If you haven’t been living under a rock for the last two days, you’ve probably noticed that the internet is losing its mind over the infamous dress that’s seen by some as black and blue and by others as white and gold....
- The Tax Policy Blog
- When a Tax on Imports is a Tax on Exports
When a Tax on Imports is a Tax on Exports
One of the most counterintuitive ideas in tax economics is the theoretical result that taxes on imports are equivalent to taxes on exports over the long run, and vice versa. They both can have the same effect of reducing international trade in general, but neither theoretically nor empirically can the two be separated. The American Enterprise Institute covered this issue in a publication a few years ago.
Exports and imports are a quid pro quo relationship. Something for something. We build goods for foreigners on the promise – codified by the exchange of currency – that they will build goods for us later. Ultimately, these are inseparable. Americans aren’t going to sell things to foreigners without ever spending those earnings. By the same token, foreigners won’t keep building things for us forever without us building things for them in return.
So it doesn’t matter whether you tax the quid or the quo. Both will be affected in the end.
The standard economics of international trade are very clear - that trade has welfare-improving qualities. This is especially strong conventional wisdom for a comfortable, well-developed country like ours. Exports give us job opportunities to share our talents – like aircraft construction – with the rest of the world. Imports give our consumers opportunities to buy goods – like coffee – that might not be available in our own climate.
There is little reason to believe these activities should be favored or disfavored by the tax system. But regardless of how you feel about each of them, know that they run together over the long term. You can’t have one without the other.
The end result of this model is a reminder of how counterintuitive taxes can be, and how the true incidence of the tax is not always just on the people or activities that immediately pay them.
Subscribe to the Tax Foundation Newsletter
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.