Category Archives: Protectionism

Susan Schwab's farewell

I never found enough time during the holidays to write a retrospective on the Bush administration’s trade policy woes, but its parting shot – a 300% duty on Roquefort – seems like an apt summary. The USTR’s new tariffs on French truffles, Irish oatmeal, Italian sparkling water, and foie gras abide by the rules (WTO-sanctioned retaliation for the EU’s ban on imports of US beef), but they look more like the last gasp of opportunistic protectionists than a strategic move by free traders. Can Susan Schwab seriously say that “the goal of these modifications is to reach a resolution of the dispute” when she imposed the duties five days before leaving office?

Vox's Global Crisis Debate

Vox has launched a Global Crisis Debate forum in coordination with the UK government to let economists across the globe debate what should be done. The debate on international trade and open markets is moderated by Richard Baldwin, and the debate on development and the crisis is moderated by Dani Rodrik. Some snippets:

Simon Evenett is skeptical that a new surveillance mechanism or a declared standstill on protectionist measures would have any bite.

Marc Auboin surveys how quickly trade financing is drying up and what governments might do to intervene effectively – fows of trade finance to developing countries seem to have fallen by some 6% or more year-on-year.

Dani Rodrik says that the crisis is also an opportunity for developing countries, as they have a chance to gain “a much bigger say in the institutions that govern economic globalisation.” He’s pushing for counter-cyclical capital-account management, cracking down on tax evasion, a Tobin tax, and WTO guarantees for “policy space.”

As usual, Rodrik has drawn a number of replies. Nancy Birdsall says developing countries haven’t put themselves in the position to make such reforms. Yung Chul Park and José Antonio Ocampo largely agree with Rodrik. I am sure that those who disagree will make their appearance soon, however.

Finally, AEI’s Philip Levy outlines political reasons to be unhappy about “Buy American” provisions in the stimulus package – he thinks that it’ll provoke a backlash that starts a procurement war, which will only hurt the US.

A "surge in protectionism"

The Wall Street Journal says that a surge in protectionism is threatening to exacerbate our global economic pain. The story’s elements should be familiar to those that follow international trade:

  • Lobbies for industries like steel and automobiles are pushing for protection.
  • Countries have some room to raise tariffs since bound rates exceed applied tariffs. [As Richard Baldwin stressed]
  • Industries’ demand for anti-dumping measures is rising. [As Joseph Francois warned]
  • The G20 has been ineffective: “When the group last met, in mid-November, it agreed to ‘refrain from raising new barriers’ to trade or investment over the following 12 months. But a few days later, India increased tariffs on steel, iron and soybeans.” [As Baldwin and Simon Evenett lamented]

That said, this is far from Smoot-Hawley.

Preventing a protectionist outbreak

New VoxEU book on the crisis and protectionism:

When incomes, investment and jobs are under threat, national governments try to cushion the blow – in part by erecting new trade barriers. This time is no exception. According to the latest data from the WTO and ITC, the number of antidumping cases jumped 40% in the first half of 2008 and many nations have already raised tariffs in 2008.

The magnitude of the new protection is modest. However, as the recession spreads and deepens globally, this could change – especially if world leaders lose control of the situation; protectionism and competitive devaluations could trigger a vortex of beggar-thy-neighbour policies.

The universal respect of WTO rules and 60 years of tariff negotiations make a repeat of the 1930s tariff war unlikely. But a WTO-consistent protectionist cycle is a real possibility. Indeed, just such a thing happened on a small scale in the last major financial crisis – the 1997 Asian crisis.

Featuring Richard Baldwin, Jagdish Bhagwati, Ann Capling, Wendy Dobson, Peter Draper, Simon Evenett, Gary Hufbauer, Douglas Irwin, R V Kanoria, Robert Z. Lawrence, Patrick Messerlin, Kevin O’Rourke, Arvind Panagariya, Yung Chul Park, Hadi Soesastro, and Jeffery Schott.

Is Larry Summers flirting with protectionism?

Amidst a critique of Obama’s economic transition team, Willem Buiter says that Larry Summers is over the line: “Larry Summers has stepped repeatedly over the boundary between legitimate critiques of certain extravagant claims concerning the joys of globalisation and simple trade protectionism.”

