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Record Trade Deficit + Campaign Season = Infuriating Statements
From the LA Times this morning, an article on the trade deficit for August. Both imports and exports were up slightly from the July figures, and the trade deficit itself was $69.9 billion. But it was not so much the trade figures that interested me (after all, the trade deficit has hit record highs repeatedly lately), but this statement from Rep. Marcy Kaptur:
“We are not only shipping jobs overseas, we are shipping billions of dollars overseas,” said Rep. Marcy Kaptur (D-Ohio), a critic of Bush administration policies calling for free-trade pacts. “We are exporting our jobs and our wealth, not our products.”
We are shipping billions of dollars overseas? On net, the United States must, by definition, be a net importer of capital to balance the current account. I won’t belabor that point, though, since my colleague Dan Griswold has covered the topic more than ably here).
Kaptur, currently seeking reelection in Ohio’s 9th district, is one of the least trade-friendly members of Congress, according to last year’s rating of the 108th Congress (available here). Her press release on the trade deficit seems to boast of her being a “leading critic of “free trade” policies” (note the quotation marks around free trade, signifying, I assume, that free trade is a quaint concept).
I understand that it is election time and all, but I find it very frustrating that marketing oneself as someone who will fight against free trade — a poverty fighter, growth promoter and trust-buster all in one — is perceived to be a winning strategy.
Wanted: An Excuse to Stop Hurting the Economy
From the Washington Post online: a synopsis of the speech given yesterday by U.S. Trade representative Susan Schwab. In that speech, which I heard, Ambassador Schwab made it clear that the U.S. was not going to offer any more cuts to agricultural subsidies as part of the Doha round of trade negotiations under the auspicies of the WTO. According to her, a “bold” offer on subsidies didn’t elicit the desired response (i.e., an offer from the European Union of further cuts to agricultural tariffs) when it was tried last October. So we shouldn’t expect anything from the U.S. soon, and certainly not before the mid-terms.
To her credit, and this was not reported in the Post article, Ambassador Schwab did admit that unilateral liberalization of trade barriers and subsidies is in America’s best interests, but she went on to say that the administration needed “an excuse” for taking that step. Apparently the significant burden on taxpayers and consumers from the current trade policy is not a large enough reason to liberalize trade.
The negotiation-via-press-release approach is not working, and Ambassador Schwab referred to the “quiet conversations” that were going on among trade ministers to try to revive the round. She gave absolutely no clue on how the talks went with EU trade commissioner Peter Mandelson when he visited Washington DC last week, except to say that the talks were “healthy.” Boy, would I like to have been a fly on that wall.
One last comment on Ambassador Schwab’s speech: her belief in a “critical mass” of bipartisan support for free trade is, I think, misguided. I can’t see the Democrats, should they take control of the House(s), giving the Bush adminstration any wins on trade. That leaves us with the original deadline of July 2007 (when the current trade promotion authority expires) for any Doha deal to come to fruition.
Peter Mandelson Still Wants to Date Us, He Was Just Washing His Hair
The Cairns Group is a group of 18 major agricultural exporting nations. This week they held their 20th anniversary meeting in Cairns, Australia (the site of their first meeting, hence the name of the group). Unfortunately, but perhaps predictably, they were able to make little headway in moving the struggling Doha round of trade talks forward. (The special importance to agriculture in the Doha talks was presumed to give the Cairns Group a strong voice.)
There are a few reasons for this:
First, the Cairns Group has lost some of its gravitas now that the G-20 (a developing country block of WTO members that was formed and at least partly responsible for the disastrous end to the 2003 WTO meeting in Cancun) has entered the fray. The G-20 (which has some overlap in membership with the Cairns Group) is less inclined toward liberalization in general, unless it is liberalization in other countries.
Second, and more importantly, the EU’s trade commissioner, Peter Mandelson, refused to attend the Cairns meetings because of a “prior commitment.” I’ve used that excuse to get out of an unappetizing social engagement, too, Mr. Mandelson, and I’m almost always telling a white lie. In this case, however, the refusal to attend is not so “white.”
A New Solution to the Trade Deficit ‘Problem’
I’ll be honest with you folks — in Australia we have an expression, “Only in America!” It is used whenever outlandish, seemingly crazy, or especially unusual ideas or events occur over here. It is frequently used by news-readers. Please don’t be offended.
Anyway, I am proposing a new expression, “Only from Congress.” It could be used to describe, well, whenever an outlandish, seemingly crazy, or especially unusual idea is announced by members of Congress. And to kick things off, I would like to introduce the first item for your consideration.
Two Democratic senators, Byron Dorgan of North Dakota and Russ Feingold of Wisconsin, have proposed that any company wishing to import goods into America would need a government-issued certificate. The senators, according to this New York Times article (link requires subscription), view this as a “market-based system to cut the trade deficit to zero within 10 years.”
