Author Archive
GOP the Loser in Primary Fight over Immigration
Over at National Review Online this morning, I ask how the Ronald Reagan of 1980 would have fared in today’s Iowa caucuses given his views on how to tackle illegal immigration (“GOP Candidates Betray the Spirit of Reagan on Immigration”). My conclusion, based on the current mood of many Republicans, is that Reagan would have been the target of a barrage of attack ads:
In April 1980, when Ronald Reagan was competing in the presidential primaries, he rejected the building of a wall between the United States and Mexico: “Rather than talking about putting up a fence, why don’t we work out some recognition of our mutual problems? Make it possible for them to come here legally with a work permit — and then while they’re working and earning here, they pay taxes here. And when they want to go back, they can go back. And open the border both ways by understanding their problems.”
If a Republican presidential candidate said such a thing today, he or she would suffer withering criticism for being soft on illegal immigration. Instead, we hear Reagan’s successors talk about implementing national ID cards, imposing intrusive regulations on the labor market, raiding farms, factories, and restaurants, and harassing small-business owners trying to survive in this tough economy, all in the name of chasing away hard-working immigrants.
The unhealthy competition among the current Republican candidates to sound tough on immigration also risks alienating millions of Hispanic voters who could otherwise be persuaded to support the party. If conservatives want to rediscover the more optimistic, inclusive, reform-minded spirit of Reagan, they should be talking about real immigration reform, not about spending more money and enacting more sweeping regulations to enforce a fundamentally flawed system.
Our Freedom to Trade Expanded in 2011
The news right now is full of retrospective stories about 2011. Not to be left out, here are a few observations on the real if modest progress made in 2011 to expand the freedom of Americans to trade in the global economy. (I’ll add links along the way to related Cato work.)
After four years of stalemate, this fall Congress passed and President Obama signed legislation implementing three pending free-trade agreements, with South Korea, Colombia, and Panama. When fully implemented, these FTAs will eliminate just about all barriers to trade with three key allies. The U.S. International Trade Commission estimates the three agreements will boost U.S. exports and output by more than $12 billion.
Just as importantly, their passage signals that the two major parties can still work together to promote trade liberalization. Republicans voted overwhelmingly for the agreements, including freshman members connected to the Tea Party movement, and enough Democrats joined in to pass them all by comfortable margins. President Obama, to his credit, found a political path to support the agreements despite the opposition of his labor-union base.
With the passage of the agreements with Panama and Colombia, the Pacific Coast of the Americas has been effectively transformed into a free-trade area. (Ecuador is the lone hold-out.) When combined with NAFTA, CAFTA-DR, and FTAs with Peru and Chile, the United States now has free-trade agreements with neighbors that account for 87 percent of our two-way trade in the Western Hemisphere. The vision of a free trade area of the Americas from the Yukon to Tierra del Fuego has been effectively realized.
2011 also witnessed the United States and Mexico sort out the dispute over cross-border trucking—the last piece of unfinished business from the 1994 North American Free Trade Agreement. Under a pilot program put forward by the Obama administration, safety-certified Mexican trucks can now deliver goods within the United States, and U.S. trucks can do the same in Mexico. Now that the U.S. government is finally complying with its commitments, Mexico lifted sanctions on $2.4 billion of U.S. exports. This is real progress for economic freedom, the rule of law, and showing respect for our 100 million Mexican neighbors.
U.S. Falling Behind in Global Competition for Human Capital
A powerful trend in today’s more globalized world is the growing competition among nations to attract and keep human capital — people with the skills and education necessary to make a modern, open, market economy hum.
Nobody has done a better job of describing this phenomenon than British journalist Robert Guest in his new book, Borderless Economics: Chinese Sea Turtles, Indian Fridges, and the New Fruits of Global Capitalism, just out from Palgrave Macmillan.
Guest is the business editor of the Economist magazine. He’s traveled widely in the United States and across the world. He has a keen understanding of the market forces shaping the global economy today, as well as a reporter’s eye for interesting people, places, and companies that tell the story.
The author summarized Borderless Economics in a recent Wall Street Journal op-ed, and the book was favorably reviewed in the same newspaper this week. The reviewer, Katherine Mangu-Ward of Reason magazine, highlighted an immediate application of the book’s thesis to U.S. immigration policy:
Mr. Guest notes that the U.S. annually awards only 85,000 H-1B visas for highly skilled workers; more than that number have been known to apply on the first day that applications can be submitted. America is strong because it has long been the nation richest in the resource that matters most: talent. Yet the U.S. government every year turns away tens of thousands of the most talented, motivated people in the world.
