A small treatise on Import Taxes

Day 843, 08:48 • Published in Australia Australia • by infin

To those advocates of protecting our domestic economy by increasing import taxes, I ask:

If import taxes are so necessary to protect our economy, what did countries do prior to the creation of import taxes?

If another businessperson can make the same product I make for a cheaper price, then I need to in the words of Jack Welch, legendary ex-CEO of General Electric, "fix, close or sell" my business. The only thing protectionism "protects" is inefficienct business.

But if the inefficient business cannot compete it will close down. I will lose my job!

This is a good thing, because it is better for a worker to be working in a company that is naturally more efficienct. If a worker in company A makes 10 items and makes 15 items in Company B for the same wage then at some point in the future Company A will go broke. Company A will not be able to compete for good workers and they will not be making profits. It is better that the capital and labour invested into Company A goes instead to a new company which is better managed.

Version 2 will cater for this with the close company option which enables to GMs to undo their poor business decisions at the cost of 50% of their original investment.

But no one loses when the government protect industry with import taxes!

There is a loser: the consumer. Import taxes deny the consumer the right to buy the cheapest product available. Why should the consumer be forced to pay more for a product than the best businessperson can make it for?

Low import taxes are actually good for our economy.

If a foreign businessperson sells their goods in our country they will be paid in our local currency. They then need to use our local currency to buy some local goods or sell the currency to someone else. In either way, the local currency that we have used to buy the foreign goods must ultimately be used to buy a local product at some point in the future.

(In eRep, local currency can also be converted to gold, so if the local economy is inflated through the protection of local industries then it will take more of those dollars to buy a unit of gold because the market will realise that those dollars are not working as hard as the dollars in a free economy do.)

Low import taxes are good for the government.

The government benefits in two ways from lower import taxes:

1. Cheaper prices for government procurement - more weapons for the taxpayer dollar; and

2. More tax revenue from private sales - income tax is only paid on profits drawn from companies (where it has not been moved by the money market), but import taxes is paid on every single item sold by the foreign company.

Low import taxes are good for local busines.

"What a silly suggestion!" I hear you say. "These low import taxes are sending some businesses broke." True, but the businesses that survive are efficient and globally competitive, therefore their market is now not just constrained to local consumers - they can now export to the rest of the world, an exponentially larger market.

Government simply needs to do its bit and make sure currency remains at a compeititve and liquid price. Business will do the rest.