February 2020

February 29, 2020 6:03PM

Peace in Afghanistan?

Regarding news that the United States and the Taliban had reached an agreement to withdraw U.S. forces from Afghanistan, I issued the following statement:

President Donald Trump campaigned on a platform of reining in America’s long and costly overseas military engagements. In office, however, he has mostly expanded these conflicts, including the war in Afghanistan. Now we may finally see if he can keep his promise. The peace deal signed earlier today is imperfect, but critics have long questioned the very premise of negotiations with the Taliban. It seems clear that they would have opposed any deal that didn’t leave U.S. troops in place indefinitely. President Trump should ignore these endless war advocates, and listen to the American people who realized long ago that the war is no longer vital to U.S. safety or prosperity. A full and expeditious withdrawal of all remaining U.S. military personnel from Afghanistan will allow the people there, who have been suffering under the scourge of war for over four decades, to fashion a durable political settlement, and allow Americans to focus on urgent problems here at home.

February 28, 2020 5:17PM

Less‐​Costly Ways to Reduce the Harm of COVID-19 without Travel‐​and‐​Immigration‐​Bans

The government exists to protect American citizens from threats to their lives, liberties, and property by supplying public goods that would not be supplied through the market or other voluntary means. In the sphere of immigration policy, this means preventing the travel of foreign-born terrorists, individuals who pose a national security threat, and criminals to the United States. Another category of people who should be barred is those with serious contagious diseases, as I’ve written before. The transmissions of the SARS-CoV-2/COVID-19 virus, which causes the Coronavirus Disease 2019 (COVID-19), makes this a pressing issue again.

In response to COVID-19, President Trump created minor travel restrictions and redirected flights, some Senators are calling to ban travel with China, and rumors of additional government actions all mean that we should consider less-costly alternatives to combat the transmission of the virus. Travel-and-immigration-bans are costly, what other options does the government have?

There is growing evidence that COVID-19’s case fatality rate (CFR) is substantially higher than the normal flu with deaths concentrated on the elderly and those with comorbidities. It’s important to note that the CFR is a fatality rate for those who contract COVID-19, not a fatality rate for the entire population. That’s not much of a relief as the fatality rate is high, but it does help us get a better picture of COVID-19’s threat to particular groups. For instance, COVID-19’s CFR is 2.3 percent according to recent evidence from Mainland China. The CFR for those aged 39 and younger is 0.21 percent, but it is 5.96 percent for those aged 60 and above. Protecting the elderly should thus be of prime concern as younger people, especially children, don’t appear to be much affected.

There are several different ways for policymakers to respond to COVID-19. A travel-and-immigration ban is an appropriate policy response if two conditions are met. First, the benefits of a travel-and-immigration-ban are greater than the costs of a travel ban. Second, there are no other less-costly options. This analysis will compare the breakeven point to show how many lives a travel-and-immigration-ban would have to save to make sense. It will then further compare the cost of those less-costly policies that will have big positive impacts.

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February 28, 2020 3:12PM

About Castro’s Literacy Boom

Presidential candidate Bernie Sanders got into hot water this week with his celebration of Cuban dictator Fidel Castro’s seemingly wonderful literacy efforts. Setting aside for a moment how Castro used literacy, let’s look at the stats.

Below is a chart of literacy rates in Cuba starting in 1900, with data from numerous sources. What you see is growing literacy in the relatively prosperous country until it flattens, and even dips, between 1950 and 1960. It is unclear why the dip occurred—maybe political instability, emigration, or war—but we then see a big spike between 1960 and 1962, which is presumably from Castro’s “year of education.” The rate, however, drops soon after the 96 percent that Castro claimed to hit (that figure is not apparently in data collections such as the CIA World Factbook and World Development Index) and the trajectory basically returns to what it was pre‐​revolution.

Literacy rates in Cuba, 1900 to 2015

What happened? Perhaps the spike was illusory, manufactured by the Castro regime to suggest grand progress. Or maybe many of the lessons didn’t stick after the big surge. Regardless, after the spike literacy growth more or less returned to its trajectory before the 1950s lull.

Are there broader lessons here?

