Topic: Trade and Immigration

Obama’s Trade Policy Should Be Judged on Its Accomplishments, Not Its Promise

By
Daniel J. Ikenson

There has been more buzz about the prospects for trade liberalization this year than at any time since the first term of the second president Bush. It appears that some may be mistaking the chatter for actual accomplishment.

For example, trade policy made the front page of Saturday’s Washington Post in a story that is much less about the substantive issues, or the obstacle-strewn path to meaningful liberalization, or the political leadership that will be required to surmount those obstacles than it is a paean to President Obama’s alleged metamorphosis into a champion of free trade.

But before anyone awards the president the Nobel Trade Prize for a job yet done, consider this: in four-plus years, this administration has concluded zero trade agreements, while launching 13 WTO cases against various trade partners. For 50 months, enforcement and domestic protectionism—not liberalization—have dominated the trade agenda.

Yet, the absence of evidence that this administration can deliver meaningful new trade agreements doesn’t seem to curb the enthusiasm of Bruce Stokes, a long-time trade policy observer, whose comment serves as the emphatic final sentence of the Washington Post tribute: “They appear to have moved from a risk-averse first term to creating a legacy in international economic and trade policy.” A legacy? Really? Shouldn’t the bar be raised just a smidge before we coronate President Obama this generation’s Cordell Hull?

For starters, wouldn’t the president have delegated someone capable and experienced to take ownership of the trade agenda if he were really committed to leaving a trade policy legacy? U.S. trade representative Ron Kirk announced more than one year ago that he would be leaving his post early in a second Obama administration. Yet there is nobody vetted and ready to take the reins of trade policy. Kirk’s official resignation came at the end of last month—though he has been hanging around to help out on account of … “sequestration.”

The most prominent name floated for U.S. Trade Representative has been the OMB’s Jeff Zients, the person most closely associated with President Obama’s proposal to subsume the USTR under the enforcement-centric Commerce Department—again, not exactly the substance of trade legacy-building. Members from both parties in Congress have demanded a better candidate if the president expects his trade agenda to be taken seriously.

Accomplishments, not rhetorical intentions, should serve as the basis for our judgments. Anyone can announce initiatives. President Obama is quite proficient at reciting litanies of initiatives. But it remains to be seen how he handles the situation when the deals require his confronting allied interests and dismantling their protectionist perches. In fairness, the administration’s trade negotiators have been working hard toward a Trans-Pacific Partnership agreement with 10 Pacific-rim nations. But let’s see where this goes before we start writing history. There’s still a lot of ham left on that bone.

The administration has verbally committed to completing the TPP negotiations by the end of this year and the just-announced Transatlantic Trade and Investment Partnership negotiations with Europe by the end of next year—both virtual impossibilities given where things stand in those negotiations and between the White House and Congress. So we already have a credibility problem.

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Topics: 
Trade and Immigration

Unlike Policymakers, Consumers Use Logic to Avoid Horsemeat

By
K. William Watson

A scandal has recently erupted in Europe after it was discovered that horsemeat was being sold to consumers in processed foods claiming to be 100% beef. This is, of course, already blatantly illegal, but that hasn’t stopped regulators from trying to figure out how to increase their oversight of Europe’s already highly regulated food market.

Unfortunately, some policymakers have used this scandal to push for increased trade barriers within the European Union. Their preferred barrier is the increased use of mandatory country of origin labels. This policy ignores the fact that horsemeat can be passed off as beef in any country and that doing so is illegal in all of them.

Nevertheless, this call for labels reveals a justified concern that complex supply chains obscure relevant information from consumers. But, consumers don’t need protectionist mandates to solve their problems; a little common sense will do just fine. The Scottish Farmer, an advocacy group for Scottish agriculture, reports that 92% of local butcher shops in Scotland have reported increased patronage since the horsemeat scandal broke.

If complex supply chains are perceived as unreliable, consumers will forego the price benefits of frozen packaged food and choose to buy meat from a simpler and more transparent source. Such rational consumer behavior will likely do more to improve the quality of international supply chains than any tweak in complex regulatory oversight.

Topics: 
General, Regulatory Studies, Trade and Immigration

Big Candy’s Greed

By
Chris Edwards

That’s the title of a quarter-page advertisement in the Washington Post on Wednesday.

