Import taxes to level the playing field

There's a big hurdle for the US manufacturing sector in that many products are much cheaper to produce in China or Taiwan. Part of the reason for this is that those countries have much less strict standards on things like pay, employee working conditions and pollution controls. Another way of looking at it is that US companies are saving money and skirting important social and environmental rules by outsourcing their manufacturing to countries which don't have these rules - with excellent consequences in terms of increased profits and cheaper products, but disastrous consequences in terms of the environment, the welfare of those who make the products, and US manufacturing jobs.

It seems to me that the US government should use its power to tax imports to level the playing field for US manufacturers by removing the incentive to manufacture elsewhere. In other words, the import tax on something should be the difference between what it costs to make something in the US and what it actually cost to make due to laxer regulations. Then, manufacturing for things sold in the US would (over time) move to the optimal locations based on where they were being sold and the where the raw materials were mined or recycled.

Suddenly making all our electronics more expensive by (maybe) a factor of 10 would be enormously disruptive so I suggest ramping up the tax gradually over a period of (say) 10 years or so. That would lessen the blow and give the US manufacturing companies some time to bootstrap. It also gives a great incentive to China to improve working conditions and emissions since doing so essentially wouldn't cost them anything (it would be covered by the corresponding reductions in import taxes).

In the long term, I would expect that the final cost of the manufactured products in question would stay about the same or even become cheaper than what they would be without these taxes. That's because as it becomes more expensive to hire people to do a menial job, it becomes more cost-effective to automate that job. The machine costs more to begin with (you need clever people to build and program it) but once it's up and running the unit cost per produced item is much lower.

There's a lot more to it than that, of course - China still has a big advantage in the expertise it has developed in building things, China sells to other places besides the US, and there are currency, debt, and trade treaty issues which further complicate matters in ways I don't completely understand. Still, I think it's an interesting idea to consider.

10 Responses to “Import taxes to level the playing field”

  1. zarla says:

    Protectionism, seriously?

    I have unsubscribed from your blog.

    • Andrew says:

      I hope you'll reconsider and use this opportunity to educate me on why you think economic growth is more important than protecting human lives. I've already learnt something from you (what this economic policy is called).

      The best arguments I've seen against protectionism boil down to "lower barriers of trade causes wealth to flow to places which can manufacture goods efficiently, ultimately resulting in a better quality of life there quicker". But if that efficiency is due only to lower standards of worker protection, a moral argument comes into play. On the other hand, if there really are fundamental reasons other than that why China is the best place to make iPhones (for example because it's closer to rich sources of raw materials) then my proposal takes that into account - the import taxes would only make up the difference in the "worker protection" part of the difference, not the "fundamental advantage" part, and China would still retain that advantage (although I will admit that finding the right taxation rate would be difficult and subject to all sorts of abuse - that's a whole other topic).

      Also, because of the long timescale over which these taxes come into play, there would be lots of time to see what happens and adjust things to avoid adverse consequences.

  2. Asterisk says:

    Protectionism increases consumer prices, encourages the growth of oligopoly and monopoly in the domestic economy, and gives more funds to government institutions with very poor track records of acting legally and constitutionally.

    Trade restrictions thrust more people into poverty, and *endanger* human lives and prosperity. Seriously, how can you possibly think that taking away the option to work in the manufacturing sector for millions of people in the developing world will somehow benefit those people? Paternalistic arrogance is an even worse argument for protectionism than autarky.

    • Andrew says:

      You're right in that if those were the outcomes of this policy, then it would have failed. But if you read my original post more carefully, you'll see that the policy I'm proposing is designed in such a way to increase choice and improve conditions in the developing world. The aim of classical protectionism is to move the manufacture of goods to the state which is doing the taxing, which, as you say, would reduce choice. But if the aim is instead to make sure that all goods are manufactured in safe conditions and without harming the environment, regardless of where they are manufactured, that actually increases choice because manufacturers would no longer rule out developed countries as a manufacturing base due to high labour and regulation costs. The idea isn't to take away any options from anyone - it's to eliminate the economic forces causing goods to be manuactured in unsafe and environmentally harmful conditions.

      As for increasing consumer prices - that would indeed be the major tradeoff, and I talked about that in the post.

      The other objections seem to be rants against government in general, which is a whole other blog post.

  3. Asterisk says:

    But aims and intentions don't matter. The results are the results, regardless of what you intend. The distinction between protectionism for the sake of internal development and protectionism for the sake of external 'safety' is the distinction between arrogance and ignorance on the part of the protectionism advocate.

