Topic: Trade and Immigration

The Good News behind Today’s Trade Deficit Report

America’s broadest trade account reached another record deficit in 2006, according to a report this morning from the U.S. Commerce Department. The U.S. current account deficit reached $857 billion last year, which will predictably unleash a lot of wailing and gnashing of teeth in Washington today about the alleged failure of U.S. trade policy and the menace the deficit poses to U.S. economic growth.

The deficit doomsayers are wrong yet again. Far from being a sign of failure, today’s report contains a lot of good news if you care about the freedom of Americans to engage in international commerce. U.S. exports of goods and services last year were up by 12.7 percent from 2005, and imports grew by 10.5 percent, stoked by strong demand from American consumers and producers alike. Driving the record deficit last year were continued inflows of foreign capital, including a 67 percent jump in foreign direct investment. Growing levels of trade and foreign investment have boosted U.S. growth, job creation, and rising real wages.

As I have argued for a long time now, the trade deficit does not mean what our politicians and cable commentators keep telling us it means. For example, in a Free Trade Bulletin of mine published this week, I found no evidence that rising trade deficits are associated with slower economic growth. In fact, more robust economic growth typically translates into a rising current account deficit. 

If the expanding current account deficit is a drag on growth, somebody forgot to tell the U.S. economy.

Dice-K Takes American Job

Russell Roberts of George Mason University writes about Japan, China, and the trade deficit scare in the Wall Street Journal. Along the way he notes:

The story of the baseball off-season is the Red Sox spending $100 million to bring Daisuke Matsuzaka from Japan to the United States. Dice-K, as he’s known, is the ultimate import. He takes away a job from an American pitcher.

Russ is mocking the protectionist argument, of course. But he could have drilled in on this point more than he did. We often hear that immigrants “take American jobs.” But really, when America welcomes software engineers from India or magazine editors from England or the laborers who built my house from El Salvador, they don’t necessarily take anybody’s job. An expanding economy–expanding partly because of the immigrants–may well need more engineers, editors, or laborers than it would have needed in the absence of immigration.

But Dice-K actually is taking someone’s job. He’s going to pitch in the major leagues. There’s a fixed number of major league teams, and pretty much a fixed number of pitchers on each team. If the Red Sox hire Dice-K, they’re going to fire or not hire some other pitcher. Probably some good ol’ boy from the American South, whose next best alternative is, yes, being a greeter at Wal-mart. Maybe even one of my Kentucky relatives. Hey, maybe Pat Buchanan’s onto something here…

British Trade Association Warns against Growing Burden of Government

The Institute of Directors is urging the UK government to slow the growth of government in order to protect England from becoming an uncompetitive continental-style welfare state. The group notes that Spain successfully has reduced the burden of government by nearly 11 percentage points of GDP. A smaller burden of spending, the group explains, would facilitate much-needed tax reforms, including a lower corporate rate and the abolition of the death tax. Tax-news.com reports:

As part of its Budget submission, the Institute of Directors (IoD) has warned the UK government that economic policy now stands at a “fork in the road,” and that the level of taxation now stands at a “tipping point” as international companies begin to seek out more tax competitive jurisdictions in increasing numbers. The IoD argues that the UK government now faces a choice of continuing along its present path towards an economy that will mirror that of other EU economies with large governments, or of pursuing polices that aim to reduce the size of the state towards the levels seen in the US, Australia, Ireland and Switzerland, where public spending is between 34% and 37% of GDP. …Miles Templeman, Director General of the IoD commented: “There is nothing inevitable about a rising burden of public spending and taxation. Other countries have achieved huge reductions in the spending to GDP ratio. The UK should take Spanish lessons. Since 1993 public spending in Spain has fallen by 10.8% of GDP – from 48.6% to 37.8% of GDP in 2007. The optimal size of Government in the UK is well below its current size. …Unfortunately, the current size of the state in the UK is not globally competitive.” …The Institute also called on the government to consider its previously announced proposals to simplify the capital gains tax system and abolish inheritance tax, while calling for the proposed planning gain supplement to be abandoned.

U.S. Economic Misery — or Delusion?

Opponents of trade liberalization are painting themselves into a corner. They repeat endlessly that rising imports and trade deficits are bad for the U.S. economy and American workers. Imports and the trade deficits they fuel supposedly reduce U.S. employment and wages and impoverish American households as we borrow more and more and sell off the family jewels to support consumption. And since imports and trade deficits keep expanding, our economy must be getting worse, right?

