The Constitution guarantees the right to engage in commerce within the United States free from interstate trade wars through what’s known as the “dormant” Commerce Clause, which stops protectionist state regulations. Last year, the Supreme Court’s groundbreaking opinion in Tennessee Wine & Spirits Retailers Association v. Thomas reaffirmed this principle, holding Tennessee’s durational residency requirements for retail liquor licenses unconstitutional. (Cato filed a brief in that case and published an article on the ruling in the Cato Supreme Court Review.)
As the Court discussed, the residency requirements effectively prevented any publicly traded corporation from selling liquor at retail in Tennessee. These requirements created precisely the discriminatory effect on interstate commerce that the dormant Commerce Clause prohibits. Despite the clear ruling in Tennessee Wine, however, the U.S. Court of Appeals for the Fifth Circuit recently declined to invalidate a Texas law with the same effect.
Texas bans publicly traded companies from obtaining the “package store” permits (or “P permits”) required for retail liquor sales. At the same time, the ban has a grandfather clause exempting companies that had a P permit before the law went into effect. As a result, the only public corporations with a P permit are Texas companies who had met the old, unconstitutional residency requirement. Even without the grandfather clause, however, the public corporation ban has served its intended protectionist purpose: 98% of retail liquor stores in Texas are owned by Texans.
Walmart filed a lawsuit challenging the Texas law. The Fifth Circuit upheld the law, finding that it had no discriminatory effect on out‐of‐state businesses. In reaching this decision, the court ignored the grandfather clause and analyzed the remainder of the law under a highly formalistic test that is in clear tension with Tennessee Wine.
Walmart has now asked the Supreme Court to review the case, which petition Cato has supported with an amicus brief. We argue that the dormant Commerce Clause unquestionably guarantees the right to engage in the interstate alcohol trade free from discriminatory state regulations. The Texas law contradicts this central constitutional principle. The ban on public corporations owning retail liquor stores does exactly what it’s supposed to do: shield Texas companies from out‐of‐state competition. Moreover, by granting an exemption to in‐state companies that is unavailable to out‐of‐state companies, the grandfather clause blatantly favors in‐state businesses.
Between its refusal to engage with the implications of the grandfather clause, its highly formalistic analysis of the discriminatory effects of the law, and its disregard for Tennessee Wine, the Fifth Circuit’s approach treats the constitutional guarantee of free interstate commerce as dead letter. Even a moderately talented legislator could craft a protectionist law that appeared sufficiently neutral to pass constitutional muster in the Fifth Circuit.
The Supreme Court should thus hear Wal‐Mart Stores v. Texas Alcoholic Beverage Commission, reaffirm the strong dormant Commerce Clause principles of Tennessee Wine, and open up the liquor trade in Texas.
The unfortunate onset of COVID-19 has caused many politicians and pundits to proclaim that the United States is distressingly dependent on China for essential medical goods, and to ask whether this “dependence” demands new government programs—in particular, protectionism, subsidies and “Buy American” procurement mandates—to fix the alleged problem. A little‐noticed report from United States International Trade Commission (ITC) begins to provide the answer to that question, though probably not the answer those same politicians and pundits were expecting.
The June 2020 ITC report on “tariff and trade information for known products related to the response to COVID-19” substantially expands and updates an April report on the same issues. It now covers 203 medical products at the highest level of detail provided in U.S. customs data (the 10‐digit level of the Harmonized Tariff System of the United States (“HTSUS”)) in six broad categories: (1) COVID-19 test kits/testing instruments; (2) Disinfectants and sterilization products; (3) Medical imaging, diagnostic, oxygen therapy, pulse oximeters, and other equipment; (4) Medicines (pharmaceuticals); (5) Non‐PPE medical consumables and hospital supplies; (6) Personal protective equipment (PPE); and (7) Other.
The ITC report is useful in several respects. For one thing, it documents the many tariffs that the United States now imposes on these essential imports, thus needlessly reducing supply and increasing prices at the worst possible time.
