Topic: Trade and Immigration

Is the TPP Necessary as a Response to China?

Paul Krugman has a blog post on the Trans Pacific Partnership (TPP) today.  Overall, he is skeptical of the need for it.  He refers to a recent op-ed by Larry Summers, and notes that Summers appears to support “an idealized TPP that could have been,” but is “against the TPP that actually seems to be on the table.”  Krugman says he feels similarly.

Tyler Cowen responds as follows:

I agree with much of the economics in his post, though I would frame the points with a different kind of rhetoric.  But I think Krugman is nonetheless wrong to oppose TPP.  You will notice the word “China” does not appear in his argument.  He closes with a question: “Why, exactly, should the Obama administration spend any political capital – alienating labor, disillusioning progressive activists – over such a deal?”  The answer is simple: this deal either happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well.

Cowen is one of my favorite bloggers, both for style and substance, but I want to push back a little bit here.  The alternative deal he is referring to is the Regional Comprehensive Economic Partnership (RCEP), a negotiation among 16 countries, including China and India, in the Pacific region.  There is a good deal of overlap, in terms of participating countries, with the 12 TPP parties.  I think he is making two points here: (1) If there is no TPP, there will be an RCEP, and that will be bad for the United States; and (2) the RCEP will reflect Chinese priorities, not U.S. priorities, and that will be bad for the United States.

Just briefly, let me comment on both points.  First, the RCEP may be, to some extent, a response to the TPP.  If the TPP fails, the motivation for the RCEP might also diminish.  Furthermore, regardless of what happens with the TPP, it will not be easy to complete the RCEP.  Getting India, China, and 14 other countries to agree will not be easy.  So there may never be an RCEP.

Second, the reference to Chinese terms makes it sound like this will be an agreement that establishes state-owned companies as the norm.  In reality, if you look at the topics covered, I’m not sure this agreement would be much different than any other trade agreement, except perhaps less emphasis on labor rights and intellectual property protection than in U.S. agreements.  There will be tariff lowering, services liberalization, and all the usual issues.

In my view, then, we should consider the TPP on its own merits and not worry so much about what other countries do.  If they want to liberalize amongst themselves, that’s great.  But that’s not a threat, just an incentive to do a better job with trade negotiations ourselves.

CIS’ All Job Growth Since 2000 Went to Immigrants’ Report Is Flawed

The Center for Immigration Studies (CIS) has released a number of reports purporting to show that all employment growth since the year 2000 has gone to immigrants. The CIS report does not include econometrics. However, the report includes a few references to the economic literature (those few references present have little to do with native job displacement caused by immigration, which is the topic of the CIS report). Nonetheless, the CIS report has gained significant attention.

The CIS method of measuring job displacement caused by immigration is not used by professional economists to study this issue. Fundamentally, CIS assumes a static number of jobs that is unchanging based on immigration and does not consider what the job market would look like with fewer immigrant workers, entrepreneurs, and consumers—estimates essential for understanding the actual labor market impact of immigrants.  I discuss those actual effects here, here, and here

Regardless of their flawed methods, I decided to recreate CIS’s research in order to exactly understand how they got their results.

The study did not find any evidence of immigrants pushing natives out of the job market. After spending hours recreating their data and checking it, all I can conclude is that immigrants hold about a percentage of jobs in the economy that is roughly equal to their percent of the population. I am underwhelmed by that finding. 

Below I will present the academic literature on immigration-induced job displacement, explain how CIS got its results, and detail why its analysis of the data does not prove that “All Job Growth Since 2000 Went to Immigrants.” (If you just want the meat, scroll down to the hed “CIS’s Three Big Conclusions Are False”).

So Begins the Contest to Blame China the Most

Some things are an inevitable part of every election season.  Without a doubt, every candidate running for President in 2016 will, for example, make unrealistic promises and pander to special interests.  They will also just as surely try to blame America’s perceived problems on a foreign menace.  For economic issues, China has become the overwhelming favorite as a target for these attacks now that blaming Japan and Mexico has gone out of style. 

