Topic: Trade and Immigration

Immigration Enforcement Aids Smugglers – Unaccompanied Children Edition

The increase of human smugglers transporting unauthorized immigrants to the United States is likely a consequence of more effective border enforcement.  Although the Obama administration has de-emphasized internal immigration enforcement after 2011, his administration has ramped up enforcement along the border – focusing on increasing the legal and economic costs imposed on unlawful immigrants apprehended while trying to enter the United States.  Since border and internal enforcement are substitutes, the shift in resources and increase in penalties for unlawful crossers does not represent a decrease in total enforcement.  Matt Graham from the Bipartisan Policy Center wrote an excellent breakdown of the reprioritization of immigration enforcement, the increase in penalties, and how it has deterred unauthorized immigration.

The price of smuggling is an indication of the effectiveness of immigration enforcement along the border.  The first effect of increased enforcement is to decrease the supply of human smugglers.  As the supply of human smugglers decreases, the price that remaining human smugglers can charge increases.  Before border enforcement tightened in the early 1990s, migrants typically paid about $725 (2014 dollars).  Currently, unauthorized migrants from Central America are paying around $7500.  

Is the Export-Import Bank More Important than Economics?

There are many arguments against reauthorization of the Export-Import Bank, a government-run bank that helps finance export sales at below-market rates. Some of these arguments include that it hurts U.S. businesses, that it provides corporate welfare for politically connected companies, and that it distorts and politicizes the U.S. economy. But the New York Times editorial board thinks all those arguments are “ridiculous,” while also agreeing with them:

In one of their odder quests, some Tea Party members have decided that the United States must shut down the Export-Import Bank of the United States, an obscure but important federal agency that helps American businesses sell their goods abroad.

The bank provides loans and loan guarantees to foreign businesses to help them buy American products and services. In an ideal world, businesses would obtain such financing from privately owned banks. But most governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing. [emphasis added]

The New York Times recognizes that getting rid of the Ex-Im Bank would bring us closer to realizing an ideal world, but they nevertheless support the bank to prevent some U.S. firms from losing businesses to foreign competitors. It’s difficult to read this as anything but a defense of crony capitalism. Indeed, the Times’ Neil Irwin wrote a defense of Ex-Im depressingly titled “Why We’re All Crony Capitalists, Like It or Not.”

There will always be challenges for U.S. companies in a global economy. Small, targeted amounts of mercantilist industrial policy like Ex-Im subsidies will not create growth regardless of the character of those challenges.  In other words, subsidies to counteract subsidies are not more beneficial to our economy  than subsidies to counteract relative disadvantages in climate, terrain, or workforce productivity. 

The most compelling take down of the “Ex-Im is necessary for competitiveness” argument may have come from leftist economist Dean Baker, who thinks “free traders” who support the Ex-Im Bank are being awfully hypocritical.  He notes the economic case against subsidies—“by diverting capital to the winners picked by the Ex-Im Bank, we are raising the price of capital for other firms”—and questions the motives of Ex-Im supporters who understand that consequence. Specifically in response to Irwin’s piece, Baker writes:

When Irwin tells us that we have to be crony capitalists “whether we like it or not,” why don’t we also have to be crony protectors of workers’ livelihoods? It seems that there is a very fundamental inconsistency here. When it comes to business interests we are prepared to throw the economics textbook theory in the garbage, but when the question is worker’s jobs, that textbook is the Bible.

I don’t think the generally pro-free trade New York Times wants to throw workers under the bus or help big business, but Baker is right that the argument of Ex-Im defenders that we need subsidies to counteract foreign competition could just as easily be used to justify tariffs or any other form of protection in countless other situations. Does every foreign government subsidy warrant a protectionist response? If not, why is the Ex-Im Bank the protectionist program so many “free traders” want to keep?

Big Business Clashes with Libertarians and Tea Party over Ex-Im Bank

Two weeks ago I wrote about the efforts of big business to defeat libertarian-leaning legislators in states across the country. To confirm my point, on the same day the article appeared the Michigan Chamber of Commerce endorsed the opponent of Rep. Justin Amash, the one of whom I had written, “Most members of Congress vote for unconstitutional bills. Few of them make it an explicit campaign promise.”

