Tag: trade policy

Clayton Yeutter, RIP

After a long battle with cancer, Ambassador Clayton Yeutter passed away on Saturday at the age of 86 at his home in Potomac, Maryland. With his passing, the world parts not only with a brilliant, effective, accomplished leader, but an extraordinarily generous, decent man whose enduring kindness and humble demeanor made politics and policymaking in Washington more tolerable for all involved.

Clayton Yeutter had a long an illustrious career spent in both the private and public sectors, as well as in academia, but he is probably best known for his service during the Ronald Reagan and George H.W. Bush administrations.

As Reagan’s U.S. Trade Representative from 1985 to 1989, Ambassador Yeutter presided over implementation of the very first U.S. bilateral free trade agreement (with Israel) and he launched and oversaw negotiation of the U.S.-Canada Free Trade Agreement, which evolved into the North American Free Trade Agreement, to include Mexico, in 1994.

As USTR, Ambassador Yeutter also launched and advanced the “Uruguay Round” of multilateral trade negotiations in 1986, under the auspices of the General Agreement on Tariffs and Trade, which resulted in broader and deeper reductions in global barriers to trade than had previously been achieved, and it established the World Trade Organization in 1995.

During the first two years of the George H.W. Bush administration (1989-91), Yeutter served as Secretary of Agriculture, where he was instrumental in steering U.S. agricultural policy back to a more market orientation, from which it had deviated in the mid-1980s. The 1990 farm bill (The Food, Agriculture, Conservation, and Trade Act of 1990) included reductions in agricultural subsidies that were negotiated during the Uruguay Round.

Yeutter held other high-profile positions, including an eight-year stint as President and CEO of the Chicago Mercantile Exchange—a period during which the volume of trade in agricultural, currency, and interest rate futures more than tripled. He served as Republican National Committee Chairman for two years, following the death of Lee Atwater.

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Trump’s Victory Is a Mixed Bag for China

Xi Jinping FlagDonald Trump’s upset victory over Hillary Clinton last night is bound to stir up fears of instability and uncertainty in East Asia, a region that was almost entirely ignored during the campaign. Commentators have rushed to predict that Trump’s campaign rhetoric will turn into reality: the United States will pull back from East Asia, and China will take advantage of the ensuing chaos to seize geopolitical dominance of the region. This morning James Palmer at Foreign Policy writes, “Chinese leaders near me in the palatial complex of Zhongnanhai are surely cracking open the drinks.” This is a pretty scary vision of the future. However, such assessments, which focus solely on Chinese benefits, don’t take into account the complex nature of U.S.-China relations.

President Trump is by no means a clear victory for China. The uncertainty created by his victory could easily produce an economic and geopolitical climate that damages Chinese interests. For example, three of the seven points in Trump’s Plan to Rebuild the American Economy mention policies that would hurt the U.S.-China economic relationship: labeling China a currency manipulator; bringing trade cases against China in the World Trade Organization; and imposing tariffs in response to “illegal activities.” Igniting a trade war with China would pose a severe risk to China’s economy, which is already slowing down. Trump’s stated policies would likely deepen China’s economic woes, thereby increasing the domestic instability that Beijing is obsessed with avoiding, especially in the lead-up to the 19th Party Congress in late 2017.

The Global Poor, the Great Enrichment, and the American Working Class

Americans have lately been debating the tradeoffs we face as the global poor rise. Their gains have been enormous and unprecedented. And yet the American working class has struggled to better itself even as conditions have improved for most others:

Image source.

Percentiles 80-95 contain many from the relatively rich countries’ lower-income classes; there are a lot of Americans in there. Other factors may be at work, but let’s say for the sake of argument that the gains by the global poor have on balance harmed at least some of them.

So why is this happening? Is it part of some other nation’s malicious plan? Is it China, perhaps? Or India? Or did we inadvertently do it to ourselves, through bad trade agreements or “soft” foreign policy?

