Topic: Trade and Immigration

Guest Worker Visas Can Halt Illegal Immigration

There is a trade off between the number of lower skilled guest worker visas and the number of unauthorized immigrants.  More lower skilled guest workers means fewer unauthorized immigrants.  Fewer guest workers mean more unauthorized immigrants.  We just have to look back to the Bracero program to see this relationship.   

The number of removals and returns is an approximation of the stock of the unauthorized immigrant population and flows.  Many, but not all, of those removed or returned during this time period were funneled into guest worker visas.  Beginning with the adoption of the Bracero program and the H2 visa in the early 1950s, there was a flurry of removals and returns whereby many migrants were funneled into the guest worker visa programs.  After that, my thesis is that the large numbers of work visas decreased the number of apprehensions by shrinking the pool of unauthorized immigrants and channeling future ones into the legal system.  After Bracero was ended in the mid-1960s, the number of removals and returns began a steady increase along with an increase in the stock and flow of unauthorized immigrants deprived of their previous lawful means of entry and work.

Ending the lower skilled guest worker visa programs preceded the modern increase in unauthorized immigration. 

Source: Department of Homeland Security and Immigration and Naturalization Service annual reports.

The more low skilled guest workers there are, the fewer unauthorized immigrants there are to deport. 

One legal worker on a visa seems to be worth more than one unauthorized immigrant worker – meaning a pretty favorable trade off in numbers for those concerned about the numbers of immigrants.  In 1954, 1 guest worker visa replaced 3.4 unauthorized immigrants, meaning that one legal worker seemed to be equal to more than three illegal workers.  If an important goal of a lower skilled guest worker visa is to eliminate the American economic demand for unauthorized immigrants, relatively few guest worker visas can replace a much larger unauthorized immigrant population.

Increases in Border Patrol and border enforcement are also unnecessary to get this result.  By allowing unauthorized immigrants to get the work visas, by not punishing them or employers for coming forward, and by making work visas available to those who want to enter, almost all future and current unauthorized immigrants can be funneled into the legal market without a large increase in enforcement.  This was the policy followed in the 1950s and it appears to have worked:   

Sources: Department of Homeland Security and Immigration and Naturalization Service annual reports.

This chart zooms in on the 1942 through 1965 time period when the Bracero guest worker visa was in effect:

Sources: Department of Homeland Security and Immigration and Naturalization Service annual reports.

This is not to say that Bracero was a perfect program and that it should be replicated today.  There were a lot of problems with it, namely that migrants were constrained in changing employers, migrants were limited to working only in agriculture, and the work visa was annual – all issues that should be fixed in any new lower skilled guest worker visa adopted.  A lower skilled guest worker visa is indispensable to vastly reduce or even halt unauthorized immigration. 

Let Export-Import Bank and Corporate Welfare Die

Nothing brings out the well-tailored lobbyists in Washington quite like a threat to corporate welfare.  With the Export-Import Bank’s legal authorization set to run out this year, the Chamber of Commerce recently led a Big Business march on Capitol Hill to protect what is known as Boeing’s Bank. 

Over the last eight decades ExIm has provided over a half trillion dollars in credit, mostly to corporate titans.  Congress should close the Bank.

The agency was created in 1934 to underwrite trade with the Soviet Union.  Unfortunately, ExIm is not free, as claimed.  Recently made self-financing, the agency has returned $1.6 billion to the Treasury since 2008. 

However, economists Jason Delisle and Christopher Papagianis warned that the Bank’s “profits are almost surely an accounting illusion” because “the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im Bank.”  In particular, the price of market risk is not included.  Delisle and Papagianis figured ExIm’s real price to exceed $200 million annually.   

Economist John H. Boyd took another approach, explaining:  “For an economic profit—that is, a real benefit to taxpayers—ExIm bank’s income must exceed its recorded expenses plus its owners’ opportunity cost, a payment to taxpayers for investing their funds in this agency rather than somewhere else.”  He figured the Bank’s real cost at between $521 million and $653 million in 1980.  The corresponding expense today likely is much higher.

The Bank claims to create jobs.  No doubt, ExIm financing makes some deals work.  But others die because ExIm diverts credit from firms without agency backing.

Economists Heywood Fleisig and Catharine Hill figured that channeling resources to exports reduces “domestic investment, consumption, or government expenditure.”  Thus, they explained, while export subsidies will increase employment in export firms, they will do so “at the expense of employment elsewhere.”

ExIm also sells itself as necessary to promote trade.  But exports should not an end in themselves irrespective of cost.  Anyway, the Bank supports only about two percent worth of exports, barely a blip in a $17 trillion economy. 

The Bank contends that it corrects market failures when U.S. exporters can’t get credit. However, international financial markets are sophisticated.

