Author Archive
Agriculture and Trade Links
- A very good editorial on Bloomberg.com on farm subsidies, and why the “let’s swap direct payments for crop insurance” proposal is a bad deal for taxpayers.
- American Farm Bureau Federation President Bob Stallman isn’t exactly a poster child for the farm program reform movement, but here he writes something I didn’t think would ever flow from his pen: “Not only would ["shallow loss"] programs be a nightmare for local Farm Service Agency offices to administer, but farmers would have the ability to cherry-pick which program works best for them. Because of distortions in price, we’d have a system of farmers deciding what to produce based on government payments rather than market signals.” [emphasis added] Uh, ok, but doesn’t that happen already, Mr Stallman?
- I’m not quite sure the LA Times gets the concept of federalism.
- United States Trade Representative Ron Kirk complains that “countries need to do a better job of explaining the benefits of trade in order to help sell ambitious trade deals to a skeptical public” [$]. I must have missed the part when Obama gave a detailed, principled endorsement of free trade in his SOTU address last week. Or, you know, ever.
SOTU and Trade: the Good, the Bad and the Ugly
President Obama’s State of the Union address last night was, in my opinion, pretty awful (although James Pethokoukis at the American Enterprise Institute thinks it could have been worse). I know SOTUs are political theater at its worst, and I watch them always with something not unlike disgust, but I found almost nothing to like in the substance last night. The electioneering, partisan, self-aggrandizing tone didn’t help.
Let me turn specifically to trade policy, which was more thoroughly covered last night than in recent SOTUs. In an election year, and from a president who is ambivalent (at best) on trade, a trade-heavy speech is not always a good thing: trade policy can get caught up in broader political arguments about inequality, unemployment and economic growth. And rarely does that combination work well for those of us who want and promote free trade between people regardless of the political borders behind which those people happen to live.
But first, the Good news from last night’s speech. President Obama did make a passing and veiled reference to the need for Congress to extend Permanent Normal Trade Relations to Russia, necessary for the United States to treat Russia as any other member of the World Trade Organization when it joins the body later this year (i.e., allowing Americans to access Russian goods and services more readily). And at least he painted the recent passage of the trade agreements with Colombia, South Korea and Panama as a positive development, albeit on mercantilist grounds (more on this later).
The Bad? The president said precisely nothing about the Trans Pacific Partnership negotiations currently underway with nine other Asia-Pacific countries (with Canada, Mexico and Japan interested in joining in the future). The TPP is supposedly the crowning achievement of his administration’s trade efforts and a deal that he was itching to complete in 2012. What does it say about his priorities that it warrants not a mention in his main speech of the year? Maybe his political supporters in organized labor aren’t buying this “21st century trade agreement” stuff any more than I am and he sees merit in keeping it quiet. But that then raises worrying questions about the ability of the negotiations to be completed on schedule if they don’t have full-throated political support at the highest level. The president made no mention of the World Trade Organization or its struggling Doha round of trade liberalization negotiations, either, although maybe there he is simply showing acceptance of the round’s (near) death, an assessment he would share with most trade watchers.
And the Ugly? Once again the president displays no appreciation for the true benefits of free trade – the benefits from specialization and exchange. They include the economic benefits that come from increased competition, and from access to cheaper and more variable goods and services for Americans. From his silly (and, I suspect, futile) goal to “double exports in five years” to his rhetoric about how America can “win” if the playing field is level (what does “winning” mean in that context anyway?), the speech was peppered with nationalistic, misguided and quite frankly inflammatory rhetoric that will not help trade relations – let alone lead to enhanced trading opportunities for Americans – one bit. Creating yet another government agency, this time to “investigat[e] unfair trade practices in countries like China”, will just add to tensions. Claiming the tires debacle as a model of trade enforcement success is yet another example of how the concept of unintended consequences is apparently lost on this president.
