Not to get him in trouble with his boss, but U.S. Trade Representative Ron Kirk has been sounding like a free trader lately. I’m beginning to think Ambassador Kirk consumes the analyses we produce over here at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies. Well, let me rephrase: that he consumes the meat of our analyses, but still hides the vegetables under the picked-over potatoes.

Still, that’s pretty commendable for a Washington policymaker.

Just the other day, Ambassador Kirk lamented how policymakers do a poor job selling trade agreements to a skeptical public. Inside U.S. Trade [$] paraphrased Kirk as saying:

[P]oliticians must ‘talk about trade differently’ and demonstrate how trade policy is directly responsible for sustaining economic growth and creating jobs. If the focus is only on how trade deals will improve supply chains for businesses, for instance, that is not enough to build the base for support for trade deals.

That is a sound criticism. The typical, mercantilist arguments that tout the benefits of exports and rationalize imports as necessary evils are foolish and self-defeating—particularly in a country that will run trade deficits into the distant future as its economy continues to grow and attract greater amounts of foreign investment. The freedom to engage in commerce with whom and how one chooses, and the impact of import competition are the real benefits of freer trade.

Like some others in town, we at Cato advocate free trade. But unlike most, we advocate free trade here in the United States—not just over there in foreign countries. Free trade requires more than getting other governments to eliminate their barriers to U.S. exports; it requires getting the U.S. government to eliminate its barriers to U.S. imports from abroad. The latter is the real objective of free trade advocacy and the well-spring of most of its benefits.

But the economic benefits of imports rarely make the Washington “free trade advocate’s” Top-10 list of talking points, nor do they officially register in the minds of trade negotiators, whose chief aims are to secure for their exporters the greatest possible access to foreign markets, while simultaneously conceding to foreigners as little access as possible to the domestic market. “Import” is a four-letter word in the Washington trade policy community.

That’s why Ambassador Kirk’s recent comments have me thinking: epiphany?

In a statement responding to the WTO Appellate Body ruling last week that China’s export restrictions on nine raw materials were not in conformity with that country’s WTO commitments, Ambassador Kirk made the point that U.S. firms that use those raw materials will be better able to compete once those restrictions are lifted.

Today’s decision ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field.

The USTR had previously made the following point:

These raw material inputs are used to make many processed products in a number of primary manufacturing industries, including steel, aluminum and various chemical industries. These products, in turn become essential components in even more numerous downstream products.

Technically, Ambassador Kirk is not engaging in profanity—he doesn’t use the word import. But his argument against Chinese export restrictions is just as applicable to U.S. import restrictions. Removing restrictions—whether the export variety imposed by foreign governments or the import variety imposed by our own—reduces input prices, lowers domestic production costs, enables more competitive final-goods pricing and, thus, greater profits for U.S.-based producers.

So let’s take Ambassador Kirk’s sound logic and see if it might apply elsewhere in the realm of U.S. trade policy. If the U.S. government thought it worthwhile to take China to the WTO over the restrictions it imposes on raw material exports because those restrictions hurt U.S. producers, then why does the same U.S. government impose its own restrictions on imports of some of the very same raw materials? That’s right. The United States maintains antidumping duties on magnesium, silicon metal, and coke (all raw materials subject to Chinese export restrictions).

If Ambassador Kirk ate the vegetables as well as the meat of Cato’s trade policy analyses, he would recognize that his logic provides a compelling case for antidumping reforms, such as one requiring the administering authorities to consider the economic impact of antidumping measures on producers in downstream industries, such as magnesium-cast automobile parts producers, manufacturers of silicones used in solar panels, and even steel producers, who require coke for their blast furnaces.

We will know that the ambassador has eaten his free-trade vegetables when he starts sounding like former USTR Robert Zoellick who once hoped for the Doha Round of trade negotiations that it would “[T]urn every corner store in America into a duty-free shop.”

Is the U.S. Trade Representative a Closet Free Trader? is a post from Cato @ Liberty - Cato Institute Blog

New Hampshire was the state where the “REAL ID rebellion” got its start. There, in 2006, Rep. Neal Kurk (R-Weare) took to the floor of the New Hampshire House to talk about his principled opposition to the federal national ID law.

