Topic: Trade and Immigration

Another Indictment of the Bush-Obama Years

Here’s a depressing little blurb from the New York Times about the disparity between anemic job growth in the private sector and rising payrolls in the bureaucracy.

For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring. …For the decade, there was a net gain of 121,000 private sector jobs, according to the survey of employers conducted each month by the Bureau of Labor Statistics. In an economy with 109 million such jobs, that indicated an annual growth rate for the 10 years of 0.01 percent.

At some point, of course, the rising number of people dependent on government will overwhelm the shrinking number of people producing real wealth in the private sector. Nations such as France and Italy may be perilously close to that tipping point. Yet since politicians rarely think beyond the next election cycle, they have little incentive to arrest the downward slide. Instead, as the current health care debate demonstrates, they seek to add more fuel to the dependency fire.

GAO Finds that Trade Agreements Promote Trade

The Government Accountability Office (GAO) released a report today that found that four trade agreements implemented during the Bush administration “have largely accomplished the U.S. objectives of achieving better access to markets and strengthening trade rules, and have resulted in increased trade.”

That is a finding that will be controversial only to the most hardened opponents of trade liberalization.

The GAO examined trade agreements with Jordan, Chile, Singapore, and Morocco, all enacted since 2001. Here’s the nut graph from the report:

While varying in details, the FTAs have all eliminated import taxes, lowered obstacles to U.S. services such as banking, increased protection of U.S. intellectual property rights abroad, and strengthened rules to ensure government fairness and transparency. Overall merchandise trade between the United States and partner countries has substantially grown, with increases ranging from 42 percent to 259 percent. Services trade, foreign direct investment, and U.S. affiliate sales in the largest partners also rose.

No big news here. Trade agreements are supposed to promote more trade, and each one of these agreements has delivered on that central objective. They have delivered the “level playing field” between U.S. producers and those in the FTA countries that members of Congress are always demanding. And as we have  amply documented through the years, more liberalized trade delivers faster growth, more consumer choice, better jobs, and higher living standards.

Opponents of trade have attempted to thwart such a straight-forward agenda by demanding that trade agreements become vehicles for enforcing more stringent labor and environmental standards in the partner countries. On this front, the GAO found that “FTA negotiations spurred some labor reforms in each of the selected partners, according to U.S. and partner officials, but progress has been uneven and U.S. engagement minimal.”

Critics will interpret this as a failure, but it really shows the limitations of FTAs as a club for imposing our social standards on what are often less developed countries. After all, we are talking about internal regulations of sovereign countries. The real question is not whether every provision of these agreements has been fully enforced, but whether most people in the participating countries are better off than they would have been without the increased trade promoted by these agreements. As the GAO report confirms, the answer is a clear, “Yes.”

Bob Barr on National ID

On his AJC “Barr Code” blog, Bob Barr weighs in on the national ID debate, rejecting PASS ID just as much as REAL ID. Notably, he discusses how the immigration issue may bolster pro–national ID forces:

Not content with relying on PASS ID to secure sufficient support where its predecessor failed, some in the Congress — most notably Sens. Chuck Schumer (D-N.Y.) and John Cornyn (R-Tex.) — are using fear of illegal immigration as another vehicle by which to mandate a national, biometric-identification card that would be required before any person could secure employment. Clearly, those relishing the creation of some form of national identification card and the national database on which it would rest, will themselves not rest until they have realized their dream. Those of us opposed to such a travesty, likewise must not let up.

Thank Uncle Sam for Looming Sugar Shortage

According to Inside U.S. Trade ($), an alliance of sugar-using industries sent a letter earlier today to Secretary of Agriculture Tom Vilsack asking for an increase in the quotas imposed on imported sugar. The organizations signing the letter complain, quite reasonably, that domestic sugar stocks have fallen to historic lows and that a potential shortage would jeopardize production and jobs in their sectors.

Here’s the letter, dated August 7, 2009:

Dear Mr. Secretary:

The organizations and companies below urge you to increase the sugar import quota immediately. Your experts forecast unprecedented shortages without prompt action. According to USDA’s “World Agricultural Supply and Demand Estimates,” the United States will end the next fiscal year with less than 13 days’ worth of sugar on hand, unless imports are increased. If this forecast is accurate, our nation will virtually run out of sugar.

The shortage does not have to happen. The only reason markets are forecast to be so tight is the restrictive U.S. policy on sugar imports. Imports are subject to restrictive quotas. But you have the authority to increase the sugar import quota, and we urge you to do so immediately, both for the current fiscal year — where high prices already indicate a painfully tight market — and for the upcoming year.

Without a quota increase, consumers will pay higher prices, food manufacturing jobs will be at risk and trading patterns will be distorted. Please act now in the interest of all Americans.

The letter was signed by, among other organizations and companies, the American Bakers Association, the American Beverage Association, General Mills, Gonella Frozen Products, the Grocery Manufacturers Association, the Hershey Company, the Independent Bakers Association, the International Dairy Foods Association, Kraft Foods, Krispy Kreme, Mars, the National Confectioners Association, Nestle USA, and Pepperidge Farm.

Protectionism is not just a consumer issue. As we elaborated in a 2005 Cato study on the high cost of U.S. farm programs (see pp. 4-6), trade barriers against agricultural commodities such as sugar also raise costs for U.S. producers, forcing them to raise prices, and thus reducing sales, output, and employment. Artificially high domestic sugar prices have forced thousands of domestic manufacturing jobs to be “shipped overseas” to countries that allow sugar to be imported at world prices.

