Archive for the ‘Trade and Immigration’ Category
Pepsi Throwback and the Sugar Racket
This weekend while watching a football game with a friend, I saw a commercial for Pepsi “Throwback.” This is a new product containing real sugar instead of high-fructose corn syrup. My friend was incredulous when I explained that soft drinks manufactured for sale domestically generally don’t contain sugar because government protection of the U.S. sugar industry from imports make its use cost-prohibitive.
I am intrigued that Pepsi would market a sugar-based product. In perusing the Internet for news about it, I found countless stories applauding the product but blaming Pepsi and Coke for continuing to use inferior-tasting high-fructose corn syrup. For example, Pepsi Throwback’s Wikipedia page states that soft drink manufacturers switched to high-fructose corn syrup decades ago because of rising sugar prices, but it doesn’t mention that government policy was behind the price increases.
A Cato essay on agricultural regulations and trade barriers explains the government’s sugar racket and its destructive effects. Here are the key points:
- The federal government guarantees a minimum price for sugar in the domestic market by maintaining a system of preferential loan agreements, domestic marketing quotas, and import barriers.
- USDA data show that U.S. sugar prices have been more than twice world market prices.
- The Government Accountability Office estimates that U.S. sugar policies cost American consumers about $1.9 billion annually.
- U.S. food industries that buy sugar are harmed by current sugar policies. The employment in U.S. sugar growing is 61,000, which compares to employment in U.S. businesses that use sugar of 988,000.
- According to a U.S. Department of Commerce report, for each sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionary manufacturing jobs are lost.
- Numerous U.S. food manufacturers have relocated to Canada where sugar prices are less than half of U.S. prices and to Mexico where prices are two-thirds of U.S. levels.
Chicago has been particularly hard hit, with many candy companies moving production abroad. One might think that our president, a Chicagoan, would be willing to take on the powerful domestic sugar lobby. But as Dan Griswold discussed in October, Obama’s USDA ignored a plea from domestic sugar-using industries and kept quotas at their current restrictive level.
What about high-fructose corn syrup? Government policy artificially increases the price of sugar, but its corn subsidies artificially reduce the price of corn, which helps make high-fructose corn syrup more cost-effective in products like soft drinks. Major high-fructose corn syrup manufacturers, such as Archer Daniels Midland, benefit from federal programs and they spend lots of money lobbying policymakers to keep them going.
In his classic 1995 Cato policy analysis, “Archer Daniels Midland: A Case Study in Corporate Welfare,” James Bovard recounts ADM’s long-standing influence behind the government’s sugar racket:
Although ADM does not directly produce sugar, Congress and the USDA have created a price umbrella under which ADM’s production of high-fructose corn syrup – a sugar syrup – has become immensely profitable. ADM got into corn fructose production very heavily around 1974, just as sugar prices peaked on world markets. After ADM invested heavily to increase its capacity to produce high-fructose corn syrup ninefold, sugar prices plummeted from 65 cents to 8 cents per pound.
[ADM Chairman Dwayne] Andreas told Business Week in 1976, “If it was a mistake, I’d say it was my mistake.” Business Week noted, “One industry source suggests that ‘Dwayne looks at this as sort of a waiting game, basing his unflappability on the predicted passage of a new sugar bill.’ Such a bill is expected to provide an ‘umbrella’ – that is, to put supports under sugar at a level where high-fructose corn syrup will be at least reasonably profitable. Andreas contributed heavily to the 1968 and 1972 campaigns of Humphrey, Jackson and Nixon. With both parties covered, ADM may reasonably anticipate some legislative help.” That help came in the form of a new sugar bill in 1981.
For ADM, cheaper inputs (corn) plus a more expensive substitute (sugar) equals nice profits at U.S. taxpayer and consumer expense.
Pepsi Throwback will only be available for U.S. consumers to enjoy until February 22nd. After that, Americans looking for Pepsi or Coke with real sugar in it will have to go to Mexico. Hopefully, Mexican politicians won’t put up a wall along the border to stop Americans from sneaking into the country and taking all their good soft drinks.
Update: Several readers have pointed out that “Passover Coke,” which contains sugar instead of high-fructose corn syrup, can be found in certain metropolitan areas around Passover. Coke with sugar manufactured in Mexico can also be found in some Latin American grocery stores.
