Lumber and Dairy Trade Disputes: No Need to Freak Out

U.S. - Canada trade relations are in the news, and not in a good way.  There are two particular products at issue: lumber and dairy. Here’s what Commerce Secretary Wilbur Ross had to say yesterday: 

It has been a bad week for U.S.-Canada trade relations. Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly one billion dollars on Canadian softwood lumber exports to us. This is not our idea of a properly functioning Free Trade Agreement. 

As background, there are two separate issues. First, on dairy, there are allegations that a Canadian government program, in combination with certain private sector practices, has led to reductions in U.S. dairy exports to Canada.  There may be something to this claim, and I can imagine the U.S. might file a complaint at the World Trade Organization.  Trump’s tweets may make it sound like there will be some kind of harsh tariff retaliation outside the context of the WTO, but I’m skeptical.  We haven’t yet seen any blatant trade law violations of this sort from the Trump administration (and hopefully we won’t), and I think it’s more likely they will go the WTO. 

Then there’s lumber.  This is a long-standing U.S. - Canada trade dispute (my colleague Dan Ikenson gives the background here), and it is picking up again, as the Department of Commerce made a preliminary determination of countervailable subsidies on imports of softwood lumber from Canada.  This is from the fact sheet they issued: 

Commerce calculated preliminary subsidy rates for five mandatory respondents: for Canfor Corporation, 20.26 percent; for J.D. Irving, Limited, 3.02 percent; for Resolute FP Canada, Ltd., 12.82 percent; for Tolko Marketing and Sales Ltd. and Tolko Industries Ltd., 19.50 percent; and, for West Fraser Mills, Ltd., 24.12 percent. Commerce established a preliminary subsidy rate of 19.88 percent for all other producers/exporters in Canada.

Before anybody panics, let me reiterate that this is nothing new.  Note that there was a preliminary determination on subsidized Canadian lumber back in August 2001, where DOC calculated a single country-wide subsidy rate of 19.31%.  While there are a lot of potentially system-destroying trade actions from the Trump administration to worry about, this one is just the usual, routine kind of trade remedy action.  Not that I support this sort of thing, of course, but it’s part of the system. Also note that it is just a preliminary determination, subject to a final review by the Commerce Department, as well as a final injury determination by the International Trade Commission. And the parties may be able to work out an agreement, as they have in the post. 

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SCOTUS Needs To Check the Long Arm Of State Court Jurisdiction

Many of the problems with litigation under our federal system, as I’ve noted before, arise when state courts can reach out to project their power onto litigants and disputes outside their borders. Public choice economics suggests that when courts are answerable to the political and legal classes of a single state only–say, California or Montana–they might not be ideally responsive to the interests and due process rights of out-of-state parties who have been compelled by force to show up and defend a lawsuit. Even if state judges and juries manage to avoid the temptation of “home cooking”–dishing out tastier outcomes to down-home litigants and lawyers than to outsiders–the remains the wider problem of forum-shopping, in which–even if no forum intends to act other than impartially–lawyers can bring an action in whichever of multiple available forums is most gainful for their side and unwelcome for their opponent.

A great deal, therefore, hangs on when state courts can compel absent parties to show up and defend a lawsuit. When may a state assert jurisdiction over a distant party even though it lacks one of the relatively uncontroversial grounds for doing so, such as that the events being sued over happened within its borders? 

And here there has been good news to report in recent years. Our system relies largely on the federal judiciary to police overreaching by state courts in their jurisdictional claims, and after decades of irresolution, the U.S. Supreme Court has lately been getting much more serious and confident about drawing the right sorts of lines. Importantly, it has done so with support from both liberal and conservative wings of the Court. In the most significant recent case, Daimler AG v. Bauman (2014), Justice Ruth Bader Ginsburg wrote for a unanimous Court, with only Justice Sotomayor writing a separate concurrence. (The case dealt with an international as distinct from interstate claim of jurisdiction, but made precedent for both). 

But some states have pushed back against Daimler, which may be why the Court granted review of two cases on which it will hear oral argument tomorrow, April 25. In Bristol-Myers Squibb Co. v. Superior Court, California courts took jurisdiction over hundreds of cases from other states alleging side effects from the drug Plavix, even though the other cases had no particular connection with California other than that their lawyers wanted to convoy them in along with the actual California cases. In BNSF Railway Co. v. Tyrrell, Montana opened its doors to litigation against a railroad based elsewhere over injuries that did not occur within Montana. 

