Wednesday, December 12, 2007

Honduras: Hosed by Sock Tariffs

In 1984, the U.S. government gave Honduras unfettered access to the American sock market. The move was the first of several trade deals that would ultimately unravel Fort Payne, Alabama's status as the sock capital of the world. Fort Payne's sock factories struggled to compete with the likes of Honduras, China, and Pakistan when it came to the labor-intensive step of seaming sock toes. American workers receive approximately 2 cents per seam (at about six seconds per sock, a good hour would bring in $12), but foreign workers sew for half of that. The labor savings add up over millions of socks. The cost disadvantage forced many Fort Payne sock mills to shutdown and lay-off workers.

Keep in mind that many people benefited from U.S. openness to trade in socks and other goods. Americans gained access to a wider variety of less-expensive goods—socks included. American firms and workers in U.S. export industries benefited from access to foreign markets. A cosmopolitan view also acknowledges the gains to firms and workers in developing countries. The Honduran sock industry thrived on access to the American market, generating more jobs and higher wages for workers. Of course, none of this is of much solace to a laid-off sock worker in Fort Payne.

A number of Fort Payne sock mills managed to hang on, but much of the town's industry consists of relatively new ventures, like bridge building and label making, with no relation to hosiery. As a recent two-part story (here and here) from NPR's Adam Davidson illustrates, Fort Payne's dynamic economy absorbed its losses from international trade—creating new, often better-paying jobs for many of the workers initially displaced by globalization. Even as Fort Payne's economy moved on, the political clout of the sock industry remained strong. Alabama congressman Robert Aderholt struck a deal with President Bush in 2005—Aderholt would support the Central American Free Trade Agreement (CAFTA) if the president agreed to re-impose tariffs on socks from Honduras. The president agreed; CAFTA moved one step closer to full implementation; and the administration gave itself a deadline for resurrecting the sock tariff—December 19, 2007. Read Davidson's report to learn more about the potential impact of rolling back free trade with Honduras.

Discussion Questions

1. How did sock tariff removal initially impact Fort Payne? How does the economy in Fort Payne look today? Would you characterize it as a sock dependent town?

2. How will the re-imposition of the sock tariff affect the historically small number of sock mills and sock workers in Fort Payne? How will the tariff affect sock mills and workers in Honduras? How will the removal of duty-free status for Honduras impact other developing countries, such as China, that currently face higher U.S. trade barriers than Honduras?

3. The president acceded to representative Aderholt on sock tariffs for Honduras in order to get a vote for CAFTA--a wide reaching agreement that has the potential to reduce trade barriers among multiple countries. Was the deal worth it?

4. Fort Payne's economy adapted to life with open trade, but not all workers experienced a smooth transition from the sock-based economy. According to Davidson's story, how have workers had to adapt to the new labor market in Fort Payne? What, if anything, is the appropriate role for government in easing the adjustment to globalization in towns like Fort Payne?

5. Think about the local, regional, or national economy. How would life be different today if everyone, everywhere were producing the same stuff that they were 30 years ago?

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