Commentary

Do We Need a T-Shirt Tax to Save Jobs?

By Daniel Griswold
This article appeared on OCRegister.com on August 10, 2007.

To whoops and cheers from the audience, Democratic presidential candidates at the AFL-CIO-sponsored debate in Chicago on Tuesday night zeroed in on free trade as the cause of job losses in America.

In one illuminating exchange, moderator Keith Olbermann of MSNBC asked Illinois Sen. Barack Obama, “If buying American costs more, and in many cases it does, how do you convince a working family that’s struggling to get by on a tight budget and in part makes ends meet using $10 T-shirts for their kids, that buying American is still best for them no matter what the price is?”

Responded Obama: “Well, look, people don’t want a cheaper T-shirt if they’re losing a job in the process. [Applause.] They would rather have the job and pay a little bit more for a T-shirt. And I think that’s something that all Americans could agree to.”

The senator then asked rhetorically, “On whose behalf is the president negotiating [trade agreements]? Is he or she negotiating on behalf of the people in this stadium, or are you only negotiating on behalf of corporate profits?”

Good question. On whose behalf should trade policy be made? Based on his answer, Obama wants it made on behalf of the few at the expense of many.

Virtually all of America’s 114 million households (most of them “working families”) buy shirts every year. In fact, last year, Americans bought 4.5 billion T-shirts and other apparel tops, 94.3 percent of them imported. That’s an average of almost 40 shirts per household. But very few U.S. workers — fewer than half a million — make their living producing T-shirts, other apparel and textiles.

Yet Obama and the union audience clearly side with the one third of one percent of American workers who still make shirts and other clothing rather than the 99.7 percent who unambiguously gain from being able to buy their clothing at more affordable prices.

Democrats and their union allies are not representing “working families” against big corporations, but a small and declining share of U.S. producers and their employees at the expense of the vast majority of American households.

A tax on imported shirts to save jobs illustrates the folly of protectionism. Americans would need to pay a lot more, not just “a little bit more,” for imported shirts to offset the cost advantage of lower-wage foreign producers. If a Democratic president were to pursue a tariff of $5 per shirt to save jobs, that would amount to an annual “T-shirt tax” of almost $200 per American household ($5 times 40 shirts), for a total cost to American consumers of more than $22 billion.

The apparel jobs that would be saved would be few and poorly paid. Last year, workers in apparel and textile trades earned an average of less than $22,000 per year. If a Democratic T-shirt tax managed to restore the 370,000 low-paying jobs that have been lost in the industry in the past seven years, it would come at a cost to consumers of $59,000 per job — almost three times what such workers are paid.

Who would be hit hardest, at home and abroad, by a Democratic T-shirt tax? Poor people.

At home, low-income families spend a higher share of their income on basic necessities such as food, clothing and shelter. A tax on shirts would thus be a regressive tax aimed directly at poor families trying to cloth their children for a new school year.

Abroad, it is workers in such poor countries as Bangladesh, Cambodia, Vietnam and China who make the shirts we import. A T-shirt tax would eliminate some of the best-paying jobs in those societies, making it more difficult for millions of people to escape deepest poverty.

America’s highest remaining trade barriers restrict products — food, clothing, and agricultural goods — disproportionately made by poor people abroad and consumed by poor people at home. Unfortunately, Democrats have become protectors of the status quo, passing a business-as-usual farm bill in the House while fighting every effort to eliminate residual U.S. trade barriers that prevent lower-income families around the world from fully participating in the benefits of international trade.

Democrats see themselves as representing the broad public against the special interests, but on trade they have sided with the special interests at the expense of the large majority of working families.

Daniel Griswold is director of the Cato Institute’s Center for Trade Policy Studies.