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.”
President Obama Could Improve Relations with China at the Stroke of His Pen
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.
Solar Panel Case Shines Light on the Imperative of U.S. Trade Law Reform
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.
North Korea: Kim Jong-il’s Death and the Coming Succession Struggle
North Korea’s “Dear Leader” Kim Jong-il is dead. There is now no prospect of negotiating and implementing a new nuclear agreement with the North in the near future. The so-called Democratic People’s Republic of Korea is likely to be consumed with a power struggle which could turn violent. Washington’s best policy option is to step back and observe.
After his stroke three years ago, Kim anointed his youngest son, Kim Jong-un, as his successor. However, the latter Kim has had little time to establish himself. The previous familial power transfer to Kim Jong-il took roughly two decades. There are several potential claimants to supreme authority in the North, and the military may play kingmaker.
Some observers hope for a “Korean Spring,” but the DPRK’s largely rural population is an unlikely vehicle for change. Urban elites may want reform, but not revolution. If a North Korean Mikhail Gorbachev is lurking in the background, he will have to move slowly to survive.
During this time of political uncertainty no official is likely to have the desire or ability to make a deal yielding up North Korea’s nuclear weapons. The leadership will be focused inward and no one is likely to challenge the military, which itself may fracture politically.
Nor is China likely to play a helpful role. Beijing views the status quo as being in its interest. Above all else, China is likely to emphasize stability, though it may very well attempt to influence the succession process outside of public view. But China does not want what America wants, preferring the DPRK’s survival, just with more responsible and pliable leadership.
Washington can do little during this process. The United States should maintain its willingness to talk with the North. American officials also should engage Beijing over the future of the peninsula, exploring Chinese concerns and searching for areas of compromise. For instance, Washington should pledge that there would be no American bases or troops in a reunited Korea, which might ease Beijing’s fears about the impact of a North Korean collapse.
Most important, the Obama administration should not rush to “strengthen” the alliance with South Korea in response to uncertainty in the North. The Republic of Korea is well able to defend itself. It should take the steps necessary to deter North Korean adventurism and develop its own strategies for dealing with Pyongyang. America should be withdrawing from an expensive security commitment which no longer serves U.S. interests.
Kim Jong-il imposed unimaginable hardship on the North Korean people. However, what follows him could be even worse if an uncertain power struggle breaks down into armed conflict. Other than encourage Beijing to use its influence to bring the Kim dynasty to a merciful end, the United States can—and should—do little more than watch developments in the North.
Kim Jong-il Is Dead
The AP and others are reporting that North Korean leader Kim Jong-Il has died at the age of 70. This has long been expected, but what comes next is unclear. The best case scenario would be a smooth transition to new leadership, one that is committed to opening up North Korea’s ossified political system and reforming its decrepit economy. That is unlikely, however. If a power struggle ensues, the North Korean people will be caught in the middle. The countries with the most at stake in the event of a complete collapse of the DPRK — especially South Korea and China — should take the lead in helping the North Koreans to sort out their future.
Citizens! Do You Know the Source of Your Honey?
Some disturbing news indeed reached my inbox today (HT: David Boaz). Apparently honey is entering the United States under assumed identities. Chinese honey, once ubiquitous, was largely shut out of the American market through anti-dumping measures. So, this article from NPR.org alleges, it started to be sold through a third country (perhaps Indonesia, Thailand, or Malaysia) and was falsely labelled to evade the duties. (Apparently we know this because the honey can be tested for peculiar types of pollen.) The U.S. government wasn’t having any of that of course, and so they held up suspicious shipments through regulations, inspections, and documentary requirements. So now the Chinese honey is allegedly being sold through India.
The domestic honey industry is now starting to worry that all of this nefarious, subversive honey-related activity will suppress the market for all types of honey, including their own, and are starting a fair trade-esque system called True Source Honey, which will trace the honey to a proper, ‘merican source. None of that Chinese muck.
Eric Wenger is president of True Source Honey. Soon, he’s going to Vietnam to help with the first audit of a Vietnamese honey exporter.
