Rumors abound that the Trump administration will soon pursue “significant” retaliatory actions in response to alleged Chinese intellectual property rights (IPR) violations, pursuant to “Section 301” of U.S. trade law. While Chinese government IPR policies are indeed cause for concern and while Section 301 does permit the U.S. executive branch to act unilaterally in response to certain foreign trade actions, there is a smart and a not-so-smart approach to these issues, with the latter likely to be unintended by Congress, inconsistent with U.S. trade agreement obligations, ineffective, harmful for U.S. consumers and exporters, and met with a legitimate rebuke from not only China but also other U.S. trading partners. The alternative, on the other hand, would present the President with a golden opportunity to pursue a smart U.S. trade policy response to a serious issue that could achieve the same objectives as the other option, but in a more strategic and effective manner.

If reports are to be believed, the President is unfortunately not inclined to take the smart approach.

Section 301 of the Trade Act of 1974 provides the U.S. executive branch with the authority to enforce U.S. rights under international trade agreements and to respond to certain foreign “unfair” practices not covered by trade agreements. Section 301 is the principal statutory mechanism under which the President may unilaterally (1) determine that a foreign country has violated existing trade agreements or has engaged in acts that are “unjustifiable” or “unreasonable” and burden U.S. commerce; and (2) take retaliatory action to enforce U.S. rights under a trade agreement or to obtain the elimination of the foreign country act in question. The United States Trade Representative (USTR) makes determinations, initiates and conducts investigations, and implements any retaliatory action under Section 301.

Prior to the advent of the World Trade Organization (WTO) dispute settlement system in 1995, USTR frequently invoked Section 301 to seek to eliminate “unfair” foreign government trade practices. The mechanism’s frequent use was in large part due to the fact that the WTO’s predecessor – the General Agreement on Tariffs and Trade (GATT) – provided for less coverage and less accountability than the new WTO system. With the WTO now online and with new WTO rules against Members’ unilateral retaliation (more on this below), Section 301 fell into disuse, with only a few actions since the late 1990s.

In August of last year, however, USTR initiated an investigation of China under Section 301, which sought “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.” USTR’s notice of initiation lists four types of conduct that were to be examined in the investigation (emphasis mine):

1. The Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies;
2. The Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China;
3. The Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in strategic industries; and
4. The investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information.

USTR’s findings are officially due by August 2018, but various media outlets report that the Trump administration’s USTR has already completed the Section 301 investigation and is now considering whether to impose steep tariffs on a large swath of Chinese imports. Inside U.S. Trade[$] says that “the 301 remedies against China would include what some called ‘significant’ tariffs covering retaliatory action in the trillion-dollar range,” with USTR arriving “at such a high number by calculating the cumulative damage the U.S. believes China’s IP and tech transfer policies have caused over the past 10 years.” Private groups are expecting tariffs because, as one source put it, “[Trump] seems to like tariffs, not because they’ll do much good.” Axios generally agrees, noting that it’s likely Trump in January will “put tariffs on Chinese consumer electronics as retaliation against the country's widespread theft of American companies' intellectual property.”

A massive unilateral tariff response by the United States would be a big mistake rife with legal and economic problems. This is unfortunate because there is widespread, bipartisan agreement in the United States that Chinese IPR practices are a problem – a concern shared by many U.S. trading partners – and because, as noted below, there’s a far smarter approach to this problem under Section 301.

Democracy in America can only work when members of the public are free to participate in the political process. That’s exactly what Fane Lozman was trying to do when a Riviera Beach, Florida, city official ordered him arrested 11 years ago.

Lozman sued the city, arguing that his arrest was in retaliation to his First Amendment-protected criticism of city policies and corruption. Before this arrest, city council members were on record suggesting “intimidating” him due to his opposition of the city’s redevelopment plan. The city had also made Lozman “the target of a string of legal pressures,” including attempting to evict him from the local marina (which a jury found to be retaliation for Lozman’s First Amendment expression), arresting and removing him from a different council meeting, and much more.

Despite all that, the U.S. Court of Appeals for the Eleventh Circuit ruled that Lozman was barred from suing the city because there may have been probable cause for his arrest, and further that the existence of probable cause categorically barred a claim for retaliatory arrest. What’s worse is that the crime for which “probable cause” the city relies on—“disturbance of a lawful assembly”—wasn’t mentioned or identified until trial eight years later.

