Tag: protectionism

Former USTR Rob Portman Opposes TPP for the Worst Reasons

Yesterday, Senator Rob Portman (R-OH), a former U.S. Trade Representative during the George W. Bush administration, announced his opposition to the Trans-Pacific Partnership. 

According to Reuters:

Portman, from Ohio, said the Pacific trade deal fails to meet the needs of his state’s workers because it lacks an enforceable provision to fight currency manipulation and because of new, less-stringent country-of-origin rules for auto parts.

“I cannot support the TPP in its current form because it doesn’t provide that level playing field,” Portman said in a statement.

The announcement is significant because passage of the TPP will rely on broad Republican support and because Senator Portman’s credentials (as former USTR and member of the Senate Finance Committee who represents a traditionally trade-skeptic region of the country) have earned him a prominent voice on trade policy in Washington.

$1,500 Sandwich Illustrates How Exchange Raises Living Standards

What would life be like without exchange or trade? Recently, a man decided to make a sandwich from scratch. He grew the vegetables, gathered salt from seawater, milked a cow, turned the milk into cheese, pickled a cucumber in a jar, ground his own flour from wheat to make the bread, collected his own honey, and personally killed a chicken for its meat. This month, he published the results of his endeavor in an enlightening video: making a sandwich entirely by himself cost him 6 months of his life and set him back $1,500.

(It should be noted that he used air transportation to get to the ocean to gather salt. If he had taken it upon himself to learn to build and fly a plane, then his endeavor would have proved impossible).

The inefficiency of making even something as humble as a sandwich by oneself, without the benefits of market exchange, is simply mind-boggling. There was a time when everyone grew their own food and made their own clothes.  It was a time of unimaginable poverty and labor without rest.

The greater the number of people involved in exchange, the more beneficial the process becomes. This morning, thanks to international trade, I am drinking coffee grown in Latin America, viewing a computer screen with eyeglasses made in Europe, and typing this blog post on a keyboard made in Asia. Fortunately, freedom to trade internationally has improved, on average, around the world. Increased trade has helped raise living standards and decrease global poverty.

The Trans-Pacific Partnership Takes Center Stage

The long process featured hyperbole, demagoguery, fallacy, posturing, horse trading, unexpected tactics, strange political alliances, and several reversals of momentum.  But congressional passage of the Trade Promotion Authority bill was only the warm-up act.  The Trans-Pacific Partnership (TPP) is the headliner, and the process of concluding, ratifying, and implementing it promises more drama.

The TPP is a prospective trade agreement between the United States and 11 other nations, which has been under negotiation for 6 years. The Obama administration made the TPP the economic centerpiece of its “pivot to Asia,” encouraged the participation of other countries, and expanded the scope of the negotiations.  Beyond reducing tariffs and other border barriers, the TPP will include rules governing labor and environmental standards, government procurement, intellectual property protection, investment, supply chains, state-owned enterprises, and much more. The scope of the deal is so broad that the final agreement will likely include 29 separate chapters.

For the better part of a year, the word from TPP negotiators has been that a deal was close and that the main obstacle to its completion was the absence of TPA.  Logically, U.S. trade negotiating partners would be unwilling to put their best offers on the table unless the president could guarantee them that the deal was final and would not be picked apart and amended by Congress.  With TPA now secure, that impediment is gone – and the credibility of those “TPP-near-completion” claims is about to be tested. Just last week, Australia’s Trade Minister Andrew Robb said the TPP was “literally one week of negotiation away from completing.” In about 8 days, that will be proven too rosy a promise.

Roger Milliken’s Company Joins the Global Economy

Roger Milliken, head of the South Carolina textile firm Milliken & Co. for more than 50 years, was one of the most important benefactors of modern conservatism. He was active in the Goldwater campaign, and was a founder and funder of National Review and the Heritage Foundation. He dabbled in libertarianism, too. He was a board member of the Foundation for Economic Education and supported the legendary anarchist-libertarian speaker Robert LeFevre, sending his executives to LeFevre’s classes.

