Topic: Trade and Immigration

Good News: Diabetes Epidemic Grows in China

An article in yesterday’s New York Times frets that 11.6 percent of people in China suffer from type two diabetes and that half the country’s population may have prediabetic blood glucose levels.  How has this come to pass?

Experts have blamed many factors: the introduction of high-calorie Western diets and fast food, more travel by car, sedentary factory jobs replacing farm labor, and families who spoil the one child that most are allowed to have.

Let me offer this paraphrasing:  The Chinese people have a great variety of food options, more money, and better jobs.  The effect of this increase in wealth is that there are now 114 million Chinese people who are too rich for their own good.  Just a little bit of context makes clear what an incredible victory this diabetes “epidemic” represents for China.  Fifty years ago, while Americans were watching new episodes of Leave it to Beaver in primetime, up to 45 million Chinese people died in a famine caused by inept central planning and a horrific ideological experiment.  China’s post-Mao economic reforms began in 1978, and global economic engagement over the last fifteen years especially, have improved quality of life not only in China but around the world.  Today, hundreds of millions of Chinese have the ability to sicken themselves overindulging in tasty foreign food if they want to.

Unfortunately, there is a growing movement of academics, activists, and international civil servants concerned about the dangers of “non-communicable diseases” in developing countries.  They blame “Western” lifestyles, capitalism, and trade for exposing people to cigarettes, alcohol, and junk food.  They worry that Coca-Cola is making Mexicans fat and that Bolivians growing fad health-food quinoa are dropping the Andean staple from their own diets in favor of less healthy alternatives.

The paternalistic impulse to protect people from the consequences of liberty and prosperity, even denying them liberty and prosperity for their own good, is not a new idea, of course.  Equally well established is the particularly troubling tendency to mix this paternalism with a romantic view of foreign poverty. In 1754, Jean-Jacques Rousseau wrote that disease is a product of modern civilization:

When we think of the good constitution of the savages, at least of those whom we have not ruined with our spirituous liquors, and reflect that they are troubled with hardly any disorders, save wounds and old age, we are tempted to believe that, in following the history of civil society, we shall be telling also that of human sickness.

To be fair, most people concerned about the deleterious effect of choice and wealth in China are also alarmed by similar trends in the United States.  Rather than echo Rousseau’s contention that human progress is the cause of disease, critics would do well to examine the empirical evidence. If you really care about the health of people in China, I impore you to consider the lesson taught by this graph here:


Here’s One Way to Fix the High-Tech Patent Mess

It’s been over a month since the Obama Administration took the unusual step of intervening in a patent case at the International Trade Commission to prevent the agency from banning the importation of Apple iPhones and iPads.  Multiple commentators (including myself) have chimed in with a range of views.  Most, but not all, think that something is wrong with the U.S. patent system, though they don’t necessarily agree on what exactly.

Some have claimed that the President’s intervention will have negative consequences for U.S. foreign economic relations.  Showing favoritism to a U.S. company in a private dispute with its major rival (Korea-based Samsung) could lead to accusations of protectionism and cronyism.  Some commentators have worried that the veto will undermine the U.S. trade agenda of encouraging stronger intellectual property protection around the world. 

These criticisms reveal a shallow understanding of the patent policy debate that drove the president to intervene.  The ITC enforces patents by issuing an import ban for any product it finds to be infringing a U.S. patent.  It operates much like a court in this capacity, but with faster procedures and only one available remedy.  There are certain situations, however, where patent infringement simply does not necessitate taking the offending products off the shelf.  To be brief, the Apple case was one of those, and the president’s veto was good for patent policy.

Claude Barfield at the American Enterprise Institute has provided an excellent explanation of the issue in a recent essay, which I encourage you to read in its entirety.  Recognizing that the current system is undesirable, he poses a number of critical policy questions.  I’d like to take a shot at answering them.

The Future of U.S.-China Economic Relations: Lots of Food Fights

Just as a U.S. government agency is about to decide whether a Chinese company can buy a U.S. pork producer, concerns are being raised about foods shipped directly from China.  Here is Bloomberg View columnist Adam Minter:

… the U.S. Department of Agriculture … announce[d] that it had ended a ban on Chinese chicken imports by approving four Chinese poultry processors to ship processed (“heat-treated/cooked”) chicken to the U.S. The report on the approved poultry plants noted that the audit set out to “to determine whether the People’s Republic of China’s (PRC) food safety system governing poultry processing remains equivalent to that of the United States (U.S.), with the ability to produce products that are safe, wholesome, unadulterated, and properly labeled.” Needless to say, the Chinese plants passed.