The Supreme Court agreed to hear the case. Because a categorical bar on First Amendment retaliation claims for arrests supported by probable cause would deal a serious blow to our First Amendment freedoms, Cato joined the Institute for Justice on an amicus brief supporting Lozman. Under the lower court’s approach, courts would be forbidden from looking into the government’s motives in retaliatory-arrest cases the way they do with ease in other First Amendment retaliation cases. This would encourage local governments simply to arrest dissenters, knowing endless justifications could be manufactured after the fact and virtually eliminating any constitutional check on their retaliation.

For example, the offense that was ultimately claimed as the basis for Lozman’s arrest—“disturbing a lawful assembly”—requires only that one act with reckless disregard for whether one’s conduct will “impede the successful functioning of the assembly.” That vagueness could include anyone who speaks passionately at a public meeting. The result is to insulate arresting officials from liability even where, as here, the circumstances of the arrest strongly indicate a retaliatory motive.

Whether your First Amendment rights are protected should not be predicated on how the government infringes them, but that is the result of requiring judges and juries to close their eyes to the reasons for arrests. In these cases, there’s no reason to keep a jury from assessing that motivation and holding the government liable if the arrest was in retaliation for protected speech.

Retaliation forces the intolerable choice of speaking out and facing personal jeopardy or keeping silent. Faced with that choice, all but the most courageous will keep quiet—undermining the “uninhibited, robust, and wide-open” debate on public issues that the First Amendment protects. If the Supreme Court lets the lower court’s decision stand, local governments seeking to silence political activists will be empowered to abuse them. 

This is from Marc Thiessen, writing in the Washington Post:

Trump inherited a regulatory state that had grown to unprecedented levels under President Barack Obama. One way to measure the growth in regulations is by counting the number of pages in the Federal Register, the book the government publishes containing all new regulations. Seven of the eight largest annual page totals in American history occurred under Obama. Before Obama, no president had ever exceeded 80,000 pages in the Federal Register. In 2016, Obama became the first president to break the 90,000-page mark—96,702, to be exact—and if you add his last 20 days in office, the total reaches 103,432.

Trump cut that number nearly in half. From Jan. 23 through Dec. 19 of this year, he has added just 53,550 pages to the Federal Register. And many of those pages were not new regulations but announcements of regulations being withdrawn. His efforts exceeded even those of President Ronald Reagan, who cut Federal Register pages by more than one-third during his time in office.

This sounds like good news, although perhaps it is partly due to the Trump administration taking a while to get its bearings during its first year. If it ever gets around to infrastructure, as Trump keeps threatening, we may see a lot more regulating. In addition, I thought it was worth pointing out that in trade policy, we are going in the opposite direction, as the Trump administration proudly proclaims the increase in regulatory actions it is taking. Here’s something from a recent press release from the Commerce Department:

Enforcement of U.S. trade law is a prime focus of the Trump administration. From January 20, 2017, through December 18, 2017, Commerce initiated 79 antidumping and countervailing duty investigations—a 52 percent increase from 52 initiations in the previous year. 

To clarify, there is an existing set of laws and regulations that allow companies and unions to petition the U.S. government to impose extra tariffs on their foreign competitors, in the form of antidumping and countervailing duties. There may be multiple reasons for the increase pointed out by the Commerce Department, and much of this would likely have happened even under a President Hillary Clinton. Nevertheless, when you hear people tout Trump’s push for lessening the burden of regulation, keep in mind that with trade policy, we are seeing a regulatory expansion, including the investigations noted above, as well as, potentially, other new measures under consideration.

Amy Fabbrini and Eric Ziegler of Redmond, Oregon have not been accused of abuse or neglect, and “both have standard high school diplomas,” reported Samantha Swindler in The Oregonian this summer. But the state of Oregon deems their IQs to be too low and has seized their two sons in what has turned into a four-year battle. 

I was a guest in August on Glenn Beck’s radio show to discuss the case. The Blaze summarizes:

Essentially, the state doesn’t have to prove anything definite to take away a child; the argument is that they are going by the expert’s recommendation for what’s best just in case something could happen. In Fabbrini’s case, her estranged father has told authorities that she is an unfit mother; however, people closer to her have vouched for her ability to parent.

