Tag: trade

Protectionism Is Crippling Atlantic and Gulf Coast Ports

George Will writes in his column today about the importance of the Port of Charleston – and by extension, trade – to the economy of South Carolina. Recent completion of the 10-year project to widen the Panama Canal to accommodate more traffic and passage of a new class of container ships with nearly triple the capacity of their immediate predecessors has exposed a logistics snafu that could cost South Carolina’s economy billions of dollars: Charleston Harbor is too shallow to accommodate these much larger, “Post-Panamax” ships efficiently (only limited sections of the harbor are deep enough and only during high tide).

According to the American Society of Civil Engineers, these vessels can lower shipping costs from 15-20 percent, but harbors need to be at least 47 feet deep to accommodate them. The U.S. Army Corps of Engineers reports that only seven of the 44 major U.S. Gulf Coast and Atlantic ports are “Post-Panamax ready.” American ports must be modernized if the United States is going to continue to succeed at attracting investment in manufacturing and if U.S. companies are going to compete successfully in the global economy.

As I wrote in the Wall Street Journal last year:

The absence of suitable harbors, especially in the fast-growing Southeast, means fewer infrastructure- and business-development projects to undergird regional growth. It also means that Post-Panamax ships will have to continue calling on West Coast ports, where their containers will be put on trucks and railcars to get products from Asia to the U.S. East and Midwest—a slower and more expensive process.

The problem can be traced to one major issue: funding.  And that issue is made more complicated by another problem: protectionism.  Most funding of infrastructure inevitably come from federal and state budgets – taxpayers, who should have a voice in the debate about whether these infrastructure projects constitute wise public investments.  But a couple of long-standing, though obscure, protectionist laws have conspired to reduce capacity in dredging services, ensuring that projects take twice as long and cost twice as much as they should.

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“The China Shock” Implicates Domestic Policies, Not Trade

A National Bureau of Economic Research working paper by David Autor, David Dorn and Gordon Hanson, titled “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” has created Piketty-like buzz in U.S. trade policy circles this year.  Among the paper’s findings is that the growth of imports from China between 1999 and 2011 caused a U.S. employment decline of 2.4 million workers, and that wages and employment prospects for those who lost jobs remained depressed for many years after the initial effect. 

While commentators on the left have trumpeted these findings as some long-awaited refutation of Adam Smith and David Ricardo, the authors have distanced themselves from those conclusions, portraying their analysis as an indictment of a previously prevailing economic consensus that the costs of labor market adjustment to increased trade would be relatively subdued (although I’m skeptical that such a consensus ever existed). But in a year when trade has been scapegoated for nearly everything perceived to be wrong in society, the release of this paper no doubt reinforced fears – and fueled demagogic rants – about trade and globalization being scourges to contain, and even eradicate.

Last week, Alan Reynolds explained why we should take Autor, et. al.’s job-loss figures with a pinch of salt, but there is an even more fundamental point to make here. That is: Trade has one role to perform – to grow the economic pie. Trade fulfills that role by allowing us to specialize. By expanding the size of markets to enable more refined specialization and economies of scale, trade enables us to produce and, thus, consume more.  Nothing more is required of trade. Nothing!

Still, politicians, media, and other commentators blame trade for an allegedly unfair distribution of that pie and for the persistence of frictions in domestic labor markets. But reducing those frictions and managing distribution of the larger economic pie are not matters for trade policy.  They are matters for domestic policy. Trade does its job. Policymakers must do their jobs, too.

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State-Owned Enterprises and the TPP

My Cato trade policy colleagues and I recently released a Working Paper analyzing the Trans-Pacific Partnership (TPP). We find that the agreement is “net liberalizing,” and that despite its various flaws, the agreement will improve people’s lives and should be ratified. Some aspects of the agreement were obviously good (like lower tariffs) and others were easy to condemn (like labor regulations); but for many of the TPP’s 30 chapters, our opinion is more ambivalent. 

The TPP’s chapter on “state-owned enterprises” (SOEs) is one of those. The TPP’s SOE rules are good rules, but they’re not nearly as ambitious as we wish they’d be. We gave the chapter a minimally positive grade of 6 out of 10. Here’s some of what we had to say in our report:

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Read Cato Trade’s Comprehensive Analysis of the Trans-Pacific Partnership

The Trans-Pacific Partnership trade agreement between the United States and 11 other countries was reached late last year, signed by the parties earlier this year, and now awaits ratification by the various governments. In terms of the value of trade and share of global output accounted for by the 12 member countries, the TPP is the largest U.S. trade agreement to date.

In the United States, the TPP has been controversial from the outset, drawing criticism from the usual suspects – labor unions, environmental groups, and sundry groups of anti-globalization crusaders – but also from free traders concerned that the deal may be laden with corporate welfare and other illiberal provisions that might lead to the circumvention or subversion of domestic sovereignty and democratic accountability.

