Tag: Trump

Yes, Tariffs on Imports from China Are Taxes (Even When Absorbed by Business!)

Instead of entering what many anticipated would be the home stretch of negotiations to end the nearly yearlong trade war, U.S. tariffs on about $200 billion of imports from China are set to increase from 10 percent to 25 percent tomorrow morning. There is plenty of speculation as to what happened, who’s to blame, whether President Trump is engaging in negotiating tactics described in “The Art of the Deal,” and which economy is better situated to withstand a wider, longer trade war (as if a 10 percent economic contraction means victory if the other economy shrinks by 15 percent).

The most prominent explanation for the abrupt reversal is that U.S. negotiators learned that their Chinese interlocutors were backing away from previous commitments to resolve the forced technology transfer problem, which is one of the most important U.S. objectives in these talks. After mulling that development last weekend, Trump opted for escalation. He also promised that the balance of Chinese goods (another $250 billion of imports not yet tariffed) soon will be hit with rates of 25 percent, as well. In response, Beijing announced it will impose yet-to-be-specified countermeasures.

Interestingly, this week’s developments haven’t completely torpedoed the negotiations. A somewhat smaller (than originally planned) delegation of Chinese officials is in Washington for negotiations slated to begin at 5pm, which gives them exactly 7 hours to sort everything out before Trump’s higher tariffs take effect at the stroke of midnight. Don’t expect a comprehensive deal or even the contours of one to materialize, but with Chinese Vice Premier Liu He making the trip to Washington despite this latest upheaval, there is at least some hope that the actual tariff escalation will be deferred.

It turns out that the fine print in the Federal Register notice announcing the new rates states that products leaving China after 12:01, Friday, May 10, will be subject to the higher tariffs. It takes about two weeks for a cargo ship departing Shanghai to arrive in Long Beach, so negotiators really have seven hours, plus about two weeks, to reach a deal before Customs has to tax U.S. importers at the new, higher tariff rate. Of course, time is much shorter (seven hours plus about twelve hours!) for importers of high-value, fragile, and perishable products, which are typically transported by air.

As of this moment, the United States has punitive tariffs in place on approximately $250 billion of imports from China. Since last July, tariffs of 25 percent have been levied on imports that were valued collectively at about $50 billion in 2017. Nearly all of those goods are intermediate inputs or capital equipment—the purchases of U.S. producers. Trump advisor Peter Navarro was pleased to note at the time that, in selecting the products to target, he and colleagues used a special economic model to help them avoid burdening consumers by focusing on business purchases, as if businesses don’t pass their higher costs onto consumers in the form of higher prices or onto to their shareholders and workers in the form of lower profits. Thanks, Pete!

After Beijing retaliated, the Trump administration imposed 10 percent tariffs on an additional $200 billion of Chinese goods. This time, the majority of targeted products were consumer goods. It is this tranche of products for which tariffs are slated to increase to 25 percent at midnight. Makes one pine for the days when Navarro worried about consumers.

If matters aren’t resolved quickly, the likelihood is very high that all U.S. goods imports from China will be hit with tariffs of 25 percent.  Let me try to put that in some perspective.

In 2017 (before the punitive tariffs were in place), U.S. imports from China totaled $504 billion and duties paid to U.S. Customs amounted to $13.5 billion, which is an average applied tariff rate of 2.68 percent. Last year, when tariffs of 25 percent on $50 billion of Chinese goods were imposed in June and July, and additional tariffs of 10 percent on $200 billion of Chinese goods were imposed in late September, the value of imports from China totaled $543 billion and the duties collected came to $23 billion—an average applied tariff rate of 4.23 percent.  Nearly $10 billion of costs associated with the higher tariffs were imposed on consumers, businesses, shareholders, and employees.

It turns out that for many products Americans purchase from China, demand is fairly price inelastic. In other words, a one percent increase in price generates less than a one percent decline in quantity demanded. Total revenue rises. At least that is the case for broad swaths of products within the range of price increases attributable to the tariffs. Afterall, despite that tariffs, import value rose from $504 to $543 billion in 2018. Maybe there aren’t many substitute sources or the costs of finding substitutes and switching is too high relative to the tariffs.

A 25 percent across-the-board tariff could generate different effects. Demand may be more price elastic for more products at that price range. In other words, we will likely see a decline in import value from China if 25 percent tariffs are imposed. That means that the added costs directly attributable to the tariffs would not be 25 percent of $543 billion (the 2018 value), for example, because the value of imports will be lower. How much lower depends on these elasticities and other factors.  However, 25 percent of $543 billion is not an unreasonable, upper end estimate of the costs to U.S. consumers and businesses that would be attributable to a 25 percent across the board tariff. That’s $135 billion. That’s a cost of about $400 for every person in the United States. That’s a lot.