The ITC report also provides the top 5 foreign sources of these “COVID-19” goods in the United States, and in so doing eviscerates the all‐too‐common claim that the U.S. market is utterly dependent on China for essential medical goods. In fact, after crunching the numbers for 2019 (full dataset available here), we see that:
- For a majority (103 of 203) of the COVID-19 products in the ITC report, China was an insignificant supplier, representing between 0% and 10% of all imports of such goods in 2019.
- For only 32 the 203 items analyzed, did China supply more than half of all imports. (See Table below.) That number keeps dropping as China’s import share increases, with China truly dominating (having, say, more than an 80% import share) only nine import categories – mostly low‐cost PPE like rubber gloves and hospital gowns. As the table shows, moreover, only six (bold italics) of these China‐majority products are pharmaceuticals or pharmaceutical inputs – what our elected officials seem most worried about:
- Speaking of pharmaceutical goods (found mainly in HTSUS Chapters 29 and 30), the ITC report further shows that China is simply one of many suppliers of these goods, and certainly not a dominant one for almost all of the products at issue. In fact, China was not even a top 5 import source for 34 of 63 pharmaceutical goods on the ITC’s list, and it was only the top foreign supplier for nine of those products (only a few of which could, as noted above, be considered to have a dominant China import share in 2019). At the same time, India—another frequent target of D.C. supply chain anxiety—was a majority foreign supplier of only one of these pharmaceutical products (with 72.7% of all imported “Anticonvulsants” under HTSUS 3004.49.0020 in 2019), and had greater than 25% import share for only five others.
- Overall, the ITC data for imports of pharmaceuticals and all other COVID-19 goods show a wide variety of foreign sources, mostly from allies like Canada, Mexico, Japan, Brazil and the EU — with relatively few items truly dominated by a single country. (Only 21 of 203 products overall had a supplier country with over 80% import share in 2019; only 91 of the products even had a supplier country with a bare majority.)
The ITC report thus reveals that, far from suffering some sort of major “dependence” crisis that demands an immediate, wide‐ranging overhaul of the U.S. manufacturing sector and U.S. trade and procurement policies, the United States generally imports essential medical goods from a diverse (and ever‐changing) group of foreign suppliers, and that—at most—there are only a handful of these products (from China or elsewhere) which are so dominated by a single country that they might require the federal government’s attention.
The key word here, of course, is “might” because even products with highly concentrated import shares don’t necessarily demand new government action. As I explained recently in National Review, import shares alone (which is all the ITC examined) can’t tell us how “dependent” the United States actually is on the foreign source country at issue:
[I]solated import‐share figures tell us very little about actual “vulnerabilities,” because they omit domestic production and local inventories. According to a new study from the St. Louis Federal Reserve, China supplied almost 30 percent of all imported “essential medical equipment” (hand sanitizer, masks, personal protective equipment, ventilators, etc.) in 2018 but accounted for only 9 percent of total domestic consumption because American producers supplied the vast majority (more than 70 percent) of these products….
At the same time, we have massive stockpiles of other critical drugs to prepare for crisis‐related spikes in demand.
Import share figures might also hide other global producers that have substantial capacity but simply didn’t sell to the United States during the period at issue (e.g., due to long‐term contracts or geographic considerations), and they don’t tell us about the availability of similar or alternative products (e.g., a different type of antibiotic) in the marketplace or about key inputs or intermediaries in the manufacturing process. Furthermore, all of these figures will need to be updated to account for massive recent changes in the U.S. and global markets for these goods, as manufacturers around the world expanded capacity or adapted their operations to meet the COVID-19 challenge.
Finally, even a complete dataset of U.S. and global medical goods production and trade won’t answer more fundamental questions about trade, manufacturing, supply chain “resiliency,” national security, and the proper role of the federal government in addressing these issues – the topic of a new Cato Institute paper on which I’m now working.
Nevertheless, the ITC report is a good starting point for these discussions, as it shows the relatively few COVID-19 products for which more detailed information—on domestic and global production, supply chains, U.S. inventories and stockpiles, etc.—may be needed to advise on optimal U.S. “supply chain” policies going forward. Right now, those additional data are limited to non‐existent, but they should be improved by a forthcoming report from the National Academies of Sciences, Engineering and Medicine that was commissioned by the CARES Act.
