Two Cheers For GATT
Table of Contents
The Harsh Reality: U.S. Protectionism
"The U.S. has far more trade barriers than most American politicians choose to admit."
Much of the controversy over the GATT presumes that American consumers have little or nothing to gain from the GATT's enactment. In reality, the U.S. has far more trade barriers than most American politicians choose to admit. We cannot understand the potential benefits of the GATT without looking first at the chains that bind American consumers.
American trade negotiators have exerted far more effort to close the U.S. market than to open foreign markets. Since 1980, the U.S. government has negotiated 170 bilateral trade agreements to restrict exports to the United States. If a Third World nation's exports of a clothing item equal 1 percent or more of U.S. production, the U.S. government almost automatically restricts that nation's exports. U.S. trade law has turned incompetence into an entitlement, as any lagging American company has a right to seek relief from foreign competition.1 Foreign nations are increasingly denounced as unfair unless they take "affirmative action" to force their businesses to buy more American products.
Tariffs. The U.S. tariff code is the accumulation of more than a hundred years of political payoffs and kickbacks.
- In 1790, the Tariff Code consisted of a single sheet of rates posted at U.S. Customs Houses.
- Now, it occupies two hefty volumes with 8,753 different rates and a blizzard of arbitrary discriminations against and among products.
- This is equivalent to 8,753 different industrial policies or 8,753 different entitlement programs for protected domestic industries.
"The Tariff Code carries 8,753 different rates."
In general, the tariff code makes no sense in terms of well-defined economic or social objectives. Instead, it indicates the historical political clout of various Washington lobbies. While the average tariff is around 5 percent, some are in the stratosphere. Low-priced watch parts are hit with a 151.2 percent tariff;2 tobacco stems must pay a 458.3 percent tariff;3 and tariffs on some shoe imports are 67 percent.4
Overall, the U.S. tariff code looks like a variable value-added tax devised in a lunatic asylum. The tariff on brooms is 42.3 percent, thereby safeguarding dust and dirt; the tariff on flashlights is 25 percent, thereby encouraging people to break their noses in the dark; the tariff on cheap scissors is 23.6 percent, thereby encouraging people to tear things apart with their bare hands.
America's tariff makers perceive vast differences between similar products - which ordinary mortals miss. The tariff on duck liver is 16 times higher than on goose liver. The tariff on wine with low alcoholic content is six times higher than on wine with high alcoholic content.
Quotas. The U.S. now imposes over 3,000 separate quotas on clothing and textile imports from 40 nations.5 The U.S. government restricts imports of tampons, typing ribbons, tarps, twine, table linen, tapestries, ties and hundreds of other items. U.S. textile trade policy seems based on the belief that clothes are among the most dangerous objects a nation can import - thus justifying stricter controls on the imports of mittens, socks and hankies than on pistols, rifles and nuclear reactor parts.
Dairy Products. The United States allows only minuscule imports of most dairy products. [See Figure I.] For example:6
- U.S. dairy import quotas permit each American citizen to consume the equivalent of only one teaspoon of foreign ice cream and one pound of foreign cheese per year.
- Nonfat dry milk imports are limited to about one ounce per person per year, and only Canada and Australia are allowed to provide that meager amount.
"Each American is allowed the equivalent of a teaspoon of foreign ice cream a year."
Cost to the American Economy. Every trade barrier undermines the productivity of capital and labor throughout the economy. As a result, the cost of trade restrictions far exceeds any benefits:
- A 1979 Treasury Department study estimated that trade barriers routinely cost American consumers eight to 10 times as much as they benefit American producers.7
- A 1984 Federal Trade Commission study estimated that tariffs cost the American economy $81 for every $1 saved.8
- By one estimate, restrictions on clothing and textile imports cost consumers $l for each 1 cent of increased earnings of American textile and clothing workers.9
- Overall, trade barriers cost American consumers $80 billion a year, according to the Institute for International Economics.
- This burden is equal to $800 a year for every American family.
Special Burdens for Low-Income Families. The harm done to the economy by trade restrictions does not affect all families equally. Instead, the U.S. Tariff Code encourages the poor to raise their standard of living by imposing the highest tariffs on products that low-income families are most likely to buy.10 As Figure II shows, U.S. tariffs and quotas are much less burdensome for families who buy higher-priced products:
- Families that buy imported plastic school satchels pay a 20 percent duty, but those that buy satchels of reptile leather pay only 4.7 percent.
- Cheap jewelry, imported in lots worth less than $18 a dozen, is tariffed at 27.5 percent, while the tariff on gold necklaces is only 6.5 percent.
- Mink coats are duty-free, and with the money a mother saves on her mink, she can buy her baby a polyester sweater - which carries a 34.6 percent tariff.
- Lobster is duty-free, and with the saving a struggling parent may be able to afford infant food, which carries a 17.2 percent tariff.
"Taxpayers pay to keep out low-priced foreign food and again to feed low-income Americans hurt by high food prices."
U.S. tariff policy also implicitly assumes that it is better for the poor to go hungry than to buy foreign food. The U.S. imposes more than 500 different tariffs to deter foreign food from invading American stomachs. Ironically, the U.S. government spends over $28 billion each year on 13 different food assistance programs. Taxpayers are hit twice - once to pay salaries of Customs agents to keep out low-priced foreign food and a second time to feed low-income Americans hurt by high food prices.
William Cline of the Institute of International Economics, a Washington, D.C., think tank, estimates that the combined consumer costs of tariffs and other restrictions on textiles is $20.3 billion on the wholesale level and as much as $40 billion on the retail level.11 These burdens hit poor families far harder than rich families.
- According to a Consumer Expenditure Survey by the Bureau of Labor Statistics, households in the lowest fifth of the income distribution spend almost four times as much of their income on clothing as do households in the highest fifth (15.1 percent versus 3.8 percent).12
- Because they spend a higher percentage of their incomes on clothing, the poor are taxed at a higher rate by textile and apparel protection - which costs them 8.8 percent of their disposable income every year.13
Comparing Countries. American politicians are prone to declare that the United States is the only free trade nation in the world. True, the United States does have fewer restrictions than most countries. But many nations have lower average tariffs than the United States. [See Figure III.] The U.S. average import-weighted applied tariff is now 5.4 percent.14 Switzerland's comparable average tariff is 2.2 percent; Sweden's is 3.8 percent; Norway's is 3.6 percent; Japan's is 1.9 percent; Iceland's is 5.1 percent; Finland's is 5.4 percent; Canada's is 4.9 percent; Singapore's is 0.4 percent; and Macao and Hong Kong both have on average tariff of 0.0.15 While some of these countries have extensive nontariff barriers such as import quotas (as does the U.S.), this list indicates that U.S. trade officials should at least be less self-righteous.