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

Last week I blogged about Sen. Dianne Feinstein’s (D-CA) proposal to devote $20 billion of the Export-Import Bank’s funds to promoting manufacturing exports, and why that was a bad idea.

But I realize that my recent call to “X Out the Ex-Im Bank” will be facing some very entrenched interests in Washington, and some well-funded lobby groups. The Bank has historically attracted bipartisan support, and a renewal of its charter sailed through the House Committee on Financial Services earlier this year. The Washington establishment loves this program.

My friend and long-time Ex-Im Bank supporter Gary Hufbauer of the Peterson Institute for International Economics published a critique a few weeks ago of my analysis, and calls for a doubling of Ex-Im’s authorization cap (from $100 billion to $200 billion). His piece is a fair characterization of my arguments, and at least Gary tries to counter them with actual facts and analysis (not always a given in an increasingly poisonous trade policy environment).  But it seems to me that Gary focuses his critique on my assessment of the effectiveness of the Bank. That’s fair enough, of course, but I tried in my paper to make the point that the efficiency or efficacy of the Ex-Im Bank’s activities is kind of irrelevant. The important point, which Gary did not address, is that it is simply not the proper role of the federal government to be in this business at all, even if they can operate “efficiently” (which I do not concede in any case). Where in the Constitution is the federal government authorized to be involved in the export credit business (a business, by the way, that benefits mainly large, profitable companies)?

My opposition to the Bank, in other words, is at a more fundamental level.  On an empirical level—and this is where Gary’s critique is focused—can markets work well enough in trade finance, and if not, can government intervention work better? Gary points to the Bank’s low default rate as evidence that private markets are missing good opportunities:

These figures suggest that the Ex-Im Bank plays a large role in facilitating exports to countries that encounter reluctance from private banks but nonetheless are not ‘bad risks.” Judging by its low default rate, the Ex-Im Bank’s risk assessment seems more correct than the private market.

But I would argue that its low default rate suggests the Ex-Im Bank’s backing is unnecessary. We don’t know that private credit wasn’t available to finance those exports. And even if it wasn’t, private credit not always being available on terms that the trading partners would like does not necessarily signify market failure. So a finance company missed an opportunity that may have paid out. So what? Maybe they had even better opportunities available to them that we (and bureaucratic Washington) don’t know about, or they simply wanted to hold on to their capital for future investment or to meet new reserve standards. The would-be exporter might miss out, but government intervention to direct that private capital (either through mandates, or siphoning it through the Ex-Im Bank) would come at another producer’s or bank shareholders’ expense.

Gary argues that:

Ex-Im’s capability should be strengthened so that the United States can respond when official finance offered by other countries violates the principles of fair competition…Successful multilateral negotiations…are certainly a superior option to tit-for-tat retaliation…[but]…without sufficient leverage…it is difficult to see what will bring China and India to the negotiating table.

But will China and India (and others) see higher Ex-Im funding as “leverage” to bring them to the table, or will it be seen as just the next step in the escalating arms race of subsidized export credit? I suspect, and fear, the latter.

Gary rejects my call to dismantle the Ex-Im Bank, and in fact suggests the government increase the scope of Ex-Im financing to cover 5 percent (rather than the current 2 percent) of total U.S.exports. That seems pretty arbitrary to me. Why stop at 5 percent? Heck, with the Ex-Im Bank being “self-financing” and all, why not go for 100 percent?

Lastly, Gary repudiates my “orthodox free-market reasoning” and the suggestion, attributed to me, that “… the dollar exchange rate alone determines the volume of U.S. exports or the size of the U.S. trade deficit.”  Exchange rates do not equilibrate to keep trade balances at zero, but to keep them in line with the savings and investment balance. The United States has been running persistent deficits because savings has fallen short of investment for many years.

Similarly, Gary takes issue with my analysis on the net effect of Ex-Im financing on jobs:

 …nor do we agree that free markets are sufficiently self- regulating to ensure a constant and low rate of unemployment…If [that proposition] described the American economy, the United States [unemployment would not be stuck at 9 percent-plus.

Here Gary seems to ignore the many interventions in labor markets that can keep unemployment high, no matter what the exchange rate. I’m certainly not under any illusions that the U.S. economy would be totally free market were it not for the existence of the Ex-Im Bank, and I don’t think my paper implied that, either.

Gary and I, not to mention others who study the Ex-Im Bank, will no doubt continue to debate these issues as the Ex-Im Bank’s charter expiry date comes closer.

More on the Ex-Im Bank is a post from Cato @ Liberty - Cato Institute Blog

In hailing this week’s ruling by a World Trade Organization dispute settlement panel that certain Chinese government restrictions on raw material exports violate China’s WTO commitments, U.S. Trade Representative Ron Kirk made the point that such restrictions hurt U.S. manufacturers who rely on those imported raw materials.

Today’s panel report represents a significant victory for manufacturers and workers in the United States and the rest of the world. The panel’s findings are also an important confirmation of fundamental principles underlying the global trading system. All WTO Members – whether developed or developing – need non-discriminatory access to raw material supplies in order to grow and thrive.

And, simultaneously, by artificially increasing domestic supply, the same export restrictions advantage Chinese manufacturing consumers of those materials.

China’s extensive use of export restraints for protectionist economic gain is deeply troubling. China’s policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials.

And here’s how the USTR website described the central issues of the case:

China maintains a number of measures that restrain exports of raw material inputs for which it is the top, or near top, world producer. These measures skew the playing field against the United States and other countries by creating substantial competitive benefits for downstream Chinese producers that use the inputs in the production and export of numerous processed steel, aluminum and chemical products and a wide range of further processed products…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.

I agree.

But what you won’t find in the USTR’s statements is any acknowledgement that the U.S. government, in defiance of Ambassador Kirk’s logic, maintains import restrictions on three of the nine raw materials at issue in the China WTO case. That’s right! While arguing correctly that Chinese restrictions on exports of magnesium, silicon metal, and coke raise production costs and subsequently reduce U.S. manufacturing competitiveness, the U.S. government maintains antidumping restrictions on the same inputs, which raises U.S. production costs and reduces U.S. manufacturing competitiveness. (See pages 14-17 of this new Cato paper to learn what happened to certain U.S. industrial consumers of these raw materials)

How can such dissonance persist, you ask? Under the U.S. antidumping law, manufacturing consumers of subject imports have no legal standing to participate in the proceedings. In fact, the U.S. administering agencies are forbidden by statute from even considering the impact of antidumping duties on the downstream, consuming industries. Nor is an assessment of the costs of prospective antidumping restrictions on the broader economy permitted to carry any weight under the statute.

