Tag: commerce department

Obama Administration to Take a Stand on Privacy, But it Ain’t Fixing the Strip-Search Machine Morass

At least one report has it that a Commerce Department official will announce the Obama administration’s support for “baseline privacy legislation” at a Wednesday Senate Commerce Committee hearing.

You mean, like, the Fourth Amendment? If only it were so.

The action is in the House Government Reform Committee, which is holding a hearing on the Transportation Security Administration’s strip-search machines. What’s the administration’s “baseline privacy policy” on that?

I’ve already written two posts in the last year (1, 2) titled “Physician, Heal Thyself”…

Death by Antidumping

A Wall Street Journal editorial today shines a long overdue spotlight on an antidumping case that is emblematic of the dissonance within U.S. trade policy. I, too, wrote about this case last year as an example of how the U.S. antidumping regime undermines U.S. manufacturing, penalizes U.S. exporters, and diminishes chances for achieving the administration’s goal of doubling exports in five years.

In 2005, U.S. Magnesium Corporation, the sole producer of magnesium in the United States, succeeded in convincing the U.S. International Trade Commission and U.S. Commerce Department to impose duties on imports of magnesium from competitors in Russia and China. Before toasting this outcome with some clichéd or specious utterance about how the antidumping law ensures fair trade and a level playing field for U.S. producers, it is important to understand that downstream, consuming industries (those U.S. producers that require for their own production the raw materials and intermediate goods subject to the antidumping measures) have no legal standing in these cases. Statute forbids the U.S. International Trade Commission from considering their arguments or projections about the likely consequences of prospective duties. Statute requires that the ITC consider only the conditions of the petitioning industry.  In other words, the analysis is slanted.  The antidumping law codifies these evidentiary asymmetries, which makes it easier for U.S. suppliers to cut-off their U.S. customers’ access to alternative sources of supply. In our increasingly globalized economy, this is a recipe for propping up old industries and discouraging and crippling new ones. It is a recipe for economic decline.

Here’s what I wrote about the impact of the magnesium duties on one formerly promising U.S. growth industry in May 2010:

Consider the case of Spartan Light Metal Products, a small Midwestern producer of aluminum and magnesium engine parts (and other mechanical parts), which presented its story to Obama administration officials, who were dispatched across the country earlier this year to get input from manufacturers about the problems they confronted in export markets.

Beginning in the early-1990s, Spartan shifted its emphasis from aluminum to magnesium die-cast production because magnesium is much lighter and more durable than aluminum, and Spartan’s biggest customers, including Ford, GM, Honda, Mazda, and Toyota were looking to reduce the weight of their vehicles to improve fuel efficiency. Among other products, Spartan produced magnesium intake manifolds for Honda V-6 engines; transmission end and pump covers for GM engines; and oil pans for all of Toyota’s V-8 truck and SUV engines.

Spartan was also exporting various magnesium-cast parts (engine valve covers, cam covers, wheel armatures, console brackets, etc.) to Canada, Mexico, Germany, Spain, France, and Japan. Global demand for magnesium components was on the rise.

But then all of a sudden, in February 2004, an antidumping petition against imports of magnesium from China and Russia was filed by the U.S. industry, which comprised just one producer, U.S. Magnesium Corp. of Utah with about 370 employees. Prices of magnesium alloy rose from slightly more than $1 per pound in February 2004 to about $1.50 per pound one year later, when the U.S. International Trade Commission issued its final determination in the antidumping investigation. By mid-2008, with a dramatic reduction of Chinese and Russian magnesium in the U.S. market, the U.S. price rose to $3.25 per pound (before dropping in 2009 on account of the economic recession).

By January 2010, the U.S. price was $2.30 per pound, while the average price for Spartan’s NAFTA competitors was $1.54. Meanwhile, European magnesium die-casters were paying $1.49 per pound and Chinese competitors were paying $1.36 per pound. According to Spartan’s presentation to Obama administration officials, magnesium accounts for about 40-60% of the total product cost in its industry. Thus, the price differential caused by the antidumping order bestowed a cost advantage of 19 percent on Chinese competitors, 17 percent on European competitors, and 16 percent on NAFTA competitors.

As sure as water runs downhill, several of Spartan’s U.S. competitors went out of business due to their inability to secure magnesium at competitive prices. According to the North American Die Casting Association, the downstream industry lost more than 1,675 manufacturing jobs–more than five-times the number of jobs that even exist in the entire magnesium producing industry!

Spartan’s outlook is bleak, unless it can access magnesium at world market prices. Its customers have turned to imported magnesium die cast parts or have outsourced their own production to locations where they have access to competitively-priced magnesium parts, or they’ve switched to heavier cast materials, sacrificing ergonomics and fuel efficiency in the face of rapidly-approaching, federally-mandated 35.5 mile per gallon fuel efficiency standards.

