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F o r Release oil D e l i v e r y W e d n e s d a y , November 1 1 , 1970 3:00 p.m. E.S.T. IMPORT CONTROLS AND DOMESTIC INFLATION A Paper by Andrew F . Brimmer Board of Governors o f t h e F e d e r a l Reserve System Presented before Economics Seminar University of College Park, November the Maryland Maryland 11, 1970 IMPORT CONTROLS AND DOMESTIC INFLATION By Andrew F . The new d r i v e for protection, t o impose q u o t a s on i m p o r t s serious adverse e f f e c t s epitomized on U. S. c o n s u m e r s , At i m p o r t q u o t a s on shoes and t e x t i l e s t h o s e two i n d u s t r i e s . of protectionism, and a phalanx o f * generally, is the Member, B o a r d o f G o v e r n o r s o f it of the lesson the petroleum and quotas. against free trade organizations Opposition coming f r o m imports of i n d u s t r y and l a b o r p o s a l s has a l s o been v i g o r o u s , most o f have to solve the m e r i t s has b e e n a r r a y e d on t h e s i d e o f p r o t e c t i o n . proposals the i m p o s i t i o n This campaign t o e r e c t b a r r i e r s h a s s p a r k e d a new r o u n d o f a r g u m e n t s a b o u t vs. could w o u l d do l i t t l e sugar i n d u s t r i e s w h i c h are a l r e a d y p r o t e c t e d by latest the on w o r k e r s t h e same t i m e , we s h o u l d h a v e l e a r n e d f r o m t h e e x p e r i e n c e This in o f shoes a n d t e x t i l e s , a n d on t h e economy a s a w h o l e . b a s i c problems p l a g u i n g Brimmer* to the pro- importers, the F e d e r a l Reserve System. T h i s p a p e r i s b a s e d on w o r k w h i c h I i n i t i a t e d l a s t s p r i n g . S e v e r a l members o f t h e B o a r d ' s s t a f f h a v e p a r t i c i p a t e d a t v a r i o u s stages of the a n a l y s i s . M r . D a n i e l Roxon a n d M r s . B e t t y L . B a r k e r d i d most o f t h e s t a t i s t i c a l and t r a d e a n a l y s i s on w h i c h t h e p a p e r rests. M r . B e r n a r d Norwood a n d M r s . H e l e n B. J u n z , r e s p e c t i v e l y , p r o v i d e d v a l u a b l e c o u n s e l w i t h r e s p e c t t o U. S. t r a d e p o l i c y a n d t h e u s e o f i m p o r t s by f o r e i g n g o v e r n m e n t s t o s t r e n g t h e n g e n e r a l s t a b i l i zation policies. M r . Samuel P i z e r h e l p e d t o c o o r d i n a t e w o r k o n t h e project. -2academic economists, and c o m m u n i c a t i o n s m e d i a . Spokesmen f o r F e d e r a l Government have been h e a r d on b o t h s i d e s and w i t h varying degrees o f support for of q u o t a s on the the issue -- particular commodities. However, sumer - about bear voice has been s c a r c e l y h e a r d . the costs tiles. one c r u c i a l Yet, it t o consumers o f is the burden of be l i m i t e d , further prices. heavily his -- that import q u o t a s on shoes and such r e s t r i c t i o n s : who u l t i m a t e l y his range o f c l o t h i n g would r i s e p r e s s u r e w o u l d be e x e r t e d o n t h e g e n e r a l Moreover, on those among c o n s u m e r s , low income groups assessment last of of the probably e f f e c t s which I spring. domestic of have had underway - - Essentially, import the of framework the analysis the proposed t r a d e for are the inquiry. c a n be s u m m a r i z e d b r i e f l y at this consumer but point: most t o bear -- based on an to (H.R. The a s s u m p t i o n s s p e l l e d out below, would q u o t a s on shoes trade patterns legislation tex- it. emerging f r o m an a n d a p r o j e c t i o n o f demand and s u p p l y c o n d i t i o n s provisions afford from time t o time is raised and level of can l e a s t the assessment c o n s u m p t i o n and f o r e i g n choice the burden would f a l l that con- would appreciably, T h e s e a r e among t h e m a i n c o n c l u s i o n s textiles the American Few q u e s t i o n s h a v e b e e n t h e A m e r i c a n consumer costs of of t h e most and since analysis during 1975. 18970) the 1960fs The m a i n serve as (and l i m i t a t i o n s ) important results of -3I f quotas on f o o t w e a r s t i p u l a t e d i n the proposed b i l l were a d o p t e d , t h e e x t r a c o s t t o consumers w o u l d be i n t h e n e i g h b o r h o o d o f $ 1 . 9 b i l l i o n i n 1975, compared w i t h t h e l e v e l o f e x p e n d i t u r e s t h a t m i g h t be e x p e c t e d i n t h e a b s e n c e o f q u o t a s . I n t h e c a s e o f t e x t i l e s ( w h e r e a p p a r e l w o u l d be the main i t e m a f f e c t e d ) , the e x t r a cost t o consumers m i g h t be a b o u t $ 1 . 8 b i l l i o n i n 1 9 7 5 . I n t h e a b s e n c e o f q u o t a s o n f o o t w e a r and a p p a r e l , domestic p r i c e s of these commodities would proba b l y d e c l i n e by a n amount l a r g e e n o u g h t o r e s u l t i n a modest d e c r e a s e i n t h e g e n e r a l l e v e l o f consumer prices. However, w i t h quotas imposed, t h e t o t a l c o n s u m e r p r i c e i n d e x i n 1975 ( u s i n g a b a s e o f 1969= 100) w o u l d be a l m o s t 1 p e r c e n t a g e p o i n t h i g h e r — and t h e i n d e x e x c l u d i n g f o o d s and s e r v i c e s w o u l d be a b o u t 1 - 1 / 2 p e r c e n t a g e p o i n t s h i g h e r - - t h a n m i g h t be e x p e c t e d i n t h e absence o f q u o t a s . These e s t i m a t e s interpreted with are obviously considerable caution. tentative and s h o u l d be Nevertheless, suggest t h e g e n e r a l d i r e c t i o n and r o u g h m a g n i t u d e o f burdens consumers w o u l d have t o sustain i f a d o p t e d and i f quotas on i m p o r t s as s p e c i f i e d o Moreover, minimum, quotas on o t h e r since of the they the do additional legislation s h o e s and t e x t i l e s is were imposed t h e s e c o s t s w o u l d p r o b a b l y be c l o s e t o types of consumer goods m i g h t the soon follow. The e v i d e n c e o n w h i c h t h e s e e s t i m a t e s presented below. those p r o v i s i o n s to the f i r s t referred part to at First, of of later however, the proposed it m i g h t be h e l p f u l legislation the present discussion. points in this a r e based paper. that to is summarize a r e most relevant Other p r o v i s i o n s are -4Legislative Proposals Under H.R. tariff and t r a d e authority t o Impose I m p o r t 18970, laws o f to enter into w o u l d be e x t e n d e d u n t i l originally under expiration of such Quotas p r o p o s e d as amendments t o the United States,—^ t r a d e agreements w i t h July 1, 1973. President's foreign countries T h i s a u t h o r i t y was the Trade Expansion A c t of t h i s Act the existing three years ago, granted 1962; b u t w i t h the t h e P r e s i d e n t has n o t had authority. The P r e s i d e n t w o u l d be a b l e to reduce the r a t e s of duty 2/ to which t h e U. S. was c o m m i t t e d o n J u l y t h a n 20 p e r c e n t o r 2 p e r c e n t a g e tariff year r e d u c t i o n s must points, take place in at i n t e r v e n i n g between each r e d u c t i o n . provision sate our is apparently trading imports under to give partners the proposed for 1, 1967- whichever least by n o t is more lower. Such two s t a g e s w i t h one The i n t e n t i o n of this the President a u t h o r i t y to compen- actions t h e U. S. may t a k e t o restrict legislation. 