Monday, July 16, 2012

"Poor" Consumers/Taxpayers Pay Too Much for Mispriced Olympic Clothes and Similar Protectionist Items Purchased

The Olympic uniforms were imported from China and the politicians are up in arms. Meanwhile, we consumers are being forced to pay twice as much for sugar due to import tariffs and quotas which Tea Party favorite Marco Rubio supported (to protect his constituent Florida sugar growers and processors) and nobody has much to say. All consumers pay while politicians protect the few.

The idea seems to be a simple and non-free market one. Government knows best and not the market. Thus, we'll let the consumers pay whatever the politicians decide and not allow the market to work, I guess.

The Imports of Patriots has this to say about the import/export issue, economic growth, politics, patriotism and protectionism:

"The horror, the horror. No, we aren't referring to those blue berets that U.S. athletes will wear at the opening Olympic ceremonies in London this month. We mean the horrified reaction from American politicians that those uniforms are made in China. Someone should tell these folks that if you want to have exports, you also need imports.

Olympic uniforms are an easy patriotic riff, but no doubt they were contracted to be made in China to save money. Where would you rather have the U.S. Olympic Committee spend its marginal dollars—on training for the athletes to win more medals, or on high-priced berets? What's the more patriotic decision?

More broadly, imports of all kinds drive American jobs and export competitiveness. Most goods imported by the U.S. are used to make other goods. The Washington-based Trade Partnership, which studies such things, says that 62% of the $2.2 trillion of imports in 2011 were inputs for producers.


These include oil, precious metals, minerals, green coffee and lumber. But the list also includes motor vehicle parts, semiconductors, aircraft engines and parts, steel products, fertilizers, plastics and machinery and other equipment. American companies buy these products, make other things with them or add value and then sell their output at home and abroad. If they can't buy these imports at good prices, U.S. producers can't compete globally.

Protectionists portray imports as coming from Third World sweat shops that undercut American labor. But half of U.S. imports come from such developed countries as Canada, Japan and Germany. In 2011 imports from low-income countries amounted to less than 1% of the U.S. total.

Even finished goods imported by the U.S. often have a U.S. export component. Today's manufacturers, no matter where they are located, use an international supply chain that employs Americans. U.S. research, development and design—high-paying jobs—are behind much of what is made overseas.

And what about those Ralph Lauren-designed berets? Well, the American Apparel and Footwear Association says that while their industries are now dominated by imports, these two markets in the U.S. employ more than four million people in everything from design to marketing, merchandising and retail. The International Trade Commission says more than half of the value of imported apparel sold in the U.S. is American. The Commerce Department says that more than 50% of direct importing operations in the U.S. are small businesses.

Imports also raise U.S. living standards. According to Cato Institute trade analyst Dan Ikenson, prices of many tradeable goods like electronics, toys, furniture and apparel in the U.S. have been dropping over the last decade even as the price of nontradeables like health care and education have increased sharply.

President Obama says he wants to double U.S. exports from 2009 to 2014, which makes sense even if the government will have little to do with it. As the U.S. Chamber of Commerce points out, 80% of the world's purchasing power is outside the U.S. along with 95% of consumers.

But this export boom won't happen if the U.S. doesn't keep its own markets open. Protectionism will impoverish our best customers. And there is a risk that trading partners will retaliate with their own new trade barriers. Both would be devastating for U.S. producers: Fast-growing middle-income countries like Mexico and China are also the fastest growing export markets for the U.S.

A half dozen Democratic Senators—led by Chuck Schumer, who else?—have introduced a bill to require that future uniforms be made in America. These are the same geniuses whose tax-and-spend policies make the U.S. economy less competitive. A country that worries about where its Olympic clothes are made has bigger competitive problems than those berets."

My Take

Tariffs and quotas result from protectionism. Protectionism means that consumers pay higher prices than otherwise. These policies in effect amount to tax increases on consumers.

Most of us wear clothes from time to time. Shoes, too. And we watch television, use computers and so forth. Most of that stuff is imported, just like the Olympic clothing. And as consumers we pay higher prices for things when our government protects American manufacturers from having to compete with global competition.

So when protectionism occurs, we "poor consumers" are being choked with higher prices. It's nothing more nor less than a tax increase. Meanwhile, our spendthrift government runs trillion dollar deficits and adds to our national debt each day. This, of course, is on top of our already too burdensome household debts for home mortgages, credit cards and student loans.

Then the government adds further insult to injury when it makes promises to pay future benefits to public sector workers which haven't been properly funded. This underfunded future payment burden is essentially the same thing for Social Security, Medicare, and Medicaid promised benefits as well.

It's a whole lot easier to promise something than to pay for that promise. And when it's all added together, we end up with a "poor" consumer. And a heavily burdened future taxpayer.

So many obligations and such little economic growth. What a combination!

Add up all of the above and it's easy to see why consumers are now "poor" and becoming "poorer" by the day.

Summing Up

Our cumulative debt servicing requirements are too high and still growing. Whether the debt is that of individuals, young or old, home related or education related, incurred for building sports stadiums, schools, food stamps, unemployment insurance, Solyndra investments or anything else involving money which is spent and which we didn't have to spend, it's still debt. And in the future that debt will come due after a steady stream of interest payments have been made along the way to the debt's maturity.

And regardless of whether the "poor consumer" is paying property taxes, state income taxes, federal taxes, gasoline taxes, higher prices for sugar, Olympic uniforms or ethanol subsidies, it's still coming out of the same consumer's/taxpayer's pocket.

We'll have lots more to say about debt, deficits, protectionism, subsidies, tax increases and so forth in the coming days and weeks. The aggregate debt load is really getting out-of-hand. And commitments for future payments remain materially underfunded and largely uncounted.

The plight of the two-headed "poor consumer" and "overly burdened taxpayer" is a huge topic, of course. It will negatively impact U.S. economic growth for years to come.

Simply said, if the "poor" consumer can't afford it, he won't buy it --- not any longer.

The lesson has been learned. "Poor" and debt heavy U.S. consumers and taxpayers will result in poorly performing economies worldwide for years to come.

Thanks. Bob.

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