In the meantime, the ITC’s new report should quell policymakers’ immediate concerns that urgent and major government action is needed to fix America’s medical goods “dependency” problem. Judging from recent Trump administration actions and proposals from the Biden campaign and Congress, however, nobody seems to have read it.
Economists Paolo Giuliano and Marco Tabellini wrote new working paper titled “The Seeds of Ideology: Historical Immigration and Political Preferences in the United States.” Helen Andrews at the American Conservative summarizes the paper here with a blog titled: “How Early Immigration Shifted Our Politics Permanently To The Left.” The paper’s authors use a shift-share instrument to see how European immigrants in the early 20th century affected public support for the Democratic Party and redistribution on the county level during the 2006-2018 period. They found that more European immigrants in the past led to more support for the Democratic Party and for redistribution on the country level today.
This new working paper complements Tabellini’s earlier paper in the Review of Economic Studies where he found that European immigrant populations on the city level, especially if they were from Eastern and Southern Europe, resulted in lower municipal tax rates, less tax revenue, and less government supply of services during the 1910 to 1930 period. According to this earlier paper, a one-standard deviation increase in the immigrant population (about five percentage points) reduced per capita government spending by 5 percent and property tax rates by 7.5 percent on the city level. This is especially important back then because most government services were supplied locally.
Looking at the papers together presents the full picture. Giuliano and Tabellini wrote:
While there is no statistically significant relationship between the 1910-1930 fraction of immigrants and the Democratic vote share until 1924 (included), the coefficient abruptly spikes in 1928, when it becomes strongly positive and highly statistically significant.
We posit that 1928 was the first national election when immigrant-heavy counties swung to support Democrats because it was the first national election after the National Origins Quota Act permanently cut legal immigration from Europe (the Emergency Quota Act of 1921 limited immigration, but many thought it was a temporary post-war emergency measure). Closing the border removed the politically-effective counter-argument that more welfare would attract immigrants who will take advantage of new government programs. Closing the border thus freed both natives and immigrants to vote for more welfare without the fear that immigrants would come from Europe to consume the new benefits. A relatively open immigration system reduced support for redistribution and big government, but the removal of that political check resulted in increased public support for those programs.
Tabellini’s two papers are not contradictory, but the second seems like a very serious challenge to the research we’ve conducted on how immigrants don’t increase the size of government (not Tabellini’s goal, by the way). However, the two papers are perfectly consistent with the theory that Powell and Nowrasteh lay out in their forthcoming book: Government doesn’t grow as fast when the borders are open and government grows more when the borders are closed.Read the rest of this post »
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress appropriated $454 billion to the Treasury's Exchange Stabilization Fund (ESF) to backstop emergency lending facilities known as "special purpose vehicles" (SPVs). With the Treasury backstop, the Fed has the potential to lend a maximum of $4.5 trillion to fund the SPVs, which hold the assets off the Fed's balance sheet—including emergency lending to corporations, small and medium-sized businesses, municipalities, and states (see Torres). In April, the Fed announced plans to lend nine SPVs up to $2.3 trillion to boost the economy (see Timiraos and Fed's Press Release). However, the Fed has only provided about 6 percent of that amount (see Cox). All of the SPVs have now been activated (see Condon).
Although the Fed's new lending powers were intended to counter the U.S. economic collapse following the government-ordered lockdown to combat the pandemic, they risk giving the Fed a permanent footprint in private credit markets. In this article, I focus on the consequences of the Fed's entry into the corporate credit market, with the establishment of the Primary and Secondary Market Corporate Credit Facilities (CCFs).
The Primary Market CCF, which opened on June 29, is designed to buy newly issued bonds, while the Secondary Market CCF began buying ETFs specializing in corporate debt on May 12 and began purchasing individual corporate bonds (including both investment-grade and high-yield bonds) after June 15. The later are "fallen angels"—that is, bonds of firms that were investment grade prior to March 23, but are now rated as junk bonds. The Primary Market CCF is backed by $50 billion from the Treasury's ESF, while the Secondary Market CCF is backed by $25 billion. As of June 24, the Secondary Market CCF's asset purchases only amounted to $8.7 billion (see Condon). The following section examines the objectives and operation of the Secondary Market CCF; the Primary Market CCP has yet to buy any bonds.Read the rest of this post »
Last week, Immigration and Customs Enforcement (ICE) announced a new policy that creates a catch‐22 for U.S. universities and international students. ICE will terminate the status of any foreign student in the United States enrolled at a U.S. university without any in‐person classes or, conversely, force foreign students abroad to attend classes in‐person if any are offered or terminate the validity of their student status at their U.S. universities.
