Topic: Trade and Immigration

The Democrats and Free Trade

If and when trade and globalization come up at the Democratic National Convention next week, I can almost guarantee that the take will be negative. It has become part of the party’s core message these days that free trade favors the rich at home and our unfair trading partners abroad. Just yesterday, in a tour of southern Virginia, Democratic hope Barak Obama took an indirect swipe at trade when he told a crowd in Martinsville, “You’re worried about the future. Here people have gone through very tough times. When you’ve got entire industries that have shipped overseas, when you’ve got thousands of jobs being lost… . That’s tough.”

Not all Democrats share the pessimistic view of trade. In the latest edition of the Cato Journal, hot off the presses, I review a new book by pro-trade Democrat Ed Gresser of the Progressive Policy Institute. In my review of Freedom from Want: American Liberalism and the Global Economy, I wrote:

Although it is easy to forget today as Democratic candidates rail against NAFTA and globalization, but for decades it was the Democratic Party that championed lower tariffs. Democrats opposed the high tariff wall maintained by Republicans from the Civil War to World War One, arguing that tariffs benefited big business at the expense of poor consumers. Under President Woodrow Wilson, Congress drastically lowered tariffs in 1913 and replaced the revenue with an income tax, only to see Republicans raise tariffs again in the 1920s, culminating in the Smoot-Hawley Tariff of 1930 and the Great Depression that followed.

The Democrats should think long and hard before they give up that legacy altogether.

You can read the full review here.

A Modest Proposal to Protect Newspaper Jobs

Gannett announced this week that it will eliminate more than 1,000 positions among its 85 daily newspapers and 900 non-dailies. The reason for the layoffs has become all too familiar — declining readership and advertising sales, primarily because of lower-cost competition from the Internet.

I’m waiting for a member of Congress to issue the following news release:

WASHINGTON, Aug. 15—Rep. John Smith today announced his opposition to the loss of jobs at Gannett and other newspaper companies and demanded that Congress and the president rethink their commitment to “so-called free domestic trade.”

“The loss of thousands of decent, good-paying middle-class union jobs will be devastating to my district and to communities across America,” Rep. Smith announced. “Our misguided domestic trade policies have exposed vital industries to unfair competition. Our newspapers, record shops, and book stores must not be forced to compete against dumped services sold at predatory prices.”

Rep. Smith blamed growing use of the Internet since 1994 for stagnant real wages, a shrinking middle class, falling home prices, and rising levels of crime, alcoholism, and divorce in America’s newsrooms.

Rep. Smith rejected what he called “academic theories about competition, comparative advantage, technological progress, and productivity gains.” He also denounced supposed evidence that the Internet has brought benefits to millions of workers and consumers as “mere statistics.”

As Rep. Smith told cheering constituents at a recent debate, “Look, people don’t want cheaper news and information if they’re losing a job in the process. They would rather have the job and pay a little bit more for their news. And I think that’s something that all Americans could agree to.”

Rep. Smith demanded that the president and Congress embrace an immediate “time out” on all new technologies and web sites until domestic trade policies “can be made to work for all Americans.” He demanded more vigorous enforcement of domestic antidumping rules and an additional $1 billion in the FY2008 budget to expand Technology Adjustment Assistance (TAA) programs.

The Answer to High Oil Prices and Global Warming? More Global Poverty, Less Immigration

Opponents of immigration are now trying to hitch their wagon to worries about high oil prices and global warming.

An ad on page A12 of today’s Washington Post asks, “If foreign oil has us over a barrel now, what happens when our population increases by another 100 million?” The text of the ad tries to provide the answer: “With America’s population at a record 300 million today, [oil] supplies are again tight in spite of record high prices. And the U.S. Census Bureau projects that another 110 million people will be added to our population between 2000 and 2040.” So, if we want lower oil prices, we need to reduce America’s population growth and that means reducing immigration. Get it?