Thus, antidumping duties on magnesium have almost entirely snuffed out a U.S. growth industry that was succeeding in export markets by selling environmentally-friendlier auto parts—two attributes that really should make this a showcase industry, given the administration’s stated goals.

But on trade policy formulation, it seems that the right hand doesn’t always know what the left hand is doing. Last year, while magnesium imports from China were subject to U.S. antidumping duties, the Obama administration launched a WTO case against China for its restraints on exports of raw materials, including magnesium. That’s right. The U.S. government officially opposes China’s tax on exported magnesium because it imposes extra costs of U.S. consuming industries, but it insists on enforcing its own antidumping duties on magnesium imported from China despite those costs.

As if that is not enough dissonance, consider that the same U.S. Commerce Department that authorized the antidumping duties on magnesium is simultaneously charged with overseeing the National Export Initiative (and its goal of doubling U.S. exports to $3.14 trillion by 2015). The Commerce secretary, Gary Locke, was even featured in Washington Post profile piece Sunday preaching about the national imperative to boost exports. Is Secretary Locke even aware of the incongruities under his roof?

The WSJ editorial concludes with a call to revoke the antidumping duties on magnesium, which is under consideration in a “Sunset Review.” (Regrettably, as presented in this analysis from 2005, revocation pursuant to sunset review is more the excepton than the rule.). I agree with the WSJ’s conclusion, but would implore policymakers to go further and implement sweeping reform of the antidumping law. It is extremely costly to U.S. industry and totally out-of-step with 21st century economic reality. As I wrote last year:

Spartan’s is not an isolated incident. Routinely, the U.S. antidumping law is more punitive toward U.S. manufacturers than it is to the presumed foreign targets. Routinely, U.S. producers of upstream products respond to their customers’ needs for better pricing, not by becoming more efficient or cooperative, but by working to cripple their access to foreign supplies. More and more frequently, that is how and why the antidumping law is used in the United States. Increasingly, it is a weapon used by American producers against their customers—other American producers, many of whom are exporters.

If President Obama really wants to see exports double, he must implore Congress to change the antidumping law to explicitly give standing to downstream industries so that their interests can be considered in trade remedies cases. He must implore Congress to include a public interest provision requiring the U.S. International Trade Commission to assess the costs of any duties on downstream industries and on the broader economy before imposing any such duties.

The imperative of U.S. export growth demands some degree of sanity be restored to our business-crippling trade remedies regime

Media Miss Real News in Latest Trade Report

This morning’s report from the U.S. Department of Commerce that the pesky trade deficit shrank unexpectedly in October is being hailed in the media as “good news” for the economy, while the real news behind the numbers remains buried.

According to the latest monthly trade report, exports of U.S. goods rose in October compared to September, while imports declined slightly. Rising exports are good news in anybody’s book, but according to the conventional Keynesian and mercantilist logic, falling imports must also be good for the economy because that means consumers are spending more on domestically produced goods, right? Wrong.

In the real world, that assumption is almost always false, as I did my best to document a few weeks back in an op-ed titled, “Are rising imports a boon or bane to the economy?”

The real news in the report is the spectacular rise of U.S. exports to China. Year to date, U.S. exports to China are up 34 percent compared to the same period in 2009. That compares to a 21 percent increase in U.S. exports to the rest of the world excluding China. China is now the no. 3 market for U.S. exports, behind only our NAFTA partners Canada and Mexico, and by far the fastest growing major market.

The politically inflammatory bilateral trade deficit with China is also up 20 percent so far this year, but our trade deficit with the rest of the world excluding China is up 38 percent.

Yet Sens. Chuck Schumer, D-N.Y., and Lindsey Graham, R-S.C., are still talking about pushing a bill during the lame-duck session that would authorized the same Commerce Department to assess duties on imports from China because of its undervalued currency. A cheaper Chinese currency relative to the U.S. dollar supposedly inhibits U.S. exports to China while tempting American consumers to buy even more of those useful consumer goods assembled in China. [For the record, U.S. imports from China so far this year have grown, too, but at a rate slightly below imports from the rest of the world.]

To anyone taking an objective look at the numbers, this morning’s trade report shows that whatever the wisdom of China’s currency policy, it has not been a real obstacle to robust U.S. export growth, nor has it fueled an extraordinary growth in our bilateral trade balance with China. Members of Congress should drop their obsession with China trade and move on to more urgent matters.

