Archive for the ‘Trade and Immigration’ Category
House GOP Leadership Takes Brave Stand on Ex-Im…
…and agrees to wind down the bank maybe in a year. Not exactly a profile in courage. From The Hill blog earlier this week:
House Majority Leader Eric Cantor (R-Va.) plans to bring a bill to the floor by the end of March that could eventually end Ex-Im “subsidies.”
“We are working toward a bipartisan solution for the Export-Import Bank that will include reforms and begin to set a long-term policy goal to eliminate these subsidies going forward,” a GOP leadership aide said. “The legislation continues to be developed and we hope to consider it on the floor by the end of March.” [emphasis added]
(More details from Inside U.S. Trade [$]). When Mr. Cantor says “begin to set a long-term policy goal to eliminate these subsidies going forward,” I think we can all assume that the ”bipartisan solution” he is proposing would come into effect at around the same time, to quote P.J. O’Rourke, that the pope sits shiva.
As I described in a paper last year, the Ex-Im Bank is a perfect example of unnecessary and damaging corporate welfare, and of an agency engaging in activities in which the federal government has no business. It has been around for almost 80 years. It’s current charter expires at the end of May, which seems like a convenient time to let it die. Why the delay, Mr. Cantor? What exactly are you waiting for?
In case you missed it, the Wall Street Journal had a great editorial on Ex-Im last Saturday. And here’s Veronique de Rugy’s take.
The Ex-Im Bank and Crony Capitalism
My esteemed colleague Sallie James broke ground last summer with an excellent expose of the corporate welfare role played by the Export-Import Bank of the United States. Until this past weekend, Sallie’s had been about the only analysis in the public domain to find the Ex-Im Bank’s activities unseemly, market-distorting, and anathema to free market capitalism.
Thus, I was heartened to see that an editorial in the last Saturday/Sunday edition of the Wall Street Journal picked up on Sallie’s theme and emphasized some of her most salient points. Hopefully, the WSJ and other prominent news outlets read and amplify Sallie’s follow-up, forthcoming analysis, which shines some light on ExIm’s growing role in the business of financing the domestic sales of select U.S. companies.
Time for Some Rapprochement in U.S.-China Economic Relations
Has the Chinese government indulged in protectionist, provocative or otherwise illiberal policies that have, on occasion, violated its commitment to the rules of international trade? Yes.
Do the Chinese maintain other policies that very likely would be found to violate China’s WTO obligations? Yes.
Is the U.S. government within its rights to bring formal complaints about benefit-impairing Chinese trade practices to the World Trade Organization for adjudication and resolution? Yes.
But before getting all righteous and patriotic and demanding that China be deemed an economic pariah worthy of exceptionally harsh treatment, keep in mind that the U.S. government has been found out of compliance with its WTO obligations more than any other WTO member, and it remains out of compliance on a few issues to this very day.
In some respects, the Chinese are emulating the tack taken by U.S. policymakers during the past three presidential administrations and ten congresses by presuming there is no policy or practice that violates WTO rules unless and until that policy or practice has been determined by the WTO Appellate Body to be out of conformity, and sometimes not until after retaliation has been authorized, and sometimes not even then.
China’s protectionist policies – policies that make its markets less accessible to U.S. exports and investment – should be identified and challenged. But U.S. policymakers should consider abandoning self-destructive, protectionist policies that hurt U.S. interests more than Chinese ones in favor of greater cooperation from China resolving problems facing U.S. companies in that market. But greater cooperation doesn’t come at the barrel of a gun. It requires good will and an attitude of willing reciprocity from the U.S. side.
This new paper gives some background and offers the one important reform that could prove to be the elixir.
Congress Poised to Escalate the U.S.-China Trade War
U.S. policymakers hold the key to vastly improved economic relations with China. They also have the key to the vehicle that will take the bilateral relationship over the cliff, which appears to be the route that has been chosen. Republican House Ways and Means Chairman Dave Camp will introduce legislation this afternoon that makes explicit the applicability of the U.S. Countervailing Duty (anti-subsidy) law to imports from countries considered to have “Non-Market Economies” (i.e., China and Vietnam).
