In an era in which the Bush Administration is seemingly playing politics with free trade for election-year votes, it's important to remember that tariffs and quotas have consequences that often aren't foreseen at the time they are imposed. And there is no better example of good intentions gone awry than the three-decade-old Multi-Fiber Agreement, which assigned quotas to poor countries trying to sell textiles to Europe and the U.S. The original idea was to provide some protection to politically connected American and European textile manufacturers while helping some poor countries build textile industries.
Quotas were distributed liberally across the developing world, and the countries that got them built new textile plants. They also got to live with a nightmarish quota regime that covered no less than 140 categories of clothing.
By the mid-1990s, Europe and the U.S. agreed that the whole edifice should be scrapped. The most competitive countries, such as Ghana, the Dominican Republic, and Turkey, hailed the decision. China, which was not then a member of the World Trade Organization, was not in the picture. Now China is, and as quotas come off over the next year, it could displace much of the developing world as the low-cost producer, winning 45% of the $500 billion global garment trade. The U.S. could lose about half a million of its remaining textile jobs over time. South East Asia, Africa, and Central American producers could lose up to 30 million jobs.
It's too late to do much about this massive transfer of jobs. Some countries, such as Pakistan and India, are investing heavily to remain competitive with China. But many others, such as Cambodia, are deeply threatened. Reimposing quotas, which some advocate, will only prolong the inevitable. The lesson is clear. Tariffs, quotas, and other forms of protectionism carry a very high price, and unwinding them can be painful indeed.