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> 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).

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.

The point is if you ramp up costs and inefficiencies in your economy you're making yourself uncompetitive globally and that can have lots of undesirable consequences, including strategic ones. There is of course a balance to be struck. Are we taking advantage of efficient production abroad to cut prices for consumers, or are we becoming excessively dependent on foreigners?

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.

> Are we taking advantage of efficient production abroad to cut prices for consumers, or are we becoming excessively dependent on foreigners?

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).

Labor arbitrage is efficient production. If you can outsource a job for less than it costs domestically, it means labor is underutilized in the foreign country and can be employed for higher-value uses.

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.

> Labor arbitrage is efficient production. If you can outsource a job for less than it costs domestically, it means labor is underutilized in the foreign country and can be employed for higher-value uses.

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."

In a lot of cases a better alternative to subsidies is just to have the government be a buyer for locally-made products. That way you're not just handing people money, the government is actually getting something. That seems like it should be more politically viable. That's assuming the government has some use for the things being subsidized.

> 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.

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?

Yeah Germany came very close twice to winning both world wars. The Soviets won the lion's share of the territorial spoils of WW2 despite emphatically not being a free trade power.

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.

What is the difference between sales tax and VAT?

VAT applies at a flat rate at all levels within the supply chain, sales tax is only collected from the consumer with the final sale. Under a 5% sales tax, the consumer pays $50 on a $1000 iPhone when they buy it at retail. Under a 5% VAT, Apple pays 5% of its profits (not revenue), then whoever makes the lithium-ion batteries pays 5% of its profits, then whoever mines the lithium pays 5% of its profits, and on down the value chain.

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.

That is not correct. VAT is added in the supply chain as a flat rate on price, then you keep an account of in-going and out-going. Then the state makes up the difference in the end of the fiscal year depending on if your customers were other businesses or consumers.

This is precisely to prevent your easily spotted mistake of promoting vertically integrated companies.

VAT doesn’t accumulate like that. If my business pays VAT on some goods it gets to claim that back at the end of the quarter. For most business it’s neutral (apart from the paperwork).

> For most business it’s neutral (apart from the paperwork).

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.

It's neutral up the chain, so if my supplier charges 20% vat then I charge 20% vat it doesn't result in the consumer paying 44% vat.

Companies don't pay VAT, it is a consumer-only tax. In countries having VAT, companies always treat VAT as an item-in-transit in their books.

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.

> Under a 5% VAT, Apple pays 5% of its profits (not revenue)

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.)

There is no difference in outcome. VAT is paid on every stage on inputs by companies BUT they claim it back and if the input comes from a different country they don't pay VAT in the first place. The only one not being able to claim it back is the consume, like a sales tax. It makes detecting fraud easier since you can see a companies input vs output vs profit.

Transaction based taxes (VAT, income taxes, sales taxes) decrease the distance money can travel away from the government.

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 high taxrates in Greece are a necessity because nobody pays tax anyway.

So, the rich are rich enough to avoid paying taxes, and the poor get fucked even more

> 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).

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.