Topic: Trade and Immigration

Rescue Us from the Che Guevara Myth

The rescue of 15 hostages from the clutches of Colombia’s Marxist rebels yesterday is a riveting story with major repercussions for the region, as my colleague Juan Carlos Hidalgo blogged earlier. But one minor detail of the drama should not go by without comment.

The Colombian Army rescuers involved in the ruse were wearing Che Guevara T-shirts as they landed in the guerrilla camp to claim the hostages. Guevara, of course, is the late Argentine communist revolutionary and sidekick to Fidel Castro. Che T-shirts are apparently popular in FARC rebel camps, as they are on U.S. college campuses.

In a letter to the Wall Street Journal that was coincidently published on the day of the hostage rescue, Peruvian writer Alvaro Vargas Llosa tells the real story of Che Guevara. Far from being a hero, he presided over mass executions, prison labor camps, bloody and failed insurrections, and economic ruin.

Yesterday’s rescue was a welcome blow to everything Che Guevara stood for.

On Onions, Oil, and ‘Speculators’

Politicians who blame “speculators” in futures markets for the run up in oil prices — such as Sen. Byron Dorgan (D-N.D.) writing in this morning’s USAToday — should consider a lesson from the lowly onion.

Onions are one of the few commodities in the United States for which there are no futures markets, according to an item published Friday in Fortune magazine. (Futures markets allow the sale of commodities for set prices at future dates.) It seems that in the late 1950s domestic onion producers blamed those same speculators in futures markets for driving onion prices DOWN. They successfully lobbied Congress to ban all futures trading in onions, a ban that is still in place a half century later.

So has the absence of futures-market speculation kept onion prices low and stable? Quite the contrary. According to Fortune:

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings. Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.

Sen. Dorgan and his allies will need to find someone else to blame for volitale and rising oil prices.

Will Sanctions Save Zimbabwe?

Events of the past few weeks have made it clear that President Robert Mugabe of Zimbabwe is a dictator and a bully who presides over a sham democracy epitomized by today’s mock “election.” But does that sad fact require or even justify imposing sanctions against that already tortured southern African country?

European Union leaders are already talking tough about withdrawing their ambassadors. Meanwhile, the UN Security Council plans to discuss new sanctions against Zimbabwe as early as next week.

I share the dismay with Mugabe’s thuggery and mismanagement of the economy, but count me skeptical that trade sanctions, oil embargoes and other economic reprisals would achieve anything positive.

If 165,000 percent inflation, widespread hunger, and mass shortages and unemployment have not undermined Mugabe’s government, Western sanctions are probably not going to make a crucial difference. Zimbabwe’s president and his sycophants will continue to enjoy their palatial homes, catered meals and chauffeured limos. Sanctions would only deepen the suffering of their unfortunate subjects. As our research at Cato has shown, economic sanctions almost never work.

Another complication is that Mugabe’s government is not unique. According to Freedom House, Zimbabwe’s suppression of civil and political liberties is no worse than 15 other countries, including China, Belarus, and Saudi Arabia. A total of 44 other countries share with Zimbabwe the label of “Not Free.” Should the West aim sanctions at all of those countries, too, or is Zimbabwe to be singled out because, by a fluke, the opposition actually came close to winning a rigged election?

The ongoing tragedy in Zimbabwe will probably not end until that country’s closest neighbors, including South Africa, intervene aggressively, or Mugabe himself departs this world to meet his maker.

This Can’t Be Good

France has reportedly called an extraordinary meeting of European Union trade ministers to discuss EU trade negotiating strategy in the World Trade Organization’s floundering Doha round of trade talks.

France takes over the EU’s rotating presidency on 1st July for six months, inconvenient timing considering that the WTO’s Director-General Pascal Lamy has called a July 21st meeting of around 30 trade ministers from key countries in a last-ditch effort to cobble together a deal. The political calendar (a U.S. presidential election in November 2008, followed by a brand-new European Commission and Indian elections in 2009) means that no deal in July likely means no deal until 2010.

France has been a long-standing irritant to the Doha round and President Sarkozy, despite his sometimes-promising rhetoric, has not been the free-market reformer we might have hoped for. I wrote previously on his hostility towards the Doha round, and he has reportedly seized on Ireland’s rejection of the Lisbon treaty as a signal that Europe’s strategy in the WTO needs to change.

Of course, a liberalizing result in the Doha round is not necessary for lower trade barriers (see here and here, for example), bit it certainly would be welcome.

Has Trade Saved Us from Recession?

Good news on the economy, sort of. The Commerce Department reported this morning that it has revised the economy’s growth rate in the first quarter of 2008 to 1.0 percent. That is slightly higher than the government’s earlier two estimates and it means we have probably dodged a technical recession, at least for the first half of this year.

Politicians on the campaign trail should take note of the report for a couple of reasons. First, let’s not exaggerate the U.S. economy’s current difficulties. Politicians love a full-blown crisis because it can be used to justify all sorts of regulatory and spending programs. This is not a crisis (and government “stimulus” efforts typically have little effect, anyway).

Second, they should give thanks to America’s more globalized economy for smoothing the business cycle and possibly saving us from full-blown recession this time around. Trade is one of the bright spots of the latest report. While the housing sector has contracted by a quarter, shaving more than a percentage point from overall GDP growth, exports have been going gangbusters. Exports rose by more than 5 percent in the first quarter on an annual basis, offsetting about two-thirds of the negative effect of the housing market.

As I wrote in a Cato Free Trade Bulletin earlier this year on the subject:

[E]xpanding trade and globalization have helped to moderate swings in national output by blessing us with a more diversified and flexible economy. Exports can take up slack when domestic demand sags, and imports can satisfy demand when domestic productive capacity is reaching its short-term limits. … A weakening dollar has helped to boost exports and earnings abroad, but the main driver of success overseas has been strong growth and lower trade barriers outside the United States.

Instead of blaming trade for our current economic slowdown, politicians should be thankful that trade has spared us from something worse.