Topic: Trade and Immigration

Intellectual Property in Trade Agreements

Tom Giovanetti of the Institute for Policy Innovation, who spoke at a Cato event we held earlier this year, has a new essay arguing that intellectual property protection should be included in trade agreements. He makes several points, but I’m going to focus on just one.  He states:

[N]umerous studies have found a correlation between higher levels of IP protection and stronger economic growth.

  • According to a 2008 OECD [Organization for Economic Cooperation and Development] study, stronger patent rights in developing countries are a significant determinant of levels of foreign direct investment, and also facilitate higher levels of technology transfer.
  • A 2012 OECD study found that a 1 percent change in the strength of a country’s IP framework is associated with a 2.8 percent increase in foreign direct investment inflows and a 0.7 percent increase in domestic R&D [research and development].
  • And a 2013 study found that R&D spending has grown relative to GDP in developing countries after they adopted the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The study also found that medicines for developing countries had received additional funding, and that the TRIPS agreement had directly contributed to the emergence of native film industries in African countries.

Here’s the problem: If you treat intellectual property as a single concept, and you can either have more or less protection of it, it would be reasonable to conclude that some countries have too little protection and probably need more. But intellectual property covers a lot of ground. To name a few areas, you have copyrights, trademarks, and patents.  You also have the European favorite, “geographical indications.”

If the argument is that having intellectual property protection is better than not having intellectual property protection, in terms of economic growth, that seems like an easy one.  It’s hard to imagine a modern economy working very well without effective trademark enforcement, for example.

But beyond that, things get complicated. How much protection is too much?  The United States is pushing copyright terms that last for the life of the author plus 70 years as part of its trade negotiations. I’ve argued that’s way too long. What is the right amount exactly?  Well, no one seems to be sure, as far as I can tell, but there are plenty of people who say life plus 70 years is excessive.

So, it’s not enough just to say, “we need stronger IP protection in trade agreements.”  If you want to convince anybody, you need to get into the specifics of each kind of protection, and why the stronger level you propose is justified. Otherwise I’m just going to assume you want stronger IP protection of any and all kinds and would go along with the European Union demand that Feta cheese can only be made in Greece.

Immigration’s Real Impact on Wages and Employment

The Center for Immigration Studies (CIS) has been releasing a series of reports claiming that immigrants are benefiting from the slightly recovering job market while natives are not.  Of course, if immigrants were even less likely to gain jobs than Americans, CIS would use that as evidence that immigrants are a drain on the economy.  No matter.  

The implicit assumption in CIS’ publications is that if those millions of immigrants weren’t working in the United States, more native-born Americans would have jobs – a static view of the economy.  CIS’ fixed pie implication is inappropriate to any kind of reasonable economic analysis of the effects of immigration on the labor market.  That is the primary reason why labor economists do not use CIS’ methods when attempting to measure the labor market impacts of immigration.  Even if CIS’ numbers were compiled correctly, they are not measuring anything useful.

A large body of academic economic research has found that immigration has a relatively small effect on U.S-born American wages and their employment prospects.  For wages impact, the estimates are that immigrants either lower the wages of some American workers by about 2 percent or raise them by about 2 percent in a dynamic economy (this, this, and this).  The employment effects vary little but, like wages, the effects are small and clustered around zero.  Nowhere will you find a tradeoff where one additional immigrants means that one American loses a job in the economy.

The CIS papers make no counterfactual dynamic economic estimates of the strength of the labor market without immigrants.

Here are some additional facts you won’t see in CIS’ papers:

Five Absurd Overreactions to the Surge in Child Migrants

The surge of unaccompanied migrant children (UAC) that dominated the news cycle in June and July of this year has receded – so much so that many emergency shelters established to handle the inflow are shutting down.  At the height of the surge, many commentators and government officials expected 90,000 UAC to be apprehended by the end of the fiscal year (FY).  As the end of the FY approaches, the number of apprehended UAC stands at roughly 66,000 - far below the estimates.

Now that the surge has receded, here are some of the most absurd overreactions to it.  Never before have so many commentators been so angry over so few migrants.

1.  U.S. Representative Phil Gingrey (R-GA) quoted in “POLITIFACT: Deadly viruses part of border crisis?Tampa Bay Times (July 29).  

Rep. Gingrey said: “Reports of illegal migrants carrying deadly diseases such as swine flu, dengue fever, Ebola virus and tuberculosis are particularly concerning.” [Emphasis added]

Ebola is a terrifying virus and a recent outbreak in West Africa shared the headlines with the surge in UAC, but that doesn’t mean the two events are linked.  Rep. Gingrey’s office indicated that he heard about child migrants carrying Ebola from border agents.  The rest of us are still waiting to hear about it.

2.  Mackubin Thomas Owens, “Camp of the Saints, 2014 Style?” National Review Online (June 13).

Apparently the terrible consequences of an influx of child migrants, which was only equal to about 6 percent of the total number of legal immigrants admitted this year, was predicted by a controversial 1973 French novel entitled The Camp of the Saints – which described the end of Western Civilization due to an influx of third-world immigrants.

Owens’ comments reveal a Western tradition that should be abandoned – that every small issue signals the downfall of Western Civilization.            

3.  Marine Corps Gen. John Kelly, “SOUTHCOM chief: Central America drug war a fire threat to U.S. national security,” Military Times (July 8).

