TARIFF BACKFIRED

How the Shrimp Tariff Backfired

The great Frederic Bastiat (1801-–1850) taught that wealth can be obtained in two ways: it can be produced or it can be plundered. Production is undertaken by entrepreneurs. Plunder is often undertaken with the express assistance of government, taking the form of tariffs, taxes, subsidies, and other interventionist measures justified as policy in the public interest.

But entrepreneurs are not easily thwarted by government intervention. Sometimes entrepreneurs respond so creatively that they render the interventionist measure almost meaningless. A classic example of an entrepreneurial response to state-sponsored plunder is the case of the US anti-dumping tariff on imported shrimp.

The anti-dumping tariff

On December 31, 2003 the Southern Shrimp Alliance (SSA) — a lobbying organization representing shrimp fishermen and processors in eight southern states — filed an anti-dumping petition with the Department of Commerce against shrimp importers from Brazil, China, Ecuador, India, Thailand, and Vietnam. US shrimpers complained that they were the victims of "dumping" — that they were being driven out of business by foreign shrimp producers who were selling their shrimp on the US market at prices below production cost. The SSA filed the anti-dumping petition seeking tariff protection for US shrimpers.[1]

After a year of investigation, the Department of Commerce determined that shrimp importers from the six countries were indeed guilty of dumping and that the dumping had caused "material injury" to US shrimpers. In January 2005, the department imposed tariffs on shrimp imports from the six countries named in the petition. The tariff structure is not simple: different shrimp producers within the same country may be subject to different ad valorem tariff rates, but these are the most common tariff rates in each country: Ecuador, 3.58 percent; Thailand, 5.95 percent; Brazil, 7.05 percent; India, 10.17 percent; Vietnam, 25.76 percent; and China, 112.81 percent.[2]

The tariff was expected to protect US shrimpers by reducing shrimp imports and, consequently, pushing domestic shrimp prices up. And just how has the tariff affected the domestic shrimp market? According to data published by the National Marine Fisheries Service (NMFS), total shrimp imports to the United States have increased by 14 percent since the tariff was imposed, while domestic shrimp prices have decreased by 9 percent. Also, US shrimp imports from the six countries targeted by the tariff have increased by almost 20 percent since the tariff was imposed. These were not the effects that the SSA, US shrimpers, and the Department of Commerce expected. What happened?