“The question we want to answer is: Does that exporter only purchase honey from beekeepers in that country?” he says.
The exporter will give the True Source auditor a list of the beekeepers from whom it buys honey. “Then the auditor will randomly select a number of those beekeepers, go out to that beekeeper’s apiary, and evaluate the capacity of that beekeeper to produce the volume that that exporter claimed was purchased and shipped,” says Wenger.
If everything checks out, that exporter is certified. But even after that, True Source will take samples from every shipment of honey and send those samples to a lab in Germany to see if the pollen matches the flowers that are actually blooming in Vietnam.
True Source wants to expand this system globally. One exporter in India is already certified.
Jill Clark, from Dutch Gold Honey, says these sorts of audited, verified supply chains are getting more common throughout the food business. In some cases, governments are requiring it.
“With all the food safety and food security issues, knowing where your food comes from right now is incredibly important,” she says.
Shouldn’t consumers be the ones to decide that? Removing the anti-dumping duties and discriminatory regulations will reduce the incentive for Chinese honey to be labelled falsely, and then we can decide for ourselves what is “incredibly important.” Or maybe we don’t care, and True Source will be a massive flop.
On a positive note, there are an encouraging number of libertarian comments to the article.
Hillary Clinton Heads to Burma
On Wednesday, Secretary of State Hillary Clinton travels to the isolated nation of Burma, officially known as Myanmar, in an attempt to spur the reform process. “After years of darkness, we’ve seen flickers of progress,” said President Barack Obama of the troubled country. By visiting Burma Secretary Clinton can test the new government’s willingness to do more.
Of course, the Clinton initiative may fail. But the main argument for the policy change is not that it is certain to work, but that the alternative has failed. Isolating Burma has achieved nothing.
Burma long has been one of the most tragic of nations. The military regime brutally suppressed the democracy movement led by Nobel laureate Aung San Suu Kyi. Even more deadly has been the half-century long battle with ethnic groups like the Karen, which have sought autonomy in the east.
The United States and Europe responded with sanctions, but to no avail. China took advantage to secure a position of political influence and economic dominance. The military regime continued to live up to its reputation for brutality and corruption.
Now there are “flickers of progress,” as the president suggested. A badly flawed election last year; a new, nominally civilian government; the release of a few political prisoners; liberty for Ms. Suu Kyi, who also has been meeting with government ministers; and a slight break between Burma and its chief patron, Beijing.
Individually these are but small changes, and the Burmese military has previously offered tantalizing reforms only to reverse course, intensifying its brutal suppression of any opposition. However, the combination of many small steps offers hope that something more real may be happening this time. Even Suu Kyi has expressed optimism, and is preparing to reenter politics—legally.
Equally important is the increasing evidence that Burma wants to balance the influence of its imperious neighbor China. For all of the worries in America about Beijing’s growing clout around the world, the People’s Republic of China is finding out—just as the United States discovered years ago—that friends can be expensive to buy and often don’t stay bought.
Engaging Burma could encourage that state to continue on a more independent course—separate from China. The regime isn’t likely to dump its patron, but any distance between the two would be progress. The PRC’s churlish reaction to the Clinton initiative suggests that Beijing is concerned.
An adjustment in U.S. policy toward Burma was sorely needed. Isolation resulted in few positive outcomes. For the most part Asian nations, even America’s friends, ignored U.S. and European sanctions. The regime did not fall; Suu Kyi was not freed; democracy did not come; the ethnic groups did not enjoy peace. The generals simply tightened their grip.
Although this policy failure long has been obvious, no one wanted to “reward” the Burmese regime by dropping economic penalties. This left U.S. policy stuck in a political cul-de-sac. Sanctions were ineffective, doing nothing to advance human rights. But they could not be changed for the sake of appearance.
Nascent reform in Burma now offers Washington an opportunity to shift course. No one should get their hopes up. The regime may intend to only adopt a few reforms as window-dressing to win Western aid. Even if the commitment to change is real, the road to a better life for the Burmese people remains long and hard.
Nevertheless, for the first time in years there truly are “flickers of progress” in Burma. The administration is right to try to turn these flickers into something more. A desperately poor and oppressed people deserve a better life.
