Topic: Trade and Immigration

WTO Membership Promotes a More Open China

Each year the U.S. Trade Representative’s Office issues a report on the status of China’s compliance with its obligations as a member of the World Trade Organization to open its market further to global competition. Mandated by law, the most recent report was issued yesterday, all 109 pages, and it is generating media buzz (check out this New York Times story, for example) for its critical comments about China’s failure to fully comply with its commitments.

The report was certainly well timed to make a spalsh. This week, a high-powered U.S. delegation is heading to China, led by U.S. Treasury Secretary Henry Paulson and including Federal Reserve Chairman Ben Bernanke. The delegation aims to cajole the Chinese to speed up not only trade liberalization but the flexibility of their currency.

This week also marks the 5th anniversary of China’s accession to the WTO as its 143rd member after 15 years of negotiations. As a condition of its entry, the Chinese government agreed to lower tariffs on imports and open its market further to foreign investment and services trade. After five years, the phased implementation process is officially over.

I’ve been reading through the USTR’s report today and I think the news media have been somewhat hyping its negative aspects (surprise, surprise). It does rightly criticize China for not doing enough to stop piracy of intellectual property and to freely allow certain imports and services. But the report also notes impressive progress.

China’s market is significantly more open today than it was even five years ago. For example, before its accession, China did not allow foreign-owned companies to freely import, export, and distribute goods within China. Today those so-called trading rights are widely permitted. China’s tariffs on goods of the greatest importance to U.S. industry have fallen from an average of 25 percent in 1997 to 7 percent. Tariffs on information technology goods from the United States have fallen to zero. Overall U.S. exports to China are up 35 percent so far in 2006 compared to last year and are up 158 percent since 2000.

My Cato colleague Daniel Ikenson goes beyond the USTR report in an op-ed titled “Toasting China: Why Their WTO Membership is a Blessing,” to show that China’s entry into the WTO has been good for the U.S. economy.

All in all, this should be a happy anniversary for everyone who supports freer markets and expanding trade.   

More Trade, More Jobs, Higher Wages

Critics of international trade argue that imports mean fewer jobs and lower wages for American workers. They repeat this mantra despite plain evidence to the contrary.

The latest evidence comes this morning with another U.S. Labor Department report that the U.S. economy continues to create new jobs at a healthy clip. U.S. payrolls grew by another 132,000 in November. The unemployment rate ticked up slightly to a still relatively low 4.5 percent because new workers surged into the labor market.

In the past year, total payroll employment has jumped by 1.8 million. Since mid-2003, payroll jobs have grown by 6.2 million, and since 1990 total payroll jobs have grown by 27 million. That impressive job growth has occurred against a backdrop of rising U.S. trade with the rest of the world, so clearly trade does not mean fewer jobs for American workers.

What about wages? They too are rising again, according to the same labor-market reports this morning. Average wages are up 4.1 percent from a year ago, ahead of inflation. When benefits are added, total compensation for U.S. workers continues to rise faster than inflation and is up significantly in real terms compared to previous years.

Like technology, trade can cause turnover in the labor market. But also like technology, trade raises the overall productivity of American workers, leading to better jobs and higher real wages.

The best analysis on this subject remains the 2004 Trade Briefing Paper, “Job Losses and Trade: A Realty Check,” by my Cato colleague Brink Lindsey.

Lou Dobbs Watch

The “Lou Dobbs Tonight” show on CNN long ago ceased to be a serious news program and has become a nightly screed against free trade, immigration, and a competitive, market economy. The opinions expressed by Lou Dobbs, his “correspondents,” and the large majority of his guests are typically based on questionable and selective facts that miss the real story.

Consider a “Lou Dobbs Tonight” segment the other night on how a “flood” of imports into the United States has caused “the incredible deterioration of the manufacturing industry.” The program’s anchor that night, Kitty Pilgrim, blamed the development on “the commitment of successive administrations to so-called free trade policies.”

The segment featured two biased CNN correspondents plus three guests who are all professional critics of trade: Alan Tonelson of the U.S. Business and Industry Council, an organization of generally declining, protectionists industries; Robert Scott of the Economic Policy Institute, a labor-union backed research group; and Bob Baugh of the AFL-CIO, the largest union umbrella organization.

As for the facts, nowhere in the segment was it mentioned that American factories are producing more goods than ever as measured by inflation-adjusted volume. U.S. manufacturing capacity and production have actually increased by 50 percent, in real terms, since the early 1990s, when such important trade agreements as the North American Free Trade Agreement and the Uruguay Round Agreements Act went into effect. Domestic output of automobiles and parts, a special focus of the CNN segment, is also much higher than in the earlier, pre-NAFTA, pre-WTO days.

As Cato research has shown, imports of manufactured goods and domestic output of manufactured goods tend to rise and fall together along with the overall health of the U.S. economy. When we prosper, we trade; when we trade, we prosper.