Instead, in the present case, those producers hurt by our own import restrictions had to take the circuitous route of enlisting the support of the USTR to pursue a WTO case to secure – what will eventually be – only a half-a-loaf solution. Even if and when China relents with respect to its export restrictions, the U.S. antidumping restrictions on imported raw materials will persist because the law effectively insulates the patrons of antidumping measures from competition.

It should be embarrassing to the administration that it rigorously pursues a WTO case to end an economic injustice committed by another country that we gleefully inflict upon ourselves. We are committing economic self-flagellation by ignoring antidumping reform in this country, where 80 percent of all antidumping measures in place restrict crucial manufacturing inputs. And it’s not like President Obama doesn’t understand the relationship between manufacturing competitiveness and access to manufacturing inputs. Here’s what the president said less than one year ago, when he signed into law a tariff liberalization bill:

The Manufacturing Enhancement Act of 2010 will create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery. And here’s how it works. To make their products, manufacturers—some of whom are represented here today—often have to import certain materials from other countries and pay tariffs on those materials. This legislation will reduce or eliminate some of those tariffs, which will significantly lower costs for American companies across the manufacturing landscape—from cars to chemicals; medical devices to sporting goods. And that will boost output, support good jobs here at home, and lower prices for American consumers.

But, then, at some point, that logic no longer resonates with this administration.

Antidumping reform is an essential ingredient of U.S. manufacturing competitiveness. Anyone inclined to celebrate the U.S. WTO “victory” in the Chinese export restrictions case should understand the rest of that story.

Yet More U.S. Trade Policy Incoherence is a post from Cato @ Liberty - Cato Institute Blog

Do trade agreements promote trade? The answer appears to be yes. In a new Cato Free Trade Bulletin released today, I examine the record of trade agreements the United States has signed with 14 other nations during the past decade.

The impact of those agreements on U.S. trade is a timely subject because Congress may soon consider pending free-trade agreements (FTAs) with South Korea, Colombia, and Panama. Opponents of such deals often argue that they open the U.S. economy to unfair competition from low-wage countries, displacing U.S. manufacturing. Advocates argue the agreements do open the U.S. market further to imports, but they open markets abroad even wider for U.S. exports.

Based on actual post-agreement trade flows, I found that both total imports and exports with the 14 countries grew faster than overall U.S. trade since each agreement went into effect. For politicians obsessed with manufacturing exports, the study should be especially encouraging. Here is a key finding:

Politically sensitive manufacturing trade with the 14 FTA partners has expanded more rapidly than overall U.S. manufacturing trade, especially on the export side. U.S. manufacturing exports to the recent FTA partners were 10.5 percent higher in 2010 compared to our overall export growth since each agreement was signed. That represents an additional $8 billion in manufacturing exports.

I’ll be discussing the three pending trade agreements alongside William Lane of Caterpillar Inc. at a Cato Hill Briefing on Wednesday of this week. Along with the new study on the past FTAs, I’ll be talking about our recent studies on the Columbia and Korea agreements.

Trade Agreements Promote U.S. Manufacturing Exports is a post from Cato @ Liberty - Cato Institute Blog

Heartening news from the Appropriations Committee yesterday: they voted to cut aid to farmers generally, and to make significant changes to an egregious cotton program. But first, some background.  You’ll recall the embarrassing deal made by the Obama administration last year to head off Brazil’s right to impede American exports in retaliation for WTO-illegal cotton support. The United States is, in other words, now sending almost $150m worth of “technical assistance” and “capacity building” funds to Brazil, just so we can continue to subsidize American cotton growers without penalty (so much for U.S. promotion of the rule of law in international commercial relations). Rep. Ron Kind (D-WI) tried to end that deal earlier this year, but to no avail. Big Ag’s friends in Congress argued, unfortunately successfully, that any changes to the cotton bribes should be dealt with in the context of the 2012 Farm Bill, and by the agriculture committees (good luck with that).

But yesterday, the Appropriations Committee approved by voice vote an amendment from Rep. Jeff Flake (R-AZ) to take the fiscal 2013 payment to Brazil from funds that would normally go to supporting U.S. cotton growers. According to an article [$] in the Congressional Quarterly, Rep. Flake argued that “American cotton growers should pay the bill since the United States was making the payment on their behalf.” Well played, sir.  Rep. Rosa DeLauro (D-CT) filed an amendment that would send the FY2012 cotton payment to the Women’s, Infants and Children nutrition program instead.

The Committee also voted to lower the income eligibility cap to $250,000 AGI.

The CQ article did contain this worrying footnote, however:

Support for the amendments may be tenuous — especially if lawmakers cannot hide behind the anonymity of a voice vote. After winning the voice vote in committee, Flake sought a roll call, prompting appropriators of both parties to suggest that he did not need the recorded vote. Flake took their advice and demurred.

 Leglislators are usually shy about publicizing their positions only when they think it could get them in political hot water, so let’s not uncork the champagne yet.

The (Beginning of the) End of the Shameful U.S. Cotton Deal? is a post from Cato @ Liberty - Cato Institute Blog

This morning’s report from the U.S. Department of Commerce that the pesky trade deficit shrank unexpectedly in October is being hailed in the media as “good news” for the economy, while the real news behind the numbers remains buried.

According to the latest monthly trade report, exports of U.S. goods rose in October compared to September, while imports declined slightly. Rising exports are good news in anybody’s book, but according to the conventional Keynesian and mercantilist logic, falling imports must also be good for the economy because that means consumers are spending more on domestically produced goods, right? Wrong.

In the real world, that assumption is almost always false, as I did my best to document a few weeks back in an op-ed titled, “Are rising imports a boon or bane to the economy?”

The real news in the report is the spectacular rise of U.S. exports to China. Year to date, U.S. exports to China are up 34 percent compared to the same period in 2009. That compares to a 21 percent increase in U.S. exports to the rest of the world excluding China. China is now the no. 3 market for U.S. exports, behind only our NAFTA partners Canada and Mexico, and by far the fastest growing major market.