The Cato Institute hosted a book forum for Robert Guest in November, with comments from Edward Alden of the Council on Foreign Relations. You can view the event here.
Treasury Exchange-Rate Report Hits, and Misses
The U.S. Treasury Department finally released its overdue semiannual “Report to Congress on International Economic and Exchange Rate Policies” yesterday. I’ve been reading through the informative report this morning so you won’t need to. Two quick comments:
First, the report declined, once again, to brand China a “currency manipulator,” and for good reason. The term is needlessly confrontational. As the report documents, while the Chinese currency is probably still undervalued, the Chinese government has been taking concrete steps toward a more flexible exchange-rate regime. Since it began its currency reforms in July 2005, the renminbi has appreciated 40 percent on a real (inflation-adjusted) basis against the U.S. dollar. And 40 percent just happens to be the upper range of the revaluation that was demanded by Sen. Chuck Schumer (D-NY) and other critics of China trade back then. They should declare victory and move on to more pressing economic problems, such as cutting federal spending and promoting private-sector growth.
Second, the report repeats the common but false assumption that a shrinking trade deficit is necessarily good for economic growth, and a rising deficit bad. From p. 6 of the report, we read:
Trade was also a bright spot in the third quarter [of 2011], as exports once again grew faster than imports. The resulting decline in the net export deficit contributed 0.4 percentage point to real GDP growth.
This reflects the simplistic Keynesian assumption that rising imports are a drag on growth because they merely replace domestic production. The truth is almost exactly the opposite, as I documented in my Cato study earlier this year titled, “The Trade-Balance Creed: Debunking the Belief that Imports and Trade Deficits Are a ‘Drag on Growth’.”
The truth, in theory as well as practice, is that a rising level of imports typically reflects rising domestic demand by both consumers and industry. Imports fuel U.S. production by supplying more raw materials, intermediate supplies, and capital machinery at competitive prices. That is why the U.S. economy has typically grown much faster during periods of rising trade deficits compared to periods of shrinking deficits. True to form, the first three quarters of 2011 saw declining GDP growth even though, according to the Keynesian creed, the decline in the trade deficit was a supposed “bright spot.”
Russia’s WTO Membership Approved, But Will U.S. Companies Benefit?
At their ongoing ministerial meeting in Geneva, the World Trade Organization’s 153 members earlier today unanimously approved Russia’s accession as a member. The ball is now in the court of the U.S. Congress to effectively ratify this historic development or to forfeit significant benefits for the U.S. economy.
Russia will officially become a member 30 days after its legislative Duma gives its final approval, which is expected to occur in March, April, or May of next year. But U.S. companies will enjoy enhanced access to the Russian market only after Congress votes to repeal application of the 1974 Jackson-Vanik amendment.
The Cold-War-era amendment bars normal trade relations from applying to communist and formerly communist nations that restricted the emigration of Jews. Although that issue disappeared decades ago, the amendment still requires an annual exemption for Russia. As long as the amendment applies, Russia can withhold the more liberal access to its market that it agreed to extend to all other WTO members upon its accession. As Reuters reports today:
The Jackson-Vanik amendment, a 1974 provision linking trade to emigration rights for Soviet Jews, would have to be revoked for Washington to be able to apply so-called “permanent normal trade relations” to Russia.
Failure to do so would allow Russia to deny the United States preferential access to its markets in what would amount to an own-goal for U.S. businesses such as Pepsico or Alcoa that have already invested billions of dollars in Russia.
With Washington and Moscow exchanging reproaches over the conduct of Russia’s parliamentary vote, repealing Jackson-Vanik will be a challenge as Republicans, who control the House, gird for next year’s U.S. presidential election.
“Russia’s membership in the WTO marks an important milestone in its history, but there is hard work yet to be done on the American side,” said Edward Verona, head of the U.S.-Russia Business Council, a business lobby that backs Russian WTO entry.
“If Jackson-Vanik still applies to Russia once it accedes, then U.S. companies and farmers will be at a disadvantage to their global competitors and will not have access to the preferential trade regime negotiated over the last 18 years.”