Matthew Yglesias has some excellent things to say on the mercantilist nonsense in Obama’s message, and the ill-conceived manufacturing fetish he conveyed. And Obama managed to combine both economic illiterate concepts when wailing about the unfairness of having to compete with “foreign manufacturers [who] have a leg up on ours only because they’re heavily subsidized.” (He then, inevitably, went on to include all sorts of subsidies or tax breaks that he would like to extend to certain American firms/industries – Chris Edwards has amply covered the tax stuff here). Overall, I give this speech a “D” on trade. Must try harder.
The USDA: Your One-Stop Shop
Politico yesterday reported that Agriculture Secretary Tom Vilsack is upset. According to him, the USDA just don’t get no respect:
Agriculture Secretary Tom Vilsack wants to spread the message to anyone who’ll listen: The U.S. Department of Agriculture isn’t just about farming anymore.
“This department is not appreciated,” the former Iowa governor told POLITICO in a recent interview. “We are engaged in virtually every issue and always can provide some support and some meaningful solution to a problem that is vexing folks.”
To prove the point, he challenges anyone to name an issue that doesn’t touch the department’s portfolio, from bolstering national security by helping wean Afghan farmers from growing opium — a cash crop that funds Islamic insurgents fighting U.S. troops — to providing USDA-backed home loans as a way to repopulate the sparse countryside. [emphasis added, with disgust]
Not bad for an agency that shouldn’t even exist.
Citizens! Do You Know the Source of Your Honey?
Some disturbing news indeed reached my inbox today (HT: David Boaz). Apparently honey is entering the United States under assumed identities. Chinese honey, once ubiquitous, was largely shut out of the American market through anti-dumping measures. So, this article from NPR.org alleges, it started to be sold through a third country (perhaps Indonesia, Thailand, or Malaysia) and was falsely labelled to evade the duties. (Apparently we know this because the honey can be tested for peculiar types of pollen.) The U.S. government wasn’t having any of that of course, and so they held up suspicious shipments through regulations, inspections, and documentary requirements. So now the Chinese honey is allegedly being sold through India.
The domestic honey industry is now starting to worry that all of this nefarious, subversive honey-related activity will suppress the market for all types of honey, including their own, and are starting a fair trade-esque system called True Source Honey, which will trace the honey to a proper, ‘merican source. None of that Chinese muck.
Eric Wenger is president of True Source Honey. Soon, he’s going to Vietnam to help with the first audit of a Vietnamese honey exporter.
“The question we want to answer is: Does that exporter only purchase honey from beekeepers in that country?” he says.
The exporter will give the True Source auditor a list of the beekeepers from whom it buys honey. “Then the auditor will randomly select a number of those beekeepers, go out to that beekeeper’s apiary, and evaluate the capacity of that beekeeper to produce the volume that that exporter claimed was purchased and shipped,” says Wenger.
If everything checks out, that exporter is certified. But even after that, True Source will take samples from every shipment of honey and send those samples to a lab in Germany to see if the pollen matches the flowers that are actually blooming in Vietnam.
True Source wants to expand this system globally. One exporter in India is already certified.
Jill Clark, from Dutch Gold Honey, says these sorts of audited, verified supply chains are getting more common throughout the food business. In some cases, governments are requiring it.
“With all the food safety and food security issues, knowing where your food comes from right now is incredibly important,” she says.
Shouldn’t consumers be the ones to decide that? Removing the anti-dumping duties and discriminatory regulations will reduce the incentive for Chinese honey to be labelled falsely, and then we can decide for ourselves what is “incredibly important.” Or maybe we don’t care, and True Source will be a massive flop.
On a positive note, there are an encouraging number of libertarian comments to the article.
Ex-Im Bank Pits U.S. Industry Against Industry
I know it’s unseemly to brag, but I just couldn’t help but feel vindicated when I read this article in the Wall Street Journal today about recent complaints by the Air Transport Association to the Export-Import Bank of the United States regarding their loan guarantees to foreign airliners.
On page 15 of my recent Trade Policy Analysis, “Time to X Out the Ex-Im Bank“, I warn: “…the billions of dollars the bank authorizes each year in financing to foreign airlines to buy American aircraft could be seen as a way of helping foreign airlines compete against American ones.”
