Tag: business

19 U.S. States Sold $1 Billion or More in China in 2009

The U.S.-China Business Council has performed a valuable public service by marshalling state-by-state figures on exports to China. In its annual survey, released this morning, the USCBC documents that 19 states exported $1 billion or more in 2009 to China, which is now the third largest market for U.S. exports.

In a statement accompanying the report, the USCBC noted that exports to China declined only slightly in 2009, compared to a 20 percent plunge in exports to the rest of the world. Top U.S. exports to China last year were computers and electronics, agricultural products, chemicals, and transportation equipment.

The USCBC figures tend to undercut complaints that China’s currency policies have stymied U.S. exports to that country. In fact, as I argued in an op-ed in the Los Angeles Times last week, since 2005, U.S. exports to China have been growing three times faster than our exports to the rest of the world.

There is agreement across the spectrum that the Chinese government should continue to move toward a more flexible, market-priced currency. But the export numbers do not give any support to the critics who want to threaten sanctions against China. In fact, as I concluded in my op-ed:

If the Obama administration hopes to double U.S. exports in the next five years, as the president announced in his State of the Union address, it should praise China for its growing appetite for U.S. goods and services, not threaten it with trade sanctions. Any company hoping to double its sales in the next five years would be foolish to pick a needless fight with one of its best customers.

Thursday Links

  • Now that the health care bill is law, you should know exactly how it’s going to affect you, your premiums, and your coverage over the next few years. Here’s a helpful breakdown.
  • As the health care overhaul crosses home plate, global warming legislation steps up to bat.
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Moody’s Caves In to Political Pressure on Municipal Bonds

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

Six Reasons to Downsize the Federal Government

1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.

2. As federal spending rises, it creates pressure to raise taxes now and in the future. Higher taxes reduce incentives for productive activities such as working, saving, investing, and starting businesses. Higher taxes also increase incentives to engage in unproductive activities such as tax avoidance.

3. Much federal spending is wasteful and many federal programs are mismanaged. Cost overruns, fraud and abuse, and other bureaucratic failures are endemic in many agencies. It’s true that failures also occur in the private sector, but they are weeded out by competition, bankruptcy, and other market forces. We need to similarly weed out government failures.

4. Federal programs often benefit special interest groups while harming the broader interests of the general public. How is that possible in a democracy? The answer is that logrolling or horse-trading in Congress allows programs to be enacted even though they are only favored by minorities of legislators and voters. One solution is to impose a legal or constitutional cap on the overall federal budget to force politicians to make spending trade-offs.

5. Many federal programs cause active damage to society, in addition to the damage caused by the higher taxes needed to fund them. Programs usually distort markets and they sometimes cause social and environmental damage. Some examples are housing subsidies that helped to cause the financial crises, welfare programs that have created dependency, and farm subsidies that have harmed the environment.

6. The expansion of the federal government in recent decades runs counter to the American tradition of federalism. Federal functions should be “few and defined” in James Madison’s words, with most government activities left to the states. The explosion in federal aid to the states since the 1960s has strangled diversity and innovation in state governments because aid has been accompanied by a mass of one-size-fits-all regulations.

For more, see DownsizingGovernment.org.

A Severe Irony Deficiency

Tomorrow night at 8:00pm, Fox Business News will air a John Stossel special on the failures of state-run schooling and the merits of parental choice and competition in education. I make an appearance, as do Jeanne Allen and James Tooley.

News of the show is already making the rounds, and over at DemocraticUnderground.com, one poster is very upset about it, writing:

When will these TRAITORS stop trying to ruin this country?

HOW can AMERICANS be AGAINST public education?

Stossel is throwing out every right-wing argument possible in his namby pamby singsong way while he “interviews” a “panel” of people (who I suspect are plants) saying things like preschool is a waste of money and why invest in an already-failing system….

I hate Stossel and I hate all of those who think the way he does.

This poster goes by the screen name “Live Love Laugh.” I guess there wasn’t enough space to tack “Hate” onto the end.

What this poster–and many good people on the American left–have yet to grasp is that critics of state monopoly schooling are NOT against public education. On the contrary, it is our commitment to the ideals of public education that compels us to pursue them by the most effective means possible, and to abandon the system that has proven itself, over many many generations, incapable of fulfilling them. I wrote about this crucial point more than a decade ago in Education Week, in a piece titled: “Are Public Schools Hazardous to Public Education.”

Fortunately, a small but steadily growing number of American liberals have already grasped this pivotal difference between means and ends, as the growing Democratic support for Florida’s school choice tax credit program evinces. Giving all families, particularly low income families, an easier choice between state-run and independent schools is the best way to advance the ideals of public education.

Obama Small Business Lending Fund Likely A Bust

President Obama has announced his intention to use $30 billion in TARP funds to create a new small business lending fund.  In all likelihood, this is $30 billion the taxpayers will never see returned.

First of all, the problem facing small business, outside of the massive uncertainty being created by Washington, is one of credit availability, not cost.  For those who can get credit, its quite cheap, arguably too cheap.  So if the president doesn’t intend to lower the cost of credit, the plan must be to lower the quality; using the $30 billion to cover expected credit losses.  Of course, we tried throwing lots of taxpayer money at unsustainable homeownership, is there any reason to believe throwing taxpayer money at unsustainable businesses is going to work any better?