Moreover, it’s impossible to know just how many of the deals currently financed by American taxpayers wouldn’t go through absent the subsidy.  Everyone—borrower, banker, exporter, bureaucrat—has an incentive to claim ExIm played a vital role.

The agency says it supports all businesses, including small ones.  However, candidate Barack Obama was right in 2008 when he described the Bank as “little more than a fund for corporate welfare.” 

The most money always goes to Big Business.  Boeing alone typically accounts for more than 40 percent of the Bank’s credit activities.  Veronique De Rugy of the Mercatus Center figured that the top ten recipients collect 75 percent of ExIm’s benefits.

Finally, ExIm’s warns that if the U.S. government doesn’t provide cheap credit, American companies will lose out to foreign firms subsidized by their governments.  In this way the Bank claims “to help level the playing field.”

However, less than half of ExIm credit is even directed in this way, let alone proven necessary.  Moreover, as I point out in my new Forbes online column:  “The fact that other governments are willing to hurt their peoples by channeling credit away from worthier firms in the marketplace in favor of politically well-connected exporters is no reason for America to do the same.”

A better way to help promote trade would be to strengthen the economy generally.  Lower and rationalize business taxes.  Cut and streamline regulation.  Reduce tariffs, especially on widely used imports, such as steel.  Discourage frivolous litigation.  Stop subsidizing the defense of prosperous, populous trade competitors.

It’s time to kill the agency.  Let exporters pay to generate their own profits.

Hot Off the Press: May 2014 “Cato Trade” Newsletter

If you don’t get inboxed with Cato Trade, the monthly newsletter of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, you can find the current installment here.  In this month’s release, you can learn about Cato Trade on Campus; read about our efforts to dispel pervasive myths about trade; get the details of our upcoming half-day conference on the increasingly controversial investor-state dispute settlement rules; see what we’ve been thinking and writing about, and; get a sense of what may be in the pipeline.

Here are links to the current and previous releases:

Here is more information about Cato’s trade scholars and our areas of focus:

If you’d like to receive our newsletter at the beginning of every month, please send your name and email to Inu Barbee at ibarbee [at] cato [dot] org.

National Sovereignty and Free Immigration Are Compatible

A common argument against returning to the immigration policy of 1790-1875, where virtually anybody in the world could immigrate to the United States, is that such a policy would diminish America’s national sovereignty.  By not exercising “control” over borders through actively blocking immigrants, as the argument goes, the United States government would surrender a supposedly vital component of its national sovereignty.  But that argument is mistaken as there is no inherent conflict between free immigration and national sovereignty.

The standard Weberian definition of a government is an institution that has a monopoly (or near monopoly) on the legitimate use of violence within a certain geographical area.  The way it achieves this monopoly is by keeping out other competing sovereigns (aka nations) that would be that monopoly of legitimate coercion.  The two main ways our government does that is by keeping the militaries of other nations out of the United States and by stopping insurgents or potential insurgents from seizing power through violence and supplanting the U.S. government. 

U.S. immigration laws are not primarily designed or intended to keep out foreign armies, spies, or insurgents.  The main effect of our immigration laws is to keep out willing foreign workers from selling their labor to willing American purchasers.  Such economic controls do not aid in the maintenance of national sovereignty and relaxing or removing them would not infringe upon the government’s national sovereignty any more than a policy of unilateral free trade would.  If the United States would return to its 1790-1875 immigration policy, foreign militaries crossing U.S. borders would be countered by the U.S. military.  Allowing the free flow of non-violent and healthy foreign nationals does nothing to diminish the U.S. government’s legitimate monopoly of force. 

U.S. Touts Ineffectiveness of Tobacco Control to Defend Cigarette Ban

The 2009 Family Smoking Prevention and Tobacco Control Act banned the sale of all flavored cigarettes, except menthols, in the United States. Indonesia successfully challenged that part of the law at the World Trade Organization as disguised protectionism—the banned products were clove cigarettes from Indonesia and the exempted menthols are made in the United States. The U.S. government tried to claim that the distinction was justified because kids like smoking cloves more than menthols. They failed to convince the trade court, because that’s ridiculous. 

The time given the United States to bring its measure into compliance with WTO law has now elapsed. Instead of changing the law to allow cloves or to ban menthols, however, the United States has claimed that issuing a report and thinking about what to do about menthol cigarettes is enough to bring it into compliance. Indonesia understandably disagrees and is seeking permission to retaliate against U.S. imports.

To stave off retaliation, the U.S. government has now decided to defend the clove cigarette ban by arguing that it was completely ineffective. As reported by Inside U.S. Trade ($)(emphasis added):

The U.S. is … claiming that, even if it is found not to have complied with the ruling, Indonesia is not entitled to retaliation because the country’s exports have not been nullified or impaired by the U.S. ban on clove cigarettes….