It is, of course, in the interest of dictators to promote government education, which is a vehicle ideally suited to indoctrination. Widespread literacy is especially terrific if all that the people are allowed to read is what the government approves, which is exactly what we saw in Cuba.

That said, no matter what dictators—or other governments—do, there is abundant evidence that people want to learn how to read, and will seek out literacy on their own. Cubans were clearly pursuing literacy before Castro. Similarly, in colonial America and the early United States, literacy was widespread long before public schooling was: roughly 90 percent of white adults were literate by 1840. Of course, some governments in the United States forbid literacy for slaves, because in an otherwise free country reading was a gateway to demanding liberty.

There is no meaningful evidence that the spread of literacy in Cuba needed Castro. Indeed, we’d probably all be better off with no government control of education.

February 28, 2020 12:01PM

Canada Evaluates USMCA, Raises More Questions than Answers

This week, Canada released its own economic impact assessment of the new North American Free Trade Agreement (NAFTA), the United States‐​Mexico‐​Canada Agreement (USMCA), or as it’s referred to in Canada, CUSMA. Canada has yet to approve the deal in its parliament, while the United States and Mexico have already completed the ratification process. Canada is likely to approve the deal, and this assessment of its benefits will not make or break the process, but nevertheless warrants a close look, as it has broader implications for how we should think about evaluating the impact of trade agreements in the future.

A Numbers Game

Let’s start with the numbers. The economic impact assessment released by Global Affairs Canada (GAC) estimates that implementing USMCA “would secure GDP gains of $6.8 billion (US$5.1 billion), or 0.249%” over a 5 year period (p. 59). However, the report also notes that motor vehicle exports to the United States would decline by US$1.5 billion relative to the existing NAFTA. Why? The report cites the more stringent rules of origin (RoO) requirements of the USMCA as likely to lead to an increase in production costs.

Compare this to the U.S. International Trade Commission’s (USITC) report, which estimated gains for the U.S. economy at $68.2 billion, or a 0.35% increase in real GDP, over six years. Now, these figures are not directly comparable since they’re looking at the impact on their own respective countries, but the significant gap in reported gains is notable. It is worth pointing out that the USITC report also found a negative impact from the auto RoO.

A recently updated study by Dan Ciuriak, Ali Dadkhah, and Jingliang Xiao for the C.D. Howe Institute, a Canadian think tank, conducted an assessment of the USMCA, looking at the impact on all three economies. They found a negative impact on real GDP across all three NAFTA countries— a decline of -0.396% for Canada, -0.791% for Mexico, and -0.097% for the United States.

What gives? In making these assessments, the reports all rely on certain assumptions that impact the outcomes of their models. But two major issues stand out—what are the factors the studies rely on for their estimates, and what are they comparing the changes in the USMCA to?

As Jeffrey J. Schott from the Peterson Institute for International Economics notes, the USITC’s very positive growth figure “is entirely due to USITC estimates that the USMCA will induce more US investment by reducing uncertainty in policies on data, ecommerce, and intellectual property rights.” But questions have been raised about what this reduced policy uncertainty will actually produce. It’s the first time the USITC has tried to quantify the impact of binding commitments on data flows and data localization in terms of reducing uncertainty for markets.

But if this reduced policy uncertainty is excluded from the model, the USITC estimates that the net impact of USMCA on the economy is actually negative, at -0.12%, or approximately a loss of US$22.6 billion. This is due to the new provisions that will actually reduce trade in North America, which my colleague Simon Lester and I have written about earlier. The good thing about this figure is that it actually gives a comparison of NAFTA vs. USMCA, so we have a clear sense of the purported benefits of the “new” deal.

But what does Canada do? The GAC report does not model reduced uncertainty, saying that:

Some provisions under CUSMA could also help reduce policy uncertainty in certain areas such as services, investment and digital trade, and result in a positive impact on businesses; however, modelling such gains is challenging and relies heavily on the assumptions made. Therefore, these types of benefits were not evaluated in this study. Furthermore, many of these obligations have already been implemented by Canada under CETA, and by Canada and Mexico under the CPTPP (p. 47).