Apparently the “Lou Dobbs Tonight” program won’t let a few basic facts get in the way of a sensationalized story. Perhaps CNN should change its name to the Cable Opinion Network, or CON for short.

A Timely Chiding from the Washington Post

Today’s editorial in the Washington Post is a timely reminder of the negative consequences if Congress does not renew certain non-reciprocal trade preference deals (mainly allowing developing countries to import certain goods to the United States tariff free).

Although it strikes a somewhat mercantalist tone (e.g., it seems to imply that there may be reason to block trade deals if they do not “save American jobs”), the editorial board is right to say that the benefits to the United States from renewing these deals, both economic and political, certainly outweigh any “costs” from opening up trade that some members of Congress usually get upset about. Extending permanent normal trade relations to Vietnam (a topic I have blogged about here and talked about in this podcast) should be an especially simple matter.

I am a little skeptical about the long-term benefits of non-reciprocal trade preferences; they can lead to a culture of dependency and concentration in certain industries, and create political constituencies against multilateral trade liberalization, for example. But I wouldn’t go so far as to say that the problems related to these types of deals generally are sufficient to outweigh the benefits of approving the particular deals under consideration. In any case, somehow I doubt that the nuanced arguments against development-related unilateral preferences are the reason behind failure to pass the deals. The Washington Post suggests the inertia may be due to simple laziness. Surely not?

Zimbabwe Ignores Milton Friedman’s Advice

Before he passed away last month, Milton Friedman had the satisfaction of seeing many of his free-market policy ideas and economic insights vindicated by real-world events. 

A story in today’s Financial Times from London offers a clear, yet tragic, illustration of Friedman’s famous maxim: “Inflation is everywhere and always a monetary phenomenon.” 

Zimbabwe’s erratic and despotic President Robert Mugabe has wrecked the country’s economy during his quarter-century in power by flouting virtually every free-market idea Milton Friedman advocated, including sound monetary policy. One result has been rampant inflation. According to the FT, Zimbabwe’s finance minister “admitted that inflation—1,070 percent in the year to October—was excessive, blaming money supply expansion of more than 1,000 percent.” 

Just as Professor Friedman would have predicted!

New Mexico: Land of Dependence

Found on a New Mexico state web site…

My father-in-law runs the Santa Fe chapter of Habitat for Humanity, a voluntary charity that measures success in terms of how many people it helps to achieve financial independence.  Odd that the state government appears to take pride in doing the opposite. 

The Free Lunch Project may have found its new home.  Crescit eundo, indeed.

The “Do Nothing” Congress Can, and Should, Do Something Good on Trade

Make no mistake, the incoming Congress looks like it will be less amenable to trade liberalization than the last. Many friends (or, at least, non-enemies) of free trade in the last Congress have been replaced by “fair-trade” Democrats who have lamented the trade policies of the Bush Administration and seem keen to provide more “oversight” (read: populist obstructionism) on trade issues in the future.

However, rather than pass laws on warrantless wire-tapping and the like, the 109th Congress can make a positive contribution to U.S. policy in its last, dying weeks and vote in favor of granting “permanent normal trade relations” status to Vietnam. That would strengthen the bilateral relations between the United States and Vietnam, and bring economic benefits to both nations.

Holding up the passage of that bill before the elections was Sen. Mel Martinez (R- Fla.), concerned about the treatment of Thuong Nguyen “Cuc” Foshee, a Florida woman detained in Vietnam on suspicion of terrorism. Mrs Foshee was, however, released for health reasons and is due to return to the United States today. That paves the way for a House vote on the issue this week and, hopefully, a Senate vote soon after.

Vietnam’s accession to the WTO has already been approved by the WTO membership, and a bilateral market access deal between the United States and Vietnam was sealed in May 2006. Vietnam would not, however, need to extend most-favoured-nation tariffs to the United States until Congress granted PNTR. Unless and until then, U.S. consumers and companies would not be able to take full advantage of Vietnam’s accession to the WTO. A market of more than 82 million people, growing at an average rate of 7.5 percent over the last decade, seems too good an opportunity to risk on a year-to-year basis (the current schedule for granting most-favored-nation status to Vietnam).

Apart from securing those economic benefits as soon as possible, however, a diplomatic embarrassment is ripe for the avoiding. President Bush is due to visit Hanoi from November 18-19 for the annual APEC (Asia Pacific Economic Cooperation) leaders meeting, at which the Doha round is due to be discussed.

My colleague Dan Ikenson has some concerns about the concessions made by the administration in order to secure the PNTR passage (see here), but this bill is one that the lame-duck Congress can, and should, pass quickly. Apart from the tangible economic benefits it will bring, it will have powerful “signal value” that the United States is still engaged on trade.