It would work thus: Any company that exports goods would be issued an import certificate that would allow it to import goods. The “exchange rate” would fall from $1.40 in the first year (i.e., $1 worth of exports would earn $1.40 worth of imports), to $1.30 in the second year, and so on until we achieve “balance.” If a company does not wish to import anything, it can sell the import certificate to someone who does. I guess that’s the “market-based” part. Read the rest of this post »
Don’t Count on China
Following on from the visit last month of United States Trade Representative Susan Schwab, the Director-General of the World Trade Organization, Pascal Lamy, is visiting China this week to drum up Chinese support for reviving the Doha round of multilateral trade negotiations. He appears to have been given the same non-response as the USTR.
The Chinese have put the ball squarely back in the court of the EU and the United States, saying it was up to the major developed countries to take the lead in reviving the talks. (full story here).
China has so far kept very quiet in the trade talks, limiting their participation to argue for a ‘time out’ from trade liberalization for newly-acceded members. Having given major “concessions” to join the club, they figure they’ve paid their dues and should be given time to soak up the atmosphere. And given the often poisonous rhetoric surrounding China’s role in the world economy (not least from certain U.S. Congressmen), one can hardly blame them from keeping their heads below the parapet in the negotiations proper.
It is true, as Ambassador Schwab and DG Lamy have argued, that China has gained a lot from joining the WTO (although many of those gains would have been realized anyway as a result of unilaterally liberalizing their economy) and would stand to lose from a failed WTO. Similarly, China should be held to account for the commitments it made upon joining the WTO. But expecting China to take a more active role in the negotiations, and reverse their stance of the past five or so years, is a bit much. And, as they have proved on the currency issue, the Chinese won’t be bullied.
The “quiet diplomacy” to revive the round will likely continue, including at the IMF and World Bank shindigs later this month. But if a miracle occurs and the Doha round is concluded, it won’t be because of China’s efforts.
Rural Newspaper Calls for the President and the Senate to “Mind Their Business”
The Enid News and Eagle posted an opinion article last week on the new farm bill. Admittedly, it is a rural paper (based in Enid, Oklahoma) catering to a rural readership. Most of you will probably not have seen it. But I was struck by a number of passages.
Take this one, for starters:
“It seems the 2002 farm bill was one of the more popular farm bills to come out in the history of farm bills, according to Frank Lucas. The Third District representative has been traveling the state getting input from agricultural officials and farmers on what should be included in the 2007 version of the farm bill.”
Of course the 2002 Farm Bill was popular, Congressman, at least with the “agricultural officials and farmers” you are talking to. A significant backtrack from previous farm bills, payments to farmers under the 2002 Farm Bill are projected to average over US$20 billion per year from 2005 to 2007. Agriculture officials are hardly going to support huge cuts to the agriculture budget, either.
Or consider this gem:
“…the House committee knows the most about agriculture and has the most contact with the people it will affect…”
The Enid News and Eagle is suggesting that the “people it will affect” are farmers and ranchers. This is undeniably true. But this farm bill, like all the others before it, will also affect every taxpayer and consumer of food in the country, not to mention commodity producers abroad. (more here)
Exporters as Hostage-takers?
I subscribe to a useful digest of farm policy news called FarmPolicy. It’s a great little news service for those interested in agricultural issues.
Today in FarmPolicy, my attention and pique were raised by an article that included a statement from Sen. Ken Salazar (D-Co), who said that farming should be an integral part of national security. According to Salazar:
I would hate to think of a day where the United States of America becomes hostage to other countries (that export food to the U.S.), in a way that we are held hostage over our energy needs
I know of only two other countries that pursue a policy of total self-sufficiency in food(which seems to be what the senator is advocating): North Korea and Zimbabwe.
And we all know how well that’s going…
If you are interested in agricultural policy, Cato will be holding a forum next week to discuss the new Farm Bill. The forum will feature the secretary of agriculture, Mike Johanns, as well as Cal Dooley of the Food Products Association and Robert Thompson, one of America’s most respected experts on U.S. farm policy. Please join us.
Every Day Brings an Emergency
The U.S. Farm Bill is due to be redrafted in the first half of next year and Cato will be part of what is shaping up to be a lively debate. The recent round of WTO negotiations were one hope for reducing the costly distortions that agricultural subsidies impose, but we all know what happened there. (The WTO news release can be found here if you are not up to speed).
The 2007 Farm Bill, then, provides the next best opportunity for much needed reform. But, considering the noises coming from Congressmen, we reformers have our work cut out. Consider this recent pearl, offered by Sen. Chuck Hagel (R-Neb.):”The fact is we know there is emergency assistance required every year, whether it’s for drought, floods or whatever natural cause…” Webster’s Encyclopedic Unabridged Dictionary of the English Language defines an emergency as “a sudden, urgent, usually unforeseen occurrence or occasion requiring immediate action.” I don’t think something (a different ‘something’ all the time, according to the Senator) that happens with certainty every year fits that definition.