In the 2012 election, the chief China-basher was Mitt Romney, who transformed himself into a mercantilist and promised to be tough on Chinese currency manipulation.  Republicans running for Congress that year had a similar predisposition, and Pete Hoekstra certainly deserves an award for running the most tasteless anti-China ad.  In 2014, it was the Democrats’ turn to blame China on the campaign trail for stealing American jobs.

Now we’re getting a taste of how China bashing will play out in the 2016 election.  According to Politico, Mike Huckabee has started talking about the Chinese menace in Iowa.

He complained that American wages have been stagnant since Chinese trade agreements went into effect over the past few decades.

“People are working hard, and they have less to show for it,” he said. “We need to quit apologizing for being America, and we need to start making it so that Americans can prosper and not just so that the Chinese can buy Louis Vuitton and Gucci bags.”

The comments came in response to questions about why the government has kept the embargo in place against Cuba, even as trade barriers with China have been lifted.

“We have basically surrendered to the Chinese market,” Huckabee said. “We’ve not put the pressure on them.”

Aside from pandering to xenophobia, these kinds of comments are distressing because they demonstrate a willingness to vilify normal economic activity.  Huckabee describes trade as “the Chinese” fighting a battle against the U.S. economy in pursuit of frivolous luxury.

I suppose some rhetorical license should be granted to candidates who need to package their policies in a way that appeals to the most people.  So maybe instead of “surrendered to the Chinese market,” Gov. Huckabee meant to say that the United States government has lowered taxes on American consumers and businesses.  And maybe instead of “Louis Vuitton and Gucci bags,” he meant clothes, food, and medicine.

And maybe, just maybe, when he says “we need to start making it so that Americans can prosper,” he means the government should stay out of the way of mutually beneficial commercial activity and stop protecting politically powerful industries from consumer demand for innovative and affordable products and services.

Maybe Mike Huckabee or some of the other candidates will even remember that a majority of Americans in both major parties think that trade is good for the United States.

Will the TPP Promote Minimum Wage Laws?

This is from the White House blog, explaining that the Trans Pacific Partnership (TPP) will be “the most progressive trade agreement in history”:

They further explain:

If we don’t secure this trade agreement, Americans will be forced to accept the status quo – which is bad for small businesses, bad for American workers, and bad for our future leadership. 

Here’s why: 

We would fail to secure strong labor and environmental standards for trade in the world’s fastest-growing region: 

  • There’d be no enforceable rules ensuring countries set a minimum wage, end child labor, or enforce workplace safety.

So should those of us who are skeptical about the benefits of a minimum wage law panic here?  Will the TPP spread and promote minimum wage laws around the world?

My sense is that the answer is no (although no one has seen the full text of the TPP yet, so I suppose there could be some surprises). Instead, I think the TPP will say that countries have to enforce their own labor laws.  Thus, if you have a minimum wage law on your books, you have to enforce it (with credit to my colleague Bill Watson for this explanation).  That’s a lot less scary (but still a little scary).

At the same time, the whole idea of marketing trade agreements as “progressive” and making reference to minimum wage laws seems like an attempt to garner support from liberals (unlikely) that will quite possibly scare off free market conservatives.  I’m not sure exactly what the White House has in mind; this may very well backfire on them.

U.S. Trying (and Failing) to Contain the Spread of European ‘Geographical Indications’

One of the European Union’s highest priorities in trade negotiations is to globalize its restrictions on the use of place names as generic product descriptions. When they negotiate a trade agreement, they insist that the other country adopt regulations requiring that, for example, all champagne come from Champagne and all parmesan cheese come from Parma. The United States, worried that these rules limit access for U.S. products, is trying to use its own trade agreements to contain the effects of Europe’s push to protect “geographical indications” (GIs) in countries around the world.