Monday Links

  • Harvard economist Jeffrey Miron: “Economists find weak or contradictory evidence that higher government spending spurs the economy. Substantial research, however, does find that tax cuts stimulate the economy and that fiscal adjustments—attempts to reduce deficits by raising taxes or lowering expenditure—work better when they focus on tax cuts.”

EDA’s Delusions of Grandeur

The U.S. Department of Commerce’s $400 million Economic Development Administration provides grants and loans to state and local governments, nonprofit groups, and businesses in regions that are supposed to be economically distressed. The EDA is a relic of the 1960s belief that the federal government can solve the problems of distressed urban centers. Its legacy is one of wasteful and politicized spending. Former EDA director Orson Swindle called it a “congressional cookie jar,” and the legendary anti-pork Democrat Senator William Proxmire argued that it “deserves to die.”

But the EDA did not die and its spending is as wasteful as ever. The EDA’s current administrator, John Fernandez, recently gave a speech on economic development under the Obama administration:

Over the past decade, we let our infrastructure crumble … our schools languish … our small businesses fend for themselves. Instead of building foundations, we chased bubbles.

Obama administration officials frequently blame current problems on the previous administration, and to some degree they are right. But it’s fallacious to imply that the Bush administration financially short-changed state and local infrastructure, schools, and small businesses — all of which are activities the federal government shouldn’t be funding to begin with. As Chris Edwards demonstrates, George W. Bush was the biggest spender since LBJ.

Fernandez continues:

By acting decisively, President Obama and his team pulled us back from the brink. Independent economists have just confirmed that the Recovery Act has saved or created more than 1.5 million jobs. The jobs picture is still sobering, but the unemployment trend is nowhere near as bad as it was when President Obama took office. One year ago, our economy was shrinking at rate of 6 percent. Today, it’s growing at a rate of 3 percent.

Regarding these claims, this graph says it all:

Here’s more lofty rhetoric from Fernandez:

As the president points out, we need to do more than get America back on its feet… We need to take big steps: we need to modernize our education system, revitalize our infrastructure, invest in industries of the future, and create a new entrepreneurial culture in which innovation can flourish… For centuries, we’ve attracted, developed, and nurtured the world’s best talent, and given our citizens a chance to build a better life for themselves and their families.

By “we need” Fernandez means the federal government, not the private sector. Yet this country didn’t become an economic powerhouse because of the Department of Commerce or any other federal bureaucracy. America’s rise to prosperity was fueled by entrepreneurship and the vast investment of private capital initially unhindered by a small and distant federal government. The “big steps” Fernandez wants to take would mean more taxes and debt, which would kill the entrepreneurship and innovation that he lauds.

Fernandez discusses the idea that state and local governments should think of economic development from a regional perspective. Competition for industry and jobs between neighboring jurisdictions should be subordinated to regional economies “planned” by government officials in conjunction with business and civic leaders. He makes a curious statement in this regard:

Our political system rewards mayors, members of Congress, and governors for how much good they did for their constituents in the short term — you don’t get credit for fostering long-term growth. And in recent years, a virtual cottage industry has developed in ranking states on how attractive they are as places to do business: who’s got the lowest labor costs, who’s got the lightest tax load or regulatory burden, and so on.

He would have a point if he were talking about narrow tax loopholes and government subsidies for companies to locate to a particular state or city. But broad-based reductions in tax and regulatory burdens most certainly foster long-term growth. And inter-jurisdictional competition over tax and regulatory burdens is an important factor promoting government restraint.

Unfortunately, the growing centralization of power at the state level at the expense of local autonomy, and similar unhealthy relationship between the federal government and the states, inhibits this healthy competition.

Although he denies it, it’s planning and centralization that Fernandez seems to view as the ideal. State and local officials should be “collaborating” on regional economic development because the real competition is foreigners. And who better to deal with foreigners than Uncle Sam?

[F]or the past decade, federal support for these regional efforts has been too limited. Too fragmented. Too inconsistent. The federal government has not been a reliable partner… What Washington can do — and under President Obama, what Washington has begun to do — is to facilitate collaboration. To provide a framework for that discussion among all the stakeholders. To help regions assess their competitive strengths. To help them design a strategy to bring together the technology, the human capital, and the financial capital it will take to compete. And to provide seed money for turning a region’s unique strategy into reality.

According to Fernandez, this is “where the Economic Development Administration comes in.” On cue, he proceeds to provide a litany of all the wonderful things his agency is doing. None of it is worth quoting, as it’s the same warmed-over subsidy ideas we’ve been hearing from federal officials for decades. The fact is the EDA is a $400 million economic development program in a $14 trillion economy. Even though that’s $400 million taxpayer dollars too many, it nonetheless amounts to a pothole on the nation’s economic superhighway.

See this essay for more on why the Economic Development Administration should be abolished.