March 9, 2001 | Commentary on Foreign Aid and Development

The Catch-22 of U.S. Trade

In his recent testimony before Congress, U.S. Trade Representative Robert Zoellick painted an attractive portrait of free nations "bound together by free trade."

But it is a portrait marred by a little-noticed Catch-22 of U.S. trade law that hurts Americans and many poor nations America seeks to help.

Despite a lot of "free trade" lip service, the United States actually
deters economic growth in developing countries through high tariffs and other trade barriers.

World Bank economist J. Michael Finger estimates that for every $1 in aid developing countries receive, they lose $2 because of import restrictions.

Here's how the Catch-22 works: The average tariff rate levied by the United States in 1999 was about 2 percent. But the United States charges higher tariffs on textiles and agricultural goods, the leading exports of most developing nations.

According to a recent World Bank report, the United States applies tariffs greater than 15 percent on only 311 products (out of a possible 5,000), and the least developed countries bear most of this cost.

Take Nepal and Bangladesh. They face average U.S. tariffs of 13.2 percent and 13.6 percent, respectively--more than six times the average rate. These high trade taxes hit them particularly hard because textile and apparel products make up a huge portion of their total exports--85 percent for Nepal and 77 percent for Bangladesh.

Workers in both countries earn less than $1 a day. The benefits these tariffs produce for the U.S. economy are miniscule compared with the total cost for this protection.

American consumers would save about $750 a household if the government dropped the tariffs, according to economists at the Washington-based Institute for International Economics.

True, ending trade barriers in the textile and apparel industries would cost some Americans their jobs. But in our economy, which has created more than 22 million jobs over the past decade and has set record-low unemployment levels, the jobless typically find work in about a month and a half.

Moreover, the government maintains a safety net to assist laid-off workers and even has a special program for those who lose jobs because of changes in trade policy.

In contrast, when a factory shuts down in a country such as Nepal or Bangladesh, prompted in part by U.S. tariffs, the jobless have no safety net. For workers who lose their jobs in these countries, the opportunities for new employment are virtually non-existent.

Clearly, lowering tariffs and ending quotas on textile and apparel products would promote economic development in poor countries and benefit Americans.

The World Trade Organization maintains the Agreement on Textiles and Clothing will phase out quotas on textile and apparel products by Dec. 31, 2004.

But the U.S. track record on implementing the ATC has been dismal, and the chances of all quotas being gone by 2005 are slim. The U.S. Association of Importers of Textiles and Apparels estimates that more than 90 percent of apparel products still will be eligible for a quota by the end of 2004.

President Bush should ensure the United States meets the 2005 deadline by removing the quotas on textile and apparel products and carefully monitoring the agreement.

This would lower prices on basic goods for the average American, promote economic development in some poor countries and end America's Catch-22 trade policy. End

Aaron Schavey is a policy analyst at The Heritage Foundation (www.heritage.org), a Washington-based public policy institute.

About the Author

Aaron Schavey Policy Analyst
Finance and Accounting

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