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Boiling a Frog in the Middle East

Tensions in the Middle East are getting higher, with the announcement that Iran would take steps that could make it harder for them to comply with the terms of the nuclear deal – and more importantly, that they would potentially violate the deal if the other parties to the agreement don’t do more to mitigate the impact of U.S. sanctions.

The announcement came after weeks of Trump administration moves to ratchet up pressure on Iran, from oil sanctions waivers to designating the IRGC as a terrorist organization. Just this week, John Bolton announced that the U.S. would be sending “a clear and unmistakable message to the Iranian regime” by speeding up the deployment of a carrier strike group to the region.

Is the Trump administration pushing for war in the region? It’s hard to say. As I point out in a recent article

While there are superficial similarities with the 2003 Iraq war, the Trump administration has made no real effort to actually make the case for war against Iran. Instead, they’ve spent the last two years alienating US allies in Europe, doing everything possible to undermine international non-proliferation frameworks, and generally giving the impression that America will be to blame in the case of a conflict. To be blunt, if the administration is seeking war, they’re doing it in a very stupid way.

Unfortunately, that doesn’t mean that conflict won’t happen:

Just because the Trump administration isn’t uniformly pushing for war doesn’t mean it couldn’t happen. The slow, purposeful build-up to the invasion of Iraq in 2003 is one way to start a conflict. But miscalculation and mistakes are another. By repeatedly escalating the situation – particularly in the military realm – the Trump administration risks an unplanned clash with Iranian-backed forces in the Gulf, Iraq, or Syria.

You can find the whole article, along with discussion of the differences between Trump’s advisors on this question, over at Inkstick.  

Immigration’s Popularity Is Rising Thanks to Trump

I recently reviewed Reihan Salam’s Melting Pot or Civil War? A Son of Immigrants Makes the Case Against Open Borders.  My review is critical, but there is one major point on immigration that Salam gets right elsewhere: President Donald Trump will undermine the cause of immigration restriction.  Trump’s ugly rhetoric from the beginning, his administration’s casual and unnecessary cruelty in the case of child separations, his pandering with the Muslim travel ban, and his consistent call for a wall that will not slow down the flow of illegal immigrants and asylum seekers who turn themselves in to Border Patrol, are all potentially undermining immigration restriction.  Immigration is getting more popular.

Gallup has been asking the same question on immigration since 1965:

Thinking now about immigrants – that is, people who come from other countries to live here in the United States, in your view, should immigration be kept at its present level, increased or decreased?

Since Trump was elected in 2016, the percentage of Americans who wanted increased immigration has risen by 9 percentage points from 21 percent to 30 percent (Figure 1).  Meanwhile, the percentage of Americans who want less immigration has fallen from 38 percent to 31 percent.  In other words, the difference between those who want to increase immigration and those who want to decrease it currently lies within the statistical margin of error.  The percentage of those who want to keep immigration at the present level has stayed constant over that time.  The last time support for increased immigration climbed that much in so short a time was between 2011 and 2014, during a debate over a major reform bill in Congress.  Although the pro-reform side did not convince Congress to liberalize immigration law, they may have changed the minds of many Americans.

The current and gradual shift toward the pro-immigration opinion is especially large compared to 1993 when only 6 percent of Americans wanted to increase immigration and 65 percent wanted to decrease it.  Since then, the percentage of Americans who want more legal immigration has increased 5-fold while the percentage of those who want to cut immigration has more than halved. 

Figure 1

One criticism of the above Gallup question is that it asks about all immigration, which also includes illegal immigration.  Anecdotally, many people tell me that the question is bad because it doesn’t specify legal immigration and that support for legal immigration is much higher.  Gallup asked the same question about LEGAL immigration in 2018 and the results were barely different from the ALL immigration question (Table 1).  Fewer people support decreasing legal immigration and more support increasing it, but the difference is minor.  Bottom line: Most people who read the “all immigration” question understand that it includes “legal immigrants” and isn’t limited to just illegal immigrants.  The group of Americans who is “very opposed to illegal immigration and very supportive of legal immigration” is likely small.    

Table 1

Gallup has a suggestive and intermittently asked poll where they attempt to gauge the public perception of the threat that illegal immigrants pose.  In 2019, 47 percent said that it was “critical” (the highest threat level), but that is below the 50 percent who rated it as “critical” in 2004.  Looking at the two Gallup poll results, some of the people who think that illegal entry is a critical threat do not want to cut immigration.  This has potentially important implications for whether the perception of chaos is a driver of immigration opinion.