In stirring words, Kurk urged his colleagues to overturn a committee recommendation that no action should be taken on his bill to have New Hampshire reject REAL ID. The House went on to pass his bill and half the states in the nation soon followed suit.

Now a bill pending in the New Hampshire House responds to a more insidious version of the federal government’s national ID plans: E-Verify.

E-Verify is a federal background check system that its proponents intend to be used on every person seeking work in the United States. Once in place, E-Verify would expand to new uses, giving the federal government direct regulatory control of all Americans’ lives through control of proof of identity. It’s being fitted to operate using only databases, so I’ve been referring to it as a “cardless national ID.”

New Hampshire Rep. Seth Cohn (R-Merrimack 6) has introduced a bill to prevent his state from contributing New Hampshirites’ personal data to the E-Verify system. HB 1549 would not only prohibit the state from allowing citizens’ personal data to be used in E-Verify. It would prohibit the state from requiring employers to participate in the E-Verify system.

It’s an appropriate response to the Department of Homeland Security’s latest move. You see, a branch of E-Verify is called the “RIDE” program. That stands for “Records and Information from Department of Motor Vehicles for E-Verify” (Yeah, it’s a stretch…) Basically, RIDE is the conduit through which the states are going to start passing data to the federal government, weaving together that national ID outside of the REAL ID Act.

In their desire to bring illegal immigration under control, a lot of people have convinced themselves over many years that growing the federal government and conscripting businesses into “internal enforcement” of immigration law was the way to go. Unfortunately, that route costs a lot of money, it bloats the federal government, and it requires a national ID system, which is a threat to liberty that Americans reject. My paper, “Franz Kafka’s Solution to Illegal Immigration,” goes through many of the details.

Is this the beginning of the E-Verify rebellion? It’s a welcome addition to the national debate from the “Live Free or Die” state.

Cardless National ID and the E-Verify Rebellion is a post from Cato @ Liberty - Cato Institute Blog

• 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.

Agriculture and Trade Links is a post from Cato @ Liberty - Cato Institute Blog

Newt Gingrich defeated communism, someone hacked Anthony Weiner’s Twitter account, and President Obama saved the U.S. automobile industry.  Grandiosity, denial, and revisionism are all noted indulgences of the political breed.  That’s why we should always be skeptical of their words and pity the partisan lemmings who mindlessly parrot their rhetoric.

In his SOTU speech last night, the president claimed credit for rescuing the auto industry:

On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.

We bet on American workers. We bet on American ingenuity. And tonight, the American auto industry is back.

This is a claim that is likely to be repeated as the president campaigns across the country this year, so it may be worthwhile to examine its merits.  (Who knows, maybe an effective debate moderator or Sunday news show host might find his way to asking the right questions of the president or members of his administration.)

Closer analysis reveals that President Obama (enabled by President Bush’s complicity) bailed out specific stakeholders at two auto companies at great cost to U.S. taxpayers and at great expense to important U.S. institutions. 

The assertion – or implication – that he saved the auto industry is bogus. The auto industry was never on the verge of collapse.  GM and Chrysler were in deep trouble, but Ford, Honda, Toyota, Nissan, Mazda, Kia, Hyundai, BMW and Mercedes Benz (to name some U.S. producers) were fine.  Yes, in 2008-2009 the economy was in recession and automobile demand had tanked.  The companies that had been the most profligate, the most reckless, and the least disciplined were exposed, but talk of industry collapse was the product of a Detroit public relations campaign that featured the claim that 2 to 3 million jobs could be lost if the government didn’t funnel huge sums of cash to the Big Three. (Details here.)

I have shouted from the rooftops about this issue for over three years.  So rather than present all the facts and reconstruct all the arguments, let me economize with reference to this congressional testimony, given seven month ago. It pretty well sums up everything that’s wrong or misleading about the president’s narrative.

As I wrote last year:

The objection to the auto bailout was not that the federal government wouldn’t be able to marshal adequate resources to help GM. The most serious concerns were about the consequences of that intervention — the undermining of the rule of law, the property confiscations, the politically driven decisions and the distortion of market signals.

