Topic: Trade and Immigration

Regulatory Capture of Trade Agreements

This is from Ezra Klein:

I’m skeptical of the sheer size of modern trade deals and the opaque process that creates them. The negotiation process isn’t quite as secretive as some think — the congressional briefings are constant, and the advisory committees are sprawling — but it is insanely complex.

The result is that even where there is transparency, it’s a form of transparency that can only really be navigated by politically sophisticated, highly motivated actors — which is to say it’s a form of transparency that quickly becomes a venue for lobbying. That’s one reason these deals end up including so much … stuff. The process is constructed in such a way that the negotiators get a lot of special pleading from individual industries and interests. Responding to those requests feels like responding to the public, but it isn’t, and it leads to deals jam-packed with individual provisions that look a lot like giveaways.

This is a great insight about modern trade agreements.  It’s important to think of a trade agreement as just another piece of legislation.  In the past, trade agreements focused mainly on tariffs.  Now they govern a wide range of policies (“stuff”), and as a result they are susceptible to regulatory capture.  Special interest groups see them as just another way to achieve their political goals.  What this means is, as with any piece of legislation, don’t be fooled by the marketing.  Look closely at all the details.

Lego Asks U.S. to Ban Imports of “Figure with Skirt”

Lego’s patent for the “Toy Building Brick” expired in 1988, but the company still aggressively tries to claim monopoly privileges over its products.  Ten years ago, Lego tried unsuccessfully to claim trademark protection for blocks with circles on top.  Now they are going after competitors for making products that look similar to the new “Lego Friends” line of blocks marketed toward girls.  For example, Lego complains that its competitors have infringed its copyright in “Figure with Skirt”.

Figure with Skirt

Of immediate interest is the fact that Lego has filed a complaint at the U.S. International Trade Commission seeking to bar importation of certain Mega Bloks, Lite Brix, and Best-Lock products.  There are a number of reasons why the ITC should not be adjudicating patent or other intellectual property disputes, and if you’re interested in the full story, you should read my Cato Policy Analysis on the subject from 2012.

Is the TPP Necessary as a Response to China?

Paul Krugman has a blog post on the Trans Pacific Partnership (TPP) today.  Overall, he is skeptical of the need for it.  He refers to a recent op-ed by Larry Summers, and notes that Summers appears to support “an idealized TPP that could have been,” but is “against the TPP that actually seems to be on the table.”  Krugman says he feels similarly.

Tyler Cowen responds as follows:

I agree with much of the economics in his post, though I would frame the points with a different kind of rhetoric.  But I think Krugman is nonetheless wrong to oppose TPP.  You will notice the word “China” does not appear in his argument.  He closes with a question: “Why, exactly, should the Obama administration spend any political capital – alienating labor, disillusioning progressive activists – over such a deal?”  The answer is simple: this deal either happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well.

Cowen is one of my favorite bloggers, both for style and substance, but I want to push back a little bit here.  The alternative deal he is referring to is the Regional Comprehensive Economic Partnership (RCEP), a negotiation among 16 countries, including China and India, in the Pacific region.  There is a good deal of overlap, in terms of participating countries, with the 12 TPP parties.  I think he is making two points here: (1) If there is no TPP, there will be an RCEP, and that will be bad for the United States; and (2) the RCEP will reflect Chinese priorities, not U.S. priorities, and that will be bad for the United States.

Just briefly, let me comment on both points.  First, the RCEP may be, to some extent, a response to the TPP.  If the TPP fails, the motivation for the RCEP might also diminish.  Furthermore, regardless of what happens with the TPP, it will not be easy to complete the RCEP.  Getting India, China, and 14 other countries to agree will not be easy.  So there may never be an RCEP.

Second, the reference to Chinese terms makes it sound like this will be an agreement that establishes state-owned companies as the norm.  In reality, if you look at the topics covered, I’m not sure this agreement would be much different than any other trade agreement, except perhaps less emphasis on labor rights and intellectual property protection than in U.S. agreements.  There will be tariff lowering, services liberalization, and all the usual issues.

In my view, then, we should consider the TPP on its own merits and not worry so much about what other countries do.  If they want to liberalize amongst themselves, that’s great.  But that’s not a threat, just an incentive to do a better job with trade negotiations ourselves.

CIS’ All Job Growth Since 2000 Went to Immigrants’ Report Is Flawed

The Center for Immigration Studies (CIS) has released a number of reports purporting to show that all employment growth since the year 2000 has gone to immigrants. The CIS report does not include econometrics. However, the report includes a few references to the economic literature (those few references present have little to do with native job displacement caused by immigration, which is the topic of the CIS report). Nonetheless, the CIS report has gained significant attention.

The CIS method of measuring job displacement caused by immigration is not used by professional economists to study this issue. Fundamentally, CIS assumes a static number of jobs that is unchanging based on immigration and does not consider what the job market would look like with fewer immigrant workers, entrepreneurs, and consumers—estimates essential for understanding the actual labor market impact of immigrants.  I discuss those actual effects here, here, and here

Regardless of their flawed methods, I decided to recreate CIS’s research in order to exactly understand how they got their results.

The study did not find any evidence of immigrants pushing natives out of the job market. After spending hours recreating their data and checking it, all I can conclude is that immigrants hold about a percentage of jobs in the economy that is roughly equal to their percent of the population. I am underwhelmed by that finding. 

