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Friday, December 1, 2006

How Washington Works


A recent Wall Street Journal editorial nicely illustrates how Washington works. The Bush administration has been pushing for a measure to normalize trade relations with Vietnam. (Normalize is a Washington term that does not mean free trade.) Congress said no just as President Bush was preparing to visit that country last week, a major embarrassment for the administration. But as the Journal pointed out, [T]his failure is an even bigger fiasco than it appears because of the White House's pandering to the U.S. textile industry. It's a case study in how protectionists never stay bought.

Indeed.

The clout of the American textile lobby is well known. For decades it has been able to get the government to impose high prices on American consumers through tariffs and quotas on foreign clothing and fabrics. Those trade barriers not only harmed Americans — low-income Americans most of all, obviously — but also poor people throughout the world for whom textile and apparel jobs are often their best route out of absolute poverty. (That those jobs are the best available options may be the result of government intervention on behalf of privileged interests that closes off other options, but that's a subject for another time.)

So no one should be surprised that even a trade-normalization agreement with Vietnam would contain some privileges for the textile lobby. As the Journal pointed out, the Bush Administration bowed to it by negotiating extraordinary quota provisions with Vietnam. In particular, it agreed to allow quotas to be reimposed if there are import surges in Vietnam textiles to the U.S. once the deal is implemented.

Import surges? One pictures the Vietnamese unleashing a tidal wave of inexpensive sweaters and socks, inundating beachfront properties and suffocating unsuspecting people on the West Coast. Import surge is protectionist lingo signifying an unexpected increased volume of trade between willing foreign sellers and willing domestic buyers. Why should an American industry get relief from that, especially when it would mean prohibiting some transactions that American buyers and Vietnamese sellers wish to engage in?

And what could be more presumptuous than import quotas? It amounts to the government saying to us, Okay, children, you may buy no more than X sweaters and Y shirts from Vietnam this year. That's all you'll need. Why do we stand for this?

Even though the textile interests won this monopolistic privilege, they prevailed on their kept senators from North and South Carolina to prevent the bill from coming to a vote. The White House caved in even further. In a September letter to the two GOP Senators [Lindsey Graham and Elizabeth Dole], the Journal reported, Commerce Secretary Carlos Gutierrez and Trade Representative Susan Schwab agreed to 'self-initiate anti-dumping investigations' against Vietnamese apparel under certain circumstances. That is, the government declared that it will serve as the textile lobby's protectionist front man.

The Journal called the administration's offer to initiate anti-dumping investigations on behalf of the textile interests stunning because typically it's up to an industry to show it has suffered because of imports. (There's another outrageous legal practice that doesn't deserve to survive.)

As the Journal pointed out, you'd think from all this that the textile people directly compete against the clothing makers in Vietnam. Wrong. They don't make clothing; they make yarn and fabrics. So what's the problem? The Journal explains:

[T]he U.S. textile industry is trying to protect its interests not in the U.S. but in Central America. If the Vietnam bill passes, apparel from Vietnam may well be able to undercut the price of similar goods from Honduras. Those Central American plants buy U.S. yarn, so the textile lobby is trying to block exports from Vietnam to protect its own exports to Honduras.

The editorial adds:

This fiasco is another illustration that tactical protectionist concessions rarely yield the strategic free-trade gains that supporters claim. The Bush White House justified its steel tariffs and farm subsidy blowout in the first term as the price of passing trade promotion authority, but the global backlash has been extreme. The Doha Round [of trade talks] may not even make it to a vote in Congress.

Barriers to Voluntary Exchange

Let's be clear what's happening here. American retailers want to purchase low-cost Vietnamese clothing because they believe their customers (you and I) will be happy to buy them when we see the items in the stores. The Vietnamese clothing makers want to sell their products to the American retailers. American consumers, ever on the lookout for bargains, would likely buy the low-cost Vietnamese clothing in large quantities.

But it may not happen. Why? Because the government won't remove the barriers to this trade. And even if a bill normalizing trade is passed, it will contain provisions to authorize interference with this peaceful, constructive activity if domestic textile interests cry for help — and even if they don't.

In other words, the American consumer is low man on the totem pole. Yet the purpose of production is consumption, not the other way around. That's how Washington works.

But what about jobs? This is a red herring. If textile workers did not lose jobs to low-cost labor abroad they'd lose them to superior machines. (Should we outlaw them too?) Cutting off imports would not save jobs, but it would increase costs and make us poorer. The money saved from imports goes to creating things we can't afford today. What the protectionists fail to grasp is that the law of scarcity cannot be wished away.

Things may be even worse than they look. As Robert Samuelson wrote the other day in the Washington Post, We are dealing with something new here. It transcends traditional protectionism, which tries to shield specific industries and workers from imports. It's trade obstructionism: a reflexive reaction against almost any trade agreement. The idea is that much trade is inherently 'unfair.'

That's the attitude toward trade agreements, which always contain special-interest exceptions and other mischief. Imagine if the only proper policy — unconditional, unilateral free trade — were on the table.

The Journal called the administration's offer to initiate anti-dumping investigations on behalf of the textile interests stunning because typically it's up to an industry to show it has suffered because of imports. (There's another outrageous legal practice that doesn't deserve to survive.)

As the Journal pointed out, you'd think from all this that the textile people directly compete against the clothing makers in Vietnam. Wrong. They don't make clothing; they make yarn and fabrics. So what's the problem? The Journal explains:

[T]he U.S. textile industry is trying to protect its interests not in the U.S. but in Central America. If the Vietnam bill passes, apparel from Vietnam may well be able to undercut the price of similar goods from Honduras. Those Central American plants buy U.S. yarn, so the textile lobby is trying to block exports from Vietnam to protect its own exports to Honduras.

The editorial adds:

This fiasco is another illustration that tactical protectionist concessions rarely yield the strategic free-trade gains that supporters claim. The Bush White House justified its steel tariffs and farm subsidy blowout in the first term as the price of passing trade promotion authority, but the global backlash has been extreme. The Doha Round [of trade talks] may not even make it to a vote in Congress.

Barriers to Voluntary Exchange

Let's be clear what's happening here. American retailers want to purchase low-cost Vietnamese clothing because they believe their customers (you and I) will be happy to buy them when we see the items in the stores. The Vietnamese clothing makers want to sell their products to the American retailers. American consumers, ever on the lookout for bargains, would likely buy the low-cost Vietnamese clothing in large quantities.

But it may not happen. Why? Because the government won't remove the barriers to this trade. And even if a bill normalizing trade is passed, it will contain provisions to authorize interference with this peaceful, constructive activity if domestic textile interests cry for help — and even if they don't.

In other words, the American consumer is low man on the totem pole. Yet the purpose of production is consumption, not the other way around. That's how Washington works.

But what about jobs? This is a red herring. If textile workers did not lose jobs to low-cost labor abroad they'd lose them to superior machines. (Should we outlaw them too?) Cutting off imports would not save jobs, but it would increase costs and make us poorer. The money saved from imports goes to creating things we can't afford today. What the protectionists fail to grasp is that the law of scarcity cannot be wished away.

Things may be even worse than they look. As Robert Samuelson wrote the other day in the Washington Post, We are dealing with something new here. It transcends traditional protectionism, which tries to shield specific industries and workers from imports. It's trade obstructionism: a reflexive reaction against almost any trade agreement. The idea is that much trade is inherently 'unfair.'

That's the attitude toward trade agreements, which always contain special-interest exceptions and other mischief. Imagine if the only proper policy — unconditional, unilateral free trade — were on the table.


  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.