Tag: trade

Government Officials Praising Unilateral Trade Liberalization

It doesn’t happen often, so I like to highlight it when it does.  Here is Australian trade minister Andrew Robb:

We’ve seen over the last thirty years in Australia that tariffs are down on average 2.7 per cent across the economy.  A lot of that was done unilaterally – we didn’t wait for the rest of the world and it’s one of the reasons that we’ve had uninterrupted growth for 23 years, because we are a very open economy. We’ve got to drive it further, we’ve got to be more competitive but so does the rest of the world.

Cyber-Espionage (Not Necessarily Implicating U.S. Agencies) Returns to the Headlines

The Washington Post reported this morning that the U.S. government is “charging members of the Chinese military with conducting economic cyber-espionage against American companies.”  According to the story, Attorney General Eric Holder will “announce a criminal indictment in a national security case,” naming members of the People’s Liberation Army.

If you will recall, cyber-security, cyber-espionage, and cyber-theft of trade secrets and other intellectual property belonging to American businesses started becoming prominent sources of friction in the U.S.-China relationship about 18 months ago before suddenly dropping off the front pages 11 months ago to make way for revelations of domestic spying by the U.S. National Security Agency.  Somehow, the notion that Chinese government-sponsored cyber-theft broached a red line lost some of its luster after Americans learned what Edward Snowden had to share about their own government.

But today the issue of Chinese cyber-transgression is back on the front pages.  Never before – according to the Washington Post – has the U.S. government leveled such criminal charges against a foreign government.  The U.S. rhetoric has been heated and, just this afternoon, the Chinese government responded by characterizing the claims as “ungrounded,” “absurd,”  “a pure fabrication,” and “hypocritical.”

While the U.S. allegations may be true, given well-publicized U.S. cyber-intrusions, it isn’t too difficult to agree with the “hypocritical” characterization either.  Perhaps that’s why the U.S. government is attempting to distinguish between cyber-espionage, which is conducted by states to discern the intentions of other governments – and is, from the U.S. perspective, fair play – from “economic” cyber-espionage, which is perpetrated by states or other actors against private businesses and is, from the U.S. perspective, completely unacceptable.  It’s not too difficult to understand why the United States has adopted that bifurcated position. The Washington Post quotes a U.S. government estimate of annual losses due to economic cyber espionage at $24-$120 billion.

Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?

Jobs are good. Exports create jobs. We create exports. Renew our charter.

Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September.  Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.

The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.

From the U.S. Export-Import Bank’s 2013 Annual Report:

The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.

The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities.  Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S-taxpayer financed foreign companies.

Fast Track Fallacies Knee-Capping the Trade Agenda

Media have been reporting lately about the public’s burgeoning opposition to the Congress granting President Obama fast track trade negotiating authority. Among the evidence of this alleged opposition is a frequently cited survey, which finds that 62 percent of Americans oppose granting fast track to President Obama.
 
Considering that the survey producing that figure was commissioned by a triumvirate of anti-trade activist groups – the Communication Workers of America, the Sierra Club, and the U.S. Business and Industry Council – I had my doubts about the accuracy of that claim. After all, would lobbyists who devote so much of their efforts to derailing the trade agenda risk funding a survey that might produce results contrary to their objectives?
 
My skepticism – it turns out – was warranted. The 62 percent who allegedly “oppose giving the president fast-track authority for TPP [the Trans-Pacific Partnership agreement]” actually oppose giving the president a definition of fast track that is woefully inaccurate. The graphic below shows the question and response tally, as presented in the report showing the survey’s results, which is here.  Read the question that begins with “As you may know…”
 
 

Should Free Traders Support Free Trade Agreements?

With the Trans-Pacific Partnership negotiations allegedly near completion, the transatlantic talks kicking into higher gear, and debate in Congress over U.S. trade policy objectives about to intensify, 2014 is shaping up to be the most consequential year for the trade agenda in a long time. Whether real free traders should rejoice over these developments depends on the emerging details, as well as the ability to avoid making the perfect the enemy of the good.

Real free traders abhor domestic trade barriers and want them removed regardless of whether other governments remove their own barriers. The benefits of trade are the imports we obtain, not the exports we give up. The immediate benefits are measured by the value of imports that can be purchased for a given unit of exports – the more, the better – and domestic barriers reduce those terms of trade. Of course, there are also the secondary benefits of imports, which include greater variety, lower prices, more competition, better quality, and the innovation spawned by those and other factors.