Behold, buried on page B4:
In a letter to Ex-Im Bank Chairman Fred Hochberg earlier this month, the Air Transport Association, a trade group for America’s biggest carriers, called on the federal agency to slash subsidies to all overseas buyers of Boeing jets.
“The bank’s support for foreign airlines injures U.S. carriers,” said ATA outside counsel Michael K. Kellogg…
</smug>
The End of Civilization?
Forced to cut its budget, the Agriculture Department has decided to eliminate dozens of reports, including the annual goat census (current population: three million), and the number of catfish on the nation’s fish farms (177 million, not counting the small fry).
Tuesday Agriculture Links
Some interesting links on agriculture in the news today.
First, a terrific front-page article in the New York Times, about what my friend Vince Smith so accurately calls the “bait-and-switch” farmers are proposing in their offer to give up direct payments (subsidies that flow to farmers regardless of prices or production) in exchange for a new revenue insurance program. As Vince so rightly points out, because the new revenue targets will be based on today’s current record crop prices, “If farm prices move back towards what are widely viewed as more normal levels than their current levels, farmers will be compensated for going back to business as usual.” Vince blogs here about the proposed new revenue assurance program, and how it could end up costing us just as much as the current set of programs.
Farmers and their congressional sponsors are still blathering about “proportionality,” essentially saying that they should not have to contribute any more to budget cuts than any other area of the federal government. Here, for example, is a corn farmer, towing the party line:
“We are very much aware of the budgetary constraints of the federal government,” said Garry Niemeyer, an Illinois farmer who is president of the National Corn Growers Association. “We want to do our part as corn growers to help resolve those issues, but we only want to do our proportional part. We don’t want to have everything taken out on us.” [emphasis added]
This is wrong-headed. I’ve said it before, I’ll say it again: “proportionality” implies that everything the federal government currently does is equally valid. That is nonsense. Some programs are legitimate, some less so. Some—like farm subsidies—not at all. Spending cuts should be made on the basis of legitimacy, not by some abstract formula equally applied. We should be reshaping (in a downward direction) the federal government here, not trimming a topiary hedge.
Second, Bloomberg.com has a good overview on the current state of the negotiations between the Congressional agriculture committees and the deficit-reduction supercommittee regarding the cuts to farm programs. The leaders of the agriculture panels have written a letter to the supercommittee, saying that cuts to agriculture programs should be limited to $23 billion and those cuts ”should absolve the programs in our jurisdiction from any further reduction.” So there.
Finally, here are Senators Mark Kirk (R-Ill.) and Sen. Jeanne Shaheen (D-N.H.) on the wasteful and expensive sugar program.
The Solyndra Saga Spreads to Trade Policy
My colleagues Tad DeHaven and Jerry Taylor and Peter Van Doren (among others) have given us enough details about the Solyndra affair to know that it stinks to high heaven. But now we smell that the rot is spreading, as over 1,000 former employees of the failed solar panel firm seek to obtain Trade Adjustment Assistance. So, in addition to the over $500 million worth of federal loans thrown down that hole, taxpayers will now be on the hook for retraining expenses, extra unemployment benefits and health insurance subsidies for workers in a firm that probably should not have existed — indeed, would not have existed — absent federal cash.
As this IBD editorial makes clear, if the White House and Congressional Democrats succeed in their goal to expand the Trade Adjustment Assistance program beyond its current funding and scope (a goal for which they are willing to risk passage of trade agreements they mostly claim to support), the cost to the taxpayer will go even higher.
Let’s give the last word to my friend and trade blogger Scott Lincicome:
So to recap: massive government subsidies created 1,100 “green jobs” that never would’ve existed but for those massive government subsidies. And when those fake jobs disappeared because the subsidized employer-company inevitably couldn’t compete in the market, the dislocated workers blamed China (instead of what’s easily one of the worst business plans ever drafted) in order to receive… wait for it… more government subsidies.
