Most Trade Policy is Driven by Special Interest Groups

Who cares about trade policy with one or more of the following nations: China, Japan, South Korea, Taiwan? Well, Stoa policy debaters do, or will, as they research and debate proposed policy reforms. But most people don’t care all that much. People have limited time and lots to do, and most realize time invested researching trade policy won’t be rewarded. They are unlikely to use any knowledge they gain to influence public policy, and without policy changes they will be stuck under whatever trade regulations there are in the status quo

The people and organizations who do care enough are those who benefit from current trade regulations, or expect to benefit from new regulations. So union leadership lobbies for trade barriers they think will boost union jobs in the U.S. Furniture manufacturers lobby for and file “dumping” charges with the Commerce Department against Chinese furniture companies. U.S. shrimpers lobby to restrictions on frozen shrimp imported from China (and Chinese shrimp industry fights back).

Each trade restriction boosts the prices U.S. consumers pay for goods hit with import restrictions and tariffs. These price increases are rarely enough to move consumers to notice, much less protest, but the gains to U.S. producers are often substantial, and they invest tens to hundreds of thousands of dollars to lobby Congress to protect each trade restriction.

The benefits of each trade restriction is concentrated to a handful of producers, but the costs are diffused across thousands to millions of consumers.

Stoa debaters will stand almost alone as motivated enough to research, sort through, and speak out on the various claims, regulations, trade agreements, and protectionist vs. free trade arguments.

Brink Lindsey’s Low-Hanging Fruit Guarded by Dragons: Reforming Regressive Regulation to Boost U.S. Economic Growth makes the case for first repealing “regressive regulations.”

However, Lindsey’ “Low-Hanging Fruit” study doesn’t look at international trade, instead focuses on domestic regulations.

This October 2013 article in The Diplomat, American Protectionism Threatens US-China Trade looks at current “bilateral” U.S./China protectionist policies.

The United States and China have one of the largest trading relationships in the world, at over $550 billion per year. U.S. policymakers are right to cry foul when the Chinese government distorts that trade to protect domestic interests.  Unfortunately, U.S. policymakers do the same thing and, in the process, harm the U.S.-China relationship. 

One example is Washington’s continued use of so-called “non-market economy methodology” when deciding whether Chinese goods are being “dumped” into the U.S. market at unfairly low prices.  The designation is a holdover from the Cold War that exists today only because its mystical formula enables U.S. officials to impose higher punitive tariffs to protect inefficient domestic industries. 

The practice is actually illegal under World Trade Organization rules. But when China joined the organization in 2001, the United States insisted that an exception be created, allowing it to continue discriminating against Chinese imports for 15 years. Time has passed, and unless the United States government changes its practice by the end of 2016, it will be in flagrant violation of U.S. trade obligations.

A key inherency point for debaters looking at “non-market economy methodology”:

Unfortunately, the United States is almost certainly not going to comply.  There is a shameful history of law-breaking by U.S. trade officials abusing the non-market economy methodology.  Both U.S. law and international trade rules have been consistently stretched or outright ignored for decades, and there is little indication that this trend will change. 

Commerce, enterprise and voluntary exchange help make the world a more peaceful and prosperous place. Trade and trade policy are at the center of economic theory and political economy. As consumers we benefit from exchange, from trade. As producers we benefit when people in other places purchase the goods and services we produce. But as producers we often don’t benefit from producers in other places offering their goods and services to people who are or could be our customers.

American consumers benefit from trade with China, Japan, South Korea, and Taiwan whenever they purchase goods and services produced in those countries.

For an overview of international trade policy, see Douglas Irwin’s EconLib article A Brief History of International Trade Policy.

The theory of international trade and commercial policy is one of the oldest branches of economic thought. From the ancient Greeks to the present, government officials, intellectuals, and economists have pondered the determinants of trade between countries, have asked whether trade bring benefits or harms the nation, and, more importantly, have tried to determine what trade policy is best for any particular country.

On Amazon.com you can “Look Inside” Douglas Irwin’s new book Free Trade Under Fire, to be published June 30, 2015.

More on Douglas Irwin from EconLib article above:

Douglas Irwin is professor of economics at Dartmouth College and a Research Associate at the National Bureau of Economic Research. He is author of Free Trade Under Fire (Princeton University Press, 2002, [2015]) and Against the Tide: An Intellectual History of Free Trade (Princeton, 1996). His website is at http://www.dartmouth.edu/˜dirwin.

[Amazon Link where Economic Thinking receives commission on purchase]

America’s Founders tried to limit Congressional and Executive power to intervene in the economy. Modest tariffs on imported goods were the federal government’s major source of revenue, along with land sales. The Founders believed that economic interventions would excite factions, that is, special interests who gain by economic legislation. Trade policy through American history has been just that. Domestic producers, from farmers to manufacturers, lobby each generation for new or continued restrictions on imported agricultural and manufactured goods.

Here is a Princeton Univ. discussion of interest groups and “The Problem of Factions.” (pdf)