Keynes at the Border? Wednesday, April 15, 2009 A common fallacy
holds that imposing taxes on imports and rebating taxes on
exports would stimulate the economy. A common fallacy holds that
border tax adjustments—imposing taxes on imports and rebating
taxes on exports—would enhance American exports and reduce
imports. The reasoning behind this mistake is simple enough. A
border adjustment seems to provide a subsidy to exporters and to
levy a tariff on importers. Border adjustment proponents, noting
that international trade rules allow nations to border adjust
consumption taxes such as European-style value added taxes, urge
the adoption of a consumption tax in the United States so that
we can border adjust and enhance our trade competitiveness. Yet,
such an argument ignores an essential truth about imports and
exports: over the long term, exports and imports must be equal.
We can think of a country like a household. Purchases are paid
for from the proceeds of sales, and sales are made for the
purpose of additio