The Antidumping Lobby’s Power to Destroy Jobs
President Obama claims to support America’s exporting and so-called “green jobs” industries, but he also likes rules that restrict the importation of critical inputs to those industries. Austin Bragg and I produced a short video detailing how antidumping duties serve to nudge American manufacturers offshore or out of business. The examples we cite are American manufactured products that fall squarely into the category of “green.”
Facebook it. Tweet it. And read more of Dan Ikenson‘s heavy lifting on the antidumping issue here, here and here.
Eight Questions for Protectionists
When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.
But based on all the speeches and media interviews I do, which periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.
So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.
1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?
As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.
2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?
This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.
3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?
Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).
4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?
There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.
5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?
If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies – big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.
6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?
Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.
7. If you don’t like taxes, why would you like taxes on imports?
A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.
8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?
Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.
We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by the Institute for Humane Studies.
My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.
Ron Paul Talks Sense on Trade
Presidential Candidate Ron Paul has a decidedly mixed record on trade policy. He often votes against trade agreements because he sees them as “managed trade” and an interference with true free trade. Well, ok, but that’ s like voting against income tax cuts because you think the IRS shouldn’t exist. I get the point, but c’mon…
In any event, he was the only participant in Thursday night’s debate between the Republican presidential candidates who spoke about trade with any sense at all. As Inside US Trade [subscription required] points out, trade policy was not a prominent theme of the debate, but that didn’t stop Mitt Romney from (again) spouting nonsense about balanced trade:
Former Massachusetts governor Mitt Romney late last week took a swipe at the trade policies of the Obama administration in a debate of the Republican presidential candidates by implying they are unbalanced in favor of other nations.
As part of a seven-point list of actions to turn around the economy, Romney said the U.S. should “have trade policies that work for us, not just for our opponents,” as the third point…
(I’ll just interject here to say that by “opponents” I believe Mr Romney is referring to our trade partners. You know, the folks who sell us stuff and buy stuff from us. But I digress…)
Trade was only raised one other time during the debate. Prompted by a moderator, Rep. Ron Paul (R-TX) defended his earlier criticism of Obama’s sanctions against Iran for its nuclear program.
Saying it was “natural” that Iran would pursue nuclear weapons—given that India, Pakistan, China, and Israel also possess them—Paul attacked the sanctions policy as steering the U.S. toward conflict.
“Countries that you put sanctions on, you are more likely to fight them,” he said. “I say a policy of peace is free trade. Stay out of their internal business.”
Paul also suggested it was time for the U.S. to engage in a trading relationship with Cuba and “stop fighting these wars that are about 30 or 40 years old,” an apparent reference to the Cold War. [emphasis added]
(My friend Scott Lincicome has more on the economic illiteracy flowing from the debate here)
Mr Paul is right on this one. He and I no doubt disagree on a few issues, and on trade I have more tolerance than he does for multilateral (and, albeit to a lesser extent, bilateral and regional) trade agreements as the only likely avenues for trade liberalization in the foreseeable future. But the link between trade and peace is an important one, and often overlooked.
Speaking of Ron Paul, the following clip shows Jon Stewart at his devastating best, calling out the mainstream media—and particularly Fox News—for ignoring and/or outright mocking Ron Paul’s candidacy. Watch to the very end, you won’t regret it. (HT: RadleyBalko)
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Indecision 2012 – Corn Polled Edition – Ron Paul & the Top Tier | ||||
|
||||
Dirty Deal Done Not So Dirt Cheap
Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, Rep. Dave Camp (R-MI)*, chairman of the House Ways and Means Committee, and the White House have just announced that they have made a deal to extend Trade Adjustment Assistance (TAA, the program that extends extra unemployment and health care benefits to workers who lose their jobs because of globalization) until 2013, as part of a broader deal that would see passage of the three outstanding preferential trade agreements with Korea, Colombia, and Panama. The extension of TAA would be included in the legislation to implement the US-Korea Free Trade Agreement, “improved” (i.e., made less liberalizing) by the administration in December.
Interestingly and alarmingly, because implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees. This solution was first aired publicly last week, and my friend, trade lawyer (and former Cato-ite) Scott Lincicome pointed out then that raising customs user fees is probably against WTO rules (not to mention counterproductive to the goal of liberalizing trade):
“[C]ustoms fees” are simply hidden taxes on import consumers. A quick review of the US Customs website on “customs users fees” makes this clear. They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation. And those higher costs, of course, are eventually passed on to American consumers through higher import prices.
