With steel industry lawyers and executives populating key trade policy positions in the Trump administration, we are witnessing the return of an old, rusty narrative that portrays the World Trade Organization as unaccountable global government intent on running roughshod over U.S. sovereignty. On the Forbes website, today, I explain why that is a protectionist canard.
Here are the opening paragraphs:
John Bolton took to the pages of the Wall Street Journal yesterday to assert America’s interest in abandoning international institutions that threaten U.S. sovereignty. In identifying the World Trade Organization’s Dispute Settlement Body as such an institution, Bolton was reinforcing a central theme of the Trump administration’s recently‐minted 2017 Trade Policy Agenda. That document is short on specifics, but makes one thing clear: Under threat of going rogue, the United States will leverage its indispensability to compel changes at the WTO that accommodate a more expansive, less surgical application of domestic trade laws.
“Defending our national sovereignty over trade policy” and “strictly enforcing U.S. trade laws” are, explicitly, the top two priorities on the agenda. Taken together, those priorities suggest the Trump administration will aggressively execute U.S. trade laws with little regard for whether that execution violates internationally‐agreed rules established to prevent and discourage abuse of such laws. Agreeing that “all animals are equal,” then adding the famous caveat “but some are more equal than others” is what is meant by “defending our national sovereignty.”
Given the prominence of domestic steel industry representation in the Trump administration, these priorities aren’t surprising. High on the list of talking points of the Washington‐swamp‐savvy U.S. steel lobby is the assertion that the WTO’s DSB, by finding U.S. antidumping and countervailing duty practices in violation of WTO obligations on numerous occasions over the years, usurps U.S. sovereignty over its own laws. This is a complaint frequently made by Robert Lighthizer, Trump’s USTR‐designate, who for decades has represented domestic steel interests in AD/CVD cases before U.S. agencies.
And here are the concluding paragraphs:
The prominence of the claim that U.S. sovereignty is threatened reflects the over‐representation of steel interests in the Trump administration. It is intended to add credibility to the implied threat that the United States will ignore DSB rulings with which it disagrees unless and until there are changes made to the WTO texts that render compliant the United States’ non‐compliant actions on trade remedies. But it is irresponsible to risk blowing up the system, especially on behalf of an industry that accounts for less than 0.3 percent of the U.S. economy.
The bottom line is that the WTO dispute settlement system, though not perfect, offers a reasonable formula for balancing the simultaneous imperatives of preserving the rule of international trade law and national sovereignty.
But there are many paragraphs in between that I hope you will find time to read here.
A common argument against returning to the immigration policy of 1790-1875, where virtually anybody in the world could immigrate to the United States, is that such a policy would diminish America’s national sovereignty. By not exercising “control” over borders through actively blocking immigrants, as the argument goes, the United States government would surrender a supposedly vital component of its national sovereignty. But that argument is mistaken as there is no inherent conflict between free immigration and national sovereignty.
The standard Weberian definition of a government is an institution that has a monopoly (or near monopoly) on the legitimate use of violence within a certain geographical area. The way it achieves this monopoly is by keeping out other competing sovereigns (aka nations) that would be that monopoly of legitimate coercion. The two main ways our government does that is by keeping the militaries of other nations out of the United States and by stopping insurgents or potential insurgents from seizing power through violence and supplanting the U.S. government.
U.S. immigration laws are not primarily designed or intended to keep out foreign armies, spies, or insurgents. The main effect of our immigration laws is to keep out willing foreign workers from selling their labor to willing American purchasers. Such economic controls do not aid in the maintenance of national sovereignty and relaxing or removing them would not infringe upon the government's national sovereignty any more than a policy of unilateral free trade would. If the United States would return to its 1790-1875 immigration policy, foreign militaries crossing U.S. borders would be countered by the U.S. military. Allowing the free flow of non-violent and healthy foreign nationals does nothing to diminish the U.S. government’s legitimate monopoly of force.
Partisans can argue whether Clinton actually deserves the credit for these good results, but I'm just happy we got better policy. Heck, Clinton was a lot more akin to Reagan that Obama, as this Michael Ramirez cartoon suggests.
