Archives: 05/2018

The U.S. Starts a Trade War—With Its Allies

The temporary exemptions to the Section 232 tariffs on steel and aluminum granted to Canada, Mexico and the European Union (EU) expire at midnight tonight, and the Trump administration has announced that it will now impose these tariffs. This action makes clear that in addition to flouting the rules based trading system the United States itself established, the Trump administration makes no distinction between foes and allies.

The EU announced its retaliation list earlier, with a 25% duty on 182 products. Today, Canada responded with an announcement that it would levy tariffs of its own, amounting to $16.6 billion. That figure includes a list of 127 potential products for retaliation, from steel and aluminum, to household products like yogourt, coffee, tomato ketchup, and toilet paper, which will face a 25% or 10% surtax. Retaliation won’t take place until July 1st, giving Canada some time to refine this list in the meantime. Mexico announced that it would also seek to impose equivalent measures on items such as steel, lamps, pork legs and shoulders, sausages and food preparations, apples, grapes, blueberries, and various cheeses, among others. Both countries have stated that their countermeasures would stay in place until the U.S. lifts its tariffs. 

Prime Minister Justin Trudeau was firm in calling the 232 tariffs “unacceptable,” going on to say that, “Canada will also challenge these illegal & counterproductive measures under NAFTA Chapter 20 and at the WTO. It is simply ridiculous to view any trade with Canada as a national security threat to the US and we will continue to stand up for Canadian workers & Canadian businesses.” Ridiculous is about right. It is also hard to see how the Trump administration would imagine any other type of response from its allies, whose patience they have surely tested. However, it’s worth remembering that Trump’s team appears to view reality through a rather distorted lens, and somehow thinks these tactics will produce results for the United States.

As a case in point, Commerce Secretary Wilbur Ross suggested that the imposition of tariffs should not prevent negotiations, citing China as an example. Surely, one would hope that the Commerce Secretary knows the difference between imposing tariffs on China as opposed to U.S. allies, but unfortunately, that does not seem to be the case. (As my colleagues and I have mentioned elsewhere, he doesn’t even seem to know the meaning of reciprocity or comparative advantage). In fact, what this episode reveals, in addition to the last year of trade policy uncertainty, is that the United States can no longer be trusted to negotiate in good faith. While Trump might think that keeping people on their toes and wondering “will he” or “won’t he” is somehow a viable strategy, this approach is likely to backfire in the long-run. 

For one thing, imposing tariffs on Canada and Mexico while negotiations on a new North American Free Trade Agreement (NAFTA) are ongoing is reckless. The three countries seemed to be getting very close to a deal this month, but this action may serve to further intensify discord among them. If delivering a truly modernized NAFTA that can better serve the American people was his goal, this strategy will likely do the opposite. Furthermore, our transatlantic partners are even less likely entertain negotiations, especially if they are approached, as French President Emmanuel Macron stated in March, “with a gun to our heads.” 

Yes, it’s true that the impact of the tariffs– even if our closest allies do impose retaliatory measures– may not be felt throughout the entire economy, making it seem like raising tariffs is no big deal. However, the tariffs and the countermeasures will inflict wounds on consumers, businesses, and on specific U.S. exporters, and lead our closest trading partners to look elsewhere for the things they want to buy, and enter negotiations with countries that do so in good faith. “Art of the Deal”? More like “How to Lose Friends and Alienate People.”

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Steel Yourself as Trump Cuts Off Trade to Spite His Face

Various news outlets are reporting that, at midnight tonight, special U.S. tariffs on imports of steel and aluminum from Canada, Mexico, and the European Union will go into effect. This action stems (incongruously and capriciously) from two nearly yearlong investigations conducted by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962, which found that imports of steel and aluminum “threaten to impair the national security” of the United States. This seldom used statute gives the president broad discretion both to define what constitutes a national security threat and to prescribe a course to mitigate the threat. On both counts, President Trump has abused that discretion.

In March, the president announced his intention to impose duties of 25 percent on steel imports and 10 percent on aluminum imports from all countries. But temporary exemptions were granted to some countries in an effort to extort commitments from them to do their part to reduce the U.S. trade deficit (by selling us less stuff and buying from us more stuff) or to agree to U.S. demands in ongoing trade negotiations (South Korea, Canada, Mexico). The Koreans succeeded by agreeing to limits on their steel exports and by upping the percentage of US-made automobiles that can be sold in Korea without meeting all of the local environmental standards. Ah, free trade…

Apparently, the Europeans, Canadians, and Mexicans haven’t bent sufficiently to Trump’s will, therefore those countries—those steadfast allies—constitute threats to U.S. national security and will no longer be exempt from the tariffs, which means that U.S. industries that rely on steel and aluminum (imported or domestic) will be hit with substantial taxes to mitigate that threat. Got it?