Below I will present the academic literature on immigration-induced job displacement, explain how CIS got its results, and detail why its analysis of the data does not prove that “All Job Growth Since 2000 Went to Immigrants.” (If you just want the meat, scroll down to the hed “CIS’s Three Big Conclusions Are False”).

So Begins the Contest to Blame China the Most

Some things are an inevitable part of every election season.  Without a doubt, every candidate running for President in 2016 will, for example, make unrealistic promises and pander to special interests.  They will also just as surely try to blame America’s perceived problems on a foreign menace.  For economic issues, China has become the overwhelming favorite as a target for these attacks now that blaming Japan and Mexico has gone out of style. 

In the 2012 election, the chief China-basher was Mitt Romney, who transformed himself into a mercantilist and promised to be tough on Chinese currency manipulation.  Republicans running for Congress that year had a similar predisposition, and Pete Hoekstra certainly deserves an award for running the most tasteless anti-China ad.  In 2014, it was the Democrats’ turn to blame China on the campaign trail for stealing American jobs.

Now we’re getting a taste of how China bashing will play out in the 2016 election.  According to Politico, Mike Huckabee has started talking about the Chinese menace in Iowa.

He complained that American wages have been stagnant since Chinese trade agreements went into effect over the past few decades.

“People are working hard, and they have less to show for it,” he said. “We need to quit apologizing for being America, and we need to start making it so that Americans can prosper and not just so that the Chinese can buy Louis Vuitton and Gucci bags.”

The comments came in response to questions about why the government has kept the embargo in place against Cuba, even as trade barriers with China have been lifted.

“We have basically surrendered to the Chinese market,” Huckabee said. “We’ve not put the pressure on them.”

Aside from pandering to xenophobia, these kinds of comments are distressing because they demonstrate a willingness to vilify normal economic activity.  Huckabee describes trade as “the Chinese” fighting a battle against the U.S. economy in pursuit of frivolous luxury.

I suppose some rhetorical license should be granted to candidates who need to package their policies in a way that appeals to the most people.  So maybe instead of “surrendered to the Chinese market,” Gov. Huckabee meant to say that the United States government has lowered taxes on American consumers and businesses.  And maybe instead of “Louis Vuitton and Gucci bags,” he meant clothes, food, and medicine.

And maybe, just maybe, when he says “we need to start making it so that Americans can prosper,” he means the government should stay out of the way of mutually beneficial commercial activity and stop protecting politically powerful industries from consumer demand for innovative and affordable products and services.

Maybe Mike Huckabee or some of the other candidates will even remember that a majority of Americans in both major parties think that trade is good for the United States.

Will the TPP Promote Minimum Wage Laws?

This is from the White House blog, explaining that the Trans Pacific Partnership (TPP) will be “the most progressive trade agreement in history”:

They further explain:

If we don’t secure this trade agreement, Americans will be forced to accept the status quo – which is bad for small businesses, bad for American workers, and bad for our future leadership. 

Here’s why: 

We would fail to secure strong labor and environmental standards for trade in the world’s fastest-growing region: 

  • There’d be no enforceable rules ensuring countries set a minimum wage, end child labor, or enforce workplace safety.

So should those of us who are skeptical about the benefits of a minimum wage law panic here?  Will the TPP spread and promote minimum wage laws around the world?

My sense is that the answer is no (although no one has seen the full text of the TPP yet, so I suppose there could be some surprises). Instead, I think the TPP will say that countries have to enforce their own labor laws.  Thus, if you have a minimum wage law on your books, you have to enforce it (with credit to my colleague Bill Watson for this explanation).  That’s a lot less scary (but still a little scary).

At the same time, the whole idea of marketing trade agreements as “progressive” and making reference to minimum wage laws seems like an attempt to garner support from liberals (unlikely) that will quite possibly scare off free market conservatives.  I’m not sure exactly what the White House has in mind; this may very well backfire on them.

U.S. Trying (and Failing) to Contain the Spread of European ‘Geographical Indications’

One of the European Union’s highest priorities in trade negotiations is to globalize its restrictions on the use of place names as generic product descriptions. When they negotiate a trade agreement, they insist that the other country adopt regulations requiring that, for example, all champagne come from Champagne and all parmesan cheese come from Parma. The United States, worried that these rules limit access for U.S. products, is trying to use its own trade agreements to contain the effects of Europe’s push to protect “geographical indications” (GIs) in countries around the world.

Europe’s GI protections restrict the flow of accurate information while reducing competition and innovation. GI protection is not about preventing consumer confusion or false advertising; European rules forbid the use of place names even when phrases like “style” or “type” are added. 

One often overlooked but essential aspect of GI regulation is that use of a protected name requires not only physical location in that place but also adherence to government-mandated production practices.  “Authentic” champagne is therefore not only made in Champagne, but made a specific way required by law. 

By operating this way, the system functions not only to capitalize on a collective brand but also to reduce competition among producers. Once all the producers in a particular country (say, France) are divided by region and style, the industry starts looking a lot like a cartel. There may be multiple producers, but they all agree to keep making the same thing in the same place forever. They no longer have to compete on product quality.

U.S. trade negotiators are rightly resisting efforts to spread this anticompetitive regulatory scheme to other countries. As it stands, there is almost no chance that the United States could convince the EU or its member states to drop their GI regulations. But it is also unlikely that the United States will acquiesce to European demands to adopt such a system here, especially for meats and cheeses.

The battle over GIs is therefore being waged in other countries as the EU and the United States both use trade agreements to influence how GIs are protected in foreign markets. Commercially, the question is whether U.S. companies can continue to sell their generic brands abroad.