Friday, June 17, 2011

Free Trade Helps America's Poor. Full Stop.

One of the themes of this blog is how unilateral elimination of US import tariffs disproportionately helps lower income Americans who have to spend a larger share of their paychecks on necessities like food, clothing and footwear.  Now comes a new study from Ed Gresser at ProgressiveEconomy (yes, you read that right: progressive) which provides further empirical evidence of this indisputable fact.  Reuters has the write-up:
The United States should eliminate most, if not all, of its remaining taxes on imported goods to give low-income consumers extra spending cash, a new report recommended on Tuesday....

The United States collected about $26 billion in tariffs on about $1.9 trillion of imports in 2010, suggesting an average tariff rate of only 1.3 percent.

But in fact, tariffs on individual items vary dramatically, with goods most likely bought by the poor frequently hit with the highest rates, the report said.

Sneakers with a wholesale price of less than $3 have a 48 percent duty, while leather dress shoes only 8.5 percent. The duty on a polyester bra is 16.9 percent but just 2.7 percent on a silk one. A canvas bag faces a 16 percent tariff, but one made from snakeskin 5.3 percent.

Gresser, who worked previously for Senator Max Baucus and the U.S. Trade Representative's office, estimated about two-thirds of U.S. import duties are collected on home goods such as clothes, shoes, towels, pillowcases, luggage, handbags, silverware, plates and drinking glasses. Many of those items are no longer made in the United States.

"Tax analysts know very well that any tax on home goods will be regressive. This is because wealthy families spend the smallest share of their income on home goods, while low-income families -- especially if they have children -- spend the most," Gresser said.

Import taxes are often defended as necessary to protect to American jobs, but falling U.S. employment in high-tariff industries such as clothes, shoes, luggage and linens suggest they have been ineffective at that.

Some 1.34 million Americans worked for clothing manufacturers in 1970, but 40 years later only about 160,000 still do. The U.S. shoe industry has shrunk from 230,000 workers to 1,000 over the past four decades.
The full report, The Rebirth of Pro-Shopper Populism, is available here.  The whole thing is worth reading, but here are my two favorite tables.  The first one shows how our tariffs currently discriminate against low-end consumables (and, of course, the people who buy them).

The second one shows the obscene regressivity of US tariffs:

So a single mom has to work 2.6 times as long as a wealthier person/family to pay off their share of annual import taxes.  Unreal.

Seriously, how on earth are these tariffs still in place?  To line the pockets of a few well-connected US companies and their workers?  Because other countries refuse to similarly help their poorest citizens?

Gimme a break.

Truly great stuff from Gresser and his team.  Now, if only they could convince their fellow Democrats - an increasing majority of whom have abandoned their party's long tradition of support for free trade - of the wisdom of tariff liberalization.

Sadly, I'm not holding my breath.

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