The Real Meaning of China’s Export Primacy
The Washington Post reports today that China surpassed Germany to become the world’s largest exporter in 2009, adding yet another economic feat to its expanding trophy case. Undoubtedly, U.S. trade skeptics and globophobes will consider this “accolade” the latest evidence of American decline and Chinese ascendancy. But more than it is any refection of China’s economic might, the milestone is testament to the successful erosion of economic, political, physical and technological barriers that had previously constrained human possibilities.
Widespread liberalization of trade and investment rules beginning in earnest after World War II; China’s opening to the West beginning with reforms in 1978; the fall of the Berlin Wall in 1989 and the Soviet Union two years later; the collapse of communism as a viable choice for developing countries; the advent and proliferation of containerized shipping, GPS technology, just-in-time supply chain management techniques, and other marvels of the information, transportation, and communications revolutions have spawned a global division of labor and way of doing things that defy traditional trade policy considerations, and render trade flow accounting rather meaningless.
To borrow the theme and some phrases from my recent paper, “Made on Earth,” global economics is no longer a competition between “Us and Them.” It is no longer “Our” producers against “Their” producers. Instead, because of cross-border investment and transnational production and supply chains, the factory floor has broken though its walls and now spans oceans and borders, rendering U.S. workers and foreign workers collaborative, even complementary, in so many endeavors. There is, of course, competition, but that competition is often between production/supply chains or brands that defy any meaningful national identification because the final products are composed of value-added from multiple countries. Thus, there is cooperation within production/supply chains before there is competition between them.
So, what does all of this have to do with China’s status as the world’s biggest exporter? It means that we should avoid the temptation to attach the wrong meaning to the title. China has become the world’s largest exporter primarily because the global division of labor that has helped reduce the burdens of poverty and create greater wealth still prescribes for China the role of lower-value-added production and final assembly operations in global production/supply chains.
While intermediate goods—components and raw materials—are shipped to China from countries such as Japan, Taiwan, Singapore, Australia, and America, those inputs are often “snapped together” or perhaps subject to slightly higher Chinese valued-added operations before being exported as final goods. For the purpose of trade flow accounting, the entire value of the merchandise is registered as Chinese export value, even when a very small percentage is actually Chinese labor, material and overhead.
That accounting methodology helps explain why China’s exports—to the world and the United States—have surged over the decades (as the division of labor evolved and supply chains proliferated), and why policy focus on the U.S. bilateral trade deficit with China is misplaced. As aptly put in the conclusion of this now-famous study about who captures value in the iPod supply chain:
“[T]rade statistics can mislead as much as inform. For every $300 iPod sold in the U.S., the politically volatile U.S. trade deficit with China increased by about $150 (the factory cost). Yet, the value added to the product through assembly in China is probably a few dollars at most.”
Chinese value-added is very low in higher technology and more sophisticated electronics exports. It is higher in other products that Americans import from China. According to the findings in a recent NBER paper titled “How Much of Chinese Exports is Really Made in China,” about 50 percent of the value of a typical cargo container imported into the United States from China is Chinese value-added, which comports roughly with estimates undertaken by others.
So, as we consider the meaning of China’s new status as global export leader, it is important to understand the value and limitations of the trade data. Those data speak much more convincingly to the virtues of economic interdependence than to China’s stand-alone export prowess.
Eat, Pray, Love, Marry–as Long as You’re Heterosexual
Elizabeth Gilbert, the bestselling author of the memoir Eat, Pray, Love, is back with a new book, Committed: A Skeptic Makes Peace With Marriage. In her earlier book Gilbert reflected on her broken marriage, her travels around the world “looking for joy and God and love and the meaning of life,” and her determination never to marry again. In the new book we learn that she surprised herself by meeting a man worth settling down with, a Brazilian living in Indonesia. So they became a couple and settled near Philadelphia, with Jose Nunes regularly leaving the country to renew his visitor’s visa.
But then came a legal shock:
She was in the early stages of research for that book when Nunes was detained, after a visa-renewing jaunt out of the country, by Homeland Security Department officials at the Dallas-Fort Worth International Airport. Popping in and out of the country as he’d been doing was not legal, Nunes was told, and if he wanted to stay permanently they would have to marry.
