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Updated Report on Effects of Import Restraints Explores Role of Services in Manufacturing

Friday, December 27, 2013
Sandler, Travis & Rosenberg Trade Report

The International Trade Commission issued Dec. 23 its latest report on the economic effects of significant U.S. import restraints. The report estimates that U.S. economic welfare, as defined by total public and private consumption, would increase by about $1.1 billion annually by 2017 if all significant restraints quantified in this report were unilaterally removed. Exports and imports would both expand by about $6.2 billion. These changes would result from removing import barriers affecting cheese, sugar, canned tuna, textiles and apparel, and certain high-tariff manufacturing sectors. The current estimate is well below the estimated welfare increase included in the previous (2011) update, which was $2.6 billion. Most of this change is attributable to the elimination of a major U.S. import restraint on ethanol.

Textiles and Apparel. The ITC estimates that liberalizing import restraints in textiles and apparel would increase welfare by $483.4 million, which is very close to the estimate in the previous update as little has changed with respect to restraints. Liberalization would reduce both shipments and employment in this sector by approximately 14%, while imports of textiles and apparel would increase by 2.9%.

Cheese. Liberalization of import restraints in cheese is estimated to increase  U.S. welfare by about $49.5 million. The previous report estimated gains for the entire dairy segment and did not provide a welfare number for cheese alone. U.S. cheese shipments and employment are each expected to decline by 1–2%, while imports of cheese would grow by 40%.

Sugar. Removing tariffs and TRQs on imports of raw and refined sugar is estimated to increase welfare by $276.6 million. This is a significantly higher welfare gain than in the previous update, reflecting a projected larger gap between the domestic and world prices of sugar by 2017. Imports of raw and refined sugar would increase by 43%, while total U.S. shipments of sugar would decline by more than 14%. On the other hand, exports would increase by more than 18%. U.S. confectioners, benefiting from the decline in refined sugar prices, would increase shipments and exports by a small amount.

Canned Tuna. Ending import restraints on canned tuna would increase welfare by $7.7 million, which is less than the estimated gain in the previous update. Imports of canned tuna would increase by 5% while U.S. shipments and employment would each fall by 5%.

Other high-tariff sectors. Nine other sector groupings were identified as subject to relatively high tariffs. The welfare effects of eliminating these tariffs are estimated to range from a gain of $139.5 million for cigarettes to a loss of $18.6 million for residential electric lighting fixtures. Taken together, the gains in these high-tariff sectors are comparable in size to those estimated in the previous update. All sectors are expected to see increased imports and exports, lower shipments and employment, and lower consumer prices.

This year’s report also includes a special section on the role of services in manufacturing. It notes, for example, that manufacturing increasingly relies on services at every stage of the value chain, from product design and market research to warehousing and distribution. The growing importance of services reflects in large part how manufacturers have responded to the pressure of global competition and the opportunities presented by technological innovations. According to the ITC, some of the competitive reasons that are driving the growing role of services in manufacturing include more widely distributed production networks or supply chains to take advantage of geographic specialization; the adoption of advances in information and communications technology to cut costs and improve efficiency; and the integration of services into marketed products to make them stand out from their competitors and strengthen customer relationships.

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