Topic: Trade and Immigration

Be Careful What You Wish For…

A couple of people over recent days have asked my opinion on the prospects for reform of agriculture policy should Democrats take over the House and/or the Senate. My usual reply is to lament the depressingly bipartisan nature of support for farm subsidies and trade barriers, and to also point out that the recent farm bill (implemented by a Republican congress) has been one of the most expensive in history: $23 billion last year. In a nutshell, I had thought that the prospects for reform could not be any worse under the Democrats than under Republicans.

It turns out that I may be wrong (yes, it happens occasionally). In a recent press release from Texas A&M University, the ranking member of the House Agriculture Committee (and probable chairman of that committee should the Democrats regain the majority in the House), Colin Peterson (D-MN) seems to support extension of the current farm bill, egregious though it is, but with yet more pork added.

Rep. Peterson would implement permanent crop disaster relief (I have blogged on this idea previously), and was indirectly quoted as calling renewable energy derived from crops ”the most exciting development in agriculture in his lifetime.”

Rep. Peterson does seem to have a point about the scope for the addition of expensive and agriculture-irrelevant rider amendments to ad-hoc disaster relief bills, but describing a permanent disaster relief program as a way to “save taxpayer dollars” is disingenuous, to say the least.

Rep. Peterson seems to have no truck with the idea that agriculture should contribute to deficit reduction, either: “I reject the idea that because we have a $9 trillion deficit, we have to get rid of farm programs. We didn’t cause that problem. In fact, agriculture was the only government initiative that actually spent less than was projected, $13 billion less so far. Besides, if you got rid of all agriculture programs, it wouldn’t make a dent in the deficit. So we need to do what’s right for agriculture, and that’s where I’m coming from.”

On ethanol, which my colleague Jerry Taylor has blogged about here, Rep. Peterson wheeled out the old “foreign oil dependency” issue and put his full support behind investing significant resources (that’s your resources) into more research into bio-fuels, describing the profits that investors are making currently from ethanol as “obscene.”

You said it, sir.

Vegemitegate: the Saga Continues

An update from my post yesterday on the supposed ban on Vegemite: its not true. According to this article, it is all just a misunderstanding between friends:

Under US regulations, folate can be added only to breads and cereals. One of the Vitamin B components (in Vegemite) is folate,’ [FDA spokesman] Herndon explained. ‘In and of itself, it’s not a violation. If they’re adding folate to it, boosting it up, technically it would be a violation. But the FDA has not targeted it and I don’t think we intend to target Vegemite simply because of that.’

OK, Mr. FDA. I’ll call off the hounds. But I will be testing your system in January when I return from Australia with a year’s worth of Vegemite in my suitcase.

With Allies Like These…

Close readers of my blog entries will have detected an increasingly irritated tone of late. What with farm subsidies, Doha doldrums, idiotic “solutions” to the trade deficit “problem” and a campaign season upon us, my long-suffering colleagues have become used to my cries of despair.

And now this, through a tip from my colleague and next-door-office-mate, Brink Lindsey (who has no doubt tired of my “You’ve got to be kidding me” exclaims as I read the headlines every morning). The United States has banned Vegemite, that staple food of Aussies everywhere and an emotionally crucial link to the motherland for all us expatriates living in the United States.

According to this article, the FDA allows folate (or folic acid, which has been added to Vegemite) to be added only to breads and cereals (never mind that Vegemite was practically invented for nutritional purposes, to stave off Vitamin B deficiencies).  From a 1996 news release from the FDA:

specified grain products will be required to be fortified with folic acid at levels ranging from 0.43 milligrams to 1.4 mg per pound of product. These amounts are designed to keep daily intake of folic acid below 1mg, because intakes above that amount may mask symptoms of pernicious anemia, a form of vitamin B12 deficiency which primarily affects older people.

Heaven forbid that the flood of Vegemite pouring into the United States should upset the delicately balanced just-enough-but-not-too-much-folic-acid directive from the FDA.

Australia is an ally of the United States. A small ally, yes, but loyal. Our troops have served side by side in World War II, Korea, Vietnam and the Gulf wars. Australian troops are in Afghanistan and Iraq. And, more to the point, our countries have signed a free-trade agreement

Part of me is taking comfort that this truly is a non-tariff barrier implemented to protect consumer health (misguided though that aim may be), rather than an act of disguised protectionism designed to shield the politically powerful import-competing domestic Vegemite industry located in electorally important swing-states. But it’s unfair all the same. And I’m angry.

Thank goodness my parents smuggled contraband Vegemite through customs when they visited me in July, but I think not of my own well-stocked shelves, but the growling bellies of my compatriots. I plan to share this story with my Australian friends. Expect outrage.

(Please note I am filing this under Civil Liberties, as well as Trade).

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.