tariffs - 2618-CH04 10/15/02 10:26 AM Page 90 CHAPTER FOUR...

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Fundamental Issues 90 CHAPTER FOUR Regulating International Trade—Trade Policies and Their Effects 1. How do taxes affect the market price, and what are the redistributive effects of taxes? 2. What are tariffs, and what are the economic effects of tariff barriers? 3. What are quotas, and how do they represent a direct approach to restricting trade? 4. What are voluntary export restraints? 5. What are the effects of export subsidies, and how do policymakers typically react to export promotion policies? 6. What are the advantages and disadvantages of trade barriers? For decades, representatives of U.S. textile firms and labor groups lobbied pol- icymakers for protection from foreign competition. In response, lawmakers en- acted a vast number of regulations and restrictions on imported textiles and created an elaborate system administered by U.S. trade agencies. The body of regulations applied to imported textiles is so complex that its administration involves nearly 75 percent of U.S. International Trade Admin- istration employees. The International Trade Administration, an office of the Department of Commerce, has the power to require an accounting of the en- tire trail of the production of a garment. Foreign manufacturers must com- plete extensive documentation of the locations where cutting, sewing, and as- sembly took place. Officials may perform surprise inspections of foreign manufacturing facilities to ensure that each piece of a garment is produced according to this documentation. 2618-CH04 10/15/02 10:26 AM Page 90
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In Hong Kong, for example, manufacturers link computers to workers’ desks to log the hours spent sewing shirts together. In this way, manufactur- ers can provide evidence to U.S. trade administrators that they assembled the shirt in Hong Kong instead of China, because U.S. restrictions on Chinese garments are much more draconian. Manufacturers report that paperwork requirements represent a sizable portion of overall production costs. The protection afforded to U.S. textile and garment manufacturers drives up the price of clothing purchased by a typical U.S. consumer. In the course of government business overseas, however, U.S. trade and com- merce representatives once purchased tailored shirts and suits in Hong Kong. Photographs of William Daley, former secretary of commerce, and Donald Johnson, chief textile negotiator for former U.S. President Clinton, hang on the walls of Sam’s Tailor Shop in Kowloon, Hong Kong. When confronted by a writer for the Wall Street Journal, Mr. Johnson stated that he paid the appropriate duties on a tailor-made suit upon entering the United States. Secretary Daley, however, had not. His spokesperson re- ferred to the matter as a mere “oversight.” I n spite of the potential welfare-enhancing effects of international trade de- scribed in Chapters 2 and 3, policymakers continue to enact trade barriers that serve to restrict trade and protect specific domestic groups. What types of barri- ers do policymakers use? How do these trade barriers affect domestic and foreign households, firms, and governments? What are the economic consequences of
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tariffs - 2618-CH04 10/15/02 10:26 AM Page 90 CHAPTER FOUR...

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