Published: April 28, 2008 10:47 pm            

Arthur Foulkes: Change is natural part of growing economy

Imagine you live on a South Pacific island with just five families. Each family specializes in a different line of work. One family fishes; one makes and repairs huts; one gathers fruit; one makes weapons for protection from wild animals; and one family walks to a spring high in the hills to gather and deliver fresh water.

Over time, thanks to specialization and investment in new tools, each family gets more and more efficient at its job and island productivity increases. With greater productivity comes higher standards of living because each person on the island is able to give more and receive more goods in trade.

Things are fine on the island until one day an earthquake shakes things up and a fresh water spring appears right in the middle of the village. Everyone suddenly has an abundant and easy supply of fresh water.

This may come as a nasty shock to the family that gathered water for a living, but even they can take advantage of the new spring. The families on the island now have one less item they must purchase in their weekly shopping, leaving more resources left for other things.

Of course, the water-gathering family must now find another way to earn a living. They may decide to make clothing, weave hammocks or open a theater.

Whatever they decide, the new product they produce will add to the wealth and quality of life on the island.

Unfortunately, in America, when lower-cost goods arrive on our shores, things sometimes happen differently. Organized interests, such as shrimp producers, sugar producers, steel producers and many others, complain of “dumping” and force importers to charge higher prices. It would be as if the water-gathering family could force the new spring to be closed over.

America’s antidumping laws have largely replaced tariffs and quotas as the latest weapon in the arsenal of people favoring trade protectionism. As the Wall Street Journal’s Mary Anistasia O’Grady has written, “Because rising global competition is challenging the status quo … antidumping law has picked up where tariffs and quotas left off.”

In 2003, according to the Trade Partnership, antidumping regulations forced Americans to pay duties of more than 100 percent on sugar from Germany, France and Belgium, 148 percent on preserved mushrooms from Chile and 194 percent on honey from China. Between 1995 and 2005, the U.S. ranked second only to India in the number of antidumping cases it has initiated.

Whether a foreign importer is “dumping” or not is not a straightforward thing. Once a dumping complaint is filed (by domestic producers), the U.S. International Trade Commission begins an investigation to see whether domestic producers have been “harmed” by foreign imports.

Once the ITC finds “harm,” the case goes to the U.S. Department of Commerce, which uses a highly arbitrary and complex process to determine whether “dumping” is taking place. Basically this involves bureaucrats attempting to determine the “correct” price of a good.

The argument for antidumping law is that, without it, foreigners would subsidize their exports, ruin American companies and then jack up their prices. The trouble is, this would mean domestic producers would somehow be prevented from re-entering the market after prices rise. Furthermore, you would be hard pressed to ever find an example of this actually happening.

The most common complaint by antidumping advocates is that foreign governments are subsidizing imports to America, allowing foreign firms to undercut domestic producers.

To be found in violation of antidumping laws, foreign subsidies are by no means necessary, but, even if foreign governments are subsidizing imports to America, why is this a bad thing for Americans? The idea that Americans should block these imports or subsidize our exports in retaliation is the same as arguing that, because a foreign nation is harming its taxpayers and consumers, we better do the same.

As economist Russell Roberts has written, “Imports don’t destroy jobs. They destroy jobs in certain industries. But because trade allows us to buy goods more cheaply … resources are freed up to expand existing opportunities and to create new ones,” just like on our Pacific Island.

The U.S. has had a merchandise trade deficit each year since 1976, Roberts notes. Yet, at the same time, it has added more than 50 million new jobs and per capita income, corrected for inflation, is up 50 percent.

If blocking lower-cost imports is a good idea for America, maybe we should ask why this is also not a good idea for Indiana? Shouldn’t Hoosiers keep out oil from Texas or oranges from Florida?

For that matter, shouldn’t each Hoosier family protect itself from low-cost goods at the grocery stores? After all, isn’t buying food at the grocery store or having a car repaired at a service station destroying the job of a family member who could otherwise be growing food or fixing the car?

Trade opens up opportunities for each of us to specialize in what we do best. As a result, there is much more of everything to go around. Certainly trade changes the economic landscape, but so do changing consumer tastes and new technologies. Indeed, change is a natural and necessary part of any dynamic, growing economy.

Arthur Foulkes is a Terre Haute native and long-time resident. The Tribune-Star reporter writes a weekly column on business and economics. He can be reached at (812) 231-4232 or arthur.foulkes@tribstar.com.

        

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