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Pittsburgh Tribune-Review: “Paper chase”

In my Pittsburgh Tribune-Review column of April 11th, 2007, I complained about the Bush administration’s imposition of punitive taxes on Americans who buy paper products from the Chinese. You can read my complaint below the fold.

Paper chase

The Bush administration recently raised Americans’ taxes.

If you missed this item in the news, it’s because this tax hike isn’t described forthrightly by government nor is it reported forthrightly by the media. The tax hike I’m talking about is the higher tariff on paper products imported from China.

“Tariff” is simply another word for “excise tax” — here, a levy imposed by government on each unit of some class of products bought domestically.

Descriptions of higher tariffs, though, almost always focus on foreigners — such as a headline in this very paper on March 31: “U.S. to slap trade tariff on China.” But a more accurate headline would have read “U.S. to slap higher taxes on Americans buying paper from China.”

The first, actual headline gives the impression of Uncle Sam imposing some burden on foreigners. And while a tariff does harm foreign sellers, its chief victims are domestic consumers. This fact is hidden by talk of tariffs as being something done to foreigners.

“No matter,” someone might respond. “America’s trade with China is out of balance and China is subsidizing its exports. America must retaliate to prevent these burdens on our economy.”

The wrongheadedness of the “out of balance” reason would be comical if so many people didn’t naively buy into it. First, trade is not as “out of balance” as trade-deficit reports suggest. When you account for the fact that the Chinese actually invest a lot in the U.S. — helping to keep interest rates here lower — we find more of a “balance” than there appears to be when looking only at the goods and services part of international commerce and ignoring the investment part.

Second, there is absolutely no reason to expect the Chinese to buy from us the same amount that we buy from them. Do you expect that your supermarket or automobile dealership will each buy from you the same amounts that you buy from each of them? Would you be better off if government were to slap higher taxes on groceries and automobiles? Would you do yourself any favors if you refused to trade with these merchants until each one started buying from you just as much as you buy from them?

Of course not.

What about the charge that Beijing is subsidizing its paper producers? Let’s ignore here the difficulties in identifying real-world cases of subsidies. (My March 9 column discussed this issue.) Even if Beijing is giving outright cash grants to Chinese paper producers, what about the many other aspects of Chinese society that make paper production there more costly than it would otherwise be?

Unlike America, China never has been an advanced industrial nation, so it is still playing catch-up with the West in developing the legal institutions best suited to capitalist society. Moreover, countless numbers of its brightest people were murdered by Mao’s totalitarian regime; many others escaped to Taiwan and America.

And its leaders, still flying the communist flag, retain much concentrated power. Such power looms as a threat to investors and entrepreneurs.

And what about China’s alleged failure to protect patents and other intellectual property? If true, this lack of respect for intellectual property is yet a further discouragement to investment in China. What innovative, pioneering firms will set up shop in China if the fruits of their research and enterprise will be stolen?

These facts are artificially created obstacles to Chinese industry and commerce; they continue to disadvantage Chinese producers who would compete in the U.S. Should Uncle Sam give special tax breaks to Chinese producers who sell here — tax breaks designed to offset these unnatural burdens still borne by producers in China? No. But by the same token, Uncle Sam should not raise the prices that Americans are asked to pay for Chinese products any higher than these prices already are.

Put differently, let’s assume that steps taken by a foreign government to artificially lower export prices justify our government offsetting these low prices with higher tariffs. It would follow that steps taken by a foreign government to artificially raise export prices — steps that the Chinese government took relentlessly for decades — justify our government offsetting these higher prices with tax-breaks given to Americans who buy these foreign goods.

Neither policy has merit. But those who applaud the imposition of punitive tariffs on American consumers of Chinese paper products must at least explain why they don’t count the higher costs caused by China’s still-immature capitalist economy against the allegedly lower costs made possible to paper producers by the government in Beijing. Economic — if not political — consistency requires such an explanation.