Extract from Chapter 31 Perspective on Taxation by John CHoate

            Miracle is defined by Oxford as  surprising and welcome event that is not explicable by natural or scientific laws and is therefore considered to be the work of a divine agency. Or a highly improbable or extraordinary event, development, or accomplishment that brings welcome consequences. Or an amazing product or achievement, or an outstanding example of something.

            The Miracle Worker was a play and movie about a blind and deaf child, Helen Keller, who learned to communicate with the support of Annie Sullivan.  According to Family Search, Helen was the first deaf-blind college graduate, and is my 7^th cousin twice removed.

            Tariffs perform economic miracles. Tariffs are excise taxes that foreign exporters pay for the privilege of trade and business in the American market.  Many of the foreign exporters are actually owned by American businesses than have off shored manufacturing and assembly, usually previously performed in the United States. But it is not enough to have less costly labor on foreign soil, other nations have an interest in acquiring monopolies over American industry, whether in drugs, cars, steel, clothes, paper, construction supplies, you can name it.

            If you have followed the MAGA President, he has explained how he used Tariffs to secure the Mexican border, revive the steel industry, save the auto industry, and more, without inflation, without sending in the Marines, and without economic wreckage, or even retaliation, avoiding the so called trade war. These were Miracles. Ok Political Miracles. 

            I recall seeing lots of headlines about ‘free trade’ [I suppose that was opposed to ‘slave trade’.] Who wouldn’t want free trade if that were the choice?  But the reality is that other nations heavily subsidize their exports to America to ruin American industries. Were you surprised to learn that during Covid it came out that 97 percent of all antibiotics in the United States came from China? [Department of Commerce study]. Is that a good business model?

How can a tax not be passed onto the consumer? How can it not increase the price? I’ll summarize a report by Congress when Congress considered an excess profits tax in the 1970s, which report explained how tariffs did not impact price as we might otherwise intuitively suppose. The reason is that in the international market, prices are exogenous to the United States.  Exogenous means relating or developing from external factors.  As Sellers or foreign exporters, bring products into the United States, they pay the tariff at customs, and the net selling price is less by the amount of the tariff.   Focus on the net  selling price, not the selling price. The seller nets less because of the tariff. The inability to shift the tax forward to the buyer, restores the cost of foreign subsidies which had previously been priced into the sale.  The price has to be competitive on the world market, to make any sales, but only tariffs are paid to the American treasury.

You might be familiar with an advertised price, let’s say for an hotel room, or a rent a car. As a  consumer, I want to know what I have to pay out of pocket cash, or put on my credit card, and which I will ultimately pay. I need to know how much cash I need to bring to the table.  Because taxes or fees, or parking charges, or tips, may be a quarter more than the quoted price, that is the amount I need, but such expenses are often not disclosed.   The same goes for a new car advertising  the Manufacturers Suggested Retail Price, which is next to the picture of the car advertised.  But when you go to pay for the car, you learn that the MSRP may be for the stripped model, and does not include air conditioning, many of the accessories expected, which may have once been considered luxuries, but are now usual, automatic instead of stick, and state excise taxes and registration and tag, and insurance, and so forth.

Tariffs work the same way.  The price quoted to the consumer has to exclude the tariff or the consumer would go to another seller that was not paying tariffs.  When tariffs were laid on Chinese exports, China paid $12 figure tariffs to the United States.

Why would tariffs be opposed? Many of the exporters are owned by Americans, who want the best of both worlds of low cost labor in Asia or Central America, and high profit consumption in America.  This only works until Americans are left with personal consumption,  house keeping, landscaping, legal, dental and medical businesses.  Or the exporters are making less money. Or American industries like the cheaper imports, and don’t want to be troubled with the competition.  While America’s steel industry was being undercut for decades by dumped steel, the remaining cars being made in America used the dumped steel and profited off of cheap steel. When MAGA president moved to preserve a portion of the steel industry, the car makers objected.

Likewise, while the American newsprint industry was undercut by Canadian imports with 3 dozen subsidies and selling newsprint in America below the cost of production, the American newspapers bought the cheap newsprint until all American newsprint mills were run out of business, all the while complaining of decline of newspapers losing out to social media. Then when there were no competitors, Canada raised the price. One paper, editorializing against Trump putting tariffs on the newsprint import, complained about the cost rising 25% for the newsprint. But price rise was before the tariff was levied!  The hike was monopoly pricing. Go figure.

If you are still with me, read on, the issues before the Department of Commerce, Congress, or ITC.

