Topic: Trade and Immigration

Damning Trade with Faint Praise

A Washington Post editorial today pushes back against the argument that a Trans-Pacific Partnership agreement would exacerbate income inequality. Amen, I suppose. But in making its case, the editorial burns the village to save it by conceding as fact certain destructive myths that undergird broad skepticism about trade and unify its opponents.

“All else being equal,” the editorial reads, “firms move where labor is cheapest.”  Presumably, by “all else being equal,” the editorial board means: if the quality of the factors of production were the same; if skill sets were identical; if workers were endowed with the same capital; if all production locations had equal access to ports and rail; if the proximity of large markets and other nodes in the supply chain were the same; if institutions supporting the rule of law were comparably rigorous or lax; if the risks of asset expropriation were the same; if regulations and taxes were identical; and so on, the final determinant in the production location decision would be the cost of labor. Fair enough. That untestable premise may be correct.

But back in reality, none of those conditions is equal. And what do we see? We see investment flowing (sometimes in the form of “firms mov[ing],” but more often in the form of firms supplementing domestic activities) to rich countries, not poor. In this recent study, I reported statistics from the Bureau of Economic Analysis revealing that:

Nearly three quarters of the $5.2 trillion stock of U.S.-owned direct investment abroad is concentrated in Europe, Canada, Japan, Australia, and Singapore. Contrary to persistent rumors, only 1.3 percent of the value of U.S.-outward FDI [foreign direct investment] was in China at the end of 2011.

Cato FOIA Request Reveals E-Verify Delays Hurt Workers

Proponents of E-Verify, the Internet-based system to verify that a person is eligible to work in the United States, often tout its supposed speed and reliability. A recent Freedom of Information Act (FOIA) request from Cato has shed some light on how long it takes for the government to resolve contested tentative non-confirmations (TNC). The data should temper some enthusiasm for the system.

Our FOIA revealed that in 2012, the most recent year for which data are available, there were 68,775 contested TNCs through E-Verify. A TNC is an initial E-Verify determination that a worker is unlawful. Of those, 21,007 were handled by the Social Security Administration, with an average turnaround of 3.42 business days after the TNC was contested.  

The Department of Homeland Security handled the other 47,768 contested TNCs, with an average turnaround of 6.01 business days. SSA deals with a lower volume of cases and deals with them in almost half the time that it takes DHS.

The information received as part of the FOIA included further breakdowns of resolution time:

What to Look for in the Upcoming Trade Policy Debate

The most important piece of trade legislation Congress has dealt with in years was introduced in the House and Senate last week. The “Bipartisan Congressional Trade Priorities Act of 2014” sets out the parameters for renewing trade promotion authority (TPA), originally known as “fast track,” in order to ease eventual passage of the Trans-Pacific Partnership and other agreements through Congress. There will be a lot of debate in the coming months about what U.S. trade policy should look like, and this TPA bill will do a lot to establish the agenda.

The new bill largely mirrors the last TPA grant in 2002.  The basic idea of fast track is that Congress agrees to hold an up-or-down vote on any trade agreement submitted by the president, while the president agrees to adopt a series of negotiating objectives laid out by Congress. 

I’ve explained before why I think TPA is not necessary right now to get agreements through Congress and why it could even make the TPP negotiations more difficult. However, that argument is temporarily moot since this TPA bill is on the table and will apply not only to the TPP but to the U.S.-EU trade agreement and any World Trade Organzation negotiations for the next four years. 

Defeat of this bill could quite possibly kill any chance the president has to conclude trade agreements before the end of his term. Also, the negotiating objectives included in the new bill are not as bad as I had feared.

At this point, we should be talking about what’s in the new TPA bill and how it might change as the debate heats up.

Challenging the Conventional Wisdom on Fast Track

The Wall Street Journal’s Mary O’Grady put out an excellent column yesterday expressing skepticism about the trade agenda in 2014.  I agree with almost everything in the piece, with one major exception.  Contrary to the prevailing conventional wisdom, the lack of “fast track” trade promotion authority has not been and will not be an obstacle to completing the Trans-Pacific Partnership negotiations. 

Her concern about the lack of fast track relates to the willingness of other countries to negotiate when the president has not secured trade promotion authority:

Mr. Obama’s trade team has been working on [the TPP] for years. But U.S. negotiators still don’t have “trade promotion authority” (TPA) from Congress. This means there really hasn’t been much negotiating at all because the U.S. team still doesn’t know how much flexibility it has from Congress to cut final deals on sensitive areas of trade. That will come with TPA, which sets “objectives” that the administration must meet. No U.S. trading partner is going to talk seriously unless the president has it.

I strongly disagree with this characterization. For the last three years, countries have been knocking down the door trying to get into the TPP negotiations. They have done this even while knowing that the TPP will inevitably be a vehicle for pushing U.S. economic and strategic priorities at their expense. These governments see the economic benefit of access to the U.S. market and have shown no reluctance to engage in negotiations despite the Obama administration’s apparent disinterest in securing fast track authority from Congress.

