Mode trump Putin’s little more than a week, but to keep track of all the disasters now becomes very difficult. Remember the tantrum the President when at his inauguration there were a few people that caused considerable embarrassment? Today it already feels like ancient history.
But I want to take a moment to draw your attention to another story, about which all the media reported on Thursday, until it was overshadowed a noise about the ban on the entry of refugees. Maybe you remember (maybe not in this turbulent stream of events), as the White house initially said that it would impose on goods from Mexico’s 20-percent duty. Maybe he was talking about the tax plan proposed by Republicans in the house of representatives, stating that nothing like this is that it is just an idea. Then he seemed to have hushed up this subject, at least not yet.
According to the degree of depravity ranting about duties not hold a candle to the ban on the entry of refugees, the nose of which slammed the door, and right in the international day of remembrance of the victims of the Holocaust. However, talk of duties have become the embodiment of those traits that we observed in this chaotic administration. This disruption of normal activities, ignorance, incompetence and abuse of trust.
It seems that this story, like many others recently, started with the wounded pride of the President. People laughed at him because Mexico, despite his promises during the campaign, will not pay for this useless wall on the border. Therefore, the press-Secretary of the trump Sean Spicer came to the podium and announced that the border duties on Mexican products will go to the construction of the wall. So.
But economists immediately said that the exporter does not pay duties. With some minor exceptions mostly pays the buyer. That is, tariffs on Mexican goods will become taxable, which will pay the us consumer. Therefore, the construction of the wall will pay America and not Mexico.
Here’s the thing. But that’s not the only problem. America is a party to the system agreement (that we have created this system), which set rules for trade policy. And one of the key rules is that you cannot unilaterally raise taxes, which was reduced as a result of previous negotiations.
If America is blithely violates this rule, the consequences will be very serious. The danger lies not so much in response (though it has some risk), but in the created precedent and role model. If we are going to despise to the rules, in the same way it would include all the others. All trading system will collapse and the devastating consequences of this will be felt everywhere, including in the us industry.
Does the White house really intends to go that route? Focusing on imports from Mexico, Spicer has created this impression. But he also said that we are talking about “comprehensive tax reform as a means of taxation of imports from countries with which we have a negative trade balance”. It seems that he had in mind major restructuring of the tax system on the profits of corporations, which may include “adjustable border fees”.
But there’s a catch. Such restructuring will not give the result, which said Spicer. It is not directed against countries with which we have a negative trade balance, and especially against Mexico. It will apply to all trade. And actually, this is not the import tax.
In fairness I must say that in this matter there is often a misunderstanding. Some seemingly knowledgeable people believe that the value added tax imposed by many countries, prevents the import and subsidizes exports. Spicer has repeated this error. In reality, however, VAT is basically an internal sales tax, which does not prevent imports, but does not encourage it. (Yes, import tax is, but there is a tax on domestic production.)
Proposed changes to corporate taxes may differ from the taxation of value added, but trade effects are completely neutral. In particular, this means the following. They did not force Mexico to pay for the construction of the wall.
There are a lot of technical details that you can see in my blog. But it would seem that the American government must bring its house in order and get a correct idea about the consequences before declaring, in essence, a trade war.
To summarize. Press Secretary of the White house has created a diplomatic crisis, trying to protect the President from ridicule about his stupid bragging. However, he showed that nobody in the administration does not understand basic Economics. And then he tried to return to their seats.
All of this should be considered in the broader framework of the rapid loss of America’s credibility and trust.
Our government is not always doing the right thing. But it fulfills its promises as before the countries and before the people.
And now it’s all questioned. Everything from small countries, thinking that will protect them from Russian aggression, to Mexican entrepreneurs, who assumed that the output of our markets they are guaranteed and even up to the Iraqi translators, who believed that their work on the United States gives them the right to asylum, are now forced to ask ourselves, not get along with them just as defrauded by contractors at the hotel trump.
It is a great loss. And maybe the loss is irreparable.