Moreover, Clinton also has been the source of some very good political humor, some of which you can enjoy here, here, here, here, and here.
Most recently, he even made some constructive comments about corporate taxation and fiscal sovereignty.
Here are the relevant excerpts from a report in the Irish Examiner.
It is up to the US government to reform the country’s corporate tax system because the international trend is moving to the Irish model of low corporate rate with the burden on consumption taxes, said the former US president Bill Clinton. Moreover, ...he said. “Ireland has the right to set whatever taxes you want.” ...The international average is now 23% but the US tax rate has not changed. “...We need to reform our corporate tax rate, not to the same level as Ireland but it needs to come down.”
Kudos to Clinton for saying America's corporate tax rate "needs to come down," though you could say that's the understatement of the year. The United States has the highest corporate tax rate among the 30-plus nations in the industrialized world. And we rank even worse—94th out of 100 countries according to a couple of German economists—when you look at details of how corporate income is calculated.
What's the biggest fiscal problem facing the developed world?
To an objective observer, the answer is a rising burden of government spending, which is caused by poorly designed entitlement programs, growing levels of dependency, and unfavorable demographics. The combination of these factors helps to explain why almost all industrialized nations—as confirmed by BIS, OECD, and IMF data—face a very grim fiscal future.
If lawmakers want to avert widespread Greek-style fiscal chaos and economic suffering, this suggests genuine entitlement reform and other steps to control the growth of the public sector.
But you probably won't be surprised to learn that politicians instead are concocting new ways of extracting more money from the economy's productive sector.
They've already been busy raising personal income tax rates and increasing value-added tax burdens, but that's apparently not sufficient for our greedy overlords.
Now they want higher taxes on business. The Organization for Economic Cooperation and Development, for instance, put together a "base erosion and profit shifting" plan at the behest of the high-tax governments that dominate and control the Paris-based bureaucracy.
What is this BEPS plan? In an editorial titled "Global Revenue Grab," The Wall Street Journal explains that it's a scheme to raise tax burdens on the business community:
After five years of failing to spur a robust economic recovery through spending and tax hikes, the world's richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls "base erosion and profit shifting," or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of "double non-taxation," whatever that is, and even raises the specter of "global tax chaos" if this bogeyman called BEPS isn't tamed. Don't be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.
The Journal is spot on. This is merely the latest chapter in the OECD's anti-tax competition crusade. The bureaucracy represents the interests of
high-tax governments that are seeking to impose higher tax burdens—a goal that will be easier to achieve if they can restrict the ability of taxpayers to benefit from better tax policy in other jurisdictions.
More specifically, the OECD basically wants a radical shift in international tax rules so that multinational companies are forced to declare more income in high-tax nations even though those firms have wisely structured their operations so that much of their income is earned in low-tax jurisdictions.
I never thought I would wind up in Costco's monthly magazine, but I was asked to take part in a pro-con debate on "Should offshore tax havens be illegal?"
Given my fervent (and sometimes risky) support of tax competition, financial privacy, and fiscal sovereignty, regular readers won't be surprised to learn that I jumped at the opportunity.
After all, if I'm willing to take part in a debate on tax havens for the upper-income folks who read the New York Times, I should do the same thing for the middle-class folks who patronize big-box stores.
My main argument was that we need tax havens to help control the greed of the political elite. Simply stated, politicians rarely think past the next election, so they'll tax and spend until we suffer a catastrophic Greek-style fiscal collapse unless there's some sort of external check and balance.
...politicians have an unfortunate tendency to over-spend and over-tax. ...And if they over-tax and over-spend for a long period, then you suffer the kind of fiscal crisis that we now see in so many European nations. That’s not what any of us want, but how can we restrain politicians? There’s no single answer, but “tax competition” is one of the most effective ways of controlling the greed of the political elite. ...Nations with pro-growth tax systems, such as Switzerland and Singapore, attract jobs and investment from uncompetitive countries such as France and Germany. These “tax havens” force the politicians in Paris and Berlin to restrain their greed. Some complain that these low-tax jurisdictions make it hard for high-tax nations to enforce their punitive tax laws. But why should the jurisdictions with good policy, such as the Cayman Islands, be responsible for enforcing the tax law of governments that impose bad policy?
