Topic: Trade and Immigration

Good News! Recession Cuts Trade Deficit in Half!

The latest U.S. trade numbers were released this morning, and the news reports so far have predictably focused on the fact that the U.S. trade deficit in March expanded modestly compared to February.

The real story behind the numbers, however, is that U.S. imports and exports continue to decline. Compared to the month before, U.S. exports of goods fell another $3.0 billion, while imports fell by $1.6 billion.

If we go back a full year, the drop in trade is staggering. Between March of 2008 and March of 2009, U.S. exports of goods and services fell by 17 percent, and imports fell an even steeper 27 percent. As a result, the goods and services deficit is less than half of what it was a year ago.

Critics of trade such as CNN’s Lou Dobbs are always harping that if we could only reduce our dependence on imports, and along with it the trade deficit, Americans would enjoy higher wages and more plentiful jobs.

Well, we’ve managed in the past year to reduce imports by more than a quarter and cut the trade deficit by more than half. Are we feeling any better?

There Are Always Strings Attached…

Following up from my blog entry last week on Rep. Barney Frank’s (D, MA) efforts to reduce restrictions on Americans’ freedom to gamble online, it seems that the prospect of more tax revenue has made some folks see religion.

An article from Texas Insider has details on the political shenanigans needed to get this bill passed, including an associated bill introduced by Rep. Jim McDermott (D, WA) to tax (at a rate of 2%) the deposits into online gambling accounts. Apparently, that could provide up to $43 billion in tax revenue over 10 years. For the children.

Apparently we get our freedoms restored with a side-dish of tax.

As an aside: Note long-term opponent Rep. Bob Goodlatte’s (R, VA) non-sequitur on why allowing the Frank bill to pass is a bad idea:

Apparently, Rep. Frank believes that [Treasury Secretary] Timothy Geithner can do a better job at enforcing our nation’s criminal laws than the Department of Justice, which is scary considering [Geithner’s] track record on complying with the tax code,” he said.

(he is referring to the Frank bill’s proposal to shift responsibility for the licensing and regulation of online gambling companies to the Treasury)

HT: hero of the revolution Radley Balko.

The President’s Misguided Tax Hike on U.S. Companies Competing in World Markets

Bashing big business about “shipping job offshore” may be good politics, but the real-world evidence shows that Obama’s tax hike on American multinationals is spectacularly misguided. I would say it is so bad that it leaves me speechless, but I did manage to pontificate for almost nine minutes in this new video:

One of my goals is to make sure viewers actually understand an issue after watching, so the goal is education rather than just providing soundbites against a particular proposal. As always, feedback is appreciated.

About That Vision Thing…

Does the world need a “shared vision on food and agricultural trade policy”? So says World Trade Organization Director General Pascal Lamy:

Let me start by saying that food and agricultural trade policy does not operate in a vacuum. In other words, no matter how sophisticated our trade policies may be, if domestic policies do not themselves incentivize agriculture, and internalize negative social and environmental externalities, then we will always have a problem.

Here I question what exactly Lamy means by “incentivize”.  Does he mean “make sure we get incentives right”, or does he mean “provide positive incentives to agriculture”? The former probably is harmless if it means simply allowing market forces to work, the latter a potential opening for the types of subsidies and price supports that have done so much damage to agricultural trade policy. Ditto with his wish to “internalize negative social and environmental externalities”: on the face of it, this is a fairly inoffensive goal, and a positively noble one if he is referring to, say, the effects on poor farmers abroad stemming from rich country farm subsidies. But I can see all sorts of nefarious social policies flowing from that prescription if it gets into the wrong hands.

Lamy goes on to make sensible points about the effects of tax policy on agriculture, and makes this statement about the importance of free trade for food security:

To my mind, global integration allows us to think of efficiency beyond national boundaries. It allows us to score efficiency gains on a global scale by shifting agricultural production to where it can best take place. As I often say, if a country such as Egypt were to aim for self-sufficiency in agriculture, it would soon need more than one River Nile. Which basically means that global integration must also allow food, feed, and fibre to travel from countries where they are efficiently produced to countries where there is demand.

All necessary, if not sufficient, conditions for global food security, to be sure. But Lamy then turns to exactly what a global vision for agriculture might involve:

I believe that we could all agree on what the basic objectives are that we seek from our agricultural systems. We all want sufficient food, feed, fibre and some even want fuel. We want nutritious food and feed. We want safe food and feed. We want a decent and rising living standard for our farmers. We want food to be available and affordable for the consumer. We want agricultural production systems that are in tune with local culture and customs, and that respect the environment throughout a product’s entire life-cycle.

Hmm. I’m not sure about all that. For one thing, some of those goals seem potentially in conflict. United States sugar policy, for example, has shown us the results when consumers’ desire for “affordable” food conflicts with sugar farmers’ desire for a “decent and rising living standard” (hint: it’s not the consumers who make out like bandits). Similarly, it is at least conceivable that food grown “in tune with local culture and customs” might be more expensive, or make food less abundant, or even less safe. And if those goals can be in conflict within a country’s borders, I shudder to think what such an overburdened agenda could do to the already-struggling global trading system. At the extreme, a call for a “global vision” of agricultural trade policy could see the return of international commodity agreements and other supranational management nightmares of the mid-late 20th century.

