As voters consider the merits of the Trans-Pacific Partnership (TPP) and Europe awaits Britain’s exit from the European Union, international trade is a fixture in the news and a frequent topic among politicians. Among his trade-related policy prescriptions, for example, US presidential nominee Donald Trump has floated a 35 percent import tax on cars made by US companies in foreign countries—a response to Ford Motor Company’s plan to move its small-car production to Mexico.
In a speech last Tuesday to workers at an Amazon facility in Tennessee, President Obama gave Congress some new ideas about proposed tax reform while repeating his earlier support for cutting the corporate tax rate to 28 percent from 35 percent.
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US companies are currently keeping more than $2 trillion overseas—that’s $200 billion more than they keep on hand domestically.
Economists: Tax Breaks Not Likely to Induce Corporate InvestmentWhat do economists think about such protectionist policies? Chicago Booth’s Initiative on Global Markets asked its expert panel whether establishing import taxes on cars, among other items, would be a “good idea.” Some called it bad economics; others said it’d be a violation of World Trade Organization agreements. None of them thought it would be a “good idea.”
David Autor, MIT
“Taxing consumers to subsidize domestic production is bad economics and a violation of the WTO agreement.”
Response: Strongly disagree
Caroline Hoxby, Stanford
“What a ‘good idea’ is I do not know, but such tariffs would make the average American worse off.”
Response: Strongly disagree
Kenneth Judd, Stanford
“Consumers would lose. A few would gain, but there are more efficient ways to transfer income to people.”
Response: Strongly disagree
Richard Schmalensee, MIT
“A terrible idea, for many reasons.”
Response: Strongly disagree
Christopher Udry, Yale
“No. Just no. The example products were chosen to make this easy. The rare cases in which protectionism might be justified are excluded.”
Response: Strongly disagree
The cost is likely minimal to achieve a fairer outcome.
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