Initially, at least, the chickens will be slaughtered in the U.S. (or another nation that’s allowed to export slaughtered chicken to the U.S.), then shipped to China for processing and re-export. That’s the good news. The bad news is that, according to the New York Times, no USDA inspectors will be present in the Chinese processing plants (despite the fact that China has never before been allowed to export chicken to the U.S.), thus offering consumers no guarantees where the processed chickens were in fact slaughtered. Even worse, because the birds will be processed, the USDA will not require point-of-origin labeling (under USDA rules, foods that have been cooked aren’t subject to point-of-origin labeling). In other words: Consumers will have no way to tell if those chicken nuggets in the supermarket freezer were processed in the U.S. or in China.

Minter’s concerns seem rooted in an old Barenaked Ladies song (“Chickity China the Chinese chicken/Have a drumstick and your brain stops tickin’ ”), but is there any reason to be worried here?  Here are some thoughts:

– The Chinese factories were visited by USDA inspectors, who deemed them safe;

– The products at issue are cooked, and then frozen, which should help deal with any bacteria;

– Companies who sell these products are presumably still liable for any harm caused.

If that’s not enough, let me just note that if consumers are worried about eating frozen chicken nuggets processed in China, those companies who process their chicken nuggets elsewhere could indicate this on their package label, picking up new consumers who are hoping to avoid the dreaded Chinese chicken.

More Evidence that Foreign Aid Throws Dollars Away for Nothing

The Obama administration celebrated its “leverage” from foreign aid to Egypt, and then demonstrated Washington’s complete political impotence. Now the United Nations’ Millennium Development Goals have been found to have no effect on economic development.

Nations are poor because of bad policies, not inadequate cash balances. This makes economic reform, not foreign aid, the key to growth. Unfortunately, politicians continue to take money from poor people in rich countries and give it to rich people in poor countries in the name of development.

In 2000, the usual assemblage of global leaders adopted the United Nations Millennium Declaration. The Millennium Development Goals were supposed to reduce extreme poverty by 2015.

Alas, the record of more than six decades of government-to-government transfers is failure. Foreign “aid” turned into foreign hindrance, creating long-term dependency while reinforcing self-defeating collectivist economic strategies and subsidizing authoritarian political systems.  

Aid agencies eventually claimed to have developed new, smarter approaches to uplift the poor. Since 2000, total assistance from industrialized states alone has more than doubled, going from $53.9 to $125.6 billion last year. The results, explained the UN, indicated “unprecedented progress” and “remarkable achievements.”

Nevertheless, the UN does not believe its work will finish in 2015.  Last year, the UN established a 27-member “High-Level Panel of Eminent Persons on the Post-2015 Development Agenda.”  

Ex-Im Loan to Australia’s Richest Person Attracts Opposition

Well, this is awkward.

OK, not really. Because despite the fact that a mooted Ex-Im loan will help my homeland (or, more precisely, a company based in my homeland), it is still not ok.

The Ex-Im bank touts itself as an easy yes, a no-brainer of an institution to which no rational person who likes exports, jobs, and children could ever possibly object. It’s self-funding! It lends only for entirely risk-free purposes! It creates jobs! It is merely correcting a market failure, so even conservatives should support it! (I’ve written before about why those areallmyths).

But often when Ex-Im funds a purchase abroad, some other American firm will suffer. Delta Airlines has long been critical of loans supporting Boeing exports that it says enable its competition to offer cheaper flights and hurt its business. And now we have a new example of the unintended consequences of picking winners, whereby Ex-Im is reportedly considering financing the sale of about $520 million worth of Caterpillar earthmoving equipment to an Australian mining firm. That has attracted the ire of Minnesota Senators Franken and Klobuchar, because it could hurt mines in their state. From the Duluth News Tribune

It’s not that Minnesota’s congressional delegation doesn’t like Australia, mate. But the idea of a U.S. government bank loaning money to an Australian iron ore mine that will compete with Minnesota taconite?

That’s what they don’t like.

U.S. Sens. Al Franken and Amy Klobuchar and U.S. Rep. Rick Nolan, all Minnesota Democrats, are on record opposing a plan in front of the U.S. Export-Import Bank to invest in equipment for the giant Roy Hill iron mine in Australia’s northwestern Outback…

Cleveland-based Cliffs Natural Resources, with four mines in Minnesota and Michigan, has led the charge to stop the loan, saying it threatens U.S. mining jobs and, with new Asian steel produced from Australian ore, eventually threatens U.S. steel industry jobs.

Details of the loan, including the name of the beneficiary U.S. company, are supposed to remain secret to prevent foreign competitors getting a leg up. But the News Tribune has learned that the U.S. manufacturer is Caterpillar Inc. and that the equipment includes giant trucks, bulldozers and shovels made in Illinois and Wisconsin.

And that means the Export-Import Bank now is being squeezed by two titans of U.S. industry.

The bank is conducting an “extensive economic impact study” on the loan, Phil Cogan, vice president of communications for the Washington-based bank, told the News Tribune.

The deal is expected to reach the bank’s board for a vote in the next few weeks, and that’s why lawmakers and some Minnesota mining interests are weighing in as the bank accepts public comments.

