No. of Recommendations: 1
I understand 2, 3, & 4. How does the foreign producer pay the tax? As I understand it, the tax is applied when it is received by the importer. If you are saying that the producer would discount their products going to the US, I can see other customers clambering for equal treatment. That way lies deflation at best and bankruptcy at worst.
The incidence of taxation isn't tied on who pays the tax. The burden of the tax can fall on all parties to the taxed transaction, regardless of who actually makes the payment. In theory, the amount of that burden will be exactly the same no matter who actually collects the tax.
I impose a 10 cent per carrot tax on carrots, it doesn't matter whether I make the farmer or the store or the consumer actually remit the tax to me. All of them will bear some portion of the economic burden of the tax. Fewer carrots will be sold - and at higher prices - than either the farmer or the consumer or the store would have wanted. Everyone's a bit worse off, and the government's better off (to the tune of 10 cents per carrot).