Retired and Raking It In

President Trump’s budget yesterday provides the latest evidence of out-of-control entitlement spending. In the baseline projections, Social Security spending will grow 5.9 percent in 2020 and Medicare spending will grow 8.8 percent. Social Security will grow at a 5.8 percent compound annual rate over the coming decade, while Medicare will grow at 7.8 percent. By contrast, inflation is expected to average 2.3 percent annually over the coming decade.

Social Security and Medicare are the first- and third-largest programs in the federal budget, and they are pushing the government toward a fiscal crisis. Medicare spending this year, net of premiums, is $645 billion, while the second-largest program, defense, is $674 billion. But Medicare spending will surpass defense in the next year or two, and by 2029 Medicare at $1.36 trillion will dwarf defense at $787 billion, at least in the baseline projection.

Social Security and Medicare are not the only programs for the elderly in the federal budget. A chart from CBO’s latest update shows the share of overall noninterest federal spending going to the old. The share is expected to rise from 40 percent in 2018 to 50 percent by 2029. Spending on the elderly will create sustained pressure on federal finances and taxpayer wallets in the years ahead.

President Trump’s Campus Speech Order

President Trump has waded into the ongoing campus free speech controversy—or should I say “cannonballed” in off the high dive. Though lacking in details for now, Trump promised conservative activists at CPAC in Washington, D.C. that he would soon issue an executive order “requiring colleges and universities to support free speech if they want federal research dollars.”

Though debate rages over the nature and extent of the problem—after all, higher education is a vast and complex domain—it must be said that Trump’s objective is highly defensible. Who except would-be censors and narrow-minded political activists thinks free speech is not vital to higher education and the country? And fair minded observers agree that free speech is at least embattled in many institutions, if not in worse shape at others. So who can argue against Trump’s promise?

Alas, my experience in free speech politics and higher education informs my concern that Trump’s end does not justify his means for at least two reasons. First, do we really need yet another executive order to deal with a problem that is already being addressed by many concerned citizens? We the People and our legislative representatives have kicked too many problems over to the executive/administrative branch of government to solve, weakening democratic consensus and self-government in the process. Many critics, including me, chided President Obama’s issuance of a unilateral executive order requiring transgender access to every public school bathroom in America. Though not opposed to transgender rights, we thought it best for each school or state to work out its own policy in this delicate area as a matter of principle. Is Trump’s order any different? This is true apart from the constitutional issues implicit in Trump’s statement which require separate consideration once we know the details.

Second, such an order could well backfire. To begin, the Feds often intervene with a jackhammer, unintentionally breaking things in the process. Recall how the expansive application of Title IX in sexual misconduct cases led to the evisceration of due process in campus hearings for many years. Only recently has the pendulum balancing justice for the accuser and the accused begun swinging back toward an appropriate position. As the president of the University of Chicago, perhaps the nation’s leading institution in supporting campus free speech, wrote in response to Trump’s declaration, such intervention “makes the government, with all its power and authority, a party to defining the very nature of discussion on campus.” Such power undermines institutional responsibility and could readily include chilling the voices of those whose politics differ from whatever group or party controls the government at the time.

Such an order could also undermine faculty free speech activists who have worked hard over the years to restore free speech and liberty on campus. If I have learned anything from the campus politics of free speech, it is that the defense of free speech must be non-partisan in both substance and appearance. Presidents are partisan, and Trump is certainly no exception. In Wisconsin, state campuses construed the state legislature’s 2017 campus free speech bill as partisan, a perspective only reinforced by other legislative measures that intruded upon university autonomy and challenged the academic freedom of some instructors. Trump’s executive order is hardly guaranteed to be helpful to local free speech activists.

There is a way that the administration could help free speech on campus while avoiding these potential pitfalls. In 2003 the assistant secretary of the Office of Civil Rights in the federal Department of Education wrote a letter to colleges and universities affirming the institutions’ obligation to apply existing harassment law in a manner that does not violate the First Amendment: “I want to assure you in the clearest possible terms that OCR’s regulations are not intended to restrict the exercise of any expressive activities protected under the U.S. Constitution.”

Rather than calling for a sweeping policy dictating how higher education institutions should deal with harassment and speech, the 2003 letter simply reaffirmed what was already obvious: in applying harassment policy, be sure not to confuse protected speech with harassment, leaving the implications to each institution and its litigation concerns. A similar letter by Secretary Betsy DeVos might help campus free speech activists, rather than complicate their cause.


*Donald Downs is is the Alexander Meiklejohn Professor of Political Science Emeritus, and the Affiliate Professor of Law, and Journalism Emeritus at UW-Madison. He is currently writing a book on campus free speech for the Cato Institute.

