Archives: 09/2012

Mitt Romney’s Contrived Trade War

The Obama administration filed a formal complaint with the World Trade Organization on Monday alleging that the Chinese government is bestowing various prohibited subsidies upon Chinese automobile and auto parts producers to the tune of $1 billion and that Beijing is, accordingly, in violation of its commitments under the WTO Agreement on Subsidies and Countervailing Measures.

There are reasons to shake one’s head at this move, including the apparent hypocrisy it reveals of an administration that spins the $85 billion of subsidies it heaped upon two U.S. car companies and the United Autoworkers union as its chief economic accomplishment. Of course that figure doesn’t even include the $12-$14 billion in unorthodox tax breaks granted to GM under the bankruptcy terms; $17 billion in funds committed from the TARP to GM’s former financial arm GMAC (which received taxpayer support to facilitate GM auto sales); GM’s portion of the $25 billion Energy Department slush fund to underwrite research and development in green auto technology; and the $7,500 tax credit granted for every new purchase of a Chevy Volt, and more. (Full story here.)

To complain about $1 billion of Chinese subsidies is – shall we say – a bit rich.

Moreover, the filing of the WTO case reveals some of the unseemly perquisites of incumbency. A large concentration of the beneficiaries of the GM bailout resides in Ohio, a state that has had the administration’s strategic attention since its reelection campaign began in November 2008. But in case that largesse wasn’t enough to secure their support in November 2012, a large concentration of the beneficiaries of a successful U.S. WTO complaint also resides in Ohio, which is where – by Jove – the president was speaking when word of the WTO complaint became public.

It is all exasperating, no doubt.

But the bigger and more disconcerting story in all of this is the apparent ascendancy of economic nationalism within the GOP. Romney’s persistence in trying to brand himself the “most protectionist” or “biggest China basher” in the presidential race sort of forced Obama to bring the WTO case – or at least expedited the timetable. Have you seen the Romney ads? Have you read the shrill RNC taunts that cite the widely-discredited, union-funded Economic Policy Institute’s figures on job losses caused by trade with China? Strange bedfellows, indeed!

It was once the case – not too long ago – that Republican candidates argued in support of trade and the freedom of Americans to partake of the opportunities afforded by the global economy. But things, apparently, have changed. The nationalistic strains within the Republican Party have strengthened since 2009. I explained why this was happening in this 2010 Cato paper, which is excerpted below:

Frictions in the U.S.-China relationship are nothing new, but they have intensified in recent months. Tensions that were managed adeptly in the past are multiplying, and the tenor of official dialogue and public discourse has become more strident. Lately, the media have spilled lots of ink over the proposition that China has thrived at U.S. expense for too long, and that China’s growing assertiveness signals an urgent need for aggressive U.S. policy changes. Once-respected demarcations between geopolitical and economic aspects of the relationship have been blurred. In fact, economic frictions are now more likely to be cast in the context of our geopolitical differences, which often serves to overstate the challenges and obscure the solutions.

A sign of the times is a recent commentary by Washington Post columnist Robert J. Samuelson, in which he declares: “China’s worldview threatens America’s geopolitical and economic interests.” That statement would seem to support a course of action very different from the course implied by the same columnist 18 months earlier, when he wrote, “Globalization means interdependence; major nations ignore that at their peril.” That change of heart appears to be contagious.

Understandably, there is angst among the U.S. public, who hear frequently that China will soon surpass the United States in one economic superlative after another. Some worry that China’s rise will impair America’s capacity to fulfill or pursue its traditional geopolitical objectives. And those concerns are magnified by a media that cannot resist tempting the impulses of U.S. nationalism. Woven into stories about China’s frantic pace of development are reminders that the Chinese have not forgotten their two-century slumber—a period of humiliation and exploitation by foreign powers.

A recent National Journal cover story describing areas of bilateral policy contention—which the article laments as “frustrating” the fact that U.S. experts see “few alternatives to continued engagement” —features three menacing photographs of Chinese military formations, one picture of North Korean leader Kim Jong Il flanked by members of the Chinese military, and one photo of the Chinese foreign minister shaking hands with Iranian President Mahmoud Ahmadinejad.

