20 (Author at Cato Institute) https://www.cato.org/ en Daniel J. Ikenson discusses the signing of a U.S.-China trade deal on WWL’s The Newell Normand Show https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-china-trade-deal-wwls Thu, 16 Jan 2020 13:09:45 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-china-trade-deal-wwls Daniel J. Ikenson discusses the signing of a U.S.-China trade deal on Sirius XM’s The Press Pool with Julie Mason https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-china-trade-deal-sirius-xms Wed, 15 Jan 2020 13:05:35 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-china-trade-deal-sirius-xms Daniel J. Ikenson discusses the signing of a U.S.-E.U. trade deal on NPR’s Marketplace https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-eu-trade-deal-nprs Wed, 15 Jan 2020 13:04:20 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-eu-trade-deal-nprs Daniel J. Ikenson discusses the signing of a U.S.-China trade deal on WJR’s The Guy Gordon Show https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-china-trade-deal-wjrs-guy Wed, 15 Jan 2020 13:02:38 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-signing-us-china-trade-deal-wjrs-guy Reading Trump’s Trade Tea Leaves https://www.cato.org/multimedia/power-problems/reading-trumps-trade-tea-leaves Daniel J. Ikenson, A. Trevor Thrall, John Glaser <p>Dan Ikenson, director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies, joins Trevor Thrall and guest host John Glaser to discuss the economic and foreign policy implications of Trump’s recent trade deals.</p> <ul> <li><a href="https://www.cato.org/people/daniel-ikenson">Daniel J. Ikenson bio</a></li> <li>Daniel J. Ikenson, “<a href="https://www.cato.org/blog/us-china-trade-deal-better-nothing" target="_blank">A Few Things to Like about the U.S.-China Trade Deal</a>,” <em>Cato at Liberty</em>, December 16, 2019</li> <li>Daniel J. Ikenson, “<a href="https://www.cato.org/blog/trumps-alleged-trade-deal-china-would-fix-nothing" target="_blank">Trump’s Alleged Trade Deal with China Would Fix Nothing</a>,” <em>Cato at Liberty</em>, December 13, 2019</li> <li>Simon Lester and Inu Manak, “<a href="https://www.cato.org/blog/uscma-moving-forward-quickly" target="_blank">The USMCA Is Moving Forward (Too) Quickly</a>,” <em>Cato at Liberty</em>, December 16, 2019</li> </ul> Tue, 14 Jan 2020 03:00:00 -0500 Daniel J. Ikenson, A. Trevor Thrall, John Glaser https://www.cato.org/multimedia/power-problems/reading-trumps-trade-tea-leaves A Highly Restrictive North American Trade Pact https://www.cato.org/multimedia/cato-daily-podcast/highly-restrictive-north-american-trade-pact Daniel J. Ikenson, Simon Lester, Caleb O. Brown <p>The USMCA trade agreement among the U.S., Mexico, and Canada is moving forward, but forward into what? Simon Lester and Dan Ikenson discuss the deal’s terms.</p> Sun, 22 Dec 2019 09:41:47 -0500 Daniel J. Ikenson, Simon Lester, Caleb O. Brown https://www.cato.org/multimedia/cato-daily-podcast/highly-restrictive-north-american-trade-pact A Few Things to Like About the U.S.-China Trade Deal https://www.cato.org/blog/us-china-trade-deal-better-nothing Daniel J. Ikenson <p>More clarity and more questions emerged over the weekend about the terms of the U.S.-China trade deal, which warrants an update to <a href="https://www.cato.org/blog/trumps-alleged-trade-deal-china-would-fix-nothing">this preliminary assessment</a> published on Friday.</p> <p>The deal is pretty good for what is seems to accomplish. That may sound like fingernails on a&nbsp;chalkboard to those more interested in preventing Trump from gaining traction with claims that he won the trade war than they are interested in actually ending the trade war.</p> <p>The deal is pretty good because it reduces business uncertainty, confirms that the administration realizes its approach was unsustainable, and — by formalizing terms to resolve the variety of issues that, frankly, distract attention from the most difficult problems in the relationship — creates needed space to shift focus to the genuinely challenging matters.</p> <p>That, of course, refers to the challenge for technological preeminence and its attendant considerations: industrial policy; technology subsidies; development and proliferation of standards; related security issues; and the impact on this race for primacy on commercial and strategic outcomes.</p> <p>So, what was agreed upon?&nbsp;In a&nbsp;nutshell, Washington agreed to cancel tariffs on about $160 billion of imports from China, which were scheduled to take effect yesterday; keep in place the 25 percent tariffs currently imposed on about $250 billion of Chinese goods (rather than increase them to 30 percent, as was scheduled); and reduce tariffs from 15 percent to 7.5 percent on about $110 billion of Chinese products.</p> <p>Relative to what was looming (higher tariffs on all imports from China), these terms should be welcome news to most consumers, workers, businesses, and investors in the United States and China, and throughout the world. The specter of an escalating tariff war, with all the commercial uncertainty that portends, is no longer casting such a&nbsp;large shadow on the global economy. That’s good.</p> <p>Relative to the way things were 18 months ago, we are still torso deep in costly taxes. About half of the value of U.S. imports from China remain subject to a&nbsp;25 percent tax (as opposed to an average tariff of about 2&nbsp;percent in June 2018) and about one‐​fifth of the value of those imports remain subject to a&nbsp;7.5 percent tax (as opposed to an average tariff of about 2&nbsp;percent in June 2018).</p> <p>Presumably, those tariffs are considered leverage and will be lowered or removed if, and when, Beijing demonstrates that it has held up its end of the bargain. Yes, it’s true that U.S. tariffs are taxes on U.S. consumers and businesses, which may raise questions about their value as leverage on Beijing. But the fact is that taxes on U.S purchasers dissuade purchases from Chinese producers. So, while the Chinese aren’t paying the taxes, those taxes are reducing demand for Chinese products. After all, <em>something</em> in the administration’s approach made Beijing agree to the “Phase 1” deal.