On balance, the WTO has been a force for good in freeing agricultural trade. For sure, commodity markets are still very distorted, and the whole mercantilist basis of the WTO must be questioned. But by trying to harness the desire of exporters for more customers to counteract the pressure on governments to protect domestic industries, the WTO has done much good in the world. Pascal Lamy is right to encourage countries to stay on course with the Doha round of trade negotiations. I just hope that encouraging a “global vision” for agriculture, and pointing to vague notions of “social externalities,” doesn’t run against his stated purpose of freeing farm trade.

More on Cato’s work on agricultural trade policy here.

Shifting Trade Winds

In 2008, major public opinion surveys revealed record-high levels of skepticism about trade and record-low support for trade agreements among Americans. In 2009, results of those same surveys from Gallup, the Pew Research Center, CNN/Opinion Research, and CBS News/New York Times all suggest that American attitudes toward trade have lightened up considerably and are more in line with public opinion in years past. What explains this turnaround?

In a new Cato analysis, Scott Lincicome and I argue that America’s growing skepticism toward trade in recent years derives mostly from the perpetuation and persistence of three myths: 

  1. U.S. manufacturing is in decline. 
  2. The U.S. trade deficit means that America is losing at trade.
  3. Past administrations have been unwilling to enforce trade agreements.

Popularization of these myths by campaigning politicians has been abetted by mainstream media that have become fixated on selling information in dramatic, provocative, scary, and too-often misleading sound bites. When one considers the facts about the impact of trade on our lives, the degree of skepticism is inexplicable unless the impact of “bad press” is considered.

Too many Americans benefit from trade on a daily basis and too few have been adversely affected by trade for the survey results to reflect personal experiences or legitimate worries. After all, the Council of Economic Advisers reports that less than 3 percent of U.S. job loss is attributable to import competition or outsourcing, which means that most Americans don’t even know anyone who can attribute his woes to increased trade.

During the incredibly long election campaign of 2007–2008, antitrade rhetoric was rampant on the campaign trail. In most presidential debates (Republican and Democratic) leading into and during the primaries, trade was disparaged by one or more of the candidates on the stage. In February 2008, in the Democratic presidential debate at Cleveland State University, before millions of American television viewers, the late Tim Russert extracted promises from candidates Obama and Clinton to force Mexico and Canada to reopen NAFTA to fix its allegedly flawed and unfair provisions. If it wasn’t already by then, the word “trade” became an expletive in households across the country. And the public opinion polls cited above all bear that out.

But since the end of the political campaigns in November 2008, the imperative of politicians to disparage trade and demonize trade partners has dissipated (for the time being, at least). And a few other things have happened too. Without the constant buzz of antitrade political rhetoric filling the airwaves, Americans have had the opportunity to actually think about trade in the context of the current recession — and perhaps make some connections.

For example, the economy has been shrinking and unemployment has been rising, while imports and the trade deficit have been declining, too. When imports and the trade deficit were rising, the economy was growing and creating jobs, and unemployment was low. That is at odds with the stories politicians tell about how imports take our jobs away and that the trade deficit means that we’re losing at trade. Americans may be reckoning that higher levels of imports aren’t quite so bad, and that they even reflect a healthy, growing economy. After all, U.S. producers account for the majority of U.S. import value — mostly raw materials, components, and capital equipment purchases used to make things here — and, lo and behold, manufacturing exports are way down over the past year as well. Maybe more trade isn’t such a bad idea.

In addition to the decline in antitrade rhetoric and the linkage that Americans can more readily draw between trade and economic growth, there is the fact that the trade rhetoric has actually turned favorable since President Obama assumed office. Avoiding protectionism and growing our economy out of recession through trade have been thematic in Obama’s early trade policy articulations. That is not to say that there haven’t been incidences of protectionism since January 20. There have been a few and there continues to be consideration of measures that would further limit the freedom of Americans to transact with whomever and as they see fit. But in the preferred political rhetoric of this administration, trade is no longer the bad guy. And protectionism, quite appropriately, in the current dialogue is being linked successfully with policies that turned the recession in the 1930s into the Great Depression.

This set-up is laying the foundation for an Obama trade policy that is likely to be far more accommodating and liberalizing, and far less provocative and restricting, than many had feared. And I can’t say that I’m not looking forward to watching chagrined protectionist constituencies come to terms with the fact that their moment appears to have passed.

Questions for Heritage: REAL ID

The Heritage Foundation’s “The Foundry” blog has a post up called “Questions for Secretary Napolitano: Real ID.”

Honest advocates on two sides of an issue can come to almost perfectly opposite views, and this provides an example, because I find the post confused, wrong, or misleading in nearly every respect.

Let’s give it a brief fisking. Below, the language from the post is in italics, and my comments are in roman text:

Does the Obama Administration support the implementation of the Real ID Act?

(Hope not … .)

Congress has passed two bills that set Real ID standards for driver’s licenses in all U.S. jurisdictions.

