Topic: Trade and Immigration

I Hear Voices

I don’t want to tempt fate by declaring that the tide is turning against the costly and interventionist federal agriculture programs, but there have been several critical (in both senses of the word) editorials and investigative series this year on farm subsidies. The voices protesting about farm programs seem to be getting louder.

For a recent example, bravo to the Washington Post, for its editorial on Saturday denouncing the crop insurance boondoggle – yet another agricultural policy fleecing consumers and taxpayers in order to make farming a risk-free enterprise. The editorial follows a series earlier this year from the Post, entitled ’Harvesting Cash’ (you can view that series here).

The insurance program works thus: the government pays 60 percent of the premiums for crop insurance ($2.3 billion last year), and also pays a fee to insurance companies for administering the program (over $800 million). All this for crop failure losses of $752 million (yes, that’s right, the losses cost less than the administrative fees). The insurance does not, however, remove the “need” for disaster payments – over $6 billion worth since 2000, according to the Roanoke Times.

Taxpayers can sleep well at night, however, knowing they are funding “something good, the rural life”, in the words of a farmer quoted by the Post. (I wonder how much money would flow to farmers if the charity was voluntary?)

Kudos also to the Boston Herald, for their Sunday editorial on the subject (view here) and the Roanoke Times (here) for their own version. The latter editorial could be especially influential since Bob Goodlatte is the representative for Roanoke County and Chairman of the House Agriculture Committee.

It is encouraging to note the number and breadth of newspapers covering this subject. The LA Times, the Minneapolis Star-Tribune, the Des Moines Register, the Denver Post, the Chicago Tribune and the Orlando Sentinel have all run editorials on farm programs this year. Let’s hope that the voices are heard, and that voters and their representatives start to demand change.

Lemon Lawsuits

Sunkist Growers, the wholesome name you probably associate with that morning swig of orange juice, has stolen a page from the playbooks of its more traditionally protectionist agricultural brethren. 

Last month Sunkist filed an anti-dumping petition alleging that Argentine and Mexican producers are selling lemon juice in the U.S. market at “unfairly low prices.”  Heavens!  The petition alleges dumping margins in excess of 100 percent, which means that Sunkist believes the U.S. prices of lemon juice from Argentina and Mexico should be more than double what they are today. (Maybe the U.S. prices of U.S. lemon producers would be half as much if our restrictive immigration policies didn’t drive up the cost of labor at harvest time.)

In a carefully crafted petition designed to minimize damage to Sunkist’s public image, only lemon juice used as an ingredient in the production of other products (i.e., not concentrated lemon juice or lemonade purchased directly by consumers) is subject to the anti-dumping investigation. 

Sunkist notes in a press release that: “The anti-dumping duty, if assessed, will not result in increased prices to consumers.”  Obviously, that’s a lie.  What Sunkist really means is that consumers won’t be able to attribute to Sunkist’s litigation the higher prices they will have to pay for the dozens of everyday food items that contain lemon juice.  The prices of soda, fruit juice, ice cream, cake mix, seasonings, salad dressings, microwave dinners, frozen vegetables, hair coloring, candy, chewing gum, cough syrup, and many other items will be affected by any prospective anti-dumping duties. 

And, as has been the case in the sugar-using industries, lemon juice-consuming industries will have greater incentive to move their operations to Canada or Mexico or any number of other countries where the price of lemon juice is market-based.  Whenever the supply of upstream products is choked off by protectionist measures, jobs, revenues, and profits in downstream industries suffer.  And contrary to Sunkist’s feeble rationalization, consumers flip the bill.

Does Big Steel Still Dominate U.S. Trade Policy?

The chart above depicts the operating performance of the industry that is most protected by U.S. antidumping and countervailing duty restraints. As that chart demonstrates, the U.S. steel industry is in robust health–well outperforming overall manufacturing (i.e., its customers) for the past few years.