</p> <p>Beijing made no explicit commitments to reduce the retaliatory tariffs it imposed over the last 18 months, but it did agree to purchase, over the course of the next two years, $200 billion more goods and services from the United States than it purchased in 2017. The value of U.S. exports of goods and services to China in 2017 was about $185 billion, so the pledge to purchase $200 billion more is very significant — an average annual increase of 45 percent, which is, first, unheard of for a&nbsp;large economy and, second, strong confirmation — as if it were needed — that China’s is not a&nbsp;market economy. Realistically, it is hard to imagine how the Chinese economy can absorb that much in two years but then again, maybe U.S. companies will jack up their prices by a&nbsp;factor of five or ten!</p> <p>U.S. goods exports to China year‐​to‐​date through October 2019 are down about 16 percent from where they were in the January‐​October 2017 period. Roughly translated, that means that U.S. exports to China are down about $25 billion from the pre‐​trade war period.</p> <p>Despite reports that this deal does nothing to make amends for lost market share suffered by U.S. exporters as a&nbsp;result of the trade war, a $200 billion aggregate increase in exports over two years would certainly seem to more than make up for the average financial losses incurred by U.S. firms so far. However, those U.S. export gains most likely would come at the expense of other countries’ exports, as Chinese buyers divert their purchases from other suppliers in line with Beijing’s demands. And that, of course, would have ripple effects throughout the global economy, including a&nbsp;likely reduction in demand for U.S. exports in third countries.</p> <p>So, what other commitments did China make to give Trump cover to begin lowering U.S. tariffs? Remember what started this whole trade war thing? In June 2018, the president first imposed tariffs as a&nbsp;result of a&nbsp;formal investigation conducted by the U.S. Trade Representative’s Office under Section 301 of the Trade Act of 1974, which found fault with a&nbsp;variety of Chinese practices, including intellectual property theft, cyber intrusions, discriminatory indigenous innovation policies, forced technology transfer requirements, and other related items.</p> <p>But ever since then, the focus of negotiations has been on tangential issues, such as market access in China, trade balances, currency practices — pretty much everything EXCEPT those objectionable IP and technology practices.&nbsp;Well, to my surprise, the agreement worked out,&nbsp;and summarized by the White House Friday includes commitments from China to undertake effective measures to curtail, prohibit, and punish some of the kinds of forced technology and intellectual property transgressions that the United States wants resolved. Beijing also agreed to refrain from directing or supporting outbound investments aimed at acquiring U.S. technology. It also agreed to fix problems that have created non‐​tariff barriers to U.S. agricultural products in China, such as circuitous licensing practices and opaque sanitary and phytosanitary requirements.</p> <p>China also committed to open wider and more transparently its financial services markets to allow more competition from U.S. banks, insurance companies, and brokerages. It also made certain commitments to ensure that it doesn’t intervene in currency markets in a&nbsp;way that suppresses the value of the Chinese yuan to secure a&nbsp;trade advantage. And, importantly, the parties agreed to create a&nbsp;mechanism that, ostensibly, will allow for rapid hearing, adjudication, and, hopefully, resolution of disputes.</p> <p>Skeptics of the deal are quick to point out that — in the provisions regarding intellectual property rights enforcement and disavowal of forced technology transfer — Beijing didn’t agree to anything they hadn’t already agreed to or weren’t already doing, as a&nbsp;result of obligations under previous agreements. That may be true, but Beijing’s and Washington’s definitions of “forced” technology transfer (to use one example) have been very different historically. If this agreement includes a&nbsp;broader understanding by the Chinese of the term “forced,” it will be a&nbsp;step in the right direction.</p> <p>Beijing’s pledge to stay away from backing or promoting technology acquisitions by state‐​owned enterprises is a&nbsp;nice gesture that amounts to very little, considering that U.S. policymakers are already ramping up scrutiny of these kinds of deals, as required under the new Foreign Investment Risk Review Modernization Act. It’s something that U.S. policymakers are intent on scrutinizing and, frankly, protecting sensitive U.S. technology in a&nbsp;systematic and transparent way is far superior to levying tariffs and encouraging divestment.</p> <p>Commitments on currency, of course, have nothing to do with the impetus for the trade war. This is perennial gripe that should be of very low priority on the U.S. list of concerns.</p> <p>Time will tell whether Beijing actually makes good on these commitments and whether the administration will work hard to address the outstanding issues. But for now (and probably through the 2020 elections), new or higher U.S. tariffs on imports from China seem to be unlikely. Of course, we will have to endure 25 percent tariffs on half of our imports from China and 7.5 percent tariffs on about one‐​fifth, but the uncertainty that has racked markets for over 18 months is likely to abate. This deal, for all its shortcomings, is an agreement to not escalate the trade war. There’s some value in that, right?</p> <p>The United States and China are locked in a&nbsp;race for technological preeminence, which raises all sorts of strategic and security concerns that can no longer be treated with indifference. Technology bestows first‐​mover advantages with significant commercial and strategic implications. As 2020 progresses, the U.S. debate over China policy should shift focus away from tariffs and trade measures to the broader strategies, tactics, and domestic measures needed to stay on top in the race for technological supremacy.