Good on American Shrimp Farmers
US shrimp farmers have received a potential boost from a recent ruling by the US Department of Commerce. The department has determined that five countries – China, Ecuador, India, Malaysia, and Vietnam – have provided improper subsidies to their shrimp industries, giving them an unfair advantage in the US market.
The US shrimp industry has been struggling due to higher fuel costs following the 2010 oil spill in the Gulf Coast. Domestic producers argue that these increased costs, coupled with government subsidies provided to foreign producers, have made it difficult to compete.
The US imported a staggering 1200 million pounds of shrimp last year, while domestic production amounted to a mere 100 million pounds. This significant import reliance highlights the vulnerability of the US domestic shrimp industry to foreign competition.
If the US International Trade Commission confirms that these subsidies have harmed the US shrimp industry, tariffs of up to 54.5% could be imposed on shrimp imports from the five countries. This would significantly raise the price of imported shrimp, making domestic shrimp more competitive.
US shrimp farmers claim that Indian authorities subsidize shipping costs for shrimp exports to the US, while China provides subsidized loans to its shrimp farmers. They argue that these practices violate World Trade Organization (WTO) rules.
However, the five countries have disputed the US Department of Commerce's findings. Vietnamese producers argue that the decision will negatively impact the livelihoods of over 600,000 shrimp farmers and processors in their country. Chinese officials have also denied the allegations of improper subsidies and warned that US tariffs could violate WTO rules.
US shrimp farmers argue that tariffs are necessary to level the playing field and allow them to compete fairly with Asian producers. They claim that high fuel costs have forced many shrimp boats to remain idle, as the current prices do not cover their variable costs.
While US shrimp farmers seek protection, large US retailers and food distributors oppose the tariffs. They argue that the US shrimp industry has received significant financial support from BP, the company responsible for the 2010 oil spill.
US politicians and shrimp farmers have emphasized the importance of the shrimp industry, not only as a source of income but also as a way of life for many communities.
Table 1: US Shrimp Imports and Domestic Production (Million Pounds)
| Year | US Shrimp Imports (thousand metric tons) | US Domestic Production (thousand metric tons) |
|---|---|---|
| 2022 | 1200 | 100 |
| 2023 | 1150 | 110 |
| 2024 | 1180 | 105 |
Table 2: Shrimp Industry Impact (Employment and GDP Contribution)
| Country | Shrimp Industry Workers (000s) | GDP Contribution (US$ billion) | Export Share (%) |
|---|---|---|---|
| USA | 15 | 1.2 | 5 |
| India | 600 | 10.5 | 40 |
| Vietnam | 300 | 6.8 | 35 |
| China | 500 | 8.0 | 45 |
Define the term tariff.
Taxes
imposed on imported goods.
List two reasons why countries engage in international trade.
- Comparative advantage (lower opportunity costs).
1 marks - Access to a wider variety of goods and services.
1 marks - Access to cheaper imported goods.
1 marks - Access to larger markets to export.
1 marks
Using information from Table 1, calculate the percentage change in US shrimp imports from 2022 to 2023.
- Correct substitution and percentage change formula:
- Correct final answer:
Draw an international trade diagram to show the impact of tariffs on shrimp imports in the US.
Using a market diagram, explain how rising fuel costs affect the US shrimp industry.
- Rising fuel costs increase the cost obtaining and distributing shrimps, shifting the supply curve leftward ().
- This establishes a new market equilibrium, where the quantity of shrimps produced and consumed is reduced ().
- Furthermore, there is an increase in the market price ().
- Overall, higher fuel costs causes a contraction in supply, decreasing the amount of shrimp provided by the market, and leading to higher prices.
Using a comparative advantage diagram, explain why the US relies on shrimp imports rather than producing domestically.
- By joining importing the shrimps from countries specialised on shrimp production, the US can sepcialise on producing goods in which it faces lesser opportunity costs (such as industrial goods)
- The other countries, importing shrimp,can specialize on producing goods where they have lower opportunity costs (such as seafood goods).
- This improves overall resource allocation and efficiency.
Using a trade diagram, explain how subsidies given to shrimp exporters in countries like India and China might disfavor domestic producers.
- Subsidies in foreign countries to shrimp producers reduce the world price supply (Pw to Pw-sub).
- This increases the amount of imports (from Q3 - Q2 to Q4 - Q1).
- Therefore, the share of the market that domestic producers cover reduces, disfavoring their revenues.
Using information from the text, data, and your knowledge of economics, evaluate how tariffs on shrimp imports could affect economic growth and employment in both the US and exporting countries.
Answers may include:
Definition
- Tariffs: A tax imposed on imported goods to increase their price, aiming to protect domestic producers from foreign competition.
- Economic growth: An increase in a country's real output (real GDP) over a period time.