It seems unlikely that the Court will declare a change of heart and back off its 2014 near-unanimity. Helpfully, the Trump Justice Department has filed an amicus brief arguing that the California Supreme Court overstepped the line when (over a dissent from three of its members) it found jurisdiction over the out-of-state drug cases. Still, lawyers will be looking at the possibility that some distinctive sub-pattern in one or both of tomorrow’s cases (such as federal law’s recognition of the railroad industry as having a distinctively national workforce) might justify carving out an exception to its rule.

The stronger outcome would be for a united Court to say unambiguously, about its Daimler holding: we said it, and we meant it. 

Why Don’t We Have Free Trade in Doctors?

With this blog post, I’m taking a quick break from trying to figure out President Trump’s trade policies. (Is this going to be the most protectionist presidency ever? Or will it end up looking not too different from a typical presidency? The conflicting signals are making my head spin!) Instead, I want to talk about an issue that Dean Baker keeps raising: Whether U.S. trade policymakers are hypocritical because they have liberalized a lot of trade in manufactured products such as steel, but not very much trade in professional services such as medical care. (See here, here, here, here, here, here, and here for examples of his references to this. I think there are more–he talks about this a lot!–but those links are a start). Here is his latest:

We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)

As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.

While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.

I agree with Dean that we should have more free trade in medical services, but the question is, why has this not happened? Is it because, as he says, “trade negotiators may feel this protectionism is justified”? As with many things, the answer is complex and has a number of components, but the short answer is that trade negotiators are not saying that protectionism is justified here. To understand the actual hurdles to liberalization in this area, you need to know how trade liberalization happens as part of a trade negotiation. If trade negotiations were run by pure free traders, they would be quick and easy. Both sides would just show up and explain that they were liberalizing all of their goods and services trade. That would be the end of it. In reality, though, there is a mercantilist logic to trade agreements. One side demands that the other open up its market in particular sectors, and the other side demands similar market opening in sectors of interest to it. In response to these demands, each side may resist opening up its own market to some extent, but it will nevertheless make what are referred to as market opening “concessions” in its domestic market in order to get the other side to open its market. It’s not pretty, and it’s not ideal, but this approach has had a good amount of success in liberalizing trade over the past few decades.

The importance of this process to Dean’s point is that U.S. trade negotiators generally don’t go into a trade negotiation offering up market opening. Rather, they respond to demands from the other side.

With this in mind, turning to the medical sector, the question is, are foreign governments demanding that the U.S. government liberalize its process for allowing foreign doctors to work here, and are U.S. trade negotiators resisting? 

The Border Wall Cannot Pay for Itself

Recent budget talks between the White House and Congress shows that President Trump puts a high value on funding the construction of a border wall. Crucial to this debate is how much a border wall will cost to construct and maintain. Center for Immigration Studies (CIS) published a brief report purporting to show that building a wall along the southern border would pay for itself if it keeps out only 160,000 to 200,000 border crossers over the next decade. That means the border wall would only have to deter about 9 to 12 percent of all illegal border crossers who would have successfully made it into the United States during that period. The report uses a variety of assumptions that unrealistically lower the cost of the wall as well as inflate the fiscal cost of border crossers.

We used more recent and precise data to update CIS’s analysis without altering its methodology. Simply using newer numbers—with no changes to the report’s unrealistic underlying assumptions—proves that the border wall cannot pay for itself. Despite fanciful promises to the contrary, a border wall is too expensive and will deter too few illegal immigrants to pay for itself—even under assumptions that are extremely generous to those who support a wall.

Updating CIS’ Analysis

The first update was to factor in a more recent estimate of the cost of a border wall. The CIS study chose to rely on a statement made by Senator Majority Leader Mitch McConnell (R-KY) rather than any actual cost estimate. We used an official estimate from the Department of Homeland Security (DHS) issued after the majority leader’s comment. This placed the cost of building a 1,250-mile border wall at $21.6 billion, or $17,280,000 per mile, that includes all costs such as the condemnation of private property through eminent domain. We also include the yearly maintenance costs. 