If the Obama administration wants to encourage the domestic production of sugar-containing products, it should raise the quotas as far as they can and allow American companies to buy sugar at world prices.

Another Shot Fired in the Carbon Tariff Debate

I’ve written before about the “carbon tariff” debate, and will continue to do so as the Senate gears up to write a climate change bill. Indeed, I have a paper coming out in early September with a fuller analysis of the effects of slapping tariffs on countries in an effort to force them to sign up to international carbon-limiting agreements. [Spoiler alert: you’ll be shocked to know that I conclude that using trade measures in climate change policy is possibly illegal under world trade rules, definitely costly to the U.S. economy, and more than likely counterproductive in the efforts to forge a climate agreement (for what that’s worth).]

Seemingly unconcerned about the costs of green protectionism, ten Democratic senators crucial to the upcoming Senate vote (long-standing protectionists all, with the exception of newbie Al Franken) sent a letter to the White House yesterday, urging President Obama to rethink his (lukewarm) resistance to carbon tariffs. They argue that a dreaded “unlevel playing field” would result from saddling U.S. industries with higher carbon costs while, say, Chinese ones remain unencumbered.

You’ll have to wait for my paper for a full examination of those arguments, but in the meantime here’s some excellent analysis of the politics of it all by former Catoite, international trade lawyer, and friend of liberty Scott Lincicome. He assesses the scorecard as follows:

Pro carbon tariffs - Ten protectionist Senators, the US House of Representatives (in Waxman-Markey), France [link added], and Paul Krugman.

Anti carbon tariffs - the rest of the world.

Barney Frank Endorses Regulatory Protectionism

When a government increases the burden of taxes, spending, and/or regulation, this makes it more likely that productive resources - on the margin - will gravitate to jurisdictions with better economic policy. Crafty politicians understand that the freedom to cross borders is a threat to statist policies, which is why international bureaucracies dominated by high-tax nations, such as the Organization for Economic Cooperation and Development, are trying to undermine tax competition between nations by imposing fiscal protectionism. The same is true for regulation. The Chairman of a key House committee wants to impose regulatory protectionism to restrict the ability of Americans to patronize banks and other financial services companies based in jurisdictions with more laissez-faire policies. The Financial Times has the unsavory details:

Barney Frank, chairman of the House financial services committee, said he was concerned the new U.S. push to regulate banks and brokers more rigorously could put it at a competitive disadvantage if other countries did not follow suit. As a result, he would like to ban U.S. banks from doing business with countries not subject to similarly tough standards on everything from leverage limits and capital requirements to rules on transparency and clearing of derivatives. “Once we have rules  . . . we will say to anybody who wants to be an outlier, ‘you forfeit your right to participate in the American system’,” Mr Frank told the Financial Times. “We will instruct the [Securities and Exchange Commission] and Treasury and the Fed to deny access to the American financial system to any country that holds itself out as a haven to escape our financial regulation.” …“It is absolutely the wrong approach,” said a top industry lawyer, who did not want to be identified criticising Mr Frank. “The assumption is that everybody has to do business in the U.S. and we can set global standards. That is absolute nonsense. There are alternatives, including Hong Kong,” the lawyer added. …Tim Ryan, president of the Securities Industry and Financial Markets Association, said that U.S. regulations should not be imposed on other countries. …Mr Frank’s interest in banning groups from non-co-operating countries stems in part from the U.S. experience after it adopted the Sarbanes-Oxley corporate accountability law. Many overseas companies opted to list outside the U.S. rather than comply with Sarbox requirements.

Since When Is Plunging Trade ‘Good News’ for GDP?

This morning’s Commerce Department report on second-quarter GDP contained what passes for good news these days: the U.S. economy shrank at an annual rate of only 1.0 percent in the April-to-June quarter. And in the twisted logic of conventional thinking, a drastic fall in international trade was supposedly part of the good news.

An Associated Press report beautifully captures the conventional wisdom. Buried deep in the story was this gem: “An improved trade picture also added to economic activity in the spring. Although exports fell, imports fell more, narrowing the trade gap. That added 1.38 percentage points to second-quarter GDP.”

Behind that statement is the Keynesian assumption that exporting goods adds to GDP, while importing subtracts because every car, shirt, or DVD player we import is supposedly one less that we make ourselves.  So never mind that exports have fallen sharply in the past year; imports have fallen even faster, leaving us supposedly better off.

The mistake is seeing imports as a subtraction from GDP. The fact that we import $1 million worth of t-shirts does not mean our GDP is therefore $1 million less than it would be if we did not import the shirts. In fact, the $1 million we sent abroad to buy the shirts quickly comes back to buy something valuable in our own economy.

The money foreigners earn selling in our market can be used to buy U.S.-made goods, but it can also be used to buy U.S. assets, such as stocks, real estate, or Treasury bonds. This investment also creates economic activity, and if the investment inflow is used wisely, it will actually raise our productivity and GDP. A rising level of trade allows us to deploy our economic resources more efficiently, boosting output and economic growth.

As I explain in a previous Free Trade Bulletin, rising imports are not a drag on growth but in fact usually signal rising demand in the domestic economy, just as falling imports are a reliable sign of slumping demand. That is why an “improved” (i.e., shrinking) trade deficit has accompanied every recent recession, including the one we’re still mired in.

If we want our economy to recover and grow, we should be rooting for more trade, not less.