I also made the point that the best way to undermine tax havens is to make our tax system fair and reasonable with something like a flat tax.
...the best way to reduce tax evasion is lower tax rates and tax reform. If the United States had a flat tax, for instance, we would enjoy much faster growth and we would attract trillions of dollars of new investment.
And I concluded by pointing out that there are other very important moral reasons why people need financial privacy.
In addition to promoting good fiscal policy, tax havens also help protect human rights. ...To cite just a few examples, tax havens offer secure financial services to political dissidents in Russia, ethnic Chinese in Indonesia and the Philippines, Jews in North Africa, gays in Iran, and farmers in Zimbabwe. The moral of the story is that tax havens should be celebrated, not persecuted.
And what did my opponent, Chye-Ching Huang from the Center for Budget and Policy Priorities, have to say about the issue? To her credit, she was open and honest about wanting to finance bigger government. And she recognizes that tax competition is an obstacle to the statist agenda.
It drains the United States of tax revenues that could be used to reduce deficits or invested in critical needs, including education, healthcare, and infrastructure.
She also didn't shy away from wanting to give the scandal-plagued IRS more power and money.
U.S. policymakers could and should act... Policymakers could provide the Internal Revenue Service (IRS) with the funding it needs to ensure that people pay the taxes they owe, including sufficient funds to detect filers who are using offshore accounts to avoid paying their taxes.
Her other big point was to argue against corporate tax reforms.
...a "territorial" tax system...would further drain revenues, and domestic businesses and individual taxpayers could end up shouldering the burden of making up the difference.
Given that the United States has the highest statutory tax rate for companies in the industrialized world and ranks only 94 out of 100 nations for business "tax attractiveness," I obviously disagree with her views.
And I think she's wildly wrong to think that tax havens lead to higher taxes for ordinary citizens. Heck, even the New York Times inadvertently admitted that's not true.
In any event, I think both of us had a good opportunity to make our points, so kudos to Costco for exposing shoppers to the type of public finance discussion that normally is limited to pointy-headed policy wonks in sparsely attended Washington conferences.
That's the good news.
Using data stolen from service providers in the Cook Islands and the British Virgin Islands, the Washington Post published a supposed exposé of Americans who do business in so-called tax havens.
Since I'm the self-appointed defender of low-tax jurisdictions in Washington, this caught my attention. Thomas Jefferson wasn't joking when he warned that "eternal vigilance is the price of liberty." I'm constantly fighting against anti-tax haven schemes that would undermine tax competition, financial privacy, and fiscal sovereignty.
Even if it means a bunch of international bureaucrats threaten to toss me in a Mexican jail or a Treasury Department official says I'm being disloyal to America. Or, in this case, if it simply means I'm debunking demagoguery.
The supposedly earth-shattering highlight of the article is that some Americans linked to offshore companies and trusts have run afoul of the legal system.
Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.
But the real revelation is that people in the offshore world must be unusually honest. Fewer than 1 percent of them have been named in a lawsuit, much less been involved with a criminal case.
This is just a wild guess, but I'm quite confident that you would find far more evidence of misbehavior if you took a random sample of 4,000 Americans from just about any cross-section of the population.
I'm not talking about secession in the United States, where the issue is linked to the ugliness of slavery (though at least Walter Williams can write about the issue without the risk of being accused of closet racism).
But what about Europe? I have a hard time understanding why nations on the other side of the Atlantic should not be allowed to split up if there are fundamental differences between regions. Who can be against the concept of self-determination?
Heck, tiny Liechtenstein explicitly gives villages the right to secede if two-thirds of voters agree. Shouldn't people in other nations have the same freedom?
This is not just a hypothetical issue. Secession has become hot in several countries, with Catalonia threatening to leave Spain and Scotland threatening to leave the United Kingdom.
But because of recent election results, Belgium may be the country where an internal divorce is most likely. Here are some excerpts from a report in the UK-based Financial Times.