Any verdict on the auto bailouts must take into account, among other things, the illegal diversion of TARP funds, the forced transfer of assets from shareholders and debt-holders to pensioners and their union; the higher-risk premiums consequently built into U.S. corporate debt; the costs of denying Ford and the other more worthy automakers the spoils of competition; the costs of insulating irresponsible actors, such as the autoworkers’ union, from the outcomes of an apolitical bankruptcy proceeding; the diminution of U.S. moral authority to counsel foreign governments against market interventions; and the lingering uncertainty about policy that pervades the business environment to this day.

GM’s recent profits speak only to the fact that politicians committed more than $50 billion to the task of rescuing those companies and the United Auto Workers. With debts expunged, cash infused, inefficiencies severed, ownership reconstituted, sales rebates underwritten and political obstacles steamrolled — all in the midst of a recovery in U.S. auto demand — only the most incompetent operations could fail to make profits.

But taxpayers are still short at least $10 billion to $20 billion (depending on the price that the government’s 500 million shares of GM will fetch), and there is still significant overcapacity in the auto industry.

The administration should divest as soon as possible, without regard to the stock price. Keeping the government’s tentacles around a large firm in an important industry will keep the door open wider to industrial policy and will deter market-driven decision-making throughout the industry, possibly keeping the brakes on the recovery. Yes, there will be a significant loss to taxpayers. But the right lesson to learn from this chapter in history is that government interventions carry real economic costs — only some of which are readily measurable.

The President’s Heroics and Other Tall Tales about the Auto Industry is a post from Cato @ Liberty - Cato Institute Blog

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.

SOTU and Trade: the Good, the Bad and the Ugly is a post from Cato @ Liberty - Cato Institute Blog

When China joined the WTO in December 2001, one of the many terms it agreed to was to allow the United States to continue to treat it as a “non-market economy“ under U.S. antidumping law for a period of 15 years. China has regretted that concession ever since, and there are precious few gestures that would win more goodwill from the Chinese government than a decision by President Obama to graduate China to market economy status now.

A ruling last month from the U.S. Court of Appeals for the Federal Circuit making it illegal to apply the U.S. Countervailing Duty Law (anti-subsidy law) to imports from non-market economies gives the president the perfect opening to make the change now. From the perspective of a free trader, that solution is far from ideal: it preserves domestic industries’ access to the antidumping law and countervailing duty laws, both of which produce egregiously punitive duties on imports and are ripe for serious reform or outright repeal.

But the benefit of granting market economy status to China now is that it will help slow, and likely reverse the deterioration in bilateral economic relations. And that would be an important benefit for all of us.

At the very beginning of the Obama administration, Scott Lincicome and I urged the new president to consider more than just the litany of gripes so often heard at home and to recognize that China has its own justifiable concerns about U.S. policy:

The time has come to seriously consider carrots and not just sticks—particularly since the pain from the sticks is not limited to its intended targets, but is felt in the United States and in other countries, given the transnational nature of supply chains. President Obama would invigorate the relationship if he were to grant China “market economy“ treatment in anti-dumping cases. While such a reform would take very little out of petitioning industries’ hides, the gesture would win vast sums of goodwill from the

Chinese—goodwill needed to resolve more important issues going forward. Indeed, repeal of the non-market economy (NME) designation presents a “win-win“ scenario for several reasons.

First, graduation from NME status is one of the Chinese government’s top international

trade priorities. China wants to be treated like all other major economies, and accordingly, the Chinese government is likely willing to make important concessions in other contested areas of trade policy to achieve market economy status. But the longer we wait to grant market economy status to China, the less valuable that concession becomes. Under the rules governing China’s accession to the WTO, the United States must repeal China’s NME designation by 2016. Thus, the value of that “concession“

will be greater in 2009—seven years early—than it will be in 2010 or 2012. Much beyond

2012, and the concession looks a bit like Confederate money.