The ad is sponsored by five anti-immigration, anti-population-growth groups, including the Federation for American Immigration Reform (FAIR) and Californians for Population Stabilization.

The ad provides no evidence that rising global demand for oil has been driven primarily or even significantly by population growth in the United States. In fact, our total oil consumption has actually declined compared to last year, while demand continues to rise in developing countries. The two previous big spikes in global oil prices, in 1973 and 1979, occurred when the U.S. population was 80 to 90 million LOWER than it is today.

The future direction of oil prices will be determined by such factors as energy efficiency, economic growth in emerging economies, oil production, and development of alternative energy sources. Immigration rates to the United States won’t matter.

As though on cue, the Center for Immigration Studies released a report this morning with the headline, “Immigration to U.S. Increases Global Greenhouse-Gas Emissions.” The report argues that immigration “significantly increases world-wide CO2 emissions because it transfers population from lower-polluting parts of the world to the United States, which is a higher-polluting country.”

What the CIS study is really arguing is that rich people pollute more than poor people, so the world would be better off if more people remained poor. The same argument could be used to oppose economic development in places such as China and India that has lifted hundreds of millions of people out of poverty in the past two decades.

Through the dark lens of CIS, the world is a better place when poor people remain stuck in poor countries, and poor countries remain poor.

Sound Advice from Bill Clinton’s Trade Rep

At a Senate Finance Committee hearing last week, a top trade official from the Clinton administration voiced her dissent from the trade-skeptic orthodoxy that now seems to dominate the Democratic Party.

Charlene Barshefsky was one of several former U.S. Trade Representatives who testified at the July 29 hearing. She served as Bill Clinton’s USTR from 1997 to 2001. In contrast to presidential hopeful Barack Obama and the Democratic leadership in Congress, she told the panel that Congress should pass pending free trade agreements with Colombia, South Korea, and Panama.

According to BNA’s weekly International Trade Reporter newsletter [sorry, subscription required], she told the panel that blocking the U.S.-Colombia agreement would do nothing to improve labor rights in Colombia. In fact, refusing to enact the agreement would be the “dream” of Colombia’s anti-American neighbor Hugo Chavez, the heavy-handed president of Venezuela. Those are among the main points my Cato colleague Juan Carlo Hidalgo and I made in our Free Trade Bulletin on the agreement earlier this year.

Former USTR Barshefsky pronounced the U.S. tariff code as outdated in our era of globalization. We continue to apply high tariffs to such light-manufacturing products as clothing, shoes and household linens at the expense of low-income families. “They protect few if any jobs, but do noticeable damage to hopes of poverty reduction in the United States,” Barshefsky reminded the senators.

Her fellow Democrat Earl Blumenauer, the congressman from Oregon, made the same point a few days earlier at a Cato policy forum on why Congress should unilaterally lower tariffs on shoe imports. You can watch a video of the forum here.

Trade-Blog-Posts-At-Dawn

I’ve written before on the presidential candidates’ positions on trade (and spoke at a forum here on their economic positions more broadly) but the Wall Street Journal has gotten one degree closer to the candidates by getting their advisers to engage in back-and-forth discussions on trade.

The latest entry was a discussion on farm subsidies. John McCain has been a staunch opponent of farm subsidies, never voting for any during his time in Congress. Barack Obama, however, seemed to out aside his general theme of change to support the 2008 Farm Bill, a shameful example of Lobbying 101 and outmoded pork. What caught my eye, though, was this quote from Daniel Tarullo, economic adviser to Senator Obama, when he was asked about a possible change in negotiating strategy on farm subsidies should the failed Doha round ever be revived:

…as a matter of negotiating strategy to advance American interests, it would be self-defeating to indicate to the rest of the world what positions an Obama Administration might or might not take should serious negotiations eventually resume.

Why the secrecy? Does Tarullo not know the answer to the question? Does Obama?

