Topic: Trade and Immigration

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Former USTR Barshefsky pronounced the U.S. tariff code as outdated in our era of globalization.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.

All Pretenses Abandoned

Welfare enthusiasts have always used pushes for free trade as leverage for increased support for laid-off workers. The logic was that because free trade brings myriad benefits to society, society could give just a little spare change to those who no longer can shelter behind consumer-funded protectionist walls.

That is not exactly a principled position, of course (as I have asserted here before) but a new, ”improved” proposal this time appears to have the support of business groups. They have been convinced that the possible backlash against globalization is worth a massive expansion of the welfare state, and are backing a new wage insurance scheme that would cost $22 billion, funded through payroll (i.e., employment) taxes.

But wait, there’s more. The new program would be available for all displaced workers, not solely for those who lost their jobs because of import competition. While I have always resisted that distinction because it demonized trade unfairly (see here), a trade-linked scheme at least was less costly (less than $1 billion currently) and, up until recently, kept the trade ball rolling well enough.

In light of the collapse of the Doha round, the stalling of the bilateral trade agreement with Colombia, and increased protectionist sentiment at home and abroad, it is clear that negotiated trade liberalization efforts are in peril. What is not clear is whether an expansion of the welfare state would appease trade skeptics, including a certain front-running presidential candidate, and revive the decades long bipartisan support for trade. So what exactly are we buying here?

The Still-Frozen Dohapsicle Round

After nine days of trying to reanimate the cryogenically preserved Doha Round, negotiators are calling it quits again.

I have sympathy for the well-intentioned, hard-working members of those trade delegations who hoped to finally nail down the structure of a Doha Round agreement in Geneva this week. Unfortunately for them, their counterparts included too many pretenders who were more interested in using the stage provided by the negotiations to make political statements for the crowds back home.

The fact that after several days of progress the talks broke down over failure to bridge gaps on what should have been a small caveat provision proves that the political costs of a successful outcome overshadowed the political benefits for some countries.

But there are some silver linings. International trade flows continue to grow faster than the global economy, which has been moving forward at a decent clip this decade. Cross-border investment, too, continues to increase. All of those trends have been facilitated by reforms undertaken unilaterally by countries around the world. And there is every reason to believe that those trends will continue, and perhaps even accelerate while Doha sleeps.

Reauthorization Of E-Verify In Doubt

Had you asked anyone knowledgeable in the area a year ago, they would have told you that Congress was going to make “E-Verify,” the federal government’s immigration background check system, mandatory for all employers by the end of 2008.

Well, a headline in National Journal’s Congress Daily yesterday tells quite a different story (paylink): “Reauthorization Of E-Verify Immigration Program In Doubt.”

“House lawmakers and aides are locked in an impasse over legislation that would renew a program employers can use to verify the legal status of their workers,” the story says, “mainly over language that some worry might ultimately kill this means of enforcing immigration laws.”

E-Verify has gone from “greased” to “on-the-chopping-block” in just one short year.

Irony of ironies, it’s the bureaucracy that may kill it. The main holdup is a dispute over how the system would be paid for. The Department of Homeland Security has apparently been sticking the Social Security Administration with the bill for operating the system, and Social Security hasn’t got any spare funds.

This brings together threads from a couple recent posts of mine on E-Verify. I wrote in April about the inability of the Social Security Administration to provide the services it is currently called on to perform. New responsibilities placed on SSA wouldn’t just magically get done.

From a representative of a Social Security workers’ union, I had learned the following about what people could expect when they went to straighten out their E-Verify paperwork with SSA:

What would the process be like? Well, try calling your local SSA field office to find out. The SSA worker rep reported that 50% of those calls aren’t answered because field offices are too busy. Calls to the SSA’s national 800-number don’t go through 25% of the time. It’s not just a phone problem. The agency currently has a backlog of 752,000 on disability rulings. That’s three quarters of a million people who aren’t getting an answer from SSA. It takes 530 days – a little under a year and a half – to get a disability ruling out of SSA.

And I speculated the other day that Stewart Baker’s recent rant against the Society for Human Resource Management might be motivated by bureaucratic jealousy. Now we see that there’s plenty of it to go around. E-Verify isn’t important enough to get federal agencies to play well together.

In truth, I don’t think E-Verify will go under because of this dust-up, but I don’t think it’s going to be the mandatory, nationwide program so many thought either. (I described many ills of such a policy in my paper, “Franz Kafka’s Solution to Illegal Immigration.”)

There are lessons here for Republicans (and some conservatives) who dreamed that they would solve illegal immigration with a big, national, background-checking enforcement system: Bureaucrats own the bureaucracy. You do what they let you do; they do not do what you think they should do. You can’t turn big government to your ends. It only works for its own ends.