The politically inflammatory bilateral trade deficit with China is also up 20 percent so far this year, but our trade deficit with the rest of the world excluding China is up 38 percent.

Yet Sens. Chuck Schumer, D-N.Y., and Lindsey Graham, R-S.C., are still talking about pushing a bill during the lame-duck session that would authorized the same Commerce Department to assess duties on imports from China because of its undervalued currency. A cheaper Chinese currency relative to the U.S. dollar supposedly inhibits U.S. exports to China while tempting American consumers to buy even more of those useful consumer goods assembled in China. [For the record, U.S. imports from China so far this year have grown, too, but at a rate slightly below imports from the rest of the world.]

To anyone taking an objective look at the numbers, this morning’s trade report shows that whatever the wisdom of China’s currency policy, it has not been a real obstacle to robust U.S. export growth, nor has it fueled an extraordinary growth in our bilateral trade balance with China. Members of Congress should drop their obsession with China trade and move on to more urgent matters.

Media Miss Real News in Latest Trade Report is a post from Cato @ Liberty - Cato Institute Blog

The House is expected to vote today on a bill that would allow U.S. companies to petition the Commerce Department for protective tariffs against imports from countries with “misaligned currencies.” Everybody knows the bill is aimed squarely at China.

Advocates of the legislation say it is about jobs, and they are partly right. The bill is about saving the jobs of incumbent lawmakers who are desperate to appear tough on China trade, which they blame for the loss of U.S. manufacturing jobs.

As my colleague Dan Ikenson and I have argued at length, in blog posts, op-eds, and longer studies,

• A stronger Chinese currency will not put a major dent in our large bilateral trade deficit with China, certainly not any time in the near future.
• The bilateral deficit with China and America’s overall trade deficit is not a drag on growth or a barrier to manufacturing exports and output.
• U.S. manufacturing has not been decimated by trade. In fact it has been expanding as American producers move up the value chain to more sophisticated, high-tech products.
• Provoking a needless trade spat with China will jeopardize the healthy export success American companies have enjoyed in China’s fast-growing market.

Let’s hope cooler, wiser heads in the Senate and the White House save us from this election-season folly.

China Bill All about Saving Lawmakers’ Jobs is a post from Cato @ Liberty - Cato Institute Blog

Following Dan’s and David’s recent posts on the trade deficit and its (ir)relevance, allow me to draw readers’ attention to the Economist’s “By Invitation” blog, where invited prominent economists debate topical economic issues.

One of their current questions is: Should governments take any steps to boost exports? That’s an important topic, and an especially timely one given the Obama administration’s ‘National Export Initiative,’ a five-year plan to double U.S. exports. All of us here at Cato’s trade center have previously expressed skepticism about the feasiblity and/or wisdom of that plan, and Dan Ikenson blogged earlier today about the administration’s apparent incoherence in pursuit of that goal. 

The Economist‘s debate talks about industrial policy and export promotion in the abstract, rather than the NEI per se, but I recommend checking it out. Scott Sumner and Laurence Kotlikoff make especially good sense.

Prominent Economists Debate Trade Deficits is a post from Cato @ Liberty - Cato Institute Blog

The Mexican government announced yesterday that it will expand the list of U.S. products subject to punitive import duties in retaliation for a brazen, 15-year-long refusal of the United States to honor its NAFTA commitment to allow Mexican long-haul trucks to compete in the U.S. market.  Given continued U.S. intransigence on the issue, Mexico’s decision is understandable, if not laudable.

The dispute is not very complicated.  Under the terms of the deal, Mexican trucks were to have been able to compete in U.S. border states by 1995, and throughout the United States by 2000.  But President Clinton, at the behest of the Teamsters union, suspended implementation of the trucking provision on the grounds that Mexican trucks weren’t safe enough for U.S. highways.

By 1998, the Mexicans had had enough, and brought a formal complaint under the NAFTA dispute settlement system, and in 2001, prevailed with a unanimous panel decision that found the United States in violation of the agreement, and ruled that Mexican trucks meeting U.S. safety standards had to be given access to the U.S. market.

In response to the NAFTA decision, Congress stipulated 22 safety requirements that Mexican trucks had to satisfy in order to gain access to the U.S. market.  But before the U.S. Department of Transportation could grant any permits to Mexican truckers, in 2002, environmental and labor groups filed a lawsuit to block implementation on the grounds that the regulations violated U.S. environmental law.

In 2004, the U.S. Supreme Court unanimously struck down the truck ban, and soon after a government pilot program was developed to allow a limited number of Mexican trucks to serve the U.S. market.  But funding for the pilot program was cut off by a Teamsters-friendly Congress in 2008, which effectively put the U.S. market off limits to Mexican trucks once again—and the United States squarely in violation of its NAFTA obligations, again.

In August 2009, after it became apparent that the administration and Congress preferred the economic cost of the trucking ban to the political cost of crossing the Teamsters, the Mexican government tried to change the equation by imposing $2.4 billion in retaliatory duties on about 90 U.S. products.  A Mexican trucking association also filed a $6-billion lawsuit against the U.S. government.

But with no discernible progress toward resolution over the past year, the Mexican government announced yesterday that it will expand the list of U.S. products subject to punitive, retaliatory duties in an effort to convince Congress and the administration to finally live up to America’s word.

The Mexican government is right to retaliate—and to expand the list of products subject to punitive duties.  Of course, retaliation hurts innocents, like U.S. businesses and workers, and Mexican businesses and consumers, who have nothing to do with the central dispute.  And it increases the amount of red tape and the role of governments in international trade.  But retaliation—when authorized by agreement and properly targeted—can also be an effective tool in promoting trade liberalization, reducing red tape, and diminishing the impositions of government.

It is by changing the political calculus that retaliation can be effective.  Thus far, U.S. politicians have found the economic costs of the Mexican trucking ban and the retaliation to be tolerable (for themselves)—at least relative to the expected political costs from doing the right thing by ending the ban.  By expanding the list to include other products, like oranges, the Mexicans hope to impress upon other U.S. interests, like the citrus industry in a very important swing state, that they have dogs in this fight as well.

