Topic: Trade and Immigration

Again Already with the China Bashing?

The 2012 election season will surely not be remembered in history for great debates on public policy. From what I remember, we were supposed to pick our favored candidate based on who hated women the least, who could be relied upon to bomb other countries most readily, and who could blame China the loudest for our economic woes. The China-bashing theme brought us not only Mitt Romney’s disingenuous promise to tax Americans in the name of Chinese currency reform, but also a bizarre slew (and slough) of offensive and ignorant campaign ads from Republican congressional candidates.

Now it appears that the Republican Governors’ Association has rediscovered the China-bashing tactic in 2013 with an ad targeting Democratic Virginia gubernatorial candidate Terry McAuliffe. In  the video (watch it here, if you must), McAuliffe is shown expressing excitement over a factory being built in China with which he has perhaps some proprietary relationship. The voiceover proclaims, “Instead of creating jobs in Virginia, McAuliffe is betting on China. Can you trust Terry McAuliffe?” That’s it. That’s the entire ad.

I’m not sure whether to be encouraged by the fact that the ad never takes issue with or advocates a particular policy. I suspect that Ken Cuccinelli, McAuliffe’s Republican opponent, doesn’t actually support restricting the outflow of investment capital for the sake of domestic job creation—even though the video implies the wisdom of such a policy. Does Cuccinelli honestly believe that investing in China is a sign of insufficient moral turpitude? I doubt it. We are left pinning our hopes on the possibility that Republicans are merely betting that xenophobia will be a winning campaign strategy. It wouldn’t be the first bad idea they’ve had.

Hat Tip: Google Adsense Algorithm

An Intriguing New Argument In Favour of “Buy American”

In a new article posted on Al Jazeera online, Dean Baker, co-founder of the Center for Economic and Policy Research, a left-leaning and generally trade-skeptic think tank (not to be confused with the London-based Centre for Economic Policy Research network of academic economists) outlines an interesting new way of examining the worth of ‘Buy American’ policies. (I blogged a little about those last week, and drew readers’ attention to the growing use of “Buy American” initiatives at the state level. They are a bad idea.) I may be flattering myself, but I believe that I may be one of the people in “intellectual circles” among whom Dr. Baker believes it is “fashionable… to treat “Buy American” provisions in government spending packages as silly relics that appeal to ill-educated people…” (although I don’t believe I have ever sneered at my intellectual opponents, or seen them as being ill-educated. Misinformed– or simply wrong–maybe, but that has nothing to do with education.)

Anyway, according to Dr. Baker, us “folks in intellectual circles don’t have a clue what [we] are talking about.” But he goes beyond dismissing our arguments, and builds one of his own that I believe is a new one:

We must recognise that most governments seem to have a bias against running large budget deficits, even when large deficits are needed to boost their economies back to full employment. In this context, the political value of including home country preferences in stimulus packages is likely to dwarf whatever losses might be incurred by paying higher prices for goods and services. [emphasis added]

In other words, we needed “Buy American” provisions in the 2009 stimulus plan, or else the plan would have failed. And, insufficient though it may well have been, the stimulus saved us from all sorts of doom.

Two things in Dr. Baker’s article, and in the above quote specifically, jump out at me as novel arguments, or at least novel twists on old arguments. First, Dr. Baker seems to be arguing that “Buy American” policies make sense not in and of themselves, but as political “inducements” (i.e., bribes) to win support for stimulus programs, which seem to be the real goal in Dr. Baker’s eyes. “Buy American” policies are basically a means to an end, an end that American politicians can’t or won’t endorse unless simplistic and nationalistic provisions are attached. Now who’s implying those who support “Buy American” are ill-educated?

And second, there is an explicit acknowledgement that “paying higher prices for goods and services” does indeed involve “losses.” We don’t often hear that admission from protectionists, or if we do, the losses are very much downplayed, or even parenthesized, in the more important context of the importance of “creating or saving jobs.”

I don’t buy this new argument, by the way, no more than I bought the old one. Especially because I remain unconvinced of the benefits of the so-called stimulus. Just thought I would flag it as something new under the sun.

Perfect Storm for ITC Patent Reform

Seven weeks ago, the International Trade Commission announced its decision to ban the importation of some late model iPhones and iPads after finding that Apple had infringed patents owned by rival Samsung. In today’s Wall Street Journal, Verizon Vice President Randal Milch has publicly implored President Obama to exercise his power to veto the ITC’s decision. Such a move could be just the thing to prompt real reform of the ITC’s disruptive role in the patent system.

The prospect of a presidential veto of an ITC exclusion order is pretty exciting. The statutory power of the president to disapprove a decision by the ITC has only been exercised five times since the ITC was created in 1975 and the last president to use the power was Ronald Reagan. Disapproving this new order would certainly turn some heads, and it’s not as unlikely as you might think.