This is why the economic gains estimated by the GAC report are more modest, on the whole. Interestingly, however, the reason the topline figure is positive and not negative in the report is that the baseline used is not NAFTA. Instead, the GAC report compares USMCA to no NAFTA at all, plus the continuation of steel and aluminum tariffs on Canada due to U.S. Section 232 measures. The reasoning for this choice is justified as follows: “Canada was presented with two choices: risk the consequences of a U.S. withdrawal from NAFTA or pursue a modernized Agreement.” USMCA or bust!

Aside from the fact that there has been an intense debate on the legal hurdles to a unilateral withdrawal from NAFTA by the United States, the economic impact would be significant, complicating U.S. threats to withdraw. Would President Trump really risk such a move? This has always been unclear, and for Canada to base its assessment as if this was a certain outcome should raise more than a few eyebrows.

Furthermore, the right comparison is whether the USMCA improves upon NAFTA, which the GAC report did not calculate. A figure based on this comparison was reported by Ciuriak et al. (noted earlier). The lead author of that study, Dan Ciuriak, has noted that taking the new GAC report’s scenario into account, he finds a comparable estimate of gains from his study’s model. 

Therefore, if one were to assume reasonably similar estimates for NAFTA withdrawal and the impact of Section 232 tariffs on steel and aluminum in the counterfactual put forward in the GAC analysis, and if GAC were to make its own estimate of the marginal impact of the USMCA relative to the status quo (NAFTA in place, plus no Section 232 tariffs), these estimates would be in the general ballpark of the results published by Ciuriak et al. That is to say, if GAC did take the USMCA vs. NAFTA comparison, it would find a negative impact.

What Does this Mean?

The big issue raised with the discussion above is that we need to be sure we are evaluating agreements based on the differences between the new and old rules, or even with other rules that may be better. For example, for Canada and Mexico, it would be more useful to also compare the outcomes of USMCA with the Trans Pacific Partnership (TPP) agreement, from which the United States withdrew. As the excerpt from the GAC report above notes, many of the reductions in uncertainty come not from new provisions in USMCA, but things Canada has already agreed to under its agreement with the European Union, and the TPP. So did the United States get more out of USMCA than it did from TPP? The answer is probably not. In fact, the USITC report admits as much:

the Commission’s baseline does not take into account the various market liberalizations and binding commitments that Mexico and Canada have undertaken as signatories of the CPTPP, including commitments applying to data localization and data transfer. Since these are key policies that drive Commission model results in estimates that provide higher weights to the value of policy uncertainty, it is unclear whether estimates with higher weights for policy uncertainty would apply to the current (post‐​CPTPP signing) policy context (p.58, emphasis added).

In addition, these economic assessments raise an even more fundamental question, not least because Canada was not even planning to release a report until opposition parties called for it. The evaluations are supposed to be objective and offer a clear picture of the costs and benefits. However, the USITC and GAC report both find positive gains, whereas many trade policy experts have consistently urged caution and suggested that the USMCA is actually more of a NAFTA‐​minus deal than NAFTA‐​plus. If the reports simply provide support for government policy, and have to contort themselves to do it, are they really useful assessments?

Another study by Mary E. Burfisher, Frederic Lambert, and Troy D. Matheson from the International Monetary Fund (IMF) found a negligible impact on GDP (0.02% for Canada, -0.01% for Mexico, and 0.00% for the United States). They also note that “key provisions in USMCA would lead to diminished economic integration in North America, reducing trade among the three North American partners by more than US$4 billion (0.4 percent) while offering members a combined welfare gain of US$538 million” (p. 23).

This is precisely why it is important to look at independent analysis from scholars and experts in order to build a critical picture of what these government reports contend. It may also be worth asking whether other independent international bodies should have the ability to offer these assessments upon request (and to have their results considered alongside official government reports), such as the World Trade Organization (WTO) or IMF, in order to ensure political neutrality of the findings.

What we do know from existing studies is that the USMCA provides minor improvements to NAFTA, but that these gains could have been achieved had the United States stayed in the TPP. For Canada and Mexico, the benefits just don’t add up. Other than avoiding political confrontation with the United States, it is not clear that ratifying USMCA does anything for Canada or Mexico. In fact, it does not even reduce uncertainty, or the possibility for conflict with the United States.

