Based in Bozeman Montana, Simms Fishing Products makes protective overalls called waders for fishermen. Although waders occupies just several lines of text in the 5,000+ pages of the Trans-Pacific Partnership (TPP), its business model will be transformed by the trade deal.
Simms and the TPP
Most waders have been subject to tariffs levied by a long list of nations. The duty list that I discovered included Japan’s 9% wader import tax and the 40% that Bolivia charges. Comparably, the U.S. has a 37.5% tariff barrier that does a pretty good job of shielding Simms from foreign competition.
If the Congress passes the TPP, some wader tariffs will remain for eight years and then gradually be phased out. Other wader tariffs will immediately be removed. As a result, Simms has bad news and good news. Yes, the elimination of the tariff means the firm will face new domestic competition, But, other markets will open for an export business that it never had before.
Our Bottom Line: Competitive Market Structure
What had been primarily domestic now will become international. More firms will compete, economies of scale can multiply and prices will change. Larger markets will facilitate the cost savings of Adam Smith’s division of labor while free trade kick starts David Ricardo’s comparative advantage. For thousands of goods and services ranging from Japanese auto parts to Canadian beef to Vietnamese textiles, we will have Adam Smith merging with David Ricardo.