U.S. universities have condemned the policy as endangering their students and the schools’ financial wellbeing. Harvard University and Massachusetts Institute of Technology (MIT) filed a lawsuit to stop implementation of the policy, which a judge will rule on July 15. ICE has still not provided much explanation of the policy or given any specific justifications for it, making it difficult to understand.
What was the pre‐pandemic policy for online study?
The law requires all international students on F-1 student visas to be enrolled in a “full course of study” at a U.S. school. The regulations require “at least twelve semester or quarter hours of instruction per academic term” for undergraduate foreign students. ICE’s pre‐pandemic rule for online learning—which dates to December 2002 and has never been rescinded—allows students to fulfill this requirement through at most one (3 credit) online course that “does not require the student’s physical attendance for classes” (8 C.F.R. 214.2(f)(6)(i)(G)). In other words, online classes may not make up more than 1/4 of the total required courses.
What pandemic policy did ICE initially adopt for online study?
On March 13, 2020, ICE announced via a guidance document that “Given the extraordinary nature of the COVID-19 emergency,” it “will allow F-1 and/or M-1 students to temporarily count online classes towards a full course of study in excess of the limits stated in 8 CFR 214.2(f)(6)(i)(G)”. It stated, “This temporary provision is only in effect for the duration of the emergency”. However, the document contained the warning:
NOTE: Due to the fluid nature of this difficult situation, this guidance may be subject to change. SEVP will continue to monitor the COVID-19 situation and will adjust its guidance as needed.
On June 4, ICE wrote in a FAQ document for schools that ICE “is actively working to issue guidance” for the Fall 2020 semester, despite the existence of the earlier guidance that was not limited to the Spring 2020 semester.
What is ICE’s new policy for online study?
On July 6, ICE released a document stating that it plans to make formal regulations amending the pre‐pandemic regulation. It stated that the new regulations will state:
- “Students attending schools operating entirely online may not take a full online course load and remain in the United States,” but that “Students attending schools adopting a hybrid model—that is, a mixture of online and in person classes—will be allowed to take more than one class or three credit hours online.” The guidance threatens, “Active students currently in the United States enrolled in [online‐only] programs must depart the country … or potentially face immigration consequences including, but not limited to, the initiation of removal proceedings.”
- Schools will need to certify that “the program is not entirely online, that the student is not taking an entirely online course load for the fall 2020 semester, and that the student is taking the minimum number of online classes required to make normal progress in their degree program.” This requirement requires the universities to issue new I-20 Forms for about a million students within three weeks of July 6—in many cases without the students having signed up for classes yet.
- International students with F-1 status who left the United States in March will have to travel back if the college chooses to allow any in‐person classes. The document states, “Only students enrolled at a school that is only offering online coursework can engage in remote learning from their home country.” In other words, if colleges react to this guidance by adopting a “hybrid model” mixing in‐person and online classes, they will simultaneously force students abroad to travel here. Yet due to COVID-19 travel restrictions—both by the United States and their home nations—it may be impossible for these students to return. If they need to apply for a new visa, it will definitely be impossible because the State Department has stopped processing nearly all student visas. Under a separate regulation, losing status means that even they eventually can return, they would not be eligible for work authorization.
The guidance also states that it is not itself a “rule”—that is, a final formal determination of ICE’s actions—even while it purports to require schools to submit education plans by July 15. DHS Acting Deputy Assistant Secretary Ken Cuccinelli told CNN that it would finalize it “later this month.”
How many courses must be in‐person?
