Topic: Trade and Immigration

Immigrants Don’t Grow Government

Many critics of immigration claim that immigrants will grow the size of government.  As their argument goes, allowing for more lawful immigration to the United States will produce a larger government through immigrant voting behavior or their children’s voting behavior.  However, if another factor like institutional changes can explain the growth of government, we would expect government to grow independently of the size of the immigrant stock.

There are many measures of the size of government, many of which are included in the Economic Freedom of the World: 2014 Annual Report.  As excellent as that report is, the data does not go back far enough to show whether government growth a century ago tracks well with growth in the immigrant population.  Older data is essential because there have been radical changes in immigration policy over the last century and larger changes in the growth of government.  By looking at the more distant past, a clearer picture can be formed over how immigration has impacted growth in government – if at all. My charts below focus on the federal government only.

Below I use two measures of the growth of the federal government from 1901-2010:  Real outlays (2010 dollars) per capita and government outlays as a percent of GDP.  I use figures for every decade as yearly data is more difficult to attain. 

 imm and outlays per capita

 

Source: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

Real government outlays per capita go up no matter what happens to the stock of immigrants.  Two forty-year periods had very different immigration policies: 1930 to 1970 and 1970 to 2010.

Updates on President Obama’s Immigration Enforcement Record

Last May I wrote a blog post about President Obama’s immigration enforcement record. In that post I made some assumptions about the percentage of all “interior removals” (that is, deportations of illegal immigrants who were living in the United States) for the years 2001—2007, because of a lack of data.

A recent report from the Migration Policy Institute (MPI) fills in those data gaps, except for the first two years of the Bush administration. Here are the updated data:

The total number of internal removals over the last six years of the Bush administration was about 475,000. From 2009 to 2013, the Obama administration removed just under 848,000 from the interior. Those numbers make for an incomplete comparison of the two administrations’ enforcement policies, but they paint an interesting picture.

Nowrasteh_BlogImage1101714

Source: MPI

Managed Trade for Sugar from Mexico?

Mexican Economy Secretary Ildefonso Guajardo was in Washington this week arguing on behalf of an agreement to suspend the U.S. antidumping/countervailing duty (AD/CVD) investigation against imports of sugar from Mexico.  The case will soon enter its final phase, with the U.S. International Trade Commission (ITC) expected to determine early next year whether the U.S. sugar industry has been injured by imports from Mexico. 

In the context of North American sugar politics, an agreement to suspend the AD/CVD process and implement a managed-trade arrangement makes some sense.  Both U.S. and Mexican sugar industries already are more or less wards of the state, or at least are very heavily guided and controlled by their respective governments.  Both governments have given indications that they are interested in settling this dispute.  The history of bilateral sugar trade has been dominated by government intervention rather than by free-market economics.  It seems almost natural to take the next obvious step by allowing Mexican sugar to enter the United States only under terms of a suspension agreement (i.e., with the quantity limited or the price set high).

It’s worth mentioning that Mexican sugar growers are the only ones in the world currently allowed to sell as much sugar as they wish in the U.S. marketplace.  Even U.S. growers are not permitted to do so.  Years ago they gave up that right in exchange for retaining an almost embarrassingly high level of price support.  That strong price incentive was inducing them to grow more sugar than the market could absorb.  Under the provisions of the U.S. sugar program, that excess sugar could end up being owned by the U.S. Department of Agriculture at considerable expense to taxpayers.  So U.S. sugar growers made the decision to sell less sugar, but keep the price high.

Mexican growers, on the other hand, obtained unfettered access to the U.S. market in 2008. That followed a contentious period of bilateral trade in sugar and high-fructose corn syrup (HFCS) dating to 1994, which was when the North American Free-Trade Agreement (NAFTA) began to be implemented.  In a nutshell, the United States adopted a much more restrictive approach to imports of Mexican sugar than Mexico thought had been negotiated, and the Mexicans reciprocated regarding imports of HFCS. 

Given that historic context, the open access to the U.S. market enjoyed by the Mexicans since 2008 seems to be rather an anomaly.  Why not go back to the good old days of closely managed trade? 

Unsettling Cotton Settlement at the WTO

Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.