As free traders who recognize that these kinds of agreements tend to deliver managed trade liberalization (which usually includes some baked-in protectionism), rather than free trade, my colleagues and I at the Herbert A. Stiefel Center for Trade Policy Studies set out to perform a comprehensive assessment of the TPP’s 30 chapters with the goal of answering this question: Should Free Traders Support the Trans-Pacific Partnership?

Yesterday, Cato released our findings in this paper, which presents a chapter-by-chapter analysis of the TPP, including summaries, assessments, scores on a scale of 0 (protectionist) to 10 (free trade), and scoring rationales. Of the 22 chapters analyzed, we found 15 to be liberalizing (scores above 5), 5 to be protectionist (scores below 5), and 2 to be neutral (scores of 5). Considered as a whole, the terms of the TPP are net liberalizing – it would, on par, increase our economic freedoms.

Accordingly, my trade colleagues and I hope it will be ratified and implemented as soon as possible.

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RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.  Then Germany’s economy minister proclaimed the 3-year-old Transatlantic Trade and Investment Partnership negotiations had “de facto” failed, with the French trade minister promising to pursue formal termination of the talks – adding that “the Americans give nothing or just crumbs” (which puts the USTR beneath Marie Antoinette, who at least offered cake). 
 
Whether McConnell is being coy in hopes of extracting concessions from the administration on TPP is unclear, but either way the likelihood is approaching certainty that ratification of the Pacific trade deal will become the responsibility of the next president and Congress.  For reasons given here and here, I’m bullish on that outcome within two years.
 
But the TTIP is a different story.  Although the negotiations are not officially dead, they might as well be. Talks were doomed from the outset, laden with too many intractable issues, too many red lines, a thorough lack of realism concerning the time and effort required for success, and a profound asymmetry in the desire to get a deal done. With U.S. negotiators focused on completing the TPP, the EU’s embrace and commitment to the TTIP became a case of unrequited love.  With each EU overture, the U.S. negotiators could play hard to get.  And they did.
 
Now, the United Kingdom’s likely departure from the EU complicates matters further, with uncertainty about the future composition of the EU impeding proper evaluation of the expected tradeoffs from a prospective TTIP. So, while the prevailing uncertainty likely means TTIP stasis for the next couple of years, Brexit would give U.S. negotiators even more leverage in TTIP than they already have. The possibility of a US-UK free trade agreement or a UK accession to the TPP would undoubtedly shift TTIP dynamics further in favor of U.S. negotiators – and give the UK added leverage in negotiating its own post-Brexit relationship with the EU.
 
TTIP isn’t dead. It’s in a coma. For it to have any hope of recovery and real success – an outcome with real liberalization that is – a restoration of some semblance of symmetry in demand for that outcome is necessary. With the existing imbalance, it’s better to have no deal at all because the misguided objectives of negotiators are to open foreign markets as much as possible, while keeping their own as closed as possible. Negotiators with leverage are more likely to succeed at keeping their own markets closed, depriving their fellow citizens of the real benefits of trade. For Americans to realize the most important benefits of trade liberalization, its negotiators must be matched up against foreign negotiators with approximately the same strength (or leverage). When the foreign trade negotiators don’t have enough leverage, U.S. consumers and import-consuming industries lose.
 
For any TTIP outcome to be considered successful, the deal must tackle U.S. restrictions on competition in shipping (repealing the Jones Act), commercial air services, and government procurement projects. Trillions of dollars of annual economic activity in the United States is provided by domestic suppliers facing no foreign competition, which represents an enormous drag on U.S. growth.  In the TTIP negotiations to date, the United States hasn’t budged an inch to accommodate any liberalization in those areas.  Until that is no longer the case, the TTIP should be considered a failure.
 
When the TTIP negotiations were launched in 2013, I warned in this paper that the talks included the seeds of its own destruction and that a successful outcome would require a new approach:

As great as the benefits may be, the TTIP was not borne of any genuine enthusiasm for the enterprise. In Europe, it was seen as a last resort. Frustrated by the failures of monetary policy and restricted by the imperative of fiscal austerity, policymakers were looking for something—anything—to embrace as a potential economic tonic. Whether they actually thought TTIP likely to bear fruit is an entirely different matter. They wanted something to behold as evidence that Greece did not represent Europe’s fate. Potential voter wrath, political backlash, and stalemate–historically effective deterrents to initiating transatlantic trade talks–took a back seat to the affirmative optics of embracing some plausible initiative that might steer Europe from the abyss.

For U.S. policymakers, the main motivation for launching TTIP was to assuage EU concerns that the United States had written her off in its “pivot” to Asia.
 
Other rationales for pursuing TTIP include the argument that the world needs the United States and European Union to reassert global economic leadership at a time when no other country or group of countries is willing or able to do so. Another is that there is a race to establish global production standards and TTIP, representing half the world’s output, presents an opportunity to establish them here and now. A third ex-post rationale is that by establishing disciplines on issues where other trade agreements are silent—issues like currency manipulation, the operations of state-owned enterprises, local content rules, and others—the United States and EU could establish rules that China and others would eventually have to heed.
 
