Topic: Trade and Immigration

The New Secretary of Agriculture Plays Lucy

My American friends tell me that there is a recurring scene in the Peanuts comics whereby Lucy says she will hold the football for Charlie Brown to kick before she whips it away.

I was reminded of that yesterday when the new boy in school, newly conferred Secretary of Agriculture Ed Schafer, dashed the hopes of all American consumers, Lucy-style, by implying [$] that the long-awaited open trade in sugar between the United States and Mexico (one of the last NAFTA provisions to come into effect) could be delayed.

Two weeks ago, the Sugar Alliance circulated a proposal to lawmakers that would effectively divide up the United States and Mexico’s (combined) market into a protected cartel. That would significantly impede what was planned to be free trade in sugar between the two countries and downward pressures on the U.S. price of sugar: currently the U.S. price is about double the world price, although it has been up to triple the world price in previous years because of trade barriers to cheaper sugar (see more here).

Sec. Schafer, at least according to the article, was willing to listen to the producers’ plan to manage the sugar trade and was quoted thusly:

If producers in two countries can agree on an approach, that’s better than two governments…trade is all about the producer and providing opportunities and opening markets…

No mention of us consumers paying for it all. And quite why Sec. Schafer believes the market needs managing (either by producers or government) is not made clear.

Less Fuel for the Trade Fire

John Edwards has announced that he is withdrawing his candidacy for the Democratic nomination for president. As I wrote in an op-ed the other week, John Edwards had by far the worst trade policy proposals of the front-running Democrats. It says something good about America that Mr Edwards’ brand of populist nonsense has been rejected by the primary voters.

E-Verify: Slow and Unsteady in Arizona

I’ll soon have a paper out on “electronic employment eligibility verification.” This is the idea of requiring every employer in the country to check the immigration status of employees against Department of Homeland Security and Social Security Administration databases.

A nationwide EEV program, building on the current Basic Pilot/”E-Verify” program, was treated as a matter of near consensus at the beginning of this past summer’s immigration debate, and the Department of Homeland Security continues to promote it.

My paper goes into the practical and technical problems with a full-fledged EEV system, as well as the question whether such a thing is appropriate for a free country. But I’ve already become aware of problems I didn’t think of.

A law went in to effect in Arizona January 1st requiring all employers to use the E-Verify system. The Arizona Republic reports that just 17,000 of the state’s 150,000 businesses have signed up for E-Verify. (January is a slow month for hiring, but employers may be holding off on hiring too. And a lawsuit has been brought challenging the Arizona law.)

Among employers using E-Verify, the question has arisen what to do when an employee has worked for a few days, but then is deemed ineligible by the database. Should the employee who is either an illegal immigrant are a citizen with bad paperwork be paid? “[E]mployers could look for workers who are at risk of failing E-Verify, the online database that checks employment eligibility, and fire those workers without paying them for up to three days of labor,” says the report.

The simple idea of “internal enforcement” of immigration law using employers as Border Patrol agents turns out not to be so simple. E-Verify puts fair-minded employers between a rock and a hard place, while facilitating unscrupulous behavior by others.

The Myopia Behind the Protectionism

There appears to be something in the protectionist genome that triggers obsessive factual cherry-picking. Genetics may explain the protectionist propensity for Malthusian sensationalism, too. Some of the folks at the U.S. Business and Industry Council provide the latest example.

In an article that ran in yesterday’s Pittsburgh Post-Gazette, erstwhile doomsayer Alan Tonelson and a colleague present their view that the “fiscal stimulus” will have limited impact because consumers have few alternatives to spending their checks on imports. They provide statistics showing the rising import share in major consumable goods categories to support their argument that even if consumers wanted to buy American, it is becoming close to impossible. As a result, the stimulus “benefits will leak overseas,” and the “near-term economic performance will be modest at very best.”

And, as sure as all roads lead to Rome, “failed trade policies deserve much of the blame” for allowing the “import tide [to grow] large enough to sandbag Washington’s best –laid stimulus plans?” Let me review critical assertions from the article and suggest some genetic tweaks (i.e., the truth).

Assertion 1: “[B]uying products (or services) made in the United States creates the biggest and quickest domestic growth bang per stimulus buck because it encourages companies to ramp up output and possibly build new facilities and hire more workers.”

