Topic: Trade and Immigration

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.”

A Government That “Works,” but for Whom?

In his inaugural address yesterday, President Obama tried to step around the central question of whether the federal government has grown too big and powerful:

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

Even in skirting the question, President Obama has in effect come down on the side of bigger government. His statement assumes that government programs will be central to creating jobs and providing health care and retirement security. For every problem confronting American families, it is just a question of finding the right program that “works.” He leaves off the table the very real possibility that government intervention has made each of those problems more difficult for Americans to solve, and that the answer really is a smaller role for government.

The other open question is who decides if a government program “works.” President Obama has wrapped himself in the mantle of change, yet as a candidate he endorsed the 2008 farm bill. The existing U.S. policy of production subsidies and import tariffs, a policy that has remained essentially unchanged for 75 years, arguably “works” for a small number of relatively well-off sugar, dairy, corn, rice, and cotton farmers. But for the vast majority of Americans, the farm bill delivers higher and more volatile prices at the store, billions of dollars a year in additional government spending, higher cost for U.S. businesses, a degraded environment, and a harder slog out of poverty for millions of farmers in less developed countries. [You can go here to find Cato research on how farm programs have failed to work in our national interest.]

If Senator and candidate Obama could not see the need to end our failed farm policies, it is hard to imagine many if any other programs that will come to an end under his administration.

For more on how scrapping farm subsidies would be a good first step toward removing failed government programs, watch this video:

Ways and Means to Subvert Foreign Policy

President-elect Obama has emphasized his intention to focus on restoring America’s squandered credibility with the rest of the world. He might want to reinforce that message for Congress or begin the process of distancing himself from its leadership because, like it or not, trade policy is a tool of foreign policy, and Congress isn’t looking very diplomatic about trade.

Yesterday, House Ways and Means Committee chairman Charles Rangel and Subcommittee on Trade chairman Sander Levin introduced the Trade Enforcement Act of 2009. Among the legislation’s provisions:

  • It would make it easier for domestic industry to obtain trade restrictions in antidumping and China-specific safeguard cases.
  • It impugns and defies World Trade Organization dispute settlement decisions.
  • It compels the Commerce Department to reverse its implementation of a WTO decision last year on the issue of “zeroing.” 
  • It establishes an Office of the Congressional Trade Enforcer to investigate foreign barriers to U.S. exports and to systematically develop complaints to file with the WTO, among other provisions.

Clearly, the United States is well within its rights to bring cases against its trade partners to the WTO. And generally, if U.S. exporters are facing market barriers that our trade partners committed to dismantle, then I support efforts to seek redress. But it is a bit condescending — indeed it whiffs Rumsfeldian — to so publically berate a WTO decision and question its authority (the official language in the legislation actually includes a several-hundred word diatribe against the WTO Appellate Body’s decision) in the same bill that presumes that our trade partners will heed the WTO’s verdicts. That is the kind of exceptionalism and arrogance for which the president-elect is hoping to make reparations.

It remains to be seen what becomes of this legislation or even if there will be a noticeable uptick in U.S. protectionism. But Congress’s increasingly unilateralist instincts on trade and its willingness to humiliate important trade and security partners in Colombia and South Korea by not considering long-pending trade agreements will definitely complicate Obama’s international fence-mending efforts.

Laudable Economic Stimulus Plan in Mexico

While the United States and many other countries flirt with the idea of raising barriers to trade, our enlightened neighbor to the south has a more promising response to the global economic contraction.

On January 2, the Calderon administration initiated a plan (discussed here; HT to Scott Lincicome) to unilaterally reduce tariff rates on about 70 percent of the items on its tariff schedule. Those 8,000 items comprising 20 different industrial sectors accounted for about half of all Mexican import value in 2007. When the final phase of the plan is implemented on January 1, 2013, the average industrial tariff rate in Mexico will have fallen from 10.4% to 4.3%.

The objectives of the plan are to reduce business operating costs, attract and retain foreign investment, raise business productivity, and provide consumers a greater variety and better quality of goods and services at competitive prices. Perhaps our free trade advocacy is having a positive impact on public policy after all. I suspect those objectives are very well served by the plan.

Mexico is no stranger to unilateral trade liberalization—so they’re not just grasping at straws here. This is a tried and true approach to economic growth in Mexico and throughout the world. Many of the reforms Mexico agreed to in the North American Free Trade Agreement were already undertaken before the NAFTA went into effect in 1994. They were undertaken with the same objectives in mind. So, Mexico has some experience and credibility on the issue of the benefits of unilateral trade liberalization.

Let’s hope the rest of the world is watching, if not waiting in the wings.

Porqué Amo La Raza

Several months ago, the National Council of La Raza convened a group of health care wonks to help that organization make up its mind about how Congress should reform the tax treatment of health care.  The wonks included people from Harvard University, the Urban Institute, the Kaiser Family Foundation, Families USA, the United States Hispanic Chamber of Commerce, and elsewhere.

La Raza took the unusual step of inviting a libertarian (me) to be part of that discussion, despite our divergent views.  Where La Raza wants to expand the State Children’s Health Insurance Program, for example, I advocate repealing SCHIP.  I’m glad they invited me; it was one of the most enjoyable policy discussions I’ve ever had.

La Raza took the further unusual step of publishing a transcript of that discussion.  If you’ve ever wondered what it’s like to be a libertarian in the very un-libertarian world of health care policy – and you know you have – I recommend giving it a read.  Oh, and you’ll also learn a lot about health policy from a lot of smart people.

Here is the final product of those deliberations, La Raza’s policy paper on health tax incentives, in which La Raza plugs (without endorsement) my proposal for large health savings accounts.