Evaluating the New NAFTA

There’s a lot in the new NAFTA (technically, the US-Mexico-Canada Agreement, or USMCA), some of it good and some of it bad (the new name is terrible, but that’s not particularly important). In this blog post, we offer our thoughts on some of the key provisions, after which we provide an initial overall assessment of the agreement. We break it down into the good, the interesting, the whatever, the worrying, the bad, and the ugly.

The Good:

– Canadian agriculture: In terms of liberalization in the USMCA, the most important component is the liberalization of Canadian agriculture imports, such as dairy products, eggs, wheat, poultry, and wine. Dairy market access was a key concern for the United States, which has long complained about Canada’s strict supply management and quota system. The Office of the United States Trade Representative (USTR) has noted the opening of Canada’s dairy market as a key achievement, because it gives the U.S. additional access to what was agreed in the Trans Pacific Partnership Agreement (TPP). In addition, Canada agreed to give up a pricing system for certain types of milk, as well as expanding the U.S. quota for chicken, eggs, and turkey. On wine, the U.S. and Canada agreed in a side letter that the Canadian province of British Columbia (BC) would adjust its measures restricting the sale on non-BC wine in its grocery stores. The United States has agreed to give BC until November 2019 to make this adjustment, before advancing a complaint it already put forward at the World Trade Organization (WTO) on this issue. This is the most positive part of the new agreement. It gives U.S. producers greater access to the Canadian market, and will be good for consumers in Canada. 

– de minimis: The de minimis threshold for products that you buy online and can be imported duty free has been raised. The United States allows consumers to purchase goods up to $800 duty free, and has been pushing for Canada and Mexico to raise their limits as well. It did not persuade them to do so in the TPP. In the USMCA, however, Canada raised its de minimis threshold to CAD $150—a significant increase from the previous CAD $20 limit. In addition, sales tax cannot be collected until the value of the product reaches at least CAD $40. This is good for Canadian consumers making online purchases. Additionally, a 2016 study showed that increasing the duty free limit would be cost-saving for Canada. Mexico also increased its de minimis level, from USD $50 to USD $100, with tax free diminimis on USD $50. USTR has noted that this will be especially helpful for small businesses. 

The Interesting: 

– Investment protection/ISDS: These provisions have been significantly scaled back. We see this as a positive, and it will be interesting to see how it plays politically with left wing critics of existing investment provisions, and with the business groups who want these provisions included. 

– Regulatory issues:  One notable addition was an expansive chapter on Good Regulatory Practices, which builds upon the TPP Regulatory Coherence chapter, the Canada-EU Comprehensive and Economic Trade Agreement (CETA), and bilateral initiatives that have been in place between the U.S. and Canada, as well as with Mexico, since 2011. The key items in this chapter are provisions on increasing transparency in the regulatory process, providing a clear rationale for new regulatory actions, as well as encouraging cooperation on minimizing divergence in regulatory outcomes. The general idea is to make regulations less burdensome on trade. It will be interesting to see how this chapter functions in practice, but it appears to be the most comprehensive attempt to address this issue in any trade agreement the United States has signed. 

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Trump Has Cut Christian Refugees 64%, Muslim Refugees 93%

In a campaign address, Donald Trump told his supporters that “if you are Syrian and you’re Christian, it’s almost impossible to come into the United States… it’s all going to change.” After his inauguration, he reiterated the promise. “They’re chopping off the heads of everyone, but more so, the Christians,” he told CBN News. “I thought it was very, very unfair, so we’re going to help them.”

But he hasn’t. Refugee resettlement has changed, but not for the better. While his administration has reduced Muslim refugee arrivals 93 percent compared to the final months of the Obama administration, it has still slashed Christian refugees 64 percent. He has also cut Syrian Christian refugee arrivals by 94 percent and those from Iraq by 99 percent. He has admitted just 20 Syrian Christians in all of Fiscal Year 2018.

Figure 1 shows the monthly average refugee arrivals by fiscal year—which starts on October 1 and ends on Sept. 30—as far back as there are statistics available for religion. During the months of FY 2017 when President Obama was still in office, Christian refugee admissions averaged 3,586 per month. Christian admissions fell to 1,411 per month during the rest of the fiscal year before plummeting to 1,334. Figure 1 also shows that, while the Obama administration oversaw a rise in Muslim refugees, it didn’t reduce Christian refugees as a result.

Figure 1: Monthly Average Refugee Arrivals by Religion

The rate of Christian refugee admissions has been 50 percent lower under President Trump’s first two years than under President Obama’s entire term, and it is 25 percent the monthly rate under President Bush. President Trump’s rate of admissions for Muslims was 72 percent lower than Obama and 47 percent lower than Bush. His rate of admitting people of other faiths was 78 percent and 64 percent lower than Obama and Bush, respectively.

Figure 2: Monthly Average Refugee Admissions by Administration and Religion

On Syrian Christians specifically, President Trump has permitted the entry of just 2 per month in 2018—which is a reduction of 94 percent compared to the last few months of Obama’s term. Among Christian refugees from Iraq—who also face persecution from ISIS—the numbers have fallen 99 percent.

