What explains the chronically misleading depictions and interpretations of international trade in the Washington Post? Is it economic illiteracy? Intellectual indifference? Institutional bias? What?
The opening paragraph in Neil Irwin’s story (online, July 30, 2010, 9:13 am) reads:
The pace of economic growth slowed this spring, according to new government data, as Americans remained reluctant to consume and imports soared.
And a few paragraphs later:
The biggest drain on growth was imports, which rose 28.8 percent, compared with only a 10.3 percent gain in exports.
On July 14, one day after the Commerce Department’s monthly trade figures were released, revealing a slight increase in the trade deficit, the opening paragraph in the Washington Post story under the heading “Rising Imports Offset Export Gains” read:
Read the rest of this post »
America’s resurgent appetite for imports may undermine the Obama administration’s efforts to rekindle job growth, with a rise in overseas purchases by American businesses and households undercutting the benefits of increased U.S. sales abroad.
In honor of World Trade Week—and for its decreed purpose of educating Americans about trade—this post is about U.S. trade policy working at cross-purposes with other policies or goals of the administration. So numerous are these examples of trade policy dissonance, that a committed wonk could devote an entire website to the task of documenting them.
If the administration were serious about making trade policy work—rather than just paying it lip service—it would compile its own exhaustive list of laws, regulations, policies, and practices that actually undermine its stated objectives of facilitating economic growth, investment, and job creation through expanded trade opportunities. Then, it would make the changes necessary to ensure that our policies are paddling in the same direction. But that is not happening—at least as far as I can see.
A conversation with documentarian Robert Stone regarding Earth Day is featured today in The New York Times’s “Dot Earth” online column. In the course of his conversation with the Times’s Andrew Revkin, Mr. Stone — who is quite alarmed about our reliance on foreign oil — asks: “How many Americans know that we send about $800 billion to the Middle East every year for oil?”
Hopefully, not many. According to the U.S. Department of Commerce, the U.S. spent $95.4 billion on crude oil imports from OPEC sources in 2009. But not all OPEC members are from the Middle East. That $95.4 billion includes dollars spent on oil originating from Algeria ($6.3 billion), Angola ($9 billion), Ecuador ($3.4 billion), Nigeria ($17.7 billion), and Venezuela ($23.4 billion) — none of which are in the Middle East. Subtract out that oil and we arrive at $35.6 billion spent on Middle Eastern crude oil (a figure rounded from the original nominal counts. I have used the customs value — that is, the estimated value — of the oil being imported rather than the figures that include additional costs for insurance and transportation because money being spent on insurance and shipping goes to third parties that are not for the most part located in the Middle East. But if one wants to use those slightly higher figures, it won’t change the numbers very much at all).
For what it’s worth, the total amount of dollars Americans sent abroad for crude oil from all sources was $188.5 billion last year.
Even if the figure were $800 billion, so what? No one is forcing refineries to buy crude oil from foreign suppliers. They presumably believe that the oil at issue is more valuable than the money that must be offered to secure said oil and that oil from other sources is more expensive than oil from the Middle East. Hence, they buy. This is by definition a wealth creating transaction for American business enterprises. Foreign trade, Mr. Stone, is a good thing.
The implicit claim, of course, is that there are negative externalities associated with foreign oil consumption. This, however, is faith masquerading as fact (an argument also well made by Cato adjunct scholar Richard Gordon).
Regardless, Mr. Stone overstates the alleged problem by orders of magnitude.
Organized labor's trade "think tank" in Washington, the Economic Policy Institute, claims that currency manipulation is a major cause of the U.S. trade deficit with China, which (along with other unfair trade practices) accounted for 2.4 million American job losses between 2001 and 2008. EPI has been making similar claims for years, getting lots of media attention for its hyperbole, and providing smoke bombs for charlatan politicians to hurl into the discussion to obscure the public's understanding of trade. For starters, as conveyed in this new paper, I am skeptical about the relationship between currency undervaluation and the trade account.
EPI's methodology (to use the term loosely) is not to be taken seriously, though, because it derives from a simple formula that approximates job gains from export value and job losses from import value, as though there were a straight line correlation between the jobs and trade data. It pretends that there are no jobs created when we import, and that import value is somehow an appropriate measure of job loss.
The flaws of those assumptions are many, but perhaps the easiest one to convey is that most of the value embedded in imports from China is not Chinese. (The ensuing discussion is from a forthcoming Cato paper.)
During his SOTU address last week, the president declared it a national goal to double our exports over the next five years. As my colleague Dan Griswold argues (a point that is echoed by others in this NYT article), such growth is probably unrealistic. But with incomes rising in China, India and throughout the developing world, and with huge amounts of savings accumulated in Asia, strong U.S. export growth in the years ahead should be a given—unless we screw it up with a provocative enforcement regime.
The president said:
If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules.
Ah, the enforcement canard!
One of the more persistent myths about trade is that we don’t adequately enforce our trade agreements, which has given our trade partners license to cheat. And that chronic cheating—dumping, subsidization, currency manipulation, opaque market barriers, and other underhanded practices—the argument goes, explains our trade deficit and anemic job growth.
But lack of enforcement is a myth that was concocted by congressional Democrats (Sander Levin chief among them) as a fig leaf behind which they could abide Big Labor’s wish to terminate the trade agenda. As the Democrats prepared to assume control of Congress in January 2007, better enforcement—along with demands for actionable labor and environmental standards—was used to cast their opposition to trade as conditional, even vaguely appealing to moderate sensibilities. But as is evident in Congress’s enduring refusal to consider the three completed bilateral agreements with Colombia, Panama, and South Korea (which all exceed Democratic demands with respect to labor and the environment), Democratic opposition to trade is not conditional, but systemic.
In a post at the Enterprise Blog two days ago, economist Mark Perry deftly parodies a typical mainstream media account of trade protectionism by editing the story in redline to contrast its original presentation with its true significance. I recommend reading the whole thing, but here’s the first paragraph:
WASHINGTON POST (Reuters) - A U.S. trade panel gave final approval on Wednesday to duties taxes ranging from 10 to 16 percent on cost-conscious firms in the U.S. who purchase low-priced Chinese-made steel pipe rather than high-price domestic pipe, in the biggest U.S. trade case to date against China American companies (and their shareholders, employees, and customers) who shop globally for their inputs and find the best value in China.
Perry’s point—and I share his frustration—is that the mainstream media typically fail to convey even a sense of the costs of U.S. protectionism to U.S. interests even though Americans (and non-Americans living in the U.S.) bear the greatest burden of that protectionism. When the U.S. government imposes duties on Chinese steel, it is imposing taxes on U.S. consuming industries, their employees, their shareholders, and their customers.
That is one of the conclusions in my new paper, "Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete."
For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the "national interest." Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between "our" producers and "their" producers and speak to a long chain of interdependent economic interests between product conception and consumption.