Now a battle is brewing in Congress that pits libertarians and Tea Party supporters against the country’s biggest businesses. The Wall Street Journal headlines, “GOP’s Attack on Export-Import Bank Alarms Business Allies.” The “rise of tea-party-aligned lawmakers” is threatening this most visible example of corporate welfare, and David Brat’s attacks on “crony capitalism” in his surprise defeat of Eric Cantor have made some Republicans nervous. Amash told the Journal, “There are some large corporations that would like corporate welfare to continue.”

The biggest beneficiaries of Ex-Im’s billions are companies such as Boeing, General Electric and Caterpillar,  according to Veronique de Rugy, a senior research fellow at the Mercatus Center. Cato scholars have made the same point, including Aaron Lukas and Ian Vasquez in 2002 and Sallie James in 2011.

Matthew Yglesias of Vox notes, “The Export-Import Bank is a great example of the kind of thing a libertarian populist might oppose. That’s because the bank is a pretty textbook example of the government stepping in to arbitrarily help certain business owners.” And he points out that supporters of the Bank include the U.S. Chamber of Commerce, the National Association of Manufacturers, the AFL-CIO, Haley Barbour, and Dick Gephardt. He could have added Tom Donnelly of the American Enterprise Institute.

Rep. Adam Kinzinger (R-IL) said he worried about “a libertarian theology that’s really starting to creep in.” I hope he’s right.

Sugar from Mexico: Who’s Being Injured?

On March 28, 2014, the U.S. sugar industry filed antidumping and countervailing duty (AD/CVD) petitions against imports of sugar from Mexico.  From the time that NAFTA’s sugar provisions were fully implemented in 2008, Mexico has been the only country in the world with unfettered access to the U.S. sugar market.  Sugar interests now are hoping to clamp the fetters back on.  It is not at all clear whether that effort will succeed.

Both the Commerce Department and the U.S. International Trade Commission (ITC) play important roles in this process.  Commerce must determine the extent of any dumping margin (selling at “less than fair value” due to pricing practices of individual firms) and any countervailing duty margin (benefit received by Mexican exporters from subsidies provided by their government).  The estimated dumping margins for the preliminary phase of the investigation range from 30 to 64 percent; they are likely to be adjusted based on additional information gained in the final phase of the investigation.  Commerce has not yet had an opportunity to establish CVD margins.  Given the degree of government involvement in Mexico’s sugar business, a CVD margin at some level seems likely.

The job of the ITC is to determine whether the domestic sugar industry has been “injured” by the imported sugar.  In its preliminary determination, the commission voted unanimously in the affirmative, which means that the investigation will go forward into its final phase.  This vote was not at all a surprise.  The legal standard for a negative vote in a preliminary determination is quite high.  To have voted in the negative, the ITC would have had to conclude that there was no “reasonable indication that a domestic industry is materially injured or threatened with material injury.”  That is a very difficult standard to meet on the basis of the somewhat limited preliminary record – often with inconclusive evidence – that must be compiled not more than 45 days after the case has been filed. 

Family Reunification and Other Explanations for the Border Surge of Unaccompanied Children

There are two main issues surrounding the increase in the migration of unaccompanied children (UAC) and asylum seekers in recent years that have recently reached crisis proportions.  The first is the treatment of those children who are apprehended by Border Patrol and how American policy is reacting to the surge. 

The second is explaining why UACs are coming.  Below I will lay out three different theories that attempt to explain the surge in UACs.  Each theory has some merit and I present evidence in support and opposition to each one.  

First Explanation: Family Reunification

Immigration by stages and family reunification could explain part of the UAC border surge.  Stage migration works like this:  First, the single breadwinner of the family immigrates to find work in the United States.  After getting established, finding employment, and figuring out how to function in his new country, the initial immigrant then sends for the rest of his family.  Sometimes the initial immigrant’s spouse will come alone while leaving the children in the care of extended family.  Often times, after the second parent is working, they will then have the funds to send for the children to join them in the United States. 

