In Defense of the Apparel Quota

Conservative and liberal economists in Blogland have been very critical of the recent announcement from the Commerce Department:

U.S. Secretary of Commerce Carlos M. Gutierrez announced today the initiation of a new system to monitor imports of textiles and apparel products. The system will allow the Department and the public timely access to preliminary textile and apparel data from U.S. Customs and Border Protection (aggregated on a category basis), allowing decision makers to more quickly analyze the impact of imports on the U.S. market. “This action demonstrates the commitment of this Administration to put in place the tools necessary to enforce our trade agreements and level the playing field to support our domestic textile and apparel industry,” said Gutierrez. “We will continue to work with our domestic manufacturers and workers to give them the tools they need to compete internationally.”

In a moment, I’ll try my best shot at providing at least a feeble rational for what I see as a horrific display of politics over principles. Not that this has not been eloquently said by others, but my own reasons for saying this is a horrific decision run like this: (a) this decision makes certain developing nations a little bit poorer; (b) it indirectly hurts our export sector; (c) it raises the cost of clothing for most Americans including the working poor; (d) any possible tariff revenues will accrue to the Chinese government rather than the U.S. government; and (e) the oldie but goodie – it reduces economic efficiency.

I can only imagine how a young economic advisor named Paul Krugman might have reacted to the political decisions to restrict trade by President Reagan who like George W. Bush preached free trade but ignored his own CEA’s advice to also practice it. If I had the thankless task of writing excuses for this horrific decision, I hope I would have done a better job than Carlos Gutierrez in his recent interview with NPR’s Alex Chadwick. Gutierrez seems to be saying “what we want is free and fair competition … where companies compete on the basis of their costs”. Yet the quotas are the antithesis of competition. Gutierrez went onto to claim that manufacturing employment is on the rise noting that unemployment is down to 5.2%.

As I read the BLS data, manufacturing employment had fallen to 14.308 million by April 2005 versus 17.181 million as of December 2000. The decline in the apparel sector was even more dramatic falling from 472.6 thousand (2.75% of manufacturing employment) in December 2000 to 261.9 thousand (1.83% of manufacturing employment) by April 2005. To be fair to the free trade advocates, the U.S. apparel sector has been steadily declining since at least January 1990 when employment was 926.9 thousand or 5.21% of manufacturing employment.

So if I had the thankless task of defending these quotas, I might start with how workers in this sector are losing jobs with little prospect of finding gainful employment elsewhere. Yet, the apologists for this Administration are required to tell us two things that are not true: (1) the overall job market is great; and (2) government policy is committed to retraining displaced workers even though the White House is proposing to reduce such government assistance.

During Reagan’s first term, one of the excuses for trade protection was the large current account deficits. The problem with this excuse then is the same problem with this excuse today, which is simply that the current account deficits are a byproduct of the decline in national savings, which is partly due to the fiscal irresponsibility of the White House. I guess one could argue that Asian Central Bank mercantilism is partly responsible for our current account deficit, but the Ben Stein claim that the Chinese Central Bank has a perfectly elastic demand for U.S. government bonds goes further than any economist could go without losing all credibility.