Trade Law, Trade War, and the Case of Multilayered Wood Flooring from China
Public angst over China’s rise and the threat of populist currency legislation have prompted speculation about a U.S.-China “Trade War.” With the 2012 elections still a whole year away, there is ample opportunity for campaigning politicians to ignite that fuse.
But pyrotechnics aren’t necessary. Rather than a 1930s-style free-for-all, a trade war—if one were to begin—is more likely to be of the lowercase, “rules-based” variety, where trade restrictions are imposed in compliance (or under the pretense of compliance) with global trade rules. Many of the battles would be waged behind the façade of so-called trade remedy laws.
Antidumping and countervailing duty measures are the most commonly invoked forms of “contingent protectionism” permitted under World Trade Organization rules. Those rules allow member governments to maintain and administer national antidumping and countervailing duty laws to remedy—through the imposition of customs duties—the effects of imports determined to be sold at unfairly low prices (antidumping) or determined to be unfairly subsidized by a government (countervailing). But imposing “remedies” under these laws is contingent upon certain conditions being met. Two core conditions are that the administering authorities need to demonstrate that the imports in question are being dumped or subsidized, and that those dumped or subsidized imports are causing or threatening material injury to the domestic industry.
A determination expected tomorrow from the U.S. International Trade Commission offers a case in point. The Commission will vote on the question of whether dumped and subsidized imports of multilayered wood flooring (MLWF) from China are causing or threatening material injury to the U.S. MLWF industry. An affirmative determination could invite Chinese retaliation because the evidence of a causal connection between imports from China and injury to the U.S. industry is weak to non-existent. If the U.S. government is going to stretch or skirt the evidentiary standards established by domestic law and international treaty, the Chinese government may be inclined to do the same. (In fact, the Chinese government is already alleged to have broken those rules – and the United States is seeking recourse in the WTO – when it imposed antidumping and countervailing duties on U.S. chicken exports in 2010.)
Multilayered wood flooring is a floor covering product—used for the same practical purposes as hardwood flooring, tile, and carpeting. Sales of MLWF are highly dependent upon new housing starts and remodeling expenditures, both of which tanked when the housing bubble burst in 2008. As a result of U.S. housing starts declining from a seasonally adjusted annual rate of 1.1 million units in February 2008 to just 505,000 units in March 2009, as well as the large decline in remodeling activity over the same period, MLWF industry prices, shipments, revenues, and profits declined substantially, as did imports from China and other countries. But since the second quarter of 2009, housing starts have been stable at about 600,000 units per year and remodeling activity has been steady at about $112 billion per year.
Importantly for the injury analysis, this period of stability in housing starts and renovation activity enables an analysis that isolates the effects of imports on the domestic industry. And what is evident is that, as domestic consumption of MLWF picked up, so did U.S. imports, producer shipments, revenues, and profits (from -9.9 percent in 2009 to -1.0 percent in the first half of 2011). Increasing volumes of subject imports correlate with an improving condition of the domestic industry. Throughout the period of stabilization, prices in the U.S. market have been steady, as well. If imports from China were to have an injurious effect on the domestic industry, one would expect the increasing volume of such imports to drive down prices in the United States. But imports from China, on average, do not underprice domestic MLWF. According to the public version of the USITC Staff Report in this matter:
…prices for MLWF from China were below those for U.S.-produced MLWF in 60 of 110 instances; margins of underselling ranged from 1.5 to 36.4 percent. In the remaining 50 instances, prices for MLWF imported from China were above those for U.S.-produced MLWF; margins of overselling ranged from 0.1 to 30.4 percent.
An affirmative finding of injurious dumping and/or subsidization from the USITC tomorrow would require disregard of these and other crucial facts and would warrant closer scrutiny of the antidumping regime. It would also invite similar actions from Chinese trade remedies authorities and then who know where it will lead.
