We have recently seen the United States try to protect their home industries by imposing tariffs on imported steel and aluminium, which has sparked a furore about trade wars and their malignant effect on world trade.
Perhaps there is a better way of achieving the same objective. Tariffs are imposed when someone is trying to use an unfair advantage, but they can be a bit of a blunt instrument, and maybe some other sort of leveling measure would be just as effective. Instead of taxing the commodity, why not tax the distance it has to travel? What comes to mind is an unnecessary transport tax (utt), which would work as follows:
If a commodity such as steel can be supplied locally at something like the world price then that local supply should be encouraged to be utilized. This could be done by requiring that if any user of that commodity wishes to import the cheap foreign stuff, then they would be obliged to pay UTT on those imports. The rate of UTT will be applied by quantity, and the extra distance that the commodity has to be transported from its source. So, for example, if a car manufacturer in Detroit could buy steel from a US steel plant , which is X miles away, but chooses instead to buy it from a plant in the Far East, which is Y miles away, then they will have to pay a tax per ton on Y – X miles of unnecessary transport. The rate of tax will be set so as to make it uneconomic for the steel to be imported from overseas. If, however, local steel mills are running at full capacity and demand still exceeds supply, then foreign steel could be imported free of UTT because the transport is not unnecessary in such a case. This would also apply to most UK steel exports to the US as they are usually specialist steels that the US doesn’t produce itself so could not be sourced locally.
This tax can be applied, at appropriate rates, to many different commodities on a case-by-case basis as necessary. UTT will probably work better than a tariff put on a commodity because it taxes the extra distance that the commodity is transported, not the commodity itself. It would also take into account the availability of the commodity locally. It is also flexible, as it can be adjusted to suit the economic conditions at the time, and because it is a national tax, instead of a tariff, it may be easier to get it past the WTO without rocking too many boats.
The imposition of this tax can be justified under the green agenda that seems to be dominating everything these days. It should be seen by the environmentalist lobby as a means of cutting the pollution caused by long sea voyages or air freight flights, and should send them into raptures. The transport industry will not take kindly to this tax, but somebody has to lose out and they will just have to lump it. Nations would also have to realize that other nations may well reciprocate, and everybody would have to weigh up whether it is to their national advantage to apply this tax in each different circumstance. The beauty of this tax is that it can be applied selectively, and the decision whether to apply it or not will be taken by national governments on a case-by-case basis.
Nobody wants to go back to the days of trade wars and excessive protectionism, but nations with higher living standards must be able to protect themselves from those with other advantages such as very cheap labour. Free trade is a Holy Grail to be aspired to, but we have to live in the real world and things are not that simple in the real world.
This is an outline of a very much a simplified version of the concept of a UTT, and there will doubtless be numerous problems in the fine detail of implementing such a tax. However, the concept of UTT is very flexible, and if it is applied gradually to just one commodity at a time, the pitfalls could be identified as they appear and rectified before the tax is applied to any other commodity. Steel is a commodity most in need of help at the moment, and it would be a good commodity to try UTT out on. If it turns out to have too many disadvantages then it can be easily scrapped, but if it is effective in its objective of keeping home industry viable, it can be applied to other commodities for their benefit.
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