ICE has not issued any actual detailed regulations, but its notice only prohibits “entirely online” students. DHS Acting Deputy Assistant Secretary Ken Cuccinelli told CNN that “the direction that has been charted here, that remains to be completely finalized… provides the opportunity to do anything short of 100 percent online classes.” This implies that any attendance in‐person for any amount of time (1 minute of 1 day in 1 class) would qualify as a “not online” class. It’s unclear how ICE will treat a policy such as that of Georgetown where students can choose to take any class online.
How many international students will the new policy affect?
According to ICE, it had records relating to nearly 1.6 million international students and exchange visitors. The Institute for International Education estimates that there were about 1.1 million undergraduate, graduate, and postgraduate students in the United States for the 2018–19 school year. All of them will have to plan on attending at least some classes this Fall.
How are universities affected?
All schools must decide by July 15 whether they will hold in‐person classes, despite the fact that final detailed ICE regulations explaining what constitutes “online” or “in‐person” are still not available. It’s unknown how many universities were planning entirely online schedules. Even if they were not, all U.S. universities may have to make accommodations for international students who had planned on not attending in‐person in the Fall. Many prominent colleges had stated that they were planning on “most” or nearly all classes being online. Georgetown University said that every in‐person class would allow students to attend virtually (adding “absent any regulatory restrictions which may apply to a limited number of international students”).
If students drop out of school—either because they are forced to leave or conversely because they are forced to come to the United States—that will impose an extreme cost on universities where foreign students almost always pay full tuition. Losing talented foreign students to other universities abroad will also undermine the long‐term reputation of U.S. universities, leading fewer foreign students to seek to study here (a trend that existed even before the pandemic under Trump).
How are students affected?
All students will have to leave the country within 60 days of their college’s notification that they will not be taking in‐person classes in the Fall. Setting aside the health risks, it will require hastily obtaining international flights. In many cases, students with off‐campus housing will have to break their leases, imposing additional economic hardships. If they are currently employed, they will have to quit their jobs. If students are abroad, and their schools reverse their decisions to go online only or mostly, students will be forced to travel to the United States, which is often impossible due to U.S. travel restrictions, or forfeit their student status.
Can international students transfer to colleges with in‐person instruction?
A few international students may be able to transfer, and ICE asserts that they can pursue that option, but as Harvard and MIT note in their lawsuit, “just weeks from the start of the fall semester, these students are largely unable to transfer to universities providing on‐campus instruction.”
Can international students enroll in online classes abroad?
Many foreign students have elected to take online only classes from their home countries, but ICE has not indicated that it will provide any leniency for students where this option may not be viable. The largest number of international students come from China where the internet is heavily censored, and many course materials or courses may not be available. Many countries lack reliable internet access. Even where reliable Internet is available, time differences will often make online courses extremely difficult to take in practice. At 3:30 pm in Massachusetts, it is after 1:00 am in New Delhi, India. Of course, if the students are forced to leave, it will become much more challenging for colleges to bring them back at a later date, especially if they transfer. If students are already abroad, the policy requires them to return home to retain their student status if the school offers any in‐person instruction, even if the college offers online instruction as well.
Why did ICE take this action?
ICE provides little explanation for its sudden reversal on online learning in its document. It only cites a “need to resume the carefully balanced protections implemented by federal regulations.” ICE doesn’t cite any examples of what it means by “protections.” (For whom? From what?) It also claims that the March 13 decision to waive the regulatory requirements was made “during the height of the Coronavirus Disease (COVID-19) crisis” (which is definitely not true). Despite these statements, DHS Acting Deputy Assistant Secretary Cuccinelli told CNN that the decision would “encourage schools to reopen.” Encouraging school to reopen has been a theme with the administration in recent weeks. This appears to be part of that larger effort.
Why do Harvard and MIT think the policy is illegal?
Harvard and MIT filed a lawsuit that asserts that the government violated the Administrative Procedure Act (APA) in amending its policy. The APA prohibits any policies that are, among other things, “arbitrary, capricious, an abuse of discretion … or otherwise not in accordance with law.” The colleges assert that under relevant court interpretations of the statute, the agency has acted arbitrarily and capriciously because it failed to:
- “consider an important aspect of the problem” (e.g. health, economic, and legal effects on students and universities and their reliance on the earlier guidance);
- “cogently explain why it has exercised its discretion in a given manner” (i.e. “it does not provide any reasoning”); and
- Issue a formal rule after notice and opportunity for public comment, as required for all actions “to implement, interpret, or prescribe law or policy”.