Figure 3: Monthly Average Admissions of Iraqi and Syrian Christian Refugees

The unfortunate part of this story is that Trump was right: the Obama administration and the United Nations High Commissioner for Refugees did let down Syrian Christians as ISIS committed genocide against them. But President Trump has not corrected this mistake—he’s made matters worse.

Some analysts give partial credit to Christians of Middle Eastern ancestry for President Trump’s surprise 2016 upset in Michigan because they voted for him based on his promise to save Christian refugees. Yet not only has his administration cut Christian refugee resettlement, it has attempted to deport hundreds of Iraqi Christians living in the United States without legal status for many years. A federal district court even accused the Trump administration of impeding the Christians’ attempts to challenge their removals in courts and declared that they are “confronting a grisly fate… if deported to Iraq.”

The Trump administration is hostile to Christian refugees for the same reason that it opposes other legal immigrants to the United States: they could take jobs from Americans, commit crimes, and use welfare in the United States. Never mind that they commit crimes at lower rates than Americans, that even the Trump administration has found that refugees are fiscally positive for the United States, and that employed refugees create better paying jobs for existing workers.

By cutting the refugee program across the board, the Trump administration has not just violated a campaign promise to resettle more Christian refugees—it has condemned many more to desperate poverty, persecution, or death. President Trump may not even be aware that his administration has failed to uphold his wishes. If he isn’t, perhaps he can force his bureaucrats to correct course if it comes to his attention. If he is aware, then Christian refugees have another long wait before they can hope for an escape to the land of the free and the home of the brave.

Feds: We’re Not Going To Stand For Asbestos-Bankruptcy Fraud

For well over a decade it’s been apparent that the distinctive arrangements by which asbestos plaintiff’s lawyers acquire control of the bankrupt remains of defendant corporations they’ve sued, and then exercise control over those firms’ claims, disbursements, and general management, is fraught with self-dealing and sometimes fraud, ranging from the charging of unnaturally high fees to the concealment of double- and triple-dipping by claimants. Business interests have pursued a campaign in the states and Congress to require more transparency and better judicial oversight of asbestos bankruptcy trusts. Now they may have a powerful ally indeed in the federal government, which has weighed in with an early statement of interest in one such bankruptcy to insist on better controls against fraud and abuse. Its standing for such an intervention arises in part from its role as Medicare and Medicaid payor (entitled by law to recoup some health-related outlays) rather than merely from any interest it might have in heading off fraud generally. Daniel Fisher at Forbes:

In the Trump administration, at least, the government will no longer look the other way as asbestos lawyers negotiate lenient terms that make it easy for their current clients to get money at the expense of future claimants and federal entitlement programs….

The government’s unusually blunt statement of interest in the Kaiser Gypsum bankruptcy, long before any plan of reorganization has been approved, warns lawyers against including terms that make it hard to ferret out fraud and abuse, including confidentiality requirements that make it impossible to determine how much claimants have been paid and the basis for their claims….

The Justice Department also warned it will be looking for excessive fees and may not allow claimants to deduct those fees from reimbursement due the government for Medicare and Medicaid expenses.

[cross-posted, slightly adapted, from Overlawyered]

What Would Government Paid Leave Cost Workers?

Cost estimates for new government programs usually vary depending on the source. For government paid leave, cost estimates depend on assumptions about benefit duration, wage replacement rate, eligibility requirements, and more.

A variety of real and hypothetical government paid leave programs are listed below, along with associated costs. 

Source Program specs Cost to average worker  Total annual cost Notes
AEI-Brookings Cost Calculator Similar to the FAMILY Act:
12 weeks paid, 70% wage replacement, $1000 max weekly benefit, FMLA take-up assumptions
0.89% payroll tax = $450/annually for average annual wage of $50,620 $76 billion This seems like a middle-of-the-road estimate.
This estimate uses a benefit profile that closely resembles the FAMILY Act.
American Action Forum FAMILY Act 2.1 percent payroll tax to cover the lower bound estimate = $1,063 annually for mean annual wage of $50,620
A 13.02 percent (997 bill/159 bill = 6.27 and 2.1%*6.27= 13.02%) payroll tax to cover the upper bound estimate = $6,590 annually for average annual wage of $50,620
$159 - $997.4 billion annually The lower bound estimate assumes that everyone that takes paid leave takes 12 weeks in a year. FMLA take-up rates are used.The upper bound number assumes that all workers take paid leave in a given year and is considered the “total cost exposure” of the policy.
Institute for Women’s Policy Research FAMILY Act About $5/week for average wage worker in 2016 = $255/annually for average wage worker $28.3 billion annually  
California – author’s calculation California policy:
6 weeks of family leave and 52 weeks of disability.
1.0 percent in California in 2018 (on wages up to the first $114,967 of earnings) = $506 annually for average worker with mean annual wage of $50,620 n/a This includes family and medical leave benefits, as well.
New Jersey – author’s calculation New Jersey policy:
6 weeks of family leave and 26 weeks of disability.
0.28% combined employee payroll tax + 0.5% employer payroll tax (on up to $33,700 for 2018) = $263 annually for average worker n/a This includes family leave insurance and state disability insurance (temporary medical insurance), as well.
This calculation assumes full pass through of employer payroll taxes associated with state disability insurance. Note that New Jersey payroll taxes are reset annually, so numbers are subject to change.
Rhode Island –author’s calculation Rhode Island policy:
4 weeks of family leave and 30 weeks of disability.
1.1 percent in Rhode Island in 2018 (on up to $69,300) = $557 annually for average worker with average annual wage of $50,620 n/a This includes both family and medical leave programs.

