Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

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Tuesday, May 17, 2005

U.S. Trade Policy:
Tax Consumers and Give the Proceeds to China?

That's what George Bush and the National Council of Textile Organizations want to do in the U.S. One by-product of the proposed quotas on imported textiles from China will also be to help keep inefficient textile manufacturers from losing their shirts. And it might even keep some people employed at wages greater than their opportunity costs.

But politically, the way the quotas are presented is that they will protect jobs.

"The fast action to reimpose quotas by the Bush administration today has saved thousands of textile jobs in this country and we are extremely grateful," said Cass Johnson, president of the National Council of Textile Organizations, a trade association.
I don't buy the argument. Quotas might save some jobs, in the short run, in inefficient firms and industries, but the major beneficiaries will be U.S. business owners and those few Chinese producers who obtain quota rights to export to the U.S. [yes, China is going to extract the rents; see here ($ required)].

China is considering raising export tariffs on certain categories of textiles in the hope of slowing a rapid growth in shipments to the US and Europe since the beginning of the year.

Gao Yong, deputy director of the China Textile Industry Association, said the idea was to raise the tariff on products that had sharply increased in export volume over the past two months, while maintaining or lowering the tariff on other items. A decision had not yet been taken on the extent of the rise, but Mr Gao said he expected one within the next month.
Remember that most labour is fairly mobile. Jobs lost in one industry often reappear in a wide variety of other industries. The adjustment may not be smooth and easy, but it occurs surprisingly rapidly.

Pascal Lamy, the former European trade commissioner who was picked on Friday to become the new head of the World Trade Organization, warned last week against imposing quotas.

Mr. Lamy said that the global trade body had been easing out the quota system over the last decade and that all countries had been given ample opportunity to prepare for the changes.
The argument in the U.S. is that China is subsidizing its textile producers with export tax rebates and by not revaluing their currency. That sounds pretty similar to the old tunes dragged out in the Canadian-U.S. softwood lumber dispute. It is a slick disguise for protectionism designed to get votes from textile workers. As Kevin at Always Low Prices says,

In other words, it's a unilateral imposition of a quota used to purchase the votes of textile employees in the U.S.
In the end, U.S. consumers will pay higher prices for their clothing. And, most likely, quotas on imported clothing from China will hurt poor consumers in the U.S. more than they will hurt rich folk.

Peter Mork [Economics with a Face] is pretty upset about the quotas, too.

Maybe we will get lucky in Canada, and Chinese producers will flood our markets even more and make our clothing even cheaper!

Update: also see what Ben Muse has to say about the quota.
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