The Free Market 14, no. 11 (November 1996)
As the Cold War wound down, opinion elites discovered a new menace: "unfair trade practices." These are the subsidies, protectionist tariffs, and various regulations and business practices other countries use, which hamper the export of American goods.
A new threat, a new crusade, and this one in the name of free trade. The people behind it view commerce as a war to wage for access to, and dominance of, the markets of the foreign countries. Victory is appraised in terms of the balance of trade. The U.S. is supposed to export to a country the same dollar amount we import from it.
A good example is the fight between Fuji and Kodak over film sales in Japan. The U.S. says Fuji, a Japanese manufacturer, is conspiring with Japanese distributors by giving them special discounts that U.S.-made Kodak film cannot offer. The U.S. is demanding that the Japanese government outlaw the discounts, thereby giving Kodak a better chance for sales.
None of this implies that the U.S. has a similar obligation to stop discount sales of U.S. companies at home. Let's say an American shirt maker gives WalMart a discount for bulk orders of shirts. The government of Singapore complains that Singaporean shirt makers can't compete. Of course, U.S. trade officials would dismiss the complaint, and rightly so. These officials have one standard for the U.S. and another for everyone else.
Oddly, the people who complain the loudest about unfair foreign practices are the biggest advocates of protectionist policies at home. The theory is that we are not supposed to import, but every other country in the world is under a moral obligation to purchase unlimited amounts of our exports.
In this war, the Department of Agriculture is playing a major role, particularly its Foreign Agricultural Service (FAS). "This is not the time to get weak-kneed about American agricultural exports," FAS head Gus Shumacher recently told reporters. "It's time to stand up to our competitors. What are we supposed to do—unilaterally disarm?"
Frankly, yes. The best way to help American exporters, and boost the American standard of living, is to reduce production costs at home by scrapping regulations, price controls, taxes, and subsidies in this country, starting with the New Deal notion that domestic prices and wages ought to be kept high.
After that, it's up to exporting businesses to find and protect their own markets. The mix of jingoism and trade is potentially explosive. It leads to an escalation of conflict and unnecessary entanglements between business and government. There is no economic or constitutional justification for this.
Of course, the government doesn't see it that way, and neither do the recipients of subsidies and other perks. FAS s Market Promotion Program (MPP) gives millions to well-heeled, "non-profit" trade associations and agricultural cooperatives, which in turn channel the money to a few private firms. Many of them are Fortune 500 companies, who get paid for the cost of promoting their products at taxpayer expense, with overseas media campaigns, promotional tours, exhibits, in-store demonstrations, posters, and market research. More recently, the program even underwent a name change to Market Access Program (MAP); its previous acronym inspired critics to dub it "More Perks Please."
Between 1986 and 1994, taxpayers forked over $1.25 billion to hawk such items as Chicken McNuggets in Turkey, Gallo wines in France, and KalKan dog food in Mexico. These giant companies are more than able to pay the full cost for any advertising and market research. Why go to the taxpayers? One rationale is that this money underwrites marketing experiments a company might otherwise be reluctant to undertake.
Indeed. Like the $1.6 million given to a Japanese underwear manufacturer to advertise his product to Japanese consumers. U.S. officials say it is intended as an incentive for them to use more U.S. cotton. Then there was $3 million to the California Raisin Board to promote raisin sales in Japan. The campaign bombed when children were frightened by the animated figures of dancing raisins.
In economic terms, the definition of "worthwhile" is "profitable." If a company isn't willing to undertake a certain advertising program, it is not worth undertaking. At best it is a sheer waste of resources, and at worst an imperialist imposition.
The FAS was founded in 1954, although its roots go back to the New Deal, but it had not played a very visible role before the 1980s. The first wide use was in response to a slump in agricultural exports from 1981 to 1985. The slump was caused in part by a strong dollar, and, more importantly, the price support system that made it more lucrative to sell to the government than to private buyers in other countries.
Storage warehouses were overflowing with rice, wheat, barley, corn, and other bulk goods. Typically, rather than remove the price supports, which would have solved a number of problems, Congress created something new. To empty warehouses, the FAS subsidized the exporters.
California's fruit and nut growers then claimed they too were victims of unfair trade practices, and got a program. Then dairy farmers wanted a piece of the action. Next were cotton growers and sunflower exporters, all of whom were rewarded for their complaints.
Today, the FAS maintains a worldwide intelligence network in 132 countries. And there are credit programs that FAS uses to guarantee very low-interest loans to buyers in poor and not-so-poor countries. When a buyer defaults, the American taxpayers get stuck. These defaults will cost $5.5 billion in 1997.
The FAS has become a major tool of U.S. power around the world, even while it helps keep political pressure off the U.S. government to allow freer markets at home. For example, it badgers Pakistan to buy U.S. cotton, while the U.S. keeps high walls on the importation of final products.
To hear the government tell it, the FAS is in the business of creating jobs; for every dollar spent, two to seven dollars in sales result. Of course, we're in a war; and in war the first casualty is truth. In fact, selling goods is the job of business. Whether at home or abroad, it should use its own money.
Sarah Foster is a California journalist