Second, China’s NME designation has drawn intense criticism from domestic consuming industries, trade policy experts, and U.S. trade partners because of its incongruous application (for example, Russia was deemed a “market economy“ in 2002, yet still is not a WTO member, while China became a WTO member in 2001) and the latitude for abuse of administrative discretion it affords. Also, the relatively recent change in policy that opened the door to countervailing duty cases against China has sparked controversy about whether NME treatment in anti-dumping cases should still be permissible.

U.S. revocation of China’s NME status would alleviate many of those domestic concerns at virtually no cost to domestic petitioning industries, but petitioners value NME because of the trade-suppressing uncertainty the process engenders. It is important that President Obama understand that our trade relationship with China has been mutually beneficial, that the rhetoric about the impact of unfair Chinese practices has been highly exaggerated, and that unnecessary provocation could open a Pandora’s Box of economic problems.

(Read the whole analysis here.)

Well, Lincicome (in a thorough analysis) and I (in a fairly technical one) continue to make the case for market economy designation, and welcome the retorts of those who are opposed.

President Obama Could Improve Relations with China at the Stroke of His Pen is a post from Cato @ Liberty - Cato Institute Blog

One of the most famous documents in the history of free-trade literature is Bastiat‘s famous “Candlemakers’ Petition.” In that parody, the French economist and parliamentarian imagined the makers of candles and street lamps petitioning the French Chamber of Deputies for protection from a most dastardly foreign competitor:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

We come to offer you a wonderful opportunity. . . .

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival . . .  is none other than the sun.

For after all, Bastiat’s petitioners noted, how can the makers of candles and lanterns compete with a light source that is totally free?

Thank goodness we wouldn’t fall for such nonsense today. Or would we?

We may be about to find out. Makers of solar panels have petitioned the U.S. Department of Commerce and the International Trade Commission to slap tariffs on imported Chinese panels. Christopher Joyce of NPR reports that Gordon Brinser, CEO of Solar World, complains that U.S. manufacturers can’t compete with cheaper Chinese imports. The Chinese panels aren’t free; but just as Bastiat’s candlemakers complained, the competition is hard to counter.

Perhaps the comparison is unfair. After all, the Coalition for American Solar Manufacturing isn’t asking for protection from the sun, only from Chinese panel producers who are allegedly “dumping” panels into the American market “at artificially low prices.”

What’s the difference, though? Any source that supplies solar panels to American consumers and businesses is a competitor of the American industry. And any source that can deliver any product cheaper than American companies is a tough competitor. Domestic producers will no doubt gain by imposing a tariff on their Chinese competitors. But companies that install solar power will lose, by having to pay higher prices for panels.

Businesses would always prefer a world without competitors. If they can’t outcompete their rivals in the marketplace, they may be tempted to ask the government for protection. And our “antidumping” laws actually invite such complaints. But economists agree that consumers, and the businesses that use imported products, lose more on net than producers gain. Protectionism is a bad deal for the American economy. Let’s hope the uncompetitive solar panel manufacturers get told to go build a better mousetrap.

More on “antidumping” laws here.

The Panel Makers’ Petition is a post from Cato @ Liberty - Cato Institute Blog

Remember the story of that once-great nation that sacrificed its well-paying manufacturing jobs for low-wage, burger-flipping jobs at the altar of free trade? At one time, that story was a popular rejoinder of manufacturing unions and their apologists to the inconvenient facts that, despite manufacturing employment attrition, the economy was producing an average of 1.84 million net new jobs per year every year between 1983 and 2007, a quarter century during which the real value of U.S. trade increased five-fold and real GDP more than doubled.

The claim that service-sector jobs are uniformly inferior to manufacturing jobs lost credibility, as average wages in the two broad sectors converged in 2005 and have been consistently higher in services ever since. In 2011, the average service sector wage stood at $19.18 per hour, as compared to $18.94 in manufacturing. (But I don’t recall buying any $25-$30 hamburgers last year.)

One reason for U.S. manufacturing wages being higher than services wages in the past is that manufacturing labor unions “succeeded” at winning concessions from management that turned out to be unsustainable. The value of manufacturing labor didn’t justify its exorbitant costs, which encouraged producers to substitute other inputs for labor and to adopt more efficient techniques and technologies.