Should one conclude that that performance is a reflection of the insulation from competition it has been afforded? That’s likely to be one of the steel industry’s arguments before the U.S. International Trade Commission, which is holding a hearing tomorrow concerning the question of whether 13-year old antidumping and countervailing duty restrictions against imported corrosion-resistant steel from six countries should be continued for at least five more years. (This paper explains why revocation in these so-called Sunset Reviews is rare).

But those restrictions, as well as the 160 other trade remedy restraints currently in place to protect the steel industry, date back to the 1990s and earlier, when the industry’s performance was much closer to the first four bars than the last three. If anything, longstanding trade protection delayed the day of reckoning for many inefficient mills by discouraging them from exiting the market and encouraging continued inefficient operation.

From an operating perspective, the year 2004 stands out as a clear dividing line between the steel industry of old, and the new, revitalized industry of today. But the dramatic industry renaissance that has bestowed market power, record profitability, and insulation from any significantly adverse effects of foreign competition on U.S. steel producers began in 2002, after the government assumed $9 billion in the industry’s unfunded pension and health care obligations.

By wiping those liabilities off of the books of several major bankrupt steel producers, that intervention paved the way for mergers and acquisitions and new labor agreements that have enabled the industry to retire inefficient capacity, cut its fixed costs, and consolidate production decisions. In 2003, the top three producers of flat-rolled steel (the steel used in autos, appliances, and construction) controlled 25 percent of flat-rolled steel production capacity. Today, the top three control 70 percent.

That concentration has given the domestic industry a high degree of market power, which enables it to prop up prices and weather downturns in demand by curtailing output. There’s nothing objectionable about that (with the exception of the government-assisted jumpstart) unless, of course, steel is a major component of the products you manufacture. What is objectionable, then, is buttressing this emerging oligopoly with continued trade restraints. Consumers of steel should be expected to adapt to the effects of greater concentration of steel production, but that adaptation requires having access to imported substitutes and supplements.

Taxpayers, steel-using industries, and consumers have subsidized this industry for too long.

The ITC’s decision, expected in December, will speak volumes to the question of whether that agency continues to be a rubber stamp for the steel lobby’s protectionist agenda.

Record Trade Deficit + Campaign Season = Infuriating Statements

From the LA Times this morning, an article on the trade deficit for August. Both imports and exports were up slightly from the July figures, and the trade deficit itself was $69.9 billion. But it was not so much the trade figures that interested me (after all, the trade deficit has hit record highs repeatedly lately), but this statement from Rep. Marcy Kaptur:

“We are not only shipping jobs overseas, we are shipping billions of dollars overseas,” said Rep. Marcy Kaptur (D-Ohio), a critic of Bush administration policies calling for free-trade pacts. “We are exporting our jobs and our wealth, not our products.”

We are shipping billions of dollars overseas? On net, the United States must, by definition, be a net importer of capital to balance the current account. I won’t belabor that point, though, since my colleague Dan Griswold has covered the topic more than ably here).

Kaptur, currently seeking reelection in Ohio’s 9th district, is one of the least trade-friendly members of Congress, according to last year’s rating of the 108th Congress (available here). Her press release on the trade deficit seems to boast of her being a “leading critic of “free trade” policies” (note the quotation marks around free trade, signifying, I assume, that free trade is a quaint concept).

I understand that it is election time and all, but I find it very frustrating that marketing oneself as someone who will fight against free trade — a poverty fighter, growth promoter and trust-buster all in one — is perceived to be a winning strategy.

The Global Contest for Talent and Brains

This week’s Economist magazine features a 15-page special report, “The Battle for Brainpower,” on the growing importance of highly skilled workers in the global economy. As high-tech goods and sophisticated services account for growing shares of world output and trade, attracting talented, skilled, and educated workers is becoming more important for U.S. companies wanting to stay competitive in global markets. Although America remains the most attractive market for such talent, our national immigration policies are proving to be a handicap.

While most other countries are easing restrictions on the entry of skilled workers, the U.S. Congress maintains an absurdly low cap on H1-B visas of 65,000 a year. The number is so low compared to demand that the visas are snapped up months before the fiscal year begins.

