TCS Daily

Boycott the Boycott

By Patrick Cox - April 17, 2003 12:00 AM

According to the President of the Mouvement des Entreprises de France, that country's chief trade group, "Certain French enterprises are suffering today from the differences that have arisen among states over the Iraqi question."

Similarly, French wine exporters claim reductions in U.S. orders, prompting a tactical meeting of the Federation des Exportateurs de Vin. The Washington Post is reporting that American importers of French wine have experienced sharp drops in sales in the past two months, with importers of other products from France suffering as well.

Champions of the "boycott France" movement, as diverse as Bill O'Reilly, Neil Cavuto and Ed Koch, will probably be pleased, but their consumer embargo will punish the innocent more than the guilty - for the same reasons that market-oriented economists have long opposed trade sanctions and tariffs.

To begin with, the first victims of most boycotts are domestic retailers - not foreign wholesalers. Stores, almost without exception, pay for product up-front or on a deferred but predetermined basis.

If people who would otherwise buy French wine and cheese, to use the most popular example, leave them on the shelves, sales of these goods will slow. If microeconomic theory holds true, and it does, managers will lower prices to move stock.

In the short run, therefore, boycotts actually benefit those who do not honor them. They act, ironically, to subsidize targeted goods for those who ignore boycotts, with costs imposed on retailers - hardly the intention of boycotters.

If a consumer embargo persists longer than one retail buying cycle, some French wholesalers may sell fewer products to the U.S. market, which would hurt the many Americans who sell, distribute and market French imports in the United States. Though American importers of boycotted French products may find it difficult or impossible to acquire replacement products to make up for their lost revenues, French producers and exporters have more options.

In our interrelated global economy, a decrease in sales of French wines to Americans will result, eventually, in efficient market adjustments. More Chilean and Australian wines might, for example, flow to U.S. tables, with French wines redirected to fill the resultant gaps in other countries' stocks.
After adjustments, French producers' profits may be down, but probably not as dramatically as boycotters presume or hope. Wine and cheese may not be completely fungible, but only by significantly reducing total consumption, from all sources, can we be reasonably assured that French-owned companies will feel significant impact - as will American companies in California, New York and elsewhere.

Moreover, company ownership is not always straightforward in a world with more mutual funds than companies selling stock. Without knowing it, many Americans own stock in the nominally French companies on boycott lists, as many French shareholders own equity in American companies. Furthermore, French's Mustard is not French and Coca-Cola has major interests in Evian.

Let us assume, however, that there has been a real reduction in the flow of dollars into France. It is not clear that this is a result of the boycott or more powerful factors, such as economic softness, evident even prior to the 9-11 attacks, that particularly effects luxury goods. Wine exports to America have, in fact, been falling for years as California brands have grown more popular.

Given the difficulty that even professional economists' have discerning cause and effect in price movements, it is very unlikely that either the boycotters or the boycotted will know, with any degree of certainty, how bottom lines have been influenced. If producers believe, however, they are suffering due to a boycott, this could provide a net political benefit for Jacques Chirac.

America's Cuba sanctions, for example, are largely circumvented by intermediaries that buy and resell U.S. goods into Cuba. Castro, however, has convinced many, even in America, that the failures of Socialism are caused by U.S. policies. Some Cubans, not otherwise predisposed to resent America, question the equity of sanctions that clearly aggrieve their society's elite less than those at the bottom.

Such criticism cannot be lightly dismissed, This boycott, like others, is an imprecise weapon that hits, for example, Jewish vintners, already stressed by European anti-Semitism, who export kosher French wines to America.

It's worth noting that France is facing serious internal challenges, and Chirac's unexpected election was due to a massive middle-class rejection of the French left because of their support for immigration policies that have led to a rapidly growing and largely unassimilated Muslim population. Between 7 and ten percent of the total population, they have seriously strained welfare and law enforcement resources.

While as many as nine out of ten French citizens, according to an IFOP poll, rallied to support their president in regard to the UN Security Council, recent counts indicate that nearly half of the country backs the coalition effort. Hard-core Chirac supporters and anti-Americans may be penalized by the boycott, but those who voted against him as well as those who support the U.S. are equally vulnerable.

If all these flaws in the boycott mechanism do not dissuade, we still have to deal with a fundamental economic axiom - a dollar NOT spent on imports is a dollar that does NOT return to buy domestic exports. For every foreign job threatened by a boycott, there is an equal and opposite domestic reaction that damages the American economy. Add the number of Americans, hurt by this trade reduction, to the undeserving French victims, and it is clear that the boycott will produce more unintended than intended victims.

Given the historic care that coalition soldiers have taken to avoid unintended victims, we would be wise to emulate them and boycott the boycott.

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