Friday, December 30, 2005

One More For The Book Hopper

by Tom Bozzo

Ken Houghton reminds me that I should pick up Pietra Rivoli's The Travels of a T-Shirt in the Global Economy : An Economist Examines the Markets, Power, and Politics of World Trade. The Yale Center for the Study of Globalization's website has a short article based on it here. One of her findings is that textile import quotas intended to protect the domestic textile industry actually helped speed the flight of textile production abroad.

While the point is a little buried in the article, one of the things that makes quotas particularly suck among departures from free trade is that they can be thought of as a tariff that's paid to the foreign producers rather than to the U.S. government. Rivoli points out that the "revenue" from the effective tariff is large per displaced U.S. textile worker, but it's being collected by the Chinese among others. (Likewise, restrictions on Japanese auto imports were much more of a bonanza for Honda and Toyota than for GM and Ford.)

Meanwhile, I'm reminded that I have to post some wrap-up thoughts on Accelerando and get back to reading The Republican War On Science.
I'm not an economist, and maybe I'm missing something here, but I found the Yale Center article to be totally unconvincing as an argument for unrestricted trade, and at best an argument against one particularly silly method of imposing quotas.

To the extent that the quotas were imposed ad-hoc and in response to an adjusting market, instead of as a comprehensive system, they forced the market to change faster. That doesn't strike me as a negative (to us -- it's a bum deal for the foreign factories whose success depends on the fickle nature of the American Congress), but just as the cost of doing business. And it seems like the whole regime could be improved by say, auctioning off a set of quotas, thus letting the international market adjust itself, and letting our government capture the revenue from the black-market quota sales.

I don't think quotas are necessarily a good idea. I assume they have benefits and drawbacks, and are thus useful in certain times and places but not others. Nevertheless, this argument against them didn't carry a lot of weight. The "48% tax" on clothing (which I assume accrues to low-end items like T-shirts, as opposed to bespoke suits) may well be a price worth paying if (if) in fact it props up a solid blue-collar American textile industry. For that, I'm willing to pay an extra $1.50 when I buy a T-shirt.
Ben: I agree that the case is made for unintended consequences of the restrictions, and not for totally free trade. (I'd like to see the book's entire argument before commenting too much further.)

You're right that the effective tariff rate is not inherently problematic. The effective monopoly tax rates from drug patents, for example, are astronomical (hundreds of percent), to the point where it's not obvious that we're better off with the public-private system vs. direct public funding of drug R&D.

I think part of the deal with quotas is that they look better politically than taxes, though they work like taxes only without the revenue -- the worst of both worlds. Auctioning off importation rights is an interesting variation, and at least captures some revenue, though tariffs are probably administratively easier.
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