Topic: Trade and Immigration

The Democrats’ Distorted Take on trade and the 1990s

The debate among the Democratic presidential candidates has become stuck in the past. When they are not debating the alleged shortcomings of the 15-year-old North American Free Trade Agreement, they have been sparring over the economic record of the 1990s.

Not surprisingly, front-runner Hillary Clinton touts the economic success of the previous decade, when her husband Bill Clinton was president and she was exercising influence down the hall in the West Wing.

“Sometimes an opponent of mine [read Barack Obama] says we talk about the 1990s too much,” Clinton said recently on the campaign trail, according to this morning’s Financial Times. “That is because in the 1990s we had the greatest economic performance in decades. I like to talk about what works because I want to get back to doing what works.”

Yet candidate Clinton and her fellow Democratic candidates also routinely trash NAFTA, which the former President Clinton shepherded through a Democratic Congress in 1993. They blame the trade agreement with Canada and Mexico for costing the U.S. economy million of manufacturing jobs.

So what was the real record of the 1990s? Was it a time of unprecedented growth and prosperity presided over by a generally pro-trade, Democratic president? Or was it a time of stagnation and job losses caused by a trade agreement that now, according to Hillary Clinton, must be reopened and revised?

The right answer is that the 1990s were a good time for the U.S. economy, and expanding trade and globalization—including NAFTA— were among of the reasons.

As I noted in a recent study for Cato, titled “Trading Up,” the economic record of the U.S. economy during the past decade, including the late 1990s, offers yet another reason to support further trade liberalization:

Rising real wages and compensation during the past decade pose a serious challenge to the “trade is making us worse off” thesis. If we are to believe that expanding trade and competition with low-wage countries have eliminated high-laying manufacturing jobs and depressed the earnings of U.S. workers, how do the critics of trade explain the remarkable labor-market gains of the past decade? Since 1997, during a period of rapidly increased trade and globalization, the number of workers employed in the U.S. economy jumped by more than 16 million, while the unemployment rate is now slightly below what it was a decade ago at a similar stage in the business cycle. And those employed workers, as we’ve seen, are earning significantly higher real hourly compensation than workers a decade ago when the U.S. economy was less globalized. That record is not an indictment of more liberal trade but a vindication.

What works is a more open, efficient and competitive U.S. market.

“Good News” on the Trade Deficit?

Against a backdrop of a lot of negative economic news, the Commerce Department this morning reported the “good news” that the U.S. current account deficit shrank in the third quarter to $178.5 billion. The current account is the broadest measure of U.S. trade with the rest of the world, including not only goods and services but income from investments and unilateral transfers such as foreign aid.

I use scare quotes around “good news” because it isn’t really obvious why we should all be cheering a smaller current account deficit. Many of the same stories that hail an “improving” trade account also report that one of the main reasons behind it is the slowing U.S. economy compared to the rest of the world. Slower economic growth at home means less demand for imports, while faster growth abroad boosts the export of U.S. goods. I’m all for increased exports, but since when is slower domestic growth good news?

An interesting figure from the current account report is the flow of investment income. In the third quarter Americans earned $20 billion more in interest, dividends and profits on our investments abroad than foreigners earned on their investments in the United States. This despite the fact that foreigners own about $2.5 trillion more in U.S. assets than Americans own in assets abroad. The reason for the seeming discrepancy is that the assets we own abroad have a much higher return, while foreigners have (so far) remained content to earn a lower return on their more liquid and secure investments in the United States.

Opponents of trade liberalization constantly point to the trade deficit as evidence that U.S. trade policies are failing. We’ve debunked that claim at the Center for Trade Policy Studies, but perhaps one bit of genuine good news in today’s report is that critics of trade will have a slightly smaller target to aim at.

Talk About a Friday News Dump

The Senate passed the Farm Bill this afternoon by a margin of 79 to a brave 14 (roll call vote here). Readers of this blog will be sufficiently familiar with our views on U.S. farm policy so I won’t reiterate them here. Suffice it to say that it will be interesting to see if President Bush makes good with his veto threat.

Happy Holidays to the American taxpayer/consumer/trade partner from the U.S. Senate!

End the Shoe Tax!

In a post yesterday, my Cato colleague Chris Edwards graphically demonstrated that the U.S. tax code is very “progressive,” imposing far higher effective rates on high-income households than on lower-income households. But one area of federal taxation—the U.S. import tariff code—is actually quite regressive.

Even after decades of trade liberalization, some of the highest remaining U.S. tariffs are imposed on imported goods that loom largest in the budgets of low-income families—namely the staple items of food, clothing, and shoes. And the highest tariffs within the categories of shoes and clothing are imposed on the lower-priced varieties that poor families would be most likely to buy.

That is all the more reason to feel good about a movement under way to “end the shoe tax.” According to a story in today’s Chicago Tribune:

Footwear manufacturers and retailers are trying to end a Depression-era federal shoe tax, a move they say could save American consumers hundreds of millions of dollars annually and kick-start relatively flat footwear sales.

