Import Tax: Why Free Trade does not work in eRep
ComputerSpeaker
coppied this article http://www.erepublik.com/en/article/import-tax-why-free-trade-does-not-work-in-erep-1085250/1/20
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Unlike real life, free trade does not work in eRep.
Let me first run through how import tax and free trade works in eRep and then show the difference as to why this rl ideal is not applicable to eRep economy.
Countries that have low import tax made a mistake of assuming high prices of products in their country is damaging to their economy as consumers faces higher prices of goods without competition from abroad.
The most important thing though is not to judge the absolute level of prices and make assumptions as to what is consider too high or too low a price. The most important thing here is to figure out how import tax affects the general wealth of the economy.
The difference in eRep economy and real life economy is that in eRep:
1. All industries are in a perfectly competitive model. Company owners do not have market power due to no barriers to entry. Consquently most company owners make slim profit margins because if there were any excessive profits new companies would come into the market.
2. All industries are the same in every country. Unlike real life, where there are some products.. say Manga films can only be made in Japan, in eRep all manufacturing industries can be supplied by the home market.
So what is the difference in terms of import tax to the wealth of a country?
Because of reason one, company owners never make more than the total wage bill of the workers. In fact, most company owners should make very slim profit.. the amount should be equivalent to how much the general player find worth the time and effort to run a company.
So,
Company owner profit < Wages of workers
To see how wealth is affected by import tax - follow the money.
With import tax set at 99%, goods sold translate to mainly higher wages of workers and some to home company owners.
Without import tax, prices translate to mainly higher wages for foreign workers and some to foreign company owners.
Without import tax, wealth is transferred out of the economy to foreign companies . As workers are the main beneficiary of goods sold, even if the foreign company owers are home based citizens, wealth is transferred from home citizens to foreign citizens.
With import tax set at 99%, majority of wealth stays in the economy in terms of higher wages by home citizens/workers and if most of the owners are foreign based, it is still beneficial to close off the market since company owners profit < total wage bill of workers.
The key here is to realise that the consumers are also the workers. Any 'high' prices will translate back to the consumers in terms of higher wages and company owners margins should stay the same.
A good example here is to look at UK's economy where the markets are closed off and UK produces some of the cheapest goods in the world. Even without cheap imports coming into the market, UK companies are extremely competitive since there are no barriers to entry.
There should be no reason why foreign company owners can run a company more efficiently than a company run in home country. Since all industries are the same in eRep and across countries there are absolutely no benefit to free trade.
In rl free trade works because some companies can be more efficiently run in other countries or goods that are exclusively produced by foreign companies can be enjoyed by home consumers.
Case for Low Import Tax
The only reason to have low import tax is if the country is so small certain goods are not produce as the economy cannot support the industry. In this case, it is more preferable for government to either run state own companies to supply the market or to run schemes to purchase these goods to sell for their citizen rather than lower import taxes.
Import Tax on Population
Another reason as to why import tax should be raised to 99% on all manufacturing goods is because of how it affects population.. one of the key to the health of a nation.
Without import tax, prices of goods are depressed and put downward pressure on wages. Wages is one of the main factor that will affect population flows within eRep. When import tax are lowered wealth is transferred out of the economy and it will translate to higher wages for foreign workers and lower wages for home workers. This will damage the home country in terms of greater outflow of workers due to lower wages at home and higher wages abroad.
For the reason of population flow and transferred of wealth, import tax on industries on manufacturing and land companies that the country have a high region in should all be set at 99%
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my addition:
import tax needs to be high now for usa because of the loss of production bonuses. we produce less per worker than forgein countries so they can sell products cheaper than we can so we need to raise import tax!
Comments
First? I'm skeptical that wages are an important consideration to anyone but noobs: the income from farming SS rewards alone is many times the typical wage.
Also, I don't think your argument for higher import taxes considers that there are no barriers to cross-border shopping. When weapons and food are cheaper in another countries, sophisticated players move and buy enough to make the move worthwhile; the taxes on those sales go to the host country, not the citizen's home country. Countries with high import taxes, then, are just taxing noobs, and that income is offset to an unknown degree by the total loss of tax income from sophisticated players.
hm, well if they can sell in the usa there is only the usa import tax and vat on the item. a usa player moving to a country with cheap items them pays the vat tax of that country plus the vat tax of usa. so i guess your right the import tax would not work to have it above the vat tax of the foregin country. so i guess import tax should be raised to about 7% which is about average vat of the other countries.
yes you are right this is only good for noobs. why do i care about them. they seem to be a vital role in the economy. you might not want to hear that 100 noobs are more important than one good player no matter how good that player is. and if we do not give benefits to the new players they will leave and then we will be in trouble. noobs. work. get ss medals and hard worker medals aka they create gold. they sell the gold for cc to buy weps. so they give us better players gold and raise the prices of weps and food so we can expand our businesses. without their income we could not get a profit.
so we really need more noobs. and less self sufficient people. we need people to operate at a loss so that we who opperate at a gain will not drive the prices too low.
though i guess the monetary market has no tax on it and all the countries pool into on monetary market. so any loss of cc out of the usa can be brough in through the monetary market.
so i guess your right it really doesn't matter.
i would though like to think. raw production buildings needs cc to be built. we need more cc in circulation in the usa so usa can build more products to sustain wars longer. therefore we need a driver to get cc into the country.
low import taxes brings goods into the country which brings cc out of the country. maybe only a .05% change but it will slowly add up. cc leaving will result in less raw production buildings being built
Please think again Mr journalist. You contradict yourself every other sentences.
Please think again Mr. Commentator. You give no proof of your accusations.