Gilbert didn’t want to marry. She and Nunes spent 10 months traveling in Asia. But then, reading about marriage, writing about her aversion to marriage, getting closer to her new partner, she decided to marry. And so they did. And they lived happily ever after in the New Jersey suburbs.
A happy ending all around. As long as you’re heterosexual. Because, of course, if you’re gay, the U.S. government will tell you that your life partner from Brazil may be allowed to visit the United States, but he won’t be allowed to stay. And guess what? He could stay if you were married, but you can’t get married. Catch-22. And even though you could now marry in some foreign countries and some American states and the District of Columbia, the Defense of Marriage Act still prevents the federal government — including its immigration enforcers — from recognizing valid marriages between same-sex partners.
Is this just a theoretical complaint? As a matter of fact, not at all. At least two well-known writers have recently faced exactly the same situation Gilbert did: a Brazilian life partner who couldn’t live in the United States. Glenn Greenwald, a blogger, author of bestselling books, and author of a Cato Institute study on drug reform in Portugal, has written about his own situation and that of others. Like Greenwald, Chris Crain, former editor of the Washington Blade, has also moved to Brazil to be with his partner.
Carolyn See, reviewing Gilbert’s book in the Washington Post, wrote, “The U.S. government, like a stern father, proposed a shotgun marriage of sorts: If you want to be with him in this country, this Brazilian we don’t know all that much about, you’ll have to marry him.” A shotgun marriage, sort of. But at least the government gave Gilbert a choice. It just told Greenwald and Crain no.
This unfairness could be solved, of course, if the government would have the good sense to listen to Cato chairman Bob Levy, who wrote last week in the New York Daily News on “the moral and constitutional case for gay marriage.” And it may be solved by the lawsuit seeking to overturn California’s Proposition 8 that is being spearheaded by liberal lawyer David Boies and conservative lawyer Ted Olson, writes Newsweek’s cover story this week, “The Conservative Case for Gay Marriage.” Until then: eat, pray, love, marry — as long as you’re heterosexual.
Retiring Sen. Dorgan Was Mad about Trade
When Sen. Byron Dorgan, D-ND, announced this week that he would not be running for re-election in November, he explained that he wanted to pursue other interests such as teaching and writing more books.
As a senator, Dorgan opposed almost all efforts to liberalize trade unless it involved Cuba or the re-importation of price-controlled drugs. He holds the distinction of being the second most frequently mentioned politician (behind only Barack Obama) in my Cato book, Mad about Trade, something that I’m sure the senator would consider a badge of honor.
Here is my critical but eminently fair review of his 2006 book, Take This Job and Ship It: How Corporate Greed and Brain-Dead Politics Are Selling Out America.
New Study Seconds Cato Finding: Immigration Reform Good for Economy
The Center for American Progress and the Immigration Policy Center released a new study this morning that finds comprehensive immigration reform would boost the U.S. economy by $189 billion a year by 2019. The bottom-line results of the study are remarkably similar to those of a Cato study released last August.
Titled “Raising the Floor for American Workers: the Economic Benefits of Comprehensive Immigration Reform,” the CAP study was authored by Dr. Raul Hinojosa-Ojeda of the University of California, Los Angeles.
It finds that legalizing low-skilled immigration would boost U.S. gross domestic product by 0.84 percent by raising the productivity of immigrant workers and expanding activity throughout the economy.
Using a different general-equilibrium model of the U.S. economy, the earlier Cato study (“Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform,” by Peter Dixon and Maureen Rimmer) found that a robust temporary worker program would boost the incomes of U.S. households by $180 billion a year by 2019.
Both studies also concluded that tighter restrictions and reduced low-skilled immigration would impose large costs on native-born Americans by shrinking the overall economy and lowering worker productivity.
I’m partial to the Cato study. Its methodology is more comprehensive and more fully explained, but it is worth noting that very different think tanks employing two different models have come to the same result: Legalization of immigration will expand the U.S. economy and incomes, while an “enforcement only” policy of further restrictions will only depress economic activity.
If Congress and President Obama want to create better jobs and stimulate the economy, comprehensive immigration reform should be high on the agenda.