Senator Hagel went on to say…”Why don’t we craft a farm bill that is visionary, relevant, real and deals with the challenges we know agriculture producers deal with?” I am sure the Senator meant the question to be rhetorical, but I agree with the Senator — why don’t we craft a Farm Bill that is visionary, relevant and real. A vision of farmers making a living from markets, relevant to the fact of the significant cost of these programs, and real — as in, real different to the last farm bill (a huge step backwards from the relatively tame 1996 farm bill). As for the challenges, surely farmers, like other small (and not so small) businesses should be able to deal with challenges unassisted by government (read: taxpayer and consumer) support?
I’m an Australian so I know something about drought. I’m also an economist, so I know something about comparative advantage. Maybe if every year is a disaster year in some place, then farmers shouldn’t be farming there….
The Welfare Kings of Farming
There is an excellent op-ed in today’s LA Times on the special kind of corporate welfare given to farmers. David Boaz and I have both written blog entries (here and here) and done podcasts on the topic (mine on 05/30/06 and David’s on 07/25/06). As the farm bill comes up for extension/review/obliteration (okay, that last one was a bit optimistic), this topic is one to watch.
Hillary’s Rural Renaissance
Further to David Boaz’s post below on the Democratic Leadership Council’s recent spending plans, Senator Hillary Clinton has called for a “rural renaissance” to “restore the promise and prosperity to main streets and rural communities.” The full press release can be viewed here, but these are the main points:
- A “national broadband strategy” to “coordinate and maximize federal resources” which would newly include a National Rural Broadband Innovation Fund and the creation of a single office run by an “administrator” that would provide a “one-stop shopping clearing house for innovators and businesses that want to expand broadband in rural areas.” Strange, but from where I’m standing, the Internet seems to have evolved pretty well without government interference so far.
- A “Rural Regional Investment Program, which would provide equity investments to fund innovative opportunities and partnerships in rural areas” that would “provide rural communities with flexible resources to develop comprehensive, collaborative, locally-controlled planning and to foster innovative community and economic development strategies.” Senator Clinton’s proposal also includes more “help” in administering small private loans “pooling private capital and administering that capital through trusted intermediaries” (overseen by the Federal government, presumably). As the seemingly inexhaustible stream of money to ethanol production has shown, investment money to rural areas seems to flow quite nicely when investors see promising (if pork-induced) returns.
- Speaking of ethanol, Senator Clinton would like to see the creation of a $1 billion Strategic Energy Fund to “support [the] rapid development of renewable energy, including biofuels.”
- Then there are a host of other measures, including so-called “green” payments, a more reliable safety net that would “help manage risk” and include counter-cyclical payments (the most trade distorting and offensive kind to our trade partners), and more spending on health care and rural education.
The US Government has been lavishing subsidies on farmers since the New Deal in the 1930s, and has spent over $55 billion propping up the agricultural sector since the enactment of the 2002 Farm Bill. Far from giving away even more of taxpayers’ money, surely it is time for the government to stop giving agriculture special treatment and to allow farmers to carry the risks and reap the rewards of their investments, just like every other businessperson in America.
Doha Ends With a Whimper
The Doha Round of trade talks has been suspended indefinitely. What was billed as an historic opportunity to liberalize trade through multilateral negotiations has ended with no deal in sight. Now, get ready for the blame game, a kind of “press-releases-at-dawn” duel between the US and the EU, with a few comments from other players thrown in for good measure. For starters, you can see the US version of events through the USTR and the EC (link requires subscription) provided a 9 page document describing how much they had done to get a deal concluded.
Of course, none of this necessarily means the end of trade liberalization, and to this end we can expect after the finger-pointing has ended a revival of the seemingly endless debate on whether bilateral or multilateral liberalization is best. But, as my colleague Dan Ikenson argued in his recent paper on unilateral liberalization, the US can do itself a big favor, and in the process gain some much needed foreign policy credibility, by unilaterally reducing tariffs and subsidies.
Maybe now that the Doha Round is in remission, the US can focus on doing what is in its own interests, instead of seeing liberalization as a “concession” that depends on the actions of the EU and others.
Meanwhile, back at the Secretariat, discussions are turning to a more important topic: where to find more space for its ever-expanding staff. Looks like you’ll be needing fewer large conference rooms, guys.
Is That the Best You Can Do?
An update from my blog entry on Friday: The G8 summit has not given any substantive support to the Doha round of trade talks that I can discern. The best the G8 leaders (minus Russia, who failed to convince the US to sign off on their membership application to the WTO) could do apparently was to issue a statement of encouragement to WTO members to keep negotiating, and a permission slip for the WTO Director-General, Pascal Lamy, to consult with members in the hope of promoting “early agreement” (this coming five years into the launch of the Doha round). The leaders gave Mr Lamy until mid-August to report back on his mission. Note that this call to unblock trade talks was from only developed members of the WTO: Brazil and India, the two most powerful developing members in the WTO, will meet with the G8 today and will no doubt have their own perspective.
The G8 leaders’ statement implied they had come to no agreement as to how to break the current stalemate over trade talks, and provides much less momentum than would have been hoped for. For a group calling for “utmost urgency” in concluding a deal, they sure seem reluctant to do any heavy lifting themselves.
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