EconAir

  Introduction China has been a spectacular economic success story. After the death of Mao in 1976, a more pragmatic group of Communist leaders seized power and began to change China. Their model was Singapore, whose population was mostly Chinese. Singapore’s economic growth model was that the dominant political party would direct economic growth. It invested in infrastructure, including condos for most of its population. It directed investment. It invited foreign companies to invest in the country. It became part of the global economy. China did much of the same but since it is much larger, it had to go further. It liberalized agriculture, going from huge communes to allowing individual farmers to rent land. That doubled food production. Then it concentrated on manufacturing, with subsidies and favorable laws on taxation. Foreign companies were invited in but they had to partner with a Chinese company, which accelerated China’s absorption of foreign technology and management techn...

INTRODUCTION AND SUMMARY This is an early analysis of the tariffs on China, Canada and Mexico announced on March 4. Some simple math (20-25% tariffs on $1.5 trillion of imports from China, Mexico and Canada) gives a $300 billion tax on Americans, before any adjustments in behavior by consumers and manufacturing companies. But an analysis by the Tax Foundation, a think tank, indicates that government revenue from these tariffs might be closer to $110 billion. Revenue would be substantially lower if there were "carve-outs" (no tariffs) on imported American cars, oil and naturally gas. Tariffs are basically a tax on inputs and the wholesale prices of consumer imports. The results of a tariff are higher prices and lower unit sales. The cost of a tariff is split between manufacturers and consumers. The split depends on the price  elasticity of demand (mostly determined by the kind of product and the closeness of substitutes). Spread out over the whole economy, the original...