Between the rising costs on the economic side of the equation and the diminishing political benefits on the other, support among politicians for the truck ban should dissipate.

The Obama administration’s failure to connect the dots is surprising.  Its fealty to the Teamsters directly undermines the lofty goals of its National Export Initiative—which seeks to double U.S. exports in five years.  On trade policy, the administration appears yet to fully grasp that the hip bone’s connected to the thigh bone, the thigh bone’s connected to the knee bone, the knee bone’s connected to the ankle bone, etc.  When you restrict imports (in the immediate case, imports of Mexican trucking services), you restrict exports.

The rising economic and political costs of the truck ban suggest that something’s going to have to give soon.  By amplifying the stakes, the Mexicans are right to hasten that day.

Mexican Retaliation for U.S. Truck Ban is Proper is a post from Cato @ Liberty - Cato Institute Blog

In his State of the Union address this year, President Obama announced a goal of doubling U.S. exports in five years.  The “National Export Initiative” has since become the centerpiece of his administration’s trade policy, complete with its own Executive Order, organizational structure, and dedicated website.

Although I would be happy to see exports double in five years, I am skeptical of efforts to enshrine that goal as a national imperative.  I worry that Five Year Plans and the setting of export targets puts the United States on the slippery slope to industrial policy, which is being touted nowadays with growing vim and vigor by columnists, politicians and other analysts who wish the United States were more like China.

But the economic straight jacket of industrial policy is not an imminent outcome of the NEI.  And some of the reforms under consideration are sensible.  For example, efforts to clarify, simplify, and streamline U.S. export control procedures are likely to reduce regulatory obstacles and spur meaningful export growth without imposing new burdens or diverting resources from elsewhere in the economy.  Likewise, the administration’s discovery of the virtues of passing the long-pending bilateral trade agreements with South Korea, Colombia, and Panama could lead to the reduction or elimination of artificial barriers to U.S. exports in a variety of economic sectors.

But while we might rejoice in export-led economic growth, the National Export Initiative suffers from myopia, as it institutionalizes public misperceptions about how trade bestows its benefits on consumers and businesses.  Just take a look at the program’s eight focus priorities:

(a) Exports by Small and Medium-Sized Enterprises (SMEs). Members of the Export Promotion Cabinet shall develop programs, in consultation with the TPCC, designed to enhance export assistance to SMEs, including programs that improve information and other technical assistance to first-time exporters and assist current exporters in identifying new export opportunities in international markets.
(b) Federal Export Assistance. Members of the Export Promotion Cabinet, in consultation with the TPCC, shall promote Federal resources currently available to assist exports by U.S. companies.
(c) Trade Missions. The Secretary of Commerce, in consultation with the TPCC and, to the extent possible, with State and local government officials and the private sector, shall ensure that U.S. Government-led trade missions effectively promote exports by U.S. companies.
(d) Commercial Advocacy. Members of the Export Promotion Cabinet, in consultation with other departments and agencies and in coordination with the Advocacy Center at the Department of Commerce, shall take steps to ensure that the Federal Government’s commercial advocacy effectively promotes exports by U.S. companies.
(e) Increasing Export Credit. The President of the Export-Import Bank, in consultation with other members of the Export Promotion Cabinet, shall take steps to increase the availability of credit to SMEs.
(f) Macroeconomic Rebalancing. The Secretary of the Treasury, in consultation with other members of the Export Promotion Cabinet, shall promote balanced and strong growth in the global economy through the G20 Financial Ministers’ process or other appropriate mechanisms.
(g) Reducing Barriers to Trade. The United States Trade Representative, in consultation with other members of the Export Promotion Cabinet, shall take steps to improve market access overseas for our manufacturers, farmers, and service providers by actively opening new markets, reducing significant trade barriers, and robustly enforcing our trade agreements.
(h) Export Promotion of Services. Members of the Export Promotion Cabinet shall develop a framework for promoting services trade, including the necessary policy and export promotion tools.

Beside the amorphous, bureaucratese task descriptions — and the fact that several of the eight priorities seem to be redundant (really, what are the substantive differences between priorities (b), (c), (d), and (h)?) — the NEI systemically neglects a broad swath of opportunities to facilitate exports because it only contemplates the export-oriented activities of exporters.  It’s as if the administration believes that U.S. exporters are born exporters and never experience life as producers or as consumers of input.  It’s as if they incur no costs until their goods reach foreign ports — after which they face a gauntlet of taxes, regulations, and other barriers abroad.

The NEI enshrines the fallacy that it is exclusively foreign-borne obstacles that inhibit U.S. export potential, when it should be obvious that U.S. policies also undermine U.S. competitiveness.  Before U.S. companies are exporters, they are producers.  And as producers of goods, they are consumers of capital equipment, industrial components, other raw materials, energy, capital and labor.  And as consumers of all of those inputs, our producers face a host of U.S. taxes, tariffs, regulations, mandates, and other U.S. government-imposed impediments that reduce their competitiveness at home, and as exporters.  If the administration wants to get serious about doubling U.S. exports by 2015, everything should be on the table.  The scope of potential reforms should be broadened to include policies that affect the pre-export activities of U.S. exporters.

Otherwise, what’s the point of squandering resources on “export promotion,” “federal export assistance,” “trade missions,” or “commercial advocacy” when the exporters in question are getting hammered as manufacturers by U.S. policies that limit their access to imported materials?  What’s so great about the Secretary of Commerce accompanying prospective U.S. exporters of magnesium die-cast auto parts on a marketing trip to Asia when the cost structures of those companies are uncompetitive because antidumping restrictions render the U.S. price of magnesium more than double the world price?

U.S. producers account for over half of the value of U.S. imports, which means there is great potential to increase their competitiveness by improving their access to imports.  It also explains the strong correlation between imports and exports, between imports and GDP, and between imports and job growth — facts that too many politicians wish to expunge from the record.  But during the depths of the recent recession, both the Mexican and Canadian governments moved decisively to cut tariffs across the board on industrial inputs and capital equipment in an effort to make their producers more competitive.

The Obama administration, as part of the NEI, should press Congress to take a similar initiative to increase U.S. competitiveness by eliminating tariffs on all industrial inputs — not just those “non-controversial” tariff items in the Manufacturing Enhancement Act (also known as the Miscellaneous Tariff Bill) that just passed both chambers of Congress — for the purpose of making U.S. manufacturers more competitive.