EPI Gets Trade and Jobs Story Wrong Again

According to a report released today by the Economic Policy Institute, trade with China has caused a loss of 2.3 million American jobs since the Asian giant joined the World Trade Organization in 2001. The study will get a lot of coverage, but its numbers and methodology are shockingly flawed.

This is a well-traveled road for EPI and the report’s main author Robert Scott. Scott has authored other reports that have come to the same conclusion about NAFTA and earlier periods of trade with China. The methodology virtually guarantees a finding of job losses: It assumes that imports displace a certain number of workers while exports create new jobs, and since we run trade deficits with China and Mexico—surprise!—trade with those countries leads to net job losses.

I’ve dissected the flaws of EPI’s approach elsewhere, but to just summarize what everyone should keep in mind when you read about the EPI report:

EPI exaggerates the number of American companies and workers who compete directly against Chinese imports. Many of our main imports from China—shoes, clothing, toys, and consumer electronics—were being imported from other countries before China’s emergence as a major supplier. In fact, as imports from China have risen since 2001 as a share of total imports, imports from other Asian countries have been in relative decline. So imports from China do not typically displace U.S. production but instead displace imports from other countries. In fact, in the past year, the U.S. unemployment rate has been heading up as our overall trade deficit has been heading down.

EPI ignores the creation of jobs elsewhere in the economy that are made possible by trade and globalization. Exports aren’t the only channel through which trade and globalization creates jobs. Foreign capital flowing into the United States—the flip side of the trade deficit—creates jobs through direct investment in U.S. companies and indirectly by lowering interest rates, which stimulates more domestic investment.

Even when trade does displace workers, in a flexible and growing economy, new jobs will be created elsewhere. As I reported in my October 2007 study “Trading Up,” job losses in manufacturing during the past decade have been more than offset by net job gains in better-paying services sectors.

Since China joined the WTO in 2001, U.S. exports to China have shot up by 22 percent per year, the U.S. economy has added a net 6 million new jobs, real compensation per hour earned by U.S. workers—that is, wages plus benefits adjusted for inflation—is up 9 percent, and manufacturing output is up 10 percent. Last year, America’s supposedly beleaguered manufacturers earned collective profits of $305 billion, more than five times what they earned the year China joined the WTO.

As we struggle through a domestic slowdown and rising prices for consumers, we could use more trade with China, not less.

E-Verify: More Study Needed

Though reauthorization of E-Verify was briefly in doubt, it appears now that congressional authorizers have agreed on a way forward, and that the program needs a lot more study.

A bill on the House floor today would extend E-Verify as a “voluntary” program for 5 years and require much more study of the system and its problems. The consensus at the beginning of the year was that Congress would require every employer in the country to use it by the end of the year.

Since then, flaws in the E-Verify database and tracking system have come to light and it has become more clear that “internal enforcement” of immigration law means tracking and databasing all Americans. My paper on the subject is called “Franz Kafka’s Solution to Illegal Immigration.”

E-Verify is losing its luster. In the reauthorization bill, Congress has tasked the Government Accountability Office with conducting two studies to explore problems with the system and the policy. One will look into the large number of erroneous “tentative nonconfirmations,” their causes, and potential remedies. DHS sought to glide past these issues in its advocacy for E-Verify this year. The other will look at how E-Verify would effect small businesses (and also small non-profits and municipalities). Current users of E-Verify tend to be large employers that are motivated (by threat of enforcement or past enforcements) to comply scrupulously with the law. The already low quality of the E-Verify system’s results will drop when other employers not so motivated begin to use it.

If E-Verify goes forward another five years, technical and programmatic problems will become more clear. But we shouldn’t take our eye off the ball. A national E-Verify system would be used to give the federal government direct regulatory control over law-abiding Americans. Federal authorities would use it to control not just work, but housing, financial services, health care, and access to alcohol, tobacco, and firearms — and these are just the obvious things.