Regulation of the Shrimp Industry

It was stated previously that it is usually individual companies that bring about regulation for their own benefit. The following is a prime example of this. But in this case, it should be added that it is not just companies per se, but often entire industries that benefit most from regulation.¹²⁴

Several decades ago, shrimp were considered a delicacy and were very expensive, but today, can easily be obtained at moderate prices in stores and restaurants. Americans currently consume more than four times the amount of shrimp they did in 1970.

American shrimp trawlers, who operate mainly in the Gulf of Mexico, have suffered economic losses in the process. This is because of industry innovations consisting of shrimp farming, which produces much more shrimp at lower costs and effort, as well as increased shrimp supplies from many other countries. The shrimp industry of eight southern states, as represented by their lobbying organization, the Southern Shrimp Alliance, filed an anti-dumping petition with the U.S. Department of Commerce (DOC) against shrimp farms in six other countries providing shrimp imports to the U.S. It was a typical case of companies turning to the government to help them at the expense of both other companies and consumers, since anti-dumping laws are pure protectionism.

The supposed act of dumping involves foreign firms’ setting of prices in their export market either below their cost of production, or below the prices they charge in their own markets; it would be another instance of so-called predatory pricing. Similar to what was described above, the theory is that foreign firms would dump their products on the U.S. market at below-market prices, and therefore gain increased market share and drive their competitors out of business. These predatory firms would then raise their prices to recoup the losses they incurred and would gouge American consumers by forcing them to pay whatever price they asked.

But the idea of dumping is absurd, because it implies that hundreds of firms from multiple different countries were somehow communicating and organizing to coordinate precisely when and how much to cut their prices, and in order to target a particular single price — without any single colluder cheating by selling at a higher price! Further, even if it was actually possible to communicate and coordinate and not cheat, all of these firms would incur massive losses that would grow larger as their market shares grew. The companies would realistically not be able to raise their prices later to such a degree that they would recoup their losses, much less bring additional profits. With any substantial increase in shrimp prices, U.S. consumers would quickly turn to sellers in one of the other 44 shrimp exporting countries. Additionally, they would choose not to buy shrimp, or to buy other types of seafood or meat instead.

But the government does not consider any such logic. Instead, the DOC and government economists engage in their own brand of economic assessments of whether foreign exporters were harming domestic businesses. It compared the price of exporters’ shrimp sold in the U.S. to other locations, including its home country. But, businesses often sell the same product for different prices in different countries, often because of the costs of various regulations, requirements, transportation costs, taxes, and tariffs in different countries. In two of the countries in question, exporters didn’t even sell frozen shrimp in their own countries. When there are no prices to compare to, the DOC estimates what the price would be if the exporter did sell the same shrimp at home! It is, of course, impossible to know what the price would be if it existed, since it does not in fact exist. Any estimated price is purely arbitrary, and likely one made up to arrive at the most needed for the politics at hand (since the DOC has almost always ruled in favor of the antidumping petitioner).

The possibility of price dumping is also often assessed on the basis of profit margins. Supposedly, if a firm is selling for a loss, it is likely price dumping. But under this logic, the very firms supposedly needing protection, the American shrimp trawlers, since they are barely breaking even or incurring losses, are themselves price dumping!

No matter: the shrimp trawlers got their government protection in 2005 when the DOC imposed tariffs of up to 112 percent on the six countries in question, because the DOC determined that the American shrimpers had been caused “material injury” by the foreign exporters. It was naturally expected that the tariff would protect US shrimpers from competition by reducing shrimp imports; this would, like most regulation, increase the prices we consumers have to pay.

But in this particular case, the tariffs were placed against six particular shrimp exporting countries, not all countries. Thus, American shrimp importers turned to the other 44 foreign exporters. Additionally, the six exporters named in the suit began exporting other types of shrimp, such as breaded shrimp (instead of plain frozen shrimp), that were not named in the anti-dumping law. The result was that shrimp imports into the U.S. have increased by 14 percent since the tariff was imposed, and shrimp prices have declined by 9 percent (It is fortunate that tariffs were not placed on all shrimp imports).¹²⁵

The monies collected from the tariffs were distributed among the American shrimpers. But then, newly enacted laws stopped this activity. Thus, the Southern Shrimp Alliance (SSA) used high-priced lawyers to file a special appeal with the DOC that threatened foreign shrimp producers with more extensive tariffs. More than 100 foreign shrimp suppliers thus paid the SSA millions of dollars in return for its promise to drop the petition. The SSA used the money to pay its lawyers, to pay lobbyists to rally government support for the industry, and to pay office expenses. The domestic shrimpers, its clients, now receive nothing. The beneficiaries of the shrimp tariff are lawyers and lobbyists, not shrimpers.