It’s natural to want to make the story about us, or our actions, or a villain who threatens us. Those sorts of explanations are politically useful; they suggest that the right leader can get us out of the mess we’re in.

But maybe the correct explanation isn’t about us at all. One way to see this is to ask a slightly different question: Why is the Great Global Enrichment happening right now? Why didn’t it happen in the 1960s? It happened in the 1960s in Japan, after all. It presumably could have happened elsewhere too. So why not?

The Smoot-Hawley Tariff and the Great Depression

[Reprinted with permission from Alan Reynolds, “What Do We Know about the Great Crash?National Review, November 9, 1979]

 Many scholars have long agreed that the Smoot-Hawley tariff had disastrous economic effects, but most of them have  felt  that  it could  not have caused the stock market collapse of  October  1929, since the tariff was not signed into law  until the following June. Today we know that market participants do not wait for a major law to pass, but instead try to anticipate whether or not it will pass and what its effects will be.

 Consider the following sequence of events:

 The Smoot-Hawley tariff passes the House on May   28, 1929.  Stock prices in New   York   (1926=100) drop   from 196 in March to 191   in June.   On June   19, Republicans   on the Senate Finance Committee   meet   to   rewrite   the   bill. Hoping for improvement, the market rallies,  but  industrial production  ( 1967 = 100)  peaks  in  July,  and  dips  very  slightly through  September.  Stocks  rise  to  216  by  September,  hit­ting their peak on  the  third  of  the  month.  The  full  Senate Finance Committee goes to   work  on  the  tariff  the  following day,  moving  it  to  the  Senate  floor  later  in  the   month.

 On October 21, the Senate rejects, 64 to 10, a move to limit tariff increases to agriculture. “A weakening of the Democratic-Progressive Coalition was evidenced on October 23,” notes the Commercial and Financial Chronicle. In this first test vote, 16 members of the anti-tariff coalition switch sides and vote to double the tariff on calcium carbide from Canada. Stocks collapse in the last hour of trading; the following morning is christened Black Thursday.   On  October 28,  a  delegation   of   senators   appeals   to   President   Hoover to help push a tariff  bill  through  quickly  (which  he  does  on the 31st). The Chronicle  headlines  news  about  broker  loans on  the  same  day:  “Recall  of  Foreign  Money  Grows  Heavier-All Europe  Withdrawing  Capital.” The following day is stalemate. Stocks begin to rally after November 14, rising steadily from 145 in November to 171 in April. Industrial production stops falling and hovers around the December level through March.

International Trade Policy’s Fatal Conceit

Two recent economic studies purporting to estimate the impact of the Trans-Pacific Partnership (TPP) agreement on the U.S. economy have sparked a kerfuffle between the deal’s advocates and detractors. One study, published by the Peterson Institute for International Economics, estimates increases to U.S. income of 0.5 percent by 2030 with gains to labor accruing slightly more than gains to capital.  The other, published by Tufts University’s Global Development and Environment Institute, estimates that the TPP would reduce U.S. income by 0.5 percent, reduce employment by almost half a million jobs, and increase income inequality.  The findings of each study are being trumpeted as dispositive by their respective constituencies. Who’s right?

In a recent blog post, PIIE-affiliated economist Robert Lawrence wrote that to judge the credibility of these models, three questions should be asked: Is the model used appropriate for exploring trade policy? Does the model depict TPP sensibly? Are the results credible? Lawrence then goes on to explain why he answers “yes” to each question regarding the PIIE study and “no” to each regarding the Tufts study. Well sure, Bob, at a minimum, those criteria are important. And they help distinguish the PIIE model as relatively credible – that is, relative to the Tufts model. But what about relative to reality?  

A model might depict TPP sensibly, but incompletely and imprecisely.  How can we be sure those imperfections don’t have a large impact on the results?  And even if the results are credible, in that they don’t deviate dramatically from expectations, their purpose – or, at least, the weight assigned to these studies in the public’s mind – is to produce reasonable estimates, not to corroborate the model’s capacity to process reasonable expectations.

