In a move that embattled domestic manufacturers greeted with glee and gloomy retailers had predicted for weeks, the Bush administration announced Wednesday new quotas on textile and apparel imports from China. Specifically, the move will impose federal limits on the number of Chinese-made bras, dressing gowns, and knit fabrics that Americans can purchase over the coming year. The nature of the announcement revealed that the overriding motivation here was electoral politics. Unfortunately, President Bush’s new boudoir tax will, in the long run, wreak both political and economic destruction.
Basically, the president — and more likely his political director, Karl Rove — yielded to a familiar seduction in Southern politics: protectionism. For decades now, manufacturers in industries such as textiles, apparel, and furniture have sought to maintain their market positions through tariffs and quotas. Most of the job losses in these industries have been related to productivity gains, not “unfair trade practices,” with innovation and investment allowing more goods to be made with few labor inputs. Until recently, strong job gains in other sectors — in part fueled by the increase in consumers’ purchasing power from lower prices for manufactures — have more than offset the declines in traditional industries. As usual, however, the beneficiaries of the invisible hand were largely unaware and politically silent while the short-term victims of the visible foot were well organized and vocal.
Washington conservatives are under the impression that the issue of “job loss” is fading away as the new investor class rises to the forefront. This insight is true to a certain extent, but misunderstands the specifics of the political dilemma in several battleground states, especially in the Southeast. What has happened over the past three years is that job creation outside of traditional manufacturing — in areas such as telecom and technology — has slackened considerably, thus giving new life to the protectionist temptation. Just since January 2001, manufacturing employment in the states of the Old Confederacy (minus Texas) has dropped by more than half a million jobs. In the Carolinas, Georgia, Florida, and Virginia, the percentage-drop ranges from 13 to 19 percent. When you zero in on old-line industries, the job losses are simply staggering for such a brief period of time.
Moreover, these losses were concentrated in particular counties or regions rather than dispersed across each state. Some communities went from full employment to double-digit unemployment in the course of a few months in 2001 and 2002. This has concentrated the pain and generated a powerful political reaction. Republican and some Democratic politicians previously supportive of free trade have suffered vitriolic attacks (egged on by incumbent politicians in state governments trying to shift the blame to Washington), likely or actual primary challenges, and threats by traditional manufacturers that they will finance and organize electoral campaigns against anyone who stands for free trade. The latter include a number of conservative business executives of my acquaintance who say they’ve been actively considering support for one of the Democrats running against Bush next year, and perhaps more ominously, support for Democrats running for Congress.
The congressional contests are really the important ones. Most of the states where the China-trade and job-loss issues are hot buttons are going to vote to re-elect Bush anyway unless the Iraq war goes awry (the same cannot be said for the border and Midwestern states targeted by the steel-tariff gambit). But the GOP’s cheery assumption that it will automatically pick up all of the Senate seats currently being vacated by Southern Democrats has become increasingly doubtful.
A statewide poll, released on the same day Bush’s boudoir tax made headlines in North Carolina, had former Clinton aide Erskine Bowles, the 2002 Democratic nominee swamped by Elizabeth Dole, slightly in the lead in his bid to replace outgoing Sen. John Edwards next year. It was no coincidence that Bush officials specifically credited Bowles’s probable but lesser-known Republican challenger, Rep. Richard Burr, for influencing their decision on the Chinese quotas. They did the same for Rep. Jim DeMint of South Carolina, a likely GOP standard-bearer in the race to replace outgoing Sen. Fritz Hollings, a lifetime politician who has long exemplified the Southern protectionist demagogue.
As with the previous and wrong-headed tariffs on steel, the new quotas on Chinese textiles and apparel will do far more harm than good. By artificially limiting the supply of bras, gowns, and knit products, they will increase shortages and boost prices for consumers in the short run (thus the term “boudoir tax”). The tariffs will have no practical value in the long run, since other foreign producers not subject to the Chinese quota will scramble to fill the gap left by missing Chinese goods.
And while bras, gowns, and knits represent only about 5 percent of total Chinese imports to the U.S., this is only the tip of the iceberg. Universally, textile executives are praising the Bush quotas as a “precedent” they expect to lead to more far-reaching protections after the scheduled end of virtually all restrictions on Chinese textiles in 2005. Even furniture manufacturers are getting into the act, citing the new limitations to justify their own demands for new quotas or tariffs on imported Chinese bedroom furniture, which has recently become a competitive threat to quality improvements (having, of course, long been cheaper).
Rove (I assume) is opening up a big can of worms here. If Bush doesn’t follow through on the wider protectionist agenda many manufacturers seek, he’ll be accused of dashing expectations he himself raised and just trying to wriggle through the election cycle. This won’t suppress the anger in protectionist climes and may actually heighten it. On the other hand, if the administration goes beyond the temporary boudoir tax and ignites a general trade war with China, the economic recovery will be severely damaged, yielding national political consequences far more alarming than the competitive but winnable races Republicans already face in the Carolinas.
The political damage isn’t confined to the U.S. Senate. In North Carolina, where the major push for quotas originated and the job losses have been the most acute in the South, half a dozen Republicans are already vying for the nomination to take on Democratic governor Mike Easley next year. All have blamed Easley and legislative Democrats for weakening the state’s economy through a series of costly tax increases.
The issue was potentially potent for the 2004 election cycle, in which North Carolina represented one of several excellent prospects for Republican gains in governorships (others being Indiana and Missouri). Easley’s defense had been to blame international trade, and China in particular, for the entirety of the state’s economic woes. Now, with Bush’s new quota, the governor can claim vindication for his spin on the issue — a position that his competitors should have been able to label as a transparent political dodge.
More generally, Bush cannot hope to motivate the vast majority of Republican donors, activists, and voters to support his free-market agenda and that of his favored candidates if he keeps raising taxes. Yes, that’s what he’s doing: Bush has already foolishly raised taxes on businesses using steel as an input, thus costing more jobs than his tariffs could possibly have saved. Now the president is slapping a new effective tax on shoppers seeking bras and robes — at Christmastime, no less — as well as on the retailers hoping to serve them. And he’s encouraging rent-seeking businesses to ask for even more tariffs and taxes on products like imported beds and dressers.
In doing so, he’s given a new twist to the old argument that government has no business intruding into our bedrooms.
–Hood is president of the John Locke Foundation in Raleigh, N.C., and a syndicated columnist.