This announcement comes on the heels of one made earlier this week regarding the “trade war” with China, which is back on 10 days after Treasury Secretary Steve Mnuchin declared it to be “put on hold.” (I guess it was just a rain delay.) On June 15, the administration will publish the final list of Chinese products—about 1,300 products valued at about $50 billion—that will be hit with 25 percent duties. The Chinese government has published its own list of U.S. exports that will be hit with retaliatory duties in China.

So, as has been the case every day for the past 16+ months, the U.S. and global economies (even as they’ve strengthened) remain exposed to the whims of an unorthodox president who precariously steers policy from one extreme to the other, keeping us in a perpetual state of uncertainty. With the Europeans, Canadians, Mexicans, and Chinese all preparing to retaliate in response to these precipitous U.S. actions, at the stroke of midnight we may finally get the certainty of the beginning of a deleterious trade war.

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Municipal Climate Suits and Lawsuit Diplomacy

In a recent Cato Daily Podcast with Caleb Brown, Cato adjunct scholar Andrew Grossman of Baker & Hostetler discusses the “legally aggressive” new round of climate change litigation, in which municipalities in California and Colorado, as well as New York City, have sued energy producers and distributors seeking to recover damages over the release of carbon dioxide into the atmosphere.

As Grossman notes, the idea of suing over the role of carbon emissions in climate change has by this point been tried many times. The most obvious approach would be to sue large industrial emitters of carbon, which is what some state governments did in one of the most prominent cases, filed against electric utilities. In its 2011 AEP v. Connecticut decision, however, the Supreme Court ruled that such outputs were regulated comprehensively and exclusively at the federal level through enactments like the Clean Air Act, and were not subject to an additional level of state regulation through public nuisance claims. Suits on other theories, such as Comer v. Murphy Oil from the Fifth Circuit and the Kivalina case in the Northern District of California, have been launched “to enormous bombast and press attention and they have all bombed out…. Those cases were the low-hanging fruit. Those were the more obvious legal theories if you were going to try to bring this kind of case,” he says.

Now the question is whether litigants can accomplish an end run by instead attacking upstream, pre-emissions activity, specifically the extraction and distribution of fossil fuels destined to be burned. Ambitiously, some of the new suits attempt to apply state common law to activities occurring around the world – to the doings of worldwide corporations such as Royal Dutch-Shell, for example, and to oil production from places like the coast of Norway and its subsequent use by European motorists. Needless to say, many of these processes are comprehensively regulated by the laws of the European Union and its member countries. Doctrinally, then, the new efforts get into even deeper water (so to speak) than strictly domestic claims. From the podcast:

If a court in California is going to go around telling Norway what to do, well, gosh, Norway may not really like that. And what do you do in that instance? It’s not apparent to me how this works. How does the court figure out what Norway’s regulations are and what Norway is doing about this? Who’s going to tell them? I don’t know. What if Norway disagrees with whatever it is that the court decides needs to be done in this case? Does Norway complain to the court? Do they send an ambassador to file a brief or something? I don’t know. This has never happened before. And what if Norway decides that they don’t like whatever it is the court is doing and they’re going to impose, say, reciprocal trade tariffs, or something like that, against the United States on the basis of one of these rulings? Does the court hold them in contempt?

Listen to the whole thing here.

A Right To Try — But for How Many? And For How Long?

President Trump has signed legislation restoring the right of some terminally ill patients to determine the course of their medical treatment. This “right to try” law builds on legislation enacted by dozens of states. The federal right-to-try law is an important victory for patients and individual liberty. But I worry these gains will not last. Here’s why.

Patients have a fundamental human right to choose their course of medical treatment. But how are patients to know which treatments work and which are just snake oil? The U.S. Congress attempts to solve this problem by empowering the U.S. Food and Drug Administration (FDA) to block drugs from the market until the manufacturers demonstrate, to the FDA’s satisfaction, that the drug is safe and effective for its intended use. At a glance, this seems a reasonable approach to keeping patients safe. In practice, it has been a disaster. 

