Topic: Trade and Immigration

Dave Brat on Free Trade

When I’m out at trade events, people in the trade world often ask me, as a Cato person, what the tea party thinks of free trade (libertarians are unfamiliar to many of my friends in the trade world, and I’m their only link to such views, so they come to me with anything vaguely related to these issues).  I usually say something along the lines of: it’s complicated and nuanced, there are a range of views, and that I’m still trying to find out myself!

Dave Brat, who is associated with the tea party, just made headlines by defeating House Majority leader Eric Cantor in a Republican primary.  I was thinking about ways to ask him his views on trade, but then Chuck Todd beat me to it (starts at 4:02 of the video):

Chuck Todd: Let me ask you about trade agreements.  There’s a couple of big ones likely to come for you to vote on…A big one with Europe, and a big one with Asia.  In general, what are your views of trade agreements, are you open to big free trade agreements or not?

Dave Brat: Yeah, I’m a free trader.  After World War II, the GATT brought tariffs roughly from 50% down to about 4% or less today.  And that’s been good for European trade with us.  We set up our arch-enemies Japan and Germany after the war, started trading with them, and it enriched all of us.  I have a win-win positive view about relationships with other countries that respect the rule of law.  So we have to move forward on that front.

A couple noteworthy things about this response.

First, he doesn’t leave much doubt about his view that free trade, in the form of lower tariffs, is good.  That’s not too surprising, given his background as an economics professor.  (Although on immigration, his economics fails him.)

Second, he focuses his discussion on tariffs.  But trade agreements go far beyond tariffs these days.  What does he think about provisions in trade agreements that strengthen intellectual property protection, set binding labor and environment rules, and allow foreign investors to sue governments in international tribunals?  I’m curious about his take on the nuances of today’s trade agreements.  The question from Chuck Todd does refer to the trade talks with Europe and Asia, which have all these new rules in them, so you could take his response to mean he is fine with everything that might be in the Pacific and European trade agreements under negotiation.  But I wouldn’t be sure until he gets asked more directly.

And third, he does note that these views apply to “countries that respect the rule of law.”  I’d like to know who he thinks fits that description and who does not.

Did the FDA Just Ban European Cheese?

Up till now, the biggest concern of European cheesemakers in the U.S. markets has been to establish “geographic indicators” that would keep American companies from using names like gorgonzola, feta, or parmesan.  But does it matter what the product is called if no one is allowed to eat it?  A recent decision by the U.S. Food and Drug Administration (FDA) to ban cheese aged on wooden boards could potentially shut out the bulk of imports from Europe.

The FDA’s recent move seems to be part of a bizarre crusade to ban flavorful cheese.  Last year the FDA targeted mimolette cheese, inspiring informative commentary and a video by my Cato colleagues.  The stated reason for the ban was that mimolette rinds might contain trace amounts of cheese mites, a harmless critter essential to the creation of certain cheese flavors.

Now the FDA has gone full throttle and banned all cheese aged on wood.  According to the agency:

“The porous structure of wood enables it to absorb and retain bacteria, therefore bacteria generally colonize not only the surface but also the inside layers of wood. The shelves or boards used for aging make direct contact with finished products; hence they could be a potential source of pathogenic microorganisms in the finished products.”

Cheese on Wood

Does placing food on wood really make it too dangerous for humans to eat?

While this is certainly a problem for artisanal cheese makers in the United States, it could have serious implications for cheese imports from Europe.  According to the Cheese Underground blog, most cheeses imported into the United States are aged on wood.

Businesses in the United States often complain that European regulators are overly cautious when it comes to permitting new methods of producing food products with genetic modification or growth hormones.  The most common complaint is that European regulations are based on irrational fear of new things and not based on hard science.  Practices that are common in the United States are outlawed in Europe, preventing U.S. producers from selling their products overseas.

The FDA, apparently, is interested in eradicating the more traditional methods.  Can “science” truly justify the criminalization of patently safe production techniques intentionally employed to improve product quality.

Regulatory differences are the most salient issue being addressed in ongoing negotiations toward a free trade agreement between the United States and the European Union.  As U.S. negotiators push Europeans to adopt a more scientific approach to regulation, perhaps the EU negotiators should demand a bit more common sense.

Globalization Eradicates Poverty

The Malaysia Chronicle and The Economist recently reported on how globalization is improving the lives of Chinese villagers. Consider this example:

Taobao is an online retailer like Amazon. There are few qualifications to open an online store with Taobao. Chinese villagers, having little more than their cheap labor to offer, sell handicrafts on the website. The villagers get paid for their work and amass greater opportunities in return, while money and prosperity flow into their previously sleepy villages.

