We could call this system “tariffs”.
Something that doesn't make sense about political discussions around tariffs (at least in the U.S.) is that it seems like the overwhelming narrative is that "tariffs are bad for business, so we shouldn't have them if we can possibly avoid it". We don't talk that way about other taxes. If you said "we shouldn't have corporate income taxes because they're bad for business" the Republicans would mostly nod along, and the Democrats would say, "Wait, hold up there. Of course they're bad for business, but the point is to raise revenue to pay for other things. Governments need revenue from somewhere." But then when it comes to tariffs for some reason it's treated differently and Democrats are suddenly on board with lowering taxes, with the whole debate being in the context of whether protectionism versus free trade is better for local business (with both major parties mostly leaning towards free trade), and the aspect of revenue isn't even part of the discussion.
I'm not so deeply read on this, but I'd imagine this is why things like brexit and tariffs get sold but result in everyone being net worse off.
So land taxes, VAT, and income taxes are good; capital gains taxes are middling; sales taxes and luxury taxes and tariffs are bad. Tariffs are among the worst in this hierarchy because their incidence is - to an economist - arbitrary. In classical economics, specialization is good, and industries should go to whichever country is most efficient at providing them. Any sort of national tariff interferes with that: to the extent that the tariff succeeds at collecting revenue, it does it by making consumers choose an inferior product (in the sense that without the tariff, they would've chosen differently).
I'd expect the political rebuttal to that is "But national security - we want to make sure all our homegrown industries are competitive and we can make complete supply chains within our borders." I suspect there's an element of Lake Wobegone self-deception in there though: people think that they're better at everything than they really are. When nations cut themself off from the global economy, they often think that they've made themselves self-sufficient right up until a foreign power that's been trading the whole time shows up in your capital city with a fleet of gunboats to forcibly open your country to world markets.
Listening to the classical economists in this case is a lot like listening to a paperclip optimizer complain about all the non-paperclip production that wastefully divert resources away from more paperclips. They have a point, but only from a perspective that leaves a lot of important stuff out.
> When nations cut themself off from the global economy, they often think that they've made themselves self-sufficient right up until a foreign power that's been trading the whole time shows up in your capital city with a fleet of gunboats to forcibly open your country to world markets.
That's a straw-man, though. I don't think anyone in favor of tariffs or protectionism is advocating for a pre-Meiji like economic isolationism.
Also military vulnerability is not the sole territory of protectionism:
When nations make themselves over-dependent on the global economy, they often think that they've made themselves competitive right up until a foreign power they've outsourced their gunboat production to cuts them off from their just-in-time supply of spare parts and shows up to their capital city with a fleet of gunboats to forcibly subject them to a new political or ideological regime.
Whichever it is, the point is that tariffs are the worst way to coerce change in an economy. There's no guarantee they will have anything like the effect intended, because the point in the economy where they're levied (importing X) is completely different from the point in the economy we're trying to change (locally making X). Even if they do, the costs of the change can be incredibly high. If you want to promote local production, just subsidise local production. It's generally a bad idea, but the least worst by a long mile.
Another important point is that outsourcing as-actually-implemented isn't usually seeking "efficient production," just labor arbitrage.
> If you want to promote local production, just subsidise local production. It's generally a bad idea, but the least worst by a long mile.
I'm also fine with subsidies, but often that seems more difficult to sustain politically. It seems like tariffs and subsidies go hand in hand rather than be an either/or policy (e.g. use tariffs to fund the subsidies).
Pretty much any arbitrage is an economic inefficiency being exploited, whether it's financial (information inefficiences), shipping/merchants (geographic & local preference inefficiencies), storage (time preference inefficiencies), outsourcing (labor), etc. And in the course of exploiting it, it makes the inefficiency go away.
I think the key points are 1) that's not the kind of thing the word "efficiency" typically brings to mind, and 2) there are quite valid political reasons to want to discourage that kind of "efficiency."
Japan still did a lot better for itself than most other places that western gunboats showed up in the high colonial age. Is this not because it had a healthy political economy, and could meet foreign demands while still continuing "national" development?
The Union won the Civil War despite almost alienating Great Britain and coming within a hair of war with the Brits multiple times. The Confederates were the free trade power supported by Europe throughout the entire war. As Ulysses Grant said during the final days before the Confederate surrender, "The British mark was on every battlefield of the war." Didn't work out for the free-trading Rebs the way that they hoped, but them's the breaks.