Thus, pursuant to the bi-partisan deal outlined above, the FTAs’ great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!
…[I]t would [also] probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees). The key provision of Article VIII reads:
1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.
WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees. In these cases, the panels have ruled that Article VIII’s requirement that a customs fee be “limited in amount to the approximate cost of services rendered” is actually a “dual requirement,” because the charge in question must first involve a “service” rendered, and then the level of the charge must not exceed the approximate cost of that “service.” They’ve also found that the term “services rendered” means “services rendered to the individual importer in question,” and that the fees cannot be imposed to raise revenue (i.e., for “fiscal purposes”).[emphasis in original]
Inflation Expert
Who knows more about inflation, Richard Galanti or Ben Bernanke? I maintain that, when it comes to the facts, Mr. Galanti knows more than the Fed chairman. Galanti is the CFO of Costco Wholesale Corp.
The Wall Street Journal reported last Thursday (May 26th) on a conference call with Mr. Galanti. He said “we saw quite a bit of inflationary pricing” in the 3rd quarter.
Price increases occurred in a broad range of products” dry dog food (3.5%). Detergents (10%+), plastic products (8-9%). Costco will “hold prices as long as we can.” When it can no longer, the consumer will face rising prices.
Costco is a good leading indicator of inflation at the retail level. It turns over inventory quickly, and is leading other retailers in restocking at higher prices. Costco offers a forward-looking view of consumer price inflation.
Meanwhile the Fed and its chairman, Ben Bernanke, rely on backward looking measures of inflation, like the CPI. That index, and the “core” component that excludes food and energy prices, overweight the depressed housing sector. And they are yesterday’s news.
For years, American consumers have benefitted from cheap imports from China and India. When those countries liberalized and opened up to global commerce, Americans got the benefit of the hard work and low wages of 2 ½ billion workers. The era of cheap labor is coming to an end, and with it the flood of imports that held down prices in the U.S. Especially in China, wage rates are rising rapidly.
Heretofore, the flood of dollars has chiefly affected asset prices and inflation in other countries. The flow through to U.S. consumer prices will now be quicker. You’ll experience it when you go to Costco to restock.
Antidumping and Bedroom Furniture from China: The Real Story
The Washington Post ran a story in yesterday’s print edition about the U.S. antidumping order against Wooden Bedroom Furniture from China—a case I described seven years ago as the “Poster Child for [Antidumping] Reform” because its sordid details explode the myths upon which rest the rationalizations for the law’s existence.
Those details are nowhere to be found in the WP article, which was published, presumably, to make a few other points. One such point—the only one with which I agree—is that antidumping duties aren’t very effective at restoring or preserving U.S. jobs. As the article demonstrates, since the imposition of AD duties on Chinese furniture beginning in 2005, imports from Vietnam, Indonesia, and other countries not subject to the AD restrictions have emerged to fill the vacuum created by declining imports from China. Not much news in that, though. This kind of trade diversion is a typical consequence of antidumping restrictions. Likewise, furniture production and the jobs it used to support has not undergone a renaissance in the United States – despite that being the rallying cry of the domestic producers who brought the case in 2004. (More on that in a moment.)
But the article—beginning with its title (“Chinese Make a Run Around U.S. Tariffs”)—leads readers to the faulty conclusion that those cunning Chinese are at it again, looking for ways to prosper at the expense of innocent, upstanding U.S. producers and their workers. A pretty good tip-off that an article about China and trade is going to miss the mark, mislead, and misinform is when the author describes trade as a contest between two countries with the trade account characterized as a scoreboard.
The United States and China have exchanged accusations of dumping for years and imposed tit-for-tat duties. All along, though, China has generally come out on top: Its trade surplus with the United States rose to $273 billion in 2010…more than three times the level of a decade earlier.
Is the reader to conclude, then, that more antidumping measures against Chinese products are integral to reducing the trade deficit and, ultimately, “com[ing] out on top”? That conclusion doesn’t really dovetail with the point about how antidumping does nothing to restore U.S. production. But I digress.
The main problem with the article is that it escorts readers to the incorrect conclusion that it was Chinese furniture producers who initiated efforts to get around the U.S. antidumping duties. Implied throughout the article is that a man named Lawrence Yen, president of a Chinese furniture company, was the architect of some crafty plan to avoid U.S. duties. It reports that during a meeting of Chinese furniture makers in Dongguan: “[Yen] told them [he] would set up a factory in Vietnam,” which was presented in the article as though it were the idea’s genesis. The caption to the inset chart of furniture imports in the article reads:
To avoid a 2005 U.S. tariff on Chinese-made wooden bedroom furniture, Chinese furniture companies moved operations to other Asian countries, thwarting U.S. efforts to curb “dumping,” the export of goods at unfairly low prices.