The Economist warns that America could be losing out in the global contest for talent. Consider the contributions that foreign-born workers have made to America’s high-tech economy. According to the report:

Half the Americans who won Nobel prizes in physics in the past seven years were born abroad. More than half the people with Ph.D.s working in American are immigrants. A quarter of Silicon Valley companies were started by Indians and Chinese. Intel, Sun Microsystems and Google were all founded or co-founded by immigrants. But now India and China are sucking back their expats, and America’s European competitors have woken up to the importance or retaining their talent. To cap it all, the immigration authorities [in the United States] are making life harder for foreigners.

The 109th Congress failed to enact meaningful immigration reform to allow more low-skilled immigrants to enter the Untied States legally. An even bigger failure was its neglect of our need to attract and keep more highly skilled workers from abroad.

Be(trade)

As we enter the last quarter of what feels like the tenth year of a two-term presidency, the Bush administration’s trade apologists have yet another setback to rationalize. Last week, in an effort to overcome limited opposition to a bill that would grant Vietnam “permanent normal trade relations” (PNTR) status ahead of that country’s accession into the World Trade Organization, the administration announced it would “self-initiate” antidumping cases against Vietnamese exporters of clothing should conditions warrant.

Under the law, only domestic industries producing the product in question, unions representing workers producing the product in question, or the Commerce Department itself can initiate antidumping investigations. Rarely has the executive branch—and never has this administration—initiated an antidumping case on behalf of an industry or its workers. Almost every one of the thousands of U.S. antidumping cases over the years was initiated by industry, and that is why last week’s concession is significant.

Opposition to the bill was mostly confined to the textile industry, which is always opposed to measures that would expand the freedom of Americans to engage in commerce with the world at large. That opposition was expressed as a hold over a vote on the PNTR bill by two Republican senators from textile states, Elizabeth Dole of North Carolina and Lindsey Graham of South Carolina. Their opposition could have been overcome with a far less intrusive concession, if the administration was unwilling to stand on principle. After all, Senator Jim DeMint (R-SC) won his seat by a vast margin in 2004, running unapologetically on a free trade ticket against a candidate hand-picked and financed by South Carolina’s textile magnates.

Instead, the administration delivered to the textile industry it’s most coveted prize. You see, the U.S. textile industry does not have standing in antidumping cases involving imported clothing. Textile producers make the threads, yarns, and fabrics that are used in the manufacture of clothing, but they don’t make clothing. In fact, other than high-end fashion and uniforms made for the military, there isn’t much of a domestic clothing industry to speak of. Apparel producers left long ago, setting up shop in the Caribbean, Mexico, and Central America. Producers remaining in the United States generally don’t compete with imports, and most of those that do are also importers of clothing, and have no interest in impeding access of foreign producers to the U.S. market. In other words, there is no industry in the United States that could actually bring a consequential antidumping case against foreign producers.

The administration’s concession changes all that. If the administration is willing to initiate such cases, U.S. textile producers are that much closer to cordoning off the U.S. market for their own customers and keeping the Vietnamese, the Chinese, and other Asian suppliers at bay, while Americans pay more than they should have to for clothing.

Tongue in cheek, Bush apologists will argue that the administration outsmarted the opposition by agreeing only to take antidumping actions without specifying the conditions that would trigger such actions. But by even indulging in talk of self-initiating antidumping actions, the Bush administration makes crystal clear the insincerity of its own rhetoric about the virtues of free trade. And, it has set a terrible precedent that future administrations and policymakers will have a tougher time disavowing. You can bet your last dollar that presidential candidates stumping through textile country over the next two years will be pressed to honor this unforgivable commitment made by the Bush administration. And as the textile industry’s recourse to special safeguard measures against Chinese clothing imports expires at the end of 2008, it’s a virtual guarantee that its lobby will push for a similar antidumping commitment with respect to Chinese imports. And who knows, other industries might also line up for such treatment.

