Topic: Trade and Immigration

Pausing Immigration Will Not Boost Assimilation

One of the more interesting arguments in favor of further restricting lower-skilled immigration comes from the prolific pen of Reihan Salam.  His piece is worth reading in its entirety, especially his emphasis on the importance of the melting-pot metaphor, a far better approach to the ideal of assimilation than the salad bowl or other concepts.  Salam understates the amount of “togetherness” Americans feel and the degree to which immigrants and their descendants rapidly adopt American identity, as well as exaggerating the benefits of such togetherness.  But my disagreement lies elsewhere.

The big take away from Salam’s piece is that a constant flow of lower-skilled immigrants into the United States slows the economic and cultural assimilation of that immigrant group.  As a result, further restricting low-skilled immigration would aid in the assimilation of current immigrants who are settled here.  As he wrote, “the melting and fusing of different ethnic groups is essential to building a more cohesive and human society, and that slowing down immigration would help this process along.”

His conclusion rests on two points. 

State-Based Visas: An Idea Entering the Mainstream

The latest issue of The Economist has a good article about allowing American states to set their own migration policies.

Last spring, Cato published a policy analysis on this very topic by Brandon Fuller and Sean Rust, entitled “State-Based Visas: A Federalist Approach to Reforming U.S. Immigration Policy.” Cato’s policy analysis explores the legalities, economics, and practical hurdles of implementing a state-based visa system in addition to the existing federal system. Cato even had an event in March 2014 (video available) where critic Reihan Salam and supporter Shikha Dalmia explored the idea.

The Economist article lays out the case well. Canada and Australia have state- and provincial-based visa systems that complement their federal immigration policies. The results have been positive for those local jurisdictions because they have more information and incentive to produce a better visa policy than a distant federal government does. American states could similarly experiment with less restrictive migration policies, attracting workers of any or all skill types.

The economic impact of immigration is positive, so the downsides of decentralized immigration policy would be small. Most importantly, The Economist echoes a point that Fuller and Rust made in their policy analysis: these migrant workers should eventually be able to move around the country for work. An unrestricted internal labor market is positive for the American economy; a freer international labor market would be too.

Please read The Economist piece, Cato’s policy analysis, and watch Cato’s event on this topic.

Selling Trade Liberalization Like the Measles Vaccine

President Obama is presiding over what may prove to be the most significant round of trade liberalization in American history, yet he has never once made an affirmative case for that outcome. Despite various reports of intensifying outreach to members of Congress, the president’s “advocacy” is couched in enough skepticism to create and reinforce fears about trade and globalization.

Politico reports:

On Tuesday, Obama sent a letter directly to Rep. Ruben Gallego (D-Ariz.), arguing that reaching new trade agreements is the only way to stop China from dominating the global markets and letting its lax standards run the world.

“If they succeed, our competitors would be free to ignore basic environmental and labor standards, giving them an unfair advantage against American workers,” Obama wrote Gallego in a letter obtained by POLITICO. “We can’t let that happen. We should write the rules, and level the playing field for the middle class.”

Certainly, playing the China card could help win support for Trade Promotion Authority and, eventually, the Trans-Pacific Partnership, but it needn’t be the first selling point.  Pitching trade agreements as though they were innoculations from an otherwise imminent disease betrays a profound lack of understanding of the benefits of trade. With TPP near completion and the Transatlantic Trade and Investment Partnership talks expected to accelerate, the president’s stubborn refusal to make an affirmative case for his trade initiatives to the public and the skeptics in his party is disconcerting. Bill Watson was troubled by the president’s feeble advocacy of trade liberalization in his SOTU address.