1/ The b i l l was d r a f t e d a n d a d o p t e d b y t h e House Ways a n d Means C o m m i t t e e i n m i d - A u g u s t , a n d i t c l e a r e d t h e House R u l e s C o m m i t t e e i n e a r l y September. The f u l l House o f R e p r e s e n t a t i v e s i s e x p e c t e d t o v o t e on t h e measure soon a f t e r t h e end o f t h e e l e c t i o n r e c e s s The S e n a t e F i n a n c e C o m m i t t e e h a s a d o p t e d a b i l l i n mid-November. s i m i l a r t o t h a t a p p r o v e d b y t h e t w o House C o m m i t t e e s . The S e n a t e a s a w h o l e i s a l s o e x p e c t e d t o v o t e o n t h e m a t t e r b e f o r e t h e end of the year. 2/ I n e f f e c t , t h i s means t h e r a t e s o f d u t y w h i c h w i l l t h e f i n a l s t a g e o f t h e K e n n e d y Round t a r i f f r e d u c t i o n s on J a n u a r y 1 , 1972. e x i s t when takes place -5The b i l l against the P r e s i d e n t ' s powers f o r e i g n c o u n t r i e s which "unreasonably11 or restrict able strengthens U. S. e x p o r t s . t o impose t a r i f f Under t h e b i l l , duties or other to retaliate "unjustifiably" t h e P r e s i d e n t w o u l d be import r e s t r i c t i o n s on the products of a f o r e i g n country which i s d i s c r i m i n a t i n g a g a i n s t products -- whether a g r i c u l t u r a l or n o n - a g r i c u l t u r a l -- U. S. whereas 3 previously he c o u l d do so o n l y i n t h e c a s e o f a g r i c u l t u r a l In addition, to subsidies p r o v i d e d by a f o r e i g n c o u n t r y f o r e i g n markets which u n f a i r l y markets are s p e c i f i c a l l y for national used. outlaws f o r U. S. t h e use o f s e c u r i t y reasons; the o i l tariff and f o o t w e a r a r t i c l e s I n 1971, i m p o r t s of the years 1968, and 1969. 1967, such a r t i c l e s p e r m i t t e d by t h i s base l e v e l than 5 per cent of Cotton t e x t i l e s Textile to limit controls from imports c a n be abolishing of and f o o t w e a r , by each c a t e g o r y o f i n e a c h c o u n t r y w o u l d be l i m i t e d annual q u a n t i t y to the imported from t h a t country Beginning i n the 1972, in average quantities the preceding more year. a l r e a d y c o v e r e d by q u o t a s u n d e r t h e L o n g - T e r m A r r a n g e m e n t w i l l be exempt f r o m t h e p r o p o s e d textile during f o r m u l a may be i n c r e a s e d b y n o t t h e amount a u t h o r i z e d same instead. Q u o t a s w o u l d be imposed on t e x t i l e s c o u n t r y and by c a t e g o r y . those discriminatory duties the P r e s i d e n t i m p o r t q u o t a s and i m p o s i n g t a r i f f s to exports retaliation. only q u a n t i t a t i v e This p r o v i s i o n would prevent on i t s exports l i s t e d as " u n j u s t i f i a b l e " a c t s a n d a s s u c h w o u l d be g r o u n d s The b i l l a f f e c t U. S. products.— Cotton quotas. 3/ As b e f o r e , t h e P r e s i d e n t c a n a l s o p r e v e n t a f o r e i g n c o u n t r y who u n r e a s o n a b l y o r u n j u s t i f i a b l y r e s t r i c t s U. S. e x p o r t s f r o m r e c e i v i n g t h e b e n e f i t s o f U. S . t r a d e a g r e e m e n t c o n c e s s i o n s . -6Also, specific textile or footwear a r t i c l e s c a u s e no m a r k e t d i s r u p t i o n , so, or if if total supply voluntary import quotas extended, Structural to Problems s t r e s s e d above, correct the basic in the will for of only despite d e l a y and d i s t o r t of The a d j u s t m e n t If import problems long curtailing The s c o p e o f c a n be d e f i n e d i n a t least textiles include a l l of silk -- and combinations substances. products I n terms o f two ways. cotton, and m i x t u r e s stage of of is diffi- imports necessary run. on a p a r t i c u l a r industry struc- the f a c e d by an i n d i v i d u a l the i n d u s t r y . will producers years to associate a l l to which i t of not quotas i n recent f i r m a r e d e t e r m i n e d p a r t l y by t h e e x t e n t sector they are Industry In fact, i n the The the the adjustment process which i s the i n d u s t r y do 1976. i n imports imports. to inadequate, i s undergoing a major the attempts they are negotiated. imposition of industry the industry w i t h the v i a b i l i t y is problems w i t h which t e x t i l e of which the r i s e one symptom - - 1, the T e x t i l e tural adjustment interest sources countries e x p i r e on J u l y The t e x t i l e culties the n a t i o n a l and f o o t w e a r may be e x t e n d e d b y are confronted. only in f o r no more t h a n 5 y e a r s a t a t i m e . As I do l i t t l e is quotas w i t h e x p o r t i n g the quotas w i l l Quotas v s . it f r o m d o m e s t i c and f o r e i g n on t e x t i l e s President but if may be e x e m p t e d i f textile concentrates the textile I n terms o f materials, man-made, f i b e r s , wool, and these and o t h e r fibers and processing, textiles encompass -7fiber (but not apparel. into products) f i n a l use). i m p a c t on i m p o r t s especially unit in part to unit industry further processing imported heaviest -- textiles the slowness w i t h w h i c h a t r a d i t i o n a l l y t o new t e c h n o l o g y . of production is -- is industry the a d a p t a t i o n to illustrated to convert p a r t l y under The l a g i s such as t e x t i l e s . small Even i n i n d u s t r i e s large, This took the s t e e l imports. and ( c a p a b l e o f b e i n g made and m a n u f a c t u r e s i n market p e n e t r a t i o n of t h e new o x y g e n p r o c e s s from r i s i n g fabrics fabrics. change may be s l o w . time i t state), o r " g r a y goods 1 1 ( r e q u i r i n g on a p p a r e l a n d the average u n i t by the natural o f man-made m a t e r i a l s i n d u s t r y adapts nological its The p r o p o s e d q u o t a s w o u l d h a v e t h e i r The r i s e reflects in F a b r i c s may be f i n i s h e d m a t e r i a l s final before the raw m a t e r i a l where tech- dramatically its the spur of facilities competition even more pronounced f o r a However, that underway i s d e m o n s t r a t e d by t h e c o n t i n u i n g t i o n i n t h e i n d u s t r y and by the r a t e the process t r e n d toward of p r o f i t a b i l i t y of small is concentrathe larger corporations. B e t w e e n 1958 a n d 1 9 6 7 , textiles declined sharply. t h e number o f For example, firms during this number o f c o m p a n i e s p r o d u c i n g woven c o t t o n f a b r i c s cent; t h e number m a k i n g s y n t h e t i c fabrics t h e number p r o d u c i n g i t e m s o f a p p a r e l manufacturing period, the d e c l i n e d b y 30 p e r d r o p p e d b y 17 p e r c e n t , such as men's s u i t s and and shirts a n d women's s u i t s a n d u n d e r w e a r d e c r e a s e d b e t w e e n 20 p e r c e n t and 35 per cent. The r e s u l t was t h a t b y 1967 t h e 50 l a r g e s t accounted f o r about two-thirds of the i n d u