When it comes to inside-the-Beltway economics, black is white, up is down, and lobbyists for some of the most government-coddled farmers in America are calling other people greedy.

For people familiar with the government’s Byzantine sugar program, the text from the American Sugar Alliance (ASA) ad is frankly hilarious:

  • Jeopardizing 142,000 U.S. jobs and America’s food security isn’t a game. It’s a travesty.
  • So why are Big Candy executives lobbying Congress to outsource America’s sugar production?
  • To boost their already bloated profit margins at the expense of American farmers, workers and consumers.
  • Winners: A few corporate executives.
  • Losers: America.

I described the basic features of federal sugar subsidies in this study. Essentially, the government confers monopoly power on U.S. sugar growers, which comes at the expense of food manufacturing companies and consumers. 

The ASA ad claims that there are 142,000 jobs in the sugar-growing industry, but there are roughly 1,000,000 jobs in the food manufacturing firms that are hurt by current sugar policies. The Department of Commerce produced this study looking at the negative employment effects of the current sugar program.

One silly claim in the ASA ad regards outsourcing. The sugar program raises U.S. sugar prices, which induces U.S. manufacturers—such as candy makers—to move their production abroad. Thus current federal policies unfairly protect Big Sugar at the expense of Big Candy, but here Big Sugar is claiming the reverse. 

The other silly thing about the outsourcing claim is that the biggest of ASA’s Big Sugar companies are owned by the Fanjuls of Florida. And yet the Fanjuls themselves outsource sugar production to the Dominican Republic.

And note that whatever lobbying is done by Big Candy is surely dwarfed by Big Sugar’s legendary efforts to buy political protection. Just ask Monica Lewinsky.

A policy wonk quoted in this piece summarized the sad reality of sugar growers: “They are unlike any other industry in Florida in that they aren’t in the agricultural business, they are in the corporate welfare business.” 

Topics: 
Tax and Budget Policy, Trade and Immigration

The American Consumer Grows Up

By
Sallie James

An article in Politico on Monday looked at the declining influence of agriculture in DC (I wish), comparing the touching/nauseating Chrysler ad paying homage to the American farmer that was aired during the Superbowl with the relative lack of political attention given to farm programs. How come people feel all warm and fuzzy when they watch the ad, and yet poor little agriculture can’t get any love?

Trying to sell Ram trucks, Chrysler made a splash in the Super Bowl this month with a two-minute television spot celebrating the American farmer — a montage of handsome still photos and a vintage Paul Harvey speech all ending with the pitch: “For the farmer in all of us.”

Nine days later, the picture was very different as President Barack Obama skipped over farmers entirely in his State of the Union address, never mentioning the yearlong farm bill stalemate in Congress nor even including “agriculture” among the thousands of words spoken that night…

“Agriculture has become so efficient, so few people actually raise the food … the American consumer has become almost like high school kids,” [House Agriculture Committee Chairman Frank] Lucas said. “It’s always been there, it will always be there. Dad can I have the keys to the car? Does the car have gas in it? Oh, it will always have gas in it, right Dad?”

Are American consumers like teenagers? Are they spoiled, and taking agricultural production for granted? Is that why the farm bill is such a heavy lift? Or perhaps, just perhaps, the American consumer is growing up, questioning the cost and necessity of farm subsidies, and no longer falling for myths about the need for farm subsidies to prevent mass starvation. My colleague David Boaz, in a 2011 blog post, summarised the reasons why folks might oppose spending programs. As I read the Politico article and, specifically, the whining by the agri-industrial complex and its political backers, David’s second point came to mind:

We know that many wonderful things, perhaps including truly fast trains, could be created at massive cost, but that you always have to weigh costs and benefits. Children say, “I want it.” Adults say, “How much does it cost, and what would I have to give up to have it?”

Topics: 
Tax and Budget Policy, Trade and Immigration

The Sequestration Immigration Scare

By
Alex Nowrasteh

Immigration and Customs Enforcement (ICE) has released several hundred unauthorized immigrants from detention in Texas, Florida, Arizona, and Louisiana in preparation for budget cuts as part of the sequestration. The administration has noted that cuts would effectively reduce Border Patrol by about 5,000 agents—down to about 2007 levels of staffing if all of the cuts occur on the Southwest border. 