Managing Sugar Markets Gets Even Messier

In a previous blog post I discussed the implications of the proposed agreement to settle the antidumping and countervailing duty (AD/CVD) cases brought by U.S. sugar producers against imports from Mexico.  That article amounted to a lament on the difficulties of trying to balance sugar supply and demand by government fiat.  Market managers employed by the U.S. Department of Agriculture (USDA) and the Department of Commerce (DOC) have a really hard job, as do their counterparts in the Mexican government.  Not only do the supply, demand, and price of sugar tend not to stay quiet and well behaved, but important firms involved in the business also can prove (from the perspective of the program managers) to be vexing and disputatious.

Such is the case with Imperial Sugar Company and AmCane Sugar, both of which are U.S. cane refiners that rely on ample supplies of raw sugar to run their operations.  Much of that raw sugar comes from other countries; in recent years Mexico has been the largest supplier to the United States.  It now appears that U.S. cane refiners were not too happy with either the original proposed settlement that was announced on October 27, 2014, or the final suspension agreements announced December 19 that set aside the underlying AD/CVD investigations. 

One source of that unhappiness seems to have been that the initial proposal would have allowed 60 percent of imports from Mexico to be in the form of refined sugar rather than raw.  The U.S. and Mexican governments acknowledged that concern in the December 19 agreement by reducing the allowable level of refined sugar imports to 53 percent.  Another issue bothering U.S. refiners likely was the relatively narrow spread between the original proposal’s import reference prices, which were 20.75 cents per pound for raw sugar and 23.75 cents per pound for refined.  U.S. refiners may have feared suppression of their processing margins, if imported refined sugar from Mexico could have been sold at only 3 cents per pound above the price of raw sugar imports.  The December 19 version increased that price spread to 3.75 cents (22.25 cents for raw and 26.0 cents for refined).  From the standpoint of the refiners, that margin still may be uncomfortably narrow.

Regulation vs. Regulation on Medicine Prices

In a recent piece on the negotiations for a Trans-Pacific Partnership (TPP), economist Joseph Stiglitz was critical of a provision that would prevent governments from using regulation to keep pharmaceutical prices lower.  He argued:

The second strategy [of the TPP] is to undermine government regulation of drug prices. More competition is not the only way to keep down the prices of essential goods and services. Governments can also directly restrain prices through law, or effectively restrain them by denying reimbursement to patients for “overpriced” drugs — thus encouraging companies to bring down their prices to approved levels. These regulatory approaches are especially important in markets where competition is limited, as it is in the drug market. If the United States Trade Representative gets its way, the T.P.P. will limit the ability of partner countries to restrict prices. And the pharmaceutical companies surely hope the “standard” they help set in this agreement will become global — for example, by becoming the starting point for United States negotiations with the European Union over the same issues.

So the way Stiglitz tells it, government regulation – in the form of government influence over pricing – could help bring down medicine prices, but the TPP looks like it will constrain this regulation.

What’s missing from his story, however, is how the prices got so high in the first place.  The prices are high because of, you guessed it, regulation!  This regulation takes the form of 20 year monopolies granted by the government, also known as patents.  Now perhaps we need patents to promote innovation, although I’m sympathetic to those who argue that patent terms should be more flexible.  But regardless, when someone proposes that Regulation X is needed to counteract the negative effects of Regulation Y, I start to question things.  If Regulation Y is such a problem, perhaps we simply need to rethink and revise Regulation Y, rather than add a brand new Regulation X, in the hopes that multiple, conflicting regulations will balance each other out and leave us no worse off than where we started.

Expand Trade by Repealing Monopoly Unionism

Republicans say they favor cutting regulations to spur growth and create jobs. And they generally favor expanding international trade. They can attain those goals by reforming labor union laws.

America’s West Coast seaports are getting hammered by aggressive unionism. The damage spreads out across the economy during labor disputes, affecting billions of dollars worth of trade. It’s an economically absurd situation, and it’s hugely unfair to the millions of workers whose jobs depend on trade. It should not be happening in America in the 21th century.

In her official response to President Obama’s SOTU, new GOP senator Joni Ernst (Iowa) said, “Let’s tear down trade barriers in places like Europe and the Pacific. Let’s sell more of what we make and grow in America over there so we can boost manufacturing, wages, and jobs right here, at home.”