Furthermore, the NEI should include a strong effort to compel Congress to change the U.S. antidumping and countervailing duty laws to require the International Trade Commission to consider the impact of trade restrictions on downstream U.S. industries.  Under the current statutes, the ITC is forbidden from considering such impact even though most of the approximately 300 existing U.S. antidumping and countervailing duty orders restrict imports of upstream raw materials and other industrial inputs required by downstream U.S. industries.  That statutory bias clearly undermines U.S. export competitiveness, particularly since downstream, consuming industries are much more likely to export than are firms in those industries that seek relief under the trade remedies laws.

Let’s change the name to the National “Economic” Initiative and make its mission the elimination of all political impediments in the international supply chain.

The Half-a-Loaf National Export Initiative is a post from Cato @ Liberty - Cato Institute Blog

In honor of World Trade Week—and for its decreed purpose of educating Americans about trade—this post is about U.S. trade policy working at cross-purposes with other policies or goals of the administration. So numerous are these examples of trade policy dissonance, that a committed wonk could devote an entire website to the task of documenting them.

If the administration were serious about making trade policy work—rather than just paying it lip service—it would compile its own exhaustive list of laws, regulations, policies, and practices that actually undermine its stated objectives of facilitating economic growth, investment, and job creation through expanded trade opportunities. Then, it would make the changes necessary to ensure that our policies are paddling in the same direction. But that is not happening—at least as far as I can see.

At the beginning of the year, President Obama announced his goal of doubling U.S. exports in five years. He even formalized the goal by granting it an official name—the National Export Initiative. Well, I see no imminent harm in setting the ambitious goal of reaching $3 billion in exports by 2015 (although I am wary of the tactics under consideration and the evocation of Soviet Five-Year Plans). But it betrays a lack of true commitment to that goal when nothing is being done to reduce the competitive burdens imposed on U.S. exporters by our own myopic, anachronistic trade remedies regime. The president exhorts U.S. exporters to win a global race, yet he overlooks the fact that Congress has tied many of their shoes together.

The costs of the U.S. Antidumping and Countervailing Duty laws on U.S. exporters are manifest in various forms, but this post concerns the burdens imposed on U.S. producer/exporters who rely on the raw materials and other industrial inputs that are subject to AD and CVD measures. Indeed, most of the products subject to the 300 U.S. AD and CVD orders currently in effect (like steel and chemicals) are, in fact, inputs to downstream U.S. producers, many of whom compete (or try to compete) in foreign markets. (Just take a look at this list and decide for yourself whether these are products that you’d buy at the store or if they are inputs a U.S. producer would use to produce something else that you might buy at a store.)

AD and CVD duties squeeze these U.S. producer/exporters’ profits, first by raising their input costs and then by depriving them of revenues lost to foreign competitors, who, by producing outside of the United States, have access to that crucial input at lower world-market prices, and can themselves price more competitively. This is not hypothetical. It is a routine hindrance for U.S. exporters. And one that has eluded the president’s attention, despite his soaring rhetoric about the economic importance of U.S. exports.

Consider the case of Spartan Light Metal Products, a small Midwestern producer of aluminum and magnesium engine parts (and other mechanical parts), which presented its story to Obama administration officials, who were dispatched across the country earlier this year to get input from manufacturers about the problems they confronted in export markets.

Beginning in the early-1990s, Spartan shifted its emphasis from aluminum to magnesium die-cast production because magnesium is much lighter and more durable than aluminum, and Spartan’s biggest customers, including Ford, GM, Honda, Mazda, and Toyota were looking to reduce the weight of their vehicles to improve fuel efficiency. Among other products, Spartan produced magnesium intake manifolds for Honda V-6 engines; transmission end and pump covers for GM engines; and oil pans for all of Toyota’s V-8 truck and SUV engines.

Spartan was also exporting various magnesium-cast parts (engine valve covers, cam covers, wheel armatures, console brackets, etc.) to Canada, Mexico, Germany, Spain, France, and Japan. Global demand for magnesium components was on the rise.

But then all of a sudden, in February 2004, an antidumping petition against imports of magnesium from China and Russia was filed by the U.S. industry, which comprised just one producer, U.S. Magnesium Corp. of Utah with about 370 employees. Prices of magnesium alloy rose from slightly more than $1 per pound in February 2004 to about $1.50 per pound one year later, when the U.S. International Trade Commission issued its final determination in the antidumping investigation. By mid-2008, with a dramatic reduction of Chinese and Russian magnesium in the U.S. market, the U.S. price rose to $3.25 per pound (before dropping in 2009 on account of the economic recession).

By January 2010, the U.S. price was $2.30 per pound, while the average price for Spartan’s NAFTA competitors was $1.54. Meanwhile, European magnesium die-casters were paying $1.49 per pound and Chinese competitors were paying $1.36 per pound. According to Spartan’s presentation to Obama administration officials, magnesium accounts for about 40-60% of the total product cost in its industry. Thus, the price differential caused by the antidumping order bestowed a cost advantage of 19 percent on Chinese competitors, 17 percent on European competitors, and 16 percent on NAFTA competitors.

As sure as water runs downhill, several of Spartan’s U.S. competitors went out of business due to their inability to secure magnesium at competitive prices. According to the North American Die Casting Association, the downstream industry lost more than 1,675 manufacturing jobs–more than five-times the number of jobs that even exist in the entire magnesium producing industry!

Spartan’s  outlook is bleak, unless it can access magnesium at world market prices. Its customers have turned to imported magnesium die cast parts or have outsourced their own production to locations where they have access to competitively-priced magnesium parts, or they’ve switched to heavier cast materials, sacrificing ergonomics and fuel efficiency in the face of rapidly-approaching, federally-mandated 35.5 mile per gallon fuel efficiency standards.

And to add insult to injury, the Obama administration recently launched a WTO case against China for its restraints on exports of raw materials, including magnesium. Allegedly, since January 2008, the Chinese government has been imposing a 10 percent tax on magnesium exports. How dissonant, how incongruous, how absolutely imbecilic it is that, in the face of China’s own restraints on its exports (which the U.S. government officially opposes), the U.S. antidumping order against imported magnesium from China persists!  How stupid.  How short-sighted.

