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A brand-new bad idea?

Tuesday, February 28, 2017 11:34
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According to both Treasury Secretary Mnuchin and a White House spokesperson, the Administration is considering a “reciprocal tax on countries that tax American imports.” This appears to mean retaliation against the use of a VAT that taxes domestic consumption, insofar as such consumption is of imported goods from the US.

So, the use of a tax system (the VAT) that is trade-neutral would trigger “retaliation”? How exactly? Via tariffs on countries with VATs, with the tariff level pegged to their US imports and/or their VAT rates and/or their US trade balance?  After all, we can’t “retaliate” just by having our own VAT if the tax level on domestic consumption depends on (a) whether it’s an import and (b) the country of origin.

I would like to hear anyone with even a rudimentary understanding of economics try to defend such a proposal. (Might this be in Kevin Hassett’s future?! Suppose he is unable to talk them out of it.)


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