In foreign trade policy, there are many actors besides the partners themselves. Industry lobbies have a significant say in determining foreign trade policies through their influence on policymakers and elected officials. In addition, candidates for elective office want to return favors promised by industry lobby groups and to appeal to various constituencies. There are many reasons for this phenomenon. One reason includes the desire to protect important industries against competition from foreign producers in less developed countries in general. This is because competitor producers do not have the high labor costs that are present in the United States. Another reason is to “get back” at another country for actual or perceived product dumping practices by a trading partner. Industry lobby groups play a significant but excessive role in the formulation of foreign trade policies, and that leads to undesirable ramifications as consumers of such products pay higher prices. Certain interest groups reap the benefits at the expense of other sectors of society, and this result makes the society-centered approach to foreign trade a zero-sum game, in which certain sectors benefit at the expense of others. This can be compared to a state-centered approach, in which there is a state-directed general industrial policy that provided substantial support to critical “National Champions”[1]. Such a policy is pursued in Japan, which in 2008 has posted a trade surplus of 2.063 trillion yen, equivalent to US $22.1 billion at today’s exchange rate.[2][3] On the other hand, the United States incurred a trade deficit of almost $696 billion in 2008[4]
One notable instance in which an industry lobby significantly influenced trade policy is Bush’s decision to impose tariffs on imported steel starting from 2002.[5] The initial rationale behind that decision is that he wanted to reach out to potential constituents in Pennsylvania and West Virginia, states that have important steel industries and which were crucial to Bush’s re-election. By supporting steel plants and thus saving jobs in both states, it was reasoned that the tariffs will increase constituent support for Bush in both states. The steel industry lobbied the government for increased tariffs on the grounds that the increased tariffs will protect the steel industry in these states against less expensive foreign imports, therefore propping up the steel industry and saving the jobs of the steelworkers and companies that supply raw materials to such steel plants. In addition, Bush looked forward to gaining the favor of the United Steelworkers of America, the largest union of steelworkers in the United States. That also played a key factor in his decision to impose especially high tariffs of up to 30 percent on steel imports.
However, the increased steel tariffs did not work as planned. In the best case, the tariffs would keep manufacturing jobs in the United States. However, the tariffs backfired, leading to serious negative consequences to industries that depend on steel, not to mention the retail end users of such products made from steel. According to Gary Hufbauer of the Institute for International Economics, the tariffs led to a net loss of an estimated 15,000 to 20,000 manufacturing jobs, as industries that depended on steel bore the brunt of the higher steel tariffs in the form of higher prices for steel.[6] Of course, these are the most reliable estimates, and the numbers are heavily exaggerated on both sides. As a result, many of these manufacturing jobs left for less expensive locations namely in East Asia. Many companies that depend on steel to make other goods ended up having to pay more to manufacture their products and pass these price increases on to retail end users. Even worse, small manufacturing businesses, as they generally lack the power to negotiate volume discounts versus large corporations, especially feel the effects of higher steel tariffs. As a result, they simply cannot compete with larger or foreign manufacturers and have to downsize their operations or simply close their doors, leading to lost jobs.
On the other hand, a state-centered approach to trade is based on deciding trade policy that is in the national interest, versus in the interest of various industry lobbies or society groups. For that to take place, the government needs to operate independently of pressures from society groups. For example, the state (or government) may choose to nurture various industries by protecting them with a tariff or subsidy.
Industry and other lobbies (or “society groups” as mentioned in Oatley) have a significant, but not always positive role in US foreign trade policy. Despite their good intentions, these lobby groups influence governments to pursue policies that are in the interest of that particular group at the expense of the national interest. The unexpected results of Bush’s decision to impose tariffs on imported steel in 2002 is an illustration of what may happen, as a measure intended to save jobs in one line of manufacturing (steel) led to the loss of jobs in other sectors (companies that depend on steel such as auto manufacturers and tool and die manufacturers). With so-called society groups in charge of trade policy, one group benefits at the expense of other groups, and this practice is not in the national interest.
[1] Thomas Oatley, International Political Economy, Fourth Edition. New York: Pearson Higher Education Inc., 2010, 101.
[2] “Chapter 11: Trade, International Balance of Payments, and International Cooperation.” Statistical Handbook of Japan.http://www.stat.go.jp/english/data/handbook/c11cont.htm Tokyo: Statistics Bureau, 2008.
[3] Exchange rate as of April 9, 2010 is 93.36 Japanese Yen to the US Dollar. Wall Street Journal, 9 April 2010, A1.
[4] U. S. International Trade in Goods and Services. http://www.bea.gov/newsreleases/international/trade/trad_time_series.xls Washington, DC: Bureau of Economic Analysis, U. S. Department of Commerce, last updated 13 April 2010.
[5] Mike Allen and Jonathan Weisman, “Steel Tariffs Appeared to Have Backfired on Bush.” http://www.washingtonpost.com/ac2/wp-dyn/A31768-2003Sep18?language=printerWashington Post, 19 September 2003, A01.
[6]Ibid.