It's not actually the 'own' that people think it is. Free trade is not a cheat code for permanent global domination. It's effective but it has limitations and weaknesses. The type of arrogance that leads to the belief that it grants an aura of invincibility is just hubris.
The nations that use autarkic measures are not just stupid morons who are and were doomed to lose ahead of time: that's just believing our own Atlanticist war propaganda too much. Make no mistake, the modern sea powers have come very close to defeat and humiliation many times over the last couple centuries, and one of them was effectively annihilated (the British) in part due to the tidal wave of Asian nationalism.
Among other economic effects, VATs do not incentivize vertical integration. With a traditional sales tax, corporations can avoid paying the tax by bringing all the suppliers in-house so that there's no transaction to tax. With a VAT, it's all the same: either you pay the tax or you pay the supplier and the supplier pays the tax.
This is precisely to prevent your easily spotted mistake of promoting vertically integrated companies.
Ehhh, I guess it is neutral if your expenses are the same as your revenue. That is no profit.
VAT is calculcated on 'the value you add'. What you owe is that amount minus the VAT paid on your expenses.
In your Apple example, the consumer pays the $1000 plus the 5% VAT to Apple, and Apple sends the 5% VAT to the IRS. If Apple bought components for that phone that included VAT, the supplier providing the components sends that VAT to the IRS, and Apple can claim that VAT from the IRS.
Apple pays 5% on the value it added, not on its profits on the phone.
If they buy $500 in components from upstream suppliers and sell the phone for $1000, they’ve added $500 of value (on which they’ll remit VAT), but not achieved $500 of profits on that phone. (They have labor and other overhead.)
I don't know if it is true but I make this prediction: High transaction taxes correlate with or even cause expensive government projects, excessive public sector employment and excessive welfare.
Edit: Greece was the first country that popped into my mind. I didn't know anything about the tax situation in Greece and simply googled "greece has excessively high income taxes" only to find this article: https://www.intereconomics.eu/contents/year/2011/number/2/ar...
Summary: Greece indeed has an impressively high progressive income tax. Young people aspiring to salaried jobs want to work in the public sector to decrease distance to the government. Half the households are self employed to avoid high income taxes and social contributions because of their high distance away from the government.
The problem with that argument is that in a modern globalized world, what you're often doing is buying products at a lower cost because the negative externalities aren't reflected in the price. Products are often cheaper in countries with few environmental regulations and exploitative labor practices. Free trade can be a race to the bottom.
The general argument that tariffs between countries that are roughly equal in terms of wages, regulations, human rights, and so on causes more economic harm than the revenue it generates seems plausible though.
maybe we can tax long chain logistic to hell and back instead.
Also tariffs cost a fortune to the economy and generally depress consumption a lot more than they boost employment. One reason is investors are very wary of capitalising local production baed on tariffs that could disappear at any time. It's a very precarious basis on which to build a business. The increased costs to customers per job can be hundreds of thousands of dollars.
I'm absolutely no fan of subsidies, they're a terrible distortion of incentives, but they're many, many times less godawfully wasteful than tariffs. It's also much easier to see where the money goes and measure success (or, more likely, failure).
How long until your favorite restaurant gets rid of servers? You will order through a screen at your table, then they will conveyer belt your food to you.
Automation isn’t going to happen like that, although I am unsure what the obstacle is for something as basic as fast food.
All the tech is there. Automatic burger machines have been here since the 70s. Ordering can be done through a phone app. Where is the bottleneck?
Now if selling hamburgers can not be automated I would like to know how something more complex like political strategism or software engineering or market analysis is supposed to be automated.
I’m not familiar with the US, but here in the UK we’ve had fairly low unemployment for a while, in particular long term unemployment was under 400k, most unemployed were between jobs. We also had a lot of unfilled positions. The skills gap was and still is a pressing problem.
Somebody will bring up strong AI. I’ve been hearing about that being imminent my entire life, no joke, and I’m 55 in a few weeks.
Not so clear how to foster redundancy coming back in at that level.
Sell high buy low. I just don't know what to sell at the moment.
> It might do well in these crises, but if it can't survive the times where everything works well, then it doesn't help.
See also: all the new US N95 respirator manufacturers that popped up during the pandemic. Now they're laying off most of their staff and most will likely go bankrupt, because their customers went back to buying cheaper Chinese masks as soon as they could.
In the last week, I've read several more doomsday articles like this one warning us it's going to get worse before it gets better, and both Apple and Toyota have been mentioned as now having to delay releases or scale back sales targets.