Globalization is making Chinese villagers richer, contrary to critics who claim that globalization generates poverty.   Interconnected, free markets generate wealth and pull people out of poverty. This occurs as the connective technologies of globalization (like the Internet) increase competition. That benefits consumers who can buy more, increasingly inexpensive products to better their quality of life. That also creates innovation and employment, as is the case for Chinese villagers.

For more on the relationship between human progress and economic freedom, visit HumanProgress.org

The Ever Expanding Role of Trade Agreements: Human Rights

For years, I’ve been fighting what feels like a rearguard battle to keep free trade agreements focused on free trade. It can be a real struggle. Labor issues, environmental issues, and intellectual property are all solidly part of U.S. trade policy. Next up might be human rights.

The European Union has had human rights in its trade agreements for a while now, in the form of a provision that allows the EU to suspend the trade agreement if its partner does not sufficiently protect human rights. Recently, in their trade talks with the EU, both Canada and Japan have raised objections to such a provision, based on the view that they are developed countries that already protect human rights, and thus shouldn’t be subject to the EU’s scrutiny on this issue.

It will be interesting to see how the United States reacts if the EU demands such a provision as part of the Transatlantic Trade and Investment Partnership (TTIP) talks. Many lawmakers and commentators would object, I think. On the other hand, there might also be some U.S. support for the provision. Consider this from the Financial Times:

In a move that will cause concern with some US negotiating partners such as Brunei and Vietnam, [Senator Ron] Wyden says he would also like to see trade agreements address human rights, something advocated by fellow Democrats.

“I think it’s the responsible thing to do and I think it will bring more support for the cause of trade expansion,” Mr Wyden says.

I have a number of objections to the inclusion of human rights in trade agreements. One is that, contrary to what Senator Wyden suggests, including these issues will, in my view, make it much harder to achieve the trade liberalization that is at the core of these agreements. It moves the debate away from the basic issue of how we are better off with free trade, and in the process adds new opponents to such agreements.

Another is that people don’t really agree on what constitutes human rights. Are we talking about the right to free speech or the right to food? There are very different implications from the different conceptions.

I think it’s important to have conversations about rights at the international level. Even if we don’t all agree, we can learn a lot from each other. But as a condition for negotiating free trade agreements, adding in human rights probably just means we are less likely to achieve freer trade.

India Joins US, EU in Global Solar Stupidity Club

The government of India is set to impose antidumping duties on solar panels imported from the United States.  These duties represent just one more episode in the bizarre saga of global solar protectionism that has seen governments in Europe and the United States impose tariffs on solar panels while simultaneously subsidizing the consumption of solar power.  Unfortunately, India seems set on following Western economies in the pursuit of irrational green industrial policy.

The increased duties are sure to further inflame a preexisting dispute between India and the United States over solar power subsidies.  The WTO is currently reviewing a U.S. complaint against India for requiring that subsidized solar power plants use domestic solar panels. 

Imposing tariffs on foreign panels is just another way to achieve the same protectionist goals and is equally bad for India’s economy.  Either way, the demand for domestic panels is artificially inflated, enabling Indian panel makers to charge less competitive prices.  The losers from this policy are not just U.S. manufacturers, but also Indian consumers, Indian taxpayers, and every other business in India.

The Indian case is especially exasperating because, as reported in the Wall Street Journal, India’s government is hoping to dramatically increase its domestic manufacturing base.  There are few policies more detrimental to achieving that goal than an increase in the cost of energy.

The great irony is that government-led schemes to promote the use of renewable energy are one of the greatest obstacles to the development and broad adoption of solar technology in the future.  This ought to be intuitive.  Just imagine if the government had decided in the 1960s that computers were important to the future, but since they were slow and big and clunky, we should develop bureaucratic incentive programs to usher in a new high-tech economy.  Does anyone really believe such a policy would have hastened the adoption of digital technology or enabled development of the innovative devices, services, and business models that have revolutionized American life?

The inconvenient truth is that green industrial policy isn’t going to lead to a future of renewable energy, but it does benefit cronies and politicians.  Bureaucrats who don’t make decisions based on market realities still respond to incentives, making them susceptible to capture by special interests at public expense (see Solyndra).  Even if bureaucrats are enlightened saints, the centralization of decision-making benefits large firms at the expense of entrepreneurs and other innovative competitors.  Over time, the relationship between commercial success and political acumen leads businesses to invest more in lobbying and leads to a culture of rent-seeking and privilege

The global proliferation of protective tariffs on solar and wind energy components offers one of the clearest examples of how industries built on government subsidies learn to rely on government solutions.  It’s what they know how to do.  The result is an irrational government policy that taxes what it subsidizes, funneling all the benefits toward an increasingly narrow group of people—the green energy future be damned.