Using TARP funds for this program is also somewhat disingenuous.  This program adds $30 billion to the deficit regardless of whether it’s funded by TARP or by Congressional appropriations.  Taking from the TARP only allows the President to keep treating the TARP as his personal slush fund.  Nowhere in the TARP legislation can you find language authorizing the use of funds to cover credit losses on new loans.  Being a constitutional scholar, the President should know very well that the spending power rests with Congress, not the President.  If we are to have a new small business lending program, it should be designed and funded by Congress, not bureaucrats at the Treasury Department.

Historically the two main sources of small business start-up funding have been home equity and credit cards.  Clearly the availability of home equity has declined.  Sadly as well, with the passing of credit card “reform” the availability of credit card lending has also declined.  If the President truly wants to help small business, then the first thing to do is ask Congress to repeal the credit card bill and then just get out of the way.

Time to Lose the Trade Enforcement Fig Leaf

During his SOTU address last week, the president declared it a national goal to double our exports over the next five years.  As my colleague Dan Griswold argues (a point that is echoed by others in this NYT article), such growth is probably unrealistic. But with incomes rising in China, India and throughout the developing world, and with huge amounts of savings accumulated in Asia, strong U.S. export growth in the years ahead should be a given—unless we screw it up with a provocative enforcement regime.

The president said:

If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules.

Ah, the enforcement canard!

One of the more persistent myths about trade is that we don’t adequately enforce our trade agreements, which has given our trade partners license to cheat.  And that chronic cheating—dumping, subsidization, currency manipulation, opaque market barriers, and other underhanded practices—the argument goes, explains our trade deficit and anemic job growth.

But lack of enforcement is a myth that was concocted by congressional Democrats (Sander Levin chief among them) as a fig leaf behind which they could abide Big Labor’s wish to terminate the trade agenda.  As the Democrats prepared to assume control of Congress in January 2007, better enforcement—along with demands for actionable labor and environmental standards—was used to cast their opposition to trade as conditional, even vaguely appealing to moderate sensibilities.  But as is evident in Congress’s enduring refusal to consider the three completed bilateral agreements with Colombia, Panama, and South Korea (which all exceed Democratic demands with respect to labor and the environment), Democratic opposition to trade is not conditional, but systemic.

The president’s mention of enforcement at the SOTU (and his related comments to Republicans the following day that Americans need to see that trade is a two way street – starts at the 4:30 mark) indicates that Democrats believe the fig leaf still hangs.  It’s time to lose it.

According to what metric are we failing to enforce trade agreements?  The number of WTO complaints lodged? Well, the United States has been complainant in 93 out of the 403 official disputes registered with the WTO over its 15-year history, making it the biggest user of the dispute settlement system. (The European Communities comes in second with 81 cases as complainant.)  On top of that, the United States was a third party to a complaint on 73 occasions, which means that 42 percent of all WTO dispute settlement activity has been directed toward enforcement concerns of the United States, which is just one out of 153 members.

Maybe the enforcement metric should be the number of trade remedies measures imposed?  Well, over the years the United States has been the single largest user of the antidumping and countervailing duty laws.  More than any other country, the United States has restricted imports that were determined (according to a processes that can hardly be described as objective) to be “dumped” by foreign companies or subsidized by foreign governments. As of 2009, there are 325 active antidumping and countervailing duty measures in place in the United States, which trails only India’s 386 active measures.

Throughout 2009, a new antidumping or countervailing duty petition was filed in the United States on average once every 10 days.  That means that throughout 2010, as the authorities issue final determinations in those cases every few weeks, the world will be reminded of America’s fetish for imposing trade barriers, as the president (pursuing his “National Export Initiative”) goes on imploring other countries to open their markets to our goods.

Rather than go into the argument more deeply here, Scott Lincicome and I devoted a few pages to the enforcement myth in this overly-audaciously optimistic paper last year, some of which is cited along with some fresh analysis in this Lincicome post.

Sure, the USTR can bring even more cases to try to force greater compliance through the WTO or through our bilateral agreements.  But rest assured that the slam dunk cases have already been filed or simply resolved informally through diplomatic channels.  Any other potential cases need study from the lawyers at USTR because the presumed violations that our politicians frequently and carelessly imply are not necessarily violations when considered in the context of the actual rules.  Of course, there’s also the embarrassing hypocrisy of continuing to bring cases before the WTO dispute settlement system when the United States refuses to comply with the findings of that body on several different matters now.  And let’s not forget the history of U.S. intransigence toward the NAFTA dispute settlement system with Canada over lumber and Mexico over trucks.  Enforcement, like trade, is a two-way street.

And sure, more antidumping and countervailing duty petitions can be filed and cases initiated, but that is really the prerogative of industry, not the administration or Congress.  Industry brings cases when the evidence can support findings of “unfair trade” and domestic injury.  The process is on statutory auto-pilot and requires nothing further from the Congress or president. Thus, assertions by industry and members of Congress about a lack of enforcement in the trade remedies area are simply attempts to drum up support for making the laws even more restrictive.  It has nothing to do with a lack of enforcement of the current rules.  They simply want to change the rules.

In closing, I’m happy the president thinks export growth is a good idea.  But I would implore him to recognize that import growth is much more closely correlated with export growth than is heightened enforcement.  The nearby chart confirms the extremely tight, positive relationship between export and imports, both of which track similarly closely to economic growth.

U.S. producers (who happen also to be our exporters) account for more than half of all U.S. import value.  Without imports of raw materials, components, and other intermediate goods, the cost of production in the United States would be much higher, and export prices less competitive.  If the president wants to promote exports, he must welcome, and not hinder, imports.