With the superiority-of-manufacturing-wages argument discredited, new arguments have emerged attempting to make the case that there is something special – even sacred – about the manufacturing sector that should afford it special policy consideration. Many of those arguments, however, conflate the meanings of manufacturing sector employment and manufacturing sector health or they rely on statistics that don’t support their arguments or they become irrelevant by losing sight of the fact that resources are scarce and must be used efficiently. And too often the prescriptions offered would place the economy on the slippery slope that descends into industrial policy.

I recently submitted this rebuttal to this essay by an environmental sciences professor by the name of Vaclav Smil, who commits those errors. (Judging from the tone of his mostly evasive response to my rebuttal, Smil doesn’t seem to have much tolerance for views that differ from his own.) Perhaps most noteworthy among Smil’s slew of questionable arguments is his claim that manufacturing companies, like Boeing, valued at $50 billion, are better for the economy than service companies like Facebook, which is also valued at $50 billion because

[i]n terms of job creation there is no comparison… Boeing employs some 160,000 people, whereas Facebook only employs 2,000.

Granted, Boeing’s operations support more jobs. But is that better for the economy than a company that provides the same value using 1/80th the amount of labor resources? Of course not. We need economic growth in the United States to create wealth and increase living standards. Economic growth and employment are not one and the same thing. In fact, the essence of growth is creating more value with fewer inputs (or at lower input cost). Creating jobs is easy. Instead of bulldozers, mandate shovels; instead of shovels, require spoons. Inefficient production techniques can create more jobs than efficient ones, but they don’t create value, which is the economic goal.

With 2,000 workers producing the same value as 160,000 – one producing the same value as 80 – Facebook is 80 times more productive than Boeing, freeing up 158,000 workers for other more productive endeavors (perhaps 79 more Facebook-type operations). If those companies were individual countries, the per capita GDP in Facebookland would be $25 million, but only $3.125 million in Boeingia. Where would you rather live?

Smil calls my assessment a cruel joke, presumably for its failure to empathize with unemployed and underemployed Americans, by considering value before job creation.  But policies designed to encourage more Boeing’s, as Smil supports (or, in fairness, any businesses that employ at least X number of people or meet this requirement or that) would likely retard the establishment of firms, like Facebook, that produce the goods and services that people want to consume. The provision of goods and services that people want to buy – rather than those that policymakers in Washington think people want to buy (or are happy to force them to buy) – is the essence of value creation.

Thus, policies should incentivize (or, at least not discourage) the kind of innovation and entrepreneurship needed to create more Facebooks? This kind of business formation occurs in environments where the rule of law is clear and abided; where there is greater certainty to the business and political climate; where the specter of asset expropriation is negligible; where physical and administrative infrastructure is in good shape; where the local work force is productive; where skilled foreigners aren’t chased back to their own shores; where there are limited physical, political, and administrative frictions; and so on. In other words, restraining the role of government to its proper functions and nothing more would create the environment most likely to produce more Facebooks in both the manufacturing and services sectors.

Does the U.S. Economy Need More Boeings or More Facebooks? is a post from Cato @ Liberty - Cato Institute Blog

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.

GOP the Loser in Primary Fight over Immigration is a post from Cato @ Liberty - Cato Institute Blog

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.

The United States and eight other Pacific Rim nations made substantial progress in negotiating the Trans-Pacific Partnership, a regional agreement that could bear fruit in 2012 or 2013. Japan, Canada, and Mexico have expressed interest in joining the talks.

Even the hapless World Trade Organization managed a bit of forward progress this year. While the Doha round of talks remains comatose, its 153 members agreed at its ministerial meeting this month in Geneva to admit Russia as a member next year. And a critical mass of its members, including the United States, agreed at the same meeting to open their government procurement to more international competition.

Free trade made progress this year in practice as well as in policy. Through the first three quarters of 2011, American exports of goods and services were up 16 percent compared to the same period in 2010; imports were up 15 percent. Compared to gross domestic product, U.S. exports have reached a record high of 18.8 percent. The ratio of imports to GDP has yet to return to its pre-recession peak, but it is also expanding once again. As government barriers continue to recede, Americans are choosing everyday to trade more and more in the global marketplace.

