Topic: Trade and Immigration

Nicaraguan Unaccompanied Child Migrants - Where Are They?

U.S. policy is equally generous to unaccompanied children (UAC) from El Salvador, Guatemala, Honduras, and Nicaragua – but today’s child migrants are not coming from Nicaragua.  Explaining why Nicaraguan UAC are not part of the recent surge may help explain why so many are coming from El Salvador, Guatemala, and Honduras - the so-called Northern Triangle. 

Nicaragua has low rates of violent crime, gang membership, and fewer family connections to the United States than the Northern Triangle.  If U.S. policy was the main reason why there is a sudden surge of UAC, it should also pull UAC from Nicaragua.  This suggests that other factors like the high levels of violence and strong family connections are the main reasons why UAC from the Northern Triangle are coming and why Nicaraguan UAC are absent.        

Nicaragua has a much lower homicide rate than El Salvador, Honduras, and Guatemala.  According to the United Nations, there has been a dramatic increase in murder rates across Central America since 2006 – except in Nicaragua.    

 

Source: United Nations Office on Drugs and Crime https://www.unodc.org/gsh/en/data.htm.

Federal Follies 200 Years before Ex-Im

Anyone who thinks that Washington waste is something new should examine the history of the Bureau of Indian Affairs (BIA). This essay discusses the mismanagement, corruption, and failures of the BIA since it was created in 1824.

As early as 1828, Indian expert H. R. Schoolcraft concluded: “The derangements in the fiscal affairs of the Indian department are in the extreme. One would think that appropriations had been handled with a pitchfork … there is a screw loose in the public machinery somewhere.”

By the 1860s and 1870s, New York Times editorials were railing against the “dishonesty which pervades the whole Bureau,” and arguing that “the condition of the Indian service is simply shameful.”

In their recent book, Uncle Sam Can’t Count, Burton and Anita Folsom describe the failure of a major Indian policy even before 1824. Here is the basic story:

• Unhappy that British fur traders were out-competing American traders, Congress appropriated $50,000 in 1795 to create frontier posts stocked with American goods to trade with the Indians for furs.

• These government-run fur “factories” were supposed to earn a return, but they “were so poorly run that many Indians held them in contempt and refused to trade there.” Congress had to heavily subsidize the system to keep it operating.

• Rather than respond to the market demands of the Indians, as private traders did, the official running the government system, Thomas McKenney, tried to push products on the Indians that he thought they ought to have.

• The government set up its trading posts at substantial distances from Indians. By contrast, private fur trader John Jacob Astor had his agents build close relationships with Indians, and he made trading easy for the tribes.

• Astor instituted pay for performance, while the government paid its fur bureaucrats fixed salaries.

• Astor watched international fur markets closely and adjusted his operations and marketing accordingly. The government ignored markets, and simply dumped furs in Washington for auction.

• Thomas McKenney was embarrassed by the government’s falling market share and the huge success of Astor. So, in 1818, McKenney began lobbying Congress to ban private fur traders. When that attempt at monopolization failed, McKenney lobbied to impose large fees on private traders and to boost taxpayer subsidies for the government system.

• Despite a new fee on private traders in 1820, the government system was falling apart because of plunging sales. An official report exposed the huge inefficiencies of the government system, and Congress finally voted to end it in 1822.

Long before Solyndra and the Export-Import Bank, politicians should have learned some basic lessons about why Washington ought to stay out of business. Unfortunately, each new generation of politicians are tempted to believe that enlightened federal planners can run the economy better than businesspeople and markets. Rather than wasting hundreds of thousands of dollars as it did two centuries ago, Congress blows billions of dollars today on new versions of its fur-trading folly.

Exporting Ex-Im Bank Skepticism

One of the points supporters of the Ex-Im Bank like to make is that other countries have their own versions of the bank to help finance purchases of those countries’ exports, and the United States should not “unilaterally disarm.” Here’s the NY Times:

[M]ost governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing.