Just this week, the United States Trade Representative signaled his support for U.S. withdrawal from the WTO’s Government Procurement Agreement (GPA), which Canada is also part of. In USMCA, Canada agreed to exclude provisions that would guarantee access to the U.S. procurement market, as it believed it could rely on the GPA rules. If the U.S. withdrawal from GPA does occur, this would bring Canada back to the negotiating table to sort out yet another trade conflict with the United States. Add to this the ongoing concerns over the Trump administration’s use and abuse of unilateral trade actions, such as Section 232, and all that reduced uncertainty seems like it was a mirage.

February 28, 2020 11:57AM

New Maritime Report Marked by Factual Errors and Dubious Claims

The Center for Strategic and Budgetary Assessments recently released a report on the U.S. maritime sector that has garnered considerable praise from the Jones Act lobby. That’s no surprise. Entitled Strengthening the U.S. Defense Maritime Industrial Base, the report explicitly calls for the Jones Act’s retention. Overlooked amidst the plaudits, however, are factual errors and dubious assertions that call its endorsement of the law into question. This blog post will lay some of these out.

Factual errors

The report includes a number of factual errors. In this section, I note these incorrect claims and provide a fact check.

Claim: “Of these 40,000 vessels [in the Jones Act fleet], about 8,000 are unpowered barges.”

Fact check: The source cited for this claim, the Maritime Administration’s Consolidated Fleet Summary and Change List, does not mention the word “barges” nor features the number 8,000. In fact, the number of Jones Act vessels accounted for by barges is far higher. A 2017 Congressional Research Service (CRS) report notes that 22,000 barges operate on the Mississippi River alone while the industry group representing U.S. barge operators, the American Waterways Operators, places the number of barges at over 31,000 (with another 5,500 tugboats and towboats). This is important because it illustrates that barges, rather than comprising 20 percent of Jones Act vessels, are responsible for 77 percent of this number.

Claim: “Containers, dry cargoes, and petroleum products are often carried across the United States by ship because it is usually cheaper than the transportation and handling needed to move material by truck or train car.”

Fact check: Waterborne container transport is almost non‐​existent among the 48 contiguous states. Every Jones Act‐​eligible containership serves the noncontiguous states and territories where alternative forms of transport such as truck and rail are not available. This lack of competitiveness against alternative forms of transport belies the report’s claim that it is usually cheaper than truck or train car.

Claim: “Today, the U.S.-flagged international fleet comprises 87 ocean‐​going vessels.”

Fact check: The source that is cited does not contain the number 87 and does not appear to break down the U.S. merchant fleet by ships operating in international versus domestic trades. According to the U.S. Maritime Administration, the number of ships exclusively operating in international trades as of January stood at 86.

Claim: “During Operation Desert Storm, in which the United States relied heavily on chartering foreign vessels, the crews of 13 foreign‐​flagged ships refused to go into a war zone and deliver their cargo.”

Fact check: As the U.S. Transportation Command’s history of that conflict points out, most of these 13 ships hesitated but ultimately did enter the war zone and delivered their cargo. Only four ships did not: two feeder vessels as well as the Qatari‐​flagged Trident Dusk (which ended its journey in Oman) and the Banglar Mamata, which saw its crew jump ship in Oakland before its voyage began (and, as a result, the Military Sealift Command canceled its contract with the ship’s operator).

Questionable assertions

In addition to factual errors, the report also makes a number of assertions that lack needed context or rest upon dubious logic. In this section, I present them along with a counterpoint.

Assertion: Around the time of the U.S. Civil War, “Great Britain strengthened its dominance of commercial shipping, aided by U.S. ships that joined its registry and the British government’s establishment of subsidies for the construction and operation of ships using new technologies such as steam propulsion.”

Counterpoint: This is, at best, incomplete. In 1849 Great Britain repealed protectionist laws knows as the Navigation Acts, which—like the Jones Act today—prohibited the use of foreign‐​built ships. Once these laws were removed the sector boomed. As a Library of Congress report points out, “In just over a decade [after the Navigation Acts’ repeal], there was a 52.5% increase in tonnage owned, and the yearly average of British tonnage which entered and cleared from British ports increased by 102.7%.” That the Navigation Acts’ repeal, arguably the most consequential change in British maritime policy of the 19th century, went unmentioned in explaining Britain’s rising fortunes at the time is a notable omission.

