Munger on Tariff Myths

At Capitalism Magazine, economist Michael Munger addresses five myths about tariffs.

The first myth that he addresses is worth quoting here, both as a sample of what to expect, and because I myself have equated tariffs to sales taxes, and will take the correction:

A sales tax is (usually) an ad valorem levy imposed at the point of final sale, and added to the listed price of the item. So, a 5 percent sales tax on a $10 widget means the consumer pays $10.50. In the US, sales taxes are transparent, itemized separately on the receipt. A tariff is imposed when the widget enters the country; the cost is nowhere itemized, and consumers are unaware that a tariff is built into the price they pay. Further, tariffs are often imposed on inputs, not on final products. This raises the costs for manufacturers and producers, but is again not reflected in an itemized receipt as a proportion of the costs.

But tariffs do resemble sales taxes in one way: the tax is usually paid by the consumer and not the producer, depending on the responsiveness of sellers to changes in price. For example, even though the importing wholesaler writes the check to pay the tariff on steel at the port, the actual costs are ultimately almost fully passed on to consumers in the form of price increases in all the products made with that steel.

Knowing this distinction can help opponents of tariffs disarm the advantage that advocates will hope to gain by the familiarity of the sales tax -- while also remaining able to marshal other arguments against taxation for our cause.

The piece is not unflawed. For example, the discussion of Myth 3 ("wall of protection") invokes antitrust law (also leaving unchallenged the idea that coercive monopolies can exist in a free market). In my opinion, the piece could have been improved starting with deleting the clause that's why we have antitrust laws, and by noting that competition is inherent to capitalism.

Likewise, the section about tariffs as part of "American System" policy will likely remind Objectivists of the usual caveats about how economists argue policy questions: The piece mentions modern government spending levels, but fails to acknowledge their insane unsustainability or propriety.

That said, there is much worth reading here for fellow advocates of limited government who wish to improve their own understanding of, and arguments against, tariffs.

-- CAV