they outweighed by inflationary effec
That's interesting, because digital commodities don't quite fit the old concept of tariffs, which were created for physical commodities moving across borders—steel, autos, fabrics. But now so much trade is occurring online: streaming, cloud storage, video games, even software downloads. Most nationsRead more
That’s interesting, because digital commodities don’t quite fit the old concept of tariffs, which were created for physical commodities moving across borders—steel, autos, fabrics. But now so much trade is occurring online: streaming, cloud storage, video games, even software downloads.
Most nations have not imposed tariffs on these digital flows historically, in part because they are difficult to measure and monitor. But as digital trade continues to expand, governments are beginning to wonder: why tax physical imports, while digital imports enjoy a free ride? Some are piloting digital services taxes, taxing large technology companies that derive revenue in a country without enjoying physical presence there.
From the point of view of humans, it is important because it may alter how we pay for daily online utilities—such as our subscription to Netflix or the software we run our businesses on. For small companies, new taxes or tariffs on online services might make operating online stores or advertising overseas more expensive. To governments, however, it is perceived as a means of tapping into revenue from an increasingly online economy.
In short:
digital tariffs remain a gray area. The difficulty is striking the right balance in incorporating digital trade into modern policies without killing off innovation or driving things up for everyday users.
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On the upside, tariff income puts money in local governments' pockets. Tariff income can amount to billions of dollars for countries heavily involved in trade, and that money can be allocated to infrastructure, subsidies, or some form of social program. Politically, it is a way to make "foreign busiRead more
On the upside, tariff income puts money in local governments’ pockets. Tariff income can amount to billions of dollars for countries heavily involved in trade, and that money can be allocated to infrastructure, subsidies, or some form of social program. Politically, it is a way to make “foreign businesses pay taxes” when a tariff is added.
However, that cost is usually not borne by the foreign exporter. The cost is borne by the importer, and then it is passed on throughout the chain, meaning that typically businesses and consumers are paying more. This can be an issue when thinking about the impact on inflation—food, electronics, and even raw inputs must be compensated for, which will also add to inflation (and/or costs), which ultimately reduces profits for small businesses and creates an increased cost of living for families. Frequently, inflation can negate or surpass the gain of tariff income.
So, the reality is that when the government thinks about tariff income, it is great to consider individually, but it tends to be money taken from one pocket to be put into another. The lingering question is whether or not the government is allocating the money wisely, e.g., investing in the impacted sector or providing protections to vulnerable sectors, rather than just patching a hole in their budget.
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