A Step Forward in Afghanistan, If We Are Willing to Take It
The Washington Post reports the Obama administration has revised its Afghan war strategy to include “more energetic efforts to persuade” Afghanistan’s neighbors—including India, China, and the Central Asian republics—to “support a political resolution.” Just yesterday, the New York Times reported that the administration was also relying on Pakistan’s Inter-Services Intelligence spy agency “to help organize and kick-start reconciliation talks aimed at ending the war in Afghanistan.”
This is good news, but also déjà vu. The administration called for “pursuing greater regional diplomacy” back in 2009. It also said it would ask “all countries who have a stake in the future of this critical region to do their part.” Countries in the region do have a stake in Afghanistan’s future; America, however, has few effective instruments for submerging the differences among competing powers.
Take our relationship with Iran. It has made significant inroads with Afghanistan’s Hazara and Tajik communities and is well-positioned to be a key player in the region. But Tehran and Washington seem neither close to engaging in direct talks nor willing to make reciprocal concessions for the cause of furthering peace. The irony is that after 9/11, American and Iranian interests initially converged in Afghanistan: Tehran cooperated with Washington to overthrow the Taliban regime, and during the Bonn negotiations helped broker a compromise between President Karzai and the Northern Alliance.
America’s complicated relationship with Iran is one reason why what U.S. officials perceive to be in America’s best interests may not be synonymous with the pursuit of peace. Isolating Iran, or even Pakistan for that matter, will hurt the substance of negotiations, increase the incentive for these countries to sabotage peace, and hinder Washington’s ability to shape a coherent regional strategy. Even if Washington were to engage Tehran and Islamabad, they may very well decide to protract the bargaining process to convey that time is on their side (it is). One reason why the administration’s 2009 effort may have faltered was that Pakistan—a major player in Afghanistan’s internal affairs (to the consternation of many Afghans)—has come to feel that it can manage the terms of reconciliation. In fact, it is this belief that tempers Pakistan’s eagerness to be more accommodating toward the United States, which is why the case for American humility is key when it comes to the subject of negotiations.
Peace will not be perfect. Problems will rise when competing interests collide on certain core issues. Nevertheless, all parties must be sufficiently dedicated to reaching a consensus on what constitutes a manageable settlement. After all, some countries will seek to stymie their enemy’s provision of assistance to Kabul (i.e. Pakistan vis-à-vis India). Getting these countries to think otherwise will necessitate a shift in said country’s perceptions of others’ intentions.
As I wrote last week, U.S. officials understand the enormity of problems they confront in this vexing region. Proponents of peace are not blind to these difficulties. Unfortunately, much like the current nation-building effort, when it comes to regional engagement, U.S. officials could be making yet another ambitious commitment that is beyond their ability to carry out.
The Lives of Others 2.0
Tattoo it on your forearm—or better, that of your favorite legislator—for easy reference in the next debate over wiretapping: government surveillance is a security breach—by definition and by design. The latest evidence of this comes from Germany, where there’s growing furor over a hacker group’s allegations that government-designed Trojan Horse spyware is not only insecure, but packed with functions that exceed the limits of German law:
On Saturday, the CCC (the hacker group) announced that it had been given hard drives containing “state spying software,” which had allegedly been used by German investigators to carry out surveillance of Internet communication. The organization had analyzed the software and found it to be full of defects. They also found that it transmitted information via a server located in the United States. As well as its surveillance functions, it could be used to plant files on an individual’s computer. It was also not sufficiently protected, so that third parties with the necessary technical skills could hijack the Trojan horse’s functions for their own ends. The software possibly violated German law, the organization said.
Back in 2004–2005, software designed to facilitate police wiretaps was exploited by unknown parties to intercept the communications of dozens of top political officials in Greece. And just last year, we saw an attack on Google’s e-mail system targeting Chinese dissidents, which some sources have claimed was carried out by compromising a backend interface designed for law enforcement.
Any communications architecture that is designed to facilitate outsider access to communications—for all the most noble reasons—is necessarily more vulnerable to malicious interception as a result. That’s why technologists have looked with justified skepticism on periodic calls from intelligence agencies to redesign data networks for their convenience. At least in this case, the vulnerability is limited to specific target computers on which the malware has been installed. Increasingly, governments want their spyware installed at the switches—making for a more attractive target, and more catastrophic harm in the event of a successful attack.