Subtly, and sometimes not, the media and politicians are brandishing the image of an adversarial China. In Chinese reluctance to oblige U.S. policy wishes, we are told that China selfishly follows a “China-First” policy. In the increasing willingness of Chinese officials to criticize U.S. policies, we are told of a new “triumphalism” in China. In the reportedly shabby treatment of President Obama by his Chinese hosts on his recent trip to Beijing, we are told that the “Chinese have an innate sense of superiority.” But indignation among media and politicians over China’s aversion to saying “How high?” when the U.S. government says “Jump!” is not a persuasive argument for a more provocative posture.

China is a sovereign nation. Its government, like the U.S. government, pursues policies that it believes to be in its own interests (although those policies—with respect to both governments—are not always in the best interests of their people). Realists understand that objectives of the U.S. and Chinese governments will not always be the same, thus U.S. and Chinese policies will not always be congruous. Accentuating and cultivating the areas of agreement, while resolving or minimizing the differences, is the essence of diplomacy and statecraft. These tactics must continue to underpin a U.S. policy of engagement with China.

In this campaign, the RNC seems to be fighting to position itself to the protectionist side of Obama, daring the president to take action – a dare the president has accepted, inflating his political credit in places like Ohio. In response to Governor Romney’s assertion that the president had been soft on China and that he, Romney, would label China a currency manipulator on his first day in office, Obama created the Interagency Trade Enforcement Center, which resonated politically with the target audience. While the challenger blathers about the president’s alleged fecklessness in dealing with China, the president responds by bringing new WTO cases against Beijing. The most recent complaint, relative to the strident tack Mitt Romney is advocating, is the more responsible, more pro-market course of action. If Romney is to be believed, his trade actions would have far worse consequences for the economy.

Instead of focusing on the real sources of economic stagnation in the United States – including the uncertain business climate inspired by the bailouts, the proliferation of costly and superfluous new environmental, health, and financial regulations, a tax code that is in constant flux, frivolous torts, an education monopoly that fails to produce enough talent backstopped by an immigration system that chases it away – Mitt Romney has chosen to blame America’s woes on China. THAT is the message the Republican presidential candidate, with the full backing of the RNC, brings to the voters in Ohio, whose fortunes are increasingly tied to America’s engagement in the global economy. As of July, Ohio’s unemployment rate was 7.2 percent, more than one full percentage point lower than the U.S. rate of 8.3%. Ohio’s economy is growing on account of trade – particularly with China, the state’s third largest market and destination of $2.7 billion worth of Ohio’s output in 2011. Just look at this bar chart that depicts the importance of China to Ohio, and conversely, the costs of a real bilateral trade war.

Governor Romney should ditch his trade warrior schtick pronto, and start explaining to the electorate how pro-trade policies – including the freedom of corporations to invest abroad (to offshore a la Bain Capital)– help enlarge the economic pie. Puffing out the chest to appear the biggest protectionist in the race is bad economics and bad politics.

Did the Surge End the Chance for Peace in Afghanistan?

As Afghan forces continue to turn their guns on their U.S. partners, so-called “green-on-blue” attacks, the coalition’s patience has reached a breaking point. On Sunday, General Martin Dempsey, the chairman of the Joint Chiefs of Staff, said insider attacks have become a “very serious threat” to the mission. On Tuesday, NATO issued orders to curb joint training operations on front-line missions temporarily.

With the coalition’s managed transition running into serious problems, it is necessary to question whether Obama’s surge of over 30,000 troops is closer to achieving a core objective: pressuring the Taliban to accept the conditions for reconciliation. I addressed that issue in an article published this week on GlobalPost.com:

The Taliban has always been amorphous and fragmented. But paradoxically, aspects of the surge may have both weakened the movement’s operational leadership and breathed new life into its grassroots fighters.

In their chilling assessment of the conflict, Kandahar-based researchers Alex Strick van Linschoten and Felix Kuehn conclude in An Enemy We Created: The Myth of the Taliban-Al Qaeda Merger in Afghanistan, that the coalition’s kill and capture campaign against mid-level commanders has weakened the leadership’s grip on the chain of command. Some of these higher-ups, however, were more open to peace talks. Younger insurgents opposed to a political settlement are now moving into leadership positions and are increasingly influenced by Al Qaeda’s worldview.

Given the complex nature of Afghan society and politics, forging a power-sharing deal between the insurgency and the Afghan government composed of its enemies was always going to be difficult. But if, as reports suggest, a generation of neo-Taliban are refusing to reconcile, and Taliban higher-ups who are less opposed to peace are having the rug ripped out from under them, then something about the surge went terribly wrong.

