There's Something Fishy in the US Shrimp Market

Since 2000, US imports of shrimp have increased and the average price per pound of shrimp has decreased, which is consistent with the basic supply and demand model given a shift to the right of the supply curve. The US shrimp supply curve has shifted to the right due to increased output of shrimp here in the US by foreign shrimp producers, and foreign shrimp producers (from Asia and Latin America) are exporting more shrimp to the US because firms in these countries are taking advantage of their warmer climate and growing shrimp from larvae in water-filtered ponds. Given their lower land and labor costs and their competitive advantage in the production of shrimp has allowed Asian and Latin American shrimp producers to export greater amounts of shrimp and this has lead to lower prices.

When these Asian and Latin American firms started to export shrimp to the US at much lower prices, US shrimp fishermen and especially the Southern Shrimp Alliance filed an anti-dumping petition with the US Dept. of Commerce. The Department of Commerce found that six countries were indeed guilty of dumping (they almost always do). As a remedy, the US government has placed tariffs on imported shrimp from Brazil, China, Ecuador, India, Thailand and Vietnam. As we know from Prin. of Micro - tariffs reduce consumer welfare and overall welfare here in the US, and raise producer welfare (i.e the Southern Shrimp Alliance). Read here for more on dumping and the economic criticism of dumping in the shrimp industry.

Unfortunately, that is not the end of the story. After winning the dumping petition, the Southern Shrimp Alliance filed a special appeal with the US government that threatened to lead to even higher tariffs on imported shrimp, which under US law any party in a dumping case can seek a Commerce Dept. review of the tariff levels and can also be withdrawn within 90 days by that party, ending the review. In order to get the Southern Shrimp Alliance to withdraw the additional review, over 100 foreign shrimp producers (i.e. competitors) made cash payments to the Southern Shrimp Alliance.

Let's recap that last point. US shrimp fisherman threatened to have the US government raise tariffs and to get the US shrimp fishermen to withdraw their petition, the foreign shrimp producers) had to pay money to the US shrimp producers. This is a classic example of raising rivals costs. Raising rivals costs is an economic theory that states if a firm can find a way to increase the cost of their competitors, this gives the firm a competitive advantage and can increase the firm's overall profits at the expense of their rivals.

Subsequently, foreign shrimp producers - behaving as profit maximizer's - have found ways to get around the tariffs, which has lead to an increase in shrimp imports and resulted in a decline in shrimp prices even with the tariffs in place. All this leaves us with artificially higher shrimp prices and lower overall economic well-being (social welfare).

In The Wall Street Journal article on this subject, John Williams, executive director of the Southern Shrimp Alliance stated, "[w]e're asking for what is fair". I wonder how fair he and the others in the Southern Shrimp Alliance would find it if they had to pay their competitors to catch shrimp. Over time I have become very suspicious when someone in a business situation invokes the idea of fairness. My experience is that those invoking fairness are really trying to convince themselves of how unfairly they are treating others.