It’s true that other countries provide similar export subsidies, but I see this as an opportunity, not a hurdle to getting rid of Ex-Im. Liberalization through international trade negotiations has been struggling in recent years. Getting rid of Ex-Im could give it a boost. If we could end Ex-Im, and then call on our trading partners to follow our lead, it could give trade talks an important and meaningful purpose. In these negotiations, governments often seem reluctant to give up any protectionism until others agree to do so as well. That has not served us well recently; not much liberalization has occurred. It may be time to try something new, and lead the way with a unilateral liberalization proposal, to show the world we actually believe in free trade (they have good reason to doubt this), and encourage others to move in that direction as well.

Immigration Enforcement Aids Smugglers – Unaccompanied Children Edition

The increase of human smugglers transporting unauthorized immigrants to the United States is likely a consequence of more effective border enforcement.  Although the Obama administration has de-emphasized internal immigration enforcement after 2011, his administration has ramped up enforcement along the border – focusing on increasing the legal and economic costs imposed on unlawful immigrants apprehended while trying to enter the United States.  Since border and internal enforcement are substitutes, the shift in resources and increase in penalties for unlawful crossers does not represent a decrease in total enforcement.  Matt Graham from the Bipartisan Policy Center wrote an excellent breakdown of the reprioritization of immigration enforcement, the increase in penalties, and how it has deterred unauthorized immigration.

The price of smuggling is an indication of the effectiveness of immigration enforcement along the border.  The first effect of increased enforcement is to decrease the supply of human smugglers.  As the supply of human smugglers decreases, the price that remaining human smugglers can charge increases.  Before border enforcement tightened in the early 1990s, migrants typically paid about $725 (2014 dollars).  Currently, unauthorized migrants from Central America are paying around $7500.  

Is the Export-Import Bank More Important than Economics?

There are many arguments against reauthorization of the Export-Import Bank, a government-run bank that helps finance export sales at below-market rates. Some of these arguments include that it hurts U.S. businesses, that it provides corporate welfare for politically connected companies, and that it distorts and politicizes the U.S. economy. But the New York Times editorial board thinks all those arguments are “ridiculous,” while also agreeing with them:

In one of their odder quests, some Tea Party members have decided that the United States must shut down the Export-Import Bank of the United States, an obscure but important federal agency that helps American businesses sell their goods abroad.

The bank provides loans and loan guarantees to foreign businesses to help them buy American products and services. In an ideal world, businesses would obtain such financing from privately owned banks. But most governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing. [emphasis added]

The New York Times recognizes that getting rid of the Ex-Im Bank would bring us closer to realizing an ideal world, but they nevertheless support the bank to prevent some U.S. firms from losing businesses to foreign competitors. It’s difficult to read this as anything but a defense of crony capitalism. Indeed, the Times’ Neil Irwin wrote a defense of Ex-Im depressingly titled “Why We’re All Crony Capitalists, Like It or Not.”

There will always be challenges for U.S. companies in a global economy. Small, targeted amounts of mercantilist industrial policy like Ex-Im subsidies will not create growth regardless of the character of those challenges.  In other words, subsidies to counteract subsidies are not more beneficial to our economy  than subsidies to counteract relative disadvantages in climate, terrain, or workforce productivity. 

The most compelling take down of the “Ex-Im is necessary for competitiveness” argument may have come from leftist economist Dean Baker, who thinks “free traders” who support the Ex-Im Bank are being awfully hypocritical.  He notes the economic case against subsidies—“by diverting capital to the winners picked by the Ex-Im Bank, we are raising the price of capital for other firms”—and questions the motives of Ex-Im supporters who understand that consequence. Specifically in response to Irwin’s piece, Baker writes:

When Irwin tells us that we have to be crony capitalists “whether we like it or not,” why don’t we also have to be crony protectors of workers’ livelihoods? It seems that there is a very fundamental inconsistency here. When it comes to business interests we are prepared to throw the economics textbook theory in the garbage, but when the question is worker’s jobs, that textbook is the Bible.

