Tag: free trade

Instead of Free Trade, Have the Transatlantic Trade Talks

Has the intellectual debate about free trade been won? The close-to-consensus answer among several scholars discussing that question at Cato last week is “yes.” The better answer is “wrong question.” After all, how much does it really matter that free traders have won the intellectual debate when, in practice, trade policy is distinctly anti-intellectual and free trade is the rare exception, not the rule, around the world?

Consider the just-launched Transatlantic Trade and Investment Partnership negotiations. If the free trade consensus were meaningful outside the ivory tower, these negotiations would not take place. At the heart of the talks rests the fallacy that protectionism is an asset to be dispensed with only if reciprocated, in roughly equal measure, by “negotiators” on the other side of the table. But if free trade were the rule, trade policy would have a purely domestic orientation and U.S. barriers would be removed without any need for negotiation because they would be recognized for what they are: taxes on consumers and businesses. It really is that simple.

But the TTIP is shaping up to be the mother of all negotiations: an interminable feast of mercantilist horse-trading, self-serving press conferences, and ever-premature, congratulatory pronouncements all intended to aggrandize negotiators and politicians who thirst to be seen doing something to restore economic hope without having to shake their respective vested interests from their protected perches. It’s all quite nauseating, really, but at least it serves to remind us that free trade is the rare exception, and when all else fails…

Granted, U.S. tariffs are relatively low on average, most quotas have gone away, and most other countries have reduced barriers to trade over the past half century, which has contributed in no small part to improvements in per capita income and quality of life around the world. Why that cause and effect hasn’t reinforced the theory enough to drive a stake through the heart of protectionism is the better question.

In the United States, instead of free trade, we have protectionism in its many guises, including: “Buy American” rules for government procurement; heavily protected services industries; apparently inextinguishable farm subsidies; sugar quotas; green-energy subsidies; industrial policy; the Export-Import bank; antidumping duties; regulatory protectionism masquerading as public health and safety regulations, and; the protectionism euphemistically embedded in so-called free trade agreements in the forms of rules of origin, local content requirements, intellectual property and investment protections, enforceable labor and environmental standards, and special carve-outs that immunize products—even industries—from international competition. In fact, the entire enterprise of trade negotiations is a paean to protectionism, conducted with the utmost care to avoid unsettling, without recompense, the special privileges of the status quo.

How has an intellectual consensus for free trade coexisted with these numerous and metastasizing affronts to it? Protectionism slipped the noose, that’s how.

Congratulations to the Free Traders of the 112th Congress

Do you remember the 112th Congress—the one that repeatedly almost shut down the government while still managing to raise taxes and spending? It turns out they did some interesting things with trade policy. The votes recorded in Cato’s congressional trade votes database have been counted, tabulated, and analyzed, and the results are mixed. The predictable legislative outcome was that with a Republican House and Democratic Senate, the 112th Congress furthered the bipartisan establishment trade policy of reciprocal tariff reduction and unilateral subsidy expansion.

The more interesting revelations come from looking at the voting records of individual members. Rather than simply noting whether a policy would promote or diminish free trade or would increase or decrease America’s engagement in the global economy, Cato’s Free Trade, Free Markets methodology distinguishes between barriers (like tariffs and quotas) and subsidies (like loan guarantees, tax credits, and price supports). This distinction enables us to place members within a two-dimensional matrix.

Free traders are those that oppose both barriers and subsidies. Interventionists are those that support both barriers and subsidies. Isolationists are those that support barriers but oppose subsidies. Internationalists are those that oppose barriers but support subsidies. 

The release of this report offers a wonderful opportunity to name names. First I’d like to point out that last term, three Republican representatives voted consistently to support trade barriers. Just to be clear, these barriers are taxes expressly intended to prevent you from buying things you want. The representatives are Walter Jones of North Carolina, Frank LoBiondo of New Jersey, and Steve LaTourette of Ohio. While Walter Jones consistently opposed subsidies (making him the House’s only isolationist last term), Messrs. LoBiondo and LaTourette joined 115 Democrats as interventionists.