Spartan’s is not an isolated incident. Routinely, the U.S. antidumping law is more punitive toward U.S. manufacturers than it is to the presumed foreign targets. Routinely, U.S. producers of upstream products respond to their customers’ needs for better pricing, not by becoming more efficient or cooperative, but by working to cripple their access to foreign supplies. More and more frequently, that is how and why the antidumping law is used in the United States. Increasingly, it is a weapon used by American producers against their customers—other American producers, many of whom are exporters.

If President Obama really wants to see exports double, he must implore Congress to change the antidumping law to explicitly give standing to downstream industries so that their interests can be considered in trade remedies cases. He must implore Congress to include a public interest provision requiring the U.S. International Trade Commission to assess the costs of any duties on downstream industries and on the broader economy before imposing any such duties.

The imperative of U.S. export growth demands some degree of sanity be restored to our business-crippling trade remedies regime.

U.S. Antidumping Regime Restrains U.S. Export Growth is a post from Cato @ Liberty - Cato Institute Blog

What does the Greco-Euro currency/debt crisis mean for the U.S. economy?

Nearly everyone except the uniquely wise economist John Cochrane assumes very bad “contagion” effects –on U.S. banks, exports and particularly U.S. manufacturing.

This echoes identical anxieties while the world went through a far more dramatic Asian currency crisis after  July 1997,  and a Russian debt crisis the following May.

The most widely ignored effect of that crisis, however, was to depress foreign demand for oil, and thus slash oil prices to U.S. buyers from $25 a barrel in early 1997 to $11 by the end of 1998.

Oil is a major input into the manufacturing process (e.g., chemicals and plastics), and a major cost of distribution (trucks, trains and airplanes).  It is also a major determinant of the cost of all energy sources used in making other goods such as aluminum and paper.   When marginal costs go down, it becomes profitable to expand production.

At the height of the Asian/Russian crises, the table below shows that U.S. manufacturing output  rose by more than 10 percent. It’s an ill wind that doesn’t blow somebody some good.

Looking at the same phenomenon from the other side, every recession but one (1960) was preceded by a big increase in the price of oil. For oil importers like the U.S., cheaper oil is definitely better.

During the last big foreign currency/debt crisis, the real growth of U.S. Gross Domestic Purchases (the home-grown portion of GDP) jumped by 4.7% in 1997 and 5.5% in 1998.  Yet the Fed cut interest rates three times in October and November of 1998 because of what was happening in other countries.

The table  show what happened to the price of oil and to U.S. manufacturing from June 1997 to December 1998. The middle column is the price of a barrel of West Texas crude, and the column to the right is the U.S. industrial production index for the manufacturing sector.

1997-06    19.17    87.80
1997-07    19.63    88.12
1997-08    19.93    89.69
1997-09    19.79    90.45
1997-10    21.26    90.98
1997-11    20.17    92.05
1997-12    18.32    92.52
1998-01    16.71    93.36
1998-02    16.06    93.31
1998-03    15.02    93.13
1998-04    15.44    93.68
1998-05    14.86    94.25
1998-06    13.66    93.53
1998-07    14.08    92.96
1998-08    13.36    95.40
1998-09    14.95    95.11
1998-10    14.39    95.96
1998-11    12.85    96.08
1998-12    11.28    96.63

In recent weeks, as the debt and currency problems in Euroland hit the front page, the price of crude oil fell by about 20 percent.

Once again, as in 1997-98, everyone may be watching the wrong ball in the wrong court.

The Good Side of Bad News in Europe is a post from Cato @ Liberty - Cato Institute Blog

President Obama has committed his administration to the ambitious goal of doubling U.S. exports in the next five years. I don’t believe the government should be setting such targets—the rate of growth of U.S. exports should be left to the marketplace—but I am all for the administration seeking ways to expand the freedom of U.S. companies to sell in global markets.

In the “Economic Watch” column of the Washington Times today, I suggest six policy changes that will help American producers sell more of their goods and services abroad. None of them involve subsidies, threats of sanctions, or other government involvement.

Among my suggestions: enact into law the three free-trade agreements that have already been negotiated, repeal the trade embargo against Cuba, keep trade peace with China, and set a good example by keeping the U.S. market open.

If I could have added another suggestion (alas, space in a real newspaper is limited), it would be to issue more visas for trade delegations visiting the United States. Under misguided notions of national security, we make it more difficult than it should be for delegations from China and other  markets to visit the United States to inspect U.S. goods offered for sale. But like the other suggestions, this one is politically challenging as well.

If the president wants to boost exports, he will need to show the necessary leadership to remove the government-imposed barriers that still remain.

Seven (Free-Market) Ways to Boost U.S. Exports is a post from Cato @ Liberty - Cato Institute Blog

The U.S.-China Business Council has performed a valuable public service by marshalling state-by-state figures on exports to China. In its annual survey, released this morning, the USCBC documents that 19 states exported $1 billion or more in 2009 to China, which is now the third largest market for U.S. exports.

In a statement accompanying the report, the USCBC noted that exports to China declined only slightly in 2009, compared to a 20 percent plunge in exports to the rest of the world. Top U.S. exports to China last year were computers and electronics, agricultural products, chemicals, and transportation equipment.

The USCBC figures tend to undercut complaints that China’s currency policies have stymied U.S. exports to that country. In fact, as I argued in an op-ed in the Los Angeles Times last week, since 2005, U.S. exports to China have been growing three times faster than our exports to the rest of the world.

There is agreement across the spectrum that the Chinese government should continue to move toward a more flexible, market-priced currency. But the export numbers do not give any support to the critics who want to threaten sanctions against China. In fact, as I concluded in my op-ed:

If the Obama administration hopes to double U.S. exports in the next five years, as the president announced in his State of the Union address, it should praise China for its growing appetite for U.S. goods and services, not threaten it with trade sanctions. Any company hoping to double its sales in the next five years would be foolish to pick a needless fight with one of its best customers.

19 U.S. States Sold $1 Billion or More in China in 2009 is a post from Cato @ Liberty - Cato Institute Blog

During his SOTU address last week, the president declared it a national goal to double our exports over the next five years.  As my colleague Dan Griswold argues (a point that is echoed by others in this NYT article), such growth is probably unrealistic. But with incomes rising in China, India and throughout the developing world, and with huge amounts of savings accumulated in Asia, strong U.S. export growth in the years ahead should be a given—unless we screw it up with a provocative enforcement regime.