There are lots of problems with this model of certifying drug safety and efficacy. First, it routinely violates the fundamental human right of all patients to choose the course of their medical treatment. If the FDA blocks the drug you want from the market, or requires so much testing that you cannot afford it, or erects such high regulatory barriers that no one develops the drug you need, the government has violated your fundamental human right to choose your medical treatment.

Second, the FDA faces information asymmetries that make that first problem even worse, as well as result in unnecessary morbidity and mortality. Any government agency charged with keeping drugs off the market until it is convinced they are safe and effective will get a flood of information about its Type I errorsi.e., the harms it causes by approving drugs that end up harming patients. But it will receive far less information about its Type II errorsthe harms it causes by delaying the approval or blocking the development of helpful drugs. This is only natural: it is far easier to identify patients who were harmed by a drug they did use than patients who were not helped by a drug they didn’t use. The latter patients might not even know a beneficial drug exists because it hasn’t been approved yet. Indeed, the drug might not exist, because the FDA made its development uneconomical.

As a result, the FDA focuses almost exclusively on minimizing Type I errors. It does so by requiring manufacturers to conduct expensive and time-consuming clinical trials, so it can more often prevent harmful drugs from going to market. The agency requires more safety and efficacy testing before approving a drug than it would if it had complete information about both types of error. It requires all that additional testing even though doing so results in more harm from Type II errors than the additional testing prevents by eliminating Type I errors. The result is that the FDA’s approval process becomes costlier and longer, and violates the rights of more and more patients.

This next part is crucial. The public, media, and policymakers also receive far more information about the FDA’s Type I errors than its Type II errors, and therefore complain about the former far more than the latter. What this means is: the political forces that determine how the FDA operates reinforce the agency’s bias toward demanding more testing and more-often violating patients’ rights. We can think of the FDA’s standard operating procedure of minimizing Type I errors at the expense of more (and more costly) Type II errors as a kind of political equilibrium created by the information asymmetry the agency and those who control it face with respect to these two types of error. 

So while it is wonderful that President Trump has restored the right of some terminally ill patients to access drugs the FDA has not yet approved, I worry these gains will not last. This legislation does nothing to correct the information asymmetry faced by those who determine whether and when new therapies can reach patients. Inevitably, some drug accessed through this legislation will hurt some patients. When that happens, the same cast of charactersthe FDA, Congress, the media, and the publicwill all focus on those easily identifiable Type I errors. They will demand reforms that prevent further Type I errors. But because they cannot see the even greater Type II errors those reforms will cause, patients will end up both less safe and less free. The pendulum will swing back to the current political equilibrium. 

The only way to protect patient rights and to strike an appropriate balance between Type I and Type II errors is through fundamentaland I mean fundamentalreform of safety and efficacy certification for medical technologies. Read more here.

Coming Soon to a Los Angeles Times Corrections Box Near You

Correction: The article “Trump’s New Insurance Rules Are Panned by Nearly Every Healthcare Group that Submitted Formal Comments” claimed the Trump administration proposes allowing short-term health insurance plans “to turn away sick people.” In fact, federal law already allows short-term plans to turn away sick people, and to our knowledge not even opponents of the administration’s actual proposal have proposed changing that feature. We regret the error.

The article claimed the Trump administration’s short-term plans proposal would weaken consumer protections. In fact, the proposal would strengthen consumer protections by allowing short-term plans to shield enrollees who fall ill from medical underwriting—a consumer protection the Obama administration prohibited these plans from offering. We regret the error.

The article described groups that advocate forced health care subsidies as “patient and consumer advocates,” but withheld that designation from patient and consumer advocates who oppose forced health care subsidies. We regret allowing ideology to creep into our reporting.

Finally (we hope), the article identified the financial interests of groups supporting the Trump administration’s proposals, but not the financial interests of groups opposing them. We regret our failure to follow the money.

Mortgage Interest Deduction Reform Worked; Sky Isn’t Falling

Last year, Republican legislators stood up to the behemoth of housing lobbying groups which exert heavy pressure on the public process by curtailing the so-called third rail of tax policy, the mortgage interest deduction.

Last week’s Joint Committee on Taxation (JCT) tax expenditure estimates are a reminder last year’s tax reform effectively reduced the deduction. According to JCT, the mortgage interest deduction will decline 38 percent this year. By 2019 the deduction will fall almost 50 percent from its 2017 levels.

The reformed deduction applies to $750K in mortgage debt for loans. This is a change from its former configuration, where the deduction applied to $1.1 million in mortgage debt. The act grandfathers in existing homeowners who bought under the assumption they would be able to use the deduction before mid-December. 

