Chinese Free Trade Is No Threat to American Free Trade

I’m seeing a lot of support for the Trans Pacific Partnership (TPP) on the basis of reasoning along the lines of “we must stop China from dominating Asia.”  Here are two recent examples.

First, an analyst with the Third Way think tank says:

The Chinese economy is built on low labor standards, and they want to export these standards to the world.

This analysis of Chinese and U.S. trade deals demonstrates that, in the area of worker rights, there is an immense cost to ceding trade and commerce rules to China. And with China trying to impose those standards on the rest of the world, policymakers need to be extremely concerned with the effect on American workers.

Second, the Washington Post editorial board says:

the TPP would ensure that the Pacific Rim plays by U.S.-style rules and regulations, rather than by China’s neo-mercantilist ones

There are two arguments here: (1) China is imposing low labor standards on the rest of the world; and (2) China is spreading mercantilism through its trade agreements. Neither is true.  As I explain in this Free Trade Bulletin, China does not care what labor standards its trading partners use, and it is not trying to impose its standards on anyone through trade agreements.  In addition, Chinese trade agreements liberalize trade in goods and services, just as other countries’ trade agreements do; China is not using trade agreements to push for its trading partners to have more interventionist economic policy.

I conclude:

Chinese free-trade initiatives in Asia and the Pacific region should give the United States an incentive to get its own free-trade act together, but not for the reasons suggested by some. Chinese free trade is not a threat to American free trade. The justification for U.S. trade agreements is that free trade is good, not that China is somehow bad. Thus, the TPP should succeed or fail on its economic merits. The concerns about letting China write the rules are misguided. China’s trade rules are not a version of state-led capitalism. They are the removal of protectionist trade barriers, just as our trade rules are.

In Search of a Syria Strategy: Event (April 30th)

On April 30th, Cato will host an event exploring the future of the Syrian conflict, with particular emphasis on the role of the United States. Fighting in Syria recently entered its fifth year, and there is no clear end in sight. The conflict has resulted in an estimated 191,000 deaths and has produced more than 9.5 million refugees.

The civil war is chaotic. There are hundreds (if not thousands) of rebel groups currently operating in Syria, many of whom have devoted more time to fighting each other than the regime. Foreign funding and weapons flow freely to all sides. The rise of ISIS and its spread to Iraq, along with the increasing prominence of other extremist groups like al Nusra has further complicated the situation. This map, recently released by the Department of Defense, illustrates some of the complexity:

DoD Map of Syria and Iraq

 

American involvement in Syria was minimal prior to September 2014, when the Obama administration initiated airstrikes to ‘degrade and destroy’ ISIS in Iraq and Syria. This campaign is ongoing, and the United States is also funding and training Syrian rebels to fight against ISIS. 

PATRIOT Act Reauthorization Fight Begins This Week

If the House Judiciary Committee keeps to its current schedule, on Thursday it will meet to consider the third version of the USA Freedom Act in the last two years. I’ve seen a very recent draft of the bill, and from my perspective in its current form the bill effectively acts as if the Snowden revelations and several independent reviews of the PATRIOT Act Sec. 215 metadata program never happened.

The bill ignores the fact that both the Congressional Joint Inquiry into the 9/11 attacks and the 9/11 Commission itself found that the attacks happened because of information sharing and analytical failures, not because of intelligence collection shortfalls. The bill claims to end the controversial telephone metadata program, but a close reading of the bill reveals that it actually leaves key PATRIOT Act definitions of “person” or “U.S. Person” intact—and under 50 U.S.C. sec. 1801(m) of the PATRIOT Act, “person” is defined as “any individual, including any officer or employee of the Federal Government, or any group, entity, association, corporation, or foreign power.” It’s the “group, entity, association or corporation” language that leaves open the possibility of continued mass telephone metadata surveillance under the PATRIOT Act.

The bill also grants the government sweeping “emergency” collection authority not tied to an imminent threat of death or bodily harm, which has generally been the standard for such programs in the past. The bill allows the government to retain U.S. Person call detail records if the government alone determines such records are “foreign intelligence information”. The bill’s FISA court revisions include the creation of amicus curiae (previously called “special advocates” in earlier version of the USA Freedom Act) that in theory would help the court work its way through particularly thorny cases potentially involving major interpretations of law. But there are two key caveats to this provision: the FISA court has sole discretion to appoint—or not appoint—these amicus curiae and the government still retains the ability to invoke the “state secrets” privilege, which would render the presence of the amicus curiae moot.

What is missing from the bill is at least as significant as what it contains.

Americans Should Not Wait for Politicians to Help Syrian War Victims

KUWAIT CITY, KUWAIT—Seventy-eight nations plus 40 non-governmental organizations recently gathered to raise money for the relief of Syrian refugees. Kuwait’s Emir opened the Third International Humanitarian Pledging Conference for Syria with a plea for funds.

The small Gulf nation has carved out an international humanitarian role. “This is our baby,” one Kuwaiti official told me.

Kuwait opened the proceedings with a promise of $500 million, matching last year’s donation. The U.S. won the number one position with an offer $507 million, but many participants offered little more than good will. Overall the conference generated $3.8 billion of the $8.4 billion which aid agencies were seeking.

