The Corner

World

Smart Countries Are Reducing Tariffs

A Swiss flag in front of the Swiss National Bank in Bern, Switzerland, May 2, 2019 (Denis Balibouse/Reuters)

Switzerland is the world’s second-most-prosperous country in gross terms, with a GDP/capita of $82,950 in 2018 — about 30 percent higher than U.S. per-capita output. Only tiny Luxembourg exceeds it, as the IMF runs the numbers.

Switzerland has a very capitalistic, free-trade economy — only Hong Kong, Singapore, and New Zealand outrank it on the Heritage Foundation’s Economic-Freedom Index. But Switzerland does maintain some modest tariffs on imports. (Switzerland has relatively low taxes, but there are lots of them, including a very small wealth tax, the Swiss being one of the few nations that have figured out how to effectively administer one.) And it is getting rid of a lot of those tariffs, because they are a burdensome tax on Swiss people, who already pay very high prices in general. From Bloomberg:

Switzerland is pressing ahead with plans to eliminate import tariffs on industrial goods, a bid to combat the country’s high prices.

The government will submit a draft law to parliament after getting positive feedback on its proposal, which it initially presented a year ago. Goods like cars, bicycles, shoes and textiles would be affected.

The move will allow companies to benefit from lower input costs and therefore enhance profitability, the government said Wednesday.

Focus on those “lower input costs” for a moment. There is a great deal of trade that does not consist of finished goods but raw materials and components instead. The protection racket that Senator Rubio maintains on behalf of Florida’s sugar interests helps to protect a few firms that are influential in Florida, but the policy imposes higher sugar prices on everybody else, including the thousands and thousands of U.S. companies that buy sugar for the goods they produce.

The Trump tariffs already have driven one U.S. steel firm into bankruptcy (U.S. steel companies import and process scrap from abroad, a once-lucrative business that has been undermined by the tariffs) and exerted general downward pressure on the performance of the U.S. steel industry as a whole: Steel stocks have declined on average about 1 percent in 2019, while the S&P 500 gained 25 percent. U.S. electronics manufacturers such as Misco have seen their businesses gutted by higher prices on imported components.

Switzerland’s tariffs already were pretty modest, averaging about 1.7 percent on non-farm goods. (Like many European countries, Switzerland engages in robust agricultural protectionism, particularly for dairy goods. Eleven farmers in Gruyères rejoice.) But with prices on consumer goods, industrial inputs, and labor already high (the average wage is about $90,000) a little bit of savings could prove significant. But what is most instructive here is that Bern at least is clear about what a tariff is — a sales tax — and about who pays it: consumers and domestic businesses, mostly.

Would that we would learn the same lesson.

The Federal Reserve has found that in the case of China, Trump’s tariffs are overwhelmingly being paid by U.S. consumers and businesses in the form of higher prices and lower profits. President Trump likes to brag about the billions of dollars the Treasury is collecting in tariffs. What he does not say is that this is from an enormous tax increase on Americans, one that has especially disadvantaged many of the very manufacturing firms that this policy purportedly was supposed to help.

A more general lesson is that the benefits of trade come on both sides of the ledger. In spite of our absurd political rhetoric, Americans are not worse off because all of the world’s producers endeavor to bring their very best goods and services to our doorsteps at competitive prices. That should be obvious enough, but even self-evident truths have to be reiterated year after year.

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