Topic: Trade and Immigration

How Did U.S. Trade Policy Progress in 2013?

Some may consider 2013 to mark the beginning of an important new era in U.S. trade policy.  The year began with President Obama proposing an ambitious U.S.–EU trade agreement in his state of the union address and ended with progress at the WTO after 12 years of stagnation.  But if we look past the hype and grand expectations for the future, we can see that there was only one major change in U.S. trade policy that actually occurred in 2013.

When the Generalized System of Preferences program expired on July 31, U.S. tariffs increased on imports from more than 120 developing countries.

The program would have been extended but for the opposition of Republican Senator Tom Coburn of Oklahoma.  You can read news accounts to learn about the saga in greater detail, but let me give you the annotated summary—a Republican senator put a hold on a bill that would prevent a tax increase because it didn’t include enough other tax increases to overcome the “expense” of Congress failing to raise taxes.

Yes, it defies logic. 

Unfortunately, this bizarre incident is more than just a case study into the peculiar facets of American legislative politics, it also brought us the year’s only significant change in U.S. trade law.

But don’t worry.  Most observers are confident that Congress will eventually extend the GSP program and retroactively refund all the duties collected since its expiration.

Just so we’re clear, the elected masters of our economy raised taxes on poor people in poor countries (and the Americans those people do business with), but they didn’t mean to and they’re going to fix it.  When they get around to that is anyone’s guess.

Is the TPP about Free Trade or Economic Nationalism?

One of the big Obama administration trade initiatives going on right now is negotiations with eleven countries in the Pacific region, called the Trans Pacific Partnership (TPP). What exactly is being talked about in these trade talks? Is it really about free trade? Based on standard media coverage of the issue, it’s not easy to discern.  Here’s an example from the Washington Post.

In the print version of the piece, the title notes that the U.S. is seeking “to shape global trading rules”; and the sub-title says that the goal of the talks is “a freer flow of world commerce.” That sounds free trade-ish.  But is it free trade? And if not, what is it?

When you look at the substance that is described in the article, the talks seems much broader, and do not have a very free trade feel. Take a look at these examples:

When Vietnamese officials issued new Internet rules this year, the U.S. tech industry gave a shudder.

The regulations clamp down on political speech, require companies such as Facebook and Google to invest in local computer infrastructure to store information on Vietnamese users, and could force chipmakers to strip standard encryption features from their processors.

Only one of these is about free trade (the local computer storage requirements). The rest are all domestic laws that affect trade.  But perhaps more accurately, the U.S. trade goal here is changing other countries’ domestic laws so as to increase US exports, which isn’t free trade at all.

Some of these changes may be good (e.g., taking on speech restrictions); I’m less certain about others, such as the stronger intellectual property rules mentioned later in the article. But the article gives away the real policy goal, when it says:

the more significant fights … are over issues such as the regulation of the Internet and e-commerce, the rules for the patent and sale of biopharmaceuticals, and the oversight of logistics, consulting, energy management and other service industries where the U.S. holds an edge.

Putting it this way, the talks seem to be about economic nationalism pursued through trade agreements!  Make everyone use our rules, which will give our companies an advantage.  Along the same lines, the online title of the article is as follows: “Through trade treaty, U.S. hopes rules that favor its companies will become the norm.”

There is real free trade in these talks, of course. There will be lower tariffs and liberalized services trade, and government procurement will be opened up to foreign competition.  But the shift to other subjects as the focus, and the emphasis on giving advantages to U.S. companies, has fundamentally altered the nature of these agreements and the debate, and in the process left the media confused about how to talk about free trade and trade agreements.  They keep trying to make these agreements sound like they are about free trade, but with the hurdle that much of what’s in them is not.

President Obama Is Still the Deporter-In-Chief

Immigration and Customs Enforcement (ICE) released figures showing that they deported fewer people during FY2013 than any year since FY2008 –368,644.  But that number is still higher than at any time during the Bush administration despite the unauthorized immigrant population peaking in 2007.  Just eyeballing the bottom graph confirms that the level of deportations is largely explained by the size of the unauthorized immigrant population (R-Squared=.813).  The more unauthorized immigrants there were, the higher the number of deportations.    


