Topic: International Economics and Development

Sarkozy Is the Conservative Candidate?

The political spectrum in France is so distorted that a candidate who calls for new taxes, tax harmonization, expanded trade barriers, and restrictions on capital flows is the supposed conservative candidate. The UK-based Times reports on the anti-market views of Nicolas Sarkozy:

At his first EU summit, in Brussels in June, a President Sarkozy would push hard for a new tariff on imports from outside the European Union to protect jobs and discourage firms from moving production outside the area, he said. …Mr Sarkozy said that he would also press for harmonised business taxes — a project long rejected by Britain and other states. It was time to reduce the power of the national veto in such areas, he said. His proposal for a protective “European preference” in trade is also opposed by Britain and conflicts with the Union’s free-trade policies.

Scandalous Pensions for European Parliamentarians

While the US Congress is infamous for its taxpayer-subsidized perks, US lawmakers are amateurs compared to the scammers in Brussels. Members of the European Parliament have a lavish taxpayer-financed retirement scheme that enables them to get $2 of taxpayer money for every $1 they put into their pension fund. But this immense perk does not even require them to necessarily use their own money. As the UK-based Telegraph reports, some MEPs – perhaps most MEPs – use office administrative funds:

The European Parliament’s bureau, the body that oversees the assembly’s administration, has voted to prevent publication of a list naming the 475 MEPs who benefit from a pension scheme worth more than £1,400 a month to Euro-MPs with the taxpayer matching every euro personally contributed with two from the public purse. Payments are controversial because, for “administrative reasons”, the MEP’s personal contributions are taken automatically from office expenses. No one checks whether the politician actually pays anything into the fund from his own salary. Many in Brussels believe that a “large proportion” of Euro-MPs are using their office payments to get a free second pension on top of national schemes.

New Report Unwittingly Reveals Small Impact of China Trade on U.S. Jobs

Our friends and ideological rivals at the Economic Policy Institute in Washington are releasing a report this week that supposedly documents that trade with China has cost more than 2 million Americans their jobs. The report is illuminating, but in ways its author did not intend.

Here’s how EPI’s press release on the study describes its results:

The dramatic rise in the United States’ trade deficit with China from 1997 - 2006 has cost jobs in every region in the country.  In a new report, Costly Trade with China, to be issued May 2, 2007 by the Economic Policy Institute, economist Robert Scott reports the growth of the trade deficit with China in this period has displaced production that supported 2,166,000 U.S. jobs, with New England being the hardest hit region of the country. 

For reasons I’ve explained in detail before [.pdf], EPI’s methodology for calculating job losses from trade is fundamentally flawed. Its model ignores the dynamic effects of trade on U.S. economic growth, the beneficial effects of foreign investment, and the tremendous and healthy “churn” of the U.S. labor market.

Even if we accept EPI’s calculation of 2.2 million jobs lost, that is a drop in the bucket in an economy that employs almost 150 million people. Note that EPI’s number is spread over a decade, meaning that the actual number of jobs lost each year on average would be 216,600.

Compare that to the 320,000 or so Americans who line up EVERY WEEK to claim unemployment insurance after being displaced from their jobs–mostly because of technology, and domestic competition. In other words, trade with China, even by EPI’s exaggerated measure, accounts for about three business days’ worth of unemployment claims in a typical year.

More than compensating for the relatively small job displacement caused by trade with China are the huge benefits it delivers through lower prices at the store, lower interest rates, growing export opportunities, and greater peace and stability in East Asia.

For more on trade with China, check out our research at www.freetrade.org.

May Day in Latin America

This Tuesday, May 1, Venezuelan ruler Hugo Chavez will take control “of Venezuela’s last remaining privately run oil projects.” The symbolism is obvious: the socialist May Day. Last year, Bolivian president Evo Morales sent his soldiers to occupy the gas fields in his country on May Day.

So I’m reminded, as I was last year, that May 1 is also the anniversary of the institution of private retirement accounts in Chile. Since then Chile has been a great economic success story.

Perhaps 25 or 50 years from now, we will know whether Chile’s privatization or Bolivia’s and Venezuela’s nationalizations brought a higher standard of living to their citizens.