As for our take on why Congress should repeal Jackson-Vanik as soon as possible, you can read the long and the short of it on our website.
WTO Remains a Force for Good
Trade ministers from more than 150 countries are gathering today in Geneva, Switzerland, for a three-day ministerial meeting of the World Trade Organization. These meetings happen every two years or so. No great breakthroughs are expected at this one, but it does offer an opportunity to take stock of where the WTO and world trade stand a decade after China’s entry into the organization and the launch of the still ongoing Doha Development Round.
News from the first day is a reminder that the organization can still deliver real trade liberalization. Forty-two members, including the United States, announced just a few hours ago that they had revised the WTO’s Government Procurement Agreement to open up an estimated $100 billion in annual government purchases to more international competition, potentially saving taxpayers billions of dollars a year.
The revised GPA will also give U.S. companies a fairer shot at winning contracts to supply goods and services to foreign governments. It is a partial antidote to the protectionist trend in the United States and elsewhere to restrict government spending to domestic suppliers in the misguided view that that will stimulate domestic demand.
The Doha Round may be stalled, but global trade has continued to expand. Even with the sharp downturn in trade during the recent Great Recession, in the decade since 2001 global trade volume has increased 44 percent, according to the WTO web site. Trade growth has been especially robust in East Asia and other emerging markets. The anti-market protestors can take some satisfaction in the lack of progress in negotiations, but globalization marches on.
A decade after its entry into the organization, China remains a mixed economy with significant trade barriers, but it has become one of the more open major developing economies. And it is now subject to the WTO dispute settlement mechanism and other disciplines that keep its economy more open than it would be outside the organization. There were dire warnings about a flood of imports from China if we allowed it to join, but in the past decade U.S. exports to China have grown significantly faster than imports from China.
As the chart below shows, since China’s entry into the WTO in December 2001, U.S. exports of goods to China have grown more than five-fold while U.S. imports of Chinese goods have grown four-fold. The robust export growth reflects both the growth of the Chinese economy and the decline of its trade barriers against goods of major export interest to the United States. For that we can give the WTO a major share of the credit.
As I’ve written elsewhere, there are other good reasons to see the WTO as a positive if modest factor in the global economy–to the benefit of the United States and the freedom to trade across the world.
Border Apprehensions Down. Will Our Politicians Notice?
Apprehensions along America’s southwest border have plunged in the past decade. Although there have been plenty of stories about it this week, our politicians have yet to grasp this important fact.
From a peak in 2000, the annual number of arrests along our 2,000 mile border with Mexico has plunged by more than 75 percent. Apprehensions are considered a good although imperfect proxy for attempted border crossings. By any measure, the number of people trying to enter the United States illegally between ports of entry has dropped to its lowest level since comparable records began 40 years ago.
A few implications that are not being talked about enough by politicians of either party:
- For those who demand that we must “get control of our borders first” before discussing real immigration reform, that excuse is more hollow than ever. Net migration from Mexico right now is “essentially zero,” according to Jeffrey Passel of the Pew Hispanic Center. This is a political window of opportunity to change our immigration system.
- Immigration reform should be seen as an essential step in reducing illegal traffic across the border. As I’ve noted before, when we have expanded legal immigration in the past, illegal immigration has dropped. The best way to control our border is to expand opportunities for workers from Latin America to enter our country legally through established ports of entry.
- We are in no danger of being flooded by low-skilled immigrants. Yes, beefed up enforcement has played a role in the declining numbers entering illegally, but the economic downturn explains most of the drop off. The Great Recession hit illegal immigrants hard, especially in the construction industry. If the jobs are not available, fewer foreign-born workers come and more go home.
- Conditions in Mexico are improving. Despite bad press about the drug war, staying home has become relatively more attractive for Mexican workers. Thanks to gradual economic reforms, including trade liberalization and the North American Free Trade Agreement, the Mexican economy has enjoyed stable if unspectacular growth. The middle class is growing and poverty is declining. That growth, in turn, has contributed to a plunge in the Mexican birthrate, to where today it has fallen to replacement level.
We should reform our immigration system now. When the U.S. economy recovers to more normal levels of job creation, we will need immigrant workers more than ever. We should be prepared to welcome them legally rather than wasting resources in a futile effort to “control the border” through enforcement only.