Summers has at times specifically warned against protectionism, but others have also been unhappy with his recent writings on the liberal international economic order. Is Summers over the line? A few links or citations would make Buiter’s complaint more persuasive.

Banana independence!

Robert Higgs:

If we were talking about bananas, everybody would see immediately the foolishness of seeking “banana independence.” Nobody would fall for half-baked arguments about our addiction to foreign bananas or our love affair with banana bread. It’s obviously uneconomic to grow millions of bananas in this country; it could be done, but doing it would entail much greater costs than buying them from producers in places better suited to their production (that is, places where they can be produced at lower opportunity cost).

There might be some good reasons to be skeptical of free trade in oil, but I doubt those are what politicians have in mind when they urge us to “break our addiction to foreign oil.”

[HT: Arnold Kling]

Japan should open up to rice imports

Japan should have long ago slashed its absurdly high rice tariffs. Michiyo Nakamoto reminds us in the FT why liberalization is in Japan’s and others’ interests:

Japan is one of the world’s largest importers of food products. The country that brought the world miso soup, tofu and soya sauce produces only 20 per cent of the soyabeans that go towards making these daily staples.

Japan’s dependence on imported food has grown so much over the years, along with the westernisation of its eating habits, that food self-sufficiency measured by calories consumed has tumbled from 79 per cent in 1960 to 40 per cent today…

Japan has taken a fiercely protectionist stance over rice, imposing tariffs of 778 per cent on imports… it has left the long-term viability of Japan’s rice sector under serious question. The failure to introduce market efficiencies has meant that despite Japan’s high rice prices, rice farming is so unprofitable that few young people are willing to take it on. As a result, more than half of rice farmers are in their 70s and most of them only produce rice part-time.

What is more, only 60 per cent of the land available for use as rice paddies is actually being used and as ageing farmers retire, this proportion is expected to fall. If the situation is left unchecked, Japan’s rice crop could plunge from an annual 8.5m tonnes to about 4m tonnes, says Akio Shibata, director of the Marubeni Research Institute. Mr Shibata worries that even if Japan opened its market to rice imports, it might not be able to procure all the supplies it needs, given recent global trends…

The issue is not just a matter of feeding the Japanese population. As one of the world’s largest food importers, Japan’s lack of food self-sufficiency could have a potentially damaging impact on supplies for other countries with less buying power… As a country that relies so heavily on food imports, Japan needs to play its part in ensuring stability in global food trade.

Regressive US tariffs

Edward Gresser says that US tariffs are disproportionately applied to goods consumed by low-income Americans. Moreover, he says that there aren’t enough low-income Americans working in those industries for the employment benefits to outweigh the consumer costs of “taxing the poor.”

It is only a slight exaggeration to argue that the tariff system has essentially evolved into a tax on clothes and shoes, which generate most of the government’s revenue from tariffs. In 2007, clothes alone accounted for $9.5 billion of the $26 billion in U.S. tariff revenue, shoes added $1.9 billion, luggage and handbags another billion. The cost to the public, magnified by retail markups and sales taxes, is likely about $40 billion a year. It is a burden that disproportionately affects poor and working-class Americans.

Though the tariff system is smaller than other taxes, it is far more regressive. This is because poor people spend a greater share of their income on clothes and shoes than do wealthy or middle-class people. The cheap and simple goods made in poor countries and bought by low-income Americans are subject to far higher tariffs than luxury goods. An acrylic sweater attracts a 32 percent tariff, while a cashmere sweater gets only 4 percent; a polyester bra is tagged with a 17 percent tariff, while one made of silk gets less than three percent; and a cheap stainless steel fork is hit with a 19 percent tariff, while a silver-plated spoon has none at all…

In 1998, high-tariff industries — such as shoes and textiles — employed about 930,000 people in the United States. By 2002, the number had declined to 650,000. Now, with tariff rates unchanged, the figure has dipped to 400,000 U.S. workers. And the highest tariffs are often the least effective. The 48 percent sneaker tariff, for example, falls on a product that has not been made in the United States since the early 1970s. The United States today now finds itself clinging to an antiquated system that hits poor people hardest and protects few if any jobs while stunting growth and discouraging exports from some of the world’s poorest and most vulnerable countries.