Norpac anti-dumping tariff case. Newspaper coalition opposes ‘made in America’ newsprint.

By Zack Hale, The Daily News Published: March 19, 2018

[Edited]

North Pacific Paper Company (NORPAC), is an American owned and based newsprint wood miller in competition with Canadian mills. Norpac charged that Canadian papermakers dumped uncoated groundwood paper — newsprint —in the U.S. for between 23 and 55 percent below fair market value. Norpac’s Longview mill, with 300 workers, was one of just five mills left in the United States that made newsprint and is only one of two with U.S.-based ownership. Norpac petitioned for trade relief from the U.S. Department of Commerce. Commerce agreed that Canadian newsprint  sold for up to 22 percent less than fair value. Canadian provincial governments newsprint had 34 different subsidy programs ranging from cheap power deals to raw materials such as wood chips sold at below-market costs. Imports of uncoated groundwood paper, also used in book publishing and printing, was estimated at $1.27 billion in 2016. Canadian newsprint had about two-thirds of U.S. demand.

The News Media Alliance, coalition of 2,000 newspapers, media organizations, including The Daily News [reporting the dumping],  denounced the tariffs and warned that slapping tariffs on Canadian newsprint will threaten 600,000 jobs in the publishing industry. Norpac maintained that trade remedies are needed to level the playing field.

Norpac idled one of its paper mills citing unfair competition. As a result of its independent findings, Commerce will instruct customs officials to tariff from Canadian paper producers [of 22 to 30 percent] to import.

 “President Trump made it clear from the beginning that we will vigorously administer our trade laws to provide U.S. industry with relief from unfair trade practices,” Commerce Secretary Wilbur Ross said Tuesday in a press release. 

 “Publishers and printers across the country are already feeling the negative consequences of a tighter newsprint market and higher prices,” said President and CEO David Chavern, forcing most newspapers to reduce page counts, cut days of distribution and move more information that appears in print to digital media.

    “Some small-market or rural newspapers, with slim margins, will close,” he said.   Chavern also noted that the American Forest and Paper Association, which represents the broader domestic paper industry, opposes Norpac’s petition.

The International Trade Commission also is investigating. Both Commerce and the ITC  must find that Canadian imports of uncoated groundwood paper materially injure domestic industry

OUR VIEW: Suspend tariffs on paper imports

Staff Writer, 2018 May 24. The Daytona Beach News-Journal

Although more people are getting their news online, the print medium still plays an important role in disseminating information and financing newsgathering operations.

Unfortunately, the cost of producing a newspaper has increased significantly this year because of tariffs imposed on Canadian newsprint by the U.S. government. It demands relief from Congress.

A single American manufacturer, North Pacific Paper Company (NORPAC), complained that Canadian companies were “dumping” newsprint in the United States at below-market prices. The U.S. Commerce Department began assessing anti-dumping duties of up to 32 percent on newsprint and some other paper products from Canada. 

The Trump administration should hit the pause button. Last week, Sen. Susan Collins, R-Maine, introduced a bill that would suspend tariffs on Canadian newsprint.

No other U.S. newsprint mills [Perspective – presumably all foreign owners, NORPAC was the only one left in operation] have supported the complaint by NORPAC nor the tariff. 

Indeed, two of the leading Canadian producers have a total of nearly 4,000 U.S. employees, 13 times the number NORPAC employs.

Meanwhile, the print industry, facing a sharp increase in a vital expense while struggling to maintain revenues in a competitive and fast-changing media landscape, must respond by lowering their number of pages, raising their prices, reducing news coverage, and/or cutting expenditures in other areas. 

The News-Journal’s newsprint costs have increased by 25 percent and are forecast to grow. Newsprint is our second-highest expense, trailing only salaries. In April, we increased the cost of our single-copy sales by $1 to offset the tariff. The Tampa Bay Times announced that it would be laying off 50 employees in order to accommodate $3 million in higher newsprint costs.

When you add up the toll, the newsprint tariff — as with most trade wars — may preserve a few jobs in one politically favored industry while causing a much larger net loss of jobs in other areas.

Some readers may ask: Why not use domestic paper? Because many U.S. paper companies have abandoned newsprint production in favor of products with higher profit margins. Imports are necessary to meet the newspaper industry’s needs. [Perspective. Canadian newsprint was sold below its Canadian cost to drive the American newsprint industry out of business.]

Although we oppose protectionist trade policies on principle, our position on newsprint might come across as self-serving. 

