April/May, 2009

From the Editor

Trade Wars And The Deli

The days are long gone when supermarkets had a sign reading “international” to highlight the few imported specialty foods they carried; today’s supermarkets have become veritable international bazaars carrying foods from every corner of the world.

The specialty cheese case, although lately featuring a wide assortment of American originals, is also a European geography class all by itself, with cheeses from Ireland to Italy, from Scandinavia to the Iberian Peninsula.

It ought to be of no small concern to the industry that the world may break into another trade war, since the prospects of high tariffs or unavailable products would impoverish the shopping experience and make retailers less able to satisfy customers.

It is common for hard times to lead many to focus on beggar-thy-neighbor policies. The infamous Smoot-Hawley Tariff Act is considered by most scholars to have played a significant role in spreading the Great Depression to Europe, and many believe it deepened the intensity and extended the length of the downturn.

Most recently, there were numerous attempts to sneak protectionist rules into the stimulus bill by prohibiting the use of foreign steel, for example, in stimulus bill projects. Although many of the clauses were removed before final passage, the world began to realize the sentiment in the United States was turning against trade.

We now stand on the precipice of a trade war with our next-door neighbor to the south, Mexico.

President Obama recently signed into law a spending bill that zeroed out all funding for a pilot program allowing certain pre-approved Mexican truck companies to bring freight from Mexico to various U.S. destinations without changing trucks or drivers.

The pilot program was necessary because the United States has been dragging its feet on honoring its treaty obligations for almost 15 years. In 1995, as part of the North American Free Trade Agreement (NAFTA), the United States agreed to quickly permit Mexican trucks to cross the border and deliver anywhere in the four U.S. states that border Mexico – California, Arizona, New Mexico and Texas.

The powerful Teamsters Union threw its weight around and the clause was never put into practice. Under NAFTA, Mexican trucks were supposed to be able to deliver anywhere in the United States by 2000. The United States didn’t honor its obligations there either.

This clause would ensure better-quality product, delivered more quickly and less expensively to U.S. businesses and consumers, as opposed to the time-consuming, product-deteriorating and expensive procedure currently followed. Today, trucks in Mexico go to special zones set up near the border. The freight is unloaded and then reloaded on a U.S. truck with a U.S. driver.

Mexico steps gingerly in its relations with the United States but, eventually, the injustice of America’s unwillingness to honor its agreements led Mexico to request the formation of a special arbitration panel as outlined in NAFTA. Two Americans, two Mexicans and a British chairman ruled unanimously that the United States had failed to honor its agreement. It authorized the Mexican government to impose retaliatory tariffs.

Over 80 percent of Mexican exports go to the United States so Mexico was not looking for a trade war. It held off on the tariffs when the United States agreed to launch a pilot project in which 103 trucks from 26 Mexican carriers could bring freight to U.S. destinations. These 103 trucks would be carefully monitored to see if they were as safe as American trucks and drivers.

Several studies, both independent and by the U.S. Department of Transportation, found the Mexican trucks were safer than their U.S. counterparts. This has not stopped efforts to attempt to defund the pilot project in the past, and, in fact, President Obama voted to defund the project when he was a U.S. Senator.

The Mexicans showed remarkable forbearance during all these efforts to get the United States to honor its word. Yet in the end, they got slapped in the face when the U.S. Congress passed and the U.S. President signed, without comment or apology, the bill that terminated the pilot program.

Mexico finally retaliated with tariffs, carefully avoiding items the poor in Mexico depend on, such as rice and corn, but hitting hard at items perceived as more luxury-oriented: wine, dog food, bottled water, juices, nail polish, onions, pears, strawberries and cherries plus other items — about 2.4 billion dollars worthy of trade.

It is a skirmish hurting those industries affected but not big enough to affect the general economy — for now. There are principles at stake — economic principles, such as not making ourselves prosperous by making our neighbors poor, and political principles, such as honoring our agreements even when politically inconvenient.

If we forgot these principles, this won’t be the last trade skirmish and, ultimately, our ability to bring the cornucopia of the world to the people of the United States will be compromised. That would be bad for our businesses, bad for consumers, bad for America and bad for the world.  DB