Protectionists often argue that the cost of tariffs is borne largely by producers in foreign countries. But inevitably, some or most of any additional tax gets passed on to people who buy the products. “When you institute a tariff, the price goes up for consumers,” says economist Adam Ozimek of Moody’s Analytics. “People will also buy less. So consumers are hurt not just by rising prices, but by consuming less.”
The portion of Trump’s 45% tax that would be passed onto consumers would depend on how much competition there is for any given product. Anything made exclusively in China would become considerably more expensive. A fancy $100 sweater made only in China wouldn’t suddenly cost $145, because there would be fewer buyers at the higher price, and weaker demand would force the manufacturer to adjust the price downward. But it might rise to $115 or $125, since the producer won’t sell at a loss and would have to account for the big jump in costs caused by the new tariff.
Even if there’s competition from producers in other countries, prices would still rise somewhat, since higher prices from one major source allows other sources to raise their prices, too, and make a bit more profit. So if clothes made in China were suddenly 45% more expensive to Americans, similar clothes made in Bangladesh would cost more, as well―not 45% more, but still, more.
That might help American producers making competing products, but even if it did, prices for consumers would still go up. And many low-wage industries that have migrated to China, such as textiles and electronics manufacturing, are likely to stay there. American businesses and entrepreneurs are more interested in making specialized products that can't be produced just anywhere, and in coming up with new producs that command higher profit margins. The best way to boost U.S. growth is to encourage high-end innovation, not to fence off low-wage jobs that can be performed anywhere.
If Trump were to get elected and actually put his tariff into effect, it would reverse a 20-year trend of declining prices for many consumer goods, which has helped offset the rising cost of important things like healthcare and college tuition and occasional spikes in the cost of energy. Overall inflation, excluding food and energy, is a scant 2% at the moment, a level so low that economists worry more about deflation than inflation. But a big tariff on imports would quickly make inflation a big pocketbook concern and leave consumers with less money to spend on other things. Combine that with rising energy prices or some other mild shock and it could even cause a recession.
Trump’s tariff plan would likely meet firm public resistance. Economists would also protest. “Economists disagree about a lot,” says Ozimek, “but there’s very strong agreement that free trade benefits Americans, on average.” A poll of economists by the University of Chicago, for instance, found that 100% of them believe U.S. trade with China makes most Americans better off.
Most economists also agree that free trade―like anything that improves efficiency and market performance―produces winners and losers. And the losers usually include people who get the job done slower, at a higher cost than competitors. Protecting underperformers isn’t likely to help the U.S. economy. Helping them perform better would.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.
2-2
Denmark Ranks as Happiest Country; Burundi, Not So Much
MARCH 16, 2016 By SEWELL CHAN The New York Times
Photo=Denmark has topped the World Happiness Report every year but one since 2012. Credit Nils Meilvang/European Pressphoto Agency
LONDON ― Denmark has reclaimed its place as the world’s happiest country, while Burundi ranks as the least happy nation, according to the fourth World Happiness Report, released on Wednesday.
The report found that inequality was strongly associated with unhappiness ― a stark finding for rich countries like the United States, where rising disparities in income, wealth, health and well-being have fueled political discontent.
Denmark topped the list in the first report, in 2012, and again in 2013, but it was displaced by Switzerland last year. In this year’s ranking, Denmark was back at No. 1, followed by Iceland, Norway, Finland, Canada, the Netherlands, New Zealand, Australia and Sweden. Most are fairly homogeneous nations with strong social safety nets.
At the bottom of the list of more than 150 countries was Burundi, where a violent political crisis broke out last year. Burundi was preceded by Syria, Togo, Afghanistan, Benin, Rwanda, Guinea, Liberia, Tanzania and Madagascar. All of those nations are poor, and many have been destabilized by war, disease or both.
