Protectionism is a Rip-Off
Winter is upon us, and that means digging out of our closets a whole variety of different kinds of shoes. There are insulated hiking boots, trail shoes, specialized hunting boots, waterproof shoes, and more.
Ah, the wonderful varieties provided for us by the marketplace!
Thank goodness government never did to shoes what it has done to education and health care. If it had, prices would be going up, instead of down, and we’d probably have only a handful of models for all seasons.
Only government-approved shoe stores would exist. And there would probably be no such things as specialty outdoor shoes, which now account for 30% of the retail sales of outdoor equipment in general (which itself is a $646 billion industry).
Yet an interesting thing happened just following the election. The Obama administration, without warning, announced that it opposes prolonging a suspension of tariff walls on the materials that go into making these specialty products. To put it plainly, there is going to be a new tax on imports on your shoes. And it begins on Jan. 1, 2013.
(If you want to know more about the legal mechanism being overridden here, look up “miscellaneous tariff bill”; it is a slight window of freedom in an otherwise closed system.)
This puts many importers and foreign producers in a terrible bind. They’ve already made their business plans and purchases based on the assumption that the lower tariff rates will apply. Industry experts are predicting price hikes of an immediate 38% on outdoor shoes. It will hurt sellers, manufacturers, and especially consumers.
Why would the Obama administration do this? I have no inside knowledge. But if this action fits most such actions, it comes down to a political payoff for some industrial competitor somewhere. It has nothing to do with saving jobs. It is saving some friends of the government at the expense of everyone else. Another possibility is that this action helps give more work and power to the U.S. Customs agency and its public-sector union.
Maybe you have noticed: There is no national controversy about this. It is left to institutions like the Outdoor Industry Association to plead with their members to write, call, petition, beg, or do whatever is necessary to save themselves from the tax. After all, that’s what a tariff is. This tax hurts the many and benefits the few.
In effect, business is back to begging to do business. Does it work? Sometimes it does, provided the affected industries grease the right palms. Often, it doesn’t work. So people will show up at their favorite store in mid-January and be appalled at the suddenly soaring prices of outdoor shoes. Will they curse the Obama administration? Nope. Most people are completely unaware of just how protectionist U.S. trade policy truly is and how it affects millions of products. Instead, they will blame the retailer for gouging or the manufacturer for being greedy. The private sector will again be blamed for the actions of government.
I’m particularly intrigued by these kinds of actions because they suggest the real way that government undertakes its dirty work. Mostly, it is out of public view. It consists of petty bureaucrats working with various industry groups to rig the system in favor of whoever has the political power and muscle to pull it off. The public debates and the elections have very little at all to do with it. In fact, there is no debate about most of what government does.
It’s not so much that it takes place in secret. Most all information is publicly available. The problem is that no one but the most affected have the incentive to watch what is happening in any particular sector on a day-by-day basis. That’s why, if you really want to know what government is doing to business, you have to ask an industry expert. Only they get the communique. Only they have a strong incentive to act.
People think of protectionist policy as a benefit to domestic businesses. This is not true. This is a clear case in which most of the harm of the protectionist policy is done to American business. The reason is that economic production takes place over many stages of production, and these are ever more spread throughout the world. A tax on imports ends up affecting domestic manufacturers and sellers, imposing artificially high costs of doing business.
To be sure, there are remaining forms of protectionism that are a clear sop to American industry. To my astonishment, The New York Times ran an Op-Ed about one just the other day. Maybe you have noticed this, but foreign airlines are not allowed to serve domestic routes in the U.S. They can land in U.S. airports, but they have to head out with passengers destined for foreign countries.
As a result, U.S. air carriers do not face the level of competition they would otherwise. I noticed this only recently when I took a flight on Turkish Airlines. The plane was beautiful, the chairs comfortable, the service fantastic, and everything worked. I was amazed because this is a government-owned airline. Generally, it was vastly better than what we American consumers have come to expect from American companies.
Well, Turkish airlines serves a highly competitive market throughout Europe and the rest of the world. The U.S. is actually unusual in this respect. Only American companies are allowed to serve American domestic routes. The result is a lessening of price competition and reduced service. This serves to powerful interest groups: the air carriers themselves and the labor unions that work for them.
If you think about it, this is an egregious regulation, one that would never exist in a situation of free enterprise and free trade. And the hypocrisy is overwhelming. In the land of the free, the home of all things bright and beautiful, we have draconian laws that keep foreign suppliers out, like some kind of mercantilist medieval fiefdom. What possible harm could come from letting British Airways take me from Atlanta to Chicago?
The cause of free trade has always been about the common man. It is about the right of average people to trade with whomever they want. Protectionism, in contrast, is another way for powerful people to extract money from our pockets and reward their political friends with legal factors. In other words, it’s a rip-off.
You and I might be reminded of this in the dead of winter 2013, when that pair of hiking boots we had our eyes on suddenly soars in price and, instead of buying, we decide to stay home in our slippers and contemplate the fate of liberty in our time.
Original article posted on Laissez-Faire Today