Import Tax 2: A New Proposal

Day 771, 20:03 • Published in United Kingdom Canada • by Tim Young

In my previous article on import tax, the recommendation was to close off all markets to protect home industries due reasons of the transfer of wealth and population flows.

Import Tax: Why Free Trade Does not Work in eRep
http://www.erepublik.com/en/article/import-tax-why-free-trade-does-not-work-in-erep-1085250/1/20

For raw sectors where the nation does not own a high region, for example iron, the common idea is to lower import tax to a minimum in order to encourage more companies to import raw materials and so should make it cheaper for the manufacturing sector to purchase those raw materials on the home market.

However, it would appear that the best option is to close off all the markets and raise import tax to 99% including raw sectors where the nation does not own a high region.

In looking at import tax, as previously stated, the most import factor is to consider how import tax affect the wealth of the nation.

When a nation does not own a high region in a particular sector, inevitably wealth would have to be transferred out of the economy in order to purchase those raw materials. And hence why high regions are so valuable as they are great at bring wealth to a country through exporting.

The question is how to acquire raw materials at the cheapest possible price in order minimise this transfer of wealth?

The common idea is to lower import tax to a minimum in order to encourage more imports thus lowering the price. However, the problem with that is that the price from imports on the home markets will never be lower than the prices of raw sold in the actual high regions.

For example, currently the cheapest iron on eUK market is 0.0087 where as the cheapest price globally is 0.0081 and the cheapest iron in the most expensive high region is 0.0083.

Whatever schemes that can be set up by the government to encourage companies to import to the home market, the price on the home market can never be below that in the actual high regions.

If prices on the home market did not give a premium than in the market where those high region companies are based, it gives those companies no incentive to buy a licence to export.

Therefore, any companies that purchase their raw materials from the home market is always going to pay a premium than can be purchased via a org from high regions. There is a greater transfer of wealth abroad due to those companies paying a higher price by buying on the home markets and they would be running inefficiently compared to those companies that buys their rm via orgs.

Due to this reason, in order to force companies to be efficient and transfer less wealth out of the economy, all raw sectors should be closed off so companies would have to buy via orgs directly from high regions and companies would not therefore be paying a premium by buying rm on the home market.

Implementation

In implementation of this idea, the main problem would be that there might be some companies that do not have orgs to buy raw materials from abroad. The government can inform them beforehand and give them a time limit to buy an org before import tax are raised, or can offer a loan for those companies to purchase an org to pay back after some time. At the same time, the government should give out advice on how to purchase raw materials as cheap as possible via orgs and to give general information on how to run a company to those company owners that needs it.

This policy could be rolled out on a sector by sector bases with the oil market first as it is the smallest to the iron market last as it is the biggest sector.

For any company owners that would like advice and information on how to run a company efficiently, do PM me for details.