Ravenwood - 06/03/03 09:00 AM
Someone doesn't understand how a tariff works. In discussing the steel tariffs, Tazteck writes:
You, as the buyer of an American made vehicle, will not pay any more.Lets say that steel was being imported at $100 per foot, and then being made into mobile homes by the ACME mobile home company. Along comes Bush with his 40% steel tariff that promises to save 5000 steel worker jobs. Now ACME mobile home company has to buy steel for $140 per foot from their import company, or $140 per foot from a local U.S. steel mill. No matter who they buy it from, they are paying more, which is what a tariff does. The whole point of tariffs is to raise the price of imports so that U.S. companies don't have to compete against global competitors.You will also not be driving a vehicle made from sub-standard steel, and you will be keeping Americans working in good paying jobs.
Being from Ohio, we have seen first hand what the effects are from importing(dumping)sub-standard steel. Our steel mills are closing at a fast pace, dumping many workers into the unemployment line.
Now when ACME goes to sell those mobile homes, that increased cost of steel is built into the price of the home. Elasticity of demand means that as the price goes up, the sales go down. The higher cost to the end user for steel products means decreased sales. Decreased sales, means decreased jobs. You may have just saved 5000 steel jobs, but it ends up costing you jobs at the ACME mobile home company. It also costs jobs in the construction business, automotive industry, and anyone else that relies on imported steel. Also, American consumers end up paying higher prices across the board for steel products, so we are all financially impacted.
As for quality, that should be a consumer choice, not a government mandate. For instance, when I go to buy a car, I can buy a Kia, or a Cadillac. Now both cars have 4 wheels, airbags, and all the government mandated safety devices. However, I get to make the personal choice between the quality/luxury brand, or bargain basement brand. Steel should be the same way.
So, what should we do about those 5000 steel worker jobs, and all jobs threatened by imported products? Well, I could take the heartless, kitten stomping point of view and say screw 'em. If they cannot compete, then they lose their jobs. However, since there is a better solution, I'll present that instead.
American companies should face a level playing field with foreign companies. Currently, they do not. U.S. companies are required to pay income taxes to the U.S. on all revenue generated in this country. Sounds reasonable, right? Well, they also must pay income taxes on all revenue generated outside of this country. That means that if Ford Motor Company, has overseas operations where cars are made in overseas plants by overseas workers for sale overseas, they still have to pay income taxes to the U.S. Since they are also paying income taxes overseas, they are double taxed.
Now, foreign companies that set up a manufacturing plant in the U.S. are also taxed by the U.S. for their business that is done here. However, since they are NOT taxed by their own government on operations in the U.S., they have a huge competitive advantage over U.S. corporations.
In addition to the double taxation, Congress is threatening to 'penalize' companies that try to move their operations off shore. Stanley (the tool company) recently backed off from relocating their business to Bermuda, because the U.S. Congress threatened severe economic penalties. Some congressmen had the nerve to claim that Stanley was trying to shirk their civic duty by getting out of paying higher taxes. Under that train of thought, people should be 'discouraged' from moving from New York to Florida to take advantage of the lower state income tax. Rather than New York lowering their tax to give people incentive to stay, they should simply use their governmental police power to prevent people from leaving, and thus shirking their civic duty to the state of New York.
When it comes to imports, the easiest way to level the playing field for U.S. companies, would be to eliminate the double taxation. After all, that is the variable that the U.S. has control over. We cannot dictate what other countries do, and tariffs on imported goods only risk retaliatory tariffs on U.S. goods in other nations. We are at a point where trade barriers should be coming down, not going up. And then, if the U.S. companies still cannot compete, too bad. It's time to find another line of work.
Category: Essays
Comments (10) top link me
You say that quality should be a consumer issue, not government, but this is not what you get with steel.
If you buy a cheap car, much of the steel is recycled (Fiat, Kia) from Spain or Far East sources. These people pay damn poor wages, and pretty much anything goes in the pot. What you end up with is steel of poor quality which is why you see a lot of rusty 'cheap' cars.
I work in Petrochemical (Halliburton here in London) and I have actually barred certain suppliers from bidding because the steel is poor quality and sub standard. Yes, the stuff is cheap, whats your life worth?
Robert,
I think you missed my point. I can buy a bargain basement refrigerator for $300. Chances are, I'd have to replace it in 2 years. I could spend $1000 on a luxury Kenmore model that will last 25 years. That is a choice that should be made by the consumer. It isn't the government's job to tell everyone they must buy a $1000 fridge.
Whether or not it "saves lives" is a red herring. It is an argument that could be used for anything, from buying bigger cars to buying smaller cars.