Specifically, the U.S. points out that the Indonesian industry has repackaged clove cigarettes into clove cigars, which unlike their counterparts are not banned. Therefore, the U.S. maintains, Indonesia’s clove exports have not suffered as a result of the ban.

E-Verify Strikes Again: Worcester Wreath Co. Edition

Whenever the government magnanimously “offers” its assistance, all Americans should be skeptical. Recent confirmation of this fact has come from Harrington, Maine, where the federal government’s helpful assistance—via the employment verification system, E-Verify—has cost one small business thousands in fines.

Worcester Wreath Co. hires around 500 seasonal employees annually to help fill orders for handcrafted holiday wreaths and centerpieces. The majority of the wreaths are sold, while others go to the company’s Wreaths Across America program, which places free wreaths on headstones at Arlington National Cemetery. In short, this is an American company that supplies holiday goods and helps to honor deceased American veterans at no cost to the taxpayer.

Worcester Wreath, however, made the mistake of voluntarily using the Fed’s E-Verify system. E-Verify is an electronic employment eligibility verification system run by the federal government that is intended to weed unauthorized immigrants out of the labor force by allowing employers to check their eligibility against a government database. The employer enters the job applicant’s Social Security number and information into E-Verify which then checks it against a government database. 

Any potential issues are flagged with a tentative non-confirmation (TNC). Employers and employees have an opportunity to appeal the TNC, but a failed appeal (or failure to appeal) will result in a final non-confirmation (FNC) and the applicant being ruled as not work-authorized for legal employment in the United States.

Some 101 of Worcester Wreath’s seasonal employees were found by E-Verify to have employment-authorization issues. Six were retained by the company despite the issues and another six were fired and then rehired at a later date.

For the sin of employing 12 willing workers with statuses marked as questionable (not clear from the article whether a TNC or an FNC was issued) by the voluntarily used, notoriously unreliable, and largely ineffective E-Verify, the company was fined $25,000 ($2,083.33 per worker).

Worchester Wreath’s participation in E-Verify was voluntary but the fines were heavy. Fines like these on businesses of all sizes who employ seasonal workers will only get worse if E-Verify becomes mandatory. Instead of punishing businesses who supply free holiday decorations to the world’s most famous veterans’ cemetery, the Feds should attack the root problem and fix our legal immigration system.  

Scott Platton assisted in the writing of this piece.

What’s Really Impeding Progress in the TPP?

Japan and the United States have undertaken a series of high-level negotiations over the past several weeks in an effort to reach a bilateral agreement that could lead to completion of the 12-country Trans-Pacific Partnership (TPP). Japanese Minister of State for Economic and Fiscal Policy, Akira Amari, has met with U.S. Trade Representative Michael Froman both in Tokyo and Washington in an effort to resolve differences prior to President Obama’s visit to Japan this week. Reports indicate that the talks have made some progress.  However, large gaps remain that are expected to preclude any breakthrough announcement when the president meets on April 24 with Japanese Prime Minister Shinzo Abe.

The stated obstacles to concluding the talks have been Japanese reluctance to eliminate tariffs on sensitive agricultural products – beef, dairy, pork, rice, sugar and wheat – and U.S. reluctance to eliminate the 2.5 percent tariff on automobile imports and the 25 percent tariff on light trucks. Each side is very much in the right to ask the other to change these protectionist policies. They have the effect of stifling comparative advantage. They reduce economic welfare by raising consumer costs while curtailing opportunities for efficient producers to make export sales. Ending these trade restrictions would not only help the country requesting the changes, but would also help the economy of the country making the change. What’s not to like about this deal?

Stepping back from the details of the requests and offers, the real problems facing each country are the underlying political realities. Japanese farmers strongly resist reductions in the level of support they receive from tariff protection, and have done so consistently for decades. Those farmers also have been consistent and dedicated supporters of Prime Minister Abe’s Liberal Democratic Party (LDP). If Japan’s agricultural community becomes sufficiently unhappy with the Abe administration, it is entirely possible that his government could fall. Nonetheless, Prime Minister Abe seems willing to push agricultural policy in the direction of reform. He knows that updating Japan’s agricultural policies is an essential condition for becoming a member of the TPP.

Political considerations in the United States are somewhat different. Yes, the automobile industry would give up tariff protection on imports from Japan. But the reality is that a 2.5 percent duty isn’t all that high in the first place, and the protective effect of the 25-percent duty on light trucks has been undermined significantly by Japanese firms’ investments in U.S. manufacturing facilities. A whole lot of “Japanese” vehicles already are built in the United States. Nonetheless, the U.S. auto industry and its workers are not enamored of tariff reductions, and the Obama administration no doubt keeps this in mind.