Europe’s GI protections restrict the flow of accurate information while reducing competition and innovation. GI protection is not about preventing consumer confusion or false advertising; European rules forbid the use of place names even when phrases like “style” or “type” are added. 

One often overlooked but essential aspect of GI regulation is that use of a protected name requires not only physical location in that place but also adherence to government-mandated production practices.  “Authentic” champagne is therefore not only made in Champagne, but made a specific way required by law. 

By operating this way, the system functions not only to capitalize on a collective brand but also to reduce competition among producers. Once all the producers in a particular country (say, France) are divided by region and style, the industry starts looking a lot like a cartel. There may be multiple producers, but they all agree to keep making the same thing in the same place forever. They no longer have to compete on product quality.

U.S. trade negotiators are rightly resisting efforts to spread this anticompetitive regulatory scheme to other countries. As it stands, there is almost no chance that the United States could convince the EU or its member states to drop their GI regulations. But it is also unlikely that the United States will acquiesce to European demands to adopt such a system here, especially for meats and cheeses.

The battle over GIs is therefore being waged in other countries as the EU and the United States both use trade agreements to influence how GIs are protected in foreign markets. Commercially, the question is whether U.S. companies can continue to sell their generic brands abroad.

Responding to the White House Response on ISDS

Yesterday, my colleague Dan Ikenson blogged here about an op-ed by Sen. Elizabeth Warren (D-MA) in which she was critical of investor-state dispute settlement (ISDS) provisions in trade agreements.

Jeff Zients, director of the National Economic Council, posted a response to Warren on the White House website.  In this post, I’m going to comment briefly on his response, going through item by item. His statements are in bold; my comments follow in bullet points. 

Zients: “The purpose of investment provisions in our trade agreements is to provide American individuals and businesses who do business abroad with the same protections we provide to domestic and foreign investors alike in the United States.”

• It’s important to be clear that these protections go both ways. Under ISDS, foreign investors can also sue the U.S. government. Of course, they could already sue under U.S. domestic law. In effect, ISDS means that foreign investors in America have two avenues for a lawsuit, while U.S. investors in America only have one.

• With regard to protections abroad, the result of ISDS is that American investors have protections in foreign countries, but non-Americans do not have protections in those countries. That seems like a bad signal to send: American investors get good treatment, but non-Americans do not. If the concern is expanding protections, there is a better way to do it: encourage these protections to be incorporated into domestic law, so that everyone gets them.

Hyperbole Aside, Elizabeth Warren Is Right About the Risk of Investor-State

Sen. Elizabeth Warren takes to the Washington Post op-ed pages today to warn about the dangers of the so-called Investor-State Dispute Mechanism, which is likely to be a part of the emerging Trans-Pacific Partnership deal.  In substance, if not style, Sen. Warren’s perspective on ISDS is one that libertarians and other free market advocates should share. At least, my colleague Simon Lester and I do

ISDS grants foreign investors the right to sue host governments in third-party arbitration tribunals for treatment that allegedly fails to meet certain standards, such as new laws, regulations, or policies that might have a discriminatory effect on foreign investors that reduces the value of their assets. Certainly, investors – and in this context we’re talking mostly about multinational corporations (MNCs) – should have recourse to justice when these situations arise. But under ISDS, U.S. investors abroad and foreign investors in the United States can collect damages from the treasuries of their host governments by virtue of the judgments of arbitration panels that are entirely outside of the legal structure of the respective countries. This all raises serious questions about democratic accountability, sovereignty, checks and balances, and the separation of power.

An important pillar of trade agreements is the concept of “national treatment,” which says that imports and foreign companies will be afforded treatment no different from that afforded domestic products and companies. The principle is a commitment to nondiscrimination. But ISDS turns national treatment on its head, giving privileges to foreign companies that are not available to domestic companies. If a U.S. natural gas company believes that the value of its assets has suffered on account of a new subsidy for solar panel producers, judicial recourse is available in the U.S. court system only. But for foreign companies, ISDS provides an additional adjudicatory option.