Trade associations and their members, such as Payless ShoeSource, Nike Inc. and Columbia Sportswear Co., have been lobbying U.S. lawmakers weekly since the summer to get them to exempt certain categories of footwear, including all children’s shoes, from the import tariffs that can run as high as 67.5 percent a pair.

The groups created a Web site, EndtheShoeTax.org, to raise awareness and encourage constituents to tell their lawmakers to pass the Affordable Footwear Act of 2007.

Repealing the shoe tax would have minimal impact on employment. According to the story, 99 percent of shoes sold in the United States are imported. Americans stopped making low-end shoes years ago. And even if jobs were at stake, it would not justify a cruel tax on such a basic necessity. (The same logic applies to remaining tariffs on t-shirts, as I explained in a recent op-ed.)

The political irony here is that many of the same people who complain the loudest that the rich are not paying their “fair share” of income taxes are the first to oppose any lowering of regressive trade barriers that make it more difficult for poor parents to feed and clothe their children.

I Hope You Like Asparagus

Further to Dan’s post today, some more depressing news today on the farm bill process. A couple of amendments that would have trimmed some excess fat also failed.

Sen. Judd Gregg (R., N.H) has proposed a number of amendments to the farm bill. The two that failed today were designed to strike a couple of almost comic provisions of the farm bill that emerged from the Senate Agriculture Committee. The first, to strike language that establishes a “Farm and Ranch Stress Assistance Network,” a mental health program for farmers, failed 37-58. The other, to strike a new program to provide subsidies for asparagus producers, failed 39-56. (Roll call records are not yet available)

Now, I am willing to concede that farming might be stressful at times (although Mencken would disagree). I certainly wouldn’t like getting out of bed at dawn to milk cows. And I am sure it is a tough business, rearing asparagus. But I once saw a stockbroker outside the NYSE smoking two cigarettes at once, and looking decidedly harried. And I bet he earned less than some farmers. Where’s his taxpayer-funded “stress assistance network?”

This is a further sign of the truly staggering resistance to reform U.S. agricultural policy. Tom Harkin (D., IA), Chairman of the Senate Agriculture Committee, said that the proposed reforms of the Lugar-Lautenberg amendment were “too far too fast.”

Too fast? These programs have been with us for over 70 years, Senator.

Our Depressingly Bipartisan Farm Policy

When Democrats regained control of Congress after the 2006 election, they promised to pursue fiscal discipline and bring the curtain down on “business as usual” and the “culture of corruption” in Washington. Apparently U.S. agricultural programs were exempted from any of those promises.

In a perfectly bipartisan vote yesterday, the Senate rejected a modest reform amendment to the 2007 farm bill. Sponsored by Sens. Richard Lugar, R-IN, and Frank Lautenburg, D-NJ, the amendment would have repealed Depression-era farm programs that deliver huge subsidies to a relatively small number of farmers who grow so-called program crops—corn, cotton, rice, wheat and soybeans—and import protection for sugar and dairy.

The amendment would have replaced those programs with a generously subsidized system of insurance. While still far removed from the free market, the proposed alternative would have been less costly and market-distorting than the current system.

Yet even such an incremental step away from our current command-and-control farm policies went down in flames by a 37 to 58 margin (Senate roll call vote no. 417). Voting against the reform were exactly 29 Democrats and 29 Republicans. When it comes to farm programs, neither party represents the majority of Americans who must pay the high cost of U.S. farm programs. [The Center for Trade Policy Studies has documented the cost and proposed a plan to bring U.S. farm programs into the 21st century.]

Not surprisingly, with the Iowa presidential caucuses less than three weeks away, the five senators who were absent from the vote are all busy running for president!

Goose:Gander / Illegal Immigrants:Gun Owners

I’ve spent the last few months studying and writing about 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.

There are a lot of weaknesses in EEV. Foremost, such a system would be subject to a lot of document fraud, just like today’s Form I-9. Requiring employers to collect these forms and check the documentation of new employees doesn’t do much to control illegal immigration.

If this process were “strengthened” with a national EEV system, continuing document fraud would drive policymakers inexorably toward “strengthening” the identity cards used in the system. Indeed, the leading immigration bill this summer would have required every new hire in America to present a REAL ID-compliant national ID card. EEV requires a national ID.

This is fine by many people who are angered by illegal immigration. But the folks who want EEV and a national ID might want to be careful what they wish for.

A group called Mayors Against Illegal Guns recently sent a letter to all the major presidential candidates asking a detailed set of questions about their positions on gun control. Among them:

… Do you support a change in federal law to require that gun purchasers show Real ID-compliant identification by 2013?

I believe that REAL ID will not be implemented. In fact, the presence of REAL ID in the immigration bill is what killed it. But if EEV goes forward, it could bring REAL ID back from the dead.

With a national ID and a national infrastructure for regulating individual behavior in place, advocates will immediately seek to expand its uses - including to gun control. So it seems that those fervent opponents of illegal immigration who want a national EEV system have a choice: Will you give up your guns to get rid of illegal immigrants?