</p> Mon, 16 Dec 2019 18:03:58 -0500 Daniel J. Ikenson https://www.cato.org/blog/us-china-trade-deal-better-nothing Daniel J. Ikenson discusses the USMCA on American Radio Journal https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-usmca-american-radio-journal Fri, 13 Dec 2019 11:12:58 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-usmca-american-radio-journal Trump’s Alleged Trade Deal with China Would Fix Nothing https://www.cato.org/blog/trumps-alleged-trade-deal-china-would-fix-nothing Daniel J. Ikenson <p>Whiplashed followers of the on‐​again, off‐​again U.S.-China trade negotiations might want to tighten their neck braces this morning. In what has become a&nbsp;familiar pattern, yesterday the Trump administration was reported to have reached a “Phase 1” deal with Beijing to quell the trade war. Today, those reports are being called premature.</p> <p>The alleged terms of the alleged deal include the United States pulling the plug on tariffs tentatively scheduled to take effect this Sunday and cutting in half punitive tariffs already in place in exchange for Beijing’s agreement to purchase some $50 billion of U.S. agricultural goods and open further China’s financial services markets to foreign firms.</p> <p>If this is accurate, it would represent a&nbsp;much bigger concession than Trump was willing to make in October — and would confirm the futility of the mindless tariff war as a&nbsp;tactic to discipline Beijing’s objectionable behavior. The “agreement” does absolutely nothing to address the root cause of the trade war. If you’ll recall, the president first imposed tariffs in the summer of 2018, as a&nbsp;result of a&nbsp;formal investigation under Section 301 of the Trade Act of 1974, which found fault with a&nbsp;variety of Chinese practices, including intellectual property theft and forced technology transfer.</p> <p>Ever since the beginning of the tit for tat, the focus of negotiations has been on tangential issues, such as market access, trade balances, currency practices — everything EXCEPT those objectionable IP and technology practices.</p> <p>The United States and China are locked in a&nbsp;race for technological preeminence, which raises all sorts of strategic and security concerns that can no longer be dismissed cavalierly. When considered measuredly, these concerns — which are obviously prone to hyperbole and hyperventilation — suggest that there may be limits to the scope and nature of ongoing bilateral cooperation. But that doesn’t mean relations have to continue to deteriorate.</p> <p>Regardless of whether a&nbsp;deal is reached this week or next year, or whether that deal plays out in a&nbsp;series of phases, the real problems afflicting the U.S.-China relationship will persist for a&nbsp;long time. Navigating this relationship is going to be tricky going forward. But U.S. policymakers should remember that their toolboxes include scalpels, not just shotguns, and that many of the problems we face can be mitigated surgically. The trade war is just a&nbsp;costly distraction.</p> Fri, 13 Dec 2019 09:34:19 -0500 Daniel J. Ikenson https://www.cato.org/blog/trumps-alleged-trade-deal-china-would-fix-nothing Protectionist Love Child of the Labor Left and the Nationalist Right https://www.cato.org/blog/protectionist-love-child-labor-left-nationalist-right Daniel J. Ikenson <p>President Trump famously called the North American Free Trade Agreement “the worst trade deal ever made.” Bygones. The need to debate that claim has been mooted by the fact that NAFTA’s likely successor—the United States-Mexico-Canada Agreement—now holds that distinction.</p> <p>There’s a reason that neither “Free” nor “Trade” appears in the agreement’s name. There isn’t much of any new trade liberalization in the deal. Then again, an agreement pursued with import reduction and supply chain repatriation as its main objectives was never going to be an exemplar of enlightened trade policy.</p> <p>Instead, the deal reflects the shared objectives of the administration’s economic nationalists and Congress’s labor left, which were to strengthen the enforcement provisions and discourage companies from investing and operating factories in Mexico. These inducements come by way of the agreement’s streamlined labor and environmental provisions, onerous “rules of origin” requirements, unorthodox “sunset” provision, and the scaling back of investment and intellectual property protections.</p> <p>To be sure, free trade and free trade agreements are very different animals. Free trade is an economic ideal and is a condition characterized by the absence of trade barriers. Free trade agreements are political creations built atop mercantilist fallacies and are not about “free trade,” per se. These deals include rules that simultaneously liberalize, divert, and stymie trade, capital, and labor flows. Liberalization is usually the organizing principle, but the specifics tend to constrain the liberalization. Trade barriers are lowered or eliminated in some provisions, while protectionism is baked into the others.</p> <p>Free trade is about removing impediments that benefit some at the expense of others so that each of us individually has the fullest battery of choices to decide how best to use our own resources. Free trade agreements are about managed trade and labyrinthine rules intended to distribute particular benefits to particular interests.</p> <p>No agreement illustrates these distinctions as clearly as the USMCA does.</p> <p>To be fair, USMCA does “modernize” NAFTA to include rules restricting protectionism in digital trade, which wasn’t on our radars back in 1994 before the internet and e-commerce took off. The deal secures better access to the Canadian market for U.S. dairy farmers and winemakers. And, nearly all goods trade within the region will remain tariff-free.</p> <p>There are also a few improvements (efforts to rein in protectionism) in other areas of the agreement, which my colleagues Simon Lester and Inu Manak address <a href="https://www.cato.org/blog/evaluating-new-usmca-0">here</a>.</p> <p>Notably, the deal doesn’t include any significant new U.S. market-opening provisions, which really is unprecedented for a U.S. trade agreement. Despite U.S. consumers spending $9.2 trillion on services in 2017, a mere $550 billion (6%) was spent on imported services. By comparison, over 57 percent of the $4.1 trillion Americans spent on goods in 2017 was imported.