Maybe that’s not as obvious an example of escalation as Nixon’s bombing of Cambodia during the Vietnam War, but it is very likely to accelerate the deterioration of U.S.-China economic relations. Costs will rise and life will become more difficult for U.S. companies trying to do business in China, as well as for U.S. producers and consumers who rely on imports from China.
Those pushing the legislation don’t want the public to understand the issues, which are highly technical and legalistic (and, quite frankly, too much trouble for our legislators to think through, particularly when there’s only political upside in China-bashing). But the consequences will be felt broadly – and there’s danger in that – so let me attempt to boil the matter down to a few salient points.
Senator Harkin’s Definition of Success
At a Senate Agriculture Committee hearing earlier this week, Senator Tom Harkin (D-Iowa), gave somewhat parenthetical comments (the main focus of the hearing was energy, rural development and crop insurance) on federal nutrition programs. Parenthetical they may have been, but I think they signify something important.
Harkin’s remarks on nutrition programs (or “food stamps” as they are more commonly, if less accurately, called) begin at about 52:30 and end at about 53:35 or so of this video. The part that most struck me was when the senator was describing a meeting he had with some Iowa consitutents. He had this to say [an official transcript is not yet available, but my trusty intern Ian Yamamoto listened to Harkin's remarks and transcribed them for me]:
I just had my weekly breakfast this morning with Iowans. Had a big group there from the diocese of Davenport, a Catholic dioceses, and that’s what they wanted to talk about: was not backing off of our support for low-income people who are facing tough times now, with high rates of unemployment, that need the supplemental nutrition assistance program, or as it’s called, food stamps. And I thought one of the statements made there was kind of profound they said ya know, someone’s accusing this president of being a food stamp president. One of them said well he ought to wear that as a badge of honor…
OK, hold it right there. Really? The fact that millions of this nation’s people depend on the federal government to feed themselves is a badge of honor? Can we all agree, please, that regardless of how you feel about the federal government’s role and responsibility in providing a safety net—of food stamps or anything else—that this is not a situation to be proud of? According to Lisa Levenstein and Jennifer Mittelstadt, writing in the New York Times earlier this month, the food stamp program feeds 46 million Americans, about 15 percent of the U.S. population. But they point out that if everyone who was entitled to the program actually used it, we would see 20-25 percent of Americans on food stamps. They also, by the way, see the high numbers using food stamps as a good thing: “Conservatives are trying to smear Barack Obama by dubbing him the ‘food stamp president.’ He should not run from the label but embrace it…”
I don’t mean to pick on food stamps here—it’s not the policy hill on which I would choose to die. But I really do object when politicians or welfare advocates start celebrating dependency. We should all be talking about ways to cut the number of people needing food stamps in the first place.
Senator Harkin has form on this issue, by the way.
President Obama To Promote Possibly Limitless Corporate Welfare
The Wall Street Journal reports today that President Obama will formally announce his intention to let Beijing set U.S. export credit policy [$] at, fittingly enough, a Boeing plant. Boeing is obviously feeling a bit of political heat about the fact it benefits from almost half of Ex-Im’s disbursements, though, so they are pledging to commit more than $700 million to small business so they can better access credit. They’ve also stepped up their lobbying efforts, this time hiring a Republican-aligned lobbying firm to help them squash some mutinous feeling among Republican ranks.
Here’s Don Boudreaux’s take; spot-on, as usual.
The End of the Ex-Im Bank?
I’ve been getting a few inquiries lately from folks interested in hearing more about my ideas on closing down the Export-Import Bank of the United States. This is encouraging: Ex-Im typically sails through Congress unchallenged. It is quote-unquote self funding, so is not target number one when it comes to deficit reduction. And it has some powerful backers, including the Chamber of Commerce and Boeing. But in the aftermath of Fannie, Freddie, and Solyndra, people are — finally — beginning to ask questions about just how safe Ex-Im’s activities are for taxpayers, and what the dangers might be of increasing the amount of loans made to risky companies, as the Obama administration is pushing [$]. That move seems to fly in the face of Ex-Im’s admittedly dubious mission of financing only safe transactions (while, and this makes it especially incredible, supposedly only financing transactions the private sector won’t touch). Similarly, while the administration argues that we need to increase funding for Ex-Im to match increased export credit activity by countries such as China, I would argue that allowing Beijing to set the terms and pace of export credit policy in the United States is foolhardy at best.