“If they [authorities] want to take your child, they’ve got him,” Olson said….

“It’s been called [‘worst-first’] thinking,” he explained. “If you’re in the child protection business, then, you know, everything looks like a danger. … You always think the worst possible thing could happen.”

And now, from The Oregonian, word of a joyous—though only partial—reunion: 

Four days before Christmas, a Redmond couple received their miracle. Amy Fabbrini and Eric Ziegler’s 10-month-old son Hunter will spend his first Christmas at home after a judge found the couple’s limited cognitive abilities did not make them unfit to parent.

But the ruling does not reverse the termination of the couple’s parental rights over 4‑year-old Christopher, who is deemed to have more complex needs because of developmental hurdles; they will be back next month in court to fight that. 

As they say, hug your loved ones close this holiday season and rejoice if you have the good fortune to be together (adapted from Overlawyered).

The New York Times recently covered the downfall of Cape Wind, the planned installation of 160 wind turbines off the coast of Massachusetts. The article portrays Cape Wind, and its founder Jim Gordon, as clean energy martyrs and the determined affluent opponents, who did not want their ocean views impaired, as villains. While the opposition to the project played a role, Cape Wind power also would not have been competitive in the marketplace.

Two Regulation articles have described the economic problems of Cape Wind. Ryan Murphy and Sophia Morales discuss Cape Wind’s prices. Even with hundreds of million dollars in government subsidies, the off-shore wind farm would still have charged 26.4 cents per kilowatt hour in 2023. Compared to both traditional energy sources and other green energy—10.5 cents per kWh from a Canadian wind farm and as low as 6 cents per kWh from Quebec hydroelectric—Cape Wind prices would have been high.

Supporters of green energy projects often argue that they help create jobs. The Times article even mentions in passing that Cape Wind would have spurred other wind farm projects on the East Coast. In the Winter 2009–2010 issue, however, John Lesser analyzes this claim. While subsidized green energy creates some visible jobs, it increases the price of electricity and thus eliminates other jobs indirectly. As Lesser argues, “This course of action will cost jobs because businesses, forced to pay higher electricity prices, will either relocate, contract, or disappear altogether.”

The story of Cape Wind, despite the narrative the Times presents, is one of bad economics. The protracted political battle and the fact that it took this long for the project to officially end speak less about the viability of Cape Wind and more about the damage caused by green energy subsidies.

Written with research assistance from David Kemp

Like all states, California has licensed medical centers of every kind. One particular type, often known as a “crisis pregnancy center,” provides pregnancy-related services with the goal of helping women to make choices other than abortion. Based on opposition to these centers, the California legislature enacted a law, the FACT Act, requiring licensed clinics “whose primary purpose is providing family planning or pregnancy-related services” to deliver to each of their clients the following message: “California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women.” But the law also creates an exception for clinics that actually enroll clients in these programs—so, in effect, the law applies only to clinics that oppose the very program they must advertise.

Several of these crisis pregnancy centers sued to block the law, arguing that it violated their First Amendment rights by forcing them to express a message to which they are opposed. But the U.S. Court of Appeals for the Ninth Circuit upheld the law, holding that it regulates only “professional speech” and therefore should be reviewed under a more deferential standard, rather than the normal strict judicial scrutiny that applies to laws compelling speech. The Supreme Court agreed to review that ruling in a case called National Institute of Family and Life Advocates (“NIFLA”) v. Becerra. Cato has filed a brief urging the justices to correct the lower court’s flawed reasoning.

Among its many problems, the lower court’s definition of “professional speech” is dangerously overbroad: it doesn’t limit restrictions to a professional’s specialized knowledge or require that the speech be appropriate to each client’s individual circumstances. By determining that the compulsory message required by the FACT Act is merely a regulation of professional speech, the Ninth Circuit both blessed the commandeering of professional speech to deliver any favored government message under the guise of protecting public health and gave itself permission to apply intermediate, rather than strict, scrutiny—contrary to Supreme Court precedent—to determine that the Act’s disclosure requirements are constitutional.