I don’t think the generally pro-free trade New York Times wants to throw workers under the bus or help big business, but Baker is right that the argument of Ex-Im defenders that we need subsidies to counteract foreign competition could just as easily be used to justify tariffs or any other form of protection in countless other situations. Does every foreign government subsidy warrant a protectionist response? If not, why is the Ex-Im Bank the protectionist program so many “free traders” want to keep?

Big Business Clashes with Libertarians and Tea Party over Ex-Im Bank

Two weeks ago I wrote about the efforts of big business to defeat libertarian-leaning legislators in states across the country. To confirm my point, on the same day the article appeared the Michigan Chamber of Commerce endorsed the opponent of Rep. Justin Amash, the one of whom I had written, “Most members of Congress vote for unconstitutional bills. Few of them make it an explicit campaign promise.”

Now a battle is brewing in Congress that pits libertarians and Tea Party supporters against the country’s biggest businesses. The Wall Street Journal headlines, “GOP’s Attack on Export-Import Bank Alarms Business Allies.” The “rise of tea-party-aligned lawmakers” is threatening this most visible example of corporate welfare, and David Brat’s attacks on “crony capitalism” in his surprise defeat of Eric Cantor have made some Republicans nervous. Amash told the Journal, “There are some large corporations that would like corporate welfare to continue.”

The biggest beneficiaries of Ex-Im’s billions are companies such as Boeing, General Electric and Caterpillar,  according to Veronique de Rugy, a senior research fellow at the Mercatus Center. Cato scholars have made the same point, including Aaron Lukas and Ian Vasquez in 2002 and Sallie James in 2011.

Matthew Yglesias of Vox notes, “The Export-Import Bank is a great example of the kind of thing a libertarian populist might oppose. That’s because the bank is a pretty textbook example of the government stepping in to arbitrarily help certain business owners.” And he points out that supporters of the Bank include the U.S. Chamber of Commerce, the National Association of Manufacturers, the AFL-CIO, Haley Barbour, and Dick Gephardt. He could have added Tom Donnelly of the American Enterprise Institute.

Rep. Adam Kinzinger (R-IL) said he worried about “a libertarian theology that’s really starting to creep in.” I hope he’s right.

Sugar from Mexico: Who’s Being Injured?

On March 28, 2014, the U.S. sugar industry filed antidumping and countervailing duty (AD/CVD) petitions against imports of sugar from Mexico.  From the time that NAFTA’s sugar provisions were fully implemented in 2008, Mexico has been the only country in the world with unfettered access to the U.S. sugar market.  Sugar interests now are hoping to clamp the fetters back on.  It is not at all clear whether that effort will succeed.

Both the Commerce Department and the U.S. International Trade Commission (ITC) play important roles in this process.  Commerce must determine the extent of any dumping margin (selling at “less than fair value” due to pricing practices of individual firms) and any countervailing duty margin (benefit received by Mexican exporters from subsidies provided by their government).  The estimated dumping margins for the preliminary phase of the investigation range from 30 to 64 percent; they are likely to be adjusted based on additional information gained in the final phase of the investigation.  Commerce has not yet had an opportunity to establish CVD margins.  Given the degree of government involvement in Mexico’s sugar business, a CVD margin at some level seems likely.

The job of the ITC is to determine whether the domestic sugar industry has been “injured” by the imported sugar.  In its preliminary determination, the commission voted unanimously in the affirmative, which means that the investigation will go forward into its final phase.  This vote was not at all a surprise.  The legal standard for a negative vote in a preliminary determination is quite high.  To have voted in the negative, the ITC would have had to conclude that there was no “reasonable indication that a domestic industry is materially injured or threatened with material injury.”  That is a very difficult standard to meet on the basis of the somewhat limited preliminary record – often with inconclusive evidence – that must be compiled not more than 45 days after the case has been filed.