U.S. Export Growth on Track, Thanks to China
The biz media are predictably hailing the small decline in the U.S. trade deficit in October as good news for the economy, but this morning’s monthly trade report from the U.S. Commerce Department is yet one more sign that the U.S. and global economies are struggling.
The media invariably focus on the difference between imports and exports, when the real measure of trade should be the sum of the two—whether total trade is growing or slowing. In October, the trade deficit declined from September only because U.S. imports of goods and services declined even more steeply than exports. How this is good news for the American economy is beyond me.
As I documented in a study earlier this year, imports and the trade deficit typically decline when the U.S. economy is on the ropes. That’s because a drop-off in domestic demand by consumers and businesses typically translates into a drop-off in demand for imported goods and services as well as those produced domestically. Far from boosting the economy, falling imports are one of the surest signs that the economy is down shifting.
U.S. exports also declined in October, in part because of slowing demand abroad. U.S. exports are still on track to double between 2009 and 2014, a goal of President Obama’s National Export Initiative, but the rate of growth year-over-year continues to slow.
China remains a bright spot in U.S. trade, despite the complaints of politicians in Washington. U.S. exports to China continue to grow more rapidly than exports to the rest of the world. Since China joined the World Trade Organization 10 years ago this month, U.S. exports of goods to China have grown five-fold, while they have not quite doubled to the rest of the world.
China is the only major market where U.S. exports have consistently grown above the 15 percent annual rate needed to double every five years. The compound growth rate of U.S. goods exports to China since its entry into the WTO has been 18.1 percent, compared to 6.8 percent to the rest of the world. China is now the third largest foreign market for U.S. goods. Yet a large contingent in Congress wants to slap tariffs on Chinese imports because of its currency practices that supposedly hinder U.S. exports.
In the business world, picking a needless trade fight with one of your best customers would be the height of folly. For many members of Congress, it has become an urgent item on their legislative agenda.
Will Congress Welcome Russia into the WTO?
Next week trade officials representing the more than 150 members of the World Trade Organization will gather in Geneva for a ministerial meeting. Most of the agenda will be a snoozer. The Doha Round is stuck in neutral, with no compromises in sight on agricultural protection, services trade liberalization, or anti-dumping reform. But one item of business will mark a major milestone: the admission of Russia into the club of trading nations.
As I argue in a Washington Times column this morning, and in a Cato Free Trade Bulletin co-authored with Douglas Petersen and released this week, Russia’s entry into the WTO will help to bring more rule of law to the former communist nation. It will also open its market further to U.S. exports, especially civilian aircraft, heavy machinery, computer software and hardware, and beef and poultry.
Approval by WTO members is a near certainty, but what remains an open question is whether the U.S. Congress will grant Russia permanent normal trade relations (PNTR). This will determine whether U.S. companies are granted the more favorable access to Russia’s market offered to other WTO members once it joins the organization. If Congress does not grant PNTR, Russia will join the WTO anyway, but U.S. companies will be at a competitive disadvantage.
In coming weeks, Congress will have an opportunity to welcome one of the world’s largest economies into the rules-based global trading system—and benefit the struggling U.S. economy in the bargain.
U.S. Still ‘On Track’ to Double Exports by 2014
In his State of the Union address in January 2010, President Obama launched his National Export Initiative with the explicit goal of doubling U.S. exports by 2014. The Commerce Department’s monthly trade report released this morning confirms that U.S. exporters remain “on track” to meet that goal—to my pleasant surprise. (See the chart below.)
I went on record earlier this year with skepticism that the goal was realistic. And to my defense, we are still less than two years into the journey. Doubling exports in five years requires an annual growth rate of almost 15 percent, about double the average rate of export growth during the past 30 years. The current annualized growth of 16.3 percent since 2009 will be increasingly difficult to sustain as the rebound from the previous global recession wears off and storm clouds gather over the Eurozone.
We’ve long argued at the Herbert A. Stiefel Center for Trade Policy Studies that exports are only part of the trade equation. American producers and consumers benefit from competitively priced imports as well as foreign investment in the United States. But the NEI has served a useful political function of providing a framework for the administration to pursue trade liberalization.
In the name of promoting exports, the Obama administration managed to work with Republicans in Congress last month to pass trade agreements with South Korea, Colombia, and Panama. It has also resolved the cross-border trucking dispute with Mexico satisfactorily enough to remove Mexican sanctions against another $2.4 billion in U.S. exports. And it will soon be working with Congress to establish permanent normal trade relations with Russia, ushering the world’s 11th largest economy into the World Trade Organization and opening its market further to U.S. exports.