With Friends Like Sen. Sessions, Free Trade Is in Trouble
According to a story in Politico today, Senator Jeff Sessions of Alabama has been whipping his Republican colleagues to vote in favor of the China currency legislation that appears to be headed for passage in the Senate. (My Cato colleague Dan Ikenson has explained why raising tariffs on imports from China would be a mistake.)
The Politico story says that Sessions is “traditionally a proponent of free trade,” but his actual voting record indicates otherwise. According to the trade vote data base we maintain on the home page of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, Sen. Sessions has voted in favor of lower trade barriers on a bare majority (26 out of 49) of the significant trade votes we’ve recorded.
Since 1997, Sen. Sessions has voted in favor of protectionist farm bills (2002, 2007, 2008), banning safety-certified Mexican trucks from U.S. roads (2007), country-of-origin labeling (2003), the WTO-illegal Byrd amendment (2003, 2005), the original Schumer-Graham bill to impose a 27.5 percent tariff against imports from China (2005), sugar import quotas (1999, 2000, 2001), and steel import quotas (1999)
Meanwhile, he’s voted against the Morocco free-trade agreement (2004), trade promotion authority (1998, 2002), and normal trade relations with Vietnam (2001) and China (1997, 1999).
And to top it all off, it was Sen. Sessions who single-handedly scuttled renewal last year of the Generalized System of Preferences, the long-standing program that had allowed certain imports from poor countries to enter the United States duty free. As my Cato colleague Sallie James has chronicled (here and here), the good senator refused to allow the program to be renewed because of a dispute affecting a small number of his constituents who are employed making sleeping bags.
Like too many of his fellow senators, Sen. Sessions supports our freedom to trade only as long as it does not affect any noisy special interests in his own state.
Explaining Aircraft Carriers
Yesterday, State Department spokeswoman Victoria Nuland made the following comment regarding China’s maiden voyage in the old Varyag carcass it has been tinkering with for over a decade:
We would welcome any kind of explanation that China would like to give for needing this kind of equipment.
This echoes Donald Rumsfeld’s remarks at the 2005 Shangri-La Dialogue in which he puzzled in quintessentially Rumsfeldian fashion:
Since no nation threatens China, one must wonder:
* Why this growing investment?
* Why these continuing large and expanding arms purchases?
* Why these continuing robust deployments?
Maybe, like me, the Chinese are reading Aaron Friedberg’s new book on U.S.-China security competition (Friedberg worked on Asia for Vice President Cheney). Perhaps high-ranking military officials there shudder a bit when they read, on page 184, that someone very close to the levers of power in Washington admits mildly that
Stripped of diplomatic niceties, the ultimate aim of the American strategy is to hasten a revolution, albeit a peaceful one, that will sweep away China’s one-party authoritarian state and leave a liberal democracy in its place.
Given this, as Friedberg sensibly notes later (p. 231),
It is difficult to believe that the present Beijing regime will accept indefinitely a situation in which its fate could depend on American forbearance, and hard to see how it can escape that condition without building a much bigger and more capable navy.
I actually agree with David Axe’s characterization of the Shi Lang as “a piece of junk,” and given the geography of the region, I wouldn’t—as the Chinese aren’t—pour many resources into aircraft carriers to remedy this predicament. But if the roles were reversed, and China spent four times as much as we did on our military—and if China had naval bases ringing my coastline and fancied itself the “hub” of a “hub-and-spokes” set of alliances between itself and a variety of Latin American countries and Canada—I’d probably think that these facts, when assembled, constituted a pretty strong argument for spending more money on anything I could use to defend myself. Especially if China had recently gone on an ideological rampage trying to “hasten revolutions” and leaving smoldering wreckages in its wake.
At any rate, what’s good for the goose ought to be good for the gander, so I anxiously await the Pentagon’s detailed explanation for why we need each of our 11 aircraft carriers, every one of which is enormously more powerful than the PRC’s puny flattop.
Cross-posted from the National Interest.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
