Warren Platts

  • As long as mercantilist countries like China and Germany artificially force up their savings rate, tariffs and currency devaluation will never close the trade deficit. We must address capital flows as well. At the very least we should stop encourages capital inflows with tax breaks for foreign investors. As things currently are, non-resident aliens do not have to pay capital gains taxes on their U.S. investments.

  • Excellent article! It just shows that 99% of economists are not true scientists. For them, their theory of comparative advantage is too beautiful to be false. They are not interested in empirical evidence; optimal tariffs are mere “theoretical curiosities”. They already know the Gospel according to Smith—who ironically was the Scottish Commissioner for Managing and Causing to be Levied and Collected His Majesty’s Customs, and Subsidies and other Duties in that part of Great Britain called Scotland, and also the Duties of Excise upon all Salt and Rock Salt Imported or to be Imported into that part of Great Britain called Scotland. But never mind that Commissioner Smith actually provided at least a half dozen justifications for tariffs.

    However, to get a handle on the trade deficit, tariffs are not going to be enough. Mercantilist countries like China and Germany are using government policy to force down wages, and hence force up savings. The excess savings have to go somewhere. We LET it come here. In fact, USA actively ENCOURAGES foreign investment that we do not need: non-resident alien investors in U.S. equities do not have to pay U.S. capital gains taxes. That is one low-hanging fruit of a loophole that could be easily closed.

  • Capital inflows are another type of import—and one we need even less than cheap manufactures from China. If we tariff goods, there should be a tariff on capital inflows as well imo.

  • I’m not sure I understand where the $1.4B loss to GDP is coming from. The steel makers are among the most productive workers in the USA, with output per worker on the order of $400-500K per worker per year. Just looking at the jobs list, there should be a multiple billion dollar increase in output (assuming steel/al workers put out $400K and conservatively that all other workers are putting out $200K on average, then that’s a $3.6B increase. Is it that exports go down?

    Also, it appears you guys are neglecting the terms-of-trade gain. If the steel tariff is 25% and prices go up by only 6.29%, that entails that foreign suppliers will have to lower their prices by like 15%. In other words, about 70% of the tariff tax incidence will fall on foreign producers. Thus if tax revenue is $5.97B, then the terms-of-trade gain should be about $4.18B; this should vastly outweigh any deadweight losses, that would be on the order of 2% or 3%. Thus, even accepting your GDP loss of $1.4B at face value, the terms of trade gain less deadweight losses is going to be on the order of $4.1B, entailing a net welfare gain of 4.1 – 1.4 = $2.7B