Continuing on the fascinating debate on the most basic of trade policy instruments, tariffs, two interesting opposing views in the Atlantic and the other in the PIIE website in the context of imposing across the board tariffs in the United States raises the issue of trade and tariffs back to centre stage, atleast during some elections.
Let us try to demystify the debate:
One view is that tariffs are a legitimate policy instrument to boost local manufacturing, create local jobs, boost the economy, encourage research and innovation and leads to overall growth of the economy. It has its costs in terms of increased costs to the consumer, however the benefits in terms of creating employment, boosting local communities far outweighs the costs. In addition, the revenues that accrue to the exchequer are useful for providing basic needs to society if not returning it to the impacted consumers.
The contrarian view is that tariffs are not a good economic idea, they lead to increase costs, makes imports costlier and impacts customers. Manufacturers who use imported components are impacted and it leads to inflationary trends. It also leads to companies seeking exemptions from import tariffs and these are normally given not on sound economic principles but on other considerations. Further, it could lead to retaliation from trading partners. There are other policy tools like WTO consistent subsidies to support local industry.
The WTO, in a sense, recognizes that tariffs are a reality and makes WTO members commit to certain levels of tariff liberalisation. It binds members to bound tariffs and the WTO members can apply tariifs within this limit without inviting international scrutiny. The WTO website has this to say:
"The bulkiest results of Uruguay Round are the 22,500 pages listing individual countries’ commitments on specific categories of goods and services. These include commitments to cut and “bind” their customs duty rates on imports of goods. In some cases, tariffs are being cut to zero. There is also a significant increase in the number of “bound” tariffs — duty rates that are committed in the WTO and are difficult to raise."
The debate on tariffs and what is the bets path forward brings us to the debate on globalization and the WTO itself. Jason Furman, speak at the WTO Public Forum this year has this to say on the future:
I'll very briefly lay out a few ideas for what can be done next on globalization.
The first is, ideas really do matter. You could not have the backlash we have without a huge amount of confusion and trying to dispel and explain. England would never have gotten rid of the Corn Laws without some interests in getting rid of the Corn Laws, but also the set of ideas that Smith and Ricardo and others advanced. So, ideas really do matter—although I should confess that I may be a little biased given all the time I spend teaching those ideas.
The second is, there's a lot that countries other than the United States and China can do to expand trade among themselves, negotiate better deals with the United States and China as well.
Third, the world does need the United States and China. I have talked more about some of the self- inflicted the problems we have in the United States, but China is very, very far from being an innocent actor in trade restrictions and distortions.
Fourth, national security and resilience are legitimate issues for trade, but they're legitimate issues if we approach them in a much more rational way, where we talk about weighing off trade-offs of costs and benefits, rather than just pretending it's benefits, and benefits being much more limited about the countries they apply to and the sectors they apply to, and being much clearer about where those limits are.
Finally, the WTO plays an incredibly important role. I would be thrilled with yet another global trade round that was unanimously agreed to by every country in the world. But it has been a while and no one is putting all their eggs, or really even many eggs, in that basket. Fostering as much plurilateralism as possible and as many agreements that create an incentive for other follower countries to want to join them should be the emphasis.
Not sure about another trade round. But the debate on globalization, hyperglobaloization, tariffs and trade are back at the centre of political debate yet again.