Even if U.S. exports fall short of doubling by 2014, expanding our freedom to trade is always a goal worth pursuing.
Another Immigration Message from Arizona
Last year sometime, when the Arizona immigration law S.B. 1070 was big news, I was preceded on a cable TV talk show by an Arizona state senator who had sponsored the legislation. As I sat in a remote studio in Washington, I could hear the senator in another studio rattle off what seemed an unending list of people in his state who had allegedly been killed by illegal immigrants. Knowing that the state’s violent crime rate has actually been declining and is the lowest it has been in 40 years, I thought to myself, “This guy is a first-class demagogue.”
Apparently his constituents agree. The state senator was Russell Pearce, main sponsor of Arizona’s tough anti-illegal-immigrant law. Yesterday his constituents removed him from office in a recall election spurred largely by his obsession with rooting out low-skilled, undocumented immigrants from his state.
Pearce tried to blame the recall on liberals soft on illegal immigration, but the opposition in his conservative district was fueled mainly by other Republicans tired of the damage he was inflicting on the state’s reputation. After passage of S.B. 1070, Pearce had then tried to deny state-issued birth certificates to children born in the state to an illegal immigrant parent despite more than a century of settled constitutional doctrine on birthright citizenship. That effort was stopped by business leaders in the state who saw no upside but plenty of downside in Pearce’s single-minded efforts that did nothing to address the state’s depressed economy.
Defeating Pearce was another Republican, Jerry Lewis, who carried 54 percent of the vote despite being outspent 3-1. After his victory last night, Lewis said,
Certainly the immigration issue is important to many people including myself. We need to bring a civil tone to that discussion, a professional approach to solving it, an approach that is reasonable and won’t be … in the courts for years to come.
Perhaps there is a lesson here for the GOP presidential candidates who have been competing with each other in recent debates to prove who can sound the most like Russell Pearce on immigration.
Gov. Perry and Those DREAM Act Kids
Texas Gov. Rick Perry has been beaten up in recent GOP presidential primary debates over his signing of a bill in 2001 giving in-state tuition to illegal immigrant kids in Texas. Look for the issue to come up again at tonight’s debate in New Hampshire.
In a free society, so-called DREAM Act legislation would be unnecessary. Opportunities for legal immigration would be open wide enough that illegal immigration would decline dramatically. And higher education would be provided in a competitive market without state and federal subsidies. But that is not yet the world we live in.
On the federal level, the proposed Development, Relief and Education for Alien Minors Act would offer permanent legal status to illegal immigrant children who graduate from high school and then complete at least two years of college or serve in the U.S. military. Legal status would allow them to qualify for in-state tuition in the states where they reside, and would eventually lead to citizenship.
Those who respond that such a law would amount to “amnesty” for illegal immigrants should keep a couple of points in mind.
First, kids eligible under the DREAM Act came to the United States when they were still minors, many of them at a very young age. They were only obeying their parents, something we should generally encourage young children to do.
Second, these kids are a low-risk, high-return bet for legalization. Because they came of age in the United States, they are almost all fluent in English and identify with America as their home (for many the only one they have ever known). “Assimilation” will not be an issue.
They also represent future workers and taxpayers. The definitive 1997 study on immigration by the National Research Council, The New Americans, determined that an immigrant with some college education represents a large fiscal gain for government at all levels. Over his or her lifetime, such an immigrant will pay $105,000 more in taxes than he or she consumes in government services, on average and expressed in net present value (see p. 334). In other words, legalizing an immigrant with post-secondary education is equivalent to paying off $105,000 in government debt.
According to estimates by the Immigration Policy Center, the DREAM Act as introduced in 2009 would offer immediate legalization to 114,000 young illegal immigrants who have already earned the equivalent of an associate’s degree. Another 612,000 who have already graduated from high school would be eligible for provisional status and would then have a strong incentive to further their education at the college level to gain permanent status. If all 726,000 of them studied at college and became legal permanent residents, it would be equivalent to retiring $76 billion of government debt.
In all, a potential 2.1 million kids could eventually be eligible for permanent legal residency under terms of the DREAM Act, representing a potential fiscal windfall to the government of more than $200 billion. Not to mention their potential contributions to our culture and economy.
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