With that unpleasantness out of the way, I would like to offer my congratulations and gratitude to the 112th Congress’s free traders. There were 19 in the Senate and 85 in the House. The high number of free traders in the House last term is due mostly to the fact that there was only one trade subsidy vote; if there were more, I’m sure many of these names would disappear from the list, but many would not and they all deserve credit nonetheless.

Welcome to the Whimsy-conomy, Energy Trade Edition

The AP reports some bad news for anyone seeking a little security and predictability in the US and global energy markets:

Energy Secretary Ernest Moniz said Tuesday he will delay final decisions on about 20 applications to export liquefied natural gas until he reviews studies by the Energy Department and others on what impact the exports would have on domestic natural gas supplies and prices.

Moniz, who was sworn in Tuesday as the nation’s new energy chief, said he promised during his confirmation hearing that he would “review what’s out there” before acting on proposals to export natural gas. Among the things Moniz said he wants to review is whether the data in the studies are outdated.

A study commissioned by the Energy Department concluded last year that exporting natural gas would benefit the U.S. economy even if it led to higher domestic prices for the fuel.

The AP adds that Secretary Moniz justified this delay as his “commitment” to Senate Energy Committee Chairman Ron Wyden (D-Ore.) who opposes natural gas exports and has criticized the DOE study.  Moniz’s statement comes just days after his department (quietly, on a Friday) approved one pending export application—moving the grand total of approvals to two out of 20 total applications, most of which have been sitting on DOE’s desk for several years now.

And who says the U.S. government isn’t swift and efficient?

Ed Glaeser Makes Lamentably Rare Case for the Freedom to Trade

Support for free trade, especially from politicians, often rests on tired mercantalist arguments about the benefits of exports and jobs. That can backfire, as we’ve seen recently with trade figures showing that the U.S. trade deficit with Korea has widened since the Korea-U.S. Free Trade Agreement came into force. That’s why I’ve argued that relying on rhetoric about all the exports and jobs that free(r) trade will create is a dangerous game: where, might trade skeptics ask, are all those exports you promised us, and why should we support trade liberalization if the results we were promised don’t materialize? So I was thrilled today to see a small post on Bloomberg.com from Harvard economics professor Ed Glaeser calling for the president to make a strong push for a U.S.-EU trade agreement, because of the benefits it would bring U.S. companies and consumers:

He should use his address to make the U.S. a leading voice once again for economic freedom: the freedom of consumers to buy European goods and the freedom of producers to sell their goods on the other side of the Atlantic.

It is gratifying to see a principled case for free trade, resting on a foundation of freedom, in the media. Here’s hoping President Obama read Professor Glaeser’s article, and heeds his advice.

21st Century U.S. Trade Policy Should be Pro-Market, not Pro-Business, Pro-Labor, or Pro-Lobbyist

The difference between the trade policy we have today and the trade policy we should have is like the difference between crony capitalism and free-market capitalism. The sausage grinder that is U.S. trade policy serves politicians and rewards lobbyists and gate-keeper bureaucrats, who have the gall to presume entitlement to limiting Americans’ options and picking winners and losers.

In a country that exalts freedom, the default trade policy should be free trade. But it’s not. Why?

The public has been trained to accept that special interests—companies seeking exemptions from competition; unions demanding that citizens ”Buy American”; investors and intellectual property holders demanding the U.S. public assume part of its business risks; enviros insisting on measures that punish developing countries for being poor—are rightly entitled to negotiate, abridge, impair, or sacrifice those freedoms in the name of Team USA.

So how are we free if decisions about how, with whom, and how much we transact with foreigners are decided by parties in Washington, who profit from denying us that freedom?

Trade policy should be about maximizing the freedom of Americans to choose, and distinctly not about bestowing certain advantages on particular companies, industries, or special interests. Trade policy should be about maximizing opportunities for Americans as consumers, workers, and investors, and not about impeding those opportunities.

In a globalized world where businesses are mobile and, ultimately, untethered to a homeland, what is the point of policymakers going to bat for U.S. producers? Usually, policies adopted to assist particular companies or industries handicap or subvert companies and industries upstream or downstream in the supply chain, or in other sectors. What even defines a U.S. producer anymore? GM builds more vehicles in China than it does in the United States.  Should Washington and Beijing both claim GM as national treasures and craft policy to serve its needs?