s t r y ' s companies output. -8Yet, as s u g g e s t e d by s t a t i s t i c s largest industrial largest firms in t o be s m a l l e r corporations the textile than t h e i r relating to i n the United States, industry counterparts -- i n other In general, two-thirds to terms o f during i n other sales the 1960fs, remains industries. appear it 1969 $16,264 11,035 7,982 $21,545 14,609 10,204 $20,506 14,572 12,234 $27,986 20,195 15,799 textile f i r m s appear t o be a b o u t as l a r g e a s t h e t o p i n d u s t r i a l The t y p i c a l one-half large apparel to t h r e e - f i f t h s industrial sectors. manufacturers the size of their Moreover, w h i l e p e r e m p l o y e e was c l o s e d somewhat f o r the o v e r a l l firms lag for both t e x t i l e the terms o f profitability, i n d u s t r y have c o n t i n u e d counterparts apparel firms and a p p a r e l to improve the l a r g e s t their in other manufacturing firms position, in the compared firms industries. textile with Again, * Source: F o r t u n e m a g a z i n e , as r e p o r t e d i n U. S. B u r e a u t h e C e n s u s , S t a t i s t i c a l A b s t r a c t , 1963 a n d 1 9 7 0 . gap large. In their largest three-quarters t o be r o u g h l y counterparts in the t h e economy as a w h o l e . appear the Employee A l l corporations T e x t i l e manufacturers Apparel manufacturers in even Employee A l l corporations T e x t i l e manufacturers Apparel manufacturers Sales Per 500 on t h e a v e r a g e - - 1961 A s s e t s Per the this of -9conclusion is 500 l a r g e s t s u p p o r t e d by s t a t i s t i c a l industrial Sales per d o l l a r of information relating invested R e t u r n on i n v e s t e d c a p i t a l 1961 1969 $1.92 1.93 2.44 $2.41 2.66 3.30 8.3 6.1 8.8 11.3 7.9 11.9 capital (per cent) A l l corporations T e x t i l e manufacturers Apparel manufacturers Sales by t e x t i l e t h e y were m o d e r a t e l y h i g h e r per d o l l a r of smaller per d o l l a r for than f o r than for invested capital For a p p a r e l required t h e same r e a s o n , f i r m s as a p e r c e n t a g e o f both years i n 1969. investment of large corporations i n v e s t m e n t were o n e - q u a r t e r Partly both years. higher firms t h e same a s t h o s e f o r a l l the r e l a t i v e l y the corporations:* A l l corporations T e x t i l e manufacturers Apparel manufacturers roughly to in firms, to enter the net p r o f i t s generally firms producing t e x t i l e s , was more t h a n o n e - q u a r t e r b e l o w t h a t and reflecting field, sales to one-third higher of i n v e s t e d c a p i t a l were s l i g h t l y large manufacturers 1961, -- large in apparel higher and in considerably f o r whom t h e r a t e for a l l were of return industrial corporations. For t e x t i l e after of and a p p a r e l m a n u f a c t u r e r s , t a x e s as a p e r c e n t a g e the divergent of sales g i v e an even c l e a r e r t r e n d s among l a r g e a n d s m a l l industries; ^Source: Same as t h a t d a t a on n e t shown o n p . 8. firms within profits picture these -1019i61 Largest All Firms Corps. A l l manufacturing T e x t i l e manufacturing Apparel manufacturing For a l l profits below largest only firms 30 p e r for a l l industrial and a p p a r e l firms in — partly smaller units the l a r g e s t f i r m i n the information United States profitable is units. such f i r m s in i n g as a w h o l e . the over that the of textile in for only decade. 1969 sales firms industry into i n the i n d u s t r y l a r g e enough t o a s s u r e v i g o r o u s their textile than that the f a c t per d o l l a r consolidating profitability Given the economies o f technology, the l a r g e s t than t o be r e a c h e d f r o m a n a n a l y s i s seems c l e a r : The l a r g e s t have been m a i n t a i n i n g sales between 1961 and and a p p a r e l p r o d u c e r s the process of remains was industry. The g e n e r a l c o n c l u s i o n t h e above the o f r e t u r n on remained a c t i v e textile for the s h o r t - f a l l reflecting s u b s t a n t i a l l y more p r o f i t a b l e was t h e a v e r a g e But r o s e much f a s t e r For net seven-tenths t h e r a t e o f a d v a n c e was l e s s these sectors successful were s t i l l changing the r a t e 4.60 3.20 3.60 i n 1961, to combined. the i n d u s t r y , During the 1960fs, producers, Nevertheless, of firms f o r m a n u f a c t u r i n g as a w h o l e . firms 4.79 2.85 2.31 and a p p a r e l m a n u f a c t u r e r s i n b o t h segments o f cent. and a p p a r e l t h e most 4.20 3.00 3.00 t o sales were about o n e - h a l f for a l l textile 1969 t h a n all textile in relation the rate 4.30 2.09 1.27 19i69 All Largest Corps. Firms they should achieve in the larger, more (and the number competition) compared w i t h manufactur- s c a l e a f f o r d e d by a further of rapidly improvement. -11Competition from imports m a j o r cause - industry. of P r o t e c t i o n from imports w i l l enterpriseso from the Instead, protection w i l l larger, perfectly clear -- as I Quotas v s 0 to their problems, little explain is tivity, its in establishment no s i n g l e averaged about firm -- or the market It is estimated that, about 6-1/2 per cent of 25 p e r c e n t , in import 1967, rapid such to technological -- we Industry from serious quotas would generally known, contribute shoe investment, and w i t h a large i n small leather footwear. 1090 the -- largest output; and t h e t o p e i g h t establishments Employment W i t h so many firms produc- plants. controlled s e r v e as a f o c a l p o i n t domestic the struc- low 200 w o r k e r s . to domestic would l i k e low wages, s m a l l group o f enough s h a r e o f i n t h e Shoe 1967, t h e r e were about i n the United States producing — I with concentrated For example, firms L e t me t o make a n a d j u s t m e n t industry, low r a t e o f output in this suffering As i s a labor-intensive a relatively portion of is also solution. later the problems. and t h e i m p o s i t i o n o f toward t h e i r industry for will the in the smaller by t h e American consumer. S t r u c t u r a l Problems The shoe i n d u s t r y tural not preserve and w o r k e r s who s u f f e r c a n n o t be i n d i f f e r e n t t h e weaker u n i t s quotas designed t o p r o v i d e h e l p e d by t h e F e d e r a l Government Import facing — not more a d a p t a b l e and e f f i c i e n t the burden of be b o r n e p r i m a r i l y see t h e b u s i n e s s e s shift o n l y a n added f e a t u r e the problems c u r r e n t l y facing competition make i t is producer the four accounted f o r producers, a for large the accounted largest 34 p e r per industry. for accounted cent. -12Within factories capacity -- the industry are u s u a l l y likely highly subdivided w i t h i n in fashion. specialized. men's shoes - - these c a t e g o r i e s . individual i n demand f o r e v e n among t h e firms are highly products which are The s m a l l e r i n coping w i t h firms such changes seasonal v a r i a t i o n on l a b o r . reasons for employed this (e.g., considerable model. center mainly no t w o p i e c e s variety Thus, of