Some background. Ten years ago, in a case brought by Brazil, the WTO Dispute Settlement Body ruled that the United States was exceeding its subsidy allowances for domestic cotton farmers and that it should bring its practices into compliance with the relevant WTO agreements. After delays and half-baked U.S. efforts to comply, Brazil sought and received permission from the WTO to retaliate (or, in WTO parlance, to “withdraw concessions” because opening one’s own market in a world of mercantilist reciprocity is, perversely, considered a cost or concession). Under the threat of such retaliation, instead of bringing its cotton subsidies into WTO compliance, the U.S. government agreed to pay $147 million per year to Brazilian farmers so that it could continue subsidizing U.S. farmers beyond agreed limits. That arrangement prevailed for a few years until the funds were cut during the budget sequester earlier this year – an event that triggered a renewed threat of retaliation from Brazil, which now has been averted on account of last week’s $300 million settlement.

The Peterson Institute’s Gary Hufbauer characterized the agreement as a “good deal” because it ends the specter of soured bilateral relations, which $800 million of targeted retaliation against U.S. exporters and intellectual property holders would likely produce, for a reasonable price of $300 million “spread widely across the US population, around 90 cents a person.” In Hufbauer’s opinion:

Money damages, paid in this way, are much fairer, and do not destroy the benefits of international commerce, unlike concentrated retaliation against firms that had nothing to do with the original dispute. The WTO system is only designed to authorize such retaliation, but the US-Brazil settlement points the way towards a better way of satisfying breaches of WTO obligations.

While I share Hufbauer’s desire to avoid retaliation and soured relations, his rationale for endorsing the settlement seems a bit strained. If the settlement is justifiable because the costs are spread across 300-plus million Americans, then Hufbauer can probably lend his support to most subsidies, tariffs, and other forms of protectionism, which endure because the concentrated benefits accruing to the favor-seekers are paid through costs imposed, often imperceptibly, on a diffuse base of unorganized consumers or taxpayers. Does the smallness or the imperceptibility of the costs make it right? No, but it makes it easy to get away with, which is why I think it’s pennywise and pound foolish to endorse such outcomes. There are all sorts of federal subsidies to industries and tariffs on goods that may be small or imperceptible as a cost on a standalone basis at the individual level.  But when aggregated across programs, the costs to individuals become more significant. It’s death by 10,000 cuts.

As Expected, WTO Clove Cigarette Case Goes Nowhere

The World Trade Organization’s judicial body determined over two years ago that a U.S. law banning clove cigarettes while leaving domestically produced menthols on the shelf was protectionist discrimination.  Now the U.S. and Indonesian governments have reached a “settlement” in which Indonesia agrees to drop the case in exchange for nothing.

Technically, the settlement, as reported, includes a few promises from the United States, but these are so weak as to be practically meaningless.  For example, the United States agrees to refrain from “arbitrary discrimination” against Indonesian cigars (which is already not allowed) and to “postpone” filing its own case against Indonesian export restrictions (which no longer impact U.S. companies).

American refusal to comply with global trade rules against regulatory protectionism is both unfortunate and, in this case, unsurprising.  There were two basic ways that the U.S. government could have come into compliance: 1) by dropping the ban on cloves, or 2) by extending the ban to menthols.  Neither of those options was politically feasible, so the United States did nothing.

Normally, the WTO dispute settlement process can be very helpful in overcoming political barriers to trade liberalization.  When one country loses a case at the WTO and fails to comply, the complaining country has the right to retaliate by raising tariffs on goods from the losing country.  This creates concentrated losses that have much greater political impact than the generally diffuse costs of protectionist policies.  The ultimate goal is to “induce compliance”—the losing country discontinues its offending practice so that the retaliation will stop. 

But the United States is very big and powerful, so that for most countries cutting off imports from the United States is not only ineffective at swaying Washington policymakers but also very harmful to their own economy. Indonesia appears to have decided that dropping the case and walking away makes more sense than continuing to press forward with costly, futile retaliation.

Unfortunately, the clove cigarette settlement joins a growing list of similar cases in which the United States has taken advantage of its economic and political power to avoid complying with WTO rules.  These include a successful challenge by the tiny island nation of Antigua against U.S. restrictions on cross-border online gambling that Antigua has no way to enforce. 

