The U.S. footwear industry is no stranger to trade proceedings. Since 1970, the industry has five times sought "escape-clause" protection from import competition. Most recently, in June, the International Trade Commission voted 4 to 1 for import protection. President Reagan must now decide what relief, if any, to give the industry.
The shoe industry has a strong claim for some relief. Between 1981 and 1984, factory employment dropped from 128,000 to 108,000; output plunged from 372 million pairs to 299 million pairs; while imports, partly in response to the strong U.S. dollar, nearly doubled, from 376 million pairs to 726 million pairs. If any industry deserves temporary respite from import competition, it is the footwear industry. The real questio is how much relief is warranted and what form that relief should take.
The ITC recommends an import rollback of 100 million pairs, with gradual liberalization over the statutory five- year period to 1990. This would increase demand for U.S.-made shoes by about 88 million pairs and increase industry employment by some 30,000 production workers. At the same time, it would boost prices on imported shoes by about 13 percent and on domestic shoes by at least 6.5 percent.
Because of these higher prices, additional jobs would come at a high cost to the rest of us, approximately $900 million annually, or $30,000 per factory job "created" per year. Moreover, jobs created in the shoe industry would spell jobs lost in other industries that consumers might have patronized with that $900 million.
The shoe industry is not an area of U.S. strength in world markets. For most footwear, the industry has a hard time competing with Korea and Brazil, where wages are much lower and machinery is often just as good as in Missouri. Even a substantial exchange rate correction of the overvalued dollar would not change these basic facts.
In these circumstances, import relief should be designed to slow the downward slide of the industry, not to recruit new faces. At most, the relief program should be tailored to return to the 1983 employment level, some 117,000 persons, on the pessimistic reasoning that every shoe worker laid off since 1983 is still looking for employment. Put this way, the program should be designed to add 9,000 factory jobs to mid-1985 employment, a figure that translates into an initial rollback of imports of no more than 30 million pairs.
What form should the restraints take? The footwear industry, like most industries, finds the certainty of quota protection very appealing. But a tariff is far superior, because it preserves a greater degree of competition in the U.S. market. In this case, a tariff rate of 5 percent would . The ITC, however, decided against a tariff; instead, it recommended that the president impose a quota on all shoe imports priced over $2.50 per pair.
Instead of the normal kind of quota, in which rights are assigned to foreign suppliers, the ITC recommended a "quota auction." This is an excellent suggestion -- the next best thing to a tariff. The great virtue of a quota auction is that, like a tariff, it raises revenue for the U.S. Treasury. A quota auction designed to exclude about 30 million pairs of shoes would raise more than $200 million annually. By comparison, quotas that are assigned to foreign governments would end up putting valuable import rights in private hands.
What about adjustment for shoe workers and shoe firms? At one time we had a Trade Adjustment Assistance program that was imperfectly designed for those purposes; since 1981, however, David Stockman has starved the program of resources. Trade Adjustment Assistance comes up for legislative renewal in September. This is a splendid opportunity for the administration to seek congressional support for dedicating revenue raised on shoe imports to the adjustment needs of the domestic shoe industry.
The $200 million annual revenue would be well spent. As funds are used for adjustment, imports should be correspondingly liberalized. For example, if an average amount of $40,000 per worker were dedicated for early retirement pensions, retraining programs and the purchase of corporate tax loss carryforwards, the program could comfortably handle the needs of 5,000 departing workers and their firms per year. This, in turn, would permit an increase in imports of some 13 million pairs of shoes. Consumers would benefit from cheaper shoes and foreign suppliers would gain from more liberal access to the U.S. market.
It is much cheaper for society to make adjustment bearable for displaced workers and firms than it is to put up with indefinite protection. Unfortunately, our political system is far more willing to grant off-budget import protection than on-budget adjustment assistance. This attitude needs to be changed. A plan for footwear that dedicated tariff or quota auction revenues for industry adjustment would help point the way for a whole range of troubled industries, from dairy to steel, that are no longer competitive in the world marketplace.