Topic: Trade and Immigration

Labor Unions, Not the Tea Party, Are Leading the Fight against Obama’s Trade Agenda

This week is the #StopFastTrack Week of Action, an attempt by the anti-globalization movement to coordinate protests around the world against the Trans-Pacific Partnership, a potential free trade agreement between the United States and 11 other Pacific Rim countries.  The reason they’re doing it now is to influence lawmakers in the lead up to Congress’s lame duck session, during which many in Washington hope/fear that Congress will vote on a bill to grant “trade promotion authority” (also known as “fast track”) to help the Obama administration complete the TPP negotiations.

Spearheading the effort is the AFL-CIO.  In addition to asking supporters to call their member of Congress, the unions have also paid for ads at the DC metro station on Capitol Hill, obviously meant to reach congressional staffers during their commute.

Understandably considering the source, the ads have a very union-like feel to them.  Lonely hardhats on the floor of a shuttered factory, middle-aged people lamenting that they’re not being paid enough, etc.  Here’s a typical example showing a forlorn-looking young man who’s upset about income inequality:

The “1%” rhetoric should be quite familiar to most Americans by now as the standard jargon of the ideological left when they rail against all forms of voluntary commerce.  It’s no surprise to see it employed by labor unions in their crusade against free trade. 

Organized labor’s opposition to trade is nothing new.  So, in order to get more attention this year, labor groups have been readily pointing out that even some Republicans are opposed to fast track.  In particular, they are referring to a soi-disant “tea party” group that claims fast track will enable “Obamatrade” to destroy American sovereignty and jobs.   That group takes a very different approach with its messaging:

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The news media have run with the narrative that a right-wing insurgency against fast track could threaten the U.S. trade agenda.

The problem with this narrative is that it is just wrong.  Scott Lincicome and I have written a comprehensive take-down of the attempt by a tiny protectionist wing of the GOP to paint its anti-trade agenda as part of the tea party movement.  Yes, there are conservatives who don’t like free trade, but the tea party movement is all about holding Republican members of Congress accountable when they stray from (most) limited government principles.  As such, the members of Congress most associated with the tea party movement have the best records in support of free trade

Trying to get Republicans to oppose free trade by wearing a tri-corner hat and shrieking “OBAMA!!!” merely plays to the negative views of the tea party held by many in the news media.

There are real obstacles to liberalizing trade in the United States.  The greatest obstacle is the inescapable reality that politicians benefit from rigging the system in favor of narrow constituencies seeking protection.  Protectionists get ideological cover mostly from the anti-globalist left but also from the nationalist right.  Thankfully, that nationalist impulse is largely in abeyance as a force against free trade in Congress at the moment, and “Obamatrade” notwithstanding, the tea party isn’t about to bring it back.

U.S.-Mexico Sugar Agreement: A Tribute to Managed Markets

The U.S. Department of Commerce (DOC) announced Oct. 27 that it had reached draft agreements with Mexican sugar exporters and the Mexican government to suspend antidumping and countervailing duty (AD/CVD) investigations on imports of sugar from that country.  Commerce has requested comments from interested parties by Nov. 10, with Nov. 26 indicated as the earliest date on which the final agreements could be signed.  Given the obvious level of consultation by governments and industries on both sides of the border leading up to this announcement, it’s reasonable to presume that the agreements will enter into effect within a few weeks.

Suspension agreements that set aside the AD/CVD process in favor of a managed-trade arrangement are relatively rare.  They sometimes are negotiated when the U.S. market requires some quantity of imports, and when the implementation of high AD/CVD duties would be expected to curtail trade severely.  This would have been the case, assuming the duties actually had entered into effect.  However, as this recent blog post indicates, it’s not at all clear that the U.S. International Trade Commission (ITC) would have determined that imports from Mexico were injuring the U.S. industry.  A negative vote (a vote finding no injury) by the ITC would have ended these cases and left the U.S. market open to imports of Mexican sugar. 

What are the key provisions of the agreements?  There are restrictions on both the price and quantity of imports from Mexico.  Sugar will only be allowed to be imported into the United States if it is priced above certain levels:  20.75 cents per pound (at the plant in Mexico) for raw sugar, and 23.75 cents per pound for refined sugar.  (For comparison, U.S. and world prices for raw sugar currently are about 26 cents and 16 cents, respectively; for refined sugar about 37 cents and 19 cents.)  Additional price controls on individual Mexican exporters based on their alleged prior dumping (selling at a price the DOC determines to be less than fair value) will further raise the prices at which they will be allowed to sell.

