Topic: Trade and Immigration

Ethanol Program Milks Consumers Dry

Have you noticed how the price of milk has shot up in the past year? A big chunk of the blame lies with Congress and the ethanol program.

In its effort to promote the fantasy known as “energy independence,” the U.S. Congress favors the ethanol industry with a 51-cent-per-gallon exemption from the federal gasoline tax, and a 54-cent-per-gallon tariff on imported ethanol. By artificially stimulating the domestic ethanol industry, the program has created an insatiable demand for corn, driving up feed grain costs for dairy farmers, leading to higher prices for milk.

I’ve often disagreed with Sen. Chuck Schumer (D-N.Y.) on trade issues, especially his threat to slap tariffs on imports from China, but on this issue, the senator has positioned himself as the American consumer’s best friend. According to a story this week in the New York Daily News:

“Ethanol has increased the average American’s grocery bill $47 since July,” said Sen. Chuck Schumer, citing figures from Iowa State University.

Schumer (D-N.Y.) is pushing for an immediate end to the 54-cent-per-gallon tariff on ethanol imports as a way to increase the supply of the federally mandated fuel additive, reduce pressure on the corn market and bring down milk prices.

“Bring the cheaper ethanol in, reduce the price of corn, and then reduce the price of milk,” he said.

The senator is on to something. While were at it, let’s eliminate remaining U.S. tariffs on imported shoes, clothing, sugar, rice, cheese and, yes, milk.

Another Anti-Immigration Campaign Flops

With his disappointing second-place finish in the Iowa caucuses last night, Mitt Romney joins a growing list of politicians who have failed to ride the immigration issue to success when it counts.

To woo conservative voters, Romney has run a series of hard-hitting ads attacking his Republican rivals for being soft on illegal immigration. His ads and campaign speeches have thumped John McCain for supporting “amnesty” for unauthorized immigrants already here and Mike Huckabee for supporting in-state tuition for the minor children of illegal immigrants.

Although Romney had struck a more constructive tone toward the issue when he was governor of Massachusetts, polls and talk radio have convinced him that sounding harsher-than-thou on illegal immigration would be a key to winning the hearts of conservative Republicans. The strategy didn’t appear to help him in Iowa even though he outspent his rivals by millions of dollars.

Romney isn’t the first politician to push the immigration button and come away empty-handed. Just before the Iowa caucuses, Colorado Congressman Tom Tancredo announced he was dropping out of the Republican primary race even though he trumpeted the most hard-core anti-illegal-immigration stance of any candidate. California Congressman Duncan Hunter barely registered among Iowa caucus goers last night even though he too had staked out a hard-line position against any legalization. And let’s not forget that in 2000, the articulate and amiable Pat Buchanan spent $12 million in taxpayer dollars to spread his anti-immigration message as the Reform Party candidate for president, and attracted a paltry one half of one percent of the vote on Election Day.

Americans have always been ambivalent about immigration, and a solid majority today wants the government to seriously address the problem of illegal immigration. But as I have argued here and here, voters have not rewarded politicians who demagogue the issue. Let’s hope the rest of the Republican field takes notice.

Update on the Internet Gambling Dispute

Good news and not-so-good news on the long-running saga over internet gambling (background here): Antigua has been awarded $21 million annual “damages” as a result of the United States’ restrictions on offshore provision of internet gambling and betting services.

That is far less than the $3.4 billion Antigua had asserted it is owed, but more than the United States had suggested was warranted ($500,000). On the other hand, the arbitrator gave Antigua permission to collect the damages by suspending their obligations to protect U.S. intellectual property. The $21 million worth of pirated software, movies, and music would go on annually unless and until the United States changes its laws, so we can expect some lobbying from Hollywood to have the restrictions on internet gambling lifted.

The report just came out, so I have yet to absorb it fully myself, but here it is.

Expect to Pay More for Chocolate Coins this Christmas

An article today in the Wall Street Journal reports on Department of Justice investigations into alleged price-fixing by U.S. chocolate companies, following similar investigations by Canadian regulators into the Canadian divisions of the same companies.

The companies insist that higher commodity prices are behind any recent price increases in their products, with Cadbury’s CEO expecting ingredients to cost between 5 and 6 percent more next year as a result of tight supplies (primarily because of drought in Australia, pushing up dairy prices) and increased demand, as the middle class — and consequently appetite for dairy, sugar and meat — grows in Asia and Latin America. The U.S. government’s misguided promotion of biofuels, which diverts corn to ethanol production and puts upward pressure on all commodities prices as farmers divert land to growing corn, definitely doesn’t help.

While prices for most commodities are at historic global highs, confectionary companies in the United States have often had to pay significantly higher prices because of government intervention in agricultural markets. Cato’s Center for Trade Policy Studies has looked into dairy and sugar policies before, and finds that the costs to consumers and taxpayers of supporting sugar and dairy farmers through isolating the U.S. market is truly outrageous.

Of course, Congress has so far chosen to ignore the problems with dairy and sugar, proposing instead to maintain these programs (even increasing the support in the case of dairy) rather than bring relief to consumers (including candy manufacturers). You know something is wrong with U.S. agricultural policy when the European Union looks reformed in comparison: the EU announced that it is suspending its tariffs on some cereals crops [$].

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!