No. Policy should be neutral with respect to the goals of particular companies and industries, and designed to attract investment and human capital, and to maximize opportunities for Americans to partake of the global economy. Trade policy should be about ensuring certainty and eliminating policy-induced frictions in supply chains. As I wrote in this article (21st Century Economy Deserves Better Than 16th Century Trade Policies), which expounds upon the thoughts in this post:

This 21st century economic reality demands better than trade policies rooted in 16th century mercantilist dogma. It demands policies that are welcoming of imports and foreign investment, and that minimise regulations or administrative frictions that are based on misconceptions about some vague or ill-defined “national interest”.

Free Trade Is Not the Same Thing as Protectionism

That sounds obvious, right? I would have thought so. But this Washington Post article on U.S.-China trade issues seems to conflate the two. There’s a lot to criticize in the article, but I want to focus on these two sentences:

WTO challenges are not the only tool the United States has to try to open China’s market. The Commerce Department has imposed dozens of tariffs on Chinese products considered unfairly priced or subsidized.

Now, World Trade Organization complaints are certainly a way to open foreign markets. But imposing tariffs on foreign products through anti-dumping and countervailing duties is not, repeat not, a way to open foreign markets. Rather, it is a way to close our markets. Not the same thing at all.

Pushing Ukraine Back to the Soviet Union?

Ukraine scored a historic upset in their first Euro 2012 soccer match yesterday, creating a rare celebratory and unifying atmosphere in the country. There had been little good news out of the Ukraine leading up to its co-hosting—with Poland—of the continent’s major soccer championship. Despite achieving independence two decades ago, Ukraine’s political development remains stunted. Ironically, European governments risk pushing Kiev away while attempting to promote democracy there. Such as by Berlin’s threat to block a new political and trade agreement between Ukraine and the European Union.

There’s not a lot to choose from among Ukraine’s leading politicians. However, President Viktor Yanukovich appears to be misusing his power to punish rival Yulia Tymoshenko for political revenge.

In response, German Chancellor Angela Merkel said that her nation would boycott the 2012 European Championships. Last month German Foreign Minister Guido Westerwelle also threatened to kill Kiev’s Association Agreement and the Common Economic Space Treaty with the EU. Ukraine is a member of the Eastern Partnership initiative, created three years ago by Brussels.

Ukraine is not the only troubled member of the EP:  Armenia, Azerbaijan, Belarus, Georgia, and Moldova all have serious human rights issues. However, Nicu Popescu of the European Council on Foreign Relations explained that while Ukraine is not the worst offender among the group, it “is the biggest source of disappointment and bad news.” As a result, warned Jana Kobzova, also at the Council, “More and more EU states are asking why should we want the Ukraine closer to the EU when its political system is increasingly incompatible with the values the EU preaches?”

It’s a fair question, but the alternative is Kiev slipping closer to orbit around Russia. Yanukovich originally was viewed as Moscow’s candidate, since he represented Russophone speakers. However, in office he put his nation first. He has refused to join Russia’s Customs Union (which also includes Belarus and Kazakhstan) and turn over control of Ukraine’s natural gas to Moscow. But because of resistance in Brussels, Yanukovich last month declared a “strategic pause” in Ukraine’s relations with the EU. In fact, Foreign Minister Konstantin Grishenko said his nation would no longer seek full EU membership.

Germany and the other EU members should moderate their ambitions. None of the Eastern Partnership members were on the fast-track to EU membership. The systems were too different and the geographic distances were too great. Even before Kiev disappointed its European friends people were talking of a 20-year accession process. And enlargement fatigue had not yet afflicted Brussels, with disappointment over the performance of Bulgaria and Romania, resistance to Turkey’s membership, and reluctance to quickly include the rest of the Balkans.

Instead of viewing Ukraine as a candidate member to be transformed, the Europeans should treat Ukraine as an errant friend to be reformed. Closer ties should be developed, allowing more criticism to be delivered with greater effect. The association agreement between the EU and Kiev obviously is important economically to Ukraine. It also may be the best vehicle to help pull Kiev back to a more democratic course.

Cross-posted from the Skeptics at the National Interest.