Mises.org: Tariffs and Unintended Consequences

The Mises Institute carried an interesting article on its website yesterday demonstrating how (bad pun ahead) slippery global shrimp markets were able to avoid the intended effects of anti-dumping tariffs passed in 2005:

After a year of investigation, the Department of Commerce determined that shrimp importers from the six countries were indeed guilty of dumping…In January 2005, the department imposed tariffs on shrimp imports from the six countries named in the petition…: Ecuador, 3.58 percent; Thailand, 5.95 percent; Brazil, 7.05 percent; India, 10.17 percent; Vietnam, 25.76 percent; and China, 112.81 percent.

The tariff was expected to protect US shrimpers by reducing shrimp imports and, consequently, pushing domestic shrimp prices up. And just how has the tariff affected the domestic shrimp market? According to data published by the National Marine Fisheries Service (NMFS), total shrimp imports to the United States have increased by 14 percent since the tariff was imposed, while domestic shrimp prices have decreased by 9 percent. Also, US shrimp imports from the six countries targeted by the tariff have increased by almost 20 percent since the tariff was imposed. These were not the effects that the SSA, US shrimpers, and the Department of Commerce expected.

In line with The Mises Institute’s philosophy, the article is written from a classical liberal perspective ("libertarian" nowadays), and the overarching thesis is that government intervention is generally undesirable and counterproductive. It should be kept in mind, however, that the original petition was allegedly motivated by the subsidies being given by foreign governments to their domestic shrimp producers. I’m sympathetic to the idea that lower costs for U.S. consumers are desirable. But if U.S. producers in a particular industry are not subsidized, but are instead subject to taxes and stricter regulations on production, then foreign producers who are subsidized present a formidable competitive challenge, and there are bound to be negative effects on those who earn a living in the domestic industry. One might argue that if a country wants to subsidize particular industries, so what? But once you consider that some of those foreign subsidies are essentially financed by developed countries (e.g., through foreign aid and institutions like the World Bank), it becomes clear that these concerns may not be purely "anti-trade" (an interesting but inconclusive debate on this in regards to shrimp can be found here–note that neither party is disinterested). In fact, the Byrd Amendment that diverted tariff duties to the industries affected instead of the U.S. Treasury can be seen as an attempt to match, at least partially, the subsidies being received by overseas producers. While for the overall economy, a better approach for an industry under pressure is to innovate (as domestic steel producers have done for example), we must still accept the inevitable fact that global economic competition will probably always have a strong political component to it.

So what can be done, if we accept that the mutual influence between business interests and governments is unavoidable in all or most countries (not to mention intrinsically human)? When pundits gnash teeth and rend garments over the influence of lobbyists on our political process, they should keep an important fact in mind: as long as lobbyists (including various consumer advocate and "public interest" groups) have sufficiently differing interests and are allowed to compete openly, the process can work reasonably well (in fact, the shrimp tariffs were fought against by other domestic lobbies, such as seafood distributors, and the final tariff rates were pushed towards the low end of the Commerce Department’s original target ranges). It’s clear that a diversity of opinion from groups with different interests and experience is vital to the political process. And lobbyists, love ‘em or hate ‘em, play a critical role.

In the end, the biggest risks in our system are probably agency risk and obscurity. Agency risk occurs, for example, when a politician makes a decision (driven by personal interests) that differs from the one they would make based solely on the evidence and arguments presented, or when a journalist or pundit becomes a compensated lobbyist and PR agent (‘pundit payola’). Obscurity is a deliberate attempt to withhold information from the electorate, which renders our political markets less effective. Openness requires disclosure, and I can think of no compelling reason why the people who own this government should not know which interests are in competition around a particular issue. For the most part, this is only possible if people are willing to investigate (for example, one really had to scour between the bylines to learn that the 401(k) industry played a key role in defeating social security reform several years ago). Frustrating, perhaps, but this is why a free and competitive press, honest citizen watchdogs, and periodic elections are vital to the health of our system. No political system can be perfect, but overall, the architects of ours seemed to know what they were doing.

On a side note, a particular irony of the shrimp tariffs was that the most extreme actions were taken against China and Vietnam. A story published a few years ago–in the New York Times, if memory serves–quoted the lament of a Vietnamese shrimp producer, something to the effect of, ‘the Vietnam war was about capitalism versus communism, here we are trying to embrace capitalist practices, and we are being attacked by the U.S. for it.’