Does Foreign Outsourcing Supplant or Augment Domestic Economic Activity?

Voters in Massachusetts, Georgia, Illinois, and elsewhere are being treated to a little 2012 redux, as desperate candidates try to paint their opponents with last election’s popular pejorative: “Outsourcer!” You may recall the accusations exchanged between President Obama and Mitt Romney two years ago, as each sought to portray the other as more guilty of perpetuating the “scourge” of outsourcing. At the time, I faulted Romney for running away from what I thought was his responsibility (as the businessman in the race) to explain why companies outsource in the first place, and how doing so benefits the economy and leads to better public policies. Had he done so, his explanation might have sounded something like this. 

For many people, the term outsourcing evokes factories shuttering in the industrial midwest only to be ressurrected in Mexico or China to produce the exact same output for export back to the United States. While a popular image of outsourcing, that particular rationale – to produce for export back to the United States – accounts for less than 10 percent of the value of U.S. direct investment abroad (as this paper describes in some detail). Over 90 percent of outward FDI is for the purpose of serving foreign goods and services markets and for performing value-added activities in conjunction with transnational production and supply chains. In most industries, it is difficult to succeed in foreign markets without some presence in those markets. And without success in foreign markets (where 95% of the world’s consumer’s reside), it is more difficult to succeed at home.

So, does “outsourcing” really deserve its bad reputation? Does it really hurt the U.S. economy?  Well, the U.S. Bureau of Economic Analysis collects and compiles the kinds of data that can help us begin to answer these questions, including data about inward and outward foreign direct investment, and the activities of U.S. multinational corporations – both U.S. parents companies and their foreign subsidiaries. The scatterplots presented below reflect the relationships between annual changes in various performance metrics (value added, capital expenditures, R&D expenditures, sales revenues, employment, and compensation per employee) experienced by U.S. parent companies and their foreign affiliates. Each point on each plot represents a combination of the annual percent change for the affiliate (horizontal axis) and the parent (vertical axis) in a given year. 

If a foreign hire comes at the expense of a U.S. job, if ramping up production abroad means curtailing output at home, if a $100 million investment in a new production line or research center abroad means that plans for a new line or center in the United States get scrapped, if foreign outsourcing is as bad as its critics suggest, then we should expect to see an inverse relationship (at least not a direct or positive relationship) between the economic activities at U.S. parents and their foreign affiliates. We should expect to see most of the points in the upper-left or lower-right quadrants of the plots below.

Immigrants Don’t Grow Government

Many critics of immigration claim that immigrants will grow the size of government.  As their argument goes, allowing for more lawful immigration to the United States will produce a larger government through immigrant voting behavior or their children’s voting behavior.  However, if another factor like institutional changes can explain the growth of government, we would expect government to grow independently of the size of the immigrant stock.

There are many measures of the size of government, many of which are included in the Economic Freedom of the World: 2014 Annual Report.  As excellent as that report is, the data does not go back far enough to show whether government growth a century ago tracks well with growth in the immigrant population.  Older data is essential because there have been radical changes in immigration policy over the last century and larger changes in the growth of government.  By looking at the more distant past, a clearer picture can be formed over how immigration has impacted growth in government – if at all. My charts below focus on the federal government only.

Below I use two measures of the growth of the federal government from 1901-2010:  Real outlays (2010 dollars) per capita and government outlays as a percent of GDP.  I use figures for every decade as yearly data is more difficult to attain. 

 imm and outlays per capita

 

Source: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

Real government outlays per capita go up no matter what happens to the stock of immigrants.  Two forty-year periods had very different immigration policies: 1930 to 1970 and 1970 to 2010.

Updates on President Obama’s Immigration Enforcement Record

Last May I wrote a blog post about President Obama’s immigration enforcement record. In that post I made some assumptions about the percentage of all “interior removals” (that is, deportations of illegal immigrants who were living in the United States) for the years 2001—2007, because of a lack of data.

A recent report from the Migration Policy Institute (MPI) fills in those data gaps, except for the first two years of the Bush administration. Here are the updated data:

The total number of internal removals over the last six years of the Bush administration was about 475,000. From 2009 to 2013, the Obama administration removed just under 848,000 from the interior. Those numbers make for an incomplete comparison of the two administrations’ enforcement policies, but they paint an interesting picture.

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Source: MPI

Managed Trade for Sugar from Mexico?