But in fact…

…the fiscal stimulus package is unlikely to have any effect on output and investment. Even if Americans could only purchase domestic goods and services, suppliers would know that the uptick in demand was a short-term response to the stimulus, and not worthy of expanded investment and output.

Assertion 2: “American spending on imports would increase U.S. growth as well – by stimulating the wholesale and retail and transportation and warehousing sectors.”

Kudos for the half-truth, but…

… let me add that U.S. spending on imports helps American industries all along the supply chain – not just in the four sectors mentioned. U.S. design, advertising, marketing, legal and other professional services, and yes, manufacturing industries (like components, raw materials, and capital equipment suppliers) all partake of the benefits of import sales in the United States. Protectionists have difficulty comprehending that the world is no longer characterized by “our producers” against “their producers.” With proliferation of global supply chains, import sales support more profitable U.S. activities at both ends of the value chain (from product design and finance operations to logistics and advertising).

Assertion 3: “Higher profits and stock prices in these sectors [wholesale, retail, transportation, and warehousing] would help, too, by enriching American investors.”

Uh huh, but…

…didn’t John Edwards just drop out of the race because he couldn’t convince voters that there are two Americas? Indeed, higher profits and stock prices would benefit American investors, but the phrase “enriching American investors” is intended to connote “The Rich.” In fact, Americans across income groups hold stock or mutual funds.

Assertion 4: “Unfortunately, this smaller stimulus bounce is inevitable – and resulting growth will fall well short of politicians’ and voters’ expectations – because import levels have grown so high for so many types of manufactured products.”

Right, but more wrong because…

…a negligible stimulus bounce is inevitable, but it has nothing to do with imports. If imports were at the considerably lower levels that the authors implicitly prescribe, there wouldn’t be any discussion about a stimulus plan. Policymakers wouldn’t be panicking about a relatively mild slowdown after 25 years of nearly uninterrupted economic growth. Instead, without imports, our $14 trillion economy would be a considerably smaller economy, with anemic annual growth rates evocative of Japan—the bête noire of protectionists past. Our problem would be quite serious. Instead, the increasing volume of imports has inspired competition and U.S. productivity gains, which has delivered better prices, higher quality and more choices, while freeing up resources to invest or purchase U.S. and foreign goods and services.

Assertion 5: “In many major consumer goods categories … the rates of import penetration are much higher. For example, in 2006, nearly 96 percent of the men’s dress and sport shirts sold in the United States were imports. More than 90 percent of the non-athletic shoes came from overseas, along with nearly 90 percent of the women’s coats, and more than 86 percent of the women’s blouses.”

Good statistics that support a different conclusion because…

…even though Americans rely heavily on imported shoes and clothing (as evidenced by the stats), those products are subject to the highest duties in the U.S. tariff schedule. In fact, while clothing and footwear comprised 5.1 percent of the total value of imports in 2005, duties collected on clothing and footwear accounted for 42.3 percent of all duties collected. Not only are these tariffs some of the worst regressive taxes under U.S. law (lower-income Americans spend a higher percentage of their income on these necessities), but if you’re worried about “leakage” from the stimulus package then you should support abolishing those tariffs. What’s the sense in handing chunks of your allowance back to the government?

Protectionists tend to see the U.S. market as the reserve of U.S. producers, while simultaneously berating foreigners for protecting their own. But there is a strong linkage between imports and exports. If Americans don’t buy imports, foreigners can’t buy U.S. exports. If Americans spend large chunks of their stimulus checks on imports, U.S. manufacturers are sure to add to the record export (and output and profit) performance they’ve been experiencing over the past couple years.

Common Sense, Free Enterprise Values in Virginia

The Richmond Times-Dispatch issues a stirring editorial call today for free-enterprise insurance reform. It’s worth quoting in full:

In a state that ostensibly is a bastion of capitalism, government intervention in the marketplace turns up surprisingly often. Two parties who are negotiating a contract for a good or service often find a third party – the commonwealth – sticking its nose in where it doesn’t belong.

