Corporate welfare comes in many forms: tax breaks for a particular industry, tariffs on foreign sugar producers to protect domestic producers from competition, a loan guarantee program for exporters, and so on. It can also come in the form of lawmakers forcing the Defense Department to provide modern recruits with New Balance sneakers—and only New Balance sneakers.
This story is actually worse than it sounds. Let’s start from the beginning: Did you know that the military is required to buy uniforms and shoes made in the U.S.? Aside from the unintended consequences of such a mandate (hint: it hinders economic growth, costs jobs, and makes us relatively poorer), until now, it hasn’t affected sneakers, because it’s challenging to find athletic shoes made in the United States. Most sneakers are made in Asia.
So recruits get a cash bonus to buy sneakers. Army and Air Force recruits can choose from 14 different shoe options for men and women at military stores. More choice for consumers is always good, but in this case, the health of soldiers is also at stake. The military spends $100 million a year treating injuries to modern recruits, 80 percent of which are lower-extremity injuries. Not everyone has the same foot type, so the more choices there are in sneakers, the fewer injuries there are.
Enter New Balance. The company recently opened factories in Massachusetts and Ohio to manufacture various shoe components. It expects to benefit from being the only sneaker maker that can claim to be 100 percent American-made. While consumers may not care about that attribute, they certainly will be interested in the shoes’ price, which is likely to be lower than those made in Asia. That’s because shoes made overseas are subject to tariffs of up to 20 percent. This hidden tax on foreign-made sneakers increases the price for consumers.
That’s good for New Balance, which can apply the advantage created by stupid protectionist laws to sell cheaper shoes and gain more consumers. That was the plan, at least until the Trans-Pacific Partnership came along. One of the features of the trade agreement is that if ratified, it would reduce trade barriers between Vietnam and the United States by lowering tariffs, including tariffs on imported sneakers. That’s good for consumers, who will see their footwear prices drop.
But you can see how this free trade expansion threatens New Balance’s advantage in manufacturing in America. It’s no wonder the company is vocally opposing the trade deal to protect its U.S. factories.
Now the Obama administration steps in. It wants TPP ratified, and it wants the dissidents to fall in line. That’s uncomplicated for the federal government, which can buy favor with government privileges — in this case, the promise of a lucrative military contract for being the only maker of American-made athletic shoes. Coincidence? I don’t think so. According to Michael Needham of Heritage Action for America, the company has been lobbying the military for some time to get exactly that result. That would mean about 250,000 American-made shoes a year — and no competition.
Fortunately, Congress passed an amendment to the fiscal year 2017 National Defense Authorization Act, authored by Massachusetts Democrat Nika Tsongas, to require the military to buy only shoes with all components made in the U.S. — a rule that applies only to New Balance.
It’s a good deal for the administration, the company, its lobbyists and the members of Congress whose districts have New Balance factories. It’s bad for the taxpayers (New Balance shoes are $30 more costly than the shoes currently available in military stores) and it’s bad for the modern recruits, who went from having 14 pairs of sneakers to having three pairs to choose from and may end up with more foot injuries as a result.
And so, my friend, special interests are forced to support things they don’t like. They are given a privilege granted by a government that rips off taxpayers and consumers—in this case, our soldiers.
Fortunately, there is one legislator in Congress who will not tolerate this blatant cronyism. South Carolina Republican Mark Sanford has offered an amendment to remove the Tsongas-New Balance provision from the NDAA. He told me that his primary concern is the health of our military, which requires consumer choice, adding, “Besides, if it smells and looks like earmarked funds, it probably is earmarked funds.” Unfortunately, there will be no vote on Sanford’s amendment. But he is still fighting, and we can expect the Senate to do the same. It’s not over yet.
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. To learn more about Veronique de Rugy and to read articles by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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