Topic: Trade and Immigration

Obama’s Executive Action Is Good Policy, Bad Law, and Terrible Precedent

In an excellent speech combining reasoned policy arguments, appeals to American ideals, touching anecdotes, and well-selected Scripture, President Obama launched significant positive reforms to an immigration (non-)system that I’ve long called the worst part of the U.S. government (at least before Obamacare). Unfortunately, the centerpiece of this action, the legalization of around five million people who are in the country illegally—mostly the parents of U.S. citizens and green-card holders—is beyond the powers of the president acting alone.

To be sure, the relevant statutes give executive branch officials very broad discretion in how they enforce immigration laws. For example, Section 212(d)(5)(A) gives the Secretary of Homeland Security the “case-by-case” discretion to “parole” for “urgent humanitarian reasons or significant public benefit” an alien applying for admission. The authorization for “deferred action”—a decision not to seek deportation and concomittant authorization to reside and work legally, which was the basis for Obama’s 2012 Deferred Action for Childhood Arrivals program—is similarly broad.

And all modern presidents, from both parties, have used such discretionary powers. President Ronald Reagan’s Justice Department issued regulations to comport with the family-unity provisions of the 1986 Immigration Reform and Control Act. President George H.W. Bush temporarily expanded the category of undocumented children and spouses eligible to stay in the country before Congress formalized their status. President Bill Clinton deferred action on illegal immigrants from Haiti during that country’s convulsions in the 1990s—one example of many relating to executive discretion regarding nationals of war-torn nations—while President George W. Bush took various actions regarding illegal aliens in areas affected by Hurricane Katrina. These are just a few examples, but they’re all different from what President Obama is doing, both qualitatively—discrete and temporary versus open-ended and potentially timeless—and quantitatively. (See here and here for contrasts between Reagan/Bush and Obama.)

But don’t take it from me. Here are a few solid arguments that were made by a noted constitutional lawyer over the last several years:

  • “Comprehensive reform, that’s how we’re going to solve this problem…. Anybody who tells you it’s going to be easy or that [the president] can wave a magic wand and make it happen hasn’t been paying attention to how this town works.” (March 10, 2010)
  • “America is a nation of laws, which means [the President is] obligated to enforce the law…. With respect to the notion that [the president] can just suspend deportations through executive order, that’s just not the case, because there are laws on the books that Congress has passed…. [W]e’ve got three branches of government. Congress passes the law. The executive branch’s job is to enforce and implement those laws. And then the judiciary has to interpret the laws. There are enough laws on the books by Congress that are very clear in terms of how we have to enforce our immigration system that for me to simply through executive order ignore those congressional mandates would not conform with [Obama’s] appropriate role as President.” (March 28, 2011)
  • “If this was an issue that [the president] could do unilaterally, [Obama] would have done it a long time ago…. The way our system works is Congress has to pass legislation. [The president] then get[s] an opportunity to sign it and implement it.” (Jan. 30, 2013)

The Coming Globalization of the Marijuana Industry

A couple years ago, I speculated about eventual free trade in marijuana. That was before legalization in Colorado and Washington state. The case for trade and globalization of this industry looks stronger now. 

The Economist had a good article recently, taking into account this legalization, and thinking about what the future of the industry looks like. Right now, it’s just a bunch of small companies searching for the right market strategy, but they see consolidation eventually:

As happened with alcohol after the end of Prohibition, and has also happened with tobacco, the pot industry would probably come to be dominated by a few giant corporations.

They note that the tobacco industry has looked into the marijuana sector in the past, and might be well-positioned to run things, although it really could be anyone.

Assuming the current trend of increased acceptance continues, it seems inevitable that the marijuana industry will begin to look like other industries. There will be a few major global players, possibly based in the countries where legalization first happened. There will also be trade and investment disputes, just as there are in industries such as steel, cotton, and aircraft. No doubt the industry will be highly regulated, and regulations often given rise to these complaints.

For example, as the article notes, “Both Colorado and Washington have imposed residency requirements on the owners of marijuana businesses—including anyone with an equity stake.” Why restrict investments from foreigners and others who are not residents of the jurisdiction? No doubt the regulators have some rationale for this, but whether it’s a good one or complies with the various international investment obligations that are now in effect is up for debate.

Obama’s Immigration Executive Order – Policy Implications

On Thursday, President Obama is expected to announce the specific provisions of his immigration executive order.  This order will have broad policy implications.  Below is a brief explanation of the changes in policy likely to be announced and their economic effects based on the leaked information.

Legalizations

The most contentious portions of the executive order will be the legalizations.  Many of the beneficiaries of all the legalization programs would be eligible for legal status through more than one program, creating significant overlap and making it difficult to predict exactly how many people would be eligible.  Below I will analyze each one and then sum up what the economic consequences are likely to be.

Interpreting Obama’s Immigration Executive Action

President Obama will soon announce an executive action to defer the deportations of somewhere between 1 million and 4.5 million unauthorized immigrants. Those whose deportations are deferred will be eligible for a temporary work permit through a 1987 provision in the Code of Federal Regulations.

Those who support immigration reform note that any executive action by the President will poison the well for reform, making it impossible for Congress to move piecemeal bills to the President’s desk.  Last year, one of the most effective arguments against immigration reform was that President Obama would not enforce the law as written, a prediction that seems to be borne out with this executive action.  The Wall Street Journal editorial board said it the best:

If he does issue an executive order, we hope Republicans don’t fall for his political trap.  He and many Democrats want Republicans to appear to be anti-immigrant.  They want the GOP to dance to the Steve King-Jeff Sessions blow-a-gasket caucus.

To poison the well of reform there actually had to be water in the well to begin with. I’m not convinced there was.  If there was a serious Congressional effort to reform immigration in the immediate future, then the President’s actions here would totally derail it.

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:

obama_promises_4

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.