Behold, the Circle of Government Life. [links in original]
Senator Reid Comes Clean
After much back-and-forth on sequencing and strategy [subscription required], and many fine words from both sides about how the long-pending trade agreements with Panama, Colombia and South Korea are a bipartisan priority (President Obama’s failure to send the agreements for a vote notwithstanding), Senate Majority Leader Harry Reid (D-Nev.) finally laid all his cards cleanly on the table yesterday.
A deal reached in August seemed to imply that the House would merely have to put Trade Adjustment Assistance to a vote before passage of the trade agreements, but yesterday Senator Reid said that the Senate would not vote on the trade agreements unless and until the House PASSES (not merely “considers”, as the Republican House leadership was always careful to specify) an extenstion of Trade Adjustment Assistance. (By the way, just to clarify, the stimulus-enhanced version of TAA is the main issue here. The basic TAA program has been running without authorization since the start of the year, when OMB ruled that it could continue unauthorized, so long as it was funded. So while the entire program “needs” reauthorization, the 2009 version is the most urgent priority for TAA advocates and their political supporters.)
So there you have it, folks, with all the niceties stripped away: If TAA doesn’t pass, then Harry Reid will ensure the trade agreements won’t even see the Senate floor. Pay the bribe, or pay the price.
More on the Ex-Im Bank
But I realize that my recent call to “X Out the Ex-Im Bank” will be facing some very entrenched interests in Washington, and some well-funded lobby groups. The Bank has historically attracted bipartisan support, and a renewal of its charter sailed through the House Committee on Financial Services earlier this year. The Washington establishment loves this program.
My friend and long-time Ex-Im Bank supporter Gary Hufbauer of the Peterson Institute for International Economics published a critique a few weeks ago of my analysis, and calls for a doubling of Ex-Im’s authorization cap (from $100 billion to $200 billion). His piece is a fair characterization of my arguments, and at least Gary tries to counter them with actual facts and analysis (not always a given in an increasingly poisonous trade policy environment). But it seems to me that Gary focuses his critique on my assessment of the effectiveness of the Bank. That’s fair enough, of course, but I tried in my paper to make the point that the efficiency or efficacy of the Ex-Im Bank’s activities is kind of irrelevant. The important point, which Gary did not address, is that it is simply not the proper role of the federal government to be in this business at all, even if they can operate “efficiently” (which I do not concede in any case). Where in the Constitution is the federal government authorized to be involved in the export credit business (a business, by the way, that benefits mainly large, profitable companies)?
My opposition to the Bank, in other words, is at a more fundamental level. On an empirical level—and this is where Gary’s critique is focused—can markets work well enough in trade finance, and if not, can government intervention work better? Gary points to the Bank’s low default rate as evidence that private markets are missing good opportunities:
These figures suggest that the Ex-Im Bank plays a large role in facilitating exports to countries that encounter reluctance from private banks but nonetheless are not ‘bad risks.” Judging by its low default rate, the Ex-Im Bank’s risk assessment seems more correct than the private market.
But I would argue that its low default rate suggests the Ex-Im Bank’s backing is unnecessary. We don’t know that private credit wasn’t available to finance those exports. And even if it wasn’t, private credit not always being available on terms that the trading partners would like does not necessarily signify market failure. So a finance company missed an opportunity that may have paid out. So what? Maybe they had even better opportunities available to them that we (and bureaucratic Washington) don’t know about, or they simply wanted to hold on to their capital for future investment or to meet new reserve standards. The would-be exporter might miss out, but government intervention to direct that private capital (either through mandates, or siphoning it through the Ex-Im Bank) would come at another producer’s or bank shareholders’ expense.
Gary argues that:
Ex-Im’s capability should be strengthened so that the United States can respond when official finance offered by other countries violates the principles of fair competition…Successful multilateral negotiations…are certainly a superior option to tit-for-tat retaliation…[but]…without sufficient leverage…it is difficult to see what will bring China and India to the negotiating table.
But will China and India (and others) see higher Ex-Im funding as “leverage” to bring them to the table, or will it be seen as just the next step in the escalating arms race of subsidized export credit? I suspect, and fear, the latter.
Why Stop at $20 Billion, Senator?