This reduction in Border Patrol will not unleash a tidal wave of unauthorized immigrants like many claim. Since 1989 the Border Patrol’s appropriations have increased by 750 percent and there are six times more staff today than in 1989. 

Apprehensions of unauthorized immigrants on the border are also near 40 year lows because fewer unauthorized immigrants are trying to enter illegally due to the poor economy. Decreasing the size of the Border Patrol will not do much to increase unauthorized immigration because many would-be immigrants are repelled by high unemployment rates.  

Unauthorized immigration has slowed dramatically because of a lack of economic opportunity in the United States, not because border patrol is larger or more effective. Cuts to Border Patrol, even those that would return its size to the 2007 levels, will not much affect unauthorized immigration.

American unemployment rates and demand for immigrant workers drive unauthorized immigration.  Look at this graph relating border apprehensions and the national unemployment rate:

Apprehensions and Unemployment Rate

The higher the rate of unemployment, the fewer unauthorized immigrants try to enter, and the fewer apprehensions are made.   

Perhaps if you had looked at this graph, you might have thought that the size of the Border Patrol could deter unauthorized immigration:

Apprehensions and Border Patrol Staff on Southwest Border

But if Border Patrol deterred unauthorized immigration, it would probably also deter other illegal activity—like cross border drug seizures. Consider this graph:

Border Patrol Staff and Marijuana Seizures 

Drug seizures have increased along with the size of the Border Patrol. Americans still demand marijuana so increased security results in more marijuana seizures (and more marijuana entering the black market). In contrast, unauthorized immigration is down because there is less American economic demand for their labor. Decreasing the size of the Border Patrol down to 2007 levels will not result in a flood of unauthorized immigration because not as many people want to come here as they did during the housing boom.

Topics: 
Trade and Immigration

The Challenges of Negotiating a U.S.-EU Trade and Investment Agreement

By
Simon Lester

A couple months ago on this blog, I set out some views on the possible U.S.-EU free trade agreement that was being discussed.  Things have now progressed a bit, and President Obama has announced talks on a “Trade and Investment Partnership” with the EU.  Reports suggest that the negotiations will begin this summer.

Should we be excited about these developments?  Perhaps a little bit, but overall I maintain the ambivalence I had in my earlier blog post.  I have elaborated on this ambivalence in a Free Trade Bulletin. To summarize, I like all the trade liberalization parts of these talks (lower tariffs, removing barriers to services trade, opening up government procurement), but there are also aspects that take us down a difficult and unclear negotiating path.  One of these aspects is the issue of “regulatory barriers to trade.”  Some people have the idea that there will be great economic benefits if we can harmonize regulation across the U.S. and EU, so that, for example, manufacturers do not have to produce different products for different markets.  I agree that there would be benefits if we could address this problem.  But it won’t be easy to reach agreement here, and there could be some downsides (e.g., if this is a compromise, both the U.S. and EU may have to agree to some regulatory changes that they don’t like).

I’d like to get excited about these talks. But I have some doubts about their scope, and I’m not sure anything will come out of them.

We’ll be talking more about all this at a policy forum here at Cato tomorrow.

Topics: 
General, Trade and Immigration

How Does Immigration Impact Wages?

By
Alex Nowrasteh

Many Americans are curious about the impact of immigration on the wages of other Americans.  The best research on this focuses on the period between 1990 and 2006, when almost 17 million people immigrated to the U.S. lawfully and a net 12 million came unlawfully.  The first major study is by Borjas and Katz (B&K) and the second is by Ottaviano and Peri (O&P).  O&P borrowed much of B&K’s methodology.  Here are the long run findings:

B&K draw a more negative conclusion than O&P.  The main differences are that O&P assume capital adjusts quicker to increased labor abundance and immigrants are more complementary.  B&K’s paper reflects their assumptions about native-immigrant substitutability.  Since immigrants are more likely to have less than a high school degree and more likely to have a graduate or professional degree than natives, B&K’s model assumes natives in those categories are competing with immigrants for jobs and therefore experience wage declines. 

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Topics: 
Trade and Immigration

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