Topic: Trade and Immigration

One-Half Cheer for a Weaker Dollar

I spent two days last week in Oslo, Norway, for a conference and naturally wanted to sample one of the country’s fine beers. My pint of Ringes was served cold at Lorry’s, a popular and slightly low-brow pub near the Royal Palace. I nursed it slowly because it cost 61 kronor, which converts to slightly more than $10.

It seems I’m not the only American traveling abroad these days who has found that our once mighty dollars do not go as far as they used to. As this morning’s Investor’s Business Daily reports:

The dollar last week sank to a 26-year low against the British pound and is nearing record lows vs. the euro. Even the lowly Japanese yen has gained some ground against the greenback. 

Analysts say the dollar’s fall is the result of a cyclical shift in the global economy: Growth and interest rates in Europe and Asia are outpacing those in America, drawing capital away from U.S. stocks, bonds and other assets.

Most politicians and many economists believe that a weaker dollar is just what the U.S. economy needs. A depreciated dollar means U.S. exports are more affordable abroad and imports more expensive at home, promoting sales and profits for U.S. exporters and putting downward pressure on the trade deficit. 

Count me on the side of Milton Friedman in believing that exchange rates should float freely without government interference. But excuse me if I can’t work up much enthusiasm for the depreciating dollar. And it isn’t just because I want to pay less for a beer in Oslo.  

A weaker currency cuts like a double-edged sword in our domestic economy. On the downside, it raises prices for millions of American families that buy imported clothing, shoes, food, and consumer electronics.  It raises input costs for U.S. businesses. It puts upward pressure on the price of oil, which is universally quoted in dollars.  In fact, I counted the many ways in which we will all pay for a weaker dollar in an op-ed a few months ago. (Don’t be fooled by the headline written by a distracted copy editor!) 

So pardon me if I don’t lift a hearty toast to the weaker dollar.

The Border … Is You

Tomorrow, the House Homeland Security Committee is hosting a “Border Security Tech Fair.”

Vendors scheduled to participate include: Sightlogix, Scantech, Wattre, Hirsch, Bioscrypt, Cogent Systems, Cross Match, L1 Identity, Sagem Morpho, Motorola, L3 Communication, Authentec, Privaris, Mobilisa, and Lumidigm.

I don’t know all of these companies, so I made some educated guesses about the links (and I may have gotten the wrong division of Motorola), but it appears that fully 11 of the 15 participants are in the biometrics industry.

If you think for a minute that this is about the boundary line dividing the United States from its neighbors, I have a bridge to sell you. No wait - I have a “biometric solution” to sell you.  Mobilisa, for example, is being used to run background checks on the citizens of Clermont County, Ohio.

Participants in the Homeland Security Committee’s lunch briefing are all in the biometrics industry.  One of them, James Ziglar, wrote an op-ed in favor of a national ID in Monday’s New York Times. He claims it’s not a national ID, but then, he’s got a biometric solution to sell you.

Freeing the Farm

Today Cato’s Center for Trade Policy Studies released a new study, “Freeing the Farm: A Farm Bill For All Americans”, as part of our efforts to promote serious and permanent reform of farm policy in the United States. We will be holding a forum to discuss the study on April 26 (register here).

For too long, American consumers and taxpayers have been supporting farmers, many of whom run successful agribusinesses (for more information on subsidies and who receives them, see the excellent work of the Environmental Working Group here). Removing price supports, import barriers and subsidies will save taxpayers and consumers billions of dollars and will expose farmers to the 21st century economy. To the extent that reforms help to achieve a successful conclusion to the Doha round of multilateral trade negotiations, American businesses (including farmers) and consumers will gain further.

How would we propose to achieve all this, given the notorious power of the farm lobby? A one-time, limited buyout of commodity support coupled with legislative changes and contracts.

With any luck, the 2007 Farm Bill will be the last.

Growing Pains in the U.S.-China Trade Relationship

What do I think about Red China?  Looks fabulous on a white, satin tablecloth!  