Perhaps the most embarrassing example of noncompliance is the deal between the United States and Brazil reached after Brazil won a case against U.S. cotton subsidies.  The United States managed to avoid retaliation and keep the subsidies by agreeing to send Brazilian cotton farmers a check for $147 million every year. That arrangement appears to be coming to an end with the United States providing one final payment of $300 million and keeping the cotton subsidies indefinitely.

The United States doesn’t always refuse to comply with WTO decisions.  The threat of retaliation from Canada and Mexico may very well make a difference in the ongoing fight over protectionist U.S. regulations related to origin labels for meat.  A big difference between that case and clove cigarettes is that Canada and Mexico are the two largest export markets for U.S. products. 

There’s reason for optimism, but the reputation of the WTO dispute settlement process is being put at serious risk by this administration’s lack of commitment to the rules of the international trading system.

Foreign Investment Disputes in International Courts

In a recent opinion piece, Washington Post columnist Harold Meyerson criticized something called the “investor-state dispute settlement” (ISDS) mechanism, which is included in some trade agreements. My colleague Dan Ikenson responded here; I wrote a letter to the Post, which said:

Harold Meyerson made valid points about the Investor-State Dispute Settlement (ISDS) clause in trade agreements in his Oct. 2 op-ed column, “A flawed trade clause.” However, with all the misinformation that exists on this issue, it is important to be precise. Foreign investors cannot sue “over any rules, regulations or changes in policy that they say harm their financial interests.”

Rather, they can sue if the host government has discriminated against an investor because it is foreign; if an investment has been expropriated, either directly or indirectly; or if the investor has experienced bad treatment of a more general sort (this controversial standard is known as “fair and equitable” treatment).

In a sense, the ISDS provision creates international judicial review of national laws and regulations, with such review available only to foreign investors. That is certainly a controversial proposition, but it is important to keep the debate focused on the facts, rather than on myths that have been put forward.

You only get so much space for these letters, so I thought I’d elaborate here.

ISDS allows foreign investors to challenge any and all domestic government actions before an international tribunal.  That includes local, state, and national measures, by legislators, regulators, or courts.  In terms of the substance of the claims that can be made, they look a lot like certain constitutional doctrines: Equal Protection, Takings, and Due Process.  What you end up with, in effect, is a special international “constitutional” court (of sorts), available only to foreign investors.  (It can’t strike down the domestic laws, of course, but it can award damages for violations.)

Should Intellectual Property Be in Trade Agreements?

After I complained recently that arguments for including intellectual property (IP) in trade agreements needed to specify what level of protection is desirable, Tom Giovanetti responded by asking for my view on a more basic question: Should IP—regardless of the level of protection—be in trade agreements at all? My colleague Bill Watson has previously set out a political argument for removing it, which is that achieving free trade is becoming very difficult when IP issues get inserted into trade negotiations. Let me add to his argument the following: If IP is in, then there is really no boundary to what can be in, and the result is trade agreements that look like “global governance” agreements.

Returning to Tom’s question, I should say at the outset that Tom doesn’t really say explicitly why IP should be in trade agreements. He doesn’t explain how IP rules fit within the general concept of trade liberalization, or what scope he sees for trade agreements. What are his limits for what should be covered in trade agreements? I’m really not sure. Instead, the main focus of Tom’s argument for including IP in trade agreements seems to be that the United States exports lots of IP-related goods, and therefore it is in the nation’s interest to have IP rules in there.

With this argument, it seems to me that Tom is trying to portray strong IP protection as something that helps U.S. industry at the expense of its foreign competition. This doesn’t have a very trade-liberalizing feel. Moreover, looking at the bigger picture, what stronger IP protection does is help U.S. industry at the expense of consumers (U.S. and foreign). In terms of appropriate IP policy, it seems to me, the focus should be on giving incentives to innovate, but not to the detriment of consumers. Some argue that stronger IP protection promotes innovation, but others contest this.

Turning back to trade agreements, Tom’s argument misses a fundamental point: What is the purpose of trade agreements? For decades, this purpose was fairly clear: to provide a framework of mutual restraints on protectonist trade barriers, such as tariffs, quotas, and discriminatory laws and regulations.