Increasing domestic security will raise U.S. cost of living
New cargo regulations, tougher immigration could slow growth
Mark Helm, Hearst Newspapers
Sunday, April 20, 2003
Washington -- Consumers can expect to pay higher prices for food, electronics and other household goods as businesses pass along the costs of stringent new security regulations on imports.
Since the Sept. 11, 2001, terrorist attacks, paying for counterterrorism measures has had the most direct impact on airline passengers, in the form of sharply higher fees to cover new security personnel and equipment.
But economists say virtually everyone will be affected by unprecedented security rules scheduled to take effect over the next five years. Those rules include increased screening of containers holding imported cargo, more inspections of imported food, tougher scrutiny of visa applications and more agents to combat illegal immigration.
"There is a price for tighter security, and some of that price will be paid when consumers buy vegetables from Mexico at the grocery store or pants made in China at the Wal-Mart," says Peter Navarro, an economics professor at UC Irvine.
Navarro says the security measures will act much like stricter standards for air emissions and water quality in the 1970s, which he says reduced profits for companies throughout the economy and led to higher prices for consumers.
"We were getting a free ride for many years in terms of domestic security, and now that's over," he says.
CRIMP ON GROWTH RATE
A study by Navarro estimates that the changes could cut the annual rate of economic growth by as much as 1.5 percentage points. Such a slowdown could cut the country's gross domestic product -- or the total amount of goods and services produced in a year -- to $12.4 trillion in 2011 from the $14.4 trillion expected without the changes.
In March, the economic consulting firm Economy.com said it would reduce GDP growth estimates by 0.1 percentage point to account for the increased costs of business caused by security regulations. The firm is based in West Chester, Pa.
Consumers could begin to pay more within months.
NEW CARGO REPORTING RULES
In February, the Department of Homeland Security began enforcing new rules designed to keep terrorists from smuggling unconventional weapons into the United States.
The program requires carriers to provide the Bureau of Customs and Border Protection, part of the Department of Homeland Security, with a detailed manifest of cargo entering the country.
Shipping companies must give detailed descriptions of the products in containers, payment methods, and names and addresses of the product manufacturers, as well as the exporter and importer. The companies must give the information 24 hours before vessels load the containers and set sail for American shores.
In October, similar requirements will be placed on inbound truck, rail and air cargo.
Previous rules allowed only vague references to the contents of cargo containers and required that the information be provided 96 hours before shipment.
MAJOR OVERHAUL EXPECTED
The United States imported $1.2 trillion worth of goods in 2002, according to the Census Bureau.
Business leaders say complying with the rules will fundamentally alter the shipping business worldwide. And those costs will be passed onto buyers through higher prices.
"American importers, foreign companies exporting to the United States, and foreign ports have had to revamp their entire operations to make sure they met the regulations," says Ed Mortimer, senior manager of transportation infrastructure at the U.S. Chamber of Commerce.
Erlinda Byrd, a spokeswoman for Customs and Border Protection, says requiring importers to provide detailed information on each shipping container entering the country will help customs agents in their efforts to stop terrorists from smuggling a nuclear bomb or human operatives into the country.
Computer programs will examine each cargo list and alert inspectors when something suspicious is found. For example, she says, the system might red- flag a container from an exporting company that U.S. intelligence services believe may have ties to terrorists.
Customs and Border Protection now inspects only 2 to 3 percent of the estimated 16 million containers entering the country each year. Measuring 40 feet by 20 feet, the steel containers can be quickly loaded onto trailers for hauling by trucks or trains to markets across the country.
STEEP INCREASE IN COSTS
But business leaders, while agreeing that the nation's ports must be protected, say the program has forced them to add computer equipment, hire more shipping clerks and increase employee training. They also say the detailed lists required by the government take time to fill out and that in the shipping business, time is money.
Stephanie Childs, a spokeswoman for the Grocery Manufacturers of America, a trade group representing food manufacturers and retailers, says any slowdown along the border hurts business.
"In the food industry, one or two days' delay because of red tape or increased inspections can ruin an entire shipment," she says.
Bonni Tischler, a cargo security specialist with Pinkerton Consulting in Washington, said the regulations will raise the costs for importers and that those costs will ripple throughout the economy.
"Without a doubt, some of these costs will be passed on to consumers," she says.
UNEXPECTED EFFICIENCIES
But Tischler notes that companies often discover that increasing their security against terrorism produces a number of unexpected benefits.
Since the security measures employed to reduce the threat of terrorism are similar to those used to combat theft, many companies will probably reduce their losses from goods stolen.
In addition, she says, the increased scrutiny of business operations can help companies uncover inefficient systems and ineffective employees.
"Companies run better when they have good security systems put in place," she says.
Trade experts also say that businesses and consumers must weigh the costs of increased security against the benefits of preventing a terrorist attack. Better security, for example, could help stabilize insurance rates.
"Imagine the impact on the economy or an industry if a bomb was detonated in a harbor, causing every port in the country to shut down," says Navarro. "The costs of that type of terrorist attack would dwarf any price we're paying now."
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