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Taken to the cleaners
June 20, 2008
A lovely mini-essay from Brandon Fuller on the Aplia Econ Blog, about the cost to dry-cleaners of tariffs aimed at protecting the strategically-vital US wire coat-hanger manufacturing industry:
Milton Magnus III, owner of one of the U.S. manufacturers that filed for the anti-dumping duties, argues that the costs to consumers are negligible—amounting to a penny or two per hanger. “If I pay $12.95 to have my suit cleaned and that hanger cost him a cent and a half more, that’s $12.96 and a half. It’s not a factor.” Magnus’s point partly explains why import-competing industries often succeed in their efforts to lobby government for the imposition of trade restrictions: the tariff offers concentrated benefits to a few domestic firms, while the costs of the tariff are spread out among millions of consumers—none of whom see a sharp increase in price. Of course, over millions of hangers, a penny or two per hanger can add up.
Advocates of trade restrictions often argue that protection will save jobs. Since we can observe price and cost increases associated with trade restrictions, we can estimate how much it costs to save each job in a protected industry. According to the NPR story, there are roughly 30,000 dry cleaners in the U.S., and on average, each pays an additional $4,000 per year due to the hanger tariff. This indicates an average annual cost of 30,000 firms x $4,000 per firm = $120 million. According to the U.S. International Trade Commission’s report, U.S. employment in wire hanger manufacturing was 564 workers in 2004 and fell to 236 workers by 2006.
Fuller shows that a lowball estimate of how much it costs to save a job in the hanger industry is over $200,000 per year - these jobs pay $30,000 per year.
Be fair! The lowball estimate is down to $120,00 a job. The cost to the employer per job is greater than the pay. The cost to US consumers of saving a job (probably a job in Mexico) is probably only three times the value of the job. Makes it a real bargain, doesn’t it?
One thing that always puzzles me about these anti-dumping debates is that nobody ever assumes that people between the inporter and the final buyer put a margin on top of the extra duty paid. Any ideas on how these guys are supposed to achieve such fine tuned altruism?
More generally, the key politico-economic issues at the moment are maintaining consumer demand, restraining inflation and preventing job losses. Abolishing anti-dumping duties like this one offer a rare win-win-win policy option. How about putting together a package of all of them and asking the two presidential candidates to endorse it? If one did and one did not, that would sort out who all us economists should vote for.
Posted by: David Heigham | June 22nd, 2008 at 3:27 pm | Report this comment