    Although in this case, it seems to be a mix of both - the 'conditions' you're trying to alter in order to reflect your own value judgments are conditions that don't actually belong to you, and that other people have set up and participate in by their own choice in order to further their own aims. And other people certainly have the right to decide what risks they're willing to take in pursuit of their own happiness.

    • Andrew says:

      Right, when I say "aims and intentions" here, I mean policies set up in order to achieve particular aims and intentions - specifically, linking the taxation to the worker protection/environmental standards so that if they raise their standards to our levels over the course of the 10 years, no additional tax would actually be paid. That makes it practically different from straight protectionism, not just "different in intent".

      And sure, of course China can continue to do whatever they want and we can't stop them from doing that (which is why this about taxation, not invasion). I also don't have to buy products made in China if I find their manufacturing practices immoral. And if we as a society were to demand that our products were made in safe, environmentally sustainable ways, I think this would be the way to do it. We already do enforce some moral judgements via trade restrictions - US law forbids importing products made from endangered animals or by child slaves. This is an expansion of that idea.

      I think economic problems should be tacked my economic solutions rather than legistative ones, though - we shouldn't outright ban these products, we should just adjust the incentives so it makes more sense to make them in a safe, environmentally sound ways than in the cheapest, dirtiest way possible.

      Also, I hardly think that Chinese labourers work in the conditions they do because they choose to - they work in those conditions because they have to - because the only alternative (not having any money at all) is much worse. They don't get the chance to vote for improved health and safety standards and choose not to in order to grow their economy faster - it's an authoritarian communist state.

  4. VileR says:

    "Protectionism, seriously? I have unsubscribed from your blog"? -- how curiously ostrich-like. I'm amazed that people can have such over-the-top reactions to discussions of economy.

    Just throwing this out there, in case you guys haven't come across it already: http://www.stuff.co.nz/technology/5712910/The-dark-side-of-Apple-misery-monologue

    Basically, what that guy's doing is emotional manipulation, which never sits well with me. But then again, maybe it's no worse than all the other kinds of manipulation that have helped bring us all to this point. "Fight fire with fire" and all that...

    • Andrew says:

      I know, right? I'm not exactly sure what zarla was hoping to achieve by such a comment. It's not exactly a very persuasive argument that I'm wrong, and if I cared more about having as many readers as possible than about writing about whatever I want to write about, I'd be writing about celebrity fashions and scandals or some other such nonsense.

      Thanks for that link - it was reading another article about the same subject that made me think about this in the first place. Basically, this is a pretty horrible state of affairs but inevitable given the current rules and incentives. So how do we fix it as effectively as possible with as few undesirable side effects as possible?

  5. Rusty Covey says:

    What is stopping a college graduate from studing how a vacuum cleaner is built, make one, start manufacturing it in America? Once the president puts a higher tax on imports bring vacuum cleaners into America, leveling the playing field. Lets go farther with this concept. College grauduate with a degree in design who can design cars, clothes, tools, what ever, copy all products which are not being made in America anymore and build one like it.
    The Government gives out a $100 million grant, buy land, build house, stores, and a factory to manufacture the product and who owns it all. The college student who design the product, the employees who run the stores, the employees who work in the factory.
    The employees own all of it, there are no outside private owners, ceos, board members. The employees are the management able to make changes right on the spot when needed to make things run smoother.
    They are buying their house, cars and most everything as a tax write-off, at the end of the year they are given a check for end of year profits. Their product sells for the same price or less then imports. By not having such hugh payouts to ceos they might be able to compete with imports without having the president put a huge tax on imports.
    How many products are no longer being made in America? Which could be made in America. Eliminate top management will save $100s of millions, maybe its time to stop looking at investments with Wall street and start building a future for our children. Investment with Wall street will only make other countries stronger!

  6. Rusty Covey says:

    What will happen in America should employees in China and other countries start a movement or go on strike world wide wanting a life like people in America? They want a better house, better food, a better life and more, America isn't in the position to pick up on maufacturing anything should it come to needing something.
    My son works at a hospital, he said. Surgical mask are no longer being made in America, recently, there was a problem with manufacturing, manufacturing stopped and we almost ran out of surgical mask.
    How far will me be pushed back into the stone age by losing ourselves to being a social economy? Has socializing become the main focus in our lives? How can a person go into Macys, buy a coat for $499.99 with a label on it. "MADE IN CHINA"
    What happened to our American made Values? The ones which made us the country other countries looked up to during stuff times. How is your credit? What is your credit rating? How sad to live in a country where Americans fail to see how bad our goverments credit rating is and not know how to chose a person for preseident to change it. Screw religion for as that goes, screw the past if a person has changed, we need a stronger president then obama who can make changes for the people and not for what will be put in history book.

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