Adjusting the benefit profile of the program (for example, changing the length of benefit offering, wage replacement rate, or eligibility criteria), or changing take-up rate assumptions impacts these estimates.

For more information on the consequences of federal paid family leave, see the new Cato report Parental Leave: Is There a Case for Government Action?

Badger Book on Federal Grants

Wisconsin’s Badger Institute has a new book—Federal Grant Standing—that examines the $750 billion system of federal grants to state and local governments.

The federal grant or aid system is costly and bureaucratic. It undermines political accountability and sows distrust in government. The Badger book is chock full of unique data and survey information illustrating the problems. It examines the practical failings of aid programs within Wisconsin, but the lessons are applicable to every state.

The book discusses how federal aid prompts state and local governments to make bad decisions. And it describes how aid induces cost inflation, reduces innovation, and wastes everyone’s time on paperwork.

Sadly, the governments of Wisconsin and other states have become administrative arms of the federal government. Wisconsin’s Department of Workforce Development has 1,603 employees and 73 percent of them are paid with federal funds. Wisconsin residents may think that their state government works for them, but bureaucrats and politicians in faraway Washington are pulling the strings.

Democracy, local control, community, diversity, self-determination, and transparency. Those are words that liberals like. Yet the giant federal aid-to-state system that liberals built during the 20th century has helped to destroy those values in American government.

I hope that policy wonks in other states pursue similar investigations of aid, and I hope that federal policymakers reconsider the system and start cutting.

You can read more on federal aid here and here.

The New NAFTA

Late last night, Canada, Mexico, and the United States agreed to a revision of the North American Free Trade Agreement (NAFTA). They are calling it the United States-Mexico-Canada Agreement (USMCA), which is a pointless exercise in rebranding, but not worth agonizing about. We suspect that many people will just keep calling it NAFTA.

If you are curious, the full text is here but it is a slog. We are slowly making our way through it, and ultimately will provide an assessment of whether this new deal is net liberalizing. If you are interested in some more technical details, check out the blog posts at the International Economic Law and Policy blog.

If you want to get a general sense of what’s in it, here’s a basic overview. Overall, the new agreement is kind of a mixed bag. There are some improvements, mainly the liberalization of a few Canadian agricultural sectors. However, the agreement is made worse in some ways by making it harder for autos to qualify for zero tariffs. The new agreement has also been modernized by including some recent Trans Pacific Partnership (TPP) innovations, which is good. But there are systemic provisions that are not very good. All in all, it is not a terrible deal, although U.S. government resources probably would have been better spent on liberalizing trade with countries with whom we did not already have a trade agreement. 

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Lesser-Skilled Immigrants Are Still Important to the U.S. Economy

A common argument employed by those opposed to lesser-skilled immigrants is that they are simply out of place in America’s high-tech economy. We often hear that the only workers we need now are those with advanced degrees. Yet according to the Bureau of Labor Statistics, 115 million Americans—74 percent of the total—were employed in jobs that do not require a Bachelor’s degree in 2016. Moreover, nearly a quarter of all jobs were those without any education requirement.

Share of Employment by Education Requirement

The opponents of lesser-skilled immigrants could respond by claiming that while this is true at the moment, these jobs will quickly disappear in the future. But the Bureau of Labor Statistics disagrees on this point as well. In 2026, the BLS projects that 73 percent of all jobs—123 million—will still not require a Bachelor’s degree—an increase of 7.1 million over 2016. The number of jobs for those without any formal education will still be 24 percent of all jobs—39.6 million—an increase of 2.4 million.

Figure 2: Employment by Education Requirement

BLS projects that 62 percent of all job growth will come from jobs not requiring a college degree. Nearly half of all new jobs will require no postsecondary education at all, and 21 percent of all new jobs will not require any education at all. 

Figure 3: Employment Growth by Education Requirement

It simply isn’t true that the United States needs no lesser-skilled workers right now nor will it be true in the near future. Recent legal immigrants are already far more educated than the U.S. population, and they are as educated as their counterparts in Australia and Canada. But even if this were not the case, the data simply doesn’t support keeping less-educated immigrants out of the country based on the belief that our developed economy doesn’t need them. In any case, the market—not government bureaucrats—should determine which workers are needed.