Tag: import barriers

Embracing More of Trade’s Selling Points

As a primer for the new Congress, my friend John Murphy of the U.S. Chamber of Commerce posted the “top ten reasons why pro-growth trade and investment policies and agreements are good for America.” As usual, I agree with John’s points. And I concur that the time is particularly ripe for educating policymakers about the virtues of trade.

But with all due respect to John, his list is not so much about trade and investment. It’s really about exports (one of 10 points is about imports). Informing new members and reminding old of the benefits of exports to U.S. businesses and workers is clearly a worthwhile objective of the Chamber, the business community, and really anybody interested in economic growth. But in some respect there’s a preaching-to-the-choir element in that approach. You’re not going to find too many policymakers opposed to exports, and the administration has constructed a whole new bureaucracy devoted to the proposition that exports should double in five years.

Where the trade agenda has stalled (and where it always has problems) is on the rough terrain that–for lack of a better catchphrase–might be called “rationalizing” imports. That’s been the hard part of trade adovcacy over the years: “We had to cede some access to our markets, but look what we got in exchange!”

In pitching the very same bilateral trade agreements two and three years ago that the business community is pitching today, then-USTR Susan Schwab liked to remind Congress that the United States had an aggregate trade surplus with the countries with whom the Bush administration had concluded free trade agreements, as though that were the appropriate success metric. “We export more to them than we import from them; let’s call this a triumph!” But anyone inclined to accept that statistic as conclusive could simply visit the Commerce Department’s website and see that, at the time, our overall trade account was in deficit by about $800 billion. Thus, if “exports minus imports” is the measure by which we judge the benefits of trade, then America should shun trade entirely. That sales approach doesn’t seem to be in short- or long-run equilibrium. Mercantilist arguments only ensure that every step forward on trade requires a full-fledged battle. We need better–that is, more comprehensive–salesmanship of trade for the new Congress.

In 2002, then-USTR Robert Zoellick said of his new Doha Round proposal for zero tariffs on industrial goods by 2015 that it would “turn every corner store into a duty-free shop.” That was the right message—although apparently not for the timid White House at the time, which adhered to the sweep-imports-under-the-rug model.  In 2011, we should remember, embrace, and revive Ambassador Zoellick’s words in our advocacy of trade liberalization. In that spirit, I return to John Murphy’s top ten list and introduce a few tweaks (in bold).

  1. The United States is the number one manufacturing nation in the world, and that success depends on exports.  And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.
  2. The United States is the world’s number one services exporter and has been since services trade data have been tracked.  And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.
  3. U.S. agricultural exports support nearly a million jobs in the United States.  And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.
  4. 95 percent of the world’s consumers lives outside the United States…as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.
  5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.
  6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.
  7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales…and in manufacturing. 
  8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports.  And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.
  9. U.S. companies with overseas investments account for 45 percent of all U.S. exports.  And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports,   pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.
  10. Trade supports 38 million jobs in the United States–more than one in five American jobs.  And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

Of course, all of these selling points are economic in nature.  There is an even stronger moral argument for free trade, which is what all Americans – indeed all earthlings – should embrace.

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Pepsi Throwback and the Sugar Racket

This weekend while watching a football game with a friend, I saw a commercial for Pepsi “Throwback.” This is a new product containing real sugar instead of high-fructose corn syrup. My friend was incredulous when I explained that soft drinks manufactured for sale domestically generally don’t contain sugar because government protection of the U.S. sugar industry from imports make its use cost-prohibitive.

I am intrigued that Pepsi would market a sugar-based product. In perusing the Internet for news about it, I found countless stories applauding the product but blaming Pepsi and Coke for continuing to use inferior-tasting high-fructose corn syrup. For example, Pepsi Throwback’s Wikipedia page states that soft drink manufacturers switched to high-fructose corn syrup decades ago because of rising sugar prices, but it doesn’t mention that government policy was behind the price increases.

A Cato essay on agricultural regulations and trade barriers explains the government’s sugar racket and its destructive effects. Here are the key points:

  • The federal government guarantees a minimum price for sugar in the domestic market by maintaining a system of preferential loan agreements, domestic marketing quotas, and import barriers.
  • USDA data show that U.S. sugar prices have been more than twice world market prices.
  • The Government Accountability Office estimates that U.S. sugar policies cost American consumers about $1.9 billion annually.
  • U.S. food industries that buy sugar are harmed by current sugar policies. The employment in U.S. sugar growing is 61,000, which compares to employment in U.S. businesses that use sugar of 988,000.
  • According to a U.S. Department of Commerce report, for each sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionary manufacturing jobs are lost.
  • Numerous U.S. food manufacturers have relocated to Canada where sugar prices are less than half of U.S. prices and to Mexico where prices are two-thirds of U.S. levels.

Chicago has been particularly hard hit, with many candy companies moving production abroad. One might think that our president, a Chicagoan, would be willing to take on the powerful domestic sugar lobby. But as Dan Griswold discussed in October, Obama’s USDA ignored a plea from domestic sugar-using industries and kept quotas at their current restrictive level.

What about high-fructose corn syrup? Government policy artificially increases the price of sugar, but its corn subsidies artificially reduce the price of corn, which helps make high-fructose corn syrup more cost-effective in products like soft drinks. Major high-fructose corn syrup manufacturers, such as Archer Daniels Midland, benefit from federal programs and they spend lots of money lobbying policymakers to keep them going.

In his classic 1995 Cato policy analysis, “Archer Daniels Midland: A Case Study in Corporate Welfare,” James Bovard recounts ADM’s long-standing influence behind the government’s sugar racket:

Although ADM does not directly produce sugar, Congress and the USDA have created a price umbrella under which ADM’s production of high-fructose corn syrup – a sugar syrup – has become immensely profitable. ADM got into corn fructose production very heavily around 1974, just as sugar prices peaked on world markets. After ADM invested heavily to increase its capacity to produce high-fructose corn syrup ninefold, sugar prices plummeted from 65 cents to 8 cents per pound.

[ADM Chairman Dwayne] Andreas told Business Week in 1976, “If it was a mistake, I’d say it was my mistake.” Business Week noted, “One industry source suggests that ‘Dwayne looks at this as sort of a waiting game, basing his unflappability on the predicted passage of a new sugar bill.’ Such a bill is expected to provide an ‘umbrella’ – that is, to put supports under sugar at a level where high-fructose corn syrup will be at least reasonably profitable. Andreas contributed heavily to the 1968 and 1972 campaigns of Humphrey, Jackson and Nixon. With both parties covered, ADM may reasonably anticipate some legislative help.” That help came in the form of a new sugar bill in 1981.

For ADM, cheaper inputs (corn) plus a more expensive substitute (sugar) equals nice profits at U.S. taxpayer and consumer expense.

Pepsi Throwback will only be available for U.S. consumers to enjoy until February 22nd.  After that, Americans looking for Pepsi or Coke with real sugar in it will have to go to Mexico. Hopefully, Mexican politicians won’t put up a wall along the border to stop Americans from sneaking into the country and taking all their good soft drinks.

Update: Several readers have pointed out that “Passover Coke,” which contains sugar instead of high-fructose corn syrup, can be found in certain metropolitan areas around Passover. Coke with sugar manufactured in Mexico can also be found in some Latin American grocery stores.