For more serious thoughts about China (in particular, its trade relationship with the
United States), please check out my interview with People’s Daily, a large Chinese newspaper.  Morgan Stanley Chief Economist Stephen Roach was asked the same questions.  His responses can be found here.

If It’s Not a National ID, Then What is It?

Former IRS Commissioners Doris Meissner and James Zigler editorialize in today’s New York Times about their support for “secure, biometric Social Security cards” as an essential part of immigration law reform.

The give-away line?: “To insist on secure documents with biometric identifiers is not a call for a national ID.” They provide no logical support for this naked assertion. Because it’s false.

Strengthened “internal enforcement” of immigration law means federal surveillance and tracking of all workers. All of them. Including you.

Can We Blame the Record Trade Deficit for Global Warming, Too?

An Associated Press story today on the latest trade deficit numbers noted as an aside, “The trade gap has set new records for five consecutive years, a period when the country lost more than 3 million manufacturing jobs.” 

Thoughtful people can disagree about the long-term implications of the trade deficit, but there is no evidence that the trade deficit itself is responsible for the recent drop in manufacturing employment.  

Manufacturing employment has been on a downward trend, not because of imports, but because of soaring productivity in the sector. In fact, overall manufacturing output in the United States continues to increase. American factories can produce more with fewer workers because the remaining workers are so much more productive.  

During the 1990s, the trade gap set new records for seven years in a row (1994–2000). That was also a period of robust domestic growth in which the country added almost a quarter of a million manufacturing jobs.  

As for the most recent string of record trade deficits (2002-2006), one could also describe that period as one when: 

… the real output of American factories grew by 14 percent.    

… the country added a net 6 million new jobs.   

… the unemployment rate fell from 5.8 percent to 4.5 percent.   

… annual real GDP grew by $1.5 trillion, or 15 percent.  

… the net household wealth of Americans grew from $38.8 trillion to $55.6 trillion.  

As I’ve written recently in a Cato Free Trade Bulletin, the reality behind the trade deficit numbers is more multi-faceted than the public discussion in Washington would lead us to believe. 

Behind China’s Headline Export Numbers

China overtook the United States in the second half of 2006 to become the world’s second leading exporter of goods. That fact, contained in a new report from the World Trade Organization and trumpeted in headlines around the country this morning, is bound to further rile up skeptics of America’s growing trade with China.

Although the United States exported more goods ($1,037 billion worth) in all of 2006 than China (which exported $969 billion), figures for the second half of the year show that China has now claimed the no. 2 spot behind Germany.

For those of a mercantilist mindset, to whom trade is all about exporting more than you import and more than the other guy, this news is guaranteed to be alarming. But the real news is nothing of the sort.

First, China is bound to move up in the world rankings of trade. It represents 20 percent of the world’s population, it is surrounded by thriving, trade-oriented economies, and its increasingly open and free economy has been growing at double-digit rates for more than a decade. We should welcome the news that China is more integrated than ever in the global economy.

Second, the United States continues to be a trade and export powerhouse. U.S. exports of goods grew 14 percent between 2005 and 2006, and surpassed $1 trillion for the first time ever. When combined with the $387 billion in services Americans sold abroad last year, we remain the world’s no. 1 exporter.

Third, most of the goods that China exports are in fact designed and in large part made in other countries, including the United States. “Assembled in China” would be a more accurate label than “Made in China” for most of its exports. More than half of China’s exports are made in foreign-owned factories. The most sophisticated components in the computers and other consumer electronics exported from China are in fact made in Japan, South Korea, Taiwan, the United States, and other, more advanced economies. China has become the final link in a deepening global supply chain. (For more detail, see my 2006 study on U.S. trade with China.)

Finally, trade is about more than exports. It’s about, well, trade. We export for the purpose of getting back things of even greater value. Americans benefit at least as much from imports as we do from exports. The $2.2 trillion in goods and services we imported last year make our lives better every day.

As author P.J. O’Rourke summarized in his terrific new book, On the Wealth of Nations, “To give [Adam] Smith’s case against mercantalism in extreme concision: imports are Christmas morning; exports are January’s MasterCard bill.”