Tag: free trade

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.

What Was the Point of Romney’s China Op-Ed?

Mitt Romney has an op-ed in today’s Wall Street Journal that Dan Drezner has aptly characterized as “Romney SMASH China!” Drezner takes Romney’s arguments on their own terms, but I’m more cynical, and accordingly I’m interested in why Romney wrote this piece. Sure, sure, maybe it’s possible that he just has strongly held ideas about U.S.- China policy and chose to voice them, but let’s be real: the man is trying to get the GOP nomination and then get elected president. He or someone in his campaign decided that now was a good time to reach out to the largest circulation conservative op-ed page in the country—one that gets read by a lot of people from whom he’d like to get contributions—with this message.

And what is the message? There’s the usual inchoate American nationalism (making the 21st “an American, not a Chinese century”) and criticism of Obama’s extravagant spending, sure, but there are also some fairly clear signs that Romney wants to signal he’ll get tough on China. He argues that Washington must “directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation.” On the latter, he goes so far as to promise that “on day one of my presidency I will designate [China] a currency manipulator…” despite gradual appreciation in the renminbi highlighted in today’s New York Times.

On the security side, he unsurprisingly suggests that the United States should bolster its role as the balancer-of-first-resort in the Asia-Pacific, claiming without evidence that our allies are worrying that we’re going to leave the region.

Now let’s go back to my question: What’s the play here? Does he think that this is some sort of mass appeal argument that will burnish his credentials in the eyes of the median Republican primary voter? Is he trying to tie economic malaise to the looming ChiCom menace? Maybe so, but does he think that the wealthy potential contributors who read the Journal op-ed page are going to be aroused by this message? That doesn’t seem right to me at all.

There are lots of people who’ve gotten wealthy running political campaigns who no doubt got this piece placed (and probably wrote it), but the questions remain: Why this message? Why this outlet? What was this piece supposed to accomplish? I can’t figure out a persuasive answer.

The Antidumping Lobby’s Power to Destroy Jobs

President Obama claims to support America’s exporting and so-called “green jobs” industries, but he also likes rules that restrict the importation of critical inputs to those industries. Austin Bragg and I produced a short video detailing how antidumping duties serve to nudge American manufacturers offshore or out of business. The examples we cite are American manufactured products that fall squarely into the category of “green.”

Facebook it. Tweet it. And read more of Dan Ikenson’s heavy lifting on the antidumping issue here, here and here.

Eight Questions for Protectionists

When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.

But based on all the speeches and media interviews I do, which periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.

So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.

1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.

2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.

3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).

4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.

5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies - big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.

6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?

Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.

7. If you don’t like taxes, why would you like taxes on imports?

A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.

8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.

We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by the Institute for Humane Studies.

My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.

Ron Paul Talks Sense on Trade

Presidential Candidate Ron Paul has a decidedly mixed record on trade policy. He often votes against trade agreements because he sees them as “managed trade” and  an interference with true free trade. Well, ok, but that’ s like voting against income tax cuts because you think the IRS shouldn’t exist. I get the point, but c’mon…

In any event, he was the only participant in Thursday night’s debate between the Republican presidential candidates who spoke about trade with any sense at all. As Inside US Trade [subscription required] points out, trade policy was not a prominent theme of the debate, but that didn’t stop Mitt Romney from (again) spouting nonsense about balanced trade:

Former Massachusetts governor Mitt Romney late last week took a swipe at the trade policies of the Obama administration in a debate of the Republican presidential candidates by implying they are unbalanced in favor of other nations.

As part of a seven-point list of actions to turn around the economy, Romney said the U.S. should “have trade policies that work for us, not just for our opponents,” as the third point…

(I’ll just interject here to say that by “opponents” I believe Mr Romney is referring to our trade partners. You know, the folks who sell us stuff and buy stuff from us. But I digress…)

Trade was only raised one other time during the debate. Prompted by a moderator, Rep. Ron Paul (R-TX) defended his earlier criticism of Obama’s sanctions against Iran for its nuclear program.

Saying it was “natural” that Iran would pursue nuclear weapons—given that India, Pakistan, China, and Israel also possess them—Paul attacked the sanctions policy as steering the U.S. toward conflict.

Countries that you put sanctions on, you are more likely to fight them,” he said. “I say a policy of peace is free trade. Stay out of their internal business.”

Paul also suggested it was time for the U.S. to engage in a trading relationship with Cuba and “stop fighting these wars that are about 30 or 40 years old,” an apparent reference to the Cold War. [emphasis added]

(My friend Scott Lincicome has more on the economic illiteracy flowing from the debate here)

Mr Paul is right on this one. He and I no doubt disagree on a few issues, and on trade I have more tolerance than he does for multilateral (and, albeit to a lesser extent, bilateral and regional) trade agreements as the only likely avenues for trade liberalization in the foreseeable future. But the link between trade and peace is an important one, and often overlooked.