</p> <p>That large disparity betrays some significantly protected U.S. services markets, which USMCA does nothing to address. Instead, the deal reaffirms bans on foreign competition in maritime shipping, commercial air services, and trucking. The absence of foreign competition across our transportation services industries—as well as in our education, health care, and professional services industries—suggests that the USMCA could have been much more liberalizing.</p> <p>The U.S. market is generally open to foreign investment already, but investment restrictions persist in certain industries, including financial services, commercial air services, communications, and mining. The USMCA provides no significant new access to foreign investors in the United States.</p> <p>Likewise, it does nothing to open any wider the estimated $1.7 trillion U.S. government procurement market to bids from Canadian and Mexican companies. The absence of competition, of course, raises the cost of every government procurement project and ensures that taxpayer dollars get needlessly wasted.</p> <p>But worse than the absence of liberalization is the abundance of provisions intended to raise the costs of investing in and importing from Mexico. Let’s start with the streamlined labor and environmental provisions. Opposition, over the years, to enforceable labor and environmental provisions in trade agreements has been predicated on concerns that demands for those kinds of provisions were not motivated by altruism or humanitarian aspirations, but by protectionist desires for access to triggers that could impede trade. The looming threat of an allegation of a labor provision violation against a Mexican factory, which could result in that factory suffering lost or impeded access to the U.S. market, would deter investment and retard the cultivation of business relationships.</p> <p>That’s not a frivolous concern. Consider that for many U.S. and other western companies that contract out manufacturing, their biggest assets are their brand names. They don’t want to risk being associated with factories that engage in bad labor practices or that have big environmental footprints. Nor do they want to be vulnerable to allegations that the factories they are using are socially irresponsible. Mere allegations can affect the bottom line.</p> <p>The labor and environmental provisions in the USMCA seem to be designed to be easily accessible. The burden of proof is reversed so that the factories accused of violations have to demonstrate how they have not breached commitments or, if they have breached, how that breach doesn’t significantly affect trade. Among other things, this reversal of the burden of proof reduces the cost to U.S. labor unions, for example, to render accusations that could lead to trade restrictions. This makes those accusations more likely. And that, in turn, makes more fraught, more uncertain, and more expensive any decisions by U.S. businesses (or business from other countries) to set up operations in Mexico.</p> <p>The same is true for the USMCA’s “rules of origin,” especially with respect to trade in automobiles. Under current NAFTA rules, in order to qualify for duty-free treatment, at least 62.5 percent of the cost of the automobile must come from regional (U.S., Canada, Mexico) labor, material, and overhead. Cars that don’t meet this requirement are assessed a tariff of 2.5 percent of the total cost.</p> <p>Under the new rules in USMCA, the benchmarks are much higher—75 percent of the cost must originate in the region. Moreover, 40 percent of that 75 percent (a total of 30 percent) must be made with labor earning at least $16 per hour. For reference, Mexican wages in auto assembly and production average in the single digits per hour. Furthermore, under USMCA, an additional rule to qualify is that 70 percent of the steel used in the automobile must come from the region.</p> <p>In aggregate, these rules—contrary to expectations of a trade agreement—encourage less efficient production processes and virtually ensure higher costs and higher-priced products. And that, perversely, could result in more producers shifting North American production to Asia and elsewhere, and relying more on imports from outside the region. Paying a 2.5 percent tariff instead of zero-tariffs with much higher production and compliance costs might be the profit maximizing alternative.</p> <p>The USMCA also includes an unorthodox provision that calls for the agreement to automatically terminate, unless the parties affirmatively agree to continue the deal. Agreement to continue can come as early as year 6, when discussion is open to air concerns and possibly negotiate changes to the provisions. If agreement is not reached, the parties will go through the process again, annually, through year 16 (if agreement to continue isn’t reached before then). If no agreement is reached after year 16, the deal terminates.</p> <p>This provision needlessly injects a great deal of uncertainty into the agreement. How will investors and businesses that may be considering trans-national production evaluate their expected costs and projected revenues over a multiyear horizon if, one, the terms are subject to revision and, two, the whole deal could be terminated. This provision seems intended to discourage investment outside of the United States.</p> <p>Finally, although I find investor and intellectual property protections to be unnecessary or at least “too protectionist” in typical U.S. trade and investment agreements, the considerable scaling back of these protections is also intended to raise the costs of investing in Mexico vis-à-vis the United States. There are greater risks to investing abroad than in the United States, and these kinds of provisions tend to mitigate those costs. Ambassador Lighthizer considers these rules to be subsidies for outsourcing, which the USMCA seems designed to snuff out.</p> <p>Several editorials and articles, recently, expressed surprise and delight, and marveled at the fact that Lighthizer was deft enough to actually produce a trade agreement that not only attracts bipartisan support, but also the affirmative endorsement of organized labor. Labor hasn’t supported a major trade deal since the legislation implementing the Kennedy Round of GATT negotiations in 1967, and a Democratic majority hasn’t voted in favor of a trade agreement since the legislation implementing the Uruguay Round of GATT negotiations in 1994. So, this is, indeed, pretty rare.