Anti-ITC sentiment has been growing steadily in recent years. In 2006, the Supreme Court made it more difficult for U.S. courts to issue injunctive relief in patent cases, dealing a major blow to patent trolls who buy-up patents for the sole purpose of litigating them. The Court’s holding did not apply to the ITC, making the trade agency a more attractive venue for those unsavory litigants. Now the ITC has decided that it can issue injunctions (as it has in the Apple-Samsung dispute) even when the patent owner previously agreed to license the technology to all who offer a reasonable royalty. More and more observers are coming to recognize that the ITC’s powers are inappropriate and need to be reined in.

A presidential veto of the Apple ban could be just the right thing to push Congress or the agency itself to implement real reform. The House has held a number of committee hearings on the topic in the last two years, and bringing ITC remedies in line with district court practices is included in the Obama Administration’s newest outline for patent reform

Even the ITC’s staunchest advocates would rather have transparent and predictable limits than face the specter of ad hoc nullification of orders resulting from expensive litigation.  As Verizon’s Milch explains in his closing paragraph:

If the administration signaled that it would veto ITC relief orders in instances where courts would have found such orders inequitable, it could discourage parties from clogging the ITC’s docket with such cases in the first place. Then the White House could, mercifully, find it unnecessary to veto ITC decisions, perhaps for another 25 years.

Aligning ITC and district court remedies will do a lot to reduce the disruptive impact of having two venues for patent litigation, but a better policy would be to end the agency’s patent jurisdiction entirely. There is simply no need for an import-only specialized patent court. The law the ITC uses to litigate patents was devised in 1922 to prevent “unfair methods of competition” by foreigner manufacturers.  It is a protectionist relic that should be repealed. 

Unless we abolish the institution now, at some point—maybe in 25 years, probably sooner—the ITC will be messing things up again. 

Give Me Your Engineers, Yearning to Breathe Free

The final segment of last Sunday’s McLaughin Group dealt with U.S. immigration reform, which is currently stuck in legislative limbo on Capitol Hill. In five minutes, the segment deteriorated from a few sensible comments on both sides of the issue, to bad reasoning and uninformed misstatements of the basic facts. More disappointing, it was the ostensibly pro-immigration side of McLaughlin panel that made the worst flubs.

The segment (which starts at 22:38 of the video below the jump) opened, promisingly, with a simple yet sound package on immigration, followed by some good remarks from panelist Clarence Page on the long-term economic benefits of immigration and a reasonable concern by panelist Pat Buchanan and host John McLaughlin that increased immigration could hurt wages for low-income Americans. So far so good—those arguments, along with cultural benefits and concerns, are the right issues to raise on both sides of the debate.

Unfortunately, Page and panelist Mort Zuckerman then took the discussion downhill. Here’s my transcription, beginning at the 26:45 mark:

MCLAUGHLIN: What about existing high-tech workers and engineers? Are their salaries being driven down?

PAGE: No…. Those are the kind of people we need right now, whether they come from overseas or here—skilled workers.

ZUCKERMAN: We have a huge shortage of people like that. We had 195,000 H-1B visas in the year 2000. It was cut down to 65,000. We have a tremendous shortage of these kinds of engineers in this country.

Forget, for the moment, Page’s dismissal of the Law of Supply. Focus simply on his and Zuckerman’s claim that there’s a “need right now” for high-skilled workers. If there is such a “huge shortage,” the employment and wage data don’t showing it. In the fall issue of Regulation (out in late September), labor economist Daniel Kuehn examines the argument for increasing high-skilled immigration. He writes:

The data suggest that occupations commonly filled by high-skilled visa-holders … failed to exhibit any of the major indicators of labor shortage… Inflation-adjusted programmer salaries as well as the salaries of a broader group of computer and IT occupations have remained essentially flat since the end of the dot-com bubble in the early 2000s, only increasing or decreasing by a few percentage points each year with no discernible upward trend. … In the period before the Great Recession, the ratio of unemployed workers to job openings in the PSTS [professional, scientific, and technical services] industry was relatively modest, averaging 0.8 from 2004 (after the recovery from the dot-com bust) to the end of 2007. After the Great Recession this ratio increased to 2.8 unemployed PSTS workers for every PSTS job opening. Not surprisingly, the recession has been associated with a loose labor market, but this is the opposite outcome of what we would expect in a workforce plagued with shortages.

