Thursday, October 13, 2011

U.S. Barriers to Imports: U.S. ITC #1

The U.S. International Trade Commission has published the 7th edition of its occasional report: "The Economic Effects of Significant U.S. Import Restraints." The report comes in two main parts. The first part is an overview and status report on the main U.S. barriers. The second part, which I'll discuss in a follow-up post, concerns the trend toward longer global supply chains.

The main message of the first part the report is that the U.S. economy is in general extremely open to imports: "The United States is one of the world’s most open economies. In 2010, the average U.S.
tariff on all goods remained near its historic low of 1.3 percent, on an import-weighted basis, essentially unchanged from the previous update in 2009. Nonetheless, significant restraints on trade remain in certain sectors. The U.S. International Trade Commission (Commission) estimates that U.S. economic welfare, as defined by total public and private consumption, would increase by about $2.6 billion annually by 2015 if the United States unilaterally ended (“liberalized”) all significant restraints quantified in this report. Exports would expand by $9.0 billion and imports by $11.5 billion. These changes would result from removing import barriers in the following sectors: sugar, ethanol, canned tuna, dairy products, tobacco, textiles and apparel, and other high-tariff manufacturing sectors."

The single most costly trade barrier concerns rules against importing ethanol. The fact that such rules exist at all, of course, strongly suggests that the key issue in ethanol policy is not how much gasoline we can replace, but instead how much of a subsidy can find a justification for sending to farmers. Here's the ITC overview:

"Because of rapidly increasing quantities of ethanol mandated by the U.S. Renewable Fuel Standard, both U.S. ethanol production and U.S. imports of ethanol are projected to rise markedly by 2015. The projected higher import quantities and the continued moderate restrictiveness of ethanol restraints combine to make these restraints the most costly (in welfare terms) among all sectors considered. The Commission estimates that liberalizing ethanol import restraints would increase welfare by $1.5 billion
and increase imports by 45 percent in 2015. Although liberalization would reduce the domestic industry’s output and employment from their projected 2015 levels by 4–5 percent, these changes are minor considering that the ethanol industry employment and output are both projected to
more than double between 2005 and 2015, with or without liberalization."

One final element of these reports that I always appreciate is that they treat employment issues in the context of the overall economy where over time wages and industries adjust. Thus, while for each trade barrier the report seeks to quantify output and employment changes that would arise if that trade barrier was lifted, the report is also careful to note that as the economy adjusts, an equivalent number of job would arise elsewhere. This message comes through far too seldom in discussions of international trade: barriers to trade, or lifting barriers to trade, aren't going to alter the total number of jobs over time, but instead will shift the industries and sectors where those jobs occur.