Assertion: “Due to improving efficiency and competitive pressures, the number of large ships in both [the Jones Act and international] fleets declined during past three decades.”

Counterpoint: Context here is important. It is true that ships have seen tremendous efficiency gains that enable more goods to be carried by fewer vessels. Yet the Jones Act fleet has not only been declining for decades in terms of ship numbers, but also deadweight tonnage (how much the ships can carry). Even as the U.S. economy and population have experienced considerable growth over the past 50 years, the Jones Act fleet’s deadweight tonnage is slightly less than what it was in 1970.

“Competitive pressures” perhaps offers more explanatory power here, with Jones Act ships operating in coastal waters of the U.S. mainland forced to compete with alternative forms of transport such as pipelines, trucks, and rail. Unmentioned by the report, however, is that the competitiveness of these ships is undermined by the Jones Act’s mandate that these vessels be U.S.-built—a provision that makes these ships up to five times more expensive than on the international market. In other words, this lack of competitiveness is at least partly due to the very law which the report advocates for.

Assertion: “The Jones Act’s requirements also apply to shipping between the contiguous United States and overseas territories and states, including Alaska, Hawaii, and Puerto Rico. Mandating that commercial ships moving between these areas be U.S.-flagged lessens the ability of adversaries to interfere with the integrity of states’ and territories’ commercial links to [the Continental United States (CONUS)]. It guards against the ability of China—with the world’s largest merchant marine and global port management system—to take over shipping to U.S. territories and gain local influence during peacetime, only to threaten or deny shipping to CONUS during a crisis or conflict.”

Counterpoint: It is unclear why concerns about China should be used to justify the Jones Act’s blanket ban on ships from all countries—including those the United States has defense treaties with—from transporting goods between the noncontiguous states and territories and the U.S. mainland. If China is the problem then the logical solution is to grant Jones Act exemptions for U.S. defense allies based on national security concerns. Furthermore, the idea that the Jones Act prevents foreign control of the shipping to the noncontiguous states and territories is wishful thinking. In fact, the truth is closer to the opposite. Faced with the high cost of Jones Act transport to and from the U.S. mainland, the noncontiguous states and territories often instead purchase products from other countries where Jones Act restrictions do not apply. As a CRS report points out:

Comparing waterborne shipping volumes between 1960 and today, one finds that shipments received from the contiguous United States have increased only slightly, while shipments received from foreign sources have increased tremendously. Hawaii and Puerto Rico now receive more cargo from foreign countries than they do from the U.S. mainland.

In some cases, the Jones Act makes it outright impossible for these areas of the country to buy products from the U.S. mainland. For example, the complete lack of LNG carriers in the Jones Act fleet means that Puerto Rico cannot purchase natural gas from the U.S. mainland. Instead, it must be purchased from abroad. Rather than, in the Jones Act’s absence, foreign ships transporting U.S. LNG to Puerto Rico, foreign ships are currently transporting foreign LNG to Puerto Rico. This hardly seems to be a policy improvement for anyone concerned about foreign influence over outlying parts of the United States.

Assertion: “The requirement that ships in the domestic fleet be U.S.-flagged and operated by crews of U.S. citizens or permanent residents reduces the likelihood foreign ships and mariners will illegally gain access to America’s inland waterways and associated infrastructure. Although geography limits how far inland large foreign‐​flagged ships would be able to travel, without the Jones Act’s requirements, foreign companies could buy domestic carriers that operate smaller vessels and barges that ply U.S. rivers and intercoastal waterways.”

Counterpoint: As CSBA’s report itself notes, access to U.S. internal waters by foreign‐​flagged ships is limited not by the Jones Act, but rather geographic realities. No oceangoing, deep draft ship is going to steam up the Mississippi to St. Louis in the Jones Act’s absence. It’s not physically possible. So then the objection seems to be that foreign companies could purchase U.S. subsidiaries that own tugboats and barges operating on the country’s rivers (although why this should be regarded as a concern is never explicitly stated).