</p> <p>But this outcome should not be viewed through the typical partisan prism. It’s not your traditional anti-trade Democrat vs. pro-trade Republican situation. It’s labor left and economic nationalist right, who strongly agree on managed trade outcomes and rules that keep investment and all jobs in the United States.</p> <p>It wasn’t very difficult for Robert Lighthizer and AFL-CIO Chairman Richard Trumka (through his proxy, House Speaker Nancy Pelosi), two peas in a pod in their skepticism about trade, to agree on major provisions in a deal that has very little to do about liberalizing trade, but quite a lot to do about enforcement, protection, and other inducements aimed at muting an imaginary “giant sucking sound.”</p> <p>There should be little doubt that the USMCA will win the approval of Congress. The Democrats are on board. And while the old Republican party would object to this deal, Trump's GOP will not. The only remaining question is when.</p> <p></p> Fri, 13 Dec 2019 08:02:37 -0500 Daniel J. Ikenson https://www.cato.org/blog/protectionist-love-child-labor-left-nationalist-right Daniel J. Ikenson discusses the Jones Act on a Federalist Society video https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-jones-act-federalist-society-video Tue, 12 Nov 2019 11:42:21 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-jones-act-federalist-society-video Daniel J. Ikenson discusses China, antibiotics, and trade on Sinclair Broadcast Group https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-china-antibiotics-trade-sinclair Tue, 05 Nov 2019 10:27:09 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-china-antibiotics-trade-sinclair Daniel J. Ikenson discusses WTO USMCA and US‐​China trade war on Sirius XM’s The Big Picture with Olivier Knox https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-wto-usmca-us-china-trade-war-sirius Fri, 18 Oct 2019 12:27:02 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-wto-usmca-us-china-trade-war-sirius Daniel J. Ikenson discusses Americans traveling to China on Sinclair Broadcasting Group https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-americans-traveling-china-sinclair Wed, 09 Oct 2019 12:07:31 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-americans-traveling-china-sinclair Miscalculation and Grievance Explain Trump’s Aversion to Trade and Globalization https://www.cato.org/blog/miscalculation-grievance-explains-trumps-aversion-trade-globalization Daniel J. Ikenson <p>America’s divisive, deleterious culture war started long before January 20, 2017. But during the presidency of Donald Trump, a&nbsp;new front in that war was opened over the question of the future of America’s role in the world. After 70‐​plus years as the chief architect and underwriter of the liberal post‐​war order, which continues to produce relative peace and prosperity, the United States — under Trump’s stewardship — has ushered in a&nbsp;period of doubt about the propriety and efficacy of continuing those arrangements.</p> <p>In a&nbsp;speech today at the United Nations, Trump reiterated fealty to his America‐​first “doctrine,” leaving little doubt that U.S. support (financial, moral, and otherwise) for institutions, such as the World Trade Organization, the World Bank, the International Monetary Fund, the United Nations, and other consensus‐​driven organizations predicated on cooperation among nations can no longer be relied upon. These institutions aren’t perfect and can afford some reforms, but Trump is departing significantly from U.S. foreign and international economic policies under Democratic and Republican administrations going back to Harry Truman’s.</p> <p>Certainly, times have changed and there were never any guarantees that the institutions established after the war would endure — even for as long as they have. But before a&nbsp;critical mass succumbs to Trump’s plausible‐​sounding arguments that the United States (and all other countries) would thrive if it repudiated international institutions of cooperation and turned inward, consider that the America‐​first, protectionist, nationalist narrative that Trump has tapped into is nothing new. It has been around, lurking under the surface for many decades, occasionally finding expression in the rhetoric of a&nbsp;populist office seeker here and there. But that narrative is laced with misreads and inaccuracies. It is premised on the idea that, unlike global hegemons of previous centuries, the United States has been this benevolent giant, always acting selflessly and generously.</p> <p>The United States lent a&nbsp;hand to the victims and the vanquished of the 20<sup>th</sup> century’s&nbsp;worst conflagration. Americans provided the material and wherewithal to rebuild Europe and Japan after the War. We provided resources under the Marshall Plan. We provided a&nbsp;nuclear umbrella, which enabled Europe and Japan and others to focus their own resources on rebuilding their industries, their economies, and their political and civil societies.</p> <p>Europe and Japan rebuilt. They rebuilt their industries; they rebuilt their infrastructure; they created social welfare systems; and (in the eyes of Trump and his fellow nationalists)&nbsp;they had the gall to start competing with U.S. producers, while maintaining relatively high tariffs in their own markets. All along the way, they never so much as thanked us.&nbsp;</p> <p>Trump and his fellow nationalists might argue that the world has been ungrateful. They might argue that the world has taken advantage of the United States, that the United States has impeded its own development and potential by making prosperity accessible to others. Trump says: No longer will that be tolerated. Those trade deficits we’ve allowed to accrue over the years? No more! Those rules — under the General Agreement on Tariffs and Trade and the World Trade Organization — that we put forward and foolishly agreed to live by ourselves? No more. At least, no more without major changes that tilt the playing field in favor of the United States so that we can begin to recoup the billions upon billions of dollars stolen from us by a&nbsp;cheating, ungrateful world. In fact, Trump and those who think like him may think the United States should be entitled to special dispensation at the WTO because of America’s foundational role, our generosity, and the fact that we opted not to enslave and colonize the world after 1945.