of widths because o f have been s l o w , in these the market further diversification subject shifts to sharp have g r e a t the changes difficulty purely considerable. shoe i n d u s t r y a substantial i n shoe m a n u f a c t u r i n g a r e e s s e n t i a l l y -- production may be e v e n Moreover, i n the In fact, is segment o f lack of in particular is also firms exposed t o s h o r t - r u n in styles. i n output it themselves The p r o d u c t i o n p r o c e s s great reliance but This larger Not o n l y t o be g e a r e d t o a p a r t i c u l a r s u c h as w o m e n ' s v s . means t h a t -- handicraft the unevenness leather are and l e n g t h s constraints, necessitates number o f operations. of the required The materials identical) and for the each technological a n d a u t o m a t i o n h a s made l i t t l e processes shoe advances progress in t h e shoe i n d u s t r y is the shoe industry. The e n t r y easy. The a m o u n t o f modest. o f new f i r m s capital By l o n g - s t a n d i n g the m a c h i n e r y needed f o r than purchased -- into investment trade required practices, shoe m a n u f a c t u r i n g from equipment producers. is fairly a considerable is fairly leased - - The l e a s e part of rather arrangement -13also normally provides for t h e payment o f a f i x e d m o n t h l y r e n t a payment b a s e d on t h e r a t e o f p r o d u c t i o n . new f i r m a v o i d s b o t h a l a r g e i n i t i a l The r e s u l t capital is seasonal a c t i v i t y . entry is also Consequently, w h i l e frequent, l a r g e number o f s m a l l , Partly reflecting of but are the of low frequent, new p o p u l a t e d by a firms. these c h a r a c t e r i s t i c s , t h e shoe i n d u s t r y h i s t o r i c a l l y today, failures and t h e i n d u s t r y r e m a i n s high-cost that a i n v e s t m e n t and h i g h f i x e d overhead c o s t of i d l e equipment d u r i n g p e r i o d s and has been l o w . the i n d u s t r y d i d improve i t s true position during Year Net P r o f i t s A f t e r Taxes As Per Cent o f S a l e s As Per C e n t o f N e t W o r t h NonduNonduLeather Leather Mfg. & Leather rable rable Total & Leather Products* Goods Products* Goods of 4.7 4.7 4.9 5.3 5.5 5.6 5.3 5.3 5.0 1.1 1.7 1.8 2.6 3.8 3.0 2.9 3.3 2.6 the remains This 4.3 4.6 4.7 5.2 5.6 5.6 5.0 5.1 4.8 in This profitability 1960!s. 1961 1962 1963 1964 1965 1966 1967 1968 1969 improving trend is evident relative the following 9.6 9.9 10.4 11.5 12.2 12.7 11.8 11.9 11.5 * Nonrubber footwear accounts f o r a p p r o x i m a t e l y the v a l u e o f o u t p u t i n the i n d u s t r y . figures:+ 4.4 6.9 6.9 10.5 11.6 12.9 11.3 13.0 9.3 two-thirds + Source: S e c u r i t i e s Exchange C o m m i s s i o n - - F e d e r a l C o m m i s s i o n and t h e F e d e r a l Reserve B o a r d . the Trade -14In age o f sales profit rate generally. industry are is the e a r l y in 1960fs, profits i n n o n d u r a b l e goods i n d u s t r i e s But since the mid-1960fs, has b e e n o n e - h a l f shown t o h a v e on t h i s after t a x e s as a t h e shoe i n d u s t r y a v e r a g e d a b o u t and i n of improved even more m a r k e d l y . basis for a l l nondurable roughly on p a r w i t h in the r a t e the r a t i o rate declined for for in While the e a r l y the after t h e shoe t h e shoe i n d u s t r y was a b o u t goods p r o d u c e r s the manufacturing When n e t p r o f i t s the p r o f i t a b i l i t y percent- one-third of the r e l a t i v e or h i g h e r . compared w i t h n e t w o r t h , return net taxes industry the r a t e of two-thirds 1960fs, it that was t h e g r o u p as a w h o l e t h r o u g h Last year, to about well above the p r o p o r t i o n recorded in four-fifths, but the e a r l y years this of 1968. was the last decade. From t h i s that -- made t o rather survey of t h e shoe i n d u s t r y , than adopting import cope w i t h industry. brief I will some o f return quotas the b a s i c to this -- structural point efforts I s h o u l d be problems in a later conclude facing section of the this paper. Demand f o r and Supply o f T e x t i l e s To e s t i m a t e American consumer, conditions the proposed quotas i s necessary t o make a j u d g m e n t a b o u t t h a t w o u l d be s u b j e c t difficult Footwear the costs of t h a t may g o v e r n t h e f u t u r e commodities extremely it and task, and o n l y to demand f o r to the the and s u p p l y o f the r e s t r i c t i o n s . the roughest k i n d of This is the an quantitative -15estimate highly c a n be made. one t o make several s i m p l i f i e d a s s u m p t i o n s a b o u t consumer b e h a v i o r a n d o t h e r factors that w i l l influence And e v e n t o do t h i s the market. below are h i g h l y tentative tude of t o consumers shoes, this the cost I believe it i s s u e means t o is of for But of trends larger of in textiles the period attached. about and f o o t w e a r of the in 1975. prices corresponding d u r i n g t h e decade o f 1 9 6 5 - 6 9 w e r e u s e d as the 1960fs benchmarks t h e demand f o r a n d s u p p l y o f n o n r u b b e r consumer goods component o f t o be p e r f o r m e d w e r e each type o f and (3) (1) commodity i n 1975, to estimate consumption w i l l to estimate (2) footwear the the d i f f e r e n c e continue (in dollars) suppliers it the to estimate commodity between d o m e s t i c s h a r e o f demand f r o m d o m e s t i c the to consumption, and p r i c e s I n e s t i m a t i n g consumption i n 1975, capita and s i m p l i f i e d assumptions imports these v a r i a b l e s the s u p p l y o f each type o f imports, what textile 1975. The t a s k s of and a n e x a m i n a t i o n was made o f d a t a on c o n - (the most i m p o r t a n t to demand f o r on a s e t o f produced commodity, the p r o j e c t i o n of category) to q u a n t i f y a r e shown i n T a b l e 1 , the r e l a t i o n s h i p The b e h a v i o r and a p p a r e l turns the a n a l y s i s , imports, was s t u d i e d . to attempt i n f o r m a t i o n used i n the a n a l y s i s the estimates the d o m e s t i c a l l y import. least i m p o r t s and c o n s u m p t i o n o f I n c a r r y i n g out sumption, t h e d i r e c t i o n and r o u g h m a g n i - consumers. The a n a l y s i s the p a t t e r n of derived i m p o s i n g i m p o r t q u o t a s on t e x t i l e s important at The s t a t i s t i c a l method o f d e r i v i n g But even though the e s t i m a t e s a n d show o n l y of requires rather domestic the division production and of meeting a than from was assumed t h a t importers. per t o i n c r e a s e b e t w e e n 1969 and 1975 at -16t h e same r a t e r e c o r d e d b e t w e e n 1965 a n d 1 9 6 9 . apparel, the average annual r a t e 3.2 per c e n t , rates of and f o r footwear change i n p e r c a p i t a Bureau's projection o f U. S. the r a t i o was f u r t h e r of imports of the r a t e for it assumed t h a t increase of 1975 t o imports, imports without imports 1971, in quota, to value then in the absence o f the quota 1969-75 would m a i n t a i n t h e 1965-69 By e x t e n d i n g t h e r a t e s same period. o f change the r e s u l t i n g year, the volume Such p r i c e s in was assumed t h a t prices in ratio I n c o n v e r t i n g consumption it and of and 1975 1969. terms, that -- p r o d u c e d a n d i m p o r t e d g o o d s w o u l d r e m a i n t h e same i n themselves are o n l y v e r y e x p e n d i t u r e s were expressed i n t h e r e w e r e no s u p p l y c o n s t r a i n t s , rough 1969 prices.) either domestic. was assumed t h a t -- if a u t h o r i z e d w o u l d be t h a t quotas were imposed - - s t i p u l a t e d under H.R. t o the 1967-69 a v e r a g e ; then, the amount 18970: in the immediately preceding year. in beginning t h e a m o u n t a u t h o r i z e d w o u l d be i n c r e a s e d by 5 p e r c e n t o f amount a u t h o r i z e d T h i s v o l u m e was both i m p o r t s w o u l d be h e l d 1972, consump- t h a t r a t i o was 1 0 . 