It worth noting that such investment would almost certainly be subject to the CFIUS (Committee on Foreign Investment in the United States) process designed to identify potential national security red flags. In addition, foreign ownership of important parts of the U.S. maritime industry is nothing new. A number of prominent U.S. shipyards have foreign ownership such as Philly Shipyard (Norway), VT Halter (Singapore), Keppel AmFELS (Singapore), Austal USA (Australia), and Fincantieri Bay (Italy). Why foreign companies should (correctly) be allowed to own U.S. shipyards yet prohibited from owning the vessels produced at these yards, particularly those that operate on the country’s internal waters, is unclear.

Assertion: “[U.S.] waterways are maintained by dredgers and salvage operators…that keep clear more than 400 ports and 25,000 miles of navigation channels throughout the United States. A domestic dredging industry prevents the United States from depending on foreign companies to dredge its dozens of naval facilities, potentially opening up opportunities for sabotage or the depositing of underwater surveillance equipment.”

Counterpoint: The United States, via both the Jones Act and Dredge Act of 1906, is one of the few countries in the world that bans foreign dredge operators from offering their services. As a result, U.S. ports and waterways in need of dredging must choose from U.S. dredging companies that are both small in number and limited in their capabilities. For example, the largest hopper dredger in the U.S. fleet is the Ellis Island, with a capacity of 11,315 cubic meters. Meanwhile, a single Belgian dredging firm, Jan de Nul, offers nine such dredges with larger capacities (and a tenth scheduled for delivery this year). The upshot of being beholden to a small, limited U.S. fleet is higher dredging costs. In other words, the Jones Act and Dredge Act make it more difficult to maintain critical maritime infrastructure.

This is seemingly justified by the possibility of foreign companies engaging in sabotage and surveillance of U.S. naval facilities without these laws. But no evidence is presented to document the scale and significance of this alleged threat. More importantly, if this truly is a threat, why should protectionist laws be viewed as the optimal means of counteracting them? Would it not simply be more efficient to assign dredging work in military installations to a U.S. government agency (such as the U.S. Army Corps of Engineers) while allowing foreign dredgers to bid on civilian projects? This unwillingness to wrestle with trade‐​offs and the costs involved in the adoption of certain policies is one of the report’s unfortunate recurring themes. Indeed, the costs of many policies the report endorses are not even acknowledged.

The Big Picture

In its conclusion the CSBA report states, quite accurately, that the U.S. maritime industry, “is on a path toward continued decline, promising deleterious impacts on U.S. economic prosperity and national security.” This would suggest that a marked departure from current policy is in order. Yet the report recommends that the Jones Act, a longstanding cornerstone of U.S. maritime policy, be retained. But the law has contributed to the very maritime downfall that the report bemoans. The Jones Act, and in particular its domestic build requirement which forces U.S. carriers to pay many multiples the world price for the ships they operate, has proven to be as failed in practice as it is in theory. U.S. commercial shipyards, rather than rising to new heights on the back of this subsidy, are mired in a long‐​term slump reflective of their technological inferiority and inefficiency.

What the maritime industry is crying out for is a rethink of old policies. What this report gives, at least so far as the Jones Act is concerned, is more of the same. So long as the choice is made to embrace protectionism instead of competition the U.S. maritime decline will continue.

February 28, 2020 11:03AM

Country Caps Cut the Average Wage Offer for New Employer‐​Sponsored Immigrants by $11,828 in 2019

The House of Representatives passed the Fairness for High Skilled Immigrants Act last year. The legislation would phase out the country‐​specific caps on employment‐​based green cards (i.e. legal permanent residence). The per‐​country limits prevent immigrants of any single birthplace from receiving more than 7 percent of the green cards issued in a year (unless they would otherwise go unused), no matter what share of the applicants they are

The per‐​country limits force Indians and Chinese—who make up a large majority of the immigrants employers sponsor for green cards—to wait for years, while nearly everyone else waits hardly at all. In 2019, the average green card recipient from India in the EB-2 and EB-3 green card categories—for employer‐​sponsored immigrants with either a bachelor’s or advanced degree—waited more than a decade. Chinese waited more than four years. Immigrants from every other country generally waited less than a year (on average) as a result of the caps. Going forward, these waits for Indians and Chinese will escalate to absurd lengths—several decades for newly backlogged immigrants in 2019.