Is Free Trade in Energy Finally on the Horizon?

Over the last few months, the media and the policy world have discovered that America’s archaic crude oil export restrictions are really bad policy. Two new and important developments give this welcome and growing movement even more momentum:

  • In a much-publicized speech yesterday, Sen. Lisa Murkowski (R-AK), ranking member of the Senate Energy Committee, advocated modernizing U.S. export restrictions on energy products, particularly natural gas and crude oil. Accompanying her speech was a new white paper on the same topic, which (i) highlights the serious economic problems caused by the current crude oil export licensing system (which is effectively a ban on exports to all countries except Canada); (ii) confirms the widely held view that oil exports won’t cause higher gas prices; and (iii) recommends that the president, the Commerce Department, or–if they continue to do nothing–Congress relax the export ban. Just as importantly, Murkowski’s views were recently echoed by Sen. Mary Landrieu, (D-LA) who stands to take over the Senate Energy Committee this year. Thus, there could be bi-partisan support for easing the U.S. crude oil ban on the Senate committee arguably most integral to any such reforms.
  • Also, today, the American Petroleum Institute’s president and CEO Jack Gerard reiterated his organization’s support for lifting the crude oil export ban:

Gerards’s formal announcement echoes a few previous statements from folks at API (which is the largest U.S. energy trade association and a big player on Capitol Hill) and is a good sign that they’re going to push harder on this issue in the future. (API’s related blog post, which calls the crude export ban “obsolete,” certainly indicates as much.)

These two developments should be welcome news for anyone concerned with free markets, economic growth, and well-functioning energy markets. As I argued in a February 2013 Cato paper (and subsequent podcast), the crude oil export restrictions–and the similar, more well-known restrictions on U.S. natural gas exports–raise a host of economic, legal, and policy concerns. These restrictions should be replaced with a simple, transparent, and automatic licensing system for all exports of U.S. energy goods (not just fossil fuels).

The Good Old Days of Global Poverty

Noah Smith has a piece in the Atlantic in which he tries to revitalize the anti-WTO Seattle protests. We were wrong to mock them, he says. They were “mostly right”! And “on nearly every count”!

All right, I’ll bite.  How, exactly, were they right?

His damning evidence against globalization starts with those dastardly “cheap imports,” which supposedly put Americans out of work. He acknowledges that such imports lower prices for consumers, but says those benefits are “spread very thinly.”

There are a lot of ways to refute this argument. I’m going to focus on two.

First, regardless of whether the benefits of low prices are spread thinly, such benefits outweigh any lost jobs arising from foreign competition. That is to say, the benefits of free trade outweigh the costs.  Just be clear, this isn’t controversial, and is not contested by the economists he cites.  Furthermore, the impact of Chinese and other imports on U.S. workers isn’t really all that great, and imports actually support many U.S. jobs.  So, overall, his argument in this respect is a bit underwhelming.  Oh, and by the way, if it’s poor Americans you are worried about, they are the ones who benefit most from trade with China.

Second, there is a larger point. Smith wants to present the issue as whether free trade takes jobs from the middle-class in order to give benefits to consumers and the rich. But that’s not the right way to think about things. The better way to understand the situation is the following: Protectionism takes a lot of money from everyone, in order to give concentrated benefits to a small group of politically connected interest groups. This is the kind of policy that is usually condemned by both the left and right. In the case of the trade debate, however, some well-respected opinion leaders seem OK with such policies. Why is that? My best guess is that it taps into an emotional “us versus them” worldview. It isn’t really about economics at all. It’s about patriotism and nationalism. “They” are bad. “We” are good. So let’s punish them, even if in doing so we are really punishing us.

Great Moments in Border Control

From the Boston Globe, “Virtuoso’s flutes destroyed by U.S. Customs”:

…Flute virtuoso [Boujemaa Razgui], who performs regularly with The Boston Camerata[,] lost 13 handmade flutes over the holidays when a US Customs official at New York’s JFK Airport mistook the instruments for pieces of bamboo and destroyed them. 

“They said this is an agriculture item,” said Razgui, who was not present when his bag was opened. “I fly with them in and out all the time and this is the first time there has been a problem. This is my life.” When his baggage arrived in Boston, the instruments were gone. He was instead given a number to call. “They told me they were destroyed,” he says.

One reader recalled the travel woes of distinguished Polish pianist Kristian Zimerman, as recounted by the L.A. Times

Zimerman has had problems in the United States in recent years. He travels with his own Steinway piano, which he has altered himself. But shortly after 9/11, the instrument was confiscated at JFK Airport when he landed in New York to give a recital at Carnegie Hall. Thinking the glue smelled funny, the TSA decided to take no chances and destroyed the instrument.   

Yes, by all means, let’s put federal agencies in charge of as many aspects of our lives as possible.