The process of U.S. trade policy formulation has never been particularly accommodating of free traders’ perspectives. Free trade views have been marginalized by their being subsumed within a broader category of views labelled “pro-trade,” which is dominated by business lobbies and other “pro-export” mercantilists. As the definition of free trade has been expanded to mean pro-trade, the definition of protectionism has been narrowed to exclude views, such as: “I’m not a protectionist; I just want a level playing field,” or; “I’m for free trade, as long as it’s fair trade.” Those are the clichés of protectionists, who are now popularly grouped under the pro-trade umbrella.

So, today’s trade debate (framed as it is by media, lobbyists, and politicians) does not feature free-traders on one side and protectionists on the other. Instead, one is either pro-trade or anti-trade, supports corporations or their workers, and believes free trade agreements are either good or evil. In a world with these binary choices, nuance gets squeezed out. Where do you fit if you support the tariff reductions in a trade agreement, but are unhappy with the corporate welfare it bestows on particular industries? What if you know that trade liberalization is good for both corporations and their workers alike? What if you’re pro-market, but not pro-business?

Given these and other ambiguities, should free traders support free trade agreements? Let me lay down a marker for free trade – “real” free trade, that is.

Free markets are essential to our prosperity, and free trade is the extension of free markets across political borders. Making markets freer and expanding them to integrate more buyers, sellers, investors, and workers deepens and broadens that prosperity. When goods, services, capital, and labor flow freely across borders, Americans can take full advantage of the opportunities of the international marketplace. Free trade provides benefits to consumers and taxpayers in the form of lower prices, greater variety, and better quality. And, it enables businesses and workers to reap the benefits of innovation, specialization, and economies of scale that larger markets afford. Countless studies have shown that economies that are more open grow faster and achieve higher incomes than those that are relatively closed.

Damning Trade with Faint Praise

A Washington Post editorial today pushes back against the argument that a Trans-Pacific Partnership agreement would exacerbate income inequality. Amen, I suppose. But in making its case, the editorial burns the village to save it by conceding as fact certain destructive myths that undergird broad skepticism about trade and unify its opponents.

“All else being equal,” the editorial reads, “firms move where labor is cheapest.”  Presumably, by “all else being equal,” the editorial board means: if the quality of the factors of production were the same; if skill sets were identical; if workers were endowed with the same capital; if all production locations had equal access to ports and rail; if the proximity of large markets and other nodes in the supply chain were the same; if institutions supporting the rule of law were comparably rigorous or lax; if the risks of asset expropriation were the same; if regulations and taxes were identical; and so on, the final determinant in the production location decision would be the cost of labor. Fair enough. That untestable premise may be correct.

But back in reality, none of those conditions is equal. And what do we see? We see investment flowing (sometimes in the form of “firms mov[ing],” but more often in the form of firms supplementing domestic activities) to rich countries, not poor. In this recent study, I reported statistics from the Bureau of Economic Analysis revealing that:

Nearly three quarters of the $5.2 trillion stock of U.S.-owned direct investment abroad is concentrated in Europe, Canada, Japan, Australia, and Singapore. Contrary to persistent rumors, only 1.3 percent of the value of U.S.-outward FDI [foreign direct investment] was in China at the end of 2011.

Bali’s Lessons for Trade Negotiators

The future of multilateral trade has presented some vexing questions for policy watchers over the past few years. With the Doha Round of multilateral trade negotiations hopelessly stalled and the proliferation of regional and bilateral agreements in its stead, contemplation and debate about the fate of the World Trade Organization, its successful adjudicatory body, international trade governance, and globalization have been all the rage.

December continues to shine a particularly bright light on these issues, as U.S. and EU negotiators are in Washington this week discussing the proposed bilateral Transatlantic Trade and Investment Partnership. Last week, negotiators from the United States and 11 other nations met in Singapore in an effort to advance the regional Trans-Pacific Partnership deal. The week prior, representatives of 159 WTO members were in Bali, Indonesia for the Ninth Ministerial Conference (MC-9), where a multilateral agreement was reached on a set of issues for the first time in the WTO’s 19-year history.

The significance of the Bali deal depends on whom you ask. Those heavily vested in the current architecture of the multilateral system tend to hail Bali as proof that multilateral negotiations are back in business and that there is renewed promise for completing the long-stalled Doha Round. Frankly, taking 12 years to forge an agreement on trade facilitation (basically, reform of customs procedures, which constitutes a tiny fraction of the Doha Round’s objectives) plus some concessions to permit more subsidization of agriculture in the name of food security is not exactly convincing evidence that Doha Round negotiators have demonstrated their cost effectiveness or the utility of this approach.