Wrong. This morning the Labor Department reported that the U.S. unemployment rate fell again last month, to 4.5 percent, which must be full employment by anybody’s definition. Almost 100,000 net jobs were added in February, despite cold weather that crimped construction. Those job gains come on top of a revised net gain of 372,000 jobs in December and January, bringing net employment growth in the past four years to 6.5 million. Today’s report also confirms that real wages continue to rise for American workers.

Adding to the favorable picture, the Federal Reserve Board reported yesterday that the net household wealth of American families in the last quarter of 2006 reached a record $55.6 trillion. And that is net wealth: what we own after subtracting mortgage, consumer and other debts. Our net wealth is up 43 percent in the past four years, driven by increases not only in home values but also stock prices.

Granted, our infinitely complex, $13.5 trillion economy will have its ups and downs, but the current reality simply does not square with the politically tainted picture of economic misery and hopelessness being portrayed by certain critics of trade.

Paternalism Runs Out of Gas

I was filling up the minivan on Saturday when a woman at a nearby pump approached me and said, “Can you do me a favor? I don’t know how to pump my own gas.”

My first reaction was puzzlement. She was probably in her 30s, driving an SUV with what looked to be one or two kids inside. How could she be driving a car all these years and still not have figured out how to pump her own gas? Then she said something that instantly made it all clear.

“I’m from New Jersey.”

New Jersey, of course, is just about the only state left that requires that all gas stations within the state be full-service. Defenders of the ban on self-service pumps claim it is safer and more convenient for motorists and that it does not cause higher prices. None of those arguments hold water against the decades of successful experience with self-service pumps across the country. If a gas station attendant could pump your gas more safely and conveniently and at the same price, why do so few stations offer full-service anymore?

On top of its economic inefficiencies, the New Jersey ban on self-service is an insult to the good people of New Jersey. Their own state government is telling the world that its citizens are not smart enough or responsible enough to be trusted to handle a gasoline pump. When it comes to the routine task of filling up our vehicles, the paternalistic government of New Jersey treats its citizens as though they are children.

As I witnessed first-hand over the weekend, that paternalism can leave its citizens overly reliant on the kindness of strangers whenever they venture away from home.

When Common Sense Just Isn’t Enough

The National Association of Manufacturers has been in Washington long enough to know that sometimes, if you make that last appeal, that last argument, compliment the right person, then things might just go your way. 

In an unusual (to me, at least) letter expressing opposition to an utterly inane amendment sponsored by Sen. Charles Schumer that would required ALL inbound cargo at U.S. ports to be screened (an impossibility without bringing international trade to a halt), NAM’s Jay Timmons urges the Senate to oppose the amendment. In the letter, Timmons describes the impracticability of the idea and describes how such measures would actually make the ports less secure.

But, to be sure, to cover his bases, and to appeal to that special sense of honor and duty reserved only for politicians, Timmons concludes with this gem:

The NAM’s Key Vote Advisory Committee has indicated that votes on the Schumer amendment will be considered for designation as Key Manufacturing Votes in the NAM voting record for the 110th Congress.  Eligibility for the NAM Award for Manufacturing Legislative Excellence will be based on a member’s record on Key Manufacturing Votes.

That could be the clincher!

U.S. Treasury Secretary Challenges Protectionists

Hearing Washington officials speak sense on international trade has become a rare event these days. So a speech today by U.S. Treasury Secretary Henry Paulson was like a fresh spring breeze after a long dreary winter.

Speaking to the Economic Club of Washington, Secretary Paulson delivered an important address on the huge benefits Americans realize every day from our growing trade and investment ties with the rest of the world.

The secretary touted America’s booming exports, including a 32 percent jump in exports to China in 2006. More importantly, he focused on the benefits of imports, the real payoff from trade:

Trade fosters the environment of competition, innovation, research, and investment that leads to better goods and services at lower prices. Some people speak about trade as if its benefits come only from exports, ignoring the positive contributions of imports. Data show that internationally trade products tend to experience lower inflation rates—even real price declines—while non-traded goods tend to rise in price. Trade thus helps Americans provide for their families. When special interests seek protection in the name of low-wage workers, we should acknowledge that limitations on imports do not benefit the vast majority of Americas. They deny people the freedom to choose from a broader array of goods and services, and impose a cruel tax on people who rely on low prices to stretch their family budgets. The cost of protectionism falls most heavily on those who are least able to afford it—the poor and the elderly.

The speech is packed with other sound thinking and useful numbers on the hot trade topics of the day, including China, the trade deficit, manufacturing, foreign investment and adjustment-assistance programs.

Secretary Paulson’s speech is an antidote to the economic snake oil that is being hawked on what seems to be every street corner of Washington these days.