Speaking of Ron Paul, the following clip shows Jon Stewart at his devastating best, calling out the mainstream media—and particularly Fox News—for ignoring and/or outright mocking Ron Paul’s candidacy. Watch to the very end, you won’t regret it. (HT: RadleyBalko)

The Daily Show With Jon Stewart Mon - Thurs 11p / 10c
Indecision 2012 - Corn Polled Edition - Ron Paul & the Top Tier
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

Dirty Deal Done Not So Dirt Cheap

Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee,  Rep. Dave Camp (R-MI)*, chairman of the House Ways and Means Committee, and the White House have just announced that they have made a deal to extend Trade Adjustment Assistance (TAA, the program that extends extra unemployment and health care benefits to workers who lose their jobs because of globalization) until 2013, as part of a broader deal that would see passage of the three outstanding preferential trade agreements with Korea, Colombia, and Panama. The extension of TAA would be included in the legislation to implement the US-Korea Free Trade Agreement, “improved” (i.e., made less liberalizing) by the administration in December.

Interestingly and alarmingly, because implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees.  This solution was first aired publicly last week, and my friend, trade lawyer (and former Cato-ite) Scott Lincicome pointed out then that raising customs user fees is probably against WTO rules (not to mention counterproductive to the goal of liberalizing trade):

“[C]ustoms fees” are simply hidden taxes on import consumers.  A quick review of the US Customs website on “customs users fees” makes this clear.  They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation.  And those higher costs, of course, are eventually passed on to American consumers through higher import prices.

Thus, pursuant to the bi-partisan deal outlined above, the FTAs’ great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!

…[I]t would [also] probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees.  In these cases, the panels have ruled that Article VIII’s requirement that a customs fee be “limited in amount to the approximate cost of services rendered” is actually a “dual requirement,” because the charge in question must first involve a “service” rendered, and then the level of the charge must not exceed the approximate cost of that “service.”  They’ve also found that the term “services rendered” means “services rendered to the individual importer in question,” and that the fees cannot be imposed to raise revenue (i.e., for “fiscal purposes”).[emphasis in original]

Raising customs user fees for fiscal purposes may even go against U.S. law (subparagraph 9B of 19 U.S.C. chapter 1 ss58c).

It’s unclear how far this draft will advance at the “mock mark-up,” scheduled for Thursday afternoon in the Senate Finance Committee, as the ranking member of that committee, Sen. Orrin Hatch (R-UT), is one of the leading critics of trade adjustment assistance.  Senator Hatch has already sent out a press release opposing the inclusion of the TAA renewal in the Korea FTA implementing bill:

This highly-partisan decision to include TAA in the South Korean FTA implementing bill risks support for this critical job-creating trade pact in the name of a welfare program of questionable benefit at a time when our nation is broke. This is a clear breach of Trade Promotion Authority and threatens the ability of American exporters and job creators who stand to benefit from the largest bilateral trade agreement in more than a decade.  TAA should move through the Congress on its own merit and should stand up to rigorous Senate debate. President Obama should send up our pending trade agreements with Colombia, Panama, and Korea and allow for a clean vote.

Senate Minority Leader Mitch McConnell (R-KY) is also apparently critical of the decision to include the TAA renewal in the Korea legislation, preferring instead to consider it only in exchange for something new, i.e.,  a deal on fast track (or trade promotion) authority for further trade deals. As the American Enterprise Institute’s Phil Levy points out, “It is problematic to “buy” the [existing] FTAs with an expanded version of TAA, since those were already “purchased” as part of a May 10, 2007 deal.” [link added] The Republican House leadership is also keen to separate TAA from the FTA implementing bills, in contrast to the opinion and efforts of their colleague Representative Camp.  So the fight is far from over.

If you are interested in hearing more about the trade deals, and how TAA renewal fits in with their passage, Senator Hatch will be speaking at an event at the American Enterprise Institute on Thursday (just hours before the mock mark-up is scheduled to begin). Howard Rosen of the Peterson Institute for International Economics and yours truly will be debating the merits of TAA after Senator Hatch has spoken. More information on the event, including access to the streaming video, here.

*UPDATE: Contrary to what I suggested in my orginal post, Chairman Camp did not in fact join an announcement with the White House and Chairman Baucus about the trade deal Tuesday. He did issue a statement Tuesday evening indicating that although he finds it “regrettable that the White House has insisted on Trade Adjustment Assistance in return for passage of these job-creating agreements,” he has “been willing to work with the White House to find a bipartisan path forward on TAA in order to secure passage of the trade agreements.” So it appears he has agreed to the deal broadly, even if he was not formally part of the announcement, and is still reviewing the details. Chairman Camp’s full statement is available here.