But he parted company with his free-market friends on one issue: free trade. Starting in the 1980s, when Americans started buying a lot of textile imports, he hated it. As the Wall Street Journal reports today,

Milliken & Co., one of the largest U.S. textile makers, has been on the front lines of nearly every recent battle to defeat free-trade legislation. It has financed activists, backed like-minded lawmakers and helped build a coalition of right and left-wing opponents of free trade….

“Roger Milliken was likely the largest single investor in the anti-trade movement for many years—as though no amount of money was too much,” said former Clinton administration U.S. Trade Representative Charlene Barshefsky, who battled with him and his allies….

Mr. Milliken, a Republican, invited anti-free-trade activists of all stripes to dinners on Capitol Hill. The coalition was secretive about their meetings, dubbing themselves the No-Name Coalition.

Several people who attended the dinners, which continued through the mid-2000s, recall how International Ladies’ Garment Workers Union lobbyist Evelyn Dubrow, a firebrand four years younger than the elderly Mr. Milliken, would greet the textile boss, who fought to keep unions out of his factories, with a kiss on the cheek.

“He had this uncanny convening power,” says Lori Wallach, an anti-free-trade activist who works for Public Citizen, a group that lobbies on consumer issues. “He could assemble people who would otherwise turn into salt if they were in the same room.”…

“He was just about the only genuinely big money that was active in funding trade-policy critics,” says Alan Tonelson, a former senior researcher at the educational arm of the U.S. Business and Industry Council, a group that opposed trade pacts.

But the world has changed, and so has Milliken & Co. Roger Milliken died in 2010, at age 95 still the chairman of the company his grandfather founded. His chosen successor, Joseph Salley, wants Milliken to be part of the global economy. He has ended the company’s support for protectionism and slashed its lobbying budget. And as the Journal reports, Milliken’s executives are urging Congress to support fast-track authority for President Obama.

Leveling the Playing Field?

Sen. Sherrod Brown (D-OH) introduced a bill on Wednesday called the “Leveling the Playing Field Act.” According to the accompanying press release, the proposal would “restore strength to antidumping and countervailing duty laws” via a “crack down on unfair foreign competition.” The bill includes several provisions relating to practices used by the Department of Commerce to determine dumping and subsidy margins (i.e., the extent to which imported products are unfairly underpriced). It also contains modest changes to procedures used by the U.S. International Trade Commission (ITC) in deciding whether domestic industries have been “materially injured” by imports.

Since I have had only indirect exposure to the role of Commerce in antidumping and countervailing duty (AD/CVD) investigations, I will leave analysis of those proposed changes to others. However, my 10 years of experience as chairman and commissioner at the ITC provide a reasonable basis for commenting on the bill’s suggested modifications to the injury determination.

The existing AD/CVD statutes instruct the ITC to “evaluate all relevant economic factors” that relate to the effects of imports on the industry under consideration. A number of those factors are specifically mentioned, including the industry’s profits. Not being satisfied with just having the commission examine profits in general, the Brown bill adds, “gross profits, operating profits, net profits, [and] ability to service debt.” As a practical matter, the commission already looks in detail at an industry’s profitability and its ability to repay debts, so this additional wording would contribute nothing of substance.

The Brown bill would add a provision to the effect that an improvement in the industry’s performance over the period of investigation (normally about three years) should not preclude a finding that the industry has been materially injured by imports. Yes, there can be circumstances in which an industry’s results are strengthening, yet it is still being held back by import competition. However, the commission’s existing practice already considers this possibility, so the new language would not really change anything.

The bill also adds a section addressing the possible effects of a recession on the ITC’s injury analysis. It states that the commission may extend its period of investigation to begin at least a year before the recession started, which would allow before and after comparisons of how the domestic industry has performed. The ITC already has authority to adjust the period of investigation under special circumstances, but it relatively seldom does so.

