“The evidence is that when tariffs come down, tariff revenue tends to go up.”
– Peter Mandelson, EU trade commissioner, on why poor countries should liberalise trade
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Tariffs are a horrible way of raising revenue, however. The revenue that they raise (even at a low level) is vastly smaller than the wealth creation that they hinder, and to a much greater extent than from most other common forms of tax. Trade promots growth like nothing else, and it should not be hindered.
We certainly do not want bureaucrats and politicians in poor countries thinking that small but existent tariffs are a good idea because this maximises tariff income. (Higher trade leads to economic growth that raises more taxes through income and consumption due to more economic growth is a much better way for them to be thinking. Higher trade leads to economic growth which is good in itself is even better, but I am not sure when we will go there).
Tariffs should be zero. That obviously doesn’t maxmise tariff revenues, and arguing that a good reason to lower tariffs is to increase such revenues weakens the argument for zero tariffs.
Of course, if tariffs actually were zero that trade commissioner guy would be out of a job. 🙂
And what a fine thing it would be.
Micjael Jennings is quite correct – the argument that taxes on imports should be cut because this will “increase revenue” is totally daft (absurd).
Free trade will hardly “increase tariff revenue” and this “revenue” would only be used to fund things these governments should not be spending money anyway.
It reminds me of the great plan over the last few years to “forgive” debt as long as various “Third World” governments set up “free” education and health schemes.
Of course such schemes will grow like cancers (no pun intended in relation to the health schemes) and end up costing more money that the debt did.
Even countries that went in for some economic reform are now going down the welfare state road.
The most tragic example is India – economic reform (the attack on the “Permit Raj”) has produced a lot of economic growth in recent years, but schemes have been founded that will grow and grow – thus, in the end, undermining any REAL progress in reducing poverty (i.e. undermining the economic developement which is the real weapon against poverty).
“But the advanced countries are Wefare States, why should not the Third World follow their example?”
Because the advanced countries were not Welfare States when they became advanced – and, in the end, the endless growth of the Welfare State programs (what the Americans call the “entitlement programs”) will bankrupt the advanced contries – and recreate the very mass poverty that the misinformed think that the Welfare States were the cause of banishing.
Countries like India could have avoided our mistakes, and I repeat that it is tragic that it does not appear that they will do so.
People like the absurd “Mandy” are even trying to spread things like “free” government education in African countries.
If it was not such a terrible error (leading to unsustainable programs and, in the case of education, vast numbers of people with certificates demanding government jobs – as “educated” people can hardly be farmers or craftsmen) it would be worth a laugh.
It would be like trying to have free universal government education (and health care and so on) in Britain in the 1700’s or even the 1600’s.
Mandy just doesn’t get it, does he?! He can’t think that maybe letting poor people save by buying cheap imports, and so have more to spend on other things, and so increase production in general, that is how getting rid of tariffs will help the poor.
Of course, if tariffs actually were zero that trade commissioner guy would be out of a job.
I don’t think the EU project involves the trough getting smaller, or the pigs getting thinner or fewer in number.
Leave it to a government official to advocate more freedom so that it allows for more thorough slavery.
A trade tariff is a tax, pretty much like any other, and like all taxes, is characterised by the Laffer curve. Since most taxes tend to gravitate to an oversaturated situation (where they lie on the back end of the laffer curve and it becomes clear to all but the dumbest of politicians that more taxes produces less revenue) where evasion of the tax becomes commonplace it is not strange for a reduction of any tax to produce more revenue.
Mandy should, however look to the EU itself as the worst example of trade restrictions though. Trade tarrifs are not the only trade barrier. There are many trade barriers disguised as health and safety measures. The barrier to any meat containing foot and mouth disease antibodies is just such a barrier, and the UK’s Pyrrhic victory in defense of this “trade barrier”, rather than just vaccinating and losing the excuse to bar beef imports, is just another example of their futility.
What better way to aid developing countries than to open ones markets to the few things they can do economically, mainly in agriculture, and agriculture is where the most stringent trade barriers are in Europe (and America).
You stupid capitalists, don’t you realize that by making prices higher, we are helping poor people by making sure they don’t get to much money and become rich?
Funny how the ex-communist Mandelson finally discovers the Laffer curve just when it suits him, isn’t it?