Taken to the Cleaners, Again

by on May 22, 2008 at 12:29 pm in Economics | Permalink

A tariff on imports of coat hangers from China is raising dry cleaning costs.  The Aplia Econ blog runs the numbers:

Advocates of trade restrictions often argue that protection will save
jobs. Since we can observe price and cost increases associated with
trade restrictions, we can estimate how much it costs to save each job
in a protected industry. According to the NPR story, there are roughly
30,000 dry cleaners in the U.S., and on average, each pays an
additional $4,000 per year due to the hanger tariff. This indicates an
average annual cost of 30,000 firms x $4,000 per firm = $120 million.
According to the U.S. International Trade Commission’s report,
U.S. employment in wire hanger manufacturing was 564 workers in 2004
and fell to 236 workers by 2006. Let’s assume that employment in this
sector would have fallen to zero in the absence of the tariff, and that
with the tariff, employment will recover to 2004 levels. In other
words, assume the tariff "saves" 564 jobs. Dividing the cost of the
tariff to U.S. dry cleaners ($120 million year) by the number of jobs
saved (564 jobs) indicates that each job saved costs about $212,765 per
year. Keep in mind that the typical full-time worker in this sector
earns about $30,000 per year. Even if we assume that industry
employment doubles, the cost of the tariff is still roughly $120,000
per job.

Jay May 22, 2008 at 1:04 pm

But because we saved those 200 some jobs we avoided one of them going out, becoming a drug dealer,
murdering some poor innocent victim and the story being plastered all over CNN. Surely the gains from
this one incident justify the estimated cost of the tariff!

Kyle May 22, 2008 at 1:25 pm

Simple math wins again. Forget externalities, this is just silly. This kind of stuff always reminds me of the South Park episode where the locals were mad at the “goobacks.” “They tuk ‘er jobs!”

I know immigration and tariffs are two separate issues, but at least in my mind there is a connection…

Speedmaster May 22, 2008 at 2:03 pm

Great story find! And Jay, you’re kidding, right? ;-)

Jay May 22, 2008 at 3:01 pm

“And Jay, you’re kidding, right? ;-)”

Indubitably! Although I should have used a sarcasm tag, since it is becoming increasingly prevalent for
the left and the right to make arguments based on non random samples of size N=1 and for these arguments
to be accepted as logical and rational reasoning.

greatzamfir May 22, 2008 at 3:52 pm

If a dry cleaner keeps buying Chinese, then we get mic’s case: money goes to tax, ceteris paribus the national debt is reduced. This is effectively a transfer from people using dry cleaners to future tax payers.

If the dry cleaner switches to American coathangers, his loss is at most $4000, or he would have stayed with the Chinese. If wages are the only cost advantage of the Chinese, then all of that $4000 will be spend on American wages.

I might be mistaken, but I think the net loss here is roughly the value those coat-hanger-makers would have produced in another, not protected job. If (big if!) the only alternative to being a coat-hanger-maker is being unemployed, then the net effect is a transfer from drycleaning customers to the workers.

Jay May 22, 2008 at 4:47 pm

“The math should make you suspicious. These US hanger workers aren’t getting paid $120k each.”

Randall: The whole point of this exercise is to show that the U.S. consumer would be better off
without the tariff. A more efficient solution (if you think it is the gubment’s job to take
care of those that lose their jobs to international competition) would be simply to trade with
China, give a $30,000 subsidy/yr to these workers to do nothing and trade with China. In such a
situation everyone would be better off than our current predicament (excluding the owners of these
domestic manufacturers our gubment is protecting).

Bob Murphy May 22, 2008 at 5:27 pm

No one has brought up the safety issues. What if Chinese coat hangers are poisonous? You scoff, but in Scary Stories to Tell in the Dark I read about a woman who died when she put on a used wedding gown, because the previous owner had toxins in her system and sweat them out into the garment.

Anonymous May 22, 2008 at 9:08 pm

Why not charge a refundable deposit for coat hangers, sort of like for beer bottles in some jurisdictions? It could work as a kind of loyalty program to encourage repeat customers, and environmentalists will be happier.

Hans Suter May 23, 2008 at 12:47 pm

This must be an economist’s blog. The “cost” per cleaned item to me must be in the order of a fraction of a cent. Wow.

Tom Kelly May 24, 2008 at 1:20 am

I have a degree in Economics and own a large dry cleaning plant. This duty may increase our costs by over $20,000 a year.

None of that may go to the ONE US producer of hangers who brought this issue before the Feds. I will no longer buy any US made hangers on principle as long as foreign hangers are available at close to competitive prices. We are also stepping up our already popular hanger recycling program.

From what I’ve seen of it, working in a hanger factory is not a very desirable job. In fact, it is the sort of job that Americans shun and illegal aliens often fill. While I’m very pro-immigration, I won’t be surprised if a lot of those “120K to create” jobs are filled with illegals.

It will be interesting to see how the dry cleaners respond after seeing the prices go way up. There are 30,000 small business people that are each getting gouged for the benefit of one company. The trade publications seem to be in the bag for the hanger company because they are an industry supplier and the trade publications depend on industry suppliers for all of their revenue. I haven’t heard of the largest industry association doing anything yet.

Just another example of our government stepping all over hard working small business people. It’s hard to pass these costs on to customers because dry cleaning demand is very elastic and dry cleaning plants have high fixed costs- which in many markets has left low end prices barely above variable costs.

抓漏 December 3, 2008 at 11:04 pm

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