2

If a country wanted to reduce taxes (say for some income bracket) but wanted to keep a balanced budget, would targeted tariffs not be a good way to do this? Would tariffs on goods that everyone (rich and poor) buys essentially be a regressive tax?

The obvious reason to not do this is retaliation, but if two governments coordinated their tariffs to be balanced, and on targeted goods, they could both blame each other for what is simply a "hidden" tax on their citizens. I say hidden here because most people do not understand tariffs in the same way the understand say a tax on gas prices. People seem to get angry when their government cuts taxes for the wealthy and taxes unavoidable resources like gasoline. With tariffs, politicians can say they are protecting domestic business or punishing bad actors and blame those countries.

This question may be very naive, so I am looking for reasons why countries may not do this. The most obvious to me is a negative influence on either or both countries GDP as a result of decreased beneficial trade. I imagine this could be intelligently mitigated if both countries coordinated the tariffs. There may also be some market manipulation benefits to such coordination.

I think this post belongs here rather than money/business, and I could not find similar questions.

  • 1
    This question rambles. Perhaps your question is better phrased as "Tariffs are a form of taxes. Have countries coordinated to have higher tariffs than they would otherwise, in order to avoid more unpopular taxes?" – H2ONaCl Dec 14 '18 at 23:02
  • Negotiations are usually behind closed doors so you are unlikely to find out. – H2ONaCl Dec 14 '18 at 23:08
  • @h2onacl I see your point but disagree. The actual question I posed at the start of the full post is fairly concise. Below that is my own thoughts towards an answer, which may provide context or jumpstart more discussion. Perhaps I could have made this more clear. – PandaBearSoup Dec 14 '18 at 23:09
  • @h2onacl A sufficient answer does not need to show precedent or prove a current events conspiracy, but would argue the advantages/disadvantages that could make such a political move likely or not. – PandaBearSoup Dec 14 '18 at 23:12
1

While voters may not understand how tariffs affect them very well, donors do. So you have a policy that does not help with voters (even if it doesn't hurt either) but does hurt with donors.

It's also questionable whether we can say that voters don't understand tariffs well enough to vote against them. For example, in 2018 in the United States, Republicans lost two of their three seats in Iowa. One of the issues was that retaliatory tariffs were making it harder for Iowan farmers to export food.

Politicians may find it easier to borrow than raise tariffs, as voters and donors both don't seem to prioritize lower borrowing.

Your Answer

By clicking "Post Your Answer", you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.