Elasticity and Tax Burdens

The Financial Times has an article discussing the proposed tax on Chinese ships that use US ports:

In 2024, about 46 per cent of US bulk fertiliser imports — 6.7mn metric tons — were carried by Chinese-built dry bulk carriers, according to Kpler data. A $1.5mn fee could increase transportation costs by $62.50 per ton, a burden that would likely be passed down to farmers, already facing high input costs. Phosphate and nitrogen fertilisers, essential for US crop production, would be hit hardest. . . .

The suggested fees are the result of a months-long investigation by US trade officials, initiated by the Biden administration, into how to counter China’s maritime dominance. The probe came in response to complaints from union leaders about Chinese industry subsidies. Japan and Korea are also major builders, with American shipmakers widely considered slow and expensive in comparison.

Why can’t US farmers simply pass on this extra cost to the foreign consumers of their exports?  The problem they face is that the tax does not apply to their competitors.  While the global demand for farm goods may be somewhat inelastic, the specific demand for US farm exports is far more elastic, as importing countries have many other suppliers to choose from:

Jay O’Neil, a commodities consultant, said that the proposed fees “scare the heck out of me”, adding that they amount to “encouraging crop production expansions in lands of our foreign competitors”.

 

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