Compelled speech is potentially dangerous in any context. It violates the freedom of conscience that the First Amendment is meant to protect and allows the government to promote any message it deems desirable, which is why it typically receives the most exacting scrutiny. Likewise, by discriminating based on content—because the state mandates an exact message—and on the speaker’s viewpoint—by regulating only pro-life centers who do not already participate in the programs the state wishes to advertise—the FACT Act must be examined under strict scrutiny. That is, the law must be narrowly tailored to serve a compelling interest that can’t be achieved in any other way.

This is a test the law can’t survive because (1) exemptions to the disclosure requirements illustrate that they are underinclusive, and (2) any number of other methods for distributing the same information exist that wouldn’t impose significant burdens on speech.

In NIFLA v. Becerra, the Supreme Court should reverse the Ninth Circuit.

If we were creating our nation’s housing mortgage regulatory environment from scratch it would not look anything like our current morass, most people would agree. For instance, it is doubtful that anyone would agitate for creating anything akin to Freddie Mac and Fannie Mae, the government-sponsored enterprises that–now almost exclusively–buy, bundle, and resell home mortgages, let alone suggest that the government provide those mortgages an explicit guarantee. Countries without our heavy government footprint in the mortgage market–which includes the mortgage interest deduction as well as a near-universal 30-year mortgage–manage to achieve home ownership rates that exceed our own.

However, we are not starting from scratch, and political constraints preclude getting rid of Fannie Mae and Freddie Mac, so we need to ask what’s the best way to fix the financial scaffolding of the domestic housing market given that Fannie and Freddie–or some iteration thereof–are here to stay.

And for the record it is clear that there is a problem afoot: as I explained earlier this year, new housing starts post-great-recession have been well below historical levels: For instance, 2016 was the post-recession high and it was still below any non-recession year in the last half-century. Part of that decline has to do with a myriad of new regulations boosting the cost of home construction, and another part has to do with the senseless accretion of land regulations in Blue America, but it is also the case that for many it remains more difficult than it should to obtain a mortgage.

The result of these constraints is that in much of America, housing costs constitute a greater proportion of household income than at any other time since World War II, and an increasing share of households spend more than a third of their take home pay on housing costs.

One major cause of the mortgage market morass has been that Fannie and Freddie have little capital at their disposal. The Third Amendment–a 2012 Treasury directive from the Obama Administration mandating that Treasury “sweep” the net worth of the two entities into its coffers each quarter–has left them with insufficient working capital to do what the law tasks them to do. In 2018 they will, in fact, have no capital at all at their disposal unless and until Treasury acts to give them some. What’s more, tax reform has–albeit inadvertently–increased its need for a capital injection.

The hope of those who want a reform of the status quo was that the optics of a Treasury “draw” by the GSEs next year would be a motivating factor for Congress to resolve their status, but it is not clear that will, in fact, light a fire under Congress. There is some manifestation of Congressional dissatisfaction with the current mess-some members of the Senate Banking Committee–on both sides of the aisle–have been discussing some sort of reform, and Rep. Jeb Hensarling–chair of the House Financial Services Committee–has begun working in earnest in an attempt to achieve some sort of bipartisan solution to the GSE limbo.

However, the odds of a substantive bipartisan bill getting through the Senate in the current environment are slim; among other reasons, it is difficult to see Senator Elizabeth Warren agreeing to what would undoubtedly be an unsatisfactory patch when the Democrats could conceivably be in charge of Congress in 12 months and legislate their own solution.

The political gridlock, along the approach of 2018 and the prospect of two GSEs becoming bereft of capital, has prompted Mel Watt, director of the Federal Housing Finance Administration, to announce that the GSES will retain $3 billion of capital to ensure they can keep doing their business.

Given the current gridlock it was a prudent step to take. It will not prevent the need for the GSEs to draw funds from Treasury at some point in 2018, but it will ensure that they can continue doing what they are supposed to do for the foreseeable future.

However, the GSEs need more than this palliative–Congress needs to address the current housing finance crisis in a timely fashion if the housing market is ever going to return to normalcy. Here’s hoping that 2018 results in a reform of our mortgage financing regulatory world that concomitantly reduces government exposure to the vagaries of financial markets while boosting the supply of housing in the U.S.