5 p e r c e n t , was o b t a i n e d . was a l s o assumed t h a t It of Census t o t a l volume o f t o 1975 a n d a p p l y i n g ( I n other words, f o r e i g n or these of as t h e y were i n It -- estimated consumption i n from volume estimates. i n 1975, occurred i n the in was 1 8 . 0 p e r c e n t . total domestically that increase the import/consumption r a t i o for Extending 1975, and g i v e n the 1975 was d e r i v e d . to consumption i n For a p p a r e l , footwear in t h e 1 9 6 5 - 6 9 p e r i o d was was 1 . 0 p e r c e n t . consumption to for terms. It annual average r a t e it growth i n population t i o n o f a p p a r e l and f o o t w e a r converted to d o l l a r of As shown i n T a b l e 1 , the -17G i v e n t h e 1975 c o n s u m p t i o n l e v e l , mine what the d o l l a r shift purchases his cost to to remained t h e consumer w o u l d be i f from the cheaper d o m e s t i c p r o d u c t as a r e s u l t Cost of Quotas it of foreign to the i m p o s i t i o n of a of the d o l l a r the neighborhood of might approximate these are o n l y cost the e x t r a i n 1975. $1.9 b i l l i o n . As s t r e s s e d estimates, several a n d t h e y s h o u l d be However, even i f they suggest t h e a d v e r s e i m p a c t on c o n s u m e r s on t h e s e c o m m o d i t i e s w o u l d be discussion very imposing I n t h e case o f caution. in quota. quotas c o s t m i g h t be with considerable A brief expensive provided t o consumers o f For apparel, $1.8 b i l l i o n tentative that to Consumers on a p p a r e l a n d f o o t w e a r . it deter- he h a d t h e more The a b o v e a s s u m p t i o n s and c a l c u l a t i o n s rough estimates to footwear, times, interpreted t h e y were c u t of in in putting half, quotas considerable. of recent t h e two i n d u s t r i e s m i g h t h e l p p l a c e trends i n demand a n d the e s t i m a t e s in supply perspective. 4/ The Case o f A p p a r e l ; — I n 1969, consumer e x p e n d i t u r e s a p p a r e l amounted t o a b o u t $42.3 b i l l i o n , an i n c r e a s e of 39 on per c e n t - - or an a n n u a l average r a t e o f about 8 - 1 / 2 p e r c e n t - - s i n c e JU 1965. Measured i n p h y s i c a l v o l u m e , " t h e a n n u a l average r a t e o f 4/ T h i s p a r t o f t h e d i s c u s s i o n was r e s t r i c t e d t o a p p a r e l - - a n d f a b r i c s were e x c l u d e d - - f o r s e v e r a l reasons. I n t h e c a s e o f c o t t o n a n d man-made m a t e r i a l s ( p a r t i c u l a r l y f i n i s h e d goods), i m p o r t p r i c e s exceed d o m e s t i c p r i c e s , so a s m a l l n e t s a v i n g m i g h t r e s u l t i f a q u o t a w e r e a d o p t e d . In t h e c a s e o f w o o l , no c o s t w o u l d be i n c u r r e d b e c a u s e t h e q u o t a w o u l d n o t be r e s t r i c t i v e . I n each o f these cases, the e s t i m a t e s were c a l c u l a t e d b u t n o t i n c l u d e d because o f l a c k of space. * Measured i n pounds, raw f i b e r equivalent. -18i n c r e a s e was a b o u t 4 p e r c e n t . 7.8 per cent of 5.2 per cent total consumption i n 1965. In an a n n u a l average r a t e o f 4 per cent rate cated above, of an annual average r a t e of factors, but kinds 15 p e r c e n t imports consumed i n 1969, outstripping production. total in prices o v e r $6 f o r it seems r e a s o n a b l e continue to turn in the p r o j e c t e d r i s e if the indiat 1969. several between the imported of t o assume t h a t i n per c a p i t a the of basis. the d i r e c t i o n despite all price) the u n i t v a l u e of foreign subject If 1975 w e r e i m p o s i t i o n of a quota - - imports are not would suppliers. consumption i n c o u l d o n l y be done a t h i g h e r imported consumers demand w o u l d h a v e t o be s a t i s f i e d b y d o m e s t i c case at consumption rose e v i d e n c e o f a s t r o n g demand f o r apparel, be t h e As the u n i t value of apparel to a r e t a i l Given t h i s This rose ( w h i c h c a n be i n t e r p r e t e d as a n a v e r a g e adjusted -- to far imports with produced items undoubtedly played a major was $10 c o m p a r e d w i t h j u s t be a c h i e v e d -- compared 1 0 . 5 p e r c e n t b e t w e e n 1965 a n d the d i f f e r e n t i a l For example, imports, the 1965-69 p e r i o d , represented s h a r p s w i n g t o i m p o r t s was due t o and d o m e s t i c a l l y role. imports (by v o l u m e ) , of expansion of domestic the r a t i o This I n 1969, the to greater producers. prices to a quota. than would As -19indicated i n Table 1, 1975 was e s t i m a t e d a t quota. the u n i t value $9.74 w i t h o u t I n other words, prices s l i g h t l y without a quota, would prevent this price. it Since but the and perhaps higher level of consumer mated a t cost 3-1/2 of the quota per in the average the p h y s i c a l volume o f translated consumer o u t l a y s consumpthe into t o consumers. for apparel with a quota, This d i f f e r e n c e This a of in 1975 o u t l a y s were $1.8 b i l l i o n i s an e x t r a cost of is h a v e g r o w n much more r a p i d l y Imports of nonrubber than domestic t h e g r o w t h has been c o n c e n t r a t e d I n 1965, d o m e s t i c purchases output i n recent in certain of nonrubber footwear footwear an i n c r e a s e 8 - 1 / 2 per c e n t , per cent. of Imports t h e s e y e a r s and a c c o u n t e d (by volume) o r an a n n u a l a v e r a g e r a t e rose a t an annual average r a t e for i n 1969 c o m p a r e d w i t h 26 p e r c e n t 13 p e r c e n t of in years. types. b y 1 9 6 9 , t h e t o t a l had r i s e n t o 7 8 1 , 0 0 0 p a i r s . the about 720,000 p a i r s ; in esti- cent. The Case o f F o o t w e a r : However, restrictions w i t h or w i t h o u t a quota - - $52.7 b i l l i o n ; $54.5 b i l l i o n . $10.08 w i t h a expenditures. Without a quota, were e s t i m a t e d a t imposition of from a quota i s in decline cause a s m a l l r i s e was assumed t h a t value r e s u l t i n g consumption a q u o t a and a t probably would t i o n would remain unchanged - higher unit of apparel of o f 20 p e r total 1965. totaled T h i s was 2.1 cent consumption -20Whether consumers w o u l d have i n c r e a s e d t h e i r this extent if very doubtful. less expensive The r e c e n t l y Task F o r c e on n o n r u b b e r