Though industry lobbyists predicted the sky would fall, it hasn’t happened. That’s unsurprising if you follow economic research on the mortgage interest deduction.

For one thing, research suggests the mortgage interest deduction has no impact on homeownership rates. Last year Nobel Prize-winning economist and co-founder of the Case-Shiller housing index Robert Shiller argued capping the deduction would have a “rather small effect” on homeownership rates and the housing market.

Indeed, since tax reform U.S. homeownership rates have stayed flat and the number of houses sold this year is greater than the number sold during the same season last year. Meanwhile, “home-price growth showed no sign of slowing down” despite predictions by some economists home prices would fall as a result of reform. It makes sense housing market indicators haven’t changed, given very few homes are sold in excess of $750K and housing supply is tight even at the top of the market.

The sky isn’t falling, and JCT estimates show the mortgage interest deduction is on its way out. That’s good news for the housing market and prospective homeowners.

The AMA Gets it Right by Defending Evidence-Based Medicine and Patient, Physician Autonomy

Gun control advocates like to accuse legislators of being “afraid of the NRA,” implying that reason and principle have nothing to do with their legislative decisions. In the same way, Jackie Kucinich, in a column in The Daily Beast, suggests that the failure of Congress to pass CARA 2.0 (Comprehensive Addiction and Recovery Act) is due primarily to the lobbying clout of the American Medical Association, pointing to its status as the “seventh highest lobbying spender in 2017.”  

The article quotes opioid reform advocate Gary Mendell as saying “the AMA will resist anything that regulates healthcare”—an interesting opinion about an organization that supported passage of the Affordable Care Act, one of the deepest regulatory intrusions into American health care in half a century. Over the years, the AMA’s seeming reluctance to mount a principled defense of patient autonomy and freedom of choice in healthcare—perhaps fearing it may jeopardize the cartel it lobbied so hard to establish over the past century and a half—has led to an exodus of many disillusioned members. It is estimated that less than 17 percent of the country’s doctors belong to the special interest group today.

But on this one, the AMA gets it right. It opposes the “one-size-fits-all” imposition of the 2016 opioid prescribing guidelines issued by the Centers for Disease Control and Prevention; guidelines that many noted addiction medicine specialists have criticized as not-evidence based. The AMA maintains the CDC expressly meant for its guidelines to be suggestive “rather than prescriptive.” Other scholars have pointed out that the CDC’s suggestions were based upon “Type 4 evidence,” defined as evidence in which “one has very little confidence in the effect estimate, and the true effect is likely to be substantially different from the estimate of the effect.”  The AMA emphasizes the guideline’s statement, “Clinical decision making should be based on a relationship between the clinician and patient, and an understanding of the patient’s clinical situation, functioning and life context.”

When health care providers read and interpret these guidelines, they understand them to be informational, nonbinding, and inconclusive. But that’s not how politicians “do science.”

There is no evidence that prescription limits reduce overdose deaths. In fact, as the prescription rate has dropped dramatically since its peak in 2010, overdose rates are in turn rising

Kucinich seems to agree with the politicians who interpret the CDC guidelines as implying that a more than 3-day supply of prescription opioids is a major force behind addiction. But that is not a precise and critical reading of the guidelines. In fact, as Dr. Nora Volkow, Director of the National Institute on Drug Abuse pointed out in a 2016 New England Journal of Medicine article, “Addiction occurs in only a small percentage of persons who are exposed to opioids — even among those with preexisting vulnerabilities.” Cochrane systematic studies in 2010 and 2012 show a roughly 1 percent incidence of addiction in chronic non-cancer pain patients, and a January 2018 study of 568,000 “opioid naïve” patients given prescriptions for acute post-surgical pain found a “total misuse” rate of 0.6 percent. 

The AMA is actually a little late to the party. Numerous other specialists in the management of pain and addiction have criticized for months the tendency of politicians to codify the recommendations of the CDC. Even the Food and Drug Administration Commissioner, Scott Gottlieb, has expressed concerns. Announcing plans to hold a public meeting on July 9 on “Patient-Focused Drug Development for Chronic Pain,” Dr. Gottlieb set forth “the goal of providing standards that could inform the development of evidence based guidelines.”  

The article quotes Sen. Joe Manchin (D-WV) accusing his colleagues of being “too scared to take on the AMA.” My hope is that they may be finally responding to evidence and accounts from health care practitioners and patients who have spent months appealing to reason over dogma.

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