This discrimination is wrong simply because it disadvantages one group based solely on their place of birth. But it is also economically senseless: Indian and Chinese immigrants tend to have much higher wage offers than immigrants from other countries in the EB-2 and EB-3 categories, so the government’s policy is targeting the most productive workers. In 2018, I demonstrated that the per‐​country limits depressed the average wage for new employer‐​sponsored immigrants by $11,592 for immigrants that year. In 2019, this disparity has grown.

Figure 1 relies on data on approved labor certifications submitted by employers in the EB2 and EB3 employer‐​sponsored immigrant classifications to the Department of Labor (DOL)[*]. The Department of Labor validates the information provided on the labor certification in order to deal with concerns that immigrants are taking jobs from U.S. workers. It shows that the wage offers for EB-2 and EB-3 immigrants from India and China were more than $30,000 more than workers from the rest of the world, despite much longer waits for those countries.

Figure 2 shows how much the country caps reduce the average wage offer for green card recipients. The first column shows the average wage offer for all immigrants—essentially what the wage would be without the country caps because the share of applicants would equal the share of green card recipients. The second column shows the wage offer for immigrants weighted by the number of green cards actually issued to each nationality in 2019. The weighted average wage with the per‐​country limits was $97,472, while the wage without it would be $109,301. The per‐​country limits depress the average wage for new employer‐​sponsored immigrants by $11,828.

Indians and Chinese have higher wage offers in virtually every state. Only in three states with very few wage offers are their (combined) average wage offer lower than the offers to other immigrants. This suggests that it is not the case the Indians and Chinese just choose higher‐​wage areas to reside. Table 1 lists the average wage offers by state for EB-2 and EB-3 Indians and Chinese and all other EB-2 and EB-3 immigrants.

The per‐​country limits strongly discriminate against higher‐​paid immigrants. On average, immigrants who are offered higher wages actually wait longer under the U.S. legal system than other immigrants. This shouldn’t be surprising because the average Chinese and Indian immigrants is also more highly educated than other immigrants (on average). Figure 3 shows the educational distribution of EB-2 and EB-3 immigrants with wage offers from employers.

U.S. employers need workers across the entire skill spectrum, and U.S. workers benefit from having low‐​skilled workers supporting their higher‐​paying activities. But a diversity of skill should emerge naturally from the operation of the free market, not because the government imposes rules that have the effect of discriminating against certain nationalities. Congress should repeal the country caps and allow workers to apply for jobs in the United States without regard to their birthplace. The market—not government bureaucrats—should determine who will benefit the United States the most economically.

This post updates my post on the same subject from 2018.

Notes

[*] Notes on methodology: Approved labor certifications include expired ones because they may still have been used to obtain a green card. The data needed mild cleaning as a result of a few entries where annual wages were listed as being paid on a more regular basis. The offered wage of immigrants was annualized and, if necessary, was determined by taking the midpoint in any salary or wage range provided by the employer.

EB2-EB3 employer‐​sponsored immigrants include all EB2-EB3 immigrants except for those who receive “national interest waivers,” but these immigrants do not need a sponsoring employer and so do not have any wage offer. No data exist on their wages after they receive green cards and find jobs in the United States, but NIWs are a much smaller population. There are good reasons for believing, based on the educational attainment of Indians and Chinese, that Indians and Chinese are overrepresented in this highly skilled (albeit smaller) group that may have higher wages. For this reason, this post may understate the final wages of new Indian and Chinese immigrants. 

February 27, 2020 5:18PM

Technical Inevitability, Strategic Headache? Missile Defense in the 2021 Budget Request

The White House’s fiscal year 2021 budget request released earlier this month asks Congress for $20.3 billion for missile defense and defeat programs. Nearly half of the request ($9.2 billion) is for the Missile Defense Agency (MDA). The rest of the money will go toward a mix of missile defense programs outside of MDA ($7.9 billion) and “left of launch” activities that attempt to disrupt or destroy enemy missiles before they can be fired ($3.2 billion). These request figures are more or less in line with requests from the past two years and should not be regarded as a major increase.