point of view, extremely domestic low-priced footwear provided entire end, there higher imports imports, priced often far of basic doubt have a l s o that regressive, pensitSve t y p e s . mated a t since it foot in was a b o u t 1969, ential in of imported t h e 1965-69 below any The comparable soled footwear, the u n i t three-fifths consumed i n t h a t y e a r imports new o p t i o n s . of ($8.77). At the have other the choices.11 f o o t w e a r w o u l d be value of the u n i t In had been even g r e a t e r , s h o e s r o s e much f a s t e r is consumer developed abroad i n on i m p o r t s footwear of "from the coverings. styles mestic favor rubber to Presidential w o u l d be c o n c e n t r a t e d o n i m p o r t s For example, $5.32 r e t a i l ) the p r o v i d e d new c o n s u m e r The i m p o s i t i o n o f q u o t a s highly of concluded t h a t canvas-upper, new l i n e s ranges released report have opened up i m p o r t a n t c a n be l i t t l e price i m p o r t e d shoes w e r e n o t a v a i l a b l e footwear except purchases than the domestic inex- imports (esti- value of a l l 1965, since of the p r i c e the product dodiffer- price in period. 5J I t has been e s t i m a t e d by t h e T a r i f f Commission t h a t d o m e s t i c a l l y p r o p r o d u c e d n o n r u b b e r f o o t w e a r i s a p p r o x i m a t e l y t w i c e as e x p e n s i v e as i m p o r t e d footwear. This i s i n the aggregate, covering a l l types. We h a v e a s s u m e d , as i n d i c a t e d b y t h e T a r i f f C o m m i s s i o n s t u d y , t h a t t h e r e t a i l m a r k u p i s t h e same f o r b o t h i m p o r t e d a n d d o m e s t i c s h o e s , i . e . , 50 p e r c e n t . T h i s a s s u m p t i o n i s under heavy a t t a c k by the T a n n e r s 1 C o u n c i l w h i c h has c h a r g e d t h a t t h e m a r k u p o n i m p o r t e d s h o e s i s 75 p e r c e n t t o 130 p e r c e n t c o m p a r e d w i t h 50 p e r c e n t f o r s h o e s made i n t h e U. S. T h e r e f o r e , says t h e C o u n c i l , t h e consumer i s not r e a l l y b e n e f i t i n g from the import of l o w - p r i c e d shoes. T h e r e may be some v a l i d i t y t o t h i s a l t h o u g h t h e T a r i f f C o m m i s s i o n h a s n o t b e e n able to confirm i t . -21I n the case o f a p p a r e l would, c o n t i n u e fact, if face of -- it i n the of increase shoes lated cent in from higher for 1975 - - year. p r i c e d domestic total of The i m p o s i t i o n through the domestic of market the quotas the r a t i o that 1975, to stipu- 24 $8.87 - - per this 12-1/2 the t o t a l than the prices of the volume o f for $6.72 than in the would price of a quota, d e s p i t e an imports. domestic production would supply demand a t u n i t imports. prices almost and f o o t w e a r was Without i n 1975 - - the lower u n i t for unit consumption per cent i n the p h y s i c a l volume imposed, the With a quota, o r 32 p e r c e n t h i g h e r consumer o u t l a y s $5.9 b i l l i o n and r e f l e c t i n g the quota f o r 1969. amounted t o $6.9 b i l l i o n . was e s t i m a t e d a t increase of Without a quota, demand quota. values, the value of I n 1969, the growth i n f o o t w e a r was e s t i m a t e d a t a b o u t 23 p e r c e n t b e l o w t h a t Using the estimates cent of In i n the i m p o r t / c o n s u m p t i o n r a t i o sources. consumption of be t h e c a s e w i t h o u t a -- consumers the years ahead. t h e p u b l i c w o u l d have t o m e e t f i g u r e was e s t i m a t e d a t unit in the 1975. Thus, value on i m p o r t s f o r a b o u t 70 p e r c e n t i n the l a t t e r as i n t o assume t h a t the proposed l e g i s l a t i o n would hold in shoes - - 1965-69 p e r i o d were t o p e r s i s t imports could account for experience w i t h seemed r e a s o n a b l e to r e l y heavily the r a t e prevailed this determined. the level estimated of consumption However, with over 70 p e r one-third higher -22Under expenditures extra -- cost that Impact is of estimated at $1.9 b i l l i o n $7.8 b i l l i o n -- that quotas were a p p l i e d the to domestic lines consumer i n 1975. This absence o f t i o n of and a p p a r e l so t h a t over produced a r t i c l e -- ever, if total consumption of stems increase than a l l o w i n g i t to would prevent the average u n i t cost cost of freeze the these items the import increase. to In Thus, t h e consumer consumers were p e r m i t t e d the -- the propor- to cheaper i m p o r t e d f o o t w e a r and a p p a r e l a t a b o u t rather from shoes o r a p p a r e l The p r o p o s e d q u o t a s , imposed, would e f f e c t i v e l y foot- significantly imported a r t i c l e . consumption devoted t h e 1969-75 p e r i o d . w o u l d do i f This r e s u l t the average u n i t cent o f a p p a r e l and consumers a r e e x p e c t e d t o total an footwear. t h e y w o u l d add than the e q u i v a l e n t quotas, their decline pressures. the domestically is Level to imports discussed above, inflationary i s more e x p e n s i v e as i t of o r a p r e m i u m o f a b o u t 30 p e r o f Q u o t a s on t h e D o m e s t i c P r i c e wear a l o n g level, the l e v e l c a n be a s s i g n e d as t h e b u r d e n o f a q u o t a on If fact these circumstances, shoes would howshare of the present the quotas from declining t o buy i m p o r t s without restraint. The h i g h e r u n i t the quotas index prices resulting c a n be t r a n s l a t e d r o u g h l y (CPI). imposition of i n c r e a s e s i n t h e consumer U s i n g t h e same a s s u m p t i o n s a b o u t c o n s u m e r demand a n d s u p p l y c o n d i t i o n s into from the the p a t t e r n d i s c u s s e d above - - of along price -23w i t h d a t a on t h e r e l a t i v e total i m p o r t a n c e o f a p p a r e l and f o o t w e a r consumer e x p e n d i t u r e s , were e s t i m a t e d . If The c a l c u l a t i o n s imports freely without is quotas, estimated by 0 . 6 p e r c e n t , that of quotas and i f th^ a r e shown i n T a b l e th?. b e h a v i o r under total of other che a s s u m p t i o n s consumer p r i c e a n d t h e CPI e x c l u d i n g d e c l i n e by 1 . 4 p e r c e n t , b e t w e e n 1969 a n d 1975 estimated i n a small t o 1975 o f a p p r o x i m a t e l y 0 . 1 p e r c e n t in a r o u n d 0 . 2 p e r c e n t i n t h e CPI e x c l u d i n g Thus, on a n i n d e x b a s e o f w o u l d be 0 . 7 p e r c e n t a g e points higher, the of the than without is it appears 1969=100, above, decline would On f r o m 1969 CPI a n d of services the total CPI and t h e CPI e x c l u d i n g higher, of apparel foods i n 1975, a s s u m i n g no c h a n g e i n o t h e r that other adverse e f f e c t s , as w e l l . it total grow with items CPI. Thus, their a quota, of increase foods and a n d s e r v i c e s w o u l d be 1 . 6 p e r c e n t a g e p o i n t s a quota specified (1969=100). and f o o t w e a r to r e s u l t to components foods and s e r v i c e s t h e i m p o s i t i o n o f q u o t a s on i m p o r t s (1969=100). CPI 2.