Source:  Department of Homeland Security and author’s estimate. 

 So how does Obama’s enforcement record compare to the years before he took office?  Is he under-enforcing or over-enforcing immigration laws relative to what we’d expect given the size of the unauthorized immigrant population?

President Obama is over-enforcing immigration laws.  During his administration a yearly average of 3.37 percent of all unauthorized immigrants have been deported every year compared to just 2.3 percent during President George W. Bush’s administration.  It is true that deportation as a percent of the unauthorized immigrant population have slackened in 2013 but that is still above any year during the Bush administration.

E-Verify Deepens Projected Budget Deficits

On Wednesday, the Congressional Budget Office (CBO) released a cost-estimate for the Legal Workforce Act (H.R. 1772). That bill is one part of the House Republican’s immigration reform package that would nationally mandate a version of E-Verify.

Source: CBO Cost Estimate for H.R. 1772 Legal Workforce Act, page 2.  

CBO notes that many unverifiable employees will be pushed deeper into the underground economy by E-Verify – something that is already occurring in states that mandate its use. Some employers would no doubt continue to pay unverified employees, but would do so off the books and off the radar of the IRS and Social Security Administration. While the government would receive an expected $49 billion in on-budget revenues from new sources of income tax revenue and payroll tax revenue from 2014 to 2023, it would lose $88 billion in off-budget revenue during the same period – mostly from Social Security payroll taxes lost as workers join the underground economy. That’s a $39 billion net loss to revenues due mainly to E-Verify.

My colleagues and I have written extensively about the threat that E-Verify poses to employees, employers, and civil liberties. The CBO estimates that expanding E-Verify would cost the federal government $635 million over the 2014-2018 period, followed by a similar amount from 2018 to 2023. That translates to roughly $1.2 billion in new hires, data retention systems, enforcement tools, and other goodies for the Department of Homeland Security.

The Legal Workforce Act would also impose costly new mandates on state and local governments and the private sector. The CBO estimates at least $10 million in total annual costs to be imposed on state and local governments that will be forced to comply (currently, only 20 states mandate the use of E-Verify for new public hires). And the office estimates a minimum cost of $200 million annually from 2016 to 2018 for private sector employers as they struggle to verify an estimated 50 million employees.

The Legal Workforce Act imposes new costs on the federal government, on state and local governments, on employers and employees, and will push some workers further into the underground economy – all without (thankfully) achieving its core objective of excluding unauthorized immigrants from the workforce. While the CBO may not be known for its accurate fiscal projections, the inevitable net fiscal costs of this bill make it hard to draw anything positive from this recent report.    

This post was written wtih the help of Scott Platton.   

Frederic Bastiat Makes the Case for Trade Facilitation

Earlier this month in Bali, WTO ministers reached agreement on a set of negotiating issues known as “trade facilitation,” which deal mostly with customs reform and related measures to reduce the time and cost of transporting goods and services across borders. If removing tariffs is akin to turning on a water spigot full blast, trade facilitation is the act of untangling and straightening out the attached hose. A kinked hose impedes the flow as an administratively “thick” border impedes trade.
This paper, which I wrote a few years ago, describes the importance of trade facilitation reforms to economic growth, and explains why subjecting such self-help reforms to negotiation – instead of just undertaking them as a matter of surviving in a competitive global economy – would only delay the process of removing inefficiencies. Five years after the paper was written and 12 years after multilateral negotiations were launched in Doha, a deal was reached obligating governments to reform and streamline their customs procedures, with technical and financial assistance provided by the wealthy to the developing countries.
As I wrote yesterday, this is small relative to the overall Doha Round agenda and relative to what might have been accomplished over these past 12 years in the absence of Doha (i.e., without adhering to the pretensions that our own domestic barriers to foreign commerce are assets to be dispensed with only if foreigners dispense of theirs). 
But perhaps nobody has been more gifted at exposing the absurdity of administrative trade barriers with pithy wit and grace than the 19th century French classical liberal business and economics writer Frederic Bastiat. Around 1850, Bastiat made a case for trade facilitation that can scarcely be improved:
Between Paris and Brussels obstacles of many kinds exist. First of all, there is distance, which entails loss of time, and we must either submit to this ourselves, or pay another to submit to it. Then come rivers, marshes, accidents, bad roads, which are so many difficulties to be surmounted. We succeed in building bridges, in forming roads, and making them smoother by pavements, iron rails, etc. But all this is costly, and the commodity must be made to bear the cost. Then there are robbers who infest the roads, and a body of police must be kept up, etc.
Now, among these obstacles there is one which we have ourselves set up, and at no little cost, too, between Brussels and Paris. There are men who lie in ambuscade along the frontier, armed to the teeth, and whose business it is to throw difficulties in the way of transporting merchandise from the one country to the other. They are called Customhouse officers, and they act in precisely the same way as ruts and bad roads.
 Congratulations, negotiators, for agreeing to remove the kinks from your hoses. 

