Topic: Trade and Immigration

Welcome Developments on Trade

Yesterday, President Obama broke his long silence about the Buy American provisions in the congressional spending bills. In an interview with ABC’s Charlie Gibson, Obama expressed support in principle for removing the provocative language to expand Buy American provisions:

CHARLES GIBSON: A couple of quick questions. There are “Buy America” provisions in this bill. A lot of people think that could set up a trade war, cost American jobs. You want them out?

PRESIDENT OBAMA: I want provisions that are going to be a violation of World Trade Organization agreements or in other ways signal protectionism. *** I think that would be a mistake right now. That is a potential source of trade wars that we can’t afford at a time when trade is sinking all across the globe. (***Per the White House, President Obama misspoke and meant to say, “I want provisions that are not going to be a violation of World Trade Organization agreements or in other ways signal protectionism.” )

CHARLES GIBSON: What’s in there now? Do you think that does that? Do you want it out?

PRESIDENT OBAMA: I think we need to make sure that any provisions that are in there are not going to trigger a trade war.

And in an interview with Fox, the President said:

I agree that we can’t send a protectionist message…I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade. (my emphasis)

It looks like President Obama gets it, although I would be more convinced of that if his last statement didn’t seem to regard “world trade” and “just looking after ourselves” as mutually exclusive. More engagement in world trade is one of the best ways to look after ourselves.

Finally, just a word of caution to our friends in Europe and Canada, where this morning’s newspapers are gleeful about the development: even though the U.S. president opposes the Buy American restrictions, the Congress still needs to strip out those provisions. If Congress keeps those provisions in a final spending bill, which passes both chambers of Congress, it’s going to be very tough for the President to veto the legislation.

Administration Delays E-Verify for Federal Contractors

The Washington Post reports that the Obama administration is delaying the Bush administration plan to require federal contractors to use the E-Verify worker background check system.

Criticizing the move, Lamar Smith (R-TX), ranking minority member on the House Judiciary Committee, says, “It is ironic that at the same time President Obama was pushing for passage of the stimulus package to help the unemployed, his administration delayed implementation of a rule designed to protect jobs for U.S. citizens and legal workers.”

E-Verify may well have been designed or intended to protect jobs for citizens and legal workers, but that’s not at all what it would do. I wrote about it in a Cato Policy Analysis titled “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration” (a 10-year follow-on to Stephen Moore’s “A National Id System: Big Brother’s Solution to Illegal Immigration”):

A mandatory national EEV system would have substantial costs yet still fail to prevent illegal immigration. It would deny a sizable percentage of law-abiding American citizens the ability to work legally. Deemed ineligible by a database, millions each year would go pleading to the Department of Homeland Security and the Social Security Administration for the right to work.

Even if E-Verify were workable, mission creep would lead to its use for direct federal control over many aspects of American citizens’ lives. Though it should be scrapped, the longer E-Verify is delayed, the better.

Capitol Visitor Center Forced to Return Politically Tainted Goods

In addition to the terrible ‘Buy America’ provisions in the stimulus package (blogged about by Dan here and here) comes news that vendors in the Capitol Visitor Center are being forced to remove items made in China from their shelves. In the words of Rep. Bob Brady (D, PA), the chairman of the House Administrative Committee that oversees the Capitol Visitor Center, it is wrong (you get that? wrong) for people to take home souvenirs made abroad. If operators have to pay shipping costs to return the iniquitous goods to China, then, he says, ”if we have to lose a little bit, we’ll lose a little bit.” Indeed.

HT: Jason Vines.

Buy American Is Politics as Usual

As I wrote in an earlier post today, the Buy American provisions in the just-passed House and currently-worded Senate spending bills will encourage similar measures abroad, threatening yet more tit-for-tat protectionism, as respect for international trade rules disintegrates.

It’s not too difficult to discern who’s behind the Buy American provision, which reads:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel [my emphasis] used in the project is produced in the United States.

Evidently, the once-and-for-always politically savvy U.S. steel industry has not lost its touch. Like profit-maximizing firms in any industry, America’s steel producers have devoted large chunks of their profits (which have been enormous and record-setting over the past five years, up until 4Q08) to their highest yielding input. For Big Steel, that input isn’t human capital or physical capital, but the far more productive enterprise of lobbying for taxpayer largesse. And this will be a pretty big payday for these modern-day robber barons.

