The Five Dumbest Tariffs
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The Five Dumbest Tariffs
As the global recession deepens, countries go to extreme lengths to prop up their ailing industries.
Posted Sunday, April 5, 2009 - 7:43am
Smoot-Hawley. The words alone are enough to evoke your stifling high-school economics class. The 1930 trade-decimating bill is the most infamous case study showing that protectionism—the use of tariffs, quotas, and other measures to shield domestic companies from foreign competition-is bad for everyone: Consumers pay more, productivity suffers, and the global economy slows.
Yet there it was, all the same, tucked into Page 189 of the 407-page American Recovery and Reinvestment Act (PDF), signed by President Obama on Feb. 17—a reminder that old habits die hard. Section 1605, the now-infamous "buy American" clause: "None of the funds appropriated or otherwise made available by the Act may be used for a project ... unless all of the iron, steel, and manufactured goods used in the project are produced in the United States."
That single clause, though laced with loopholes, sparked a storm of foreign criticism about American shortsightedness. Fair enough. But if the world is now at the edge of a new tariff war, the United States was far from first to draw arms. From Quito to Beijing, national governments have rushed to protect their countries' industries. In doing so, they have erected barriers against imports that are not only economically counterproductive but often bordering on the ridiculous.
The Big Money has compiled a short list of the silliest, most baffling tariffs to go up since the economic crisis began in earnest last fall. The list is subjective and by definition incomplete; we invite readers to submit their own candidates for silly tariffs, the most notable of which we'll post on the site. But every list needs a beginning.
India: Sorry, Kids, No Toys This Year
American manufacturers aren't the only ones resentful of cheap Chinese imports. On Jan. 23, India announced a six-month ban on the import of toys from China, which by one estimate produces 60 percent of the toys sold in India, worth some $350 million.
Comments
Mexico's tariff
I happen to believe that if any tariff could be defended in such an economic downturn, it would be Mexico's. First it was a response to what is, in effect, a tariff levied by the Teamster's Union through their Legislative contracts. Secondly as the Economist notes in their article from their March 21st issue "The list was carefully chosen to avoid pushing up prices of staples in Mexico while hitting goods that are important exports for a range of American states. That way it could have maximum political effect north of the border."
I'm sure that mentioning a list of the sillier items on the tariff list, such as Christmas trees or Sunflower seeds, makes the tariff seem random and ill-thought out, but to me at least, it seems to be quite the opposite. It is a specific response to American actions, and doesn't affect prices or consumers in Mexico as much as you claim that all tariff's do, probably because it had been so well thought out.
The Omnibus Appropriations bill included in it a provision ending the trucking pilot program that allowed truckers from both countries to operate over the border within certain limits. By ending it the effect was essentially a tariff levied on almost everything that Mexico exported to the US, as Mexcian companies have to pay for three sets of truckers (one for driving in Mexico, one for the short hop across the border, and another set to carry goods in the US) and must see their products delayed by two additional unloadings and reloadings, one on each side of the border. And worst is that the Teamster's tried to hide their true intentions (protectionist activity) with almost racist claims. They claim that Mexican trucks are worse polluters and that their drivers are unsafe and improperly trained. Quite simply this is untrue: the US DOT tracked Mexican drivers during the program's first year and found they were charged with far fewer safety violations than American drivers.
As a carefully directed response to American protectionism, I don't agree with your assessment that the Mexican tariff is one of the "five dumbest" in the world. And while I usually support Unions (in terms of worker's rights, better benefits, etc) I feel that the tariff included on the list should have been the indirect one garnered by the Teamster's union.
Tariff Protection was good For the USA
If tariffs inhibit economic growth and the well being of citizens how did the US ever make the transition from a producer of raw materials and agricultural products in 1828 to an industrial power whose citizens enjoyed the highest standard of living on earth by the end of the century? We became a high tariff nation (with a tariff higher than the Smoot-Hawley tariff) in 1828 and were the highest tariff nation in the world until well after World War II The bad things free traders ascribe to trade protection are not consistent with the American experience. For most of our history we were a high tariff nation. Cambridge University economist Ha-Joon Chang taking issue with notion that Smoot-Hawley was a significant contributor to the Great Depression says: “This is a misreading of history. The depression-era shift to protectionism was much less dramatic than is often claimed. The conventional story says that the world trading system collapsed because the US introduced the Smoot-Hawley tariffs in 1930. But this was not a radical shift in policy. America had been the most protectionist country in the world for the previous century, while Smoot-Hawley only raised average industrial tariffs from about 37 per cent to about 48 per cent, well within the historical range of US tariffs until then. Tariffs in other countries did rise after 1930, but only moderately, and economic historians have shown that trade shrinkage after the depression had more to do with shrinking demand and the drying-up of trade credits.” To see the manifest advantages of protection over free trade compare the performance of the American economy from 1869 to 1900 under tariff protection with the period 100 years latter 1969 to 2000 under free trade. From 1869-1900 tariffs were above 40 per cent while from 1969-2000 they were below 10 per cent. From 1869 to 1900 GNP quadrupled while real wages increased 50 percent, and retail prices dropped significantly. Free traders say that will not happen. It did happen. Under free trade a century later real wages declined. Real wages of most Americans peaked in 1973 and are down since. Professor Ha-Joon Chang concludes his article with: “The reality is that free trade has never worked very well, especially for developing countries, but it is going to malfunction even more in the coming years. Rather than trying to nurse this ailing sacred cow back to health, we should slaughter it—and concentrate our energy on designing a new system of international trade that pragmatically mixes free trade and protectionism.” His article is at at http://www.prospect-magazine.co.uk/article_details.php?id=10628 It is time to give up high school myths and look at real data. We got to where we are with free trade not protection.