Prospects for significant trade liberalization were already hanging on by a thread, and the best we could hope for was for the administration holding the line. Last week’s “compromise” constitutes a colossal breach in that line. And none of it makes any sense from a political or diplomatic perspective anyway. The concession was made to improve prospects that the Vietnam PNTR bill would pass in a lame duck session ahead of the president’s visit to Hanoi next month. But does anyone in the White House think the Vietnamese are going to roll out the red carpet for a president bearing such a tainted gift: unfettered access to the U.S. market for all but their most important exports?

Medicaid & the Free-Market Movement

This weekend, something pretty important happened, at least with regard to how the free-market movement approaches Medicaid and medical care for the needy. 

Saturday was the final day of the State Policy Network’s 14th annual meeting in Milwaukee. The State Policy Network provides guidance to 48 state-focused free-market think tanks in 42 states. Part of the annual meeting was a panel on Medicaid, the joint federal-state program originally created to provide medical care to the truly needy. 

Of course, Medicaid has swelled well beyond that goal. The program now covers 52 million people even though there are only 36 million U.S. residents below the poverty line. Medicaid also destroys private markets for health insurance and medical care, and induces low-income Americans to become dependent on government. For example, policymakers universally acknowledge that a welfare check induces dependence on government. Yet average Medicaid benefits for the program’s least expensive enrollees (the non-elderly) are worth twice as much as the average welfare check. Moreover, there are 10 times as many people who receive Medicaid benefits.

For years, several market-oriented groups have advanced Medicaid reforms that, in the name of empowering Medicaid enrollees or improving their quality of care, would expand enrollment and make Medicaid’s problems even worse. Principally, the reforms involve introducing health savings accounts and vouchers into Medicaid. Those groups have fed the rest of the free-market movement a steady diet of those bad ideas, often with some success. A few states have even experimented with those reforms.

On Saturday, I sat on a panel with one of the leading advocates of those proposals. We each presented our side to an audience comprised of the leaders of dozens of state-focused think tanks. I think one audience member probably spoke for many in the room when he said he felt conflicted. My paraphrase: “Part of me wants to improve Medicaid, but that would increase enrollment. And part of me wants to blow it up, but that’s a tough sell politically.” 

He’s right. That is a tough political sell. But it would be substantially easier were the free-market movement to abandon the fool’s errand of trying to improve the program and instead educate the public about the full range of harms Medicaid causes:

  • A per-capita tax burden that is currently over $1,100 and growing
  • An annual deadweight economic loss of some $70 billion
  • Crowd-out of private efforts to provide medical care for the poor, including private insurance, private charity, and self-help
  • Increased dependence on government
  • Higher prices for private health coverage and medical care, which makes Medicaid dependence more likely
  • Lower-quality care than is provided through private markets
  • The indignity of states having to beg Washington for permission to spend their own money as they wish

(For what it’s worth, free-market think tanks should acknowledge that Medicaid does a lot of good: it provides medical care to many who desperately need it. Yet that fact will hardly carry the day, considering that researchers have difficulty finding where Medicaid has any positive overall effect on health.)

Only after we prepare the ground will we be able to achieve serious reform, which should emphasize three things: block grants, block grants, and block grants. Replacing Medicaid with a system of block grants was a component of the 1996 welfare reform law until President Clinton insisted on its removal. Nowadays, no politicians are talking about block-granting Medicaid, largely because free-market groups have abandoned the field. (Until we get block grants, state-level reforms will not make much difference, though free-market groups should oppose those that make Medicaid more attractive and support those that make it less attractive.)

In short, this emperor has no clothes. If the free-market movement does not carry that banner, no one will. 

This weekend’s SPN meeting should be the start of a debate within the movement over how to approach Medicaid. (More details on my approach can be found here.) Thanks to Tracie Sharp of SPN and Mary Katherine Stout of the Texas Public Policy Foundation for getting the ball rolling.