It is within this context that TTIP emerged. But none of those rationales–pursuing TTIP as a last resort, assuaging hurt feelings, establishing standards, disciplining China and others–seem likely to provide the motivation for negotiators and governments to dig deep and remain committed enough to make difficult choices that may carry political consequences. As the talks drag, will governments remain committed to the goals? Will governments motivated by the “last resort” rationale continue to invest seriously in the negotiations if their economies experience growth and the political costs of TTIP no longer look so necessary to incur? Already there have been signs of retreat from the ambitious goals articulated at the outset.
 
From the outset, negotiators erred by setting a 2014 completion date for the negotiations. There is absolutely no plausibility to that deadline and, frankly, failure to amend the timetable with realistic deadlines will only undermine the credibility of the undertaking with a public already skeptical of trade negotiations.

There are dozens of issues on the table of varying complexity that will likely take several years to resolve. Rather than have a single deadline for a single undertaking, the negotiators should announce that their intention is to achieve a multi-tiered agreement that yields multiple harvests at established time intervals. Some analysts have referred to the TTIP as a “living agreement,” although a common understanding of that concept is not evident nor, to my knowledge, have the governments or their negotiators used this characterization in any official context. They should. And it should work something like this.

Negotiators would take stock of the issues on the table and rank them in order of importance to a successful TTIP conclusion. They would then rank those same issues in terms of order of difficulty to resolve. Based on averaging and some agreed upon weighting of those two sets of rankings, negotiators would identify what they and their counterparts see as the most important and least important issues, as well as the most difficult and least difficult issues to resolve. That exercise would produce a road map for how to proceed.

When the dust settles and greater certainty emerges, the United States and EU (and UK) might consider relaunching the TTIP negotiations along these lines. But the parties should come to the table with a genuine willingness to liberalize everything (including sacred cows) because that is what will generate the interest, excitement, and leverage to achieve a really successful outcome.

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Can the United States, China and Russia Cooperate on Trade?

The 2016 G20 summit in Hangzhou is fast approaching and, similar to the pre-summit meetings hosted by China throughout the year, the focus will be the state of the global economy. Still contending with sluggish global economic growth, the summit’s theme of “Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy” is especially timely. Under the umbrella of global economic growth, cultivating opportunities for trade and investment will become a major priority for G20 states, and three global powers—the United States, China, and Russia—are each developing their own multinational trade route projects. These major trade projects could serve as opportunities for cross-country cooperation and growth, but they could also become sources for future conflict.

China’s management of domestic markets, currency, and commitment to structural reforms was a cause for global concern at the first meeting of G20 Finance and Central Bank Governors in February. At next week’s summit, China’s President Xi Jinping will undoubtedly point out China’s efforts towards realizing supply-side structural reforms in the face of China’s “new normal” of slower economic growth. As part of these reforms aimed at rebalancing China’s economy, Beijing plans to cut industrial overcapacity, tackle overhanging debt, reform state-owned enterprises, and seek out new consumer markets. On the last point, Beijing is championing its New Silk Road Initiative (also known as “One Belt, One Road”), a major state project focused on opening up new markets. To accomplish this, Beijing is building vast trade networks spanning several countries and continents, by land and by sea. However, many countries are wary. The project, billed as purely an economic one, may evolve to include a political and/or military dimension as well.

Is the U.S. Trade Deficit a Problem to Solve?

Since 1975 – for 41 straight years – the United States has registered annual trade deficits with the rest of the world.  That means that year after year, Americans spend more on foreign-produced goods and services than foreigners spend on U.S.-produced goods and services or, put simply, the dollar value of U.S. imports exceeds the dollar value of U.S. exports.

For almost as long, some economists have been arguing that trade deficits are unsustainable – they sap economic growth, bleed jobs, and saddle our descendants with debt.  Perhaps if one looks at the trade deficit (or the slightly broader current account deficit) in isolation, these concerns might seem to have merit.  But looking at the U.S. trade or current account deficits without considering the capital account surplus is a meaningless, misleading exercise.

Yesterday, I published this piece at Forbes online, explaining why the trade deficit is not only not a problem, but that the associated capital surplus (the excess of inward investment over outward investment), which includes high-quality foreign direct investment, bestows huge advantages on the U.S. economy.  In that piece, I ask trade deficit hawks (or scolds, as I call them) to furnish their best, fact-based, comprehensive arguments – to finally step up to the plate and explain why it is that the trade deficit is a problem to solve.  

It would be of immense public policy value if we were to be able to catalogue and compare the arguments of both sides (and those who may be in the middle).  After all, one of the reasons that trade is so maligned is that the public has been lead to believe that the trade account is a scoreboard, with the deficit indicating that Team America is losing – and it’s losing on account of poorly negotiated trade deals and foreign cheating.  Helping the public reach that conclusion (rather than find the truth) may be the goal of some noisy contributors, but I suspect there are plenty of trade deficit hawks with purer motives, if not convincing arguments.

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