This presentation of events may serve the clichéd theme that Americans are in a pitched battle with the Chinese, who are willing to stretch and break the rules to “win,” but it fails to give readers critical parts of the story. The fact is that this strategic tariff aversion plan, which is as legal and common as off-the-shelf tax minimization software at Best Buy, was the brainchild of the U.S. domestic furniture industry before it filed the case in 2004.
Finally, a Breakthrough on the Colombia Trade Agreement
To no great surprise, the Obama administration announced today that it has cut a deal with the government of Colombia to address concerns about labor protections and to finally move toward enacting the long-stalled free-trade agreement between our two countries. This is welcome news for trade expansion and for strengthening our ties to a key Latin American ally.
Colombian President Juan Manuel Santos is expected to arrive later this week in Washington to cement the deal. In exchange for the agreement, Colombia has reportedly agreed to expand its efforts to protect union members from violence and to more vigorously prosecute those responsible.
As my Cato colleague Juan Carlos Hidalgo and I documented in a Cato study earlier this year, concerns about labor protections were never a valid reason for holding up this agreement. The overall murder rate in Colombia has declined dramatically in the past decade, and the murder rate against members of labor unions has declined even more rapidly. A union member in Colombia today is one-sixth as likely to be a victim of homicide as a fellow citizen who does not belong to a union. Meanwhile, the Colombia government has increased convictions for homicides against union members by eight-fold in the past three years.
As Democratic Senators John Kerry and Max Baucus pointed out in an op-ed this week that endorsed the agreement, the International Labor Organization has certified that Colombia is complying with its international labor agreements.
The obstacle of labor violence was just a political smokescreen that had been raised by labor-union leaders in the United States looking for any shred of an argument to oppose the agreement. Even the agreement announced this week is not going to win over the AFL-CIO. The Colombia government could have raised a hundred murdered union members from the dead, and organized labor in American would still chant that not enough was being done.
The breakthrough this week clears the path for Congress to approve, by what I predict will be comfortable bipartisan majorities, the pending trade agreements with Colombia, Panama, and South Korea.
What’s Wrong with Imported Oil?
In a speech today at Georgetown University, President Obama called for a goal of cutting America’s oil imports by one-third within a decade. Like all efforts to wean Americans from big, bad imports, such a policy will mean we will all pay more than we need to for the energy that helps to power our economy.
I’ll leave it to my able Cato colleagues to dissect the president’s proposal in terms of energy policy, but in terms of trade policy, this is about as bad as it gets.
We Americans benefit tremendously from our relatively free trade in petroleum products. Like all forms of trade, the importation of oil produced abroad allows us to acquire it at a price far lower than we would pay if we had to rely more heavily on domestic oil supplies.
The money we save buying oil more cheaply on global markets allows our whole economy to operate more efficiently. Oil is the ultimate upstream input that virtually all U.S. producers use to make their final products, either in the product itself or for shipping. If U.S. manufacturers and other sectors are forced to pay sharply higher prices for petroleum products because of import restrictions, their final goods will cost more and will be less competitive in global markets. If households are forced to pay more for gasoline and heating oil, consumer will have less to spend on domestic goods and services.
The president talked in the speech about the goal of not being “dependent” on foreign suppliers, but most of our oil imports come from countries that are either friendly or at least not in any way an adversary. According to the U.S. Department of Commerce, one third of our oil imports in 2010 came from our two closest neighbors and NAFTA partners, Canada and Mexico. Another third came from the problematic providers in the Arab Middle East and Venezuela (none from Iran, less than one-third of 1 percent from Libya.) The rest came from places such as Nigeria, Angola, Colombia, Brazil, Russia, Ecuador and Great Britain.
Even if, by the force of government, we could reduce our imports by a third, there is no reason to expect that the reduction would be concentrated in the problematic providers. In fact, oil is generally cheaper to extract in the Middle East, so a blanket reduction would probably tilt our imports away from our friends and toward our real and potential adversaries.
In one speech, the president has managed to state a policy goal that is bad trade policy, bad security policy, and bad foreign policy.
Allow More Latin American Students into the U.S.