REAL ID was a federal law that Congress passed in haste as an attachment to a military spending bill in early 2005. To me, “REAL ID standards” are the standards in the REAL ID Act. I’m not sure what other bill the post refers to.

Given the legitimate fear of REAL ID creating a federal national ID database, section 547 of the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 barred the creation of a new federal database or federal access to state databases with the funds in that bill. (Thus, these things will be done with other funds later.)

The Court Security Improvement Act allowed federal judges and Supreme Court Justices to withhold their addresses from the REAL ID database system, evidently because the courts don’t believe the databases would be secure.

And in the last Congress, bills were introduced to repeal REAL ID in both the House and Senate. Congress has been backing away from REAL ID since it was rammed through, with Senators like Joe Lieberman (I-CT) calling REAL ID unworkable.

It’s unclear what the import of the sentence is, but if it’s trying to convey that there is a settled consensus around the REAL ID law, that is not supported by its treatment in Congress.

The Real ID legislation does not create a federal identification card, but it does set minimum security standards for driver’s licenses.

This sentence is correct, but deceptive.

REAL ID sets federal standards for state identification cards and drivers’ licenses, refusing them federal acceptance if they don’t meet these standards. Among those standards is uniformity in the data elements and a nationally standardized machine readable technology. Interoperable databases and easily scanned cards mean that state-issued cards would be the functional equivalent of a federally issued card.

People won’t be fooled if their national ID cards have the flags of their home states on them. When I testified to the Michigan legislature in 2007, I parodied the argument that a state-issued card is not a national ID card: “My car didn’t hit you — the bumper did!”

All states have either agreed to comply with these standards or have applied for an extension of the deadline.

It’s true that all states have either moved toward complying or not, but that’s not very informative. What matters is that a dozen states have passed legislation barring their own participation in the national ID plan. A couple of states received deadline extensions from the Department of Homeland Security despite refusing to ask for them. Things are not going well for REAL ID.

Secure identification cards will make fraudulent documents more difficult to obtain and will also simplify employers’ efforts to check documents when verifying employer eligibility.

It’s true that REAL ID would make it a little bit harder to get - or actually to use - fraudulent documents, because it would add some very expensive checks into the processes states use when they issue cards.

It’s not secure identification cards that make fraudulent documents harder to obtain - the author of this post has the security problems jumbled. But, worse, he or she excludes mentioning that a national ID makes it more valuable to use fraudulent documents. When a thing is made harder to do, but proportionally more valuable to do, you’ll see more of it. REAL ID is not a recipe for a secure identity system; it’s a recipe for a more expensive and invasive, but less secure identity system.

Speaking of invasive, this sentence is a confession that REAL ID is meant to facilitate background checks on American workers before they can work. This is a process I wrote about in a paper subtitled “Franz Kafka’s Solution to Illegal Immigration.” The dream of easy federal background checks on all American workers will never materialize, and we wouldn’t want that power in the hands of the federal government even if we could have it.

Real ID is a sensible protection against identify fraud.

The Department of Homeland Security’s own economic analysis of REAL ID noted that only 28% of all reported incidents of identity theft in 2005 required the presentation of an identification document like a driver’s license. And it said REAL ID would reduce those frauds “only to the extent that the [REAL ID] rulemaking leads to incidental and required use of REAL ID documents in everyday transactions, which is an impact that also depends on decisions made by State and local governments and the private sector.”

Translation: REAL ID would have a small, but speculative effect on identity fraud.

Congress is set to introduce legislation next week that could largely repeal the Real ID.

The bill I’ve seen is structured just like REAL ID was, and it requires states to create a national ID just like REAL ID did. REAL ID is dying, but the bill would revive REAL ID, trying to give it a different name.

Some groups oppose this version of REAL ID because it takes longer to drive all Americans into a national ID system and frustrates their plans to do background checks on all American workers. But it’s still the REAL ID Act’s basic plan for a national ID.

The Administration should put pressure on Congress to ensure that this legislation does not effectively eliminate the Real ID standards.

Why the administration would pressure Congress to maintain the national ID law in place - by any name - is beyond me. REAL ID is unworkable, unwanted, and unfixable.

Homeland Security Secretary Janet Napolitano signed legislation as Arizona’s governor to reject the REAL ID Act. Her predecessor at DHS, Michael Chertoff, talked tough about implementing the law but came up just shy of lighting the paper bag in which he left it on Napolitano’s doorstep.

The REAL ID revival bill that is being so widely discussed is likely to be both the national ID plan that so many states have already rejected and deeply unsatisfying to the anti-immigrant crowd. Congress rarely fails to grasp a lose-lose opportunity like this, so I expect it will be introduced and to see it’s sponsors award themselves a great deal of self-congratulations for their courageous work. You can expect that to receive a fisking here too.

One Step Closer to Gambling Online?

Following on from the mildly good news of a few weeks ago, Barney Frank (D, MA) has announced that he will introduce a bill tomorrow to roll back current restrictions on gambling online (the restrictions are made operative by bans on U.S. banks from processing transactions to and from gambling websites).  Although the details of the bill are yet to be released, this here article contains some good analysis.