In addition, the surge brought a massive uptick from US forces in misdirected firepower, kicked in doors, and controversial incidents of perceived cultural insensitivity, all of which sowed discontent among the population and affirmed the worst insurgent propaganda. The kill and capture campaign in particular was never popular among Afghans.

In other parts of the article, I further address how the makeup of the insurgency is likely to result in less of a chance for reconciliation. I hope I’m wrong. You can read the rest of my article here.

Sebelius v. Gessing on ObamaCare’s Medicaid Expansion

From the Rio Grande Foundation’s Errors of Enchantment blog, foundation president Paul Gessing argues against New Mexico implementing ObamaCare’s Medicaid expansion:

One should note that HHS Secretary Kathleen Sebelius left out the cost to New Mexico of the “old eligibles” who would enroll in Medicaid as a result of the expansion.

Of Charm and Illocutionary Difficulties

Today Politico Arena asks:

What strategic changes - if any - does the Romney campaign need to make in the coming weeks?

My response:

If I may grasp at straws, let’s take such comfort as we can from noting that Romney is no politician – and maybe, just maybe, we’ve now had about as much political “charm” as we can handle in a four-year stretch.

And let’s note, second, that there’s a substantial element of truth in Romney’s 47 % remarks, but it’s buried in confusions that ill-serve his campaign or a nation that desperately needs to hear it. But we won’t hear it from his opponent – who’s never been comfortable with the truth, to put it charitably – nor from the mainstream media. (Addressing the issue this morning, NPR’s Brian Naylor began, “Romney went to the friendly confines of the Fox News channel yesterday afternoon ….” Would we ever hear Naylor say “Obama went to the friendly confines of NPR yesterday afternoon ….”?)

So if Romney’s going to recover from this and other recent illocutionary difficulties – dwelled on and amplified by the media – he’s going to have to rely on the upcoming debates. To look again on the bright side, at least he’s established low expectations. Rarely have conditions, domestic and foreign, so aligned themselves so propitiously for a change in administrations, if only the challenger could take advantage of them. If reason still counts, the VP debates should be a slam-dunk – poor Joe. For his part, Romney will have three shots, and more than enough material with which to work, if he can figure out how to use it.

Tough Talk on Trade with China

In the past few days, Romney and Obama have tried hard to establish themselves as the toughest talker on China.  This is from Romney’s blog last week:

… I also want to make sure that if a nation cheats like China has cheated, we call them on the carpet and don’t let it continue. And the cheating takes on a lot of different dimensions. I mean, cheating occurs if you hold down your currency. You might wonder, what in the world has that got to do with jobs here? Let me tell you: When China manipulates their currency by holding down the value of their currency compared to ours, what it does is makes their products in this country artificially cheap. And that then drives American manufacturers and American producers out of business and kills jobs. The President’s had the chance year after year to label China a currency manipulator, but he hasn’t done so. And I will label China the currency manipulator they are on the first day.

The Romney campaign is also running television ads along these lines.

The basic gist of the Romney position:  Romney will be tough on China, whereas Obama is weak.

In response, the Obama campaign has stepped up its own tough talk on China.  Of course, because Obama is currently in office, he can do more than just talk: The U.S. Trade Representative’s Office initiated a WTO complaint against Chinese subsidies to the auto industry.  And they have their own ads as well.

The basic gist of the Obama position:  Obama is tough on China, whereas Romney would be weak.

All of this fits nicely with a piece I wrote for Investor’s Business Daily on the Republican and Democratic party platforms as they relate to trade.  My argument there was that the parties aren’t all that different these days.  They both try to bury the real debate over free trade, and instead focus on distractions like how tough to be on China:

… both parties point to China as “cheating” in the world trading system. The Republicans contend that “some governments” (China is mentioned as the “chief offender”) “have used a variety of unfair means to limit American access to their markets while stealing our designs, patents, brands, know-how, and technology — the ‘intellectual property’ that drives innovation.”

According to the Republicans, President Obama’s approach to this issue has been a “virtual surrender.” 

The Democrats respond that they have, in fact, been quite tough, having brought more trade complaints than the Bush administration, and having set up a new government office to deal with the unfair practices of China and other countries.

Now, in criticizing this tough talk, I don’t mean to imply that China is doing nothing wrong, and that we should ignore Chinese protectionism.  The world would be better off if China, and everyone else, would rein in their protectionism.  But, as I said at IBD:

… the reality of China’s trade policy does not match the rhetoric.  Most countries, including the United States, use a wide range of policy tools to protect domestic producers. Nobody is pure in this regard, and many of the proposed responses to China are largely an excuse to use protectionism of our own.

