The Naked Truth About Tariffs

Tariffs are bad for the little guy, we write. Yeah, yeah, yeah, responds the sceptical reader. And where is the evidence?

In the underwear, responds the Progressive Policy Institute, a group affiliated with America's centrist New Democrats. In a new study, PPI's Edward Gresser looks at some of the daily purchases made by the common woman (and man), and quantifies the share of their retail cost that is due to tariffs.*

Consider your average pair of undies, the cheap polyester variety. They are subject to a tariff on polyester of 15 per cent. The fancy variety costs $12 or $20, and is much less likely to have any significant tariff levied: silk underwear has a mere 2.4 per cent tariff. In other words, translates Mr Gresser: "If you buy underwear at K-Mart you are a high tariff target, but if you buy at Victoria's Secret, you are not." Where's the underwear justice?

The same difference is just as evident when it comes to another quotidian necessity - shoes. Cheap running shoes sold in America tend to come from one of two places, China and Indonesia. Under US trade policy, those shoes are subject to the published 48 per cent tariff rate. (If for some reason America ended China's Most-Favoured-Nation status, that tariff would rise to 84 per cent). The average price per pair paid by the importer of such shoes is $2.20. The US Customs Service took in $17m in such tariffs, raising the individual retailers' cost for these items to $3.25 from $2.20.

Higher end running shoes, the sort purchased by the more well-to-do, carry a lower tariff of 20 per cent. Italian men's leather shoes - of which America imported 10m pairs last year - are subject to a tariff of a mere 8.5 per cent. Is it right that workers $1 out of the cost of a $5 pair of running shoes should go to the government?

Yet another example, says Mr Gresser, is tableware. The highest-end forks have silver handles, and fall in a class not subject to tariffs. Cheaper stainless steel is however subject to a tariff of 15 per cent. A 5.3 per cent tariff hits imported snakeskin bags; plastic-sided bags, the sort poorer people buy, are subject to an 18 per cent tariff.

This Upstairs/Downstairs difference is not necessarily intentional. It arose, though, because lawmakers were focusing on protecting the US industries that make mass products, which generally means the sort of products poorer people buy. Still, the differential is an object lesson in how good intentions, especially those towards the "American worker", can also hurt that worker.

The second main point here is that tariffs are taxes - albeit ones that are hidden - just like undies. Indeed, as Mr Gresser points out, they win the contest for the most regressive form of federal taxation. He even thinks the tariff tax is more regressive in terms of sheer cost than US states' cigarette taxes, which in themselves are pretty darn regressive.

Mr Gresser ran the numbers and concluded that tariffs cost households earning an average $110,000 - a mere 0.6 per cent of income. Workers earning a $15,000 a year by contrast must pay a full 1.9 per cent of income toward tariffs. In other words, the equivalent of a week's salary.

And this sacrifice has not even benefited their colleagues in protected industries. Protective tariffs notwithstanding, employment in light consumer industries has fallen sharply in recent years. For example, employment in the sector of manufacturing that produces women's shirts and dresses has dropped about 80 per cent in the past 20 years.

It is interesting that it took a group affiliated with the Democratic Party to produce this study. Democrats are normally viewed as beholden to unions, the sort that fight for tariffs. The message is clear. Republicans have fallen down on free trade this year, in areas ranging from steel to agriculture. If they think the Democrats are such troglodytes that they will fail to spot an opportunity when they see one, they are sorely mistaken.

*New Democrats Online at www.ndol.org

© Copyright 2002 Financial Times

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