This pattern of family separation through stage immigration and eventual reunification is a desperate strategy undertaken by poor people who don’t have any other options.  Regardless, it explains part of the surge in unaccompanied children who are joining their unlawful immigrant parents and families who previously arrived in the United States.

Smuggling prices for unauthorized immigrants from Central America are higher than for unauthorized Mexican immigrants.  Mexicans pay about $4000 to be smuggled to the United States by land and $9000 to be smuggled in by sea.  Guatemalans pay about $7000.  But since Guatemalans are so much poorer than Mexicans, on average, it can take many more years for them to save for the trip, often meaning that both parents are more likely to come to the United States first to work and send money back to Guatemala to finance the sending of their children.  As a result, many of the children would come alone. 

The price of human smuggling has risen substantially due to increased U.S. border enforcement.  The higher price of migrating and the relative poverty of Central American migrants mean that families are more likely to be separated during the migration process, explaining part of the surge in UACs from Central America.  Ironically, increased border enforcement and crackdowns on human smugglers have probably caused more family separation and eventual reunification – partly explaining the scale of the current UAC migration.

Are Beef Prices at An All-Time High?

The press is reporting record prices for beef. According to a June 18 story in the New York Post,

“It’s a barbecue-season bummer! Meat, poultry and fish prices have spiked an average of 8 percent since last year — soaring to an all-time high, national data show. The cost of ground beef has gone up 11 percent… ‘Everything is going through the roof,’ said Jim Hopkins, 52, a supervisor at Associated Supermarket in the West Village, who has worked in the grocery business for 30 years. ‘I’ve never seen increases like this — where they jump as much as this.’”

 

 

Yet the World Bank data shows remarkable stability in the inflation-adjusted price of ground beef over the last half century. That is all the more remarkable considering that:

  1. There were 3 billion people in the world in 1960. Today there are 7 billion of us.
  2. In 1960, the average income per person was $3,000 (in inflation adjusted 2000 dollars). Today it is $7,500.
  3. More people earning more money = higher demand for meat, especially beef.
  4. Yet, beef prices are, roughly where they were in 1960.

So, cheer up and don’t let those pessimists spoil your barbecue-season.

Ex-Im Bank Weakens American Capitalism

One of the policy fissures in the Republican Party is over business subsidies, and the current debate about the Export-Import Bank illustrates the conflict. The Ex-Im Bank is one of many corporate welfare or crony capitalist programs that litter the federal budget. The Bank’s authorization runs out in September, and so Congress must act if it wants to extend the operations of this business subsidy machine.

Veronique de Rugy at Mercatus and Sallie James at Downsizing Government have looked at the Bank’s operations and discussed why the economics of the Bank do not make sense. Veronique says, “the Export-Import Bank is one of the least defensible corporatist boondoggles that taxpayers are forced to subsidize.”

The main problem with corporate welfare programs like Ex-Im is often overlooked. It is that they undermine American capitalism by weakening the recipient businesses. All subsidies can change the behavior of recipients, and nearly always in a negative way. Just like individual welfare programs reduce work incentives, corporate welfare dulls the competitiveness of recipient companies.

Corporate welfare focuses the energy of business executives on Washington and away from the marketplace. It gives companies a crutch, an incentive not to make the innovations needed to remain on the leading edge. It induces recipient businesses to make foolhardy decisions, as we saw with export subsidies for Enron. And corporate welfare often steers business capital into dead-end markets favored by politicians, and away from uses that would be more productive and profitable in the long run.

Here are some of the points made by Veronique and Sallie about Ex-Im:

  • Veronique: The Bank backs less than 2 percent of the value of total U.S. exports.
  • Veronique: The Bank mainly subsidies very large businesses, not small businesses.      
  • Veronique: Taxpayer exposure to possible Bank losses is rising.
  • Sallie: Export subsidies cannot substantially change the U.S. trade balance, even if that were a good idea.
  • Sallie: The Bank’s activities may slightly shift the U.S. employment mix, but they do not raise overall employment.
  • Sallie: The Bank’s aid to some foreign businesses—such as foreign airlines—comes at the expense of U.S. businesses.

For more on the problems with corporate welfare, see my 2012 congressional testimony on Corporate Welfare Spending vs. the Entrepreneurial Economy.