—^ index would the o t h e r hand, is on t h e o f a p p a r e l and f o o t w e a r a r e p e r m i t t e d the index are held constant, it the e f f e c t s in This general necessary t h e CPI w i t h the adoption of quotas, would aggravate inflationary c o n c l u s i o n seems e v i d e n t to i n t e r p r e t considerable aside t h e above e s t i m a t e s -of from pressures although again the e f f e c t s on caution. j5/ I n m a k i n g t h e s e e s t i m a t e s , t h e d a t a on c o n s u m p t i o n a n d u n i n v a l u e s p r e s e n t e d i n T a b l e 1 w e r e u s e d a l o n g w i t h i n f o r m a t i o n showi n g t h e a p p r o x i m a t e w e i g h t s f o r f o o t w e a r and a p p a r e l i n t h e t o t a l C P I a n d i n t h e CPI e x c l u d i n g f o o d s a n d s e r v i c e s . The p e r c e n t a g e c h a n g e s i n t h e C P I , w h i c h w o u l d o c c u r f r o m 1969 t o 1975 w i t h a n d http://fraser.stlouisfed.org/ w i t h o u t the q u o t a s , were thus e s t i m a t e d . Federal Reserve Bank of St. Louis -24L o o k i n g beyond t h e a p p a r e l and f o o t w e a r c a n be n o d o u b t that fight inflation fact, many c o u n t r i e s imports to protectionist and undermine have used t r a d e their industries e x p e r i e n c e has been t h a t imports h a s come s i n c e to control inflation. cause o f relief our of quotas exporting annual rate rate, of exports dential the g r e a t e s t policy that w i l l in their domestic prices, are greater double than t o t a l o r on a u t o m o b i l e s domestic to start in export and m a i n t a i n - - some p o i n t , and t e x t i l e s we c a n a c h i e v e t h i s perhaps b e f o r e expansion, propo- to an At this on resiare agriculture, retaliatory And i f need trade we a r e to domestic price years. objective, overall get effective we w i l l I would hope t h a t 1975, our c o m p e t i t i v e — and c e r t a i n l y the When e x p o r t s degree of in recent s h a r p u p t r e n d i n i m p o r t s w o u l d be to especially a round of a much g r e a t e r t h a n we h a v e a t t a i n e d If is imports, s u c h as d a r k e n e d t h e d e p r e s s i o n y e a r s . t o make g e n u i n e p r o g r e s s failure expenditures and p a r t s . w o u l d be a t r a g i c m i s t a k e stability prices the 1960-65 r a t e . o u r economy, -- overall a g r e a t and of achieve Our own We h a v e s u c c e e d e d i n r a i s i n g e x p o r t s -- and high. t o many s e c t o r s restrictions i n our concern w i t h r i s i n g still In greater a n d we c a n n o t e x p e c t t h a t we a r e to to induce increase keep p r i c e s there exports. and has c o i n c i d e d w i t h o u r problem, $42 b i l l i o n structures so i m p o r t a n t it to raise E x c e s s demand w i t h r i s i n g forget country. our e f f o r t s t o o p e r a t e more e f f i c i e n t l y . 1965 - - trade from measures Moreover, nents our e f f o r t s a s a n e f f e c t i v e way t o c o m b a t r i s i n g induce basic devices hurt industries, position for - - w o u l d i m p r o v e so t h a t moderated. at shoes the -25I effective do n o t b e l i e v e in getting the other countries U. S. e x p o r t s . in the long r u n i s a p o l i c y under free I n my v i e w , competitive An A l t e r n a t i v e threat of i m p o s i n g q u o t a s w o u l d be to lower the only p o l i c y their that w i l l t h a t encourages g r e a t e r Course f o r I am n o t Public suggesting f a c e no p r o b l e m s . Quite are confronted w i t h rise i n imports and b u s i n e s s e s to achieve trade this flows conditions. Policy I n c o m m e n t i n g on t h e a d v e r s e e f f e c t s sumers, barriers that the t e x t i l e the c o n t r a r y , serious in recent quotas a n d shoe on c o n - industries as i n d i c a t e d a b o v e , structural problems, y e a r s has a d d e d t o (especially of the s m a l l e r and the these. firms) sharp Both are being they workers affected adversely. For example, i n t h e case o f c o n s i d e r e d a low-wage i n d u s t r y ducers enjoy a s i z a b l e wage o f per hour, output the pro- average about received about f i g u r e s were $ 0 . 5 8 and $1.04 $0.56, The l o w f o r e i g n wages m o r e p e r manhour o f f o r e i g n producers United States at counterparts i n Japan and S p a i n . the higher In mid-1969, foreign i n t h e U n i t e d S t a t e s was their and t h e c o r r e s p o n d i n g respectively, quently, In I t a l y , ( w h i c h m u s t be the U n i t e d S t a t e s ) , cost advantage. shoe p r o d u c t i o n w o r k e r s $2.29 per h o u r . offset in footwear of footwear t h e U. S. w o r k e r s . c o u l d l a n d shoes p r i c e s w e l l b e l o w U. S. p r o d u c t i o n in costs. than Consethe -26A similar competitive story impact of c a n be t o l d imports --do need h e l p . t h e w r o n g way t o h e l p think it vide retraining for is far -- preferable In Instead of tance in the - - whether the f o r c e s connection, or granting assistance increased increase in "contribute industries, injury 15 p e r imports points least to in t o an i n d u s t r y has o c c u r r e d , tially; below and the those of immediately to the are sold at comparable domestic products, b e l o w U. S. u n i t but in by the factor" would only have whether fairly rigid constitute and the r a t i o least 3 of percentage that; or domestic o r wages m u s t be d e c l i n i n g imported a r t i c l e s substantially assis- i n v e s t i g a t i o n and by i n the year before man-hours worked, abroad. t o be met moreover, consumption, prior they In determining c o n s u m p t i o n must have i n c r e a s e d by a t jobs, costs are it pro- direction, the i m p o r t e d a r t i c l e must c e n t o f a p p a r e n t U. S. points home o r h a v e t o be t h e " m a j o r the i n j u r y . to In general, injury; I assistance or workers h u r t to the year course, adjustment The c r i t e r i a firms, simply over which at for enter- programs the r i g h t substantially" 5 percentage duction, in t o cause s e r i o u s r u l e s w o u l d be e s t a b l i s h e d : over originate point i m p o r t s w o u l d no l o n g e r threatening that forces i m p o r t s a r e l i b e r a l i z e d by the b i l l . causing or serious to severe. financial the p r o v i s i o n s proposed quota b i l l the quotas are t o a d o p t more e f f e c t i v e t h e y c o u l d be i m p r o v e d c o n s i d e r a b l y . to pursuing and t r a n s i t i o n a l b e n e f i t s this is i n my j u d g m e n t , t h o s e who a r e d i s p l a c e d by c o m p e t i t i v e h a v e no c o n t r o l So, b o t h w o r k e r s and b u s i n e s s However, them. textiles. i n both industries Those employed i n t h e i n d u s t r y prises for prices costs. pro- substan- substantially and f o r e i g n u n i t labor at labor -27Under t h e s e r u l e s , could not obtain r e l i e f some l i b e r a l i z a t i o n there is a real far. Under strongest over, it of -- many i n d u s t r i e s might q u a l i f y the c r i t e r i a danger t h a t the u m b r e l l a q u o t a s o n shoes a n d t e x t i l e s , i m p a c t on c o n s u m e r s . concluding of this to consider have been i n e f f e c t and sugar - - to the