Incidentally, the project in question is operated by Australia’s richest person, Gina Reinhart. From everything I’ve heard and read, Ms. Rinehart seems an extremely able businesswoman, more than capable of financing her own purchases if she decides they are viable. This seems like yet another misguided “investment” by the Ex-Im Bank. Mate.

A Microeconomic Look at Regulatory Overkill

In this new paper, I argue that an overly burdensome U.S. regulatory state is partly responsible for the downward trend in domestic and foreign investment in U.S. factories, professional services operations, distribution centers, and research and development facilities. EPA mandates, Obamacare’s costly, complicated new health care directives, and the slowly emerging financial services restrictions stemming from Dodd Frank, are just some of the new regulations that have thickened the Federal Register to more than 80,000 pages per year and added 16,500 new pages to the Code of Federal Regulations during the Obama presidency, undoubtedly deflecting and chasing investment and business creation to foreign shores.

Oddly, this massive expansion of federal rules has evolved as President Obama has simultaneously expressed concerns about the impacts of both declining investment and regulatory overkill on economic growth. In 2011, the president issued Executive Order 13563 under the heading “Improving Regulation and Regulatory Review.” Section 1 states:

Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. It must measure, and seek to improve, the actual results of regulatory requirements.

The president issued this EO in the wake of his party’s mid-term election rebuke, perhaps to indicate that he understood the concerns of business. He even required that his agencies formulate plans for undertaking systematic, retrospective reviews of their rules and regulations with an eye toward making them less imposing on society:

Sec. 6. Retrospective Analyses of Existing Rules. (a) To facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis for rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned…

In the words of a former chief economist at the Council of Economic Advisers:

The single greatest problem with the current system is that most regulations are subject to a cost-benefit analysis only in advance of their implementation. That is the point when the least is known and any analysis must rest on many unverifiable and potentially controversial assumptions.

U.S. Policies Deter Inward and Encourage Outward Business Investment

This morning, Cato published a new study of mine titled, “Reversing Worrisome Trends: How to Attract and Retain Investment in a Competitive Global Economy.” The thrust of the paper is that, despite still being the world’s premiere destination for foreign direct investment, the U.S. share of the global stock of direct investment fell from 39% in 1999 to 17% today.

This downward trend is attributable to two broad factors. First, developing economies – many of which have achieved greater political stability, sustained economic growth, improved infrastructure and higher-quality worker skill sets – are now viable options for pulling in the kinds of FDI that was once untenable in those locales. Second, a deteriorating business and investment climate in the United States – owing to burgeoning, burdensome, and uncertain regulations; an antiquated, punitive corporate tax system; incoherent immigration, energy, and trade policies; a wayward tort system; cronyism and perceptions thereof; and other perverse incentives and disincentives of policy have pushed investment away.

The first trend should be welcomed and embraced; the second must be reversed. From the study:

Unlike ever before, the world’s producers have a wealth of options when it comes to where and how they organize product development, production, assembly, distribution, and other functions on the continuum from product conception to consumption. As businesses look to the most productive combinations of labor and capital, to the most efficient production processes, and to the best ways of getting products and services to market, perceptions about the business environment can be determinative. In a global economy, “offshoring” is an inevitable consequence of competition. And policy improvement should be the broad, beneficial result.

The capacity of the United States to continue to be a magnet for both foreign and domestic investment is largely a function of its advantages, many of which are shaped by public policy. Considerations of taxes, regulations, trade openness, access to skilled workers, infrastructure, energy policy, and dozens of other policy matters factor into decisions about whether, where, and how much to invest. It should be of major concern that inward FDI has been erratic and relatively downward trending in recent years, but why that is the case should not be a mystery. U.S. scores on a variety of renowned business surveys and investment indices measuring policy and perceptions of policy suggest that the U.S. business environment is becoming increasingly less hospitable.

Although some policymakers recognize the need for reform, others seem to be impervious to the investment-repelling effects of some of the laws and regulations they create. Some see the shale gas and oil booms as more than sufficient for overcoming policy shortcomings and attracting the necessary investment. The most naive consider “American” companies to be tethered to the U.S. economy and obligated to invest and hire in the United States, regardless of the quality of the business and policy environments. They fail to appreciate that increasingly transnational U.S.-based businesses are not obligated to invest, produce, or hire in the United States.

It is the responsibility of policymakers, however, to create an environment that is more attractive to prospective investors. Current laws, regulations, and other conditions affecting the U.S. business environment are conspiring to deter inward investment and to encourage companies to offshore operations that could otherwise be performed competitively in the United States.

A proper accounting of these policies, followed by implementation of reforms to remedy shortcomings, will be necessary if the United States is going to compete effectively for the investment required to fuel economic growth and higher living standards.

Details, charts, and analysis, and citations are all included here.