Fishy Costs for Consumers

The latest volley in a low-level trade war is the Commerce Department’s recent announcement of tariffs on imported shrimp, affecting imports worth $3.5 billion. While the taxes are levied on foreign producers ostensibly to offset “harm” to domestic producers, findings that importers “dumped” their products are dubious. The imposition of countervailing duties are ultimately a tax on American consumers, who suffer from the inevitable result: higher prices and fewer options in the marketplace.

The Department of Commerce found that some governments were subsidizing their exporters of “certain warm-water frozen shrimp” and ordered that duties be levied to offset these subsidies. Malaysia was the biggest offender, and imports from that country were slapped with countervailing duties as high as 54.5 percent. Chinese imports will be hit with duties of slightly more than 18 percent, while imports fromEcuador will be penalized at somewhat lower levels of 13.5 percent. Indian imports will be subject to duties of 12 percent, and Vietnam escapes with a duty of less than 8 percent. The Department of Commerce levied these duties in response to a complaint from a domestic industry group, the Coalition of Gulf Shrimp Industries.

The duties can stay in place a long time if the International Trade Commission concludes in its report, due in September, that these domestic producers have been harmed by imports. This outcome would keep prices high for consumers and limit competition for domestic producers. Tariffs are, in the words of now-deceased economist Mancur Olson, an example of diffuse costs and concentrated benefits. Imposing a tariff limits competition from overseas producers, which benefits the members of Coalition of Gulf Shrimp Industries. The cost, however, is spread over every American resident who buys shrimp as he watches the price go up. The truth is these tariffs are taxes on American consumers, not faceless foreign producers.

The other troubling feature of these shrimp tariffs is that they are part of a pattern of retaliatory tariffs between the United States and various trading partners, with China being the most high-profile. Beijing imposed tariffs as high as 57 percent this month on polysilicon, in retaliation to anti-dumping duties the United States imposed on Chinese-made solar panels last fall.

The tariffs on finished solar panels and polysilicon, a vital material used in their manufacture, will send the price of solar panels soaring. To the extent that solar panels can be a viable alternative source of renewable energy, these tariffs are deeply counterproductive, in that it reduces supply and stifles innovation, and can have ripple environmental effects. This consequence might be unintended, but it is entirely foreseeable.

In 2011, China slapped tariffs on American cars, hitting Chrysler and General Motors, the companies with partial taxpayer ownership following federal bailouts, with the highest levies. These were in retaliation for a series of countervailing and anti-dumping duties imposed on Chinese imports. These included levies ranging from 13 percent to 98 percent on seamless stainless pipes in 2009 and duties on imported Chinese tires as a “safeguard” for the domestic tire industry, which was purportedly suffering owing to competition from imports. These duties were supposed to be temporary, falling from 35 percent in the first year to 25 percent during the next two years.

Safeguard duties are another strategy doomed to failure. When an industry has lost competitiveness in the global market, protecting it from foreign competition might help stem the decay temporarily, but it merely delays the inevitable at great cost. The tire industry might benefit from a reprieve for a couple of years, but at the expense of higher car prices, and higher prices in other industries as trading partners retaliate.

The benefits of trade taxes are captured by a few producers, who are often much wealthier, at the expense of lower-income consumers. All these tariffs show up in the form of higher expenses for American producers and eventually, as higher prices at the supermarket, the auto dealership, the big-box retailer and the mom-and-pop store for the average American consumer. Each tariff adds to the cost burden and erodes the hard-won benefits of free trade — more choices and lower prices for everyone.