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Sunday, September 13, 2009

UPDATE: Prof Mankiw - hypocritical?

Mankiw is ok with 'invading' the market and charging higher taxes on gasoline, but when it comes to tires that could be deadly to American consumers and when it comes to placating a 10% growth-rate country that has little to no regulation of safety in its supply chains... all of a sudden he dashes to the typical pro-market line of 'free trade'. Gas taxes sap the income of Americans and make it hard in these severe economic times given the necessity of gasoline consumption of thousands of Americans. Temporary Tarrifs sap the income of 10%-growth China and add to American coffers - until Chinese behavior changes when the tariff can be lifted. Does Mankiw not believe there is a negative externality to Chinese tires sold in the US? Perhaps the cost is negligible, but perhaps not. But perhaps the signal to China is priceless....


Kostas Stamos said...

Your argument is entirely unconvincing (bordering on bad faith): why are tarrifs a better way to guarantee quality than safety standards?

If a malaysian company produces faulty tires, all malaysian companies should be punished with a new tariff?

What about the Firestone scandal? Where you then in favor of a heavy tax on all domestic tires?

Garth said...

i suppose my argument in this post is less about the merits of a tariff, which certainly is arguable, and more about the hypocrisy of supporting market intervention for one perceived social cost (pollution) while being against market intervention for another perceived social cost (lack of safety).

The difference to me between the Chinese industry and the American one is that, in America, companies like Firestone work their butt off and spend millions to fix the problem (which arguable Firestone did). Chinese companies do not and I believe that is in large part due to the culture created by the Chinese government.

Kostas Stamos said...

There is no hypocrisy since nation-wide tarrifs is a completely inefficient way to deal with the social cost of tire safety.

Some chinese tires may be unsafe, but some are safe, and there could be unsafe tires from the US (Firestone) or another country. So the proper way to deal with tire safety is to enforce safety standards regardless of tire origin.

On the other hand, taxing gasoline does internalize an external cost, since every type of gasoline consumed produces pollution (gasoline consumption also creates the externality of geopolitical instability but let's stick to the pollution factor).

Garth said...

I agree they are not 1:1 types of problems, though one could argue that every imported tire produces negative externalities (due to needs for trans-continental transportation etc).

Regardless, I still find it curious, despite your point which I agree with to a degree, that some economists (like Mankiw) seem to pick and choose their arguments based on textbook models as opposed to potential reality. I don't mind if someone is against Tariffs after thinking about it. But I find the blanket statement "Tariffs are never good" to be ridiculous - and yet that is what mainstream economics teaches.

The potential reality is that tire tariffs are "inefficient." The other potential reality is that cracking down on safety standards is unrealistic or even more "inefficient" - it's impossible for safety inspectors to 100% keep up with import surges such as this. Beyond that is, an assumption you are making about the relative efficiency of regulation vs. tariff - which is fine - I just happen to believe that a temporary tariff is a better mechanism in terms of incentives.

Some Chinese tires probably are safe - though I'd argue the evidence from the 2000s (esp. 2007) suggests that a good chunk of their tire market is not. It's not just tires - it's many of their products. At some point signals need to be sent that we will not tolerate (1) their currency manipulation that causes import surges to the US and (2) their cost-saving mechanisms at the sacrifice of public good.

Regulations send no message, provide no government revenue (actually take away from it), and provide no incentive for the Chinese government or Chinese industry to change their habits.

Nevertheless, I'll agree to disagree on these points. Please keep participating!

Kostas Stamos said...

Garth I have addressed some of your points in the comments of your previous post.

I indeed agree with the position that "Tariffs are never good", not just because this view is the mainstream economics view as you also recognize.

Tarrifs are essentially economic racism: Their proponents view "Chinese", "chinese products", "chinese tires" etc. as a uniform entity that a blanket measure (tariff) can be applied on, and "american products" as a different, again uniform, entity that no such measure should be applied. (your questions at the other comment thread follow this line of thinking)

I have read a nice argument that exposes the fallacy of this way of thinking here. It essentially says that, if you think that "tariffs are sometimes good", would you (at least in principle) also support tariffs between states? States do have different law environments after all.

Furthermore, labeling a tariff a "better mechanism" ignores most unintended consequences that may follow: for example, consider the horrible aftermath of a trade war that can always be ignited by a tariff.

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