Re:Tech Giants Set to Face 3% Tax on Revenue Under New EU Plan
by scythe on Sunday March 18, 2018 @05:56AM
(#16611178)
Usually when you want to find a "loophole" or "mistake" in the predictions of conventional economic theories -- like the idea that free trade is good -- it makes sense to start looking at the sorts of things we already know that neoclassical economics has trouble with: asymmetric information, externalities, and human irrationality. Asymmetric information isn't generally a major issue when it comes to imports (and if it is, you use inspections, not taxes), and with a few exceptions (like the reputational status of Cuban cigars or French wine) human irrationality isn't either, but externalities can be a big one. When you look at, say, steel tariffs, there are relatively few positive externalities, and plenty of negative ones, associated with steel production, but for another industry like IT, the externalities may be positive, such as promoting technical know-how among citizens.
So in the specific case where having a local industry brings positive externalities, I think there may be a case for some limited forms of protectionism, but even these can be misapplied. In the specific case where countries want to promote "white-collar" industries, such tariffs should only apply to end-consumer products, never to products which are sold to businesses, because usually the farther along you are in the supply chain, the more "educated" your profession is, with a few exceptions. The most compelling positive example comes from China's development of its own Internet services like WeChat, Baidu etc, which stemmed directly from China's exclusion of Western competitors like Google, Facebook, and historically Visa/MasterCard, and which may have promoted the growth of an IT industry in China. For a negative example, Brazil's tariffs on video game consoles are devastating for Brazilian video game developers, because their potential market is eliminated. Even in this latter case targeting a consumer product hurts domestic businesses. Another case is when positive domestic externalities are replaced with negative foreign externalities, such as when considering carbon taxes on imports.
This is all just speculation, of course, except the part about border carbon adjustments, which has been the subject of serious analysis:
So in the specific case where having a local industry brings positive externalities, I think there may be a case for some limited forms of protectionism, but even these can be misapplied. In the specific case where countries want to promote "white-collar" industries, such tariffs should only apply to end-consumer products, never to products which are sold to businesses, because usually the farther along you are in the supply chain, the more "educated" your profession is, with a few exceptions. The most compelling positive example comes from China's development of its own Internet services like WeChat, Baidu etc, which stemmed directly from China's exclusion of Western competitors like Google, Facebook, and historically Visa/MasterCard, and which may have promoted the growth of an IT industry in China. For a negative example, Brazil's tariffs on video game consoles are devastating for Brazilian video game developers, because their potential market is eliminated. Even in this latter case targeting a consumer product hurts domestic businesses. Another case is when positive domestic externalities are replaced with negative foreign externalities, such as when considering carbon taxes on imports.
This is all just speculation, of course, except the part about border carbon adjustments, which has been the subject of serious analysis:
http://www.rff.org/files/document/file/RFF-DP-16-09.pdf