Friday, August 19, 2005

Tariff Quibble

Tyler notes the following facts without comment:
Total tsunami foreign aid from the U.S.: $908 million

U.S. tariff revenue from Sri Lanka, Thailand, India, and Indonesia: $1.87 billion

That is from Foreign Policy, September/October issue.
The implication, I suppose, is that we took more away in taxes than we gave in disaster assistance to Southeast Asia. But there’s a problem with this comparison. Basic tax incidence analysis shows that the tax burden is not borne entirely by the producers, nor entirely by the consumers. Instead, the burden is distributed according to relative elasticity of demand and supply – or put simply, whoever has the best outside options can most easily escape the tax. So we can’t assume the entire tariff burden is carried by Southeast Asian producers, because some of it is carried by American consumers.

There might be good reasons to think Southeast Asian producers are less elastic than Americans consumers. If American goods are a reasonable substitute for the imported goods in question, then we should expect the Southeast Asian producers to take the brunt of the tariff burden. But if Americans are importing goods that have acceptable domestic substitutes, it must be because of lower prices (or better quality, which is another way of saying they’re not so substitutable after all). Again, it follows that Americans bear some of the $1.87 billion tariff burden. How much? I really have no idea, but zero is surely an underestimate.

None of the above should be taken as an argument against lowering tariffs, which I’d very much like to see happen. My point is that economic statistics like these don’t “speak for themselves.”

1 comment:

Gil said...

I thought that was a strange entry too. The numbers themselves aren't comparable because the costs aren't all borne by the same people.

But, if the implication is that ending tarrifs is something we could choose to do that would do a lot to help these countries be better off; both better able to recover from this disaster and better able to handle others, then that is a very good point.