Mises Daily Articles
Investors Business Daily April 1, 1999
Is This How Tariffs Should Work?
Protectionists share a faith that says tariffs protect American workers. If they would only look at the U.S. suit-making business, they could see the ruinous effects of this line of thinking.
In the last decade, the domestic tailored- clothing industry lost nearly half its jobs - from 58,000 to 30,000. If U.S. trade policy isn't changed, it will lose another 10,000 by 2006. In March alone 200 Americans lost jobs in the industry when Hartmarx Corp. was forced to close its Knoxville, Tenn., suit-making plant.
At the same time, Canadian suit makers have prospered. They sell their suits here for $200 less than domestic-made suits of identical quality. Since 1991, they've increased their no-tariff exports to the U.S. by more than 250%.
The cause of all this woe? Canada has had the good sense to drop a stiff tariff on imported fine wool fabrics that the U.S. continues to levy.
Worse yet, while American suit makers are whacked by a duty on fine wool fabrics that exceeds 31%, foreign-made suits, cut from those same high-end fabrics made primarily in Italy and England, are subject to only a 19.8% tariff.
Even populist Republican presidential candidate Pat Buchanan and Rep. Richard Gephardt, D-Mo., both faithful protectionists, would have to admit something is wrong.
After 10 years of decline, someone in power has finally noticed that the tariff is wrecking the industry. A group of Republicans and Democrats in the House and three Democrats in the Senate have introduced bills that will reduce the tariff.
The lawmakers have the support of the Union of Needletrades, Industrial and Textile Employees, suit makers and retailers. Except for the Canadian suit makers who've so generously benefited from shortsighted U.S. trade policy, it's hard to find anyone who'll support the tariff. Given this broad opposition, it seems that a reduction in the tariff is certain.
Yet the power behind such a collection of interests by no means ensures a reduction - or better yet, an elimination - of the tariff. There's been talk of retaliation. Instead of dropping the tariff, the government would hike the duty on the more than 5 million European-made suits bought in the U.S. each year.
That, of course, would be self-defeating. No one wins a trade war. They only make matters worse. When a country fires a shot (a tariff created or increased), the targeted country responds in kind. The one-upmanship continues until markets are closed or are so severely restricted that they're effectively closed.
The lessons are out there. Canada cut its tariff and its suit makers prospered. America can do the same. There's no reason why the suit-making industry should suffer a handicap imposed by flawed policy. What a concept: Free up trade, protect domestic industries.
(C) Copyright 1999 Investors Business Daily, Inc.