Fast Track Is a Waste of Time

As Cato’s Dan Ikenson has pointed out before, the Obama administration likes grand trade policy proposals, like the Trans-Pacific Partnership or the proposed U.S.-EU trade agreement, but isn’t putting in the political effort needed on the domestic side to secure approval of these agreements.

The president’s decision to nominate Senator Max Baucus (D-MT) to be the next U.S. ambassador to China is a perfect example of this problem.  Three years into negotiations toward the Trans-Pacific Partnership agreement, the president finally decided to seek fast track trade promotion authority this fall, and Baucus has been instrumental in putting together a bipartisan bill.  With Baucus being sent to China, there will be no prominent Democrats in either the House or the Senate supportive of fast track.

This development should surely not engender confidence in the ultimate success of the TPP, but there’s one counterintuitive way to help bring much-needed focus to U.S. trade policy:  Stop worrying about fast track.

Fast track authority is an arrangement between the president and Congress designed to ease the passage of trade agreements.  Congress agrees to hold a timely, up-or-down vote on future trade agreements.  In exchange, the president agrees to adopt a series of negotiating objectives demanded by Congress.

Many trade advocates believe that fast track authority is necessary to gain Congressional approval of free trade agreements, but I have a new bulletin out today explaining how, right now, fast track will do more harm than good.

First, with the current partisan alignment in Congress, we don’t need fast track to pass the TPP.  And second, the negotiating objectives Congress imposes through fast track include bad policies that could disrupt the negotiations at this late stage, and even delay completion of the agreement.

If there were a chance that Congress would use the fast track bill to make the TPP a better free trade agreement, then I would support it.  But there is absolutely no indication that anyone in Congress is going to push for that.  Taking up fast track now accomplishes nothing of value, but will serve as divisive political theater while ultimately reducing the quality of the TPP.

You can learn more by reading the bulletin.

The Economic Impact of NSA Spying

At some point, I hope someone does a thorough, empirical study of the impact of NSA spying on U.S. companies.  But for now, all we have is anecdotal evidence, like this:

Today Brazil’s government announced it won’t buy $4.5 billion worth of US fighter jets in a move attributed to anger over controversial US intelligence-gathering that targeted Brazilian citizens and officials, including president Dilma Rousseff.

The Brazilian government’s official statements pointed to performance and cost issues as the reason to pick Sweden’s Saab AB to develop 36 fighters, though many observers had believed Boeing had the upper hand while bidding to expand Brazil’s air force.

Calling the decision “disappointing” in a statement, Boeing says it isn’t done trying to sell to Brazil, a major client for the company’s commercial air business, noting that ”over the next several weeks, we will work with the Brazilian Air Force to better understand its decision.”

One way to understand it: “The NSA problem ruined it for the Americans,” a Brazilian government official told Reuters. Public opinion turned against the US, and Brazil is leading the charge for a United Nations resolution that would limit electronic surveillance. Edward Snowden, the former National Security Agency contractor whose leaks revealed the US surveillance, obliquely requested asylum in Brazil earlier this week, but it looks the country isn’t interested in hosting the whistleblower.

Today, a White House panel charged with assessing American electronic snooping released a report urging new limits on US intelligence agencies. One of its recommendations is to more carefully assess the costs of surveilling foreign leaders like Brazil’s Rousseff. On this front, Brazil’s decision on the fighter planes is a costly object lesson for the US government.