the point that I was making. So what if the country has protectionism? Eventually the protectionism has to end and production will shift to where it is most beneficial. Perhaps the best example that I can point you to would be what if the industry were subsidized? It would be a permanent problem and would force the country to find other industries to develop because it could not compete with the subsidized insutry. The free trade country will then have to shift to other industries. Okay, accepted. But is this a bad thing? People will still be making money and they will have great cheap goods from that other country. Consumers would seem to win out big time. How about the subsidizing country? Well the people there will have to pay for that industry, so they will experience a big loss everywhere else.

So which situation seems better, the country with artificially cheap goods and now just has to find other productive things to do, or the country that subsidizes a certain industry by taking from everyone else who produces? Seems clear to me.

The barrier of entry is a concern if it is large (large short term costs) if sunk costs exist. Despite the fact that there is a potential for profit, the large up front costs that were made to get the market going could deter further investment. People prefer avoiding losses, as opposed to acquiring gains.

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What you're saying is basically trying to deny the possibility that people would ever take a big loss and invest in something for a reward in the future. If that is true, then how did we ever start building billion dollar hotels? I mean, look at those sunk costs associated with such a venture and the huge amount of capital you would have to gain to start such a project. Yet it is done, and they keep getting built. Barrier to entry would only be a problem in an economy that had no idea how to use loans or attract capital.

phattonez said:

Agreed, but not entirely as I will explain below.


I wasn't being non-responsive before, you just didn't understand the point that I was making. So what if the country has protectionism? Eventually the protectionism has to end and production will shift to where it is most beneficial. Perhaps the best example that I can point you to would be what if the industry were subsidized? It would be a permanent problem and would force the country to find other industries to develop because it could not compete with the subsidized insutry. The free trade country will then have to shift to other industries. Okay, accepted. But is this a bad thing? People will still be making money and they will have great cheap goods from that other country. Consumers would seem to win out big time. How about the subsidizing country? Well the people there will have to pay for that industry, so they will experience a big loss everywhere else.

So which situation seems better, the country with artificially cheap goods and now just has to find other productive things to do, or the country that subsidizes a certain industry by taking from everyone else who produces? Seems clear to me.

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I agree with you, if the other country is subsidizing a specific good we should obviously trade. You are 100% correct that this is a great deal, since they are essentially subsidizing our purchases. I don't think another country subsidizing an industry is protectionism though anyways.

I think japan is a great example of my point. Look at the massive growth it had during its protectionist time period. Their auto industry was grown behind a massive wall of tariffs, and when japan finally liberalized their trade, japan was a very competitive industry leader. All the while other sectors of japan were growing rapidly as well. Look at what this foreign competition has done to the US auto industry. It went into decline as we lost some of our competitive advantage. Many American workers lost high productivity manufacturing jobs and gained lower wage service jobs.

phattonez said:

What you're saying is basically trying to deny the possibility that people would ever take a big loss and invest in something for a reward in the future. If that is true, then how did we ever start building billion dollar hotels? I mean, look at those sunk costs associated with such a venture and the huge amount of capital you would have to gain to start such a project. Yet it is done, and they keep getting built. Barrier to entry would only be a problem in an economy that had no idea how to use loans or attract capital.

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Let me expand upon my theory. You are correct there would have to be problems in the capital market. These problems may be unavoidable. Lets say, that the capital market is imperfect. Is this true in real life? Yes, since arbitrage is possible, not all sources of funds are the same. Because capital markets are imperfect, there are adjustment costs a firm will have when it must invest more money. These adjustment costs would be larger for liquidity constrained firms. Since we are talking about firms that are expecting short-term losses this seems to fit.

Now imagine that since short-term losses cause these firms to be liquidity constrained, and also causes them to access capital markets more often. This would cause the adjustment costs of such a firm to be large, and these higher costs of borrowing may cause a cost overrun. Combine this with the already large sunk costs I have already mentioned and such an industry and you can see why these barriers of entry could be a problem.

drz-400 said:

I agree with you, if the other country is subsidizing a specific good we should obviously trade. You are 100% correct that this is a great deal, since they are essentially subsidizing our purchases. I don't think another country subsidizing an industry is protectionism though anyways.

I think japan is a great example of my point. Look at the massive growth it had during its protectionist time period. Their auto industry was grown behind a massive wall of tariffs, and when japan finally liberalized their trade, japan was a very competitive industry leader. All the while other sectors of japan were growing rapidly as well. Look at what this foreign competition has done to the US auto industry. It went into decline as we lost some of our competitive advantage. Many American workers lost high productivity manufacturing jobs and gained lower wage service jobs.

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But was that growth because of or despite of the tariffs? That's the question that it boils down to.

drz-400 said:

Let me expand upon my theory. You are correct there would have to be problems in the capital market. These problems may be unavoidable. Lets say, that the capital market is imperfect. Is this true in real life? Yes, since arbitrage is possible, not all sources of funds are the same. Because capital markets are imperfect, there are adjustment costs a firm will have when it must invest more money. These adjustment costs would be larger for liquidity constrained firms. Since we are talking about firms that are expecting short-term losses this seems to fit.

Now imagine that since short-term losses cause these firms to be liquidity constrained, and also causes them to access capital markets more often. This would cause the adjustment costs of such a firm to be large, and these higher costs of borrowing may cause a cost overrun. Combine this with the already large sunk costs I have already mentioned and such an industry and you can see why these barriers of entry could be a problem.

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Except that we see that despite all of these problems that capital venture are taken anyway and it's done all the time. If it was such a big problem then why do companies still go for it?

phattonez said:

Except that we see that despite all of these problems that capital venture are taken anyway and it's done all the time. If it was such a big problem then why do companies still go for it?

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Because these large barriers of entry that come from the increased competition of international trade may not exist in every industry, or that industry is already developed enough that these things are not problems.

I also forgot to mention network effects. When an industry is small, this will be a problem.