Our freedom to trade remains less than it should be. The U.S. government continues to impose an array of barriers on trade and investment, including quotas on imported sugar, regressive tariffs on shoes and clothing, unfair and economically damaging anti-dumping duties, and restrictions on foreign investment in media, inter-coastal shipping, and air travel (all of which I describe in Chapter 9 of my 2009 book Mad about Trade). But those can all be resolutions for 2012.

For now, let all of us who favor economic liberty and limited government take due satisfaction in the welcome expansion of our freedom to engage in commerce with our fellow human beings.

Our Freedom to Trade Expanded in 2011 is a post from Cato @ Liberty - Cato Institute Blog

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.

U.S. Falling Behind in Global Competition for Human Capital is a post from Cato @ Liberty - Cato Institute Blog

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.”

Treasury Exchange-Rate Report Hits, and Misses is a post from Cato @ Liberty - Cato Institute Blog

Earlier this year, the Cato Institute published this paper, which describes the self-flagellating nature of the U.S. antidumping law. Nearly 80 percent of all U.S. antidumping measures imposed between 2000 and 2009 (130 of 164 measures) restrict imports of intermediate goods—inputs required by U.S. producers for their own production processes.

Antidumping duties on magnesium, polyvinyl chloride, and hot-rolled steel, for example, enable petitioning U.S. companies that often dominate domestic supply of raw materials to foreclose alternative sources and then thrust higher prices on their U.S. customers. But those customers—U.S. producers of auto parts, paint, and appliances—who consume the now-restricted raw materials to produce higher value-added goods and who might otherwise create jobs, are instead made less profitable and less competitive, burdening the broader economy.

But here’s the kicker. The statute itself forbids the administering authorities from considering the economic impact of antidumping restrictions on those firms or on the economy at large. The well-being of the petitioning industry is all that matters and the collateral damage to downstream industries and the overall economy is to be ignored.

Now, the high-profile antidumping and countervailing duty cases recently initiated against solar panels from China are shining some fresh light on this outrage. A group called the Coalition for Affordable Solar Energy (CASE), which represents the portion of the U.S. solar industry that is downstream of the solar panel producers (the producers’ customers), is asking the cases be dropped or settled. CASE, representing 145 member companies that employ over 14,000 workers in solar project development, logistics, construction, and installation, argues:

The severe tariffs [being sought] would have a very damaging effect on the solar industry in the United States and would fundamentally undermine many years of effort by all of us who care about the future of solar power …

In simple dollar terms, [the] petition threatens the planned installation of solar electric power systems in the amount of $11 billion in 2012 and the potential installation of $60 billion currently in the total pipeline …

By asking government to interfere and artificially increase the price (equivalent to putting on a high tax) will only hinder the deployment, cost thousands of jobs … and further negatively impact an already shaky economy.

There is no good reason for arguments like these—and the facts supporting them—to be ignored in trade remedies cases. Several other major countries that have antidumping and countervailing duty laws on their books employ a so-called public interest provision that directs the authorities to deny duties when the likely costs are demonstrated to exceed any benefits to the petitioning industry. (See page 18 for an elaboration.)

It is difficult to fathom how an administration that begs U.S. businesses to invest and hire would not be pushing hard for this particular reform. After all, the administration acknowledges the importance of ensuring downstream producers have access to imported inputs. The Office of the U.S. Trade Representative has argued this point in its complaint against Chinese export restrictions at the World Trade Organization. And the president himself described how the competitiveness of U.S. firms is hurt by restrictions on imported inputs when he signed into law the Manufacturer’s Enhancement Act last year.

But then again, incongruities in this administration’s economic policies seem to be the rule, not the exception. In the solar panel case, the president has offered his rhetorical support (at least) to the petitioners, even though their success would drive up the cost of already-too-expensive solar power, reducing demand for an energy source the president has been advocating and subsidizing with the incentive of 30 percent tax credits.

I suppose the White House has determined that the cost of import duties—to consumers up front and to taxpayers through the a much higher tax credit—is worth the benefit of having a Chinese scapegoat to take the heat off the president for Solyndra’s failure.