Global Markets Keep U.S. Economy Afloat
Three items in the news this week remind us why we should be glad we live in a more global economy. While American consumers remain cautious, American companies and workers are finding increasing opportunities in markets abroad:
- Sales of General Motors vehicles continue to slump in the United States, but they are surging in China. The company announced this week that sales in China of GM-branded cars and trucks were up 67 percent in 2009, to 1.8 million vehicles. If current trends continue, within a year or two GM will be selling more vehicles in China than in the United States.
- James Cameron’s 3-D movie spectacular “Avatar” just surpassed $1 billion in global box-office sales. Two-thirds of its revenue has come from abroad, with France, Germany, and Russia the leading markets. This has been a growing pattern for U.S. films. Hollywood—which loves to skewer business and capitalism—is thriving in a global market.
- Since 2003, the middle class in Brazil has grown by 32 million. As the Washington Post reports, “Once hobbled with high inflation and perennially susceptible to worldwide crises, Brazil now has a vibrant consumer market …” Brazil’s overall economy is bigger than either India or Russia, and its per-capita GDP is nearly double that of China.
As I note in my Cato book Mad about Trade, American companies and workers will find their best opportunities in the future by selling to the emerging global middle class in Brazil, China, India and elsewhere. Without access to more robust markets abroad, the Great Recession of 2008-09 would have been more like the Great Depression.
Mainstream Media’s Trade Gap
In a post at the Enterprise Blog two days ago, economist Mark Perry deftly parodies a typical mainstream media account of trade protectionism by editing the story in redline to contrast its original presentation with its true significance. I recommend reading the whole thing, but here’s the first paragraph:
WASHINGTON POST (Reuters) – A U.S. trade panel gave final approval on Wednesday to duties taxes ranging from 10 to 16 percent on cost-conscious firms in the U.S. who purchase low-priced Chinese-made steel pipe rather than high-price domestic pipe, in the biggest U.S. trade case to date against China American companies (and their shareholders, employees, and customers) who shop globally for their inputs and find the best value in China.
Perry’s point—and I share his frustration—is that the mainstream media typically fail to convey even a sense of the costs of U.S. protectionism to U.S. interests even though Americans (and non-Americans living in the U.S.) bear the greatest burden of that protectionism. When the U.S. government imposes duties on Chinese steel, it is imposing taxes on U.S. consuming industries, their employees, their shareholders, and their customers.
The Start of Interstate Carbon Tariffs?
Not content with waiting for federal legislation on the matter, it seems that Minnesota has introduced a “carbon fee” of $4-$34 per ton of carbon dioxide emissions on energy produced –mainly using coal — in North Dakota. The fee is scheduled to go into effect in 2012. (see here)
North Dakota plans to challenge the new tax, which it rightly says will discourage the purchase of North Dakota power (that is, indeed, the whole point of the tariff). I’m no constitutional scholar, but Article 1, section 10 of the Constitution says that “No State shall, without the consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection laws…” so the Minnesota tariff appears to be unconstitutional (for whatever that’s worth these days…), at least unless and until Congress gives its consent for it.
On the one hand, the current political make-up of Congress would suggest that such consent might, disappointingly, be given. On the other, the cap-and-trade bill has stalled in Congress despite the wishes of the majority leadership and the administration, suggesting that the desire to regulate energy and greenhouse gas emissions is lacking crucial support.
In related news, another body supportive of carbon tariffs, the French government, has seen its plans thwarted recently after the Constitutional Court there struck down the proposed carbon tax as unconstitutional. President Sarkozy had intented to extend the carbon tax EU-wide so as to prevent adverse competitiveness effects on French industry, thus giving the EU the incentive to apply a trade bloc-wide tariff on imports from less regulated countries. So the setback in France is good news for those of us concerned about the damage that carbon tariffs would do.
HT: Scott Lincicome
Trade Not to Blame for a ‘Lost Decade’
For American workers and families trying to get ahead, the decade just behind us was a stinker. As a front-page Washington Post story over the long weekend summarized:
For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. …
According to the story, the Aughts (2000-09) were the first decade since World War Two with no net job creation, and the first in which median household income was actually lower at the end than at the beginning.
