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Home Publications Blogs Beat the Press Would Taxing Imports 0.05 Percent Improve the Trade Balance?

Would Taxing Imports 0.05 Percent Improve the Trade Balance?

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Wednesday, 09 June 2010 05:17
Probably not, but most readers of the Post probably don't realize that this is what is at stake in the debate over a proposal by the Democrats that would raise taxes on the foreign earnings of U.S. corporations by $14 billion over the next decade. This sum is equal to approximately 0.05 percent of projected imports over this period. It would have roughly the same effect on trade overall as a drop in the value of the dollar relative to the euro from 1.2 dollars to the euro to 1.203 dollars to the euro. (The decline in the value of the dollar affects both imports and exports.) In other words, this tax will have no measurable effect on the trade balance even though many politicians will likely make a big issue out of it.
Comments (2)Add Comment
A higher tax
written by Dennis Lynch, June 09, 2010 10:37
But what about 5%? Especially on China for currency manipulation....
calculations
written by ray fair, June 09, 2010 11:34
Can someone walk me through the calculations in Dean's post?

the 14b in revenue is equivalent to a 0.05 percent tax on imports. how do i calculate how much this tax on imports reduces imports? how do i compare that to and calculate the effect of a change in the dollar on the trade balance?

thanks

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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