Zero tariffs are simple
I’m not a big fan of the World Economic Forum (WEF). Davos Man, the stylized pilgrim to its annual gathering in the Swiss Alps, is at least an internationalist. But he’s also usually an internationalist planner, favouring whatever probiotic planetary brain pabulum is currently trendiest. With national planners there’s the possibility of escape. But where do you go to get away from international planners? Mars isn’t yet an option.
On the other hand, the WEF’s annual Competitiveness Report does publish an interesting annual compendium of data aiming to provide insights into different countries’ competitiveness, a goal downplayed by many national governments, especially progressive ones like ours.
The media focus inevitably is on the horse race. The U.S. ranks number one this year. We are 12th, just behind Finland, just ahead of Taiwan. But the ranking is a weighted average of a large number of variables, with both the weights and the variables chosen essentially arbitrarily. What’s more interesting is some of the individual variables themselves.
For instance, we don’t do very well in product market competitiveness, ranking only 20th overall. Eight variables make up this category. Our best performance is on “efficiency of the border clearance process,” where we rank 18th. Our worst is in the “complexity of tariffs,” where we’re 96th. Ninety-sixth! The report’s fine print tells us this score is based on data from the UN’s International Trade Centre (ITC), which is funny since the ITC report on Canada (at Table 4.2) says the data is from the WEF.
Whatever. The complexity variable is based on four criteria: “tariff dispersion, the prevalence of tariff peaks, the prevalence of specific tariffs, and the number of distinct tariffs.” Tariff dispersion means the variety of tariff rates. Some countries, believe it or not, have only one or two. We have lots. Just have a look at the customs tariff manual, which is 1,549 pdf pages. But set aside a day or two for scrolling. (An especially poignant entry: “Chocolate ice cream mix or ice milk mix… Over access commitment… 265 per cent.” That shows the power of the dairy lobby.) Having lots of different tariff rates is the result of a very visible hand at work.
Tariff peaks are tariffs exceeding three times the national average rate (which in our case is 2.67 per cent). We are 85th in the world on that score with 7.7 per cent of our tariffs being three times average or greater (fewer peaks are better). Specific duties are tariffs written in dollar terms per unit, rather than percentages. They’re obviously very picky. Our compulsive pickiness puts us 95th in the world (again, less pickiness is better).
We like to think of ourselves, even the progressives among us, as free traders. An op-ed column in The Wall Street Journal this week by U.S. progressive Ed Gerwin — they occasionally let such people in — points to how “progressive governments in countries like Canada and New Zealand show that it’s possible to reconcile protrade policies with progressive values.” But if our policies are really so pro-trade, why are we ranked so low in the world for the complexity of our tariff structure?
StatCan issued a backgrounder last week on our import duties. Its main message was that they have declined in the last 30 years. They were $5.6 billion in 2017, which obviously isn’t not peanuts, but it’s just one per cent of the value of our trade, which is down from almost four per cent in 1988, our last year without free trade with the U.S.
Forty per cent of the value of the duties we collect is on our trade with China. But our average duty on Chinese imports is way down, too, from 12.6 per cent in 1988 to 3.3 per cent now. Are we using these tariffs to protect the crucial cutting-edge industries of the future? No. Over 60 per cent of duties raised on Chinese imports were on clothing, furniture, footwear and textiles.
You’ve got to be careful using tariff revenue as a measure of protection. The highest tariffs kill trade dead and therefore don’t collect any duties. But, even so, our tariffs are very low in historical terms. In fact, an average tax on those imports we do buy of just a penny on the dollar hardly seems worth the effort, even if there are still a few holdout industries where tariffs remain high.
If we’re interested in gaming the Davos competitiveness index — a thought I’m guessing has occurred to many political operatives in Ottawa — radically simplifying our tariffs by going to zero across the board would help. More importantly, it would call Trump’s freetrade bluff, give our consumers the fruits of real competition and force our producers to up their game, too.
IF CANADA’S SO PRO-TRADE, WHY ARE WE RANKED SO LOW FOR THE COMPLEXITY OF OUR TARIFF STRUCTURE?