Russia Imposes Embargo on Itself

The American economist Henry George wrote, “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.” In Russia, Vladimir Putin started a war and then, in response to mild American and European sanctions, retaliated by imposing greater sanctions—on his own people.

Even American journalists, whose economic acumen I have been known to question, have noted the likely effects of Putin’s sanctions. See Michael Birnbaum in the Washington Post:

Russia on Thursday banned most imports of Western food products, a sweeping escalation in an economic war that will deal a multibillion-dollar hit to affected nations but will also unreel wide-ranging consequences at home.

The measures were a signal that Russia is not backing down from a confrontation that has sent Western-Russian tensions to heights not seen since the Cold War—and that it is willing to risk barer shelves and higher food prices at home in the name of striking a blow against countries that have tried to punish it over its role in the Ukraine conflict.

Russia has suspended imports of meat, fish, fruit, vegetables and milk products from the United States, the 28-nation European Union, Norway, Canada and Australia for a year. The move came in retaliation for sanctions those countries imposed on Russia….

In Russia, the food measures promised to hit not just city centers, where the urban middle class has grown accustomed to visiting supermarkets overflowing with high-quality imported European cheeses, fish and sausages. Analysts warned that food prices also would increase and that a wide range of Russian industries, including food processing plants, shippers and retailers, would be affected….

“It will be quite sensitive,” said Yevsey Gurvich, the head of the Economic Expert Group. “Not only rich people will feel it, but literally every family will be affected.” He said he estimated that Russian consumer prices would go up 2 percent this year because of the measures.

“Alternatives to imported foods will be more costly, and, anyway, I believe they will be insufficient, and our supplies will diminish. And, hence, prices will go up,” he said.

Americans who wished for more painful sanctions on Russia than President Obama has imposed are getting their wish—thanks to Putin. 

US-Africa Summit Will Not Solve Africa’s Problems

As the U.S. President Barack Obama prepares to meet 50 African leaders on Wednesday, August 6, it is worth reflecting on the factors behind the recent progress occurring in countries of Sub-Saharan Africa. As we write in our new paper,

The real gross domestic product [in Sub-Saharan Africa] rose at an average annual rate of 4.9 percent between 2000 and 2008 — twice as fast as that in the 1990s. […] As a result, between 1990 and 2010, the share of Africans living at $1.25 per day or less fell from 56 percent to 48 percent, while the continent’s population almost doubled in size. If the current trends continue, Africa’s poverty rate will fall to 24 percent by 2030.4 Since 1990 the per-capita caloric intake in Africa increased from 2,150 kcal to 2,430 kcal in 2013.5 Between 1990 and 2012, the proportion of the population of African countries with access to clean drinking water increased from 48 percent to 64 percent.

Although Sub-Saharan Africa is also becoming more democratic and better governed, a large gap between the quality of its institutions and those in the West persists. The continent remains, for example, economically unfree and heavily protectionist, not just vis-à-vis the outside world but also within the continent. For 25 African countries, the tariff costs of exporting or importing manufactured goods are higher within Africa than with the rest of world.

While international summits cannot not solve Africa’s internal problems, our paper argues that the upcoming meeting is a good opportunity for the U.S. administration to eliminate the existing trade barriers facing African exporters – regardless of whether they come in the form of explicit tariff barriers or implicit ones, such as agricultural subsidies:

[T]he elimination of the existing barriers to trade should be at the forefront of the efforts to help. Such barriers include tariffs, particularly on agricultural exports, which make it difficult for African economies to fully exploit their comparative advantage. As Brookings Institution researchers Emmanuel Asmah and Brandon Routman note, the structure of the tariff protection in the United States — but also in the European Union — is a significant part of the problem. The tariffs imposed up to a certain amount of imports may be low, yet the tariffs imposed for imports above the permitted quota might be very steep, in some cases up to 350 percent. Furthermore, agricultural subsidies in rich countries cause surplus production, which is often dumped on the world markets, depressing prices and undermining the livelihood of farmers in poor countries.

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