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Trade Bill Is Hazardous to Consumer Health

October 11, 1987|ALLAN H. MELTZER | ALLEN H. MELTZER is the J. M. Olin Professor of Political and Public Policy at Carnegie Mellon University

The worst anti-consumer legislation in decades will soon be approved by Congress. Subsidies will be lavished on every industry with enough organization and money to buy the votes of a few legislators. Through the well-known process of mutual back scratching, a few congressmen can roll up enough votes to get the taxpayers to ante up for their supporters.

The legislation is called a trade bill: to be precise, the Omnibus Trade and Competitiveness Act of 1987. It has some provisions affecting trade rules and negotiations. Those are a small part of the bill.

Is Congress interested in consumer health? Why does the trade bill give additional subsidies to the already heavily subsidized tobacco industry?

Bill Is a Christmas Gift

Is Congress concerned about the costs consumers pay for clothing? Why does a companion bill extend and intensify the virtual ban on increased imports of textiles, apparel and shoes?

These examples of anti-consumer legislation are only two of many subsidies, prohibitions and tax rebates that will be paid by consumers and taxpayers now and in the future. Most of the trade bill is a Christmas tree with gifts for special interests. The gifts often have little to do with the trade problem or the lack of competitiveness of the American economy about which congressmen like to talk. Gifts for sugar, wool, lamb and sunflower seeds are in the bill, along with subsidies for computer chips makers, some steel producers and many others.

Direct costs of subsidies, taxes and tariffs are only part of the costs consumers will pay. Protection here encourages protectionists abroad. If we restrict Brazilian shoe exports, Brazil will intensify protection against our computers. Restrictions against Canadian wooden shingles bring Canadian restrictions against U.S. farm exports. New trade restriction not only raises the costs to consumers directly but, by encouraging retaliation, reduces the markets for U.S. exports.

There are more subtle, but not less important, effects. Protection of the steel industry for more than a decade kept the price of steel used by U.S. producers higher than the world price. Instead of importing steel to lower the cost of producing automobiles, tractors, machine tools and other products made of steel, we imported autos, tractors and machine tools.

Protection didn't strengthen the competitive position of industries that use steel. These industries became less competitive and many of them demanded protection in turn. Consumers paid more for the cars, trucks and other durables made with steel. Imports helped to lower these prices, but restrictions on imports worked against lower prices.

We all buy imports if they give us better quality or lower prices. The appeal of Japanese or Korean cars and consumer electronics is the same as the appeal of Asian apparel, Italian shoes or American medicines and computers. Trade benefits consumers, and trade restrictions hurt.

Years of Protection

How are Americans hurt by imports? The consumer who buys a foreign car or a T-shirt made in China thinks he has made a wise choice. If an American producer offered a product with as good or better quality, price and service, he would get the business. Protection gives him the business, or more of it, without encouraging him to lower his price or improve the quality or service he offers.

The American steel industry has been asking for, and receiving, increased protection for more than a decade. If protection worked to improve quality and lower costs and prices enough to make the industry competitive, the steel industry would be booming. It is not.

Advocates of the trade bill portray the United States as a crippled giant, unable to compete in the world. This is nonsense. Judged by our ability to export, we have done very well recently. Exports increased by 20% in the year ending July when measured in constant dollars. This is the highest growth rate in a decade. Imports, though still rising, are rising much more slowly than exports. Export growth is, again, a mainstay of growth in U.S. output and standard of living. If we can scuttle the trade bill, exports will continue to grow.

America's competitive position in the world does not require special interest legislation posing as protection. Our ability to compete depends mainly on our productivity, the wages we get for the work we do, and the way we use our skills and talents. Productivity depends on the quality of the tools and machines we work with.

Exports for Imports

Congress could improve our competitive position by changing the tax laws to increase investment in new machinery, new tools and new plants. The 1986 tax bill shifted more than $100 billion in taxes from individuals and households to businesses. Many of the higher business taxes fall on business investment. Less business investment means poorer future productivity performance by American industry. Lower productivity growth means slower growth of real incomes and living standards.

Over the long term, we pay for our imports with exports. Neither the trade bill nor a tax bill can affect that. We can affect the quantity and the quality of the goods we export and the standard of living at which we live.

The trade bill lowers our standard of living by subsidizing the domestic production of goods we can buy more cheaply elsewhere. Policies to encourage, but not subsidize, investment raise our standard of living.

We often forget that the object of the competitive struggle is to raise standards of living in the world, especially our own. The protectionists in Congress have either forgotten that message or never learned it. Under the guise of protecting us, they are penalizing us--all of us. Consumers must ask themselves and their congressmen, who or what is being protected, and who will pay for it?

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