But, it is absolutely stunning—even to those who have watched this industry impose its will over U.S. trade policy at great expense to other industries time and time again—that nobody in Congress has blown a whistle on this outrageous scheme. The incredibly profitable U.S. steel industry (which has fallen on harder times in the past several months like everyone else), consists of fewer than 100,000 workers. It is the ONLY beneficiary of this hair-brained provision that will undermine any incentive the industry has to remain efficient, and promises to spark reprisals and crush export sales for industries that employ millions of workers. That doesn’t strike me as a recipe for U.S. job growth.

That is not to say that Buy American coverage should therefore be expanded. It should be stripped entirely. All that those rules do is guarantee that a good portion of the billions of dollars the government is borrowing – on our children’s tab – will be wasted on unnecessary mark-ups. Think $300 light bulbs at the Penatagon? Each project will cost more than it should and do much less for the economy and for job growth than they would if those project dollars were in the hands of the private sector – where there is natural incentive for cost management.

The U.S. steel industry has already burdened taxpayers, consumers, and it’s much more economically significant customers (who support 50 jobs for every 1 in the steel industry and account for 10-times the steel industry’s share of GDP) over the decades. Just this decade, the steel industry dumped $13 billion of legacy costs on the taxpayer-funded Pension Benefit Guarantee Corporation and convinced the Bush administration to impose sweeping tariffs on imports for nearly two years. Not a dime of that was repaid during the industry’s subsequent boom years (which just ended a few months back).

These Buy American provisions are an outrage and someone in the Senate, or the White House, should speak up.

Trade Lessons Unheeded

Leaving aside the many other disastrous implications of the pork-laden “stimulus” bill, here are some thoughts about its impact on international trade. For all practical purposes there is no difference between the Smoot-Hawley tariff bill of 1930 and the “Buy American” provisions in the $819 billion spending bill that passed the House Wednesday.

Smoot-Hawley was the catalyst for a pandemic of tit-for-tat protectionism around the world, which helped deepen and prolong the global depression in the 1930s.  “Buy American” provisions will no doubt inspire similar trade barriers abroad and will have the same effect of reducing global trade—and therefore prospects for economic recovery.  It is not unreasonable to say that U.S. policymakers are on the verge of taking us down that same disastrous path.

The bill that passed the House includes the following language:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States.

The version currently before the Senate contains the same language, which would seem to indicate that scrapping the provision won’t be necessary to reconcile the two versions in conference.  So, unless the “Buy American” clause is dropped in the final Senate bill or is somehow defused during conference, the U.S. will have fired the first shot in what could evolve into a much wider trade war.

It’s usually better to be circumspect and to issue such dire warnings sparingly, but I see little room for alternative conclusions here.

Some (Relatively) Good News on Trade

A couple of noteworthy events this week that signal Hope™ for not-too-egregious trade policy from the new administration.

First, Obama met with Mexico President Filipe Calderon and reportedly made no mention of renegotiating NAFTA (although he did say that he wants to revisit labor and environment provisions in that agreement, which is bad enough). Second, President Obama and President Lula da Silva of Brazil spoke by telephone yesterday (more here) and pledged to work together on biofuels (cryptic enough to leave this sceptic unmoved) and on the Doha round of world trade talks.

I am still not convinced of President Obama’s free trade credentials, and it’s a sad day when our expectations are lowered to the extent that we are affirmatively pleased that no protectionist action is being taken. I certainly don’t suggest we laud politicians for not catering to their worst instincts. But in this case, no news is good news.

Republicans Seek Lasting Damage in the Stimulus

Though the stimulus package racing through the house is unlikely to work, some Republicans are going a step further and seeking to ensure that it does lasting damage to our economy - and to the freedom of our society.

Amendments to the stimulus bill in committee last week include one to reauthorize “E-Verify,” the budding national identification and government background check system. Another would mandate the use of E-Verify by any business receiving stimulus money.

The growth of E-Verify would raise costs on business and make it harder for many law-abiding Americans to get work, draining energy from the economy at precisely the wrong time - not that there’s ever a good time.

I wrote about electronic employment verification programs like E-Verify in a paper called “Franz Kafka’s Solution to Illegal Immigration.”