Topic: Trade and Immigration

Reflections on China’s 1949 “Liberation”

During a speaking trip to China three years ago, the young tour guide in Beijing kept referring to “the liberation.” I soon realized that she meant the October Revolution of 1949, in which Mao Tse Tung and the communists seized power and began their rule 60 years ago today.

Far from liberating China, the reign of Mao represents one of the worst tyrannies in the history of mankind. Opposition parties, free speech and freedom of religion were quickly eliminated. The Great Leap Forward of 1958-61 forced the collectivization of agriculture, resulting in a famine that killed tens of millions. The Cultural Revolution of 1966-76, while not as deadly, unleashed chaos that crippled the economy and scarred a generation. As Gordon Chang writes in a Wall Street Journal op-ed this morning, the celebration by the Chinese people will be understandably muted.

China’s real liberation began not 60 years ago, but 30 years ago, with the reforms of Deng Xiaoping. While China remains an oppressive, one-party state politically, its economy has taken a true great leap forward in the past three decades because of market reforms in agriculture, industry, and trade. China’s liberation has far to go, but the Chinese people today are much more free of government interference in their personal, daily lives than they were in the time of Mao.

When I point to China’s economic progress as an example of what trade liberalization can deliver, my debate opponents will sometimes counter that China is a communist country. But China’s dramatic growth has not occurred because of its residual communism. For 30 years now, its government has been in the process of abandoning the communist economic policies of Mao and his fellow “liberators,” much to the benefit of the Chinese people and the world.

Democrats Favor Trade Sanctions on Americans

Scott Lincicome sharpens his pencil today and calculates that Congressional failure to ratify the U.S.-Colombia Free Trade Agreement–a deal that was signed almost three full years ago–has so far cost American exporters $2 billion.  That tally increases $1.9 million each and every day.

Since that time [the trade agreement signing], American exporters have paid approximately $1.9 million per day in Colombian tariffs that they wouldn’t have paid if the Democrat-controlled Congress had just passed the FTA back then and thus allowed it to enter into force. By my math, that means that Congress’ and (now) the President’s partisan stalling has resulted in a pointless tax on American businesses of almost $2 billion ($1.9798 billion = 1042 days times $1.9 million) and counting.

My colleague Dan Griswold explained yesterday how U.S. trade policy punishes poorer people abroad, and amounts to a regressive tax here at home:

America’s highest remaining trade barriers are aimed at products mostly grown and made by poor people abroad and disproportionately consumed by poor people at home.  While industrial goods and luxury products typically enter under low or zero tariffs, the U.S. government imposes duties of 30 pecent or more on food and lower-end clothing and shoes – staple goods that loom large in the budgets of poor families.

The Obama administration and Congress could easily remove the sanctions that burden America’s exporters and lower-income consumers.  But until they’re convinced that they can make up the revenues lost by crossing Big Labor, the Democratic Party playbook counsels more of the same disingenuous rhetoric of fraternity with the common man and more exaggerations about evil foreign labor practices.

President Obama’s Trade War on the Poor

A Wall Street Journal story yesterday reports the rising level of poverty in America caused by the steep and lingering recession. As I point out in a Washington Times column that also ran yesterday, one unintended consequence of President Obama’s trade policies so far has been to make the growing number of poor even poorer.

As I explained in the “Economic Watch” column:

America’s highest remaining trade barriers are aimed at products mostly grown and made by poor people abroad and disproportionately consumed by poor people at home. While industrial goods and luxury products typically enter under low or zero tariffs, the U.S. government imposes duties of 30 percent or more on food and lower-end clothing and shoes - staple goods that loom large in the budgets of poor families.

To win favor with organized labor and other opponents of trade liberalization, Mr. Obama has either defended or actually raised barriers on precisely those products of most interest to poor households. …

The $25 billion in revenue raised each year from import duties represent by far the most regressive tax the federal government imposes. Yet the Obama administration and the Democratic Congress have refused to move forward with trade agreements that would lower trade taxes that fall most heavily on the poor. By supporting the farm bill, but not new trade agreements, the president has embraced the status quo rather than change.

Read the full article.

The REAL ID Deadline Is Fake

Some state governments have claimed that a pending compliance deadline for REAL ID requires them to tighten up their driver’s licensing procedures consistent with the 2005 national ID law. (But see this.)

In fact, REAL ID is dead and the deadline is fake. More than a dozen states have statutorily barred themselves from complying, and in a rule published Monday the Department of Homeland Security extended the deadline again. This is the same thing it did last May and could easily do indefinitely.

The republic survives, and will survive quite nicely without this or any national ID law.

Finally, a Pro-Trade Proposal on Climate Change

One of the main recommendations in my recent paper on climate change and trade was to reduce trade barriers on “environmental goods and services.” Trade liberalization in this area is slated for special attention in the Doha round of multilateral trade negotiations, but progress there is decidedly unimpressive.

I’m under no illusion that this development had anything to do with my recommendations, but it seems that the 30 member countries of the Organization for Economic Cooperation and Development are attempting a trade deal amongst themselves and China to expedite tariff reductions in “climate friendly” goods (more here).  Apparently it is designed to be an incentive to get Beijing on board for a global climate deal, but of course American consumers and businesses would gain from cheaper and better access to green technology, too.