Mexican Economy Secretary Ildefonso Guajardo was in Washington this week arguing on behalf of an agreement to suspend the U.S. antidumping/countervailing duty (AD/CVD) investigation against imports of sugar from Mexico.  The case will soon enter its final phase, with the U.S. International Trade Commission (ITC) expected to determine early next year whether the U.S. sugar industry has been injured by imports from Mexico. 

In the context of North American sugar politics, an agreement to suspend the AD/CVD process and implement a managed-trade arrangement makes some sense.  Both U.S. and Mexican sugar industries already are more or less wards of the state, or at least are very heavily guided and controlled by their respective governments.  Both governments have given indications that they are interested in settling this dispute.  The history of bilateral sugar trade has been dominated by government intervention rather than by free-market economics.  It seems almost natural to take the next obvious step by allowing Mexican sugar to enter the United States only under terms of a suspension agreement (i.e., with the quantity limited or the price set high).

It’s worth mentioning that Mexican sugar growers are the only ones in the world currently allowed to sell as much sugar as they wish in the U.S. marketplace.  Even U.S. growers are not permitted to do so.  Years ago they gave up that right in exchange for retaining an almost embarrassingly high level of price support.  That strong price incentive was inducing them to grow more sugar than the market could absorb.  Under the provisions of the U.S. sugar program, that excess sugar could end up being owned by the U.S. Department of Agriculture at considerable expense to taxpayers.  So U.S. sugar growers made the decision to sell less sugar, but keep the price high.

Mexican growers, on the other hand, obtained unfettered access to the U.S. market in 2008. That followed a contentious period of bilateral trade in sugar and high-fructose corn syrup (HFCS) dating to 1994, which was when the North American Free-Trade Agreement (NAFTA) began to be implemented.  In a nutshell, the United States adopted a much more restrictive approach to imports of Mexican sugar than Mexico thought had been negotiated, and the Mexicans reciprocated regarding imports of HFCS. 

Given that historic context, the open access to the U.S. market enjoyed by the Mexicans since 2008 seems to be rather an anomaly.  Why not go back to the good old days of closely managed trade? 

Unsettling Cotton Settlement at the WTO

Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.

Some background. Ten years ago, in a case brought by Brazil, the WTO Dispute Settlement Body ruled that the United States was exceeding its subsidy allowances for domestic cotton farmers and that it should bring its practices into compliance with the relevant WTO agreements. After delays and half-baked U.S. efforts to comply, Brazil sought and received permission from the WTO to retaliate (or, in WTO parlance, to “withdraw concessions” because opening one’s own market in a world of mercantilist reciprocity is, perversely, considered a cost or concession). Under the threat of such retaliation, instead of bringing its cotton subsidies into WTO compliance, the U.S. government agreed to pay $147 million per year to Brazilian farmers so that it could continue subsidizing U.S. farmers beyond agreed limits. That arrangement prevailed for a few years until the funds were cut during the budget sequester earlier this year – an event that triggered a renewed threat of retaliation from Brazil, which now has been averted on account of last week’s $300 million settlement.

The Peterson Institute’s Gary Hufbauer characterized the agreement as a “good deal” because it ends the specter of soured bilateral relations, which $800 million of targeted retaliation against U.S. exporters and intellectual property holders would likely produce, for a reasonable price of $300 million “spread widely across the US population, around 90 cents a person.” In Hufbauer’s opinion:

Money damages, paid in this way, are much fairer, and do not destroy the benefits of international commerce, unlike concentrated retaliation against firms that had nothing to do with the original dispute. The WTO system is only designed to authorize such retaliation, but the US-Brazil settlement points the way towards a better way of satisfying breaches of WTO obligations.

While I share Hufbauer’s desire to avoid retaliation and soured relations, his rationale for endorsing the settlement seems a bit strained. If the settlement is justifiable because the costs are spread across 300-plus million Americans, then Hufbauer can probably lend his support to most subsidies, tariffs, and other forms of protectionism, which endure because the concentrated benefits accruing to the favor-seekers are paid through costs imposed, often imperceptibly, on a diffuse base of unorganized consumers or taxpayers. Does the smallness or the imperceptibility of the costs make it right? No, but it makes it easy to get away with, which is why I think it’s pennywise and pound foolish to endorse such outcomes. There are all sorts of federal subsidies to industries and tariffs on goods that may be small or imperceptible as a cost on a standalone basis at the individual level.  But when aggregated across programs, the costs to individuals become more significant. It’s death by 10,000 cuts.