Smoot-Hawley. The words alone are enough to evoke your stifling high-school economics class. The 1930 trade-decimating bill is the most infamous case study showing that protectionism—the use of tariffs, quotas, and other measures to shield domestic companies from foreign competition-is bad for everyone: Consumers pay more, productivity suffers, and the global economy slows.
Yet there it was, all the same, tucked into Page 189 of the 407-page American Recovery and Reinvestment Act (PDF), signed by President Obama on Feb. 17—a reminder that old habits die hard. Section 1605, the now-infamous "buy American" clause: "None of the funds appropriated or otherwise made available by the Act may be used for a project ... unless all of the iron, steel, and manufactured goods used in the project are produced in the United States."
That single clause, though laced with loopholes, sparked a storm of foreigncriticism about American shortsightedness. Fair enough. But if the world is now at the edge of a new tariff war, the United States was far from first to draw arms. From Quito to Beijing, national governments have rushed to protect their countries' industries. In doing so, they have erected barriers against imports that are not only economically counterproductive but often bordering on the ridiculous.
The Big Money has compiled a short list of the silliest, most baffling tariffs to go up since the economic crisis began in earnest last fall. The list is subjective and by definition incomplete; we invite readers to submit their own candidates for silly tariffs, the most notable of which we'll post on the site. But every list needs a beginning.
India: Sorry, Kids, No Toys This Year
American manufacturers aren't the only ones resentful of cheap Chinese imports. On Jan. 23, India announced a six-month ban on the import of toys from China, which by one estimate produces 60 percent of the toys sold in India, worth some $350 million.
Indian Trade Minister Kamal Nath said the move was made "on the grounds of public health and safety." China retorted that the ban was a tariff in disguise and threatened to challenge it in the World Trade Organization. After a month, the Indian government relented and dropped the ban, agreeing to accept Chinese-made toys as long as they were tagged with world consumer safety certificates.
However, it seems likely that India's professed concerns over public safety were a ruse. The Big Money asked the Toy Industry Association, which represents more than 550 U.S. toy manufacturers and importers, whether it made sense from a public safety angle to ban toys from an entire country. The answer? "Companies make toys, not countries," said Adrienne Citrin, a spokeswoman for the organization. "It doesn't matter where they're made, as long as they adhere to [domestic] standards."
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Gary Hufbauer, a senior fellow with the Peterson Institute for International Economics in Washington, agreed. "You cook up some sanitary argument," he said. "Sometimes it's real, usually it's bogus. ... Chinese exports are an easy target, as they are here."
The pressure to lift the ban may have come as much from inside India as outside. Despite support from Indian toy manufacturers—Raj Kumar, president of the Toy Association of India, said he welcomed the ban—China's Xinhua news agency reported that the ban caused toy prices to increase by as much as 100 percent, and toy dealers risked going out of business.
The worst hit...
But as with all tariffs, the ones worst hit were consumers. "It is bad, especially for the slum children, who can afford the cheap Chinese toys only," said Arun Goyal, an Indian trade expert.
Russia: Get Back in Your Lada
When thousands of Russians took to the streets of Vladivostok in protest this winter, the target of their anger wasn't the erosion of press freedoms or the crashing stock market but rather the government's decision to raise tariffs on used cars by as much as 200 percent.
The New York Times reported in February that many in Russia's far east prefer used cars from Japan to domestic cars, so much so that it is unusual to see Russian cars on the road. It's not just easterners: A poll found that 49 percent of Russians would rather buy a foreign car than a domestic model (which are not known for their quality), up from 39 percent in 2006. And more than half of those who preferred a foreign car said they would rather buy used—most likely due to their lower price.
The Moscow Times reports that domestic car production fell by a calamitous 69 percent in January and February, compared with the year before. With numbers like that, it may be easy to sympathize with the government's decision to try to help the industry. But for Russian consumers, to say nothing of Japanese exporters, the move was a blow.
China: Is There Melamine in That Bacon?
Last September, 53,000 children in China became sick after drinking milk that had been contaminated with melamine, a chemical normally used in plastics that may have been added to make the milk appear higher in protein. The Chinese government, newly sensitive to concerns about food safety, demonstrated its diligence by banning ... Irish pork.
In December, the Chinese health ministry announced a four-month food safety drive. The move came just days after the Irish government issued a recall of pork products from Ireland, due to dangerous levels of dioxins in pigs and pig feed. On Dec. 9, the Chinese government announced a ban on all imports of pork from Ireland and said that 2,047 tons of Irish pork products would be taken off the shelves and sent back to the Emerald Isle.
China wasn't the only country to ban Irish pork. But did the Chinese government overreact? In Britain, which buys nearly half of Ireland's pork exports, the Food Standards Agency told the AP that its officials "do not believe there will be a significant risk to UK consumers."
And American officials? The Big Money called the United States Food Safety and Inspection Service, the public health agency of the Department of Agriculture, to find out. The FSIS maintains a list (PDF) of which countries are cleared to export meat products to the United States; as of this writing, Irish pork remains on the list of products approved for import. (Chinese pork, on the other hand, is not-the only country on the list that is unable to export a single type of meat to the United States.)
Seeds and flip-flops
Could food safety standards in Britain and America be more lax than in China? It's possible. But another explanation is that China saw the ban in part as an opportunity to help protect its domestic pork producers. Bloomberg reported last month that demand for pork in China is down thanks to the economic slowdown—pushing down prices, hurting producers, and leading the government to look for ways to limit imports. A ban on Irish pork, in a country where food safety is suddenly in vogue, is one way of doing that.
Mexico: The Sunflower Seeds Must Pay
On March 11, when Obama signed the 2009 appropriations bill, he also ended a pilot program that had let a number of Mexican trucking companies carry their cargo into the United States. One week later, Mexico retaliated, leveling tariffs on 89 different American imports, including a tariff on Christmas trees (20 percent), dog food (10 percent), dental floss (15 percent), deodorant (15 percent), and toilet paper (10 percent).
The Wall Street Journal reported that Mexican officials chose the specific tariffs by targeting businesses in the districts of influential U.S. legislators. For example, one of the items targeted is sunflower seeds-which grow in North Dakota. North Dakota happens to be the home state of Byron Dorgan, the Democratic senator who spearheaded the move to exclude Mexican truckers. The Journal reported that Sen. Dorgan was "outraged" at the move. His office did not return a call from The Big Money.
Ecuador: Let Them Wear Flip-Flops
Perhaps the most bizarre example of tariffs run amok is Ecuador. For a country with a poverty rate of 38 percent at last measure, and with a per capita GDP of just more than $3,000, one might expect the government to strive to make consumer goods as inexpensive as possible.
Instead, the opposite is true. According to some estimates, Ecuador has the most tariffs and import quotas of any country in the world. The Cato Institute's Daniel Ikenson wrote last month that Ecuador had raised tariffs by 5 percent to 20 percent on 940 products.
One of those products is shoes. In January, the Ecuadorian government announced an import tariff of $10 per pair—more than the original ticket price of most shoes imported into the country, according to Nate Herman, senior director of international trade for the American Apparel and Footwear Association."
This is one of the most egregious examples of the rising tide of protectionism," said Herman. "Ecuador is not a rich country; it just can't produce cheaply enough to meet the needs of Ecuadorian consumers."
Local shoemakers are more optimistic. The chairman of the Ecuador Shoemaking Association, Lilia Villavicencio, praised the new tariff. "[The] shoe-making industry will gain benefit from the measure," he said. Villavicencio predicted that while the domestic Ecuadorian shoe industry was currently operating at half capacity, "our shoe enterprises will be at full capacity production in a short time."
If only it worked that way.