The Bush administration's trade policy-vacillating between conceptual
devotion to free trade and practical service to protectionism -- has the
ring of St. Augustine's famous youthful prayer: "Let me be chaste,
but not yet."
In speeches, administration enthusiasm for free trade abounds. "Fearful
people build walls around America," said the president this spring,
but "confident people make sure there are no walls." In practice,
however, Mr. Bush seems to reach for the trowel and mortar every other
week to slap on another brick of protectionism.
Last March's new steel tariffs -- up to 30 percent on wire, plate, and
dozens of other products from 32 countries -- are the best publicized case.
But these increases are just one example among six since November. Whether
it's on Vietnamese catfish, Canadian lumber, Pakistani towels, Central
American T-shirts, or Colombian roses, Mr. Bush seems to impose a new
import tax (or duck an opportunity to cut an existing tax) whenever he
has the chance.
The tab mounts fast. Since taking office, the administration has raised
taxes on $20 billion worth of goods, and has promised to do so on a few
billion more. By comparison, it has removed taxes on only $1.3 billion
in imports (though this might rise to $10 billion if the administration
can conclude free trade agreements with Chile and Singapore). After little
more than a year on the job, therefore, Mr. Bush has overseen the biggest
outbreak of new import taxes in 20 years.
It's not an especially attractive record. But it may have a saving grace:
It has directed a spotlight on tariff policy generally. The steel tariffs
get attention because they seem such a sharp departure from the normal
approach to trade. And, in the aggregate, it is true that American tariffs
are low, averaging less than 2 cents on the dollar. But the aggregate
figures hide the uncomfortable fact that for hundreds of consumer goods,
tariffs of 15 to 30 percent are not aberrations but normal and permanent
policy. A glance through the tariff schedule finds such high tariffs on
T-shirts, spoons, sweaters, sneakers, baby clothes, drinking glasses,
forks, and more. This alone makes the tariff system perhaps the most regressive
part of the American revenue system-and it still hides flagrant discrimination
against the poor.
Women's underwear offers a spectacular example. Imported polyester panties,
sold in big heaps at mass retail outlets like Wal-Mart or Target, face
tariffs of 16.2 percent. But luxury silk lingerie from abroad, sold at
elite boutiques, has a tariff of only 2.4 percent. As a result, low-income
women, unknowingly, pay far higher taxes on underwear than wealthy women
who shop in elite stores.
This case, while arresting, is not isolated or unrepresentative. Rather,
it is quite typical -- biases against the poor are pervasive throughout
the tariff schedule. Cheap drinking glasses, priced at 25 cents apiece
or less, carry 30.4 percent tariffs; by contrast, tariffs on leaded glass
mugs costing more than $5 a pair are only 3 percent. Likewise, tariffs
on $100 track shoes are high at 20 percent, but they look tame when compared
with the 66 percent tariffs on down-market sneakers sold for $3 or less.
And while forks with golden or silver-plated handles face no tariff at
all, stainless steel forks at 25 cents or less have tariffs as high as
18.5 percent.
Why would we create such a system? Certainly not by design. In fact,
tariff policy has evolved more by neglect and indifference than intention.
As the trade negotiations of the 1960s and 1970s brought rates down, the
government began to see tariff policy as a secondary issue. Rather than
pursue a vision of the tariff system as a whole, therefore, the U.S. took
an approach to tariffs that led to 20 different tariff policies for different
industries, each designed to co-opt potential opponents of larger trade
agreements.
These different policies can be grouped into three categories. First,
outward-looking, export-oriented industries like civil aircraft or semiconductors
have been seeking -- and often winning -- worldwide elimination of tariffs.
Second, makers of elite and luxury goods, who compete based on brand name
and image, have been indifferent to tariff policy. But makers of cheap
consumer goods, by contrast, compete almost solely on price; they tried
hard to keep tariffs high and usually succeeded. The result is that tariffs
have vanished from high-tech goods and luxuries, but remain disgracefully
high on the cheap products most often bought by the poor.
In the United States, tariffs place their greatest burden on single mothers.
Single-parent families face clothing bills twice as high relative to their
income as two-parent families. Furthermore, because their incomes are
low (averaging $25,000 a year), single mothers buy clothes with higher
tariffs, and usually shop in stores with lower markups. Tariffs may cost
such young mothers -- above all, families just leaving the welfare system
-- hundreds of dollars a year.
Just as it penalizes poorer shoppers in American stores, the tariff system
imposes a unique burden on very poor countries that export to the United
States. Poor nations -- especially Asian countries that lack special programs
like the African Growth and Opportunity Act or the Caribbean Basin Initiative
-- specialize in precisely the cheap consumer goods that face the highest
tariffs. One astonishing result is that the U.S. Customs Service collected
more money on goods from Bangladesh last year than on goods from France.
Bangladeshi businesses, exporting $2 billion worth of cheap skirts, blouses,
and baseball caps, lost $331 million to tariffs; French exporters of $30
billion in fine wines, pharmaceuticals, auto parts, and other goods, only
lost $330 million.
Then look at Southeast Asia, where Cambodian entrepreneurs, struggling
to succeed in a country just recovering from genocide and civil war, faced
tariffs of $150 million on sales of $950 million worth of shirts and underwear;
high-tech exporters in Singapore paid only $95 million for $15 billion
worth of semiconductors, surgical equipment, and high-end PCs. And for
a final example, tariffs cost both Mongolian and Norwegian exporters about
$23 million-in the Mongolian case, for $140 million worth of sweaters
and suits; and in the Norwegian case, for $5.3 billion worth of salmon,
jet engine parts, and North Sea petroleum.
Finally, the tariff system is almost completely ineffective in protecting
jobs at home. Despite a unique quota system and a tariff 10 times the
average rate, the domestic apparel industry lost half its employment during
the 1990s. For shoes the situation is starkly absurd: The government collects
$1.6 billion a year in import taxes (as much as it collects on cars) even
though America makes virtually no shoes at all. Shoe tariffs are simply
the policy equivalent of an appendix-a tax remaining long after the industry
it was meant to protect has gone.
Such a system cries out for reform, and the Bush administration has a
logical way to proceed. The World Trade Organization's new round of negotiations,
which opened in Doha, Qatar, last November, has a mandate to cover tariff
policies. Were the administration to call for worldwide elimination of
tariffs on consumer goods in this round, it could regain some of the international
credibility it lost in its recent spate of tariff hikes. It could bargain
more effectively to open markets for American exporters, and it could
open development opportunities for poor countries as it raises living
standards for the poor at home.
Can the Bush administration take such a step, given its apparent faith
in new tariffs as a source of votes? St. Augustine, of course, was able
to transcend his dissipated youth. One can likewise hope that for the
administration today, a bit of early debauchery will yield to a more chaste
lifestyle later. At the very least, though, the president might call a
halt to the new import taxes and stop making a bad system worse.