</p> <p>Of course, this is all a&nbsp;naïve and wrongheaded view of history, economics, diplomacy and statecraft. The notion that we live in a&nbsp;zero sum, Hobbesian world where there is limited scope for cooperation is the bogus premise behind the entire America‐​first platform. The notion that the United States had no interest in helping to strengthen Europe and Japan to resist Soviet expansionism and to afford U.S. exports is too ridiculous to even bother to discuss.</p> <p>All U.S. presidents since 1945 have had recourse to this more contentious approach to international relations, but none chose that path. Instead, they all preferred the rule of law and supported the institutions underpinning those rules. When people in other countries are free and can prosper, that is unequivocally good for Americans. When Americans can engage in commercial transactions with foreigners, we are all better off. Rules that foster exchange and cooperation are essential. To blow up the system because you may calculate that the United States will lose the least (a sort of limited nuclear war type of doctrine) becomes a&nbsp;plausible course of action to nationalists who think in&nbsp;zero‐​sum terms.</p> <p>Washington’s cadre of pro‐​trade, multilateral, internationalists — among whom I&nbsp;count myself — has failed to convince President Trump and those who favor his America‐​first brand of economic nationalism that trade is a&nbsp;win‐​win proposition and that the post‐​war liberal order underpinning globalization, while not perfect, should be salvaged and renovated, rather the wrecked. We need to do better.</p> <p>At the UN today, Trump claimed: “The future does not belong to globalists. The future belongs to patriots.” But the smartest patriots know that liberty at home is nourished by economic growth, which is fostered by trade, globalization and its well‐​functioning institutions.</p> Tue, 24 Sep 2019 17:09:10 -0400 Daniel J. Ikenson https://www.cato.org/blog/miscalculation-grievance-explains-trumps-aversion-trade-globalization Daniel J. Ikenson discusses similar anti‐​trade rhetoric between Trump and Democrats on NPR’s All Things Considered https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-similar-anti-trade-rhetoric-between Thu, 12 Sep 2019 11:54:02 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-similar-anti-trade-rhetoric-between What Is and Isn’t Currency Manipulation? https://www.cato.org/multimedia/cato-daily-podcast/what-isnt-currency-manipulation Daniel J. Ikenson, Caleb O. Brown <p>Are China’s moves to prop up the RMB more than a&nbsp;reaction to Trump Administration tariffs? Cato’s Dan Ikenson comments.</p> Mon, 19 Aug 2019 17:20:00 -0400 Daniel J. Ikenson, Caleb O. Brown https://www.cato.org/multimedia/cato-daily-podcast/what-isnt-currency-manipulation Daniel J. Ikenson discusses the US‐​China trade war on WWL’s First News with Tommy Tucker https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-us-china-trade-war-wwls-first-news Wed, 07 Aug 2019 10:36:00 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-us-china-trade-war-wwls-first-news The Elizabeth Warren Trade Policy Checklist https://www.cato.org/multimedia/cato-daily-podcast/elizabeth-warren-trade-policy-checklist Daniel J. Ikenson, Simon Lester, Caleb O. Brown <p>Elizabeth Warren’s priorities for trade agreements may differ from the current President, but the final result may simply be less liberalized trade. Dan Ikenson and Simon Lester comment.</p> Tue, 06 Aug 2019 17:02:00 -0400 Daniel J. Ikenson, Simon Lester, Caleb O. Brown https://www.cato.org/multimedia/cato-daily-podcast/elizabeth-warren-trade-policy-checklist Daniel J. Ikenson discusses the trade war and how it affects the markets on WBAL’s News Now with Bryan Nehman https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-trade-war-how-it-affects-markets-wbals Tue, 06 Aug 2019 11:02:00 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-trade-war-how-it-affects-markets-wbals Daniel J. Ikenson discusses the US‐​China trade war and currency manipulation on FBN’s Kennedy https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-us-china-trade-war-currency-manipulation Tue, 06 Aug 2019 10:33:00 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-tv/daniel-j-ikenson-discusses-us-china-trade-war-currency-manipulation What Is and Isn’t Currency Manipulation https://www.cato.org/blog/what-isnt-currency-manipulation Daniel J. Ikenson <p>Do you want to know what’s <em>not</em> currency manipulation? The People’s Bank of China observing the value of the yuan plummet as markets respond to Trump’s tariff frenzy is not currency manipulation.&nbsp;<br><br /> <br> Do you want to know what <em>is</em> currency manipulation? The president of the United States imploring the Federal Reserve chairman to lower interest rates for the distinct purpose of reducing the value of the dollar is currency manipulation. <br><br /> <br> For elaboration, please read my article on <em>Forbes</em>: <a href="https://www.forbes.com/sites/danikenson/2019/08/06/trump-and-bipartisan-majority-in-congress-complicit-in-chinese-currency-manipulation-canard/#130f150f45e1">Trump and Bipartisan Majority in Congress Complicit in Chinese Currency Manipulation Canard</a>. <br> </p> <p>&nbsp;</p> Tue, 06 Aug 2019 09:25:00 -0400 Daniel J. Ikenson https://www.cato.org/blog/what-isnt-currency-manipulation Trump and Bipartisan Majority in Congress Complicit in Chinese Currency Manipulation Canard https://www.cato.org/publications/commentary/trump-bipartisan-majority-congress-complicit-chinese-currency-manipulation Daniel J. Ikenson <div class="lead text-default"> <p>With his ill‐​advised, incongruous, amateurishly‐​executed trade war, President Trump has uncorked a&nbsp;cacophony of reverberating effects that are beginning to spiral out of control and will prove difficult to subdue. Among those effects is the force of downward pressure on the value of the Chinese currency, as multinational businesses relocate to other countries to avoid the tariffs, and the savings of Chinese households and investors go searching for safety in the United States and elsewhere.