U.S. airliners have launched a legal case against Ex-Im, arguing that its subsidized loan guarantees to foreign state-owned airliners such as Air India put American carriers at a disadvantage (a possibility I warned about in my paper). This provides a real-world, commercially significant example of the long-standing and self-evident charge that Ex-Im picks winners and losers in the American economy with, unsurprisingly to anyone with even a cursory familiarity with public choice theory, the most politically connected getting the support.
The bottom line is this: either politicians are serious about reducing the size and scope of the federal government or they are not. If they are, shutting down the Ex-Im Bank should be a no-brainer, especially in a political age when ”Don’t worry everybody — these loan guarantees are completely safe and pay for themselves” no longer convinces. And corporate welfare is distinctly on the nose.
No Winners in U.S.-China Trade War
Chinese Vice President and assumed-future President Xi Jinping visits Washington this week amid growing concern that the U.S.-China economic relationship is headed for a difficult stretch. An emerging narrative in 2012 is that a proliferation of protectionist, treaty-violating, or otherwise illiberal Chinese policies is to blame for worsening U.S.-China relations.
Indeed, it is beyond doubt that certain Chinese policies have been provocative, discriminatory, protectionist and, in some cases, violative of the agreed rules of international trade. But, as usual, the story is more nuanced that. U.S. policies, politics, and attitudes have contributed importantly to the atmosphere of rising frictions, as have rabble-rousing politicians and a confrontation-thirsty media. If the public’s passions are going to be inflamed with talk of a trade war, prudence demands that the war’s nature be properly characterized and its causes identified and accurately described.
Politicians, policymakers, and members of the media should put down their battle bugles and consider that trade wars are never won. Instead, trade wars claim victims indiscriminately and leave significant damage in their wake. Even if one concludes that China’s list of offenses is collectively more egregious than the U.S. list of offenses, the most sensible course of action – for the American public, if not campaigning politicians –is to avoid mutually destructive actions and to pursue constructive measures that will reduce frictions with China.
Let’s hope some of those constructive measures are explored this week with Mr. Xi.
Understanding the U.S.-China ‘Trade War’
An emerging narrative in 2012 is that a proliferation of protectionist, treaty-violating, or otherwise illiberal Chinese policies is to blame for worsening U.S.-China relations. China trade experts from across the ideological and political spectra have lent credibility to that story. Business groups that once counseled against U.S. government actions that might be perceived by the Chinese as provocative have relented and changed their tunes. Use of the term “trade war” is no longer considered taboo.
The media have portrayed the United States as a victim of myriad Chinese provocations, including currency manipulation, dumping, subsidization, intellectual property theft, forced technology transfer, discriminatory “indigenous innovation” policies, raw material export bans, industrial espionage, and other ad hoc restrictions on U.S. investment and exports. Indeed, it is beyond doubt that certain Chinese policies have been provocative, discriminatory, protectionist and, in some cases, violative of the agreed rules of international trade. But, as usual, the story is more nuanced than its early renditions allow.
U.S. policies, politics, and attitudes have contributed importantly to the atmosphere of rising frictions, as have rabble-rousing politicians and a confrontation-thirsty media. If the public’s passions are going to be inflamed with talk of a trade war, prudence demands that the war’s nature be properly characterized and its causes identified and accurately described.
Politicians, policymakers, and members of the media should put down their battle bugles and consider that trade wars are never won. Instead, trade wars claim victims indiscriminately and leave significant damage in their wake. Even if one concludes that China’s list of offenses is collectively more egregious than the U.S. list of offenses, the most sensible course of action – for the American public, if not campaigning politicians – is for U.S. policymakers to avoid mutually destructive actions and to pursue constructive measures that will reduce frictions with China.
The full paper discussing this topic will be published sometime this week, but feel free to contact me if you would like a preview of its contents.
Is the U.S. Trade Representative a Closet Free Trader?
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.”
Cardless National ID and the E-Verify Rebellion
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.
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.
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