As expected, President Obama’s speech on Latin America, given on Monday in Santiago, Chile, was full of rhetoric but short of substance. He briefly mentioned the willingness of his administration to “move forward” with the pending free trade agreements with Colombia and Panama, but didn’t say when he’s submitting them for a vote in Congress. He recognized (again) that drug consumption in the U.S. is fueling drug violence in Mexico and Central America, but stayed away from saying how his more-of-the-same policies will change anything.
Obama’s only tangible pledge was the announcement that his administration will work to increase the number of Latin American students in the U.S. to 100,000. This is laudable, but still unambitious. According to the Institute of International Education (IIE), last year there were already over 65,000 Latin Americans studying in this country. This poorly compares to other regions and countries. For example, South Korea alone has over 72,000 students in the U.S. Increasing the number of Latin Americans studying here to 100,000 would still leave the region behind China (127,628) and India (104,897). These countries each may have populations greater than that of Latin America, but, as President Obama said yesterday, Latin America and the U.S. share a common history, heritage and values. One would thus expect that the U.S. would be especially open to students from the region.
Of course, the number of Latin Americans studying here doesn’t depend exclusively on the United States. It depends mostly on the ability of people in the region to afford pursuing a degree in a U.S. college or university. However, it’s telling that, despite Latin America’s growing incomes, fewer people from the region come to the United States to study than a decade ago. The IIE shows that in the school year 2001/02 there were over 68,000 Latin Americans studying in the U.S. After 9/11, new visa requirements had a negative impact on the ability of Latino students to come to the United States.
President Obama should be commended for looking at an area where the U.S. can help Latin America. Still, the U.S. should be more welcoming to students from south of the border. The region is at an important stage in its road towards economic development, and having more U.S. educated Latin Americans can have a significant impact on the region’s fortunes. Just ask Chile’s Chicago Boys, for example.
American Manufacturing Continues to Thrive in a Global Economy
University of Michigan economist and American Enterprise Institute scholar Mark Perry has an excellent oped in today’s Wall Street Journal [$] about how U.S. manufacturing is thriving. It can’t be emphasized enough how important it is to present such illuminating, factual, compelling analyses to a public that is starved for the truth and routinely subject to lies, half-baked assertions, and irresponsibly outlandish claims about the state of American manufacturing.
The truth matters because U.S. trade and economic policies—your pocketbook—hang in the balance.
For more data, facts, and background about the true state of U.S. manufacturing, please see this Cato policy analysis and these opeds (one, two, three).
Krugman (Both of Them) on Competitiveness
When it became clear that President Obama would make “competitiveness” a theme of his SOTU address, I looked forward to seeing Paul Krugman’s statement pointing out how much nonsense that is. Here he is, after all, in his excellent 1997 book, Pop Internationalism (MIT Press):
…International trade, unlike competition among businesses for a limited market, is not a zero-sum game in which one nation’s gain is another’s loss. It is [a] positive-sum game, which is why the word “competitiveness” can be dangerously misleading when applied to international trade.
Sure enough, President Obama’s speech last night was peppered with references to “the competition for jobs,” “new jobs and industries take root in this country, or somewhere else, “the competion for jobs is real,” etc. And of course there was a healthy dose of the usual mercantalist obsession with exports.
Although written before the President’s address was delivered, what would Paul Krugman 2.0 think of this sort of talk? The title of his column Sunday was certainly encouraging: “The Competition Myth.” But the substance of the column went in a … er… different direction from that which I had anticipated/hoped:
…talking about “competitiveness” as a goal is fundamentally misleading. At best, it’s a misdiagnosis of our problems. At worst, it could lead to policies based on the false idea that what’s good for corporations is good for America…
So what does the administration’s embrace of the rhetoric of competitiveness mean for economic policy?
The favorable interpretation, as I said, is that it’s just packaging for an economic strategy centered on public investment, investment that’s actually about creating jobs now while promoting longer-term growth. The unfavorable interpretation is that Mr. Obama and his advisers really believe that the economy is ailing because they’ve been too tough on business, and that what America needs now is corporate tax cuts and across-the-board deregulation. [emphasis mine]
In other words, Krugman’s objections to the “competitiveness” rhetoric are based on his fear that it will lead to policies favorable to corporations, not that the whole concept is flawed.
[Disclaimer: the above is by no means an exhaustive analysis of the problematic parts of the column]
I yield to no-one in my admiration for Paul Krugman, trade economist. He made a real contribution to the discipline I’ve loved since I was a teenager. But Paul Krugman, columnist…not so much.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