</p> </div> , <div class="text-default"> <p>Trump’s chosen course of action has sent waves of uncertainty across the globe and one of the most predictable responses to uncertainty is flight to safety — that is, purchases of what are considered relatively safe U.S. assets. It’s some sort of paradox that global uncertainty — even when induced by the risky policies and actions of an impulsive, unpredictable U.S. president — inspires people to invest in U.S. and other dollar‐​denominated assets. But it does.</p> <p>As global uncertainty stokes demand for dollars, the certainty of U.S. tariffs on Chinese‐​originating goods further reduces demand for Chinese yuan, exacerbating the downward pressure on the price of yuan in dollars. This precipitous depreciation, which is a&nbsp;consequence of Trump’s policies, has got the president and other like‐​minded rabble‐​rousers accusing the Chinese of currency manipulation. Late yesterday, Trump’s Treasury Department squandered its credibility by labeling China a&nbsp;currency manipulator, despite Beijing meeting only one of the three criteria necessary for such a&nbsp;conclusion.</p> <p>Do you want to know what’s&nbsp;<em>not</em>&nbsp;currency manipulation? The People’s Bank of China observing the value of the yuan plummet as markets respond to Trump’s tariff frenzy is not currency manipulation. The Chinese monetary authorities have been trying to prop up the value of the yuan to discourage capital flight and instill confidence in the yuan, but they’ve had to burn through over $1 trillion of reserves just to maintain the yuan’s value, which continues to fall in response to Trump’s tariffs.</p> <p>Do you want to know what&nbsp;<em>is</em>&nbsp;currency manipulation? The president of the United States imploring the Federal Reserve chairman to lower interest rates for the distinct purpose of reducing the value of the dollar is currency manipulation.</p> <p>The “scourge” of currency manipulation and what to do about it has been vexing policymakers for a&nbsp;long time. Back in 2003, Sen. Chuck Schumer (D‑NY) first introduced a&nbsp;bill calling for a&nbsp;27.5 percent tariff on all imports from China to compel Beijing to allow the undervalued yuan to appreciate. But Schumer’s idea was rejected as a&nbsp;massive consumption tax on the American people — as well as a&nbsp;violation of World Trade Organization rules (yes, youngsters, WTO compliance used to matter to U.S. policymakers). But that didn’t stop Schumer from re‐​introducing the same bill in subsequent Congresses with Sen. Lindsey Graham (R‑SC), where it met the same fate.</p> <p>Since then other proposals have come and gone and come again, including the idea that currency manipulation should be treated as a&nbsp;subsidy and remedied under the U.S. Countervailing Duty law. That proposal, which ran into a&nbsp;lot of objections for practical and theoretical reasons in the past, was recently reincarnated by the U.S. Commerce Department. Commerce is proposing to retrofit the regulations governing administration of the CVD Law, so that U.S. tariffs can be imposed under circumstances where they are currently prohibited.</p> <p>A quick review of how Sen. Schumer came to choose 27.5 percent as his magic number illustrates why skepticism about using the CVD law in this manner is still warranted. When Schumer introduced his bill, economists were generally in consensus that the Chinese currency was undervalued. But they disagreed widely about the magnitude of undervaluation. Economists from the IMF, the OECD, the Federal Reserve, the U.S Treasury, think tanks, and academia were all producing different estimates. Schumer chose 27.5 percent because it was the midpoint in a&nbsp;range of dozens of these estimates spanning from 10 percent to 45 percent.</p> <p>More important than the obvious imprecision in Schumer’s approach is the fact that reputable economists from esteemed institutions disagreed widely in their estimates of undervaluation. This tells us that different economists took different approaches to estimating the difference between the yuan’s actual value and its true market value, which is pretty revealing about the problem at hand. There is no consensus among economists about how to estimate currency undervaluation because there is disagreement about how to ascertain the true market value of a&nbsp;currency unless it is free‐​floating and determined by its supply and demand.</p> <p>Without knowing the true market value of a&nbsp;currency, it is impossible to calculate accurate countervailing duties to offset the effects of currency manipulation. A&nbsp;10 percent countervailing duty implies that the currency is priced below its actual market value by 10 percent or that the manipulation amounts to a&nbsp;10 percent subsidy for exports. But at best, a&nbsp;countervailing duty could only be an estimate of the value of a&nbsp;subsidy conferred through manipulation of the currency.</p> <p>Considering that economists’ estimates of Chinese currency undervaluation varied by as much as 35 percentage points, and that any methodology employed by the U.S. Department of Commerce — in its zeal to protect domestic producers above all else — would certainly differ from one employed by an MIT or IMF economist, countervailing duties would likely worsen any distortions and inflict collateral damage on consumers and import‐​using producers.</p> <p>Moreover, if a&nbsp;currency’s true market value is determined by the intersection of its supply and demand curves, it is important to recognize that those curves (their shapes and positions) are affected by underlying economic activity, as well as public policy — monetary, fiscal, and regulatory. In other words, currency values reflect all sorts of policy decisions that it would be improper to indict direct manipulation occurring through currency market interventions, but not indirect manipulation delivered through other policy channels — or presidential signaling via Twitter.</p> <p>Last week Sens Josh Hawley (R‑MO) and Tammy Baldwin (D‑WI) introduced a&nbsp;piece of legislation ostensibly to discourage foreign currency manipulation. But it is premised on a&nbsp;very poor understanding of economics. “The Competitive Dollar for Jobs and Prosperity Act” would require the Federal Reserve to establish an exchange rate policy “to achieve and maintain a&nbsp;current account balance.”