- Employment: The level of job creation or job retention in an economy.
Impact on US Shrimp Industry Employment and Production
Protecting Domestic Industry and Job Creation
- A tariff of up to 54.5% on shrimp imports would raise the price of foreign shrimp, reducing their competitiveness and making domestic shrimp more price-competitive.
- Domestic producers, currently producing only 105 thousand metric tons compared to 1180 thousand metric tons of imports (2024) (Table 1), may expand production due to the tariff-induced price advantage.
- Increased demand for US shrimp could lead to higher employment in the sector, currently employing 15,000 workers (Table 2), especially in Gulf Coast communities.
- This would help address underutilized capacity, as many US shrimp boats have remained idle due to high fuel costs and uncompetitive prices.
Diagram: Tariff on Imports
- A tariff shifts the world supply curve upwards, increasing the price from Pw to Pt and reducing imports from Q4–Q3 while increasing domestic supply from Q1–Q2.
- This creates producer surplus for domestic firms, potentially improving rural incomes and employment in the short run.
Limitations
- US shrimp prices for consumers would increase, reducing consumer surplus and possibly lowering consumption.
- Tariffs could inflate input costs for US food businesses and restaurants, reducing their competitiveness and leading to employment losses in downstream sectors.
- Gains in employment may be modest given the small size of the US shrimp industry relative to total demand (only 105/1285 = ~8% of the market in 2024).
Impact on US Economic Growth
Short-Term Industry Support and Local Growth
- Revitalizing the domestic shrimp industry could support local economic growth in affected fishing regions by increasing output and incomes.
- Shrimp contributes only US$1.2 billion to US GDP (Table 2), so even substantial growth in this sector would have a limited effect on national GDP.
- Opportunity costs arise if resources are diverted from more productive industries to support a relatively uncompetitive sector.
Limitations
- Higher shrimp prices could lead to cost-push inflation in the seafood supply chain, reducing real incomes and potentially dampening aggregate demand.
- Retaliatory trade measures could affect broader US exports, slowing growth in sectors unrelated to shrimp.
Impact on Exporting Countries’ Shrimp Industries and Employment
Reduced Export Demand and Job Losses
- Tariffs would significantly reduce demand for shrimp from India, Vietnam, China, Ecuador, and Malaysia, all of which rely heavily on US markets.
- India and China have 600,000 and 500,000 shrimp workers respectively (Table 2), and face high export dependence (India: 40%, China: 45%).
- A fall in US demand would cause income loss and rising unemployment, particularly in rural coastal communities where alternative employment is limited.
- Exporters could suffer from reduced economies of scale, increasing average costs and contracting industry output.
Impact on GDP and Growth
- India’s shrimp sector contributes US6.8B, making them important contributors to economic growth.
- A tariff-induced reduction in US-bound exports would lower these countries’ net exports, reducing aggregate demand (AD) and GDP growth.
- Diagram: AD/AS Model — a fall in net exports causes a leftward shift in AD, lowering real output and possibly increasing unemployment in the short run.
Secondary Impacts and Long-Term Effects
Adjustment and Diversification Challenges
- In the medium to long term, affected countries may divert shrimp exports to other markets, though finding alternative buyers on such a large scale would take time and investment.
- Workers laid off may require retraining or migration, adding structural unemployment pressures in already fragile labor markets.
- Retaliatory actions or formal WTO disputes may arise, creating trade tensions and broader economic disruption.
Counter-Arguments from Exporters and Global Efficiency
- Exporters argue their subsidies are within WTO rules, and that US tariffs violate fair trade principles.
- The policy may lead to global inefficiency, as production shifts from lower-cost producers (e.g., India) to higher-cost producers (US), reducing overall welfare.
Overall Evaluation of Tariffs on Growth and Employment
Strengths
- Tariffs can offer short-term protection to vulnerable US shrimp producers, supporting rural employment and preserving traditional industries.
- They may help rebalance trade if domestic production substitutes for imports.
Weaknesses
- Tariffs risk higher consumer prices, lower welfare, and job losses in downstream sectors.
- The impact on US national GDP is limited, given the shrimp sector’s small scale.
- Exporting countries face serious employment and GDP losses, especially given their export dependence and large shrimp labor forces.
- Tariffs may violate WTO rules, potentially escalating into broader trade conflicts, harming global economic efficiency.
Conclusion
Tariffs on shrimp imports could temporarily support US shrimp producers and local employment, but the overall gains for US economic growth are likely to be modest and offset by losses elsewhere. In exporting countries, particularly India, China, and Vietnam, the negative effects on employment and growth could be severe, given their high dependence on shrimp exports. The effectiveness of tariffs depends on whether they lead to long-term competitiveness improvements, rather than simply distorting trade flows and harming global welfare.
