Imports Wrongly Blamed for Unemployment
Import competition can throw Americans out of work. Even advocates of free trade like me will readily acknowledge that fact. And nobody needs to remind the people of Hickory, North Carolina.
On the front page of the Washington Post this morning, under the headline, “In N.C., damage not easily mended: Globalization drives unemployment to 15% in one corner of state,” the paper reports in detail how the people of that community are struggling to adjust to a more open U.S. economy:
The region has lost more of its jobs to international competition than just about anywhere else in the nation, according to federal trade-assistance statistics, as textile mills have closed, furniture factories have dwindled and even the fiber-optic plants have undergone mass layoffs. The unemployment rate is one of the highest in the nation–about 15 percent.
Nobody wants to lose their job involuntarily, but a story like this needs to be read in perspective. As I document in my new Cato book Mad about Trade, the large majority of Americans who lose their jobs each year are not displaced by trade. Technology is the great job disruptor, but Americans also lose their jobs because of domestic competition, changing consumer tastes, and recessions.
For every person who loses their job because of globalization, I estimate there are 30 who have lost their jobs for other reasons. I’m waiting for a front-page story on all the newspaper workers who have lost their jobs because of the Internet, or the 30,000 workers laid off by Kodak in the past 5 years because of the spread of digital cameras and plunging film sales, or the book stores and record stores that have shut down and laid off workers because of Amazon.com and iTunes.
Trade is not a cause of higher unemployment nationwide, either, as the Post story seems to imply. Imports have fallen sharply during the latest recession along with the trade deficit. In contrast, imports were rising at double-digit rates when the unemployment rate was below 5 percent. Like technology, trade can put people out of work, but it also creates new and generally better paying opportunities