Recently, the president of the United States threatened to issue a tariff against Mexico if the government of Mexico doesn't help lower the number of illegal immigrants into the USA from Latin American countries. Do you think a tariff can be an effective government policy to persuade a border country to change their policy? Why or why not? Are there other real-world examples?
It depends: a government which preaches free market liberalism would not do this as a tariff is a protectionist measure. a government which preaches to be the best and the only best (extreme superpower arrogance) can do whatever it wants to do, even when it is harming its own people in the process. At the Mexican side of the border over past decades many export orientated zones had been established (so-called Maquiladora). NAFTA was a way that should connect this border economy to the USA (cheap production at third world wages, b´for first world consumer markets). We could discuss who all benefit from this and who do not, but this would take us away from the question. Similar the trade conflict with China. It surely does not support a notion of free market liberalism, but a notion of global supremacy.
Tariffs are a measure for trade ward in order to protect a domestic sector or industry...
I doubt that this measure will be effective...
On the other Hand I am now reading that the mexican government will stop the migration... An attempt to stop/prevent a trade war?!
For Europes migration routes it was key to stop the influx through Turkey.
A multi-billion Euro-deal and many New refugee camps on the turkish side were necessary to stop that major migration route in 2016...
Either the Situation at the US-Mx border is much simpler, walls work, says Trump - or possibly Trumps worldview is rather simplistic...
Tariff needs to be perceived as a double-edge sword. It can be used for achieving designated goals. Yet, it may bring unintended consequences as well. Tariff is usually imposed with the aim of improving domestic wellfare by protecting domestic producers against import competition from foreign producers and generating government revenue. Nonetheless, the imposition of tariff hurts domestic consumers and creates societal loss. Hence, the use of tariff for improving domestic wellfare might not be effective.
Moreover, the consumers might not reduce consumption of imports when the burden of tariff is absorbed by other economic players along the supply chain. For example, a recent research by Cavallo, Gopinath, Neiman and Tang reveals that US importers absorb almost the entire tariff hike imposed by the Trump administration in the US-China trade war. Other players, such as exporters, port companies, shipping companies, warehousing companies, and trucking firms, might absorb tariff hike through their lowered charges and dampen its impact on consumers. Consequently, tariff would not effectively affect consumers' behavior.
In addition, tariff provides incentives for illicit trade. And, higher tariff provides larger incentives. Undoubtedly, illicit trade restraints government from effectively generate revenue. It also ruins government's effort to protect domestic producers.
All in all, there are many possibilities where tariff might not be an effective tool. Governments need to put extra efforts to ensure the effectiveness of tariff.
I think that in the long run the USA will suffer badly from Trump policies, including putting tariffs to Mexican trade, Chinese trade
This is not the 19th century or the early 20th century. Tariffs in the way they are being applied by the present Administration are outdated and probably will not achieve the results that are hoped for (by the Administration).
The other issue of specifically tying tariffs to the flow of immigrants through Mexico is obviously a punitive measure and not the intended use for tariffs. Tariffs were originally conceived to build up and protect industries when needed. Instead we have farmers who have permanently lost markets, as well as other sectors that are not receiving bail outs.
If the goal of virtually full employment is desired we already achieved that with the global economy in tact. So now the U.S. is in a dire situation where we are risking full employment and disrupting our economy because overly simplistic show downs have been created between the U.S. and other economies.
With all these global connections at play it is not a zero sum game - meaning a trade deficit with China has turned out to be a benefit to our economy - and we are in jeopardy of losing that benefit. In fact, rather than tariffs, a better way would be to subsidize exports that need it to remain competitive, along with other effective solutions.
Trumps threats of counterveilling duties against Mexico seem to work:
Mexico has now started to better control the Guatamala border in fear of theses high duties (12/6/2019)...
Tariffs cannot be a punitive measure, even when President Trump uses it this way. However I would not agree with Steve: some are behaving like in the 19th century and even if so many use words like liberalization and making trade free, there is still much protectionism especially in developed countries. Often the tariffs are disguised. I remember that in the Uruguay Round of GATT they had green and red boxes for subsidies, which, of course, also influence trade competitiveness.
so, how do we get along from here? Maybe it is really that economic measures that are not 'in' are used for political purposes.....
Paul: Thank you for your responses to my question! As most of you mentioned, a tariff is usually a tool to protect domestic jobs, rather than a punitive measure to punish another country.
However, since the time when I posted this question, Mexico has actually had high level talks with the United States. As a result, Mexico has agreed to do more to help stop the flow of illegal immigrants. See below link:
https://www.vox.com/policy-and-politics/2019/6/8/18657658/mexico-tariffs-us-border-immigration-asylum-agreement
So, maybe we should give President Trump some credit. His threat of tariffs worked. Thoughts?
Paul, you are right. Sad but true...
Trumps threats work with a small dependent neighbouring country.
They do not work with China or the EU...
If we talk about punitive measure to punish another country, I believe the US has a more effective tool, the US dollar. With more than half of global reserve and trade in in dollar, the US has the most powerful currency. Moreover, weaponized with several existing and proposed acts, the Trump administration has an extraterritorial reach to punish any person, nation, organization or company, anytime, anywhere. Supported by the data from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), this administration make sure there is no place to hide. In addition, unlike tariff, the dollar would cause less harm to domestic consumer and market.
The value of a tariff brings to light the more fundamental question of
WHAT IS THE PURPOSE OF WEALTH and how does it support or undermine our moral aims?
We impose (or oppose) tariffs based on two distinct and dissimilar concerns:
1). Economic advantage
2). Moral conformity.
Sometimes we impose tariffs because to do so improves our economic condition. Tariffs will help make the people we favor richer. This is also passed off as a moral good in that we imagine material security is morally sound.
At other times we impose tariffs to get other nations to conform to our way of seeing right-and-wrong. I.e. The North Koreans treat their people badly and threaten their neighbors, so we will not trade with them.
The economic purists (libertarians) tend to oppose any intervention in the free market and believe tariffs will, in the long run, depress economic production more than it can help it in the short run.
The moralists (left or right wingers) use trade to hurt people who do not share their worldview.
Tariffs have been in use since ancient times. The Romans defeated the Carthaginians and imposed rules on where they could trade and where they were prohibited from trading.
Thomas Jefferson's self-imposed embargo on his own country eliminated trade with Europe in an effort to avoid being dragged into Anglo-French wars.
In both the cases above wars were not averted but guaranteed!
Bastiat is credited for saying "When goods do not cross borders armies will."
And history seems to support this:
1). That the nations that trade most between themselves have fewer incentives to war.
2). That "democracy" is the political veneer of a commercial nation. In fact, a better word for "democracy" would be "COMMERCIAL-DEMOCRACY" as there really is no other kind. So the best way to create commercial-democracies is to improve and enhance trade, not stifle or impede it.
Tariff is usually imposed with the aim of improving domestic welfare by protecting domestic producers against import competition from foreign producers and generating government revenue. Hence, the use of tariff for improving domestic welfare might not be effective.
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