The Hoover Economic Policy Working group hosted a panel discussion on tariffs, with Michael Bordo, Mickey Levy, Steve Davis, Stephen Redding, and Andrew Grotto.
How would you address the problems in the rust belt? That’s what Trump wants to do among other things. Like reducing our dependence on critical goods from China. Like unfair trade practices. Like IP theft. Globalization has caused some real problems. Granted tariffs are bad from a strictly economic view but what other tools are available to address the issues?
Some argue that the China problem will blow over like the Japanese scare. Here’s hoping but I have my doubts. Too many smart people in China. Average IQ in China is like one standard deviation above US average. Scary, really scary.
"Made in the USA" sounds really passionate, but the reality is far more complicated than you might think. To make products more "Americanized" means either lowering workers' wages to reduce costs, or accepting the reality of soaring prices. So, how many Americans are willing to do repetitive work on the production line for low wages? If we choose to raise wages, production costs will inevitably increase, and consumers will eventually face higher commodity prices rather than the expected price reductions. This is a difficult multiple-choice question.
That is absurd. Trump already has commitments into the trillions to invest in American development. Scores of countries have already come forward to negotiate on trade deals. Apple just announced $150 billion in new investment in the USA.
Anti-Trumpers gotta anti-Trump, no matter what the facts are.
With respect to the discussion recorded in the video stream referenced, a 1984 article titled "Tariff Protection and Imperfect Competition" by James Brander and Barbara Spencer (in "Monopolistic Competition and Product Differentiation and International Trade", Henryk Kierzkowski ed., Oxford Economic Press, New York, 194-206) addresses the issues through the application of microeconomic principles to the analysis of unilateral and non-cooperative tariff policies.
The authors derive five propositions:
Prop. 1: The optimum tariff rate is negative, zero, or positive as the relative convexity of demand is less than, equal to, or greater than minus one. If demand is linear, then the optimal tariff rate is positive. If demand is not likely to be highly convex then positive tariffs will generally improve domestic welfare when the sole source of supply is an imperfectly competitive foreign industry.
Prop. 2: In the case where there are both domestic and foreign firms competing for domestic demand shares, an increase in the tariff rate increases output of the domestic firm and reduces imports. Total domestic consumption tends to fall as the tariff rate is increased.
Prop. 3: A tariff reduces domestic consumption. Even though a tariff reduces domestic consumption, a country would normally perceive an incentive to impose a tariff since gains to domestic firms and increases in government revenue would more than offset losses to consumers.
Prop. 4: If foreign marginal cost (incl. transport cost) is less than or equal to domestic marginal cost, an increase in the domestic tariff decreases world welfare. Tariffs are particularly undesirable if the domestic industry is 'weak' in the sense of having higher costs, yet this is precisely the case in which unilateral pressures for tariffs are usu. strongest. World welfare would increase if the tariff were reduced from the non-cooperative or unilaterally chosen level.
Prop. 5: The world welfare maximum may involve positive tariff rates, but the non-cooperatively chosen tariff rates exceed the world welfare-maximizing tariffs. The non-cooperative tariff rate solution is generally inferior to the cooperative solution.
The propositions are supported by and arise from the microeconomic models that the authors present in their paper.
References cited number twenty-seven in total. No figures or tables are included in the paper. There are 36 numbered equations. The paper is available by means of a Google key word search: Brander + Spencer + "tariff protection and imperfect competition".
James Brander, PhD (Stanford, 1979), and Barbara Spencer, PhD (Carnegie-Mellon, 1979) are Professor Emeritus and Asia Pacific Professor in International Business and Public Policy, and Professor Emeritus and Asia Pacific Chair in International Trade Policy, respectively, in the Strategy and Business Econ. Div. of The Sauder School of Business, The Univ. of Brit. Col., Vancouver, BC.
From the audience members' comments, we can understand the purpose of the baseline tariff rate of 10% as being solely a revenue-generating tariff. For tariff rates exceeding the 10% baseline tariff, the difference between the imposed tariff rate and the baseline tariff rate as being negotiable subject to conditions. The conditions on the negotiable tariff rate portion relate to the substance of the administration's policy goals of which re-balancing the trade deficit is primary. Subsidiary conditions incl. but are not limited to breaking down non-tariff barriers impeding U.S. exports, and re-shoring U.S. multinational corporation offshore manufacturing activities transfered to foreign countries exporting product back to the U.S. The degree of success attainable depends on competitive advantage of the foreign vs. domestic sources of intermediate and final products and the availability of domestic labor supply with the necessary skills in production and operations management. It has taken thirty years or more to attain today's global supply chain specialization. Will it take thirty or more years to dismantle that supply chain and replace it with domestic sources and domestic resources in rare earth elements and technical know-how? Trade policy uncertainty is as great an impediment to investment, if not a greater impediment, as the tariff rates are, when one considers the term-limited expected life of the current trade policies.
Good for JohnCochran…..let’s give tariffs their chance…….who knew how we've been TOTALLY RIPPED-OFF by every other country…..esp Europe when we were their defence and great supporter with tourism. ‘M all for Trumps Tariffs and let’s buckle up and try letting DT do it!
see where Apple just said they are moving iphone production from china to india?
That was illuminating and should be watched by all outspoken supporters of the Trump administration.