With apologies to my trade economist friends, anyone who treats the estimates produced by economic models as mathematical truths is, well, part of the problem. Lawrence doesn’t do that, but too many trade policy combatants do. Certainly, some models are more rigorous than others, but all rely on assumptions. The greater the number and complexity of exogenous policy changes being modeled, the greater the number of estimates and assumptions to incorporate, and the further removed from reality the results will be. Sometimes the estimates are merely best guesses and sometimes the assumptions have no better than a 50 percent probability of occurrence.  For example, many of the economic benefits of TPP will derive from reductions in non-tariff barriers to trade, such as regulatory opaqueness.  How does one model the increase in regulatory transparency?  How does one account for stricter environmental or labor or intellectual property regulations? How does one assign numeric values to rules limiting restrictions on cross-border data flows?

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Tariffs on Clean Energy

Here is Paul Krugman the other day, touting President Obama’s efforts to promote clean energy:

Some things I’ve been reading lately remind me that there’s another major Obama initiative that is the subject of similar delusions: the promotion of green energy. Everyone on the right knows that the stimulus-linked efforts to promote solar and wind were a bust — Solyndra! Solyndra! Benghazi! — and in general they still seem to regard renewables as hippie-dippy stuff that will never go anywhere.

So it comes as something of a shock when you look at the actual data, and discover that solar and wind energy consumption has tripled under Obama.

True, it started from a low base, but green energy is no longer a marginal factor — and with solar panels experiencing Moore’s Law-type cost declines, we’re looking at a real transformation looking forward.

You can argue about how much this transformation owes to federal policy. …

I don’t know all the reasons why solar and wind energy consumption has tripled in recent years, but yes, you can argue about the role of federal policy here. The federal policy that I follow most closely is trade policy, and what trade policy has been doing is imposing really high import taxes on solar and wind products, thus raising their costs.  Here’s what my colleague Bill Watson and I wrote about this a while ago:

Over the last couple of years, trade remedy actions on clean energy products have intensified. In the wind industry, the Wind Tower Trade Coalition, an association of U.S. producers of wind towers, brought an AD/CVD complaint against imported wind towers in 2011. The U.S. Commerce Department started an investigation, and announced a preliminary decision in December 2012.

This decision found both subsidization and dumping in relation to Chinese imports and imposed an antidumping tariff of between 44.99% and 70.63%, as well as countervailing duties of 21.86%–34.81%. The Commerce Department also established a separate antidumping duty of 51.40%–58.49% on Vietnamese wind tower manufacturers.

In the solar industry, in October 2011, the Coalition for American Solar Manufacturing, a group of seven U.S. solar panel manufacturers led by Solar World Industries America, accused Chinese solar panel companies of dumping products in the United States. The Commerce Department opened an investigation in 2011 and announced the final ruling in 2012. The decision was to impose antidumping tariffs ranging from 24% to 36% on Chinese producers.

If we wanted to promote clean energy, the first thing we could and should do is stop imposing tariffs on these imports! 

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Fast Track Fallacies Knee-Capping the Trade Agenda

Media have been reporting lately about the public’s burgeoning opposition to the Congress granting President Obama fast track trade negotiating authority. Among the evidence of this alleged opposition is a frequently cited survey, which finds that 62 percent of Americans oppose granting fast track to President Obama.
 
Considering that the survey producing that figure was commissioned by a triumvirate of anti-trade activist groups – the Communication Workers of America, the Sierra Club, and the U.S. Business and Industry Council – I had my doubts about the accuracy of that claim. After all, would lobbyists who devote so much of their efforts to derailing the trade agenda risk funding a survey that might produce results contrary to their objectives?
 
My skepticism – it turns out – was warranted. The 62 percent who allegedly “oppose giving the president fast-track authority for TPP [the Trans-Pacific Partnership agreement]” actually oppose giving the president a definition of fast track that is woefully inaccurate. The graphic below shows the question and response tally, as presented in the report showing the survey’s results, which is here.  Read the question that begins with “As you may know…”
 
 
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