When talking to groups about the political economy of trade protection, I always mention concentrated benefits versus diffuse costs. Public choice theory explains many bad policies, of course, but tariffs and subsidies are excellent examples of interventions that benefit the few at the expense of the many.
Congress, or specifically two members of that esteemed body, have recently provided me with a textbook example. The Generalized System of Preferences is a federal program that offers duty-free access to the U.S. market to certain goods from certain developing countries. Or, I should say, was a federal program, because it expired on December 31. My opinion of the program is ambivalent at best, but one cannot deny that the program brings real cost savings to American consumers and businesses -- to the tune of $580 million a year -- through lower import duties.
But those duty savings are, apparently, worthless in the face of special interest politics. From Inside U.S. Trade on January 6 [$]:
An Alabama sleeping bag manufacturer that benefited from the expiration late last year of the Generalized System of Preferences (GSP) program is now taking further steps in an attempt to ensure that Congress does not renew the program this year in the same form.
Exxel Outdoors CEO Harry Kazazian this week said his company is in the process of expanding its U.S. plant by adding workers and increasing production, and that this expansion is occurring as a direct result of the fact that Congress allowed the GSP program to expire on Dec. 31.
Under GSP, Bangladeshi sleeping bags that competed with the Exxel Outdoors product were able to enter the U.S. duty-free. On behalf of Exxel Outdoors, Sen. Jeff Sessions (R-AL) last year refused to let any renewal of GSP pass that would not remove at least some sleeping bags from the scope of the GSP program (Inside U.S. Trade, Dec. 23).
With the future of the GSP program still uncertain, Kazazian said he is now expanding his Alabama plant in part to put pressure on Congress to either not renew the GSP program, or renew it in a modified form that would exclude imported sleeping bags from its scope.
Kazazian said that if GSP is renewed in its old form, he would have to reverse his expansion plans. He reasoned that members of Congress may be more willing to accommodate Sessions and remove sleeping bags from GSP if faced with the prospect that renewing the program in its full form would lead to the firing of U.S. workers.
"I can't see how anyone would make any decisions against us," he said in an interview this week. "We are going to work as hard as we can to make sure sleeping bags are exempted from the GSP."
These expansion plans must be really something if they can justify holding up such a broad program, right?
Kazazian said that he plans to hire 20 additional employees to start a fourth production line at the Alabama plant. He said he will commence the first phase of its expansion this month by investing in additional equipment and retooling the plant's operations.
That's right, readers. The GSP expired and millions of U.S. consumers and businesses (not to mention developing country exporters) are being penalized to save a hypothetical 20 (that's two-zero) jobs that don't even exist yet. The jobs being lost by businesses that depend on the GSP to keep them competive are, apparently, not worth consideration. And as for consumers' buying power being eroded, well forget it.
Come back, Mancur Olson. Your country needs you.