I would, of course, prefer that U.S. lawmakers see the value in reducing tariffs on all goods without waiting for the other OECD members to catch on, but surely this development is better than the alternative.

Curbing Free Trade to Save It

In the latest example of “We had to burn the village to save it” logic, Sen. Sherrod Brown (D-OH) argues in a letter in the Washington Post this morning that the way to “support more trade” in the future is to raise barriers to trade today.

Brown criticizes Post columnist George Will for criticizing President Obama for imposing new tariffs on imported tires from China. Like President Obama himself, Brown claims that by invoking the Section 421 safeguard, the president was merely “enforcing” the trade laws that China agreed to but has failed to follow. He scolds advocates of trade for talking about the “rule of law” but failing to enforce it when it comes to trade agreements. Brown concludes, “If America is ever to support more trade, its people need to know that the rules will be enforced. And Mr. Obama did exactly that.”

Nothing in U.S. trade law required President Obama to impose tariffs on imported Chinese tires. As my colleague Dan Ikenson explained in a recent Free Trade Bulletin, Section 421 allows private parties to petition the U.S. government for protection if rising imports from China have caused or just threaten to cause “market disruption” to domestic producers. If the U.S. International Trade Commission recommends tariff relief, the president can decide to impose tariffs, or not.

The law allows the president to refrain from imposing tariffs if he finds they are “not in the national economic interest of the United States or … would cause serious harm to the national security of the United States.”

As I argue at length in my new Cato book Mad about Trade, trade barriers invariably damage our national economic interests and weaken our national security, and the tire tariffs are no exception. If the president had followed the letter and spirit of the law, he would have rejected the tariff.

And since when is causing “market disruption” something to be punished by law? Isn’t that what capitalism and market competition are all about? New competitors and new products are constantly disrupting markets, to the discomfort of entrenched producers but to the great benefit of the general public and the economy as a whole.

Human beings once widely practiced an economic system that minimized market disruption. It was called feudalism.

C/P Mad About Trade

Hey G-20! Here’s How You Curb Protectionism

Last week I recommended reading a new paper published by the Lowy Institute in Australia, which proposes an utterly sensible reform for the G-20, if curbing protectionism is a serious aim.

Using Australia’s own successful experience as an example, the authors recommend other countries adopt “domestic transparency” programs, which would essentially include analysis from an independent, apolitical board or agency that measures the real costs and benefits of proposed trade restrictions.

The findings of these independent reviews would be accessible to the public—and probably published in newspapers and other popular media—in advance of any decision to impose or reject the proposed trade restrictions. The findings wouldn’t legally bind the authorities to take any particular action, but would help chase from the shadows the real costs of protectionism, so that those ultimately making the decision know that the public at large is aware of the costs.

When a politician knows that he/she can benefit politically by imposing import duties, the costs of which are hidden in higher prices paid by consumers, who are unlikely to make the causal connection, there is a profound asymmetry of incentives and disincentives. The politician is much more likely to choose to secure the political benefit of imposing duties since the costs are hidden. But if light is shone on those costs, through domestic transparency initiatives, that asymmetry is reduced or eliminated. Politicians, under these circumstances, can go back to the special interests and say how much they’d like to help out with a tariff, but the costs don’t justify the measure. And the protection-seekers know the politician’s hands are tied because the public is aware of those costs.

Well, Alan Mitchell of the Australian Financial Review on Monday supposed how the presence of a domestic transparency regime would have affected President Obama’s tire tariff decision. It is very instructive:

The case of the Chinese tyres provides a striking example. The action was taken under a section of the US Trade Act popularly known as the “China-specific safeguard” provision. The act allows increased import duties if the imports cause, or even just threaten, material injury to US producers. If material injury is identified, the president must take action against the imports unless he determines that the “provision of such relief is not in the national economic interest.”

 The US International Trade Commission (ITC) publicly advises the president on the issue of material injury, and on the level of trade barriers needed to stop it, but not on the question of the national economic interest.

The president is left to determine that for himself. And the public is aware of nothing but the ITC-endorsed case for protection….

Suppose the ITC had been asked to also publicly advise the President on whether action against Chinese tyres was in the national economic interest. There is no doubt about what its advice would have been. The duties on Chinese tyres will save some jobs among US producers of low-cost tyres, but at the price of propping up uneconomic producers, and at the cost of jobs lost among US tyre retailers and in other sectors of the economy….

Had the ITC advised that action was against the national economic interest, the President would have been in a much stronger position to reject the demand, if he had wanted to. He may not have wanted to, of course….

The US action against Chinese tyres was initiated by a complaint from the unions that are an important part of Obama’s support base. But even if Obama had protected the tyre makers against the advice of the ITC, an important blow still would have been struck against protectionism. The American people would have heard the truth from an unimpeachable source: the protection of inefficient tyre makers is against the US economic interest….

It would have been a small but important step towards educating and changing public opinion. And, without that, multilateral trade reform will never gain the domestic political support it needs to bring down trade barriers in agriculture and services.

This is what could have been had ”domestic transparency” already been embraced in the United States.  See the point in such a reform?