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User Info In Defense Of Wage And Environmental Parity Tariffs; entered at 2010-09-28 22:59:44
Posts: 4143
Registered: 2007-12-05 NFA

Tariffs applied to offset the effects of differential wage levels make no sense to me. Wage levels by and large are about as competitively determined as any market that I can imagine. And I doubt correcting for the effects of exchange rate intervention would affect matters appreciably when the wage differentials are an order of magnitude apart or more. Wage differences will principally reflect supply and demand, adjusting for education, skills, experience etc. Wages are low in China because of its huge workforce and because skill sets are generally still broadly below first world standards for skilled positions.

But net those out, a large gap remains due to the prevalence of welfare programs in the West (social security, paid vacations, medical insurance, etc). And that gap is growing. Among the reasons highly skilled westerners are having more trouble getting jobs in recent years is because the cost of employing them (beyond their cash salaries) keeps rising thanks to govt mandates and abuse. So the balance keeps shifting away from employing in the West.

There's also the case to be made that foreign exporters target US prices. Put tariffs on, US import prices will remain unchanged since we're still the key market (for now). Exporters eat the duties as lower profits. And before long, with competitive labor markets, the duties would be shifted back onto the foreign work forces as still lower wages. Net effect: nil.

However, I think broad environmental tariffs set at specified levels for all imports from a given country are entirely justifiable on externality grounds -- we share a common planet. Provided that some degree of relief is granted to firms in polluting countries that can demonstrate responsible environmental conduct. You want to reward change.

Three problems that I see. (1) Assuming the WTO were to allow environmental duties, how do you set those duty rates, scientifically or politically? Unilaterally or multilaterally? (2) How do you catch firms tran-shipping via third countries for "final assembly" to escape the highest duties? (3) As noted above, a lot of pollution is generated upstream from the manufacturer in the production of non tradable inputs. Levy environmental duties sufficient to offset all the damage but only on exports and the result would be that most all trade would collapse.

As usual, the devil is in the details.
2010-09-28 22:59:44