The president said:

If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules.

Ah, the enforcement canard!

One of the more persistent myths about trade is that we don’t adequately enforce our trade agreements, which has given our trade partners license to cheat.  And that chronic cheating—dumping, subsidization, currency manipulation, opaque market barriers, and other underhanded practices—the argument goes, explains our trade deficit and anemic job growth.

But lack of enforcement is a myth that was concocted by congressional Democrats (Sander Levin chief among them) as a fig leaf behind which they could abide Big Labor’s wish to terminate the trade agenda.  As the Democrats prepared to assume control of Congress in January 2007, better enforcement—along with demands for actionable labor and environmental standards—was used to cast their opposition to trade as conditional, even vaguely appealing to moderate sensibilities.  But as is evident in Congress’s enduring refusal to consider the three completed bilateral agreements with Colombia, Panama, and South Korea (which all exceed Democratic demands with respect to labor and the environment), Democratic opposition to trade is not conditional, but systemic.

The president’s mention of enforcement at the SOTU (and his related comments to Republicans the following day that Americans need to see that trade is a two way street — starts at the 4:30 mark) indicates that Democrats believe the fig leaf still hangs.  It’s time to lose it.

According to what metric are we failing to enforce trade agreements?  The number of WTO complaints lodged? Well, the United States has been complainant in 93 out of the 403 official disputes registered with the WTO over its 15-year history, making it the biggest user of the dispute settlement system. (The European Communities comes in second with 81 cases as complainant.)  On top of that, the United States was a third party to a complaint on 73 occasions, which means that 42 percent of all WTO dispute settlement activity has been directed toward enforcement concerns of the United States, which is just one out of 153 members.

Maybe the enforcement metric should be the number of trade remedies measures imposed?  Well, over the years the United States has been the single largest user of the antidumping and countervailing duty laws.  More than any other country, the United States has restricted imports that were determined (according to a processes that can hardly be described as objective) to be “dumped” by foreign companies or subsidized by foreign governments. As of 2009, there are 325 active antidumping and countervailing duty measures in place in the United States, which trails only India’s 386 active measures.

Throughout 2009, a new antidumping or countervailing duty petition was filed in the United States on average once every 10 days.  That means that throughout 2010, as the authorities issue final determinations in those cases every few weeks, the world will be reminded of America’s fetish for imposing trade barriers, as the president (pursuing his “National Export Initiative”) goes on imploring other countries to open their markets to our goods.

Rather than go into the argument more deeply here, Scott Lincicome and I devoted a few pages to the enforcement myth in this overly-audaciously optimistic paper last year, some of which is cited along with some fresh analysis in this Lincicome post.

Sure, the USTR can bring even more cases to try to force greater compliance through the WTO or through our bilateral agreements.  But rest assured that the slam dunk cases have already been filed or simply resolved informally through diplomatic channels.  Any other potential cases need study from the lawyers at USTR because the presumed violations that our politicians frequently and carelessly imply are not necessarily violations when considered in the context of the actual rules.  Of course, there’s also the embarrassing hypocrisy of continuing to bring cases before the WTO dispute settlement system when the United States refuses to comply with the findings of that body on several different matters now.  And let’s not forget the history of U.S. intransigence toward the NAFTA dispute settlement system with Canada over lumber and Mexico over trucks.  Enforcement, like trade, is a two-way street.

And sure, more antidumping and countervailing duty petitions can be filed and cases initiated, but that is really the prerogative of industry, not the administration or Congress.  Industry brings cases when the evidence can support findings of ”unfair trade” and domestic injury.  The process is on statutory auto-pilot and requires nothing further from the Congress or president. Thus, assertions by industry and members of Congress about a lack of enforcement in the trade remedies area are simply attempts to drum up support for making the laws even more restrictive.  It has nothing to do with a lack of enforcement of the current rules.  They simply want to change the rules.

In closing, I’m happy the president thinks export growth is a good idea.  But I would implore him to recognize that import growth is much more closely correlated with export growth than is heightened enforcement.  The nearby chart confirms the extremely tight, positive relationship between export and imports, both of which track similarly closely to economic growth.

U.S. producers (who happen also to be our exporters) account for more than half of all U.S. import value.  Without imports of raw materials, components, and other intermediate goods, the cost of production in the United States would be much higher, and export prices less competitive.  If the president wants to promote exports, he must welcome, and not hinder, imports.

Time to Lose the Trade Enforcement Fig Leaf is a post from Cato @ Liberty - Cato Institute Blog

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.

Considering that more than half of the value of all U.S. imports in a typical year is raw materials and intermediate goods (i.e., inputs for producers operating in the United States, who employ people, transact with other businesses, and pay taxes in the United States), the number of U.S. victims of U.S. import taxes is much larger than one can ever glean from a typical media account. Taxes on Chinese-made ”Oil Country Tubular Goods” or OCTG (the subject in the article Perry edits), which are used for oil exploration and transport, will raise costs in the energy industry, which are likely to be passed onto consumers in the form of higher energy prices.

As described in this paper, trade is no longer a competition between “Us and Them.” There is competition between entities that—because of the proliferation of cross-border investment and transnational production and supply chains—often defy any meaningful national identification. But that competition is preceded by collaboration and cooperation between entities in different countries. The factory floor has broken through its walls and now spans borders and oceans—a fact that renders U.S. workers and workers in other countries complementary in more and more cases, and a fact that amplifies the cost of trade barriers.

But media—chained to the false “Us versus Them” paradigm—describe protectionist policies as actions taken by one national monolith against another, and convey the impression that American readers should be cheering for Team America. It is a worldview that conflates the well-being of “our producers” with some homogenized conception of “the national interest.” It is the same misguided scoreboard mentality that colors reporting of the trade account, where exports are deemed “good” and imports “bad.”  And, it is this simplistic, misleading characterization that, in my opinion, is most responsible for withering public opinion about trade and globalization over the past decade.

I look forward to more of Dr. Perry’s editing projects.

Mainstream Media’s Trade Gap is a post from Cato @ Liberty - Cato Institute Blog

That is one of the conclusions in my new paper, “Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete.”