Besides, it is nullified by government safety standards. The U.S. has building codes and automobile specifications that must be adhered to.
Posted by: Ravenwood at June 3, 2003 4:18 PMNope-wrong, fully $300 dollars of that Kenmore is for the name. The pump may be slightly better, but not three times better. I am talking quality of material here, which is unfortunately not related to name brand. My cheap fridge lasted 11 years and only went because it was too small, the Daewoo I replaced it with gave trouble after six months.
A better example;
My Indian is a '47 Chief- good 'ol US steel, and the frame and castings are as good today as they were in 1947. My Harley Davidson (guessed my vice yet?) is as solid as the day it rolled of the line 18 years ago. My BMW was made in '79, it has 86K on the clock and still starts first kick.
This is because they are quality products, and that quality starts with the raw materials, you build it in, you dont add it on.
Check out those auto specs you mention, they're all about headlight heights and turn signal rates - there is nothing about quality of steel, and believe me when I say that really bad steel is put to shame by decent cardboard. What sunk the Titanic? Ultimately it was being made of steel that shattered in low temperatures - they tested pieces brought up from the sea bed. This is building down to a price, not up to a standard.
Wow this is a long way off topic, I agree about the tax burden, but you also need to compare merits of the product, and have a standard for base material, and that is the job of government.
Quality raw materials make quality products. It is still about consumer choice.
The steel used to make the Titanic had an unknown (at the time) flaw. Government tariffs would not have saved it.
I also fail to see how adding a 40% mark up to imported steel sets any sort of "standard". The government has outlawed cheap steel, they've simply increased the price of it.
Posted by: Ravenwood at June 3, 2003 5:28 PMThe tariffs, though not intentionally, could increase prices across the board. And yes eliminating the double taxation would definitely help. But you still have to acknowledge the fact that there is no way any U.S. company can compete when a foreign company that uses child labor, paying less per day than you spend on a cigar, dumps sub standard materials on our market.
I would rather pay the extra 40% for an American made product, that keeps an American off of the unemployment lines. The fact that my product is substantially better and will last longer is also a bonus.
My point was simply that as Americans, we need to start taking care of our own. To hell with bailing out the EU, or rebuilding Iraq.
Posted by: Tazteck at June 3, 2003 9:27 PM1. Tariffs intentionally increase prices. That is the point of a tariff.
2. There is a difference between you making a choice to pay more for something, and the government forcing you to pay more for something.
3. How do you know how much I pay for my cigars?
Posted by: Ravenwood at June 3, 2003 9:48 PMI agree with your assumptions on tariffs and consumer choice. However, your taxation model is flawed. Corporations don’t pay any taxes. They never had, and never will. Only wealth can be taxed. Individuals not corporations hold wealth. Customers, employees, and shareholders actually pay taxes. Just my 2 cents.
Posted by: Dax Montana at June 4, 2003 4:22 AMDax,
I know exactly what you mean. I realize that corporations merely collect taxes, rather than pay them. I've covered that here before. That just wasn't the cusp of my argument.
You are hitting me with semantics. I thought about wording that differently, but I figured that if I re-stated the fact that corporations don't really pay taxes, people would slam me on that, and miss the entire point about tariffs.
Posted by: Ravenwood at June 4, 2003 8:24 AMDoesn't anyone remember the economic collapse of the 1890's and the Great Depression? Great factor in these disasters were new tariffs and refusal to change for their market and competition. The near-death of the american steel industry in the 1970's? The difficulties faced by the big 3 automakers? These were all due to inability to adapt and provide customers with demanded improvement after protection from competition by foreign producers. Justification for tariffs might come from free trade. "The Japanese subsidize their auto, electronics, software businesses, etc, so we must punish them here" This doesn't work by the nature of the methodology by which subsidized foreign nations operate, The potential additive cost of a tariff is presumed, and would still leave them a price advantage. They can do this because of what they charge for the goods at home. Dumping, the other fear, is handled under totally different means, and is addressed in free trade legislation already.
Posted by: Garrett at June 5, 2003 1:35 AMSorry to doublepost, but I forgot to put in what I had to say about the Titanic. The greatest flaw wasn't the steel, but in the design. The water containment chambers, the compartments which were supposed to make her "unsinkable" were not fully enclosed, but left open at the top, allowing water to fill each subsequent one. Also, testing steel that has lain for approximately 91 years in cold salt water is not conclusive. Think of the corrosive effects that either would have. For instance, look at a car that has been driven for 5 winters in Michigan, for instance. Much of the car's body will have rusted. The affected steel will break.
Posted by: Garrett at June 5, 2003 1:42 AM(c) Ravenwood and Associates, 1990 - 2014
