International Trade: A tale of too many shrimpers ... coming trade war?

As the financial position of the USA becomes progressively worse, and it's clear that structural trade imbalanced along with artificial government intervention are to blame it's inevitable that trade wars will likely begin to erupt.

In fact, according to USA-Today it's already starting and the front line is the shrimp trawling industry.

Now, as Gulf Coast fishermen stay at the dock rather than continue to bleed money, shrimpers warn that the entire U.S. industry could disappear unless the government acts. Friday, the Bush administration is scheduled to announce whether it will impose steep tariffs on the low-cost imports.

While the lawyers argue in Washington, China's shrimp farmers are feeling the pain of tariffs yet to be imposed. The market is all but paralyzed as shrimp that would have gone to the USA stay home.

And amid election-year worries about the swollen U.S. trade deficit with China, the shrimp dispute is just one example of the conflicts that increasingly define the countries' commercial relationship.

"More and more anti-dumping cases will come. It has not reached a climax yet," says Ma Xiaoye, a former Chinese trade negotiator.

On June 18, the U.S. slapped more than $1 billion in tariffs on imported wood furniture, following moves against Chinese shipments of bras, television sets and textiles. In response, Chinese Foreign Ministry spokeswoman Zhang Qiyue charged Washington with "frequent and arbitrary use of anti-dumping measures." Beijing has retaliated with its own dumping investigations, most recently of Corning, a U.S. company that makes optical fiber.

Now it's uncertain whether in the long run whether the production pressure from so many Chinese shrimp producers would leave the US shrimp trawling business viable, but it's a dead certainty that with the Chinese exchange currency rate at an unrealistically low ratio that the shrimp trawling business will be put out of business. But the USA can't go on without a financial crisis if we demanded the Chinese stop buying our Treasuries to depress their currency to ours. So the political solution is to slap trade sanctions when the real problem is the underlying economic and financial market manipulation.

The fact that this is essentially a form of subsidy (FPIF) only illustrates how these agricultural subsidies come about in the first place. A nation creates an unrealistic financial posture through market manipulation. There are consequences. Bandaids are thrown at these consequences rather than attempting to restructure the economy so that the market could price the product, service, or commodity efficiently. This is the face of so-called "Free Trade".

Pity the U.S. shrimp industry. Over the last decade, shrimp have evolved from a delicacy only the rich could afford to the most popular seafood in America. The problem is, Gulf Coast trawlers can only catch 10% of the country’s demand. The rest comes from imports, and 230 U.S. companies, joined together in the Southern Shrimp Alliance, feel that is unfair.

In December 2003, the Alliance filed a $2.4 billion anti-dumping petition against six Asian and South American countries who export shrimp to the U.S. (A seventh country, Mexico, was not included in the suit after reportedly making a $1.3 million payment directly to the Alliance.) The U.S. Department of Commerce will make a preliminary ruling in the case in July. In order to impose punitive tariffs on imported shrimp, the U.S. government needs to prove that imports have caused harm to a U.S. industry and are being sold in the U.S. market under cost.

Neither claim stands up to the evidence. Higher tariffs on imported shrimp would benefit 13,000 people employed in domestic shrimp production—but hurt 250,000 other American workers in the distribution, sales, and service sectors. Imported shrimp do cost less, for the simple reason that production costs in developing countries are lower than in the United States. Shrimp farmers in poorer countries, the majority private entrepreneurs, depend on export markets to lift their families out of poverty. If they sold their products below cost, they would have no way to survive. Nguyen Thi Hong Minh, a bright and energetic woman who serves as Vietnam’s vice minister of fisheries, points out that “shrimp farming has helped improve the standard of living for three million Vietnamese in a short period of time.”

The companies in the Southern Shrimp Alliance aim to capture these gains for themselves, using a 2000 U.S. law, the Continued Dumping and Subsidy Offset Act, also known as the Byrd Amendment. The act provides for duty collected by U.S. customs officials in anti-dumping cases to be paid directly to U.S. producers. Each company involved in the petition would receive up to an estimated $1 million in payouts from dumping duties: a direct transfer from Third World farmers to the U.S. shrimp industry.

This is corporate welfare at its most crass, but the Alliance is finding support in unlikely places. A campaign by Ralph Nader’s consumer advocacy group, Public Citizen, attacks imported farm-raised shrimp for destroying mangrove forests, ruining coastal environments, and benefiting multinational corporations. Public Citizen blames “[i]nternational development institutions [that] are bankrolling the conversion and privatization of coastal areas to the detriment of the environment and citizens.”

On the contrary: local entrepreneurs entering the shrimp business in Vietnam are acutely aware of the environmental risks that, if not carefully managed, could wipe out their investment. They also know that only clean, high-quality shrimp will attract buyers in a competitive market. According to Nguyen Thi Hong Minh, reforestation has reversed the decline of mangroves in the Mekong Delta, as farmers “realize that it is in their long-term interests...to keep 70 percent of the existing forested area intact and use the remaining 30 percent for shrimp farming.”

Vietnam’s government is worried about both the potential economic impact of shrimp tariffs and the negative political precedent. “We went to great lengths to sign a bilateral trade agreement with the U.S. [in 2000],” a Vietnamese Embassy official told me recently in Washington. “But now almost every product that we sell successfully in the U.S. market has come under restrictions. First catfish, then quotas on textiles, and now shrimp. It seems that the trade agreement is a useless piece of paper.”

"Agricultural subsidies" is a large, abstract, and generic sounding category. What it means is that commodity by commodity, product by product, whenever it is politically expedient or convenient real free and fair trade arrangements are systematically broken to cover up for a more general long-term unsustainable market distortion and intervention that has created an unrealistic playing ground.

Vietnam can't be accused of manipulating its currency in order to exploit the US dollar exchange rate directly. It has no such leverage as the Chinese do or a banking system sophisticated enough to do this on any large scale. However the general problem of the trade deficit spills over into these matters because what can't be prevented from happening in China can instead be transferred elsewhere to be dealt with.

Is this what free trade really looks like? I would like to challenge any advocate of free trade to make a case where these sorts of situations are not symptomatic of a fundamentally flawed international economic, market, and trade posture. There can be no free trade when governments right and left intervene to manipulate the system. Attempting to pretend that the markets are allowed to efficiently price commodities, products, and services in this enrivonment is nothing more than delusion.