Friday, February 03, 2006

Destructive Protectivism

The United States seems to be heading in a rather worrisome direction in terms of how the government handles competition from abroad. This is not about outsourcing, but it is about free-marked capitalism, a tenet of our economic society that our current President fiercely endorses (his notable refusal to bail out the auto industry is one such indication). With this passionate stance, it is hard to imagine that this same administration, indeed the entire US government, has been slowly trying to interfere with the markets, especially when it concerns products from other countries Too often, the knee-jerk reaction in the government at all levels has been to block moves, to impose tariffs, to ban products when it is contrary to what a large American corporation/industry desires The examples go on and on.

2002:The Bush administration places a tariff on the majority of steel imports from Europe, Asia, and South America that lasts for 20 months The range of the tariffs ran between 8 and 30 percent. These were imposed for two reasons, it seems. One was to protect the last remaining steel facilities in the Eastern United States from cheaper, better products from overseas. It was also done to gain political capital in the Rust Belt, which is a crucial battlefield in recent Presidential elections. The move was ruled illegal by the World Trade Organization, but that did nothing to stop the administration. It was only after the European Union and Japan announced they would impose sanctions on billions of dollars of US exports that the administration backed down from its claims.

2004:California begins the process to be the first state in the nation to allow hybrid vehicles to utilize the carpool lane with only a driver. This was to encourage people to buy and use hybrids, which dramatically reduce the amount of exhaust as well as gasoline consumption. At the time, the vast majority of the hybrid vehicles were supplied by Japanese companies, notably Toyota and Honda. The American auto industry responded with an intended lawsuit, claiming that this gave Toyota and Honda, who spent years developing this beneficial technology, an unfair advantage in the marketplace. Luckily, the suit never got far, and the hybrid exemption for the carpool lanes is now in effect.

1990s-2005:In one of the most egregious cases of tariffs, the catfish industry took a scathing response to the rise in quality and demand for Vietnamese catfish. The catfish industry in Vietnam had been growing slowly but surely since the Vietnam War, and by the 1990s they had begun to export their catfish across the world, including the United States. They had soon dominated over a fifth of the market in frozen catfish. The US catfish industry wouldn’t stand for that, so they went to their government for protectionist legislation. Boy did they get it. First, Sen. Trent Lott, R-MS, adds an amendment to an unrelated appropriations bill saying that only American catfish can be termed, “catfish”. The Vietnamese fish have to be called, “basra>” or “tra” despite the fact that they’re nearly identical fish. Rep. Marion Berry, D-AR went even further, insinuating that Vietnamese catfish are contaminated with Agent Orange. Haha. Then, the industry filed an anti-dumping suit against the Vietnamese catfisheries. This law usually works for industries that demonstrate an unfair competitive advantage, usually by subsidies. However, the US Commerce Department couldn’t find evidence that there was any heavily subsidizing of the catfish industry in Vietnam. Nevertheless, they bowed to pressure and declared that all Vietnamese industries – all of them – were by nature anti-competitive.

However, the Vietnamese catfish must have been that good, as a 2005 poll in Mississippi concluded that American consumers preferred the Vietnamese “basra” by a margin of 3 to 1. Similar, though slimmer, margins were found by a survey in Louisiana. This wouldn’t stand, so in August of 2005, largely under the radar of media attention, Alabama and Louisiana declared an out-right ban against catfish from Vietnam. Their reasoning rested on the case of the catfish possessing a “bioterrorist” threat to United States consumers. Wow.

These are but a few examples of the types of tariffs that the government has been trying to implement, or that industry has been pressuring them to advance. It is a natural feeling to want to protect our own industries, but these measures take nativist thinking to a new, and dangerous, level. Such extended forms of economic isolationism and protectivism have never really worked. Europe in the few decades preceding the 1990s relied on such an approach in their auto industry, when faced with competition from leaner, cheaper Japanese models. The US stood against them and forced themselves to adapt and change. The resultEurope’s market share fell dramatically, while the US survived and began a new era of car manufacturing that could rival Japan’s. And, in the new era of globalization, such measures are not likely to be tolerated by other areas of the world. As exemplified by the response to steel tariffs by both the EU and Japan, protectivism will only lead to further economic rivalries, tariffs, embargoes, and complications. It is counter-intuitive to the notion of a free market to combat improvements in an industry with such backwards thinking. It reflects poorly on our own industries, as well as a combative attitude of our government. That is not conducive to this new world of global trade. I hope we can rise above this current trend to show the world we are still the masters of innovation, and of the free market economy.


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