There are legitimate complaints about Chinese protectionism, but it is important to tone down the rhetoric and make sure any actions are both productive and within the rules of the trading system.

It’s Roy Childs Week!

Over at Libertarianism.org, we’re celebrating our old friend Roy Childs, once the anarchist enfant terrible of the mostly Objectivist libertarian movement, later a Cato foreign policy analyst, editor of Libertarian Review, and editorial director of Laissez Faire Books. Libertarianism.org has published its first ebook, Anarchism and Justice, a collection of Roy’s essays on anarchism available in book form for the first time. And they’re posting never-before-seen videos, including this one on the history of the libertarian movement from the Cato Summer Seminar in Political Economy:

Today I posted my own reminiscences about Roy at the Libertarianism.org blog, Free Thoughts:

When I got involved in the tiny libertarian movement back in the early 1970s, I had the impression that its two leading intellectuals were Murray Rothbard and the much younger Roy Childs. Rand, Mises, and Hayek were out there as great thinkers; Milton Friedman was regarded with some skepticism as a “Chicagoite”; but the fledgling movement seemed centered around Rothbard and Childs….

In two stints as editor of Libertarian Review and as editor of Laissez Faire Books, Roy brought his keen insight and radical vision to a dazzling range of topics: the nature of rights, neoconservatism, foreign policy, Third World land reform, Iran, Ayn Rand’s influence on libertarianism, and much more. He seemed to have read everything and to know how it fit into his overall worldview. And he knew everybody. What fun it would be to read his correspondence – or better yet, listen to his phone calls – with Rothbard, Friedman, Nathaniel Branden, Barbara Branden, Thomas Szasz, and Robert Nozick. You can read his formal interviews with some of those people in the Libertarian Review archives….

Watch for more videos this week.

OMB Watch Opposes Regulation With Demonstrable Benefits

There’s only a little bit of unfairness in the title I’ve given this post, the suggestion that OMB Watch President and CEO Katherine McFate opposes regulation that has benefits. But she does lament the requirement that the benefits of regulation be shown, which is a sibling of not prioritizing benefits at all.

In a post entitled: “Cost-Benefit Analysis: The Stunning Triumph of a Flawed Tool,” she writes: “It is simply not appropriate to apply cost-benefit analysis to many aspects of policymaking, and the results from such analyses should not be the final determinant of the value of many proposed standards or safeguards.”

It’s not a new argument. And I disagree with it. All aspects of policymaking should be subjected to cost-benefit analysis. All policies should provide us more in benefits than they burden us with costs. Just think how much we’d save on military adventurism…

Here’s the heart of McFate’s complaint:

Many regulatory experts and members of the public interest community believe cost-benefit analysis exaggerates the costs of new rules and underestimates their social benefits. Cost-benefit analyses are heavily dependent on the assumptions built into the quantitative models used and the data on which the models are applied. The data is provided by regulated businesses. If these businesses are resisting the need to change their production processes or business practices to comply with a new standards or regulation, they will tend to overestimate the compliance costs of the rule.

Nothing here undercuts cost-benefit analysis per se. McFate’s complaint is that “the other side” is skewing cost-benefit analysis in its favor.

McFate is right that the benefits of safety and health are harder to quantify than the cost of regulations to deliver them. And she’s right that business ingenuity goes into cutting compliance costs after rules have issued, making initial cost-estimates seem high. But those are reasons for groups like OMB Watch to get better at cost-benefit analysis, not reasons to quit the game.

The federal government has hoovered up control over huge swaths of Americans’ economic and social lives, subjecting manifold organs of society to central control contrary to my preference. If the government’s decisionmaking is not to be guided by cost-benefit analysis, then what? McFate doesn’t say. But she does say:

Americans have a right to safe drinking water, clean air, safe workplaces, safe food, safe drugs, and safe toys. They expect their government to ensure these basic protections. End of story. The value of maintaining and improving the health and safety of the American people? Priceless.

In this romantic, choking swirl of positive rights, we pick up McFate’s view: the United States government should spend any amount of society’s resources on her goals, nevermind whether it makes society better off as a whole. I’ll take cost-benefit analysis.

OMB Watch should focus on making cost-benefit analysis better, rather than giving up on regulation with demonstrable benefits.