ICE asserts that it will issue a formal rule that could rectify these defects in the current guidance, according to DHS Acting Deputy Assistant Secretary Cuccinelli told CNN, within a month. But that means that the rule, as well as its notice and public comment, will come after the colleges will have already had to implement it. A judge stated that he will rule on the legality of the guidance by July 15.
Why is ICE in charge of student policy?
ICE is the immigration enforcement agency that is usually tasked with making arrests or issuing fines when people break the legal immigration rules set by other agencies, mainly U.S. Citizenship and Immigration Services (USCIS), so it’s strange that ICE is setting legal immigration policy for students.
The Immigration and Naturalization Service (INS) both made and enforced legal immigration regulations as part of the Department of Justice until 2003. In December 2002, INS finalized the rule that limited online classes. The Homeland Security Act of 2002, which created the Department Homeland Security (DHS), separated the functions into the USCIS and ICE. Section 442 of the law tasked ICE with the responsibility to “collect information relating to nonimmigrant foreign students.” Because INS had implemented this information collection authority jointly with its regulations of student visas just months earlier, DHS granted ICE authority over the entire student visa program, not just the information collection component.
Have you ever thought about how much the modern War on Drugs has affected our constitutional order? I don’t mean for policy purposes, but in terms of the scope of federal power and violation of a whole host of rights. So much of modern jurisprudence—and not just with respect to criminal procedure—is tied to drug‐interdiction and prosecution policies that began in the 1970s. As I write in the latest National Affairs,
Beyond the modern drug war’s legally dubious initiation, the strained legal interpretations and yawning exceptions officials have made to sustain the effort continue to warp our constitutional system. In prosecuting and expanding the war on drugs, the federal government has racked up colossal amounts of debt, fostered state protectionism, adopted countless new federal crimes, and invaded foreign countries without congressional authorization. Meanwhile, government actors at all levels have undermined Americans’ freedoms of expression and religious exercise, deprived citizens of their rights to vote and bear arms, authorized warrantless searches and seizures of property without due process, and thrown tens of thousands of people — disproportionately racial minorities — into overcrowded prisons for sentences that are out of step with the crimes they’ve committed. These actions have changed our understanding of such foundational principles as limited government, federalism, and the separation of powers, all while casting doubt on America’s commitment to the rule of law.
Read the whole thing.
“If you put the federal government in charge of the Sahara Desert,” the economist Milton Friedman once quipped, “in five years there’d be a shortage of sand.” The U.S. Mint, to its credit, had a much longer run.
The Federal Reserve, which purchases coins from the Mint and distributes them to depository institutions, announced it would begin rationing coins “based on historical order volume by coin denomination” last month as its coin inventory had been “reduced to below normal levels.” The Fed also called on the Mint to increase the supply. Until the shortage is resolved, however, retailers unable to acquire enough coins from banks are left requesting customers pay with a card or use exact change.
No doubt many find the idea of a coin shortage perplexing. Coins are not consumed; they get passed along from one person to another. In the US, the average coin circulates for around 30 years. How, then, can there suddenly be a shortage of coins? Where have they all gone?
Each year, some coins are lost, discarded, or worn beyond use. They get thrown in a well with a wish; or, dropped down a drain by mistake. To offset the outflow, and keep up with secular growth in demand, the Mint must produce new coins. It issued nearly 12 billion circulating coins in 2019.
Figure 1. Cumulative Mintages, Billions
So far, the Mint has not matched its 2019 pace. The global pandemic slowed production at the Denver and Philadelphia branches in March and April. By the beginning of May, the cumulative mintage—that is, the total number of circulating coins produced for the year—was just 4.02 billion, compared with 5.07 billion over the same period in 2019. Both facilities have been operating at full capacity since June 15, though, so that the gap has since fallen to less than 0.06 billion.
But the temporary shortfall in production is only a small part of the problem. A much bigger issue has been the limited extent to which coins have been circulating.Read the rest of this post »