Thank you.
It is uneven but Europe decreased some tariffs. China we will see.
How would you address the problems in the rust belt? That’s what Trump wants to do among other things. Like reducing our dependence on critical goods from China. Like unfair trade practices. Like IP theft. Globalization has caused some real problems. Granted tariffs are bad from a strictly economic view but what other tools are available to address the issues?
Some argue that the China problem will blow over like the Japanese scare. Here’s hoping but I have my doubts. Too many smart people in China. Average IQ in China is like one standard deviation above US average. Scary, really scary.
"Made in the USA" sounds really passionate, but the reality is far more complicated than you might think. To make products more "Americanized" means either lowering workers' wages to reduce costs, or accepting the reality of soaring prices. So, how many Americans are willing to do repetitive work on the production line for low wages? If we choose to raise wages, production costs will inevitably increase, and consumers will eventually face higher commodity prices rather than the expected price reductions. This is a difficult multiple-choice question.
Fantastic panel John. I really enjoyed it and found myself taking notes.
MAGA = Make American Growth Anemic
That is absurd. Trump already has commitments into the trillions to invest in American development. Scores of countries have already come forward to negotiate on trade deals. Apple just announced $150 billion in new investment in the USA.
Anti-Trumpers gotta anti-Trump, no matter what the facts are.
MAGA = Make American Growth Anemic
Very interesting. Well worth the hour and twenty minutes.
With respect to the discussion recorded in the video stream referenced, a 1984 article titled "Tariff Protection and Imperfect Competition" by James Brander and Barbara Spencer (in "Monopolistic Competition and Product Differentiation and International Trade", Henryk Kierzkowski ed., Oxford Economic Press, New York, 194-206) addresses the issues through the application of microeconomic principles to the analysis of unilateral and non-cooperative tariff policies.
The authors derive five propositions:
Prop. 1: The optimum tariff rate is negative, zero, or positive as the relative convexity of demand is less than, equal to, or greater than minus one. If demand is linear, then the optimal tariff rate is positive. If demand is not likely to be highly convex then positive tariffs will generally improve domestic welfare when the sole source of supply is an imperfectly competitive foreign industry.
Prop. 2: In the case where there are both domestic and foreign firms competing for domestic demand shares, an increase in the tariff rate increases output of the domestic firm and reduces imports. Total domestic consumption tends to fall as the tariff rate is increased.
Prop. 3: A tariff reduces domestic consumption. Even though a tariff reduces domestic consumption, a country would normally perceive an incentive to impose a tariff since gains to domestic firms and increases in government revenue would more than offset losses to consumers.
Prop. 4: If foreign marginal cost (incl. transport cost) is less than or equal to domestic marginal cost, an increase in the domestic tariff decreases world welfare. Tariffs are particularly undesirable if the domestic industry is 'weak' in the sense of having higher costs, yet this is precisely the case in which unilateral pressures for tariffs are usu. strongest. World welfare would increase if the tariff were reduced from the non-cooperative or unilaterally chosen level.
Prop. 5: The world welfare maximum may involve positive tariff rates, but the non-cooperatively chosen tariff rates exceed the world welfare-maximizing tariffs. The non-cooperative tariff rate solution is generally inferior to the cooperative solution.
The propositions are supported by and arise from the microeconomic models that the authors present in their paper.
References cited number twenty-seven in total. No figures or tables are included in the paper. There are 36 numbered equations. The paper is available by means of a Google key word search: Brander + Spencer + "tariff protection and imperfect competition".
James Brander, PhD (Stanford, 1979), and Barbara Spencer, PhD (Carnegie-Mellon, 1979) are Professor Emeritus and Asia Pacific Professor in International Business and Public Policy, and Professor Emeritus and Asia Pacific Chair in International Trade Policy, respectively, in the Strategy and Business Econ. Div. of The Sauder School of Business, The Univ. of Brit. Col., Vancouver, BC.
From the audience members' comments, we can understand the purpose of the baseline tariff rate of 10% as being solely a revenue-generating tariff. For tariff rates exceeding the 10% baseline tariff, the difference between the imposed tariff rate and the baseline tariff rate as being negotiable subject to conditions. The conditions on the negotiable tariff rate portion relate to the substance of the administration's policy goals of which re-balancing the trade deficit is primary. Subsidiary conditions incl. but are not limited to breaking down non-tariff barriers impeding U.S. exports, and re-shoring U.S. multinational corporation offshore manufacturing activities transfered to foreign countries exporting product back to the U.S. The degree of success attainable depends on competitive advantage of the foreign vs. domestic sources of intermediate and final products and the availability of domestic labor supply with the necessary skills in production and operations management. It has taken thirty years or more to attain today's global supply chain specialization. Will it take thirty or more years to dismantle that supply chain and replace it with domestic sources and domestic resources in rare earth elements and technical know-how? Trade policy uncertainty is as great an impediment to investment, if not a greater impediment, as the tariff rates are, when one considers the term-limited expected life of the current trade policies.
Good for JohnCochran…..let’s give tariffs their chance…….who knew how we've been TOTALLY RIPPED-OFF by every other country…..esp Europe when we were their defence and great supporter with tourism. ‘M all for Trumps Tariffs and let’s buckle up and try letting DT do it!