Thursday, March 13, 2008

Cue Card Libertarianism: Tariffs

TARIFFS are taxes on imports. Simple as that -- which means a tax on both consumers and producers. In application they are a protection racket whereby local inefficient industries are feather-bedded, the consumer is fleeced, the producers of this country and developing nations are penalised, and government's coffers are topped up. Robbery by tariff used to be called by a more honest name, highway robbery, and was extracted by thieves from passersby -- nowadays the robbery is institutionalised and is carried out in the customs house -- the result is the same: a penalty to everybody seeking to live by trade, which is all of us.

In New Zealand, robbery by tariff has traditionally been enforced by vote-grubbing politicians (are there any other kind?) on behalf of flabby businesses, monopolistic unions and noisy lobbyists. Though tariffs have been steadily reduced as part of the now-retarded economic reform process -- to the enormous benefit of the Joe and Josephine Consumer who are now able to fill their lounge, kitchen and bedrooms with inexpensive, modern goods -- and even the Clark Government has continued to reduce them, many still remain, and strong rearguard actions continue to be mounted to retain them, especially in the areas of clothing, footwear and carpets.

Tariffs vastly inflate the prices of all goods on the local market, in the hope that consumers will buy the local (uncompetitive) product instead of the imported (competitive) article, and 'therefore' keep people in jobs. This is palpable nonsense. As Frederic Bastiat points out to a putative protectionist on behalf of consumers everywhere (and I paraphrase slightly to make the point more local):

Since a great number of your fellow legislators each picks my pocket for a dollar or two -- one under the pretext of protecting shoe manufacturers; another one farmers; this one clothing; that one garden furniture -- I find when everything is taken into account that of the large part of my wage packet left after your initial plunder (income tax) and your secondary plunder (GST) and then again your tertiary plunder (various duties on fuel, tobacco and alcohol and the like) that I have been able to save less than half of my packet from being plundered before you attempt to pick my pocket yet again. You will doubtless tell me that the few dollars which pass in this latest way, without compensation, from my pocket to yours provide a livelihood for the constituents around you and enables your chosen manufacturers to live in great style. May I point out to you in reply that if you left the money in my hands it would have provided a livelihood for the people around me.

Legislators and protectionists are adept at ignoring the unseen consequences of their plunder. In the case of tariffs they ignore the stimulus to both saving and spending that tariff removal and consequent reduced prices brings about; they ignore the genuine employment-generating effects thereof -- employment in genuinely profitable businesses rather than those that are feather-bedded; they ignore the beneficial effect to every New Zealand consumer of the availability of inexpensive imports - which is after all what we send exports overseas for; they ignore the beneficial effect to every New Zealand producer of cheaper inputs into his own production -- and it is ironically local producers who tariffs are supposed to support; and they ignore the fact that tariffs, like all taxes, are a violation of rights, an unwarranted intrusion by the state into free, voluntary transactions among consenting adults: if I export a product to you in another country at a price mutually agreed to, what right does government in either country have forcibly to alter that price?

Perhaps one of the greatest ironies is that the United States of America, founded with the foreign policy articulated by Thomas Jefferson as "Peace, commerce, and honest friendship with all nations – entangling alliances with none," is now among the most protectionist on the planet, and regular "trade wars" with the likes of the European Union are threatened and undertaken by means of tariffs slapped on one or other import from one of other "enemy." Producers and consumers everywhere suffer by the artificial hurdles placed in the way of peace, commerce and honest friendship. While China is turning itself into the factory of the world, for example, and many people of developing nations are seeking to emulate their example and drag themselves out of poverty the same way, the customs houses of the rest of world are clipping everyone's ticket, and robbing both consumers and producers of the full extent of this boon.

(It will be noted to that what passes for "free trade deals" these days, such as the North America's NAFTA deal agreed to under Bill Clinton's administration and New Zealand's recent free trade deal with China, all have something in common that genuine free trade deals don't. Genuine free trade involves a willing buyer, a willing seller and sometimes a bit of paper registering the nature of our agreement. "Free trade agreements" these days however require extensive negotiation and renegotiation between trade ministers and protectionists, trade ministers and trade ministers, and volumes and volumes of literature determining the levels of tariff, duties and subsidies agreed to be extracted by the government's of the trading partners. This is "free trade" only to the extent that these various forms of plunder begin to approach zero. )

New Zealand's recent revolving door of Commerce Ministers have, it is true, been progressively reducing New Zealand's tariffs, but despite promises from Minister Dalziel five years ago and continued pressure from the Importers Institute, many still remain.

In the 1994 Bogor "Declaration of Common Resolve," APEC governments agreed to achieve the goal of completely free and open trade and investment in the Pacific region no later than 2010 for the industrialised economies. No such luck. As a perusal of all ninety-nine chapters of Her Majesty’s New Zealand Customs ''Working Tariff Document of New Zealand' indicates, in 2008 many tariffs remain, none with any rational justification, all of them making a nonsense of the spirit if not the letter of many so called “free trade deals” struck over recent years (and 'Buy NZ' campaigners are beginning to clear their throats and practice their protectionist choruses). Importing garden umbrellas and the like for example will see customs plundering 7.5% of the value they care to place on the goods; kerosene and white spirits 7%; adults' shoes will be plundered 17.5%, as will imported vehicles; and "Articles of apparel and clothing accessories, not knitted or crocheted" will also see importers' pocket attacked for 17% of the deemed value, shrinking to 10% in 2009 -- with consumers being the ones who end up picking up the tab. Golf carts, petrol and works of art imported into New Zealand however are now tariff-free. For the moment.

This is part of a continuing series explaining the concepts and terms used by New Zealand's libertarians, originally published in The Free Radical in 1993. The 'Introduction' to the series is here. The series so far can be seen here, here, and down on the right-hand sidebar.

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