Elasticity and Tax Burdens – Econlib
The Financial Times recently published an article discussing the proposed tax on Chinese ships that use US ports. In 2024, Chinese-built dry bulk carriers carried about 46% of US bulk fertiliser imports, totaling 6.7 million metric tons. If a $1.5 million fee is imposed on these ships, transportation costs could increase by $62.50 per ton. This additional cost would likely be passed down to farmers, who are already facing high input costs, particularly impacting the transportation of phosphate and nitrogen fertilisers essential for US crop production.
The suggested fees stem from a months-long investigation by US trade officials, initiated by the Biden administration, to address China’s maritime dominance. The investigation was prompted by complaints from union leaders regarding Chinese industry subsidies. While Japan and Korea are also major shipbuilders, American shipmakers are generally perceived as slower and more expensive.
One question that arises is why US farmers cannot simply pass on the extra cost to foreign consumers of their exports. The challenge lies in the fact that the tax does not apply to their competitors. Despite global demand for farm goods being relatively inelastic, the specific demand for US farm exports is much more elastic as importing countries have numerous alternative suppliers to choose from. As commodities consultant Jay O’Neil expressed, the proposed fees are concerning as they could potentially incentivize crop production expansions in lands belonging to foreign competitors.
The implications of these proposed taxes are significant for the US agricultural sector, with potential repercussions for both farmers and consumers. The image below provides a visual representation of the impact of these fees on transportation costs for US farm exports. It is crucial for policymakers to carefully consider the potential consequences of such measures on the competitiveness of US agriculture in the global market.