Congressional Quarterly reported on Monday [subscription required] that Sen. Dianne Feinstein (D, Calif.) has called for $20 billion worth of increased lending to U.S. manufacturers through a new targeted program of the Export-Import Bank of the United States (“the Ex-Im Bank”).
Sen. Dianne Feinstein called Monday for a new initiative to promote lending to U.S. manufacturers in an effort to spur job creation and shrink the U.S. trade deficit.
The California Democrat proposed authorizing the U.S. Export-Import Bank to use $20 billion of unobligated authority to lend directly to domestic manufacturing companies that are competing with foreign competitors subsidized by their own governments…
Feinstein said her proposal would not be costly because of the offsetting collections priced in to the structure of the bank’s transactions.
To be eligible for the lending program, companies would be required to demonstrate the number of jobs that would be created; that they are competing directly with subsidized, foreign firms; that the project would contribute to the expansion of the domestic workforce and manufacturing capability; and that it would have a net positive impact on the U.S.trade balance.
“In today’s global economy, the federal government must more actively partner with the business community,” Feinstein wrote. “Manufacturing is a proven source of well-paying jobs for those of all educational levels and we must have a thriving manufacturing sector in order to address our chronic trade imbalance and return our economy to sustainable growth.” [emphases added]
Where to begin? First, there is no earthly reason why “we must have a thriving manufacturing sector in order to address our chronic trade imbalance.” We could bring our trade account into balance through services or agricultural exports if “addressing our chronic trade imbalance” is what keeps you awake at night. (Here’s more on the trade deficit from my colleague Dan Griswold.)
Ron Paul Talks Sense on Trade
Presidential Candidate Ron Paul has a decidedly mixed record on trade policy. He often votes against trade agreements because he sees them as “managed trade” and an interference with true free trade. Well, ok, but that’ s like voting against income tax cuts because you think the IRS shouldn’t exist. I get the point, but c’mon…
In any event, he was the only participant in Thursday night’s debate between the Republican presidential candidates who spoke about trade with any sense at all. As Inside US Trade [subscription required] points out, trade policy was not a prominent theme of the debate, but that didn’t stop Mitt Romney from (again) spouting nonsense about balanced trade:
Former Massachusetts governor Mitt Romney late last week took a swipe at the trade policies of the Obama administration in a debate of the Republican presidential candidates by implying they are unbalanced in favor of other nations.
As part of a seven-point list of actions to turn around the economy, Romney said the U.S. should “have trade policies that work for us, not just for our opponents,” as the third point…
(I’ll just interject here to say that by “opponents” I believe Mr Romney is referring to our trade partners. You know, the folks who sell us stuff and buy stuff from us. But I digress…)
Trade was only raised one other time during the debate. Prompted by a moderator, Rep. Ron Paul (R-TX) defended his earlier criticism of Obama’s sanctions against Iran for its nuclear program.
Saying it was “natural” that Iran would pursue nuclear weapons—given that India, Pakistan, China, and Israel also possess them—Paul attacked the sanctions policy as steering the U.S. toward conflict.
“Countries that you put sanctions on, you are more likely to fight them,” he said. “I say a policy of peace is free trade. Stay out of their internal business.”
Paul also suggested it was time for the U.S. to engage in a trading relationship with Cuba and “stop fighting these wars that are about 30 or 40 years old,” an apparent reference to the Cold War. [emphasis added]
(My friend Scott Lincicome has more on the economic illiteracy flowing from the debate here)
Mr Paul is right on this one. He and I no doubt disagree on a few issues, and on trade I have more tolerance than he does for multilateral (and, albeit to a lesser extent, bilateral and regional) trade agreements as the only likely avenues for trade liberalization in the foreseeable future. But the link between trade and peace is an important one, and often overlooked.
Speaking of Ron Paul, the following clip shows Jon Stewart at his devastating best, calling out the mainstream media—and particularly Fox News—for ignoring and/or outright mocking Ron Paul’s candidacy. Watch to the very end, you won’t regret it. (HT: RadleyBalko)
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Indecision 2012 – Corn Polled Edition – Ron Paul & the Top Tier | ||||
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