“In comparison to other global threats, the near collapse of societies in the hemisphere with the associated drug and illegal alien flow are frequently viewed to be of low importance. Many argue these threats are not existential and do not challenge our national security. I disagree.” [Emphasis added]

There are certainly national security challenges that accompany America’s disastrous prosecution of the war on drugs and there is a security component to regulating immigration.  But it is quite a leap to go from pointing out problems that could potentially get worse to then stating they are “existential.”

Hungry Congressional Staffers Discover the Value of Trade

Under current ethics rules, members of Congress are allowed to receive gifts of snack food from companies located in their states or districts, as long as the snacks are available to office visitors.  While constituents visiting the Capitol may be getting to enjoy home-grown treats, the real beneficiaries here are the office employees who have privileged access to free snacks.

Yesterday Politico ran a light-hearted story about a thriving, informal market that has developed for congressional staffers to trade these free snacks.  It’s funny and you should read it in its entirety.  In order to be insufferably pedantic, I thought I would share a few thoughts on how this peculiar market, like all markets, developed as a way for individual humans to improve their lives through trade.

The rules create a peculiar inconvenience for hungry staffers, as they can only get free snacks produced by a company in their boss’s district.  Some offices only have Pepsi products while others only have Coke.  Some have healthy food and some have junk food.  Free snacks are great and all, but what do you do when the snacks you have aren’t the snacks you want?

The problem here is a non-optimal distribution of snacks, and the solution is trade.

Dozens of junior staff who spoke with POLITICO described an elaborate barter system based on local products. Pepsi is swapped for M&M’s, and Coca-Cola for Craisins.

Some of the foods that are most highly in demand are also well supplied in Capitol Hill offices, while others appeal to more particular tastes.  These realities shape their value as products to trade. 

Frito-Lay chips and Mars candy are the most common — and perhaps the most commonly traded — snacks on the Hill. Both manufacturers have operations in several states.

And orange juice, it turns out, is a hot commodity on the Hill, trading at times for as many as five bags of Lay’s chips.

Not all products on the political circuit are well-known brands. Sen. Richard Blumenthal (D-Conn.) has Ola! all natural granola, Rep. Sam Graves (R-Mo.) has Cherry Mash, a chocolate cherry treat, and Rep. Dave Reichert (R-Wash.) has Aplets & Cotlets, a square fruit puree and nut snack that isn’t all that tradable.

Free Market Ideologues at the Ex-Im Gate

Media have framed the debate over Export-Import Bank reauthorization as yet another battle in the war being waged by free market extremists to wrest control of the Republican Party from what they see as the infidels of the business establishment. That simplistic narrative, perpetuated by an irrepressible disdain for anything that whiffs of Tea Party ideology, has brought editorial boards and journalists from the Left to stand shoulder-to-shoulder with the multinational corporations they normally demonize in an effort to beat back a common foe.

But the compelling case against Ex-Im is less an ideological than a moral one.  It is not merely that Ex-Im puts taxpayer resources at risk or that the Bank’s operation encourages too close a relationship between big business and government or that resources are being used inefficiently.  Anyone concerned about economic fairness should see the virtue in terminating a program that benefits some companies at great expense to many, many others.  But the window to that view has been shuttered by a media that finds it more important to portray the reformers as childish idealists throwing tantrums.

Ex-Im is a government-run export credit agency that arranges special financing to facilitate sales between U.S. companies and foreign customers.  Barring congressional reauthorization, its charter will expire on September 30. Supporters claim that since exports are good for growth and job creation and since the Bank “creates” exports, failure to reauthorize will hurt the economy.  But that conclusion rests on the illusion of single-entry accounting.  It fails to consider the substantial, but more difficult to observe costs.

There are opportunity costs, representing the growth that would have occurred had Ex-Im’s resources been deployed more efficiently in the private sector. There are intra-industry costs – those incurred by the unsubsidized competitors of firms receiving Ex-Im subsidies.  And there are “downstream” industry costs borne by producers whose domestic suppliers receive export subsidies.  These downstream firms are hurt because crucial inputs become more expensive, while their foreign competition gets subsidies from U.S. taxpayers.

More Foreign Competition in Software and Internet Services?

We’ve gotten used to American dominance in the internet/software industries.  That may not last forever:

Over the weekend, China announced that it was planning to launch a homegrown operating system to replace Windows and Android for running the nation’s desktop and mobile devices. The first iteration of this “Made in China” OS could roll out as early as October

There is some good and bad with this.  The good is that more competition in these industries would be great.  While there is already a fair amount of disruption and innovation here, there are also some key products/services where a couple firms are pretty dominant.  Consumers would benefit tremendously from more competition.

Ensuring Safe Food in a Free Market: A Lesson from China

Many Americans view the dissemination and enforcement of food safety standards as a basic function of government, and it’s difficult for them to imagine a world where food is both safe and unregulated. Libertarians can point out that the safety of a product is, just like quality and price, something that consumers directly care about and as such will be most effectively preserved in a competitive free market.  But it’s one thing to make abstract economic arguments and quite another to have real life examples.

Well, here’s an interesting story from China, as reported by Reuters last week:

A Chinese retailer is offering insurance to customers who buy infant milk powder, highlighting the lengths to which companies are going to address concerns about food safety in China.

Suning Commerce Group Ltd, which owns the Redbaby chain of stores, told Reuters it had launched the policy this week, backed by China’s second largest insurer, Ping An Insurance Group.

The policy stipulates that if a brand of milk powder is recalled, customers who bought cans from any Redbaby store or its e-commerce website would be paid up to 2,000 yuan ($325) per can, with payments capped at 100,000 yuan.

“In recent years, the milk powder market in China has been in a mess,” Suning said in an email.