Of the world’s most populous nations, China came in at No. 83, India at No. 118, the United States at No. 13, Indonesia at No. 79, Brazil at No. 17, Pakistan at No. 92, Nigeria at No. 103, Bangladesh at No. 110, Russia at No. 56, Japan at No. 53 and Mexico at No. 21. The United States rose two spots, from No. 15 in 2015.
From 2005 to 2015, Greece saw the largest drop in happiness of any country, a reflection of the economic crisis that began there in 2007.
Picture=A market in Bujumbura, the capital of Burundi. Burundi, a poor African nation where a violent political crisis broke out last year, came in last according to the fourth World Happiness Report. Credit Tyler Hicks/The New York Times
The happiness ranking was based on individual responses to a global poll conducted by Gallup. The poll included a question, known as the Cantril Ladder: “Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?”
The scholars found that three-quarters of the variation across countries could be explained by six variables: gross domestic product per capita (the rawest measure of a nation’s wealth); healthy years of life expectancy; social support (as measured by having someone to count on in times of trouble); trust (as measured by perceived absence of corruption in government and business); perceived freedom to make life choices; and generosity (as measured by donations).
The report was prepared by the Sustainable Development Solutions Network, an international panel of social scientists that includes economists, psychologists and public health experts convened by the United Nations secretary general, Ban Ki-moon.
Though the findings do not represent the formal views of the United Nations, the network is closely tied to the Sustainable Development Goals, which the organization adopted in September, aiming, among other things, to end poverty and hunger by 2030, while saving the planet from the most destructive effects of climate change.
1-2
The field of happiness research has grown in recent years, but there is significant disagreement about how to measure happiness. Some scholars find people’s subjective assessments of their well-being to be unreliable, and they prefer objective indicators like economic and health data. The scholars behind the World Happiness Report said they tried to take both types of data into account.
In a chapter of the report on the distribution of happiness around the world, three economists ― John F. Helliwell, of the University of British Columbia; Haifang Huang of the University of Alberta; and Shun Wang of the Korea Development Institute ― argued against a widely held view that changes in people’s assessments of their lives are largely transitory. Under this view, people have a baseline level of contentment and rapidly adapt to changing circumstances.
The three economists noted that crises can prompt vastly different responses based on the underlying social fabric. In Greece, where the economy began to plummet in 2007, setting off a crisis in the eurozone that has resulted in three financial bailouts, widespread corruption and mistrust were associated with the diminishing sense of happiness over the past decade.
In contrast, trust and “social capital” are so high in Japan that scholars found, to their surprise, that happiness actually increased in Fukushima, which was devastated by an earthquake and tsunami in 2011, because an outpouring of generosity and cooperation contributed to the community’s resilience and rebuilding.
“A crisis imposed on a weak institutional structure can actually further damage the quality of the supporting social fabric if the crisis triggers blame and strife rather than cooperation and repair,” the economists wrote. “On the other hand, economic crises and natural disasters can, if the underlying institutions are of sufficient quality, lead to improvements rather than damage to the social fabric.”
The report, which was released in Rome, included a chapter analyzing Pope Francis’ influential encyclical last year, called “Laudato Si’,” or “Praise Be to You,” which included a cutting assessment of a world in which continuous technological progress was accompanied by environmental degradation, growing anxieties about the future and persistent injustice and violence.
Jeffrey D. Sachs, a Columbia University economist who edited the report with Dr. Helliwell and Richard Layard of the London School of Economics, praised Pope Francis’ admonition against hedonism and consumerism.
He also forcefully rejected the notion that happiness and freedom ― especially when narrowly defined as economic liberty ― are interchangeable.
“The libertarian argument that economic freedom should be championed above all other values decisively fails the happiness test: There is no evidence that economic freedom per se is a major direct contributor of human well-being above and beyond what it might contribute towards per-capita income and employment,” Dr. Sachs wrote. “Individual freedom matters for happiness, but among many objectives and values, not to the exclusion of those other considerations.”
2-2