</p> <p>The main tool to assist the Fed in achieving this dubious objective would be a “market access charge” on foreign purchases of U.S. assets. In other words, balance would be achieved by limiting the inflow of foreign capital through taxation, which would deprive the U.S. economy of the very oxygen it needs to be a&nbsp;competitive economy. Foreign investment in the United States is a&nbsp;blessing and a&nbsp;seal of good housekeeping — and the fact that foreigners want to hold U.S. assets is hugely beneficial to Americans and the U.S. economy. Discouraging it is akin to raising the white flag and declaring the United States no longer wishes to participate in the global economy — something reminiscent of China closing itself off to the world in the early 19th&nbsp;century, ushering in its infamous century of humiliation.</p> <p>Currency hawks long have exaggerated the impact of currency values on trade flows. Of course, they matter. But with the proliferation of global supply chains and cross‐​border investment, the overwhelming majority of trade flows today are intermediate goods, so the effect of currency values on final prices cuts in different directions. That’s why, despite a&nbsp;38% appreciation of the Chinese Renminbi vis‐​à‐​vis the dollar between 2005 and 2013, the bilateral U.S. trade deficit with China didn’t decrease, but rather increased by 46%. That’s why Yen depreciation, by increasing the cost of imported inputs priced in foreign currencies, raises the cost of production in Japan and can make Japanese producers less competitive in the global economy, not more.</p> <p>Support in Congress for the president’s trade war and his fabricated claims that China is manipulating its currency suggests that bilateral relations and global economic conditions are going to get a&nbsp;lot worse before they get better.</p> </div> Tue, 06 Aug 2019 08:58:00 -0400 Daniel J. Ikenson https://www.cato.org/publications/commentary/trump-bipartisan-majority-congress-complicit-chinese-currency-manipulation Daniel J. Ikenson discusses the USMCA on NPR’s Marketplace https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-usmca-nprs-marketplace-0 Fri, 02 Aug 2019 11:26:00 -0400 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-usmca-nprs-marketplace-0 The Tariffs Will Bite U.S. Consumers: Prepare to Feel Their Effects More Than Before https://www.cato.org/publications/commentary/tariffs-will-bite-us-consumers-prepare-feel-their-effects-more Daniel J. Ikenson <div class="lead text-default"> <p>Announcing his intentions on Thursday to hit all remaining imports from China with tariffs, President Trump is now all‐​in on the trade war. This doesn’t bode well for Americans’ wallets, bilateral relations or the global economy.</p> </div> , <div class="text-default"> <p>As costly as this course of action will prove to be, it isn’t hard to understand why Trump has continued down this treacherous path. The adverse consequences of the trade war so far have been contained. The president believes he has the leverage to bend Beijing to his will. And if he were to ease up on the pressure, Trump would be portrayed as weak by the dozen or more Democratic presidential aspirants hoping to outflank him with protectionist promises to win back Rust Belt voters.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <div class="brightcove-player sizing-responsive"> <div> </div> </div> </div> </figure> </aside> , <div class="text-default"> <p>Tariffs on imports from China, which Trump first imposed last summer, were gradually broadened and increased over the course of the ensuing 12 months. As of this moment, U.S. Customs is assessing taxes of 25% on about $250 billion worth of imports from China. Most of those products are capital equipment and “intermediate goods,” which is to say machinery, raw materials and components required by U.S. producers to manufacture their own output for sale in the United States and abroad.</p> <p>Of course, those taxes get passed on to U.S. consumers in the form of higher prices (to cover the higher costs of production) and to workers whose compensation and hours worked suffer from their companies’ dwindling profits. According to a&nbsp;report from the Federal Reserve Bank of New York, “Over the course of 2018, the U.S. experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply‐​chain network, reductions in availability of imported varieties, and complete pass‐​through of the tariffs into domestic prices of imported goods.”</p> <p>However, even though the costs are real and consequential, to a&nbsp;large extent the pain has been dispersed and the cause and effect has been hard for people to discern.</p> <p>But as of Sept. 1, the remaining 55% of imports from China (about $300 billion worth of mostly consumer goods) that have thus far been spared the tariffs, will be taxed at 10%. A&nbsp;few words of advice: Go shopping. Now! Buy your phones, laptops, clothes, furniture, hockey gear, football helmets and hand tools now.</p> <p>In 2017, the last full year before Trump’s punitive tariffs were imposed, U.S. imports from China totaled $504 billion, and duties paid by U.S. importers to U.S. Customs amounted to $13.5 billion. That’s an average applied tariff rate of 2.68%. In 2018, when tariffs of 25% on $50 billion of Chinese goods were imposed in June and July, and additional tariffs of 10% on $200 billion of Chinese goods were imposed in late September, the value of imports from China totaled $544 billion and the duties collected came to $23 billion — an average applied tariff rate of 4.23%.</p> <p>Nearly $10 billion of costs associated with the higher tariffs were imposed on consumers, businesses, shareholders and employees.</p> <p>So far, the pain has been concentrated in a&nbsp;few sectors and dulled by subsidies and the fiscal stimuli of lower taxes and much higher public spending. But as this sugar high wears off and the economy slows, conditions are likely to worsen. Hang on.</p> </div> Fri, 02 Aug 2019 10:26:00 -0400 Daniel J. Ikenson https://www.cato.org/publications/commentary/tariffs-will-bite-us-consumers-prepare-feel-their-effects-more