Tag: mercantilism

No Time for Mercantilist Posturing in Transatlantic Trade Talks

Pitched as a cure for Europe’s woes, salvation for the multilateral trading system, and the last best chance to restrain the Chinese juggernaut, the stakes are high for the upcoming Transatlantic Trade and Investment Partnership (TTIP) negotiations. Of course the primary objective of the TTIP is to reduce nagging impediments to commerce between the United States and the European Union. But success is far from a sure bet.

Given the numerous bilateral trade frictions that have eluded resolution for many years, the goal of a “comprehensive” agreement by the end of 2014 – the current target – is simply not credible. Success would require negotiators to lay down their calculators and spreadsheets, disavow the “exports good, imports bad” mantra of mercantilist doctrine on which they were raised, and act on behalf of their citizens instead of their domestic producer lobbies.

That outcome would be too good to be true, but there may be a certain genius to the tight timeframe: it will demand that negotiators forego excessive posturing and will limit the potential for ever-shifting political calculations to subvert progress. Regardless, success can only take the form of a less comprehensive agreement or, perhaps, a two-phased agreement where the first phase meets the 2014 deadline by achieving accord on relatively agreeable matters, while the tougher issues are relegated to a later train.

A recent paper co-published by the Atlantic Council and the Bertelsmann Foundation presented the results of a survey of American and European trade policy experts about the prospects for a successful TTIP agreement. More than half thought the negotiations would produce a “moderate agreement,” and most thought the agreement would take effect by the end of 2015 or 2016.

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.

Newsflash: Politicians Pander to Agriculture!

The American Soybean Association (ASA) recently asked each of the presidential candidates to respond to a series of questions about agricultural policy issues. The questions covered farm bill and crop insurance, estate tax, biodiesel, biotechnology, trade, research, regulations, and transportation and infrastructure. The candidates’ responses (full text here) were not exactly models of courageous and principled policymaking.

I won’t parse the entire thing, as it is just too depressing and some of the issues (e.g., the estate tax) fall outside my area of research. But I will comment on a couple of the topics.

On subsidies and crop insurance, both candidates pledged to support passage of the farm bill, and the crop insurance and disaster provisions it contains. Mr Romney—no Senator John McCain in this area, at least—went on to make a broader statement about his philosophy on farm supports:

On the broader question of farm programs, we must be cognizant that our agricultural producers are competing with other nations around the world. Other nations subsidize their farmers, so we must be careful not to unilaterally change our policies in a way that would disadvantage agriculture here in our country. In addition, we want to make sure that we don’t ever find ourselves in a circumstance where we depend on foreign nations for our food the way we do with energy. Ultimately, it is in everyone’s interest is achieve [sic] a level playing field on which American farmers can compete.

Ugh. That is a monumentally awful statement. First, not all nations subsidize their farmers. New Zealand and (not to brag) Australia, for example, subsidize their farmers very little, and in very minimally distorting ways, and yet their agricultural  exports generally are thriving. They compete with other agricultural exporters because they try to be the best they can be given their natural resource endowments, research, experience, and human capital.  Second, the caution against unilaterally changing policies is, of course, ubiquitous in many trade policy statements (see, e.g., Ex-Im Bank, manufacturing, reducing tariffs generally). It is also economically insane to enact bad policies because other countries do so. Especially when it is becoming clear that other large agricultural subsidizers (e.g., Japan and the EU) are not exactly thriving, many and varied though their problems may be.

Third, as for the importance of farm supports in maintaining food independence, that’s also nonsense. As I’ve argued ad nauseum, (e.g., here), subsidies aren’t keeping us well-fed: if food abundance depended on government support, we’d see nothing but so-called program crops (soybeans, wheat, corn, cotton, and rice) on supermarket shelves. Judging by the size of my fellow Australians on my last visit home, no-one is starving there despite very little government support for agriculture. By the way, if you want to read some comments from a president who actually knows what he is talking about, read Indonesia’s President Susilo Bambang Yudhoyono’s comments in this article, where he calls for lower trade barriers around the world, particularly for food security reasons.

Mr. Romney’s support for the Senate-passed farm bill also is at odds with his statement to the ASA about the importance of open trade. Even putting aside Mr Romney’s typical mercantilist obsession with exports, I wonder if he realizes that the changes proposed in the Senate farm bill would increase the amount of subsidies deemed trade-distorting by the World Trade Organization, putting trade liberalization at risk? U.S. government spending on trade-distorting support, the “worst” kind, is at record lows right now, mainly thanks to higher commodity prices. But even a senior United States Department of Agriculture official admits (paywall) that the proposed changes to farm policy—including a move towards revenue insurance—would likely see that progress eroded:

But Joseph Glauber, chief economist at the U.S. Department of Agriculture (USDA), said in an interview with Inside U.S. Trade that if either the Senate-passed farm bill or the version approved by the House Agriculture Committee were enacted, that would likely increase the level of U.S. trade-distorting payments.

While stressing that his assessment is preliminary in light of the fact that no legislation has been finalized, Glauber said it is fairly apparent that cutting direct payments and replacing them with either a revenue guarantee program or a price-loss program, as the two legislative proposals envision, would lead to an increase in amber box payments.

In fact, Glauber argued that changing U.S. farm policy along the lines of either of the farm bill proposals could make it more likely that the U.S. exceeds the $7.6 billion cap to which the U.S. informally agreed in the Doha round, especially in those years where commodity prices dip down and subsidy payouts increase.

Pass the farm bill, in other words, and multilateral liberalization efforts get more difficult.

Finally, I note that Mr. Romney also couldn’t resist adding his standard, wrongheaded, and increasingly prominent talking point about “vigorously enforcing” U.S. trade law, and catching cheaters (plenty of blog posts by my colleagues on this topic can be viewed on this blog). I wonder if he realizes that the United States itself has been caught breaking the rules of agricultural trade, and how hypocritical his statements about farm subsidies and trade are in that context? Plenty of damage, and retaliation, has been unleashed because of various ways the U.S. government conducts its affairs in agriculture.

So, in short, there is not much to like in either candidate’s statements, with Mr. Romney deserving special opprobrium because of his professed free-market, limited government principles. But we knew that.