The second is that we adjust CIS’ fiscal cost estimate by controlling for the age of the border crossers. The National Academy of Sciences (NAS) fiscal cost estimates show that the immigrant age of arrival is vital for estimating their fiscal impact. CIS used the 2010 education level of Mexican illegal immigrants as a proxy for the education level of all future border crossers. We used the March CPS to adjust for this by assuming that the education of future illegal immigrants will be more similar to those arriving in 2015 than 2010. We further divided up the illegal border crossers by age and education to get a more accurate view of their potential fiscal impact. 

Will Republicans Expand ObamaCare?

Back when the GOP was selecting its nominee for president last year, I warned my Republican friends that on ObamaCare, Donald Trump might be worse than Hillary Clinton:

Good ol’ partisanship would stop Hillary Clinton from expanding ObamaCare even a little. A faux opponent like Trump could co-opt congressional Republicans to expand it a lot.

I even quipped that a President Trump might sell out ObamaCare opponents for 10 feet of border wall.

It looks like my prediction was eerily accurate. Even as the House Republican leadership and President Trump claim they are moving legislation that would repeal and replace ObamaCare (it wouldn’t), Trump is offering to expand ObamaCare in return for Democratic cooperation in funding a new border wall.

ObamaCare requires participating insurers to offer more comprehensive coverage to low-income enrollees, with the understanding that Congress would compensate insurers for that added cost. The thing is, the Democratic Congress and president that enacted ObamaCare never appropriated funding for those so-called cost-sharing subsidies. President Obama initially recognized the lack of an appropriation, but then began issuing those subsidies anyway–because ObamaCare would have collapsed if he hadn’t.

By that time, Republicans had taken over the House of Representatives, and they sued the Obama administration in federal court for encroaching on Congress’ power of the purse by spending federal funds without an explicit appropriation. A federal judge sided with the House. She ruled that paying those cost-sharing subsidies “violates the Constitution,” and ordered that they stop, pending an appeal, which the Obama administration timely filed.

That was the state of play when President Trump took office. His administration now has three choices.

  1. It can declare that it agrees with the court’s ruling and enforce the court order. This would mean ending the illegal payments that are the only reason ObamaCare is still on the books. If Trump ends those illegal subsidies, it is likely that even more insurers will announce they are leaving the Exchanges. As I have written elsewhere, taking this step would create even more pressure on Congress to repeal ObamaCare, particularly the law’s community-rating price controls that are causing health insurance markets to collapse.
  2. It can appeal the lower court’s ruling. This is the strategy the Obama administration pursued. It would be an awkward step given that Trump’s attorney general Jeff Sessions and Secretary of Health and Human Services Tom Price have each stated they believe these payments are unconstitutional.
  3. It can ask Congress to appropriate the subsidies. This may be the most politically awkward option of all. It would mean the first legislative change that congressional Republicans and the Trump administration make to ObamaCare would not be to repeal it, but to expand it. Funding cost-sharing subsidies would mean Republicans would be providing more money for ObamaCare than a Democratic Congress did at the height of its power.

According to Reuters, the Trump administration has chosen option #3:

President Donald Trump put pressure on Democrats on Sunday as U.S. lawmakers worked to avoid a government shutdown, saying Obamacare would die without a cash infusion the White House has offered in exchange for their agreement to fund his border wall…

Spending legislation will require Democratic support to clear the Senate, and the White House says it has offered to include $7 billion in Obamacare subsidies to help low-income Americans pay for health insurance, if Democrats accept funding for the wall.

Don’t Compel Doctors to Promote State-Favored Programs

Like all states, California has licensed medical centers of every kind. One particular type, often known as a “crisis pregnancy center,” provides pregnancy-related services with the goal of helping women to make choices other than abortion. Based on opposition to these centers, the California legislature enacted a law requiring licensed clinics “whose primary purpose is providing family planning or pregnancy-related services” to deliver to each of their clients the following message: “California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women.” But the law also creates an exception for clinics that actually enroll clients in these programs—so, in effect, it applies only to clinics that oppose the very program they must advertise.

Several of these crisis pregnancy centers sued to block the law, arguing that it violated their First Amendment rights by forcing them to express a message to which they are opposed. But the U.S. Court of Appeals for the Ninth Circuit upheld the law, holding that it regulates only “professional speech” and therefore should be reviewed under a more deferential standard, rather than the normal strict judicial scrutiny that applies to laws compelling speech. The centers have petitioned the Supreme Court to review their case; Cato has filed a brief supporting that petition.

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