She’s right, and she should use her prestige and tough-gal credentials to push for change. In the 1980s, Margaret Thatcher broke the militant unions in Britain and she privatized most of that nation’s seaports. Senator Ernst has an opportunity to push for the same reforms here.  

The key to union reform is repealing the 1935 National Labor Relations Act, also called the Wagner Act. That act imposed “collective bargaining,” which is a euphemism for monopoly unionism. Monopoly unionism is incompatible with individual rights and it encourages unions to disrupt workplaces. The private-sector unionization rate is down to just 7 percent in the United States, but where it persists it causes major damage.

That brings us to the West Coast seaports. The Wall Street Journal reports:

The labor dispute that has magnified snarls at U.S. West Coast ports may be on the brink of a settlement, but it will take months to end the widespread pain, freight disruptions, and losses caused by the massive cargo traffic jam.

The near-paralysis at the ports is rippling through the economy. Railroads are reducing service to the West Coast. Cargo ships have slowed down—and even turned around—as containers have stacked up at the ports. And an official of a meat-industry trade group said last week that port gridlock was costing meat and poultry companies more than $30 million a week.

… Neely Mallory III, president of Mallory Alexander International Logistics in Memphis … is having trouble getting railroads to take loads west from Memphis, Dallas or Chicago, because they are reducing service to the ports until the congestion clears. He can’t arrange to export more than 10,500 containers of cotton. Last Friday, a ship due in with imports for his customers gave up, he said. It will avoid the U.S. for 30 days. “It’s devastating,” he added.

Manufacturers also are feeling the pain. The National Association of Manufacturers has heard from members that container shipments through the West Coast ports in recent months have become “incredibly erratic,” said Robyn Boerstling, director of transportation and infrastructure policy for the trade group. “Everyone is feeling extremely uneasy and frustrated,” she said. Companies fear that if they can’t deliver on orders it will be very hard to win business back, she said.

NAM said a small U.S. maker of pulp and paper told it that the company had lost about $1 million of pulp exports to China in the past few months because it couldn’t meet shipment deadlines or customers feared it might not deliver on time. FastenalCo., a distributor of industrial and construction supplies based in Winona, Minn., said some deliveries of screws, nails and other fasteners from Asia are delayed by a week or two, forcing it and some customers to hold larger inventories.

For more on the West Coast seaports, see here.

Rethinking Currency Manipulation

Interest groups in the United States have focused on the possibility of including provisions in trade agreements with the intent of countering currency manipulation.  The concern is that another country may choose to reduce the value of its currency relative to the U.S. dollar in order to encourage its businesses to export more goods to the United States.   Such currency realignment also would tend to make it more expensive for the devaluing nation to import products from this country.

It’s true that an adjustment in currency exchange rates – regardless of the reason for the adjustment – can have an effect on trade flows.  U.S. industries that export to foreign customers, or compete with imported goods in the domestic marketplace, understandably would prefer that currency relationships not become skewed against their commercial interests.  Currency stability improves the business climate by making it easier to build long-term relationships with customers and suppliers. 

However, currency exchange rates have fluctuated throughout recorded history.  Sometimes those changes may be driven by a government’s conscious desire to devalue its currency.  More often the variability in exchange rates reflects fundamental economic realities.  Economies that experience growing productivity and rising prosperity should not be surprised to find that market pressures cause their currencies to strengthen.  The reverse is true for countries that are growing slowly or not at all. 

A shift in exchange rates changes a country’s “terms of trade,” which is a term  used by economists to describe the ratio of a country’s export prices to its import prices.  From a U.S. perspective, if another country sets its currency at an artificially low level relative to the dollar, the U.S. terms of trade will improve.  The United States will be able to obtain a greater value of imports for the same value of exports.  Exporting the same number of airplanes and soybeans as before will pay for the importation of larger quantities of shoes, coffee, and automobiles.