Antonio Guterres, UN High Commissioner for Refugees, warned that “We are at a dangerous tipping point.” The vulnerability of those caught in the conflict’s crossfire was highlighted by the Islamic State’s advance to the Yarmouk camp for Palestinian refugees on the outskirts of Damascus.

Alas, virtually no one in Syria has escaped the impact of four years of civil war. More than 200,000 Syrians are thought to have died; another million have been injured. The economy has imploded. UN Secretary General Ban Ki-moon added: “Four out of five Syrians live in poverty, misery and deprivation.”

Some 12.2 million people, more than half of the population, are estimated to need humanitarian assistance. A similar number have been displaced—between 6.5 million and 7.8 million within Syria and three to four million on to neighboring states.

Why Are Environmental Policy Conflicts So Intractable?

On Earth Day the op-ed pages remind me of “Groundhog Day.”  Environmentalists argue we need stricter environmental regulation.  Business interests argue such regulations reduce economic growth and cost the economy jobs.  Each also invokes “sound science” as an adjudicator of the conflict.  Environmentalists invoke “science” in the case of CO2 emissions and effects while business interests invoke “science” in the case of traditional pollution emissions.  Each year we wake up and the same movie plays out.

The scientific validity of people’s preferences plays no role in the market’s delivery of private goods.  Markets can and do supply organic lettuce regardless of whether it is really “better” for your health.  The scientific validity of people’s preferences is irrelevant.

Air- and water-quality environmental disputes are more challenging to analyze than the supply of organic lettuce for two reasons.  First, while property rights exist for lettuce, they often do not exist for air and water.   Thus, environmental politics involves continuous struggle over implicit property rights and the wealth effects that flow from such rights.  Second, both conventional air and water quality are “local” public goods (club goods) rather than private goods, thus individual differences in consumption, the primary method of reducing conflict associated with private goods, are not possible.  Instead, everyone’s varied preferences for environmental goods can only result in one jointly consumed outcome.

One possible impediment to the implementation of market-like solutions to air and water quality is that the initial ownership of property rights to air or water emissions not only has wealth but also efficiency effects.  That is those particular property rights (the right to a pristine environment) are so valuable relative to other assets that their initial allocation alters the willingness of people to pay for them and thus affects how much pollution exists.  In such cases the initial distribution is the whole ballgame because it determines the resulting air- and water- quality levels.

Uber Driver with Concealed Handgun Prevents Mass Shooting in Chicago

A driver with the ridesharing company Uber put a stop to a potential mass shooting in Chicago over the weekend.

According to the Chicago Tribune:

A group of people had been walking in front of the driver around 11:50 p.m. in the 2900 block of North Milwaukee Avenue when Everardo Custodio, 22, began firing into the crowd, Quinn said.

The driver pulled out a handgun and fired six shots at Custodio, hitting him several times, according to court records.  Responding officers found Custodio lying on the ground, bleeding, Quinn said.  No other injuries were reported.

The driver will not be charged:

The driver had a concealed-carry permit and acted in the defense of himself and others, Assistant State’s Attorney Barry Quinn said in court Sunday.

Chicago was home to some of the most draconian gun laws in America until a 2010 Supreme Court ruling, McDonald v. Chicago, found Chicago’s gun regulation regime unconstitutional. That ruling applied the Court’s previous landmark 2nd Amendment ruling, District of Columbia v. Heller, to state governments. While those rulings dealt with the right to bear arms for self-defense in the home, some circuit courts (including the 7th Circuit, which governs in Chicago) have extended the Heller/McDonald logic to certain public places as well as the home.

Immigration and Economic Inequality

Discussions of economic inequality are common nowadays thanks to Thomas Piketty’s new book Capital in the Twenty-First Century.  There are several good critiques of Piketty’s book and at least one wonderful podcast.  I’m not convinced that economic inequality in a (mostly) free-market economy matters one way or the other for economic growth, social stability, or political stability (ceteris paribus), so this blog is a response to those concerned that liberalized immigration could exacerbate wealth inequality.   

Papers on how immigrants affect the wages of Americans almost uniformly present the results as relative gains or losses compared to the wages of other workers.  While that work is valuable, below I will only discuss papers that focus exclusively on economic inequality caused by immigration. 

Borjas et. al. found that immigration (along with trade) only modestly affects earnings inequality – a role not substantial enough to account for more than a small percentage of the change.  Instead, he attributes the growth in income inequality to the acceleration of skills-biased technological change (SBTC) and other institutional changes in the labor market. 

David Card failed to find a substantially causal relationship between increased immigration and growth in wage inequality.  He discovered that immigration explains about 5 percent of the rise in overall wage inequality between 1980 and 2000.  An important distinction is between the wage inequality effects of immigration on natives and the effects on wage inequality for immigrants and natives.  While 5 percent of the growth in overall wage inequality can be attributed to immigration, immigration’s effect on native wage inequality is negligible.  Immigrants tend to have either very high or very low wages compared to natives, meaning that immigrants have a naturally higher residual level of income inequality than natives do.  Thus, immigration causes the economy-wide level of wage inequality to increase without changing native wage inequality.  Immigration has little, if any, effect on native wage inequality according to Card.