It won’t be long before critics of trade will try to blame the poor economic performance on trade agreements and globalization. This has been a standard line of attack, and I address it at length in my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization. For now, just a few quick-hit observations:
The two recessions that book-ended the past decade were both “Made in the USA.” The first was triggered by the popping of the dot-com bubble, the second by the bursting of the housing bubble. Trade was not the cause of either recession. In fact, trade and globalization were charging ahead full steam in the 1990s, when everybody agreed the economy was doing well.
There is also the temptation to extrapolate short and medium trends into a long-term decline in living standards. As the Post reporter Neil Irwin rightly noted,
The miserable economic track record is, in part, a quirk of timing. The 1990s ended near the top of a stock market and investment bubble. Three months after champagne corks popped to celebrate the dawn of the year 2000, the market turned south, a recession soon following. The decade finished near the trough of a severe recession.
The U.S. economy has endured equally long stretches of poor performance in the past. For example, the Dow Jones Industrial Average was actually lower in 1982 as it was in 1966—16 years stuck in neutral. Real median household income was lower in 1983 than it was in 1969—14 years of no net gains. Yet the economy recovered and scaled new heights.
During difficult economic times, trade helps us weather the storm by offering lower prices and more choice to consumers struggling to make ends meet. When domestic demand sags, U.S. companies can find customers and profits in more robust markets abroad. Foreign investment in the United States helps to keep interest rates down, keeping more Americans in their homes and keeping credit markets open.
Our policy makers will only make our economy worse if they reach for the snake oil of higher trade barriers.
Disappointing Start for Immigration Reform
The good news is that a bill has been introduced in the House this week under the broad heading of immigration reform. Even during a recession, Congress should be working to change our immigration system to reflect the longer-term needs of our economy for foreign-born workers.
The bad news is that the actual bill put in the hopper by Rep. Luis Gutierrez, D-IL, on Tuesday would do nothing to solve the related problems of illegal immigration and the long-term needs of our economy.
As I argued in a recent blog post and a Washington Times op-ed, immigration reform must include expanded opportunities for legal immigration in the future through a temporary worker visa.
Any so-called reform that is missing this third leg will be doomed to fail. We will simply be repeating the mistakes of the 1986 Immigration Reform and Control Act, which granted amnesty to 2.7 million illegal workers and ramped up enforcement, but made no provision for future workers. Rep. Jeff Flake, R-AZ, agrees.
Hell Freezes Over (Or At Least Gets Cooler)
Well here’s an interesting, if three-weeks-old, story. Apparently the North Dakota Farm Bureau’s annual convention recently passed a policy calling for the elimination of all agricultural programs. Reading between the lines of the original press release indicates that the call was part of a broad political position by the NDFB to move away from government intervention in many areas of the economy apart from farm programs, including cap-and-trade and health care:
“As people in this country expect more from the government and less from themselves, our delegates are urging everyone, including farmers, to step away from the public trough and get back to the principles of individual responsibility and initiative,” said NDFB President Eric Aasmundstad….
The only way government can get money is to take it from its citizens. We don’t believe raising taxes to pay for health care or climate change will help our country get out of our economic slump or even improve health care or the environment. And the more they take, the less we have to find the innovative solutions to the problems we face.
He sounds like a Catoite.
To what extent the NDFB’s position flows through to the rest of the farm lobby remains to be seen, so hell hasn’t quite frozen over yet. But this is positive news. At the very least it spells sweet, sweet trouble for long-time free trade nemesis and farm bill supporter Sen. Byron Dorgan (D), who is up for reelection next year.
HT: Chris Edwards.
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Los Angeles Crime Rate Declines Again Despite Complaints about Immigrants
Posted by Daniel Griswold
One of the more common complaints I hear about illegal immigration is that low-skilled workers from Mexico and Central America allegedly bring with them a wave of crime and incarceration expenses, especially to southern California.
Those complaints are hard to square with the mounting evidence that immigrants, even low-skilled, illegal immigrants, are no more prone to commit crimes than native-born Americans. The latest data point comes from Los Angeles, where the Wall Street Journal reports this morning: “Violent crime in Los Angeles hit its lowest level in more than half a century last year, one of a growing number of U.S. cities reporting its streets were remarkably safe in 2009.”
I tried to connect the dots on immigration and crime in a recent article I wrote for Commentary magazine, titled “Higher Immigration, Lower Crime.” My conclusion was entirely consistent with the latest crime report from Los Angeles:
Filed under: General; Trade and Immigration
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