Crustacean Follies

June 15, 2020

I decided to take a break this week from writing about Democrats and trade—an endlessly fascinating subject, but it does get tedious after a while. This past week presented an opportunity that was simply too good to pass up—lobsters. This is a small story, but it says a lot about how the trading system actually works and about unintended consequences.

The current kerfuffle was kicked off when the president visited Maine, and no doubt got an earful from Maine lobstermen about declining exports. Once derisively known as the cockroach of the sea, marketing campaigns by the industry over decades, not to mention the fact that the product is delicious, have created a healthy growing industry, primarily in Maine, and exports are a large part of it. In the first half of 2018, for example, Maine lobster exports were more than double what they were in the first half of 2017. That came to a crashing halt the next month when the president imposed tariffs on China as a result of his Section 301 investigation, and the Chinese retaliated with tariffs on, among other things, lobster. Over the next 12 months, Maine exports of live lobsters declined 46.7 percent, as China shifted its purchases to Canada. Although Canadian lobsters are rumored to be nicer than American lobsters, the truth is they’re all about the same, and our president handed Canada a significant gift. (Don’t let the Canadians tell you he’s never done anything for them.)

Compounding the problem, Canada at the same time concluded a free trade agreement with the European Union, in which the EU 8 percent lobster tariff, among other items, dropped to zero for Canadian lobsters but remained in effect for American lobsters. So, a double whammy for the Maine lobster industry. The lobstermen have also figured out that if they move their operations across the border, they can both avoid the Chinese tariff and benefit from the zero EU tariff, which adds to the decline of the U.S. industry.

The president’s response, not unexpectedly, was to threaten more tariffs. That appears to be the only arrow in his quiver. In particular, he once again threatened to impose tariffs on automobile imports from the European Union if they did not reduce their lobster tariff. That has caused some consternation in the auto industry, which had hoped that idea would be given the burial it deserved.

It also, of course, further worsened our relations with the European Union at the very point we should be trying to improve them. As I said last week, that relationship is fraught, but the imperative of the China challenge should impel both of us to reconcile our differences and work together to confront the common adversary. Threatening them with auto tariffs—again—is definitely not going to do that. It was a particularly odd threat now because it would do significant damage to both our economies at a time when both are in dire straits because of Covid-19.

The larger problem with the threat is that it completely misses the point. The industry is not in trouble because of a longstanding European tariff that has not changed. It is in trouble because of Chinese retaliation against U.S. tariffs. And, even if the EU tariff were the cause, the solution would be to do what the Canadians did and negotiate a trade agreement with the European Union. Instead, what started out as a fight with China over “structural issues”—intellectual property theft, subsidies, and treatment of state-owned enterprises—has instead undermined American farmers, lobstermen, and manufacturers without achieving any of its objectives. It remains to be seen whether all this collateral damage will make any difference in the November election.

This episode also serves as a reminder of the president’s overall approach to trade problems, which is to instinctively reach for the stick rather than the carrot. Is somebody doing something we don’t like? Let’s put on a tariff. That’ll show ‘em. One would think that after three and a half years of this, he would realize that what he has really accomplished is to teach other countries how to get even. My experience in the trade business has been that carrots almost always work better than sticks, or, to quote my first boss on the Hill, you catch more flies with honey than with vinegar. Neither of those goes very well with lobster, but you get the idea.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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