For decades, Virginia law prevented insurance companies and policyholders from deciding who could receive health coverage. Not until three years ago did the General Assembly pass legislation allowing group accident and sickness policies to cover any class of persons mutually agreed upon by the insurance company and the policyholder.

Before then, health-insurance coverage was limited to spouses and dependent children. If a worker wanted to include someone else in his or her coverage, the law said he couldn’t – even if the worker’s employer and the insurance company both were happy to fulfill the request.

This year Del. Adam Ebbin is sponsoring legislation (HB 865) that would open up life-insurance coverage in much the same way: It would allow insurance companies to offer group coverage to anyone policyholders wished to cover – brother or sister, elderly parent, life partner, or third cousin twice removed – not just spouses and children.

Note well what this bill is not: a mandate. Insurance companies would not be required to cover anybody they did not wish to. They would remain free to reject coverage they did not care to offer. They simply would not be prohibited from covering persons they are willing to cover.

In a free market, that is precisely how insurance ought to work: The buyer and the seller of the policy work out the terms between themselves. The state’s job is merely to enforce the contract – not to write it. Ebbin’s bill deserves a resounding and unanimous aye.

The Times-Dispatch is well known as a conservative editorial page, so it’s gratifying to see them endorsing this pro-free enterprise, pro-business bill – even though some conservatives might object to it on the grounds that it will allow, though not compel, businesses to offer group life insurance to employees with same-sex partners. The Times-Dispatch commendably wants such issues worked out within companies, not by a state legislative ban.

My Least Favorite False Note on Trade in Last Night’s SOTU

My colleague Dan Griswold has a post below about some of the good things President Bush said in his State of the Union address last night (transcript here). While the President deserves praise for the remarks he made about the importance of trade to the American economy, he made much of the importance of exports and of opening markets overseas, with only a cursory glance at the benefits of imports.

That mercantilist rhetoric, in my opinion and in the opinion of my colleague Brink Lindsey, has boxed the administration and other lawmakers into a corner: people now erroneously assume that if the exports fail to materialize, or if the trade deficit worsens, then the trade policies have been a failure. The present skepticism about trade deals (even allowing for the fact we are in fully-fledged campaign mode) is a direct consequence of that flawed thinking.

Putting aside my ranting about the general state of public discourse about trade, though, there was one part of the SOTU address that particularly struck me as misguided. In making the case for trade deals, President Bush talked about the negative effects of trade liberalization on some workers and made a pitch for renewing trade adjustment assistance:

for some Americans, trade can mean losing a job, and the federal government has a responsibility to help.

Wrong.

President Bush Keeps the Faith on Trade, Immigration

There was much for libertarians and small-government conservatives to pick apart in President Bush’s State of the Union speech last night, but the president deserves hearty applause for his two passages on trade and immigration.

On trade, Bush urged Congress to approve pending agreements that would lower trade barriers between the United States and Colombia, Panama, and South Korea. He reminded Congress that the agreements would reduce barriers to U.S. exports and deepen our commercial and diplomatic ties to friendly nations and their 100 million citizens.

Those non-economic factors loom especially large in the Colombia agreement. As the president told Congress:

These agreements also promote America’s strategic interests. The first agreement that will come before you is with Colombia, a friend of America that is confronting violence and terror, and fighting drug traffickers. If we fail to pass this agreement, we will embolden the purveyors of false populism in our hemisphere. So we must come together, pass this agreement, and show our neighbors in the region that democracy leads to a better life.

The president even reminded Congress, albeit subtly, that the gains from trade are not just about exports when he said. “Trade brings better jobs and better choices and better prices.” Yes, it’s about time somebody in high office put in a good word for the consumer benefits of more robust import competition!

On immigration, President Bush stood on equally solid ground. He touted the beefed up border security under his administration, but then reminded Congress that enforcement without reform is not enough:

… we also need to acknowledge that we will never fully secure our border until we create a lawful way for foreign workers to come here and support our economy. This will take pressure off the border and allow law enforcement to concentrate on those who mean us harm.

We must also find a sensible and humane way to deal with people here illegally. Illegal immigration is complicated, but it can be resolved. And it must be resolved in a way that upholds both our laws and our highest ideals.

In 89 words, President Bush effectively summarized what I’ve been saying and writing all along about the right way to reform our broken immigration system and protect our security.