            As of August 29, 2018, the U.S. International Trade Commission blocked tariffs on imported newsprint, finding the last American producers of newsprint weren’t harmed by imports of Canadian paper Mills.^[1]

            The newsprint tariff demonstrates trade disputes.  Foreign country ‘dumps’ product into the United State economy. Dumped means either it is priced in America below its price in the exporting country, or it is priced below cost of production. And American customers flock to buy cheaper product, which undersells the American product. The ‘dumped’ product is subsidized by the foreign nation. The American customer loves the cheap deal. Auto makers want ‘dumped’ steel to make cars cheaper, newspapers want ‘dumped’ newsprint to print editions, grocers want ‘dumped’ foreign beef, druggist and pharmaceuticals want ‘dumped’ medicines. The American producers, one by one, are priced out of the market, and leave. And so it goes. 

In the newsprint tariff dispute, the newsprint  cost had risen 25%, which the Tampa Bay Times associated with the tariff. But the price  rise, if any, was before the newsprint tariff, and was due to a combination of inflation and monopoly power of Canada.  Why? Because the tariff cannot be passed onto the consumer, not because of any restriction in law, but because of economics.  In international markets, where multiple nations compete with business, tariff costs must be absorbed by the exporter, who is unable to forward the cost onto the consumer. This is explained by the Congressional Research Service as follows, substituting newsprint for oil. 

Not shift the tax forward

The U.S. [newsprint] tariff increased the marginal or incremental cost of [newsprint]  subject to the tax — every  [ton]  of   [newsprint] produced cost more to produce by the amount of the tariff. However, in the case of   [newsprint], the higher marginal costs are not shifted as higher cost [newsprint], because, [newsprint] being priced in the international (world) [newsprint] market — [newsprint] prices are exogenous to the U.S. (the U.S. is a price taker, rather than a price setter).    [newsprint] producers could not shift the tax forward to the American newspaper as a higher   [newsprint] selling price, because the purchaser would merely substitute non [Canadian], or American, or tax-exempt [newsprint]. Instead, the   [newsprint] tariff reduces the net selling price paid by consuming [newspapers] or [book binders]. The   [newsprint] exporter pays the tariff at customs — the exporters’ net selling price of each  [ton]  of [newsprint] was less by the amount of the tariff.  Focus on ‘net’ not selling price. The exporter nets less because of the tariff. This inability to shift the tax forward implies that the entire effect of the tax is to reduce   [newsprint] production and supply, by restoring the costs of the provincial subsidies which had previously been priced into the sale. In other words, U.S. [newsprint] production is restored, to some degree, to the competitive status against   imports without subsidies.  To maintain market share, the foreign country, [Canada,] will pay the tariff, and is unable to pass it onto the American consumer, the newspaper industry.

 But, as [newsprint] imports to the United States are now the major part, the difference between combined demand for [newsprint] and combined domestic [newsprint] supply, the effect is an increase in the demand for American [newsprint]. Another way of stating this point is that imported   [newsprint] is the marginal source of [newsprint] — whenever an extra  [ton]  of [newsprint] is needed to meet an increase in demand, it is imported or America made. Any condition or factor which either reduces American domestic supply (such as higher industry taxes) or which increases the aggregate  demand for [newsprint] (such as higher national income) will increase [newsprint] imports.

As further proof that the tariffs are paid by the exporting country, when tariffs were laid on the Chinese exports, China paid annual $ 12 figure tariffs to the United States.  Tariffs on ‘dumped’ imports do not raise the price of the imports to the consumer. If you can’t accept that, read the Congressional Research Service Report on Tariffs, cited in the next paragraph.

Exogenous means relating or developing from external factors.

Tariff – excise tax. Compare The Crude Oil Windfall Profit Tax of the 1980s: Implications for Current Energy Policy. 2006, CRS Congressional Research Service Report for Congress.

 “Freedom of Information Act (FOIA) requests seeking access to transcripts and to “de-designate” portions of the record improperly designated as confidential.” [n]othing in this order shall abridge the right of any person to seek judicial review or to pursue other appropriate judicial action with respect to any ruling made by [the Commission]’ requiring him to proceed through affidavit alone violates due process. “longstanding bright-line rule” is that “only parties can appeal an adverse underlying order or judgment”)  Sidak v. United States Int’l Trade Comm’n, 1:23-cv-00325 (TNM), 4-5 (D.D.C. May. 5, 2023) . 

^[1] https://neal.house.gov/news/documentsingle.aspx?DocumentID=465