What makes the FY 21 missile defense budget request noteworthy isn’t the amount of money being asked for but the priorities it reveals. Namely, the MDA is focused on erasing the distinction between regional and homeland missile defense systems.

This is not a new line of effort. Greater integration among various missile defense systems is a longstanding policy goal that can now be realized thanks to technical improvements. However, if the MDA is successful the United States will have to wrestle with thorny questions about nuclear stability and the future of arms control.

Missile defense systems can be categorized according to which operational role they play. Regional or theater missile defense systems protect military units, installations, and civil infrastructure. The capabilities that the United States has traditionally used for this mission tend to be mobile and very reliable in testing. Homeland missile defense systems protect the continental United States from intercontinental‐​range ballistic missiles (ICBMs). Currently there is only one option for homeland defense, the Ground‐​based Midcourse Defense (GMD) system, which is both very expensive and notoriously unreliable.

Improvements in interceptor and sensor technology allow for new mission types that have started to blur the lines between this regional vs. homeland distinction. New interceptors can engage a wider range of threats than their predecessors. The most notable example of this is the SM-3 IIA, the latest generation of the Standard Missile family, that MDA plans to test against an ICBM‐​range target in 2020.

Advances in sensors (e.g. radars) and the ability to rapidly share data across different systems further erase the regional/​homeland distinction by giving interceptors a bigger engagement window.

Without the ability to share data, interceptors are limited by the range of their associated sensors. A long‐​range interceptor might be able to outfly its associated radar, essentially reducing the effective range of the interceptor to less than the associated sensor. But if a different, remote sensor can share its data then an interceptor could make more use of its maximum range. This allows an interceptor to be launched on data provide from a remote source, also known as “launch‐​on‐​remote” or LOR.

Another benefit of improved sensors and data fusion is “engage‐​on‐​remote” or EOR, which is essentially an improved version of LOR. In EOR, remote sensors provide all necessary data to an interceptor, detecting launch, and tracking the target. The interceptor’s associated radar does not have to track the threat in an EOR scenario.

Taken together, new interceptors and sensors will allow capabilities previously used only for regional defense to contribute to homeland defense. The MDA’s FY 21 budget request calls for the SM-3 IIA and THAAD systems to serve as an additional layer for homeland defense in case the GMD misses its mark. If these efforts are successful, the United States would be able to deploy many more interceptors capable of destroying ICBM‐​range warheads than it currently fields.

This natural evolution of missile defense technology will create some long‐​term strategic headaches. China and Russia won’t view a layered homeland missile shield that has a much larger inventory of interceptors in a vacuum. Taken alongside recent U.S. investments in low‐​yield nuclear weapons and conventional hypersonic strike systems that can destroy “time sensitive” targets (e.g. mobile, second strike nuclear missiles), the FY 21 missile defense budget seems like America rejecting mutual nuclear vulnerability.

This could prompt offensive nuclear buildups to overwhelm a thicker U.S. homeland defense or early attacks against U.S. missile defense sensors that also provide early warning of nuclear strikes against the homeland. China and Russia already have a strong incentive to blind U.S. missile defense sensors in a conventional conflict. Stronger integration of regional and homeland missile defense capabilities will reinforce this incentive. Neither nuclear buildups nor blinding strikes are beneficial for America’s long‐​term interests.

Greater integration of regional and homeland missile defense capabilities will also make it harder for the United States to use missile defense limitations as a bargaining chip in arms control negotiations. Any future U.S.-Russia arms control agreement that reduces offensive weapons, regardless of whether New START is extended, is unlikely to succeed unless the United States is willing to put missile defense on the table. Yet deeper integration of capabilities makes it harder to limit any one system without negatively affecting others.

An expansion of defensive capabilities could make it easier for the United States to reduce its offensive nuclear forces in future arms control agreements. Stronger defenses would allow for U.S. offensive reductions without increasing vulnerability or risk. A lower requirement for offensive capabilities would also take some pressure off the U.S. nuclear enterprise, which is being stretched thin by the demands of the modernization program. However, such an outcome seems highly unlikely.