Irish Policy Makers Resist Tax Harmonization

Tax-news.com reports on the growing concern in Ireland about European Union plans to harmonize the definition of taxable income for corporations. Such a scheme, particularly if it is voluntary, is not automatically objectionable. But Irish lawmakers correctly fear that a common tax base is merely the first step on the path to harmonized (and higher) tax rates:

European Union Taxation Commissioner Laszlo Kovacs has reportedly told Irish business leaders that formal plans for a common EU corporate tax base will be unveiled by the European Commission next week. …despite Kovacs’s assurances that the system would be optional for businesses, many member states, including Ireland, are strongly opposed to the CCCTB plans, wary that it would be the first step towards the harmonisation of corporate tax rates across the EU, an idea favoured by France and Germany. If this was the case, Ireland would certainly have a lot to lose, as its 12.5% corporate tax rate has been cited as a major ingredient in Ireland’s economic revival in recent years, and investors certainly would not welcome European interference with Ireland’s corporate tax regime. Consequently, organisations such as IBEC, and Irish politicians, have been lobbying in opposition of CCCTB. …Irish MEP Eoin Ryan…told MEPs that he “cannot and will not accept” moves towards a common corporate tax base. “Tax competition is healthy for the economic development of the European Union. It provides a clear incentive to European Governments to manage their public finances carefully and to build a corporate tax regime that encourages enterprise,” he stated. “The bottom line here is that no one size fits all policy covering corporate taxation matters in Europe is going to succeed. It is neither sensible nor realistic to seek convergence of corporate tax rates across Europe. EU member states have different demographic and social priorities. EU member states need to use their corporate taxation policies in different ways so as to entice foreign direct investment into their countries and generate employment.”

Shed No Tears for U.S. Manufacturers

I’m going on BBC radio shortly to comment on the creation of a new lobbying group called the Alliance for American Manufacturing. Funded in part by the United Steelworkers Union, the group promises to agitate for trade restrictions against allegedly “unfair” imports from China.

Putting the “unfair trade” charge aside for a moment, there is no evidence that U.S. manufacturing as a whole is suffering from import competition, whether fair or unfair (whatever that means). Consider a few facts that you probably won’t find on the AAM’s slick new website:

U.S. manufacturing output is up 40 percent in the past decade by volume. American workers continue to produce more chemicals and pharmaceuticals, more semiconductors and sophisticated medical equipment, more aircraft and even auto parts than ever before.

After-tax profits of U.S. manufacturing companies topped $400 billion last year.

Imports from China have displaced relatively few Americans workers. Workers who have lost their jobs because of imports from China account for only about 1 percent of annual U.S. job displacement. The sectors where China has been most competitive tend to be in lower-value goods such as clothing, shoes and other labor-intensive products.

Manufacturing jobs have been declining, not because of falling production, but because of soaring productivity. We are producing record volumes of manufacturing output with fewer workers because remaining workers are so much more productive.

China represents the fastest growing major export market for U.S. manufacturing exporters.

To get more details and analysis on our trade relationship with China, check out my 2006 Cato Trade Briefing Paper, “Who’s Manipulating Whom?”

No Pearl(stein)s of Wisdom

Count the Washington Post’s chief business writer, Steven Pearlstein, among the disciples of “Dobbsonomics.” In his column today, Pearlstein writes:

There is a reason that, when it comes to trade and globalization, more Americans believe Lou Dobbs than Hank Paulson and Ben Bernanke — and it’s not because they’ve been bamboozled. The reason is that Americans perceive, correctly, that in recent years liberalized trade has not delivered as promised…(emphasis added)

Exactly what were those promises, Steven? Since 2001, the year of our last recession and the year China joined the WTO, U.S. GDP has increased 32 percent and about eight million net new jobs were created in the economy. Today’s unemployment rate stands at 4.4 percent. And don’t tell me that those 3 million people who lost manufacturing jobs at the beginning of the decade are flipping burgers or just stopped looking for work. The median salary in the services sector recently surpassed the median manufacturing salary.

A lot of the criticism of trade these days seems to be nothing more than expressions of self-loathing. As uneducated, unsuspecting, indebted sloths, Americans are living on borrowed time. Surely there will be hellish consequences to pay for our present profligacy.

Next time, let’s see the facts supporting the conclusion that U.S. trade policies have not delivered.