Any Excuse to Raise Tariffs

The Trump administration seems to be looking for every possible excuse to raise tariffs. Early on it intensified the use of anti-dumping/countervailing duties and safeguard measures, which are the built-in protectionism that every administration uses. Then it dusted off some old statutes that had fallen into disuse: Section 232 (national security) to impose tariffs on steel and aluminum from around the world; and Section 301 (used to address unfair trade practices abroad) to impose tariffs on hundreds of billions of dollars of Chinese imports. And now it has a new idea for tariff increases: ending the duty-free access given to imports from some developing countries through the Generalized System of Preferences (GSP) program, and charging normal tariffs instead. Yesterday, the U.S. Trade Representative’s Office made the following announcement:

At the direction of President Donald J. Trump, U.S. Trade Representative Robert Lighthizer announced today that the United States intends to terminate India’s and Turkey’s designations as beneficiary developing countries under the Generalized System of Preferences (GSP) program because they no longer comply with the statutory eligibility criteria. 

India’s termination from GSP follows its failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors.  Turkey’s termination from GSP follows a finding that it is sufficiently economically developed and should no longer benefit from preferential market access to the United States market.

By statute, these changes may not take effect until at least 60 days after the notifications to Congress and the governments of India and Turkey, and will be enacted by a Presidential Proclamation.

My old colleague Sallie James wrote about the GSP program many years ago. The program is definitely flawed, and she called for some sensible reforms. But rather than reforming the program, it seems like the Trump administration is simply looking for opportunities to raise tariffs.

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El Paso Homicides Spiked After Border Fence Was Completed; The Fence Didn’t Cause It

At a recent rally in El Paso, Texas, President Trump again claimed that that city had a high crime rate before a fence was built between it and Mexico in 2008 and 2009.  Many people have pointed out that El Paso has long been a more peaceful city than others, before and after the border fence was built.  This post adds just a few more visuals to hammer home the point made by others and an odd anomaly in homicides.

I constructed the figures using local police department crime data from the Uniform Crime Reports (UCR) database, focusing on departments that policed populations of between 500,000 to 1 million.  That population size was appropriate as El Paso’s population was 683,577 in 2017.  The local police departments variable identifies city police departments in the UCR, but it also includes several large urbanized counties in Maryland, Georgia, Virginia, North Carolina, and elsewhere.  In total, 41 different cities and counties met the criteria, including El Paso.  I further relied on the FBI population estimates to calculate the crime rates.  Lastly, I set the base year of 2000 at 100, and compared the crime rates in El Paso over time with the average crime rates across the other 40 other jurisdictions.

These charts convinced me that I did not need to run any regressions nor was the story significantly than that which was already reported, with one exception.  First, the consistent findings.  Figure 1 shows the overall crime rate in El Paso versus the other 40 jurisdictions.  The gray shaded area is when the El Paso border fence was under construction.  Looks like crime continued to decline in El Paso and in the other cities after the wall was built at about the same rate as it declined prior the government’s construction of a border fence there. 

 

Figure 1: All Crime

 

Figure 2 shows the violent crime rates in El Paso relative to the other jurisdictions, with more of a pre-fence dip in violent crime in El Paso relative to other cities, followed with a bit of a rise before construction began.  The construction of the border fence there looks uneventful.  Figure 3 shows property crime rates and it looks even less impressive than the first two figures.

 

Figure 2: Violent Crime

 

Figure 3: Property Crime

 

Figure 4 shows the homicide rate in El Paso versus the 40 comparison cities – and it spiked more than a year after the government constructed the fence between El Paso and Mexico.  The homicide rate in El Paso was 2.8 per 100,000 in 2008 when fence construction began, fell to 1.9 in 2009 when fence construction, fell again to 0.8 in 2010, spiked to 2.4 in 2011, and climbed again to 3.4 in 2012 before coming back down.  The big decline happened right after the fence was built, but the huge spike also occurred when the fence was fully constructed.  Without a lot more econometrics, I’m unable to even provide hypotheses to explain the crash and spike in homicides in El Paso.  Illegal immigration is probably not a factor as the number of apprehensions in El Paso crashed, partly because of the border fence and partly because of the end of mass illegal Mexican immigration.  Homicide rates in San Diego and Tucson, two other border cities, do not show a similar pattern. 

 

Figure 4: Homicide

 

Regardless of the potential explanations for the spike in homicides shortly after the government completed the border fence in El Paso, President Trump’s story is even less true than has been reported by others – at least according to the empirical standards of this public debate.  Please don’t take this post or what I wrote here as arguing that the border fence in El Paso caused the spike in homicides, as I see no evidence to support that claim and I have not carried out nearly enough statistical work on this issue to confidently state that.  

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