Chapter 6 discusses the role of the government and the effect of taxes. A tax can be placed on buyers or sellers, including tariffs, which are taxes on imported goods, but the economic burden does not necessarily fall on the side that is legally taxed. Using the concept of tax incidence, discuss how the elasticity of demand and supply determines whether buyers or sellers bear more of the tax burden. Apply this to a real-world example—such as a tariff on any imported good, a tax on gasoline, cigarettes, or ride-sharing services—and explain who you think ends up paying more and why.
When it comes to tariffs, Frédéric Bastiat wrote in the book "The Law" about tarrifs in a very negative light. Back in 1850, when "The Law" was published, slavery was still legal in the United States and tariffs were the primary source of revenue for the federal government. If I may cite Bastiat he first speaks very highly of the United States and how it is a country that is built on the principles of freedom and liberty. But he has a major criticism of the United States.
Nevertheless, even in the United States, there are two questions, and only two, that from the beginning have endangered political order. And what are these two questions? That of slavery and that of tariffs; that is, precisely the only two questions in which, contrary to the general spirit of this republic, law has taken the character of a plunderer. Slavery is a violation, sanctioned by law, of the rights of the person. Protection is a violation perpetrated by the law upon the rights of property; The Law by Frédéric Bastiat, 1850 Page 12 https://cdn.mises.org/thelaw.pdf
Nevertheless, even in the United States, there are two questions, and only two, that from the beginning have endangered political order. And what are these two questions? That of slavery and that of tariffs; that is, precisely the only two questions in which, contrary to the general spirit of this republic, law has taken the character of a plunderer. Slavery is a violation, sanctioned by law, of the rights of the person. Protection is a violation perpetrated by the law upon the rights of property;
The Law by Frédéric Bastiat, 1850 Page 12 https://cdn.mises.org/thelaw.pdf
From what we can see Bastiat views tariffs in the same light as slavery, which is a very strong statement.
However, among other economists, there is a more positive view of tariffs. Take for example James Madison and Alexander Hamilton who supported the Tariffs Act of 1789. If I may quote for the act.
Chap. W.—An Act for laying a Duty on Goods, Wares,and Merchandises imported into the United States.{a) Sec. 1. Whereas it is necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandises imported: (6) Act of August 10,1790, ch.38, sec. 1 and 2. The Tariffs Act of 1789. The full text can be viewed at the following web page https://danielleevandenbosch.github.io/education/Econ/Tarrif_act_of_1789_full_text.txt What is quoted here is the preamble of the act.
Chap. W.—An Act for laying a Duty on Goods, Wares,and Merchandises imported into the United States.{a) Sec. 1. Whereas it is necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandises imported: (6) Act of August 10,1790, ch.38, sec. 1 and 2.
The Tariffs Act of 1789. The full text can be viewed at the following web page https://danielleevandenbosch.github.io/education/Econ/Tarrif_act_of_1789_full_text.txt What is quoted here is the preamble of the act.
From what can be seen here is that tariffs were used to support the government , pay off debts , and encourage and protect manufacturing. When it comes down to it, the real question to ask is, "Are tariffs a better way to support the government than other forms of taxation?"
Back when Frédéric Bastiat wrote "The Law" in 1850, the United States was still a young country and tariffs were the primary source of revenue for the federal government. Bastiats criticism was in light of the federal government being significantly smaller than it is today.
Today, many conservatives and libertarians are critical of the federal government and its size. Many of these same people are also in support of tariffs with the emergence of the Trump administration. Basically, the task of cutting the government to the smaller size that it was back in 1850 is not a mainstream political goal of the United States electorate. Therefore, some sort of taxation is necessary to support the government and its functions.
Tariffs can be a good way to support the government and also protect domestic manufacturing. Take for example Sandy Ridge Blueberry Farm in West Olive Michigan. The farm has been in operation for decades, however it has recently shutdown due to the competition from foreign blueberry farms which are not held to the same standards as domestic blueberry farms. The merits of the strict standards could be argued for very favorably for the ethical reasons of protecting the environment and the health of the consumer, however with free trade it is impossible to compete with foreign blueberry farms that do not have to adhere to the same standards.
Lawmakers are faced with a difficult decision when it comes to tariffs on imported blueberries. If the lawmakers wanted to help Sandy Ridge Blueberry farm they could do 1 of 3 things.
They could remove the environmental and health standards for domestic blueberry farms. This of course comes with the risk of harming the environment and the health of the consumer. It would be a hard sell for ethical reasons, but it is a possible option depending on studies of the environmental and health risks of the standards.
They could subsidize domestic blueberry farms. This would be a good option, however it would require the government to spend more money and increase the size of the government. Ronald Reagan once said, "Federal grants are like rabbits. They multiply like crazy, and when they are out you can't catch them."
They could place a tariff on imported blueberries. This would be a good option, however it would likely increase the price of blueberries for the consumer. The question is, "Is it worth it to pay more for blueberries in order to support domestic blueberry farms?"
In all likely hood this is most likely the best answer. Given the regulations the government has put in place to protect the environment and the health of the consumer, it is likely worth it to pay more for blueberries in order to support domestic blueberry farms. Otherwise what is happening is the environment and consumer health is not being protected anyway due to the sale of imported blueberries which do not have those standards.
All that said to answer the question posed to this paper. "Who would bear the tax burden of the tariff of imported blueberries?"
The answer is the consumer would bear the tax burden of the tariff of imported blueberries. Businesses always will pass on the cost of tariffs to the consumer. This will cause the demand curve to shift to the left, which will cause the price of blueberries to increase. This will also cause the quantity of blueberries to decrease. This is a good thing for domestic blueberry farms, however it is a bad thing for the consumer's wallet.
In conclusion, are tariffs a good way to support the government? Was the Tariffs Act of 1789 a good idea or was Fredéric Bastiat right in his criticism of tariffs? Both things can be true at the same time. Bastiat was correct in his criticism of tariffs as it was more broadly a criticism of the government and its size. However, should a people and their elected representatives decide that they should have an interventionist government, then the questions becomes, "How should the government be funded?" Tariffs are a great way to fund the government, protect the environment, and protect the health of the consumer, and save domestic blueberry farms should the American people decide the current size of the government is acceptable.