Money Changes Everything
Possibly the most harmful protectionism today relates to First World agricultural policy. According to James Wolfensohn, former head of the World Bank, farming subsidies in such countries now total approximately $350 billion, or 7 times the $50 billion that rich countries provide annually in foreign aid to the developing world. As a standalone, such subsidies would rank as the world's 45 largest economy in 2001. In addition to boosting wealthy country food prices by 15-20%, such payments (going mostly to large agro-corporations, not nostalgic 'family farms') ultimately undercut agricultural export efforts in developing countries. In essence, this allows wealthy nation farmers to sell goods overseas below their actual cost of production. In total, global trade policies may be excluding developing countries from $700 billion in commerce every year, denying them not only needed foreign currency, but also commercial interaction to foster progressive culture.
Europe, for example, has operated under its Common Agricultural Program (CAP) since the 1950s. In the aftermath of World War II, CAP was geared to build food self-sufficiency and raise living standards for European farmers. While initially successful, by the mid-1970s, such policies led to overproduction and surpluses. For over 25 years, CAP has prompted periodic dumping of produce on world markets (which artificially depresses prices), adding further insult to developing country exporters. Today, less than 3% of Europeans toil in the fields for a living, and OECD reports such farmers receive 35% of their income from subsidies; in some places like Switzerland, farm subsidies total some 70% of farmer income. The sad fact is that the average European cow receives approximately $2.20 each day in subsidies, more than what 2 billion people live on each day, and more than twice as much as the billion living in abject poverty.
The U.S. is also an offender, subsidizing a range of agriculture from peanuts and sugar to cotton and grain—estimated at nearly $,100 billion annually. American farmers receive 21% of their income as subsidies, with an individual able to obtain approximately $280,000 per annum from several government programs for just being a farmer, for bad market conditions, for not making a profit, and for taking land out of production.
Japan, too, protects agriculture and purportedly costs its consumers (largely urban) about $60 billion each year in extra food costs. Japanese taxpayers pay an additional $30 billion per annum in government subsidies to farmers. As in other industrialized nations, full-time farmers account for only 5% of Japan's workforce. Japan's farm subsidies run as high as 69% according to one study, with resulting rice prices, for example, 8-10 times higher than world averages. All of the subsidies accrue to a tiny but vocal industry dedicated to preserving the past at the expense of consumers and more competitive producers around the globe.
In global trade, the protectionist game goes well beyond agriculture. First, there are large headline moves, such as President Bush's unfortunate spring 2002 levies on steel imports, which were eventually scaled back because of global outrage and potential WTO violations. This was seen as a desperate lifeline to an ailing U.S. sector (one in decline for decades due to comparative disadvantages, with most steel operators in or near bankruptcy) to the detriment largely of foreign steel exporters. However, there are many smaller, less public First World tariffs that not only distort trade patterns, but also silently pickpocket their own citizens. For example, America imposes a 'basic necessities tax' on its poor through duties levied on shoe and clothing imports, which amount to 47% of all tariffs collected. Worse, there is a further regressive element to this structure: Shoes (of which 90% in America are imported) that cost less than $6.50 wholesale are subject to a 48% rate versus only 20% for shoes costing $12 or more. In a similar context, expensive silk underwear carries only a 2.4% tariff versus polyester at 16.2%, and cheaper stainless-steel tableware incurs a 15.8% rate compared to 2.4% for silver tableware imports. The net effects are that poorer Americans actually pay a higher consumption 'tax' as a percentage of purchase prices for hundreds of everyday goods than what wealthier people pay for luxury items.
Developing countries, too, are caught in the protectionist web. According to the IMF, lower income countries, on average, slap 300-400% higher tariffs than wealthier countries on industrial imports, with agricultural imports being 18% higher. According to UNCTAD, Thailand, for example, levies approximately 550 tariffs in excess of WTO-bound rates. Sectors including imported meat, dairy, processed fruits and vegetables, sugar, alcoholic beverages, tobacco, clothing, and motor vehicles all carry 50% tariffs.
In total, developing countries actually may be hurting themselves more than industrial nations: In 1995, of $80 billion of tariffs paid, $57 billion went to other developing countries with protectionist policies and only $23 billion to high-income countries.