For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the “national interest.” Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between “our” producers and “their” producers and speak to a long chain of interdependent economic interests between product conception and consumption.

Still, trade policy places the interests of domestic producers above all else even though the definition of a domestic producer is elusive and even though actions on behalf of producers often harm interests along the product continuum, which include engineers, designers, financiers, processors, assemblers, marketers, shippers, retailers, consumers, and others.

In 2008, foreign nameplate automobile producers, employing American workers, paying American taxes, and supporting American businesses, communities, and charities, accounted for almost half of all U.S. light vehicle production. The largest “U.S.” steel producer, Arcelor-Mittal, is a majority-Indian-owned company with headquarters in Luxembourg and Hong Kong. The largest “German” producer, Thyssen-Krupp, is completing a $3.7 billion green-field investment in steel production facilities in Alabama, which will create an estimated 2,700 jobs in that state.

So, who are “we”? And who are “they”?

Are these foreign-named or –headquartered companies not “our” producers because some of the profits they earn are repatriated or invested in operations outside the United States? If so, then shouldn’t we consider U.S. Steel Corporation, which earned 25 percent of its revenue last year on steel produced in Slovakia and Serbia, and General Motors, which has had success producing and selling cars in China, to be “their” producers? Why should U.S. Steel, General Motors, and the unions that organize workers at those companies dictate the parameters of U.S. trade policy, while Toyota, Thyssen and their non-union workers have no input? Why should trade policy reflect a bias in favor of producers—or worse, particular producers—at all? That bias hurts other interests—both foreign-based and domestic—in the supply chain.

Global commerce isn’t a competition between “us” and “them.” It is instead a competition between entities that defy national identification because of cross-border investment or because the final good or service comprises value added from many different countries. This reality demands openness in both directions, which flies in the face of conventional trade policy wisdom, which seeks to maximize access for domestic producers abroad while minimizing access for foreign producers at home.

It is only for simplicity’s sake that a container full of iPods shipped from China and unloaded in Seattle registers as imports from China. But the fact is that only a few dollars of the $150 cost to produce an iPod is Chinese value-added. The rest is mostly value attributable to Japanese, Korean, Singaporean, Taiwanese, and American components and labor. Then iPods retail for about $300 and most of the mark-up accrues to Apple, which uses the profits to support innovation and higher paying jobs in the United States.

From a trade policy perspective, each iPod imported from China adds $150 to our bilateral deficit in “high tech” goods. It is regarded as a problem to solve. The temptation is to restrict.

But from a commercial perspective, each imported iPod supports U.S. economic activity up the value chain. Without access to lower-cost labor abroad—if rudimentary component manufacturing and assembly operations were required to take place in the United States—ideas hatched in American labs would be far less likely to make it beyond the white board. Much higher costs would make it far more difficult to create these ubiquitous devices that have, in turn, spawned new ideas and industries.

Essentially, the factory floor has broken through its walls and today spans borders and oceans, making Chinese and American labor complementary in this and many other industries. Yet, despite all of this integration, despite the reliance of producers in the United States and abroad on imported raw materials, components, and capital equipment, trade policy still pretends that access to the domestic market is a favor to grant or a privilege to revoke. Trade policy is officially ignorant of commercial reality.

Openness to trade in both directions is an imperative in the 21st century. Policies that do not try to channel incentives for the benefit of specific groups but rather provide the greatest opportunities for citizens to participate most effectively in our increasingly integrated global economy are the ones that will maximize economic growth and national welfare. People in other countries should be thought of more as customers, suppliers, and potential collaborators instead of competitive threats.

In the 21st century, instead of serving the exclusive interests of domestic producers, trade policy should be about welcoming investment and attracting and cultivating the human capital necessary to make the United States the location of choice for the world’s highest value economic activities.

Is Trade Policy Obsolete? is a post from Cato @ Liberty - Cato Institute Blog

According to a Washington Post story today, “the weak dollar is one problem the United States loves to have.” The story reports how the fall of the dollar against the euro and other currencies in the past year has boosted U.S. exports and discouraged imports, cutting the trade deficit and allegedly boosting the U.S. economy. A weaker dollar has spurred complaints in Europe and elsewhere, but here at home the Post story leaves the impression the approval is practically unanimous.

Nowhere in the 1,058-word story is the impact on consumers ever mentioned. But it is American consumers who pay the biggest price when the dollars we earn buy less on global markets. We are paying more for oil, which not coincidentally has zoomed toward $80 as the dollar flounders. A weaker dollar means higher prices than we would pay otherwise for a range of goods, from imported shoes and clothing to food, that loom large in the budgets of American families struggling to make ends meet in this difficult economy.

Ignoring consumer interests is widespread in reporting about trade. It reflects the strong bias of elected officials to see trade issues strictly through the lens of producers and never consumers. After all, it is producers who form trade groups and hire lobbyists to promote their exports or protect themselves from imports. Nobody in Washington represents the diffused, disorganized but much more numerous 100 million American households.

The dollar’s value should be set by markets, and I have no reason to believe the dollar is over- or undervalued. But pardon me if I dissent from the consensus that a falling dollar is unambiguously good news.

Ask Consumers if They Like a Weak Dollar is a post from Cato @ Liberty - Cato Institute Blog

The latest U.S. trade numbers were released this morning, and the news reports so far have predictably focused on the fact that the U.S. trade deficit in March expanded modestly compared to February.

The real story behind the numbers, however, is that U.S. imports and exports continue to decline. Compared to the month before, U.S. exports of goods fell another $3.0 billion, while imports fell by $1.6 billion.

If we go back a full year, the drop in trade is staggering. Between March of 2008 and March of 2009, U.S. exports of goods and services fell by 17 percent, and imports fell an even steeper 27 percent. As a result, the goods and services deficit is less than half of what it was a year ago.

Critics of trade such as CNN’s Lou Dobbs are always harping that if we could only reduce our dependence on imports, and along with it the trade deficit, Americans would enjoy higher wages and more plentiful jobs.

Well, we’ve managed in the past year to reduce imports by more than a quarter and cut the trade deficit by more than half. Are we feeling any better?

Good News! Recession Cuts Trade Deficit in Half! is a post from Cato @ Liberty - Cato Institute Blog