The most immediate policy fix for this problem is for countries to agree to zero tariffs on all “environmental goods” like solar panels.  There are already efforts in place at various international fora to work out just such an agreement.  As Simon Lester and I pointed out in a policy bulletin last year, if an environmental goods agreement is going to be truly effective, it must include a moratorium on antidumping duties like the ones currently imposed by the United States, the EU, and now India.

Exploiting China’s Growing Frustration with North Korea

South Korean officials insist that China now agrees that North Korea’s nuclear program poses a serious security threat to the region.  If that interpretation is accurate, it is a strong indicator that Beijing’s patience with its troublesome ally is wearing very thin.  But as I point out in a new article in China-U.S. Focus, the United States and its East Asian allies have a long-standing tendency to overestimate China’s willingness, even its ability, to restrain Pyongyang without incurring excessive risks to its own national interests.

Rumors continue to swirl that North Korea plans to conduct yet another nuclear test.  China is apparently trying to dissuade its volatile ally from taking such a provocative step.  According to Reuters, Beijing has used various “diplomatic channels” to convey its wishes to Kim Jong-un’s regime.  But China adopted a similar stance with regard to Pyongyang’s last nuclear test, as well as the test of a long-range ballistic missile.  Unfortunately, Beijing’s latest expression of opposition is not likely to fare better than previous efforts. Both Kim and his father, Kim Jong-il, defied China’s wishes and conducted such tests.  If that weren’t enough, North Korea also attacked the South Korean naval vessel Cheonan and shelled a South Korean island.  Although Beijing was clearly unhappy about such incidents, it did not prevent Pyongyang’s dangerous, destabilizing conduct.

Because China provides North Korea with a majority of its food and energy supplies, Pyongyang would seem to be highly vulnerable to pressure from Beijing.  But a decision by China to employ maximum economic power to impose its will on the North Korean regime would also require a willingness to incur grave risks. Bringing such pressure to bear could cause the North Korean state to unravel. Not only would that development produce a massive refugee crisis (and possibly a civil war) on China’s border, but North Korea’s demise would obliterate a crucial geographic buffer between the Chinese homeland and the U.S. sphere of influence throughout the rest of Northeast Asia.  Few Chinese leaders want to risk that outcome.

Executive Action on Immigration

President Obama will likely take some executive action this fall to reduce deportations or legalize some unauthorized immigrants. He recently ordered Jeh Johnson, Secretary of Homeland Security, to delay the release of a review of current deportation policy until after the summer. 

A White House official revealed the reason for the delay: “[President Obama] believes there’s a window for the House to get immigration reform done this summer, and he asked the secretary to continue working on his review until that window has passed.”

President Obama has taken a much more conciliatory tone toward Republicans in his push for immigration reform. His 2014 State of the Union address asked Republicans to support reform without blaming them for obstructing it. The White House official’s statement that Obama will delay executive action until after the summer is consistent with that bipartisan tone. It also allows President Obama to appear to be working with Republicans on reform while leaving his policy options open prior to the 2014 elections. 

There is no doubt that President Obama’s attitude is better than blaming Republicans for all immigration problems and is more likely to motivate House Republicans to pass some kind of reform, but the mere mention of executive action only deepens the distrust that many Republicans have for the president – not to mention the many legal issues it raises.  Republicans are justifiably concerned that President Obama may not enforce any immigration law that is passed or may change it with executive actions. 

The Obama administration has consistently piled on more complex rules and regulations for the H-2A, H-2B, and H-1B work visas (with some exceptions that will actually liberalize the system) that make the legal migration system difficult to use.  A new guest worker visa program created by Congress could be similarly stymied by rules and regulations promulgated by executive agencies. Some Republicans also complain about the president’s deportation policy.  These are real concerns that are not mitigated by the president’s threats.   

Many of President Obama’s adjustments to immigration enforcement have been disappointing and haven’t legalized as many unlawful immigrants as they could have. The president’s record on enforcing our harsh immigration laws is strict in contrast to his rhetoric and the stated goals of his executive actions.

However, only legislation can create a guest worker visa program and expand legal immigration enough to channel future immigrants into the legal market. Whatever executive actions the president decides to take, they will deal with problems that have emerged due to our restrictive immigration system that makes it virtually impossible for low and mid-skilled workers to immigrate. Expanding the scale and scope of immigration while diminishing the intensive regulatory oversight role of the federal government is a long-term solution in contrast to an executive action that is temporary at worst and at best seeds legal uncertainty.