Solar Panel Case Shines Light on the Imperative of U.S. Trade Law Reform is a post from Cato @ Liberty - Cato Institute Blog

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.

The USDA: Your One-Stop Shop is a post from Cato @ Liberty - Cato Institute Blog

I’ve written several times about the foolish War on Drugs, which has been about as misguided and ineffective as the government’s War on Poverty.

So when I saw a news report about a couple of Swedes getting busted for smuggling 200-plus kilos of contraband into Norway, and then another story about a Russian getting caught trying to sneak 90 kilos of an illicit substance into the country, I wondered whether these were reports about cocaine or marijuana. Or perhaps heroin or crystal meth.

Hardly. Norway’s law enforcement community was protecting people from the horrible scourge of illegal butter.

Sounds absurd, but there’s been an increase in the demand for butter and high import taxes have created a huge incentive for black market butter sales. Here’s a video on this latest example of government stupidity.

I guess the moral of the story is that if you outlaw butter, only outlaws will have butter. Or perhaps butter is the gateway drug leading to whole milk consumption, red meat, salt, and other dietary sins. Surely Mayor Bloomberg will want to investigate.

By the way, the United States is not immune from foolish policies that line the pockets of criminals. Here’s a video from the Mackinac Center revealing how punitive tobacco taxes facilitate organized crime.

Big Government Causes Crime, the Norwegian Version is a post from Cato @ Liberty - Cato Institute Blog

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.

Russia’s WTO Membership Approved, But Will U.S. Companies Benefit? is a post from Cato @ Liberty - Cato Institute Blog

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.

WTO Remains a Force for Good is a post from Cato @ Liberty - Cato Institute Blog

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.

Border Apprehensions Down. Will Our Politicians Notice? is a post from Cato @ Liberty - Cato Institute Blog

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.

Citizens! Do You Know the Source of Your Honey? is a post from Cato @ Liberty - Cato Institute Blog

The Supreme Court has agreed to review Arizona v. United States, the case regarding SB 1070, the Arizona law (only) four sections of which have been enjoined by the lower courts: requiring police to check the immigration status of anyone they have lawfully detained whom they have reasonable suspicion to believe may be in the country illegally; making it a state crime to violate federal alien registration laws; making it a state crime for illegal aliens to apply for work, solicit work in a public place, or work as an independent contractor; and permitting warrantless arrests where the police have probable cause to believe that a suspect has committed a crime that makes him subject to deportation.  For my previous analysis of SB 1070 and the legal challenges to it, see here, here, here, and here.

By taking up this case, the Supreme Court is wisely nipping in the bud the proliferation of state laws aimed at addressing our broken immigration system.  One way or another, states will know how far they can go in addressing issues relating to illegal immigrants, whether the concern is crime, employment opportunities (providing or restricting them), registration requirements, or even so-called sanctuary cities.

Of course, states wouldn’t be getting into this mess if the federal government — elected officials of both parties — hadn’t abdicated its responsibility to fix a system that serves nobody’s interests: not big business or small business, not the rich or the poor, not the most or least educated, not the economy or national security, and certainly not the average taxpayer.  For their part, SB 1070 and related laws in Alabama, Georgia, and elsewhere are (with small exception) constitutional — the state laws are merely mirroring federal law, not conflicting with it or otherwise intruding on federal authority over immigration — but bad public policy.  (For more on both these conclusions, read my SCOTUSblog essay from last summer.)

What this country needs is a comprehensive reform that obviates the sort of ineffectual half-measures the states are left with given Congress’s shameless refusal to act.  It’s not very often that Cato calls for the federal government to do something, but the immigration system is quite possibly the most screwed-up part of the federal government — which of itself is a significant statement coming from someone at Cato — and one that is so incredibly counterproductive to American liberty and prosperity.

The Court will hear Arizona v. United States in the spring.  For more immigration-reform developments, see this note in today’s Wall Street Journal and my blogpost on Utah’s plan, which the federal government has also since sued to enjoin.

Supreme Court Takes Up Arizona Immigration Law is a post from Cato @ Liberty - Cato Institute Blog