Immigration Reform Is Not Amnesty

Many opponents of immigration reform have labeled any type of legalization for unauthorized immigrants “amnesty.”  In common terminology, an amnesty is a general forgiveness for past offenses. Calling immigration reform amnesty brands it with a scarlet letter in the minds of many who are skeptical of reform.  A recent video made by the Cato Institute explains just some of the many steps an unauthorized immigrant will have to go through to become legalized if the Senate’s immigration reform becomes law: 

Here are some of the steps (this is not an exhaustive list) an unauthorized immigrant must follow to earn the initial registered provisional immigration (RPI) status:

  • In the country prior to 2012
  • Pays any and all outstanding tax bills (not back taxes)
  • Goes through national security and background checks
  • $1,000 fine
  • $500 fee
  • Then the unauthorized immigrant will receive a work permit valid for six years 

After six years, the immigrant will need to apply for another RPI permit:

  • Proves that she’s been employed for virtually the entire six year period
  • Be at no less than 100 percent of the federal poverty level
  • $500 fee

After four years, the immigrant can apply for a green card if she:

  • Proves she can speak English
  • Proves she hasn’t been on welfare
  • Passes another round of background and security checks
  • Pays all of the normal fees associated with a green card
  • The federal government meets most of its immigration enforcement goals

That doesn’t seem like amnesty to me.

Thomas Sowell on Immigration

Thomas Sowell is an influential and prolific writer whose books span the social sciences.  My shelves are full of them, decorated with underlines, marginalia, and dog-eared pages.  But in his recent columns and comments on immigration, Sowell has not approached that topic with the same rigorous attention to detail that he has in his books.  His reliance on incomplete historical examinations in his columns leads him to seemingly support a vast array of government interventions.  In these writings, Sowell makes the same mistakes that he accuses the “anointed” of making in many of his books.

In the column I’ll focus on, professor Sowell’s claim that today’s debate about immigration reform is not as fact-based as previous debates.  The implication is that a lack of facts will lead to poor policy decisions today whereas the policy changes 100 years ago were well thought out and fact-based.  He wrote:

A hundred years ago, the immigration controversies of that era were discussed in the context of innumerable facts about particular immigrant groups. Many of those facts were published in a huge, multi-volume 1911 study by a commission headed by Senator William P. Dillingham.

First, Sowell’s description of the Dillingham Commission’s commitment to facts is inaccurate.  It was a bi-partisan committee formed in 1907 to investigate the impacts of immigration on the United States – especially the so-called “new immigrants” from Eastern and Southern Europe.  The Commission was staffed by Progressives who believed that scientific managerial methods could effectively plan large parts of society and the economy by using the power of the government.  With the exception of one member, William S. Bennet of New York, the commission was stacked with members who had previously supported immigration restrictions. 

The Dillingham Commission produced 42 volumes by 1911, arguing that the “new immigrants” were fundamentally different from old immigrants who came from Western and Northern Europe.  Their culture, rates of economic success, and assimilative potential were supposedly severely constrained.  Those are the same claims made by today’s immigration opponents.  The Dillingham Commission suggested that immigration restrictions (ranging from relatively modest literacy tests to outright quotas and other massive interventions) could solve this “problem.” 

US-EU Trade Talks: Don’t Forget about the Tariffs

In the context of the recently launced US-EU free trade talks (formally, the “Transatlantic Trade and Investment Partnership,” or TTIP), commentators have noted that tariffs between the US and EU are low, and thus the key part of the talks will deal with so-called regulatory barriers to trade.  An article in Inside U.S. Trade observes: “Overall, the U.S. average tariff rate is 3.5 percent, although the average tariff rate on goods that the EU actually shipped to the U.S. last year was even lower, at 1.2 percent, … .”

But these average figures mask some significant “tariff peaks.”  There are lots of individual tariff rates, so if many are low or zero, that makes the average figure fairly low; nonetheless, there are plenty of high tariffs still out there.  The same article points out some US and EU tariff rates that may come up during the negotiations.  Here is the US:

U.S. light trucks tariff of 25 percent; a tariff on wool sweaters of 16 percent; a tariff on sardines of 20 percent; a tariff on tuna of 35 percent; and a tariff on leather at 20 percent

Here is the EU:

applied tariffs on honey of 17.3 percent; carrots at 13.6 percent; potatoes at 14.4 percent; strawberries at 20.8 percent; lemons at 12.8 percent, beef at 12 percent; and lamb at 12 percent

And all of those tariffs add up:

the U.S. collected about $4.5 billion in tariffs from EU products in 2012. … [Of this amount,] $900 million comes from imported German cars; about $260 million comes from Italian clothes and shoes; and about $72 million comes from cheese imports.” 

These negotiations will be complicated in a number of ways, including how to deal with diverging regulations in the US and EU.  But hopefully negotiators won’t forget the basics of free trade: Lowering or eliminating tariffs is a simple and straightforward way to boost economic growth.