Moreadjustment quotas. the question of I have a t t e m p t e d several points presentation, t o show t h e it in this on o i l some c l u e s this year. to to the cost of oil products import t o consumers w o u l d a p p r o x i m a t e ffIn than they import r e s t r i c t i o n s . $8.4 b i l l i o n . quotas petroleum studied whose r e p o r t The T a s k F o r c e f o u n d t h a t , remind quotas. i m p o r t s has b e e n i n t e n s i v e l y c o n s u m e r s p a i d $5 b i l l i o n more f o r the absence o f that discussion. principally Control, of adverse of m i g h t be w e l l f o r an extended p e r i o d - - The s i t u a t i o n have p a i d i n the e f f e c t s i t e m s on w h i c h m a n d a t o r y i m p o r t and these p r o v i d e released early t h e need f o r t o impose b y a C a b i n e t T a s k F o r c e on O i l I m p o r t cost shelter. t h e b a d e x p e r i e n c e we have a l r e a d y h a d w i t h There a r e s e v e r a l quotas. find too e v e n some o f The d i r e c t i o n a n d r o u g h m a g n i t u d e i m p a c t have been i n d i c a t e d a t ourselves helpful, Observations In addressing myself But b e f o r e While o f p r o t e c t i o n m i g h t go industries might f r o m any p r o p o s a l previously for assistance. of adjustment assistance, w o u l d a l s o be p r e f e r a b l e Concluding which f o r a s s i s t a n c e w o u l d be the grant or l e a s t e f f i c i e n t assistance apart -- was 1969 would By 1980 t h e Without annual import -28controls barrel the domestic wellhead p r i c e would f a l l to about $2.00, which would correspond to A l t h o u g h we c a n n o t e x c l u d e substantial A majority price rise of right It t h e T a s k F o r c e recommended t h a t tariffs seems t o me t h a t goes back t o predict t h e coming the present involving a lesser a decade." quotas degree o f t h i s w o u l d move us some d i s t a n c e sugar, the mid-19301s, p r i c e s and s u p p o r t the domestic sugar p r i c e averages the reasons about 4 cents of about supplying that intended sugar controlling be protecin the their residual supplies a reasonable U n i t e d S t a t e s w e r e t o remove i t s price t o U. S. rise, and a s i n g l e level between the overall effective two. the is so l o w - - equivalent favorable on s u g a r fall, One price after prices, p r o f i t margin. U.S. currently can on w o r l d m a r k e t s a t v e r y controls consumers w o u l d t e n d t o that foreign producers, U. S. q u o t a a m o u n t a t v e r y their is control than the w o r l d p r i c e . the quoted world p r i c e that stable The s u g a r b u t one c l e a r r e s u l t is supplies to maintain industry. considerably higher p e r pound - - p r i c e s and r e a l i z e of p e r pound compared w i t h a d o m e s t i c 8 cents to s e l l the p o l i c y and i s p r o g r a m h a s many c o m p l e x i t i e s , afford price. direction. I n t h e case o f of over per the world we do n o t i n world o i l markets r e p l a c e d by a s y s t e m o f tion. the p o s s i b i l i t y , from $3.30 If the imports, the the world p r i c e p r i c e w o u l d be e s t a b l i s h e d a t low would some -29I n the meantime, however, and consumers a r e p a y i n g t h e c o s t . proposals would p r o h i b i t and i t s virtue And, the a b o l i t i o n of replacement w i t h a t a r i f f , of allowing q u o t a s on o i l the t o t a l supply sadly, to rise effect, t h e new q u o t a the o i l which a t are i n import quota l e a s t w o u l d have -- although at the higher prices. S o , a l t h o u g h we may h a v e t o l i v e w i t h quotas f o r would l i k e some t i m e , t o add I w o n d e r how many o f us — others? the existing as c o n s u m e r s -- T a b l e 1. Demand and S u p p l y o f A p p a r e l and F o o t w e a r , Commodity 1965 Apparel D o m e s t i c Demand Value o f consumption ($ m i l l i o n ) Volume o f c o n s u m p t i o n ( m i l . o f l b s . ) U n i t V a l u e ($ p e r l b . ) Per c a p i t a c o n s u m p t i o n ( l b s . ) Cost o f Quota ($ m i l l i o n ) Sources o f Supply (volume, m i l . o f l b s . ) Domestic p r o d u c t i o n ( m i l . o f l b s . ) Imports (mil. of l b s . ) U n i t v a l u e o f i m p o r t s , r e t a i l ( $ per l b . ) I m p o r t s as p e r c e n t o f t o t a l Footwear D o m e s t i c Demand Value o f consumption ($ m i l l i o n ) Volume o f c o n s u m p t i o n ( t h o u s . o f U n i t v a l u e ($ per p r . ) Per c a p i t a c o n s u m p t i o n ( p r s . ) Cost o f q u o t a ($ m i l l i o n ) prs.) Sources o f Supply ( t h o u s a n d s o f p a i r s ) Domestic p r o d u c t i o n (thous. o f p r s . ) Imports (thous. of p r s . ) U n i t v a l u e o f i m p o r t s , r e t a i l ($ per p r . ) I m p o r t s as p e r c e n t o f t o t a l 30,505 3,568 8.55 18.34 1969 42,302 4,226 10.01 20.80 1965-1975 Average Rate o f Growth 1965 - 69 (per cent) 8.5 4.3 4.0 3.2 - - 3,568 3,382 186 n.a. 5.21 4,226 3,898 328 6.14 7.76 4.3 3.6 15.2 5,273 719,729 7*33 3.70 6,850 780,741 8.77 3.84 6.8 2.1 4.6 1.0 780,741 578,533 202,208 5.32 25.90 52,725 5,412 9.74 - 10.5 - 719,729 623,738 95,991 3.08 13.34 Proiected Without Quota 54,528 5,412 10.08 1,803 5,412 4,647 765 6.14 14.13 5,412 5,077 335 5,906 878,697 6.72 7,793 878,697 8.87 - 2.1 -1.9 20.5 14.7 18.0 1975 With Quota 878,697 264,312 614,385 5.32 69.92 6*14 6.18 1,887 878,697 669,301 209,396 5.32 23.83 Table 2. The E f f e c t on t h e Consumer P r i c e I n d e x i n 1975 o f I m p o s i n g I m p o r t Quotas on Footwear and A p p a r e l 1969 Apparel . V a l u e o f c o n s u m p t i o n ( m i l l i o n s o f $)— Volume o f c o n s u m p t i o n ( m i l l i o n s o f l b s . ) U n i t v a l u e ($ p e r l b . ) Change i n u n i t v a l u e f r o m 1969 ( p e r c e n t ) W e i g h t i n consumer p r i c e i n d e x ( p e r c e n t ) Total E x c l u d i n g f o o d and s e r v i c e s Change i n CPI f r o m 1969 t o 1975 (1969=100 p e r Total E x c l u d i n g f o o d and s e r v i c e s Footwear . V a l u e o f c o n s u m p t i o n ( m i l l i o n s o f $)— Volume o f c o n s u m p t i o n ( t h o u s . o f p r s . ) U n i t v a l u e ($ p e r p r . ) Change i n u n i t v a l u e f r o m 1969 ( p e r c e n t ) W e i g h t i n consumer p r i c e i n d e x ( p e r c e n t ) Total E x c l u d i n g f o o d and s e r v i c e s Change i n CPI f r o m 1969 t o 1975 (1969=100 p e r Total E x c l u d i n g f o o d and s e r v i c e s JL/ 2/ cent)!/ cent)!' Without Quota 1975 With Quota 42,302 4,226 $10.01 0 52,725 5,412 $9.74 -2.70 54,528 5,412 $10.08 +0.70 7.03 17.10 7.03 17.10 7.03 17.10 -0.19 -0.46 +0.05 +0.12 6,850 780,741 $8.77 0 5,906 878,697 $6.72 -23.38 7,793 878,697 $8.87 +1.14 1.60 3.89 1.60 3.89 1.60 3.89 0 0 -.37 -.91 +.02 +.04 0 0 Assumes p r i c e s o f b o t h d o m e s t i c a l l y p r o d u c e d goods and i m p o r t s a r e same i n 1975 as i n 1969. Changes i n u n i t v a l u e t h u s r e f l e c t changes i n t h e q u a n t i t y o f i m p o r t s o r d o m e s t i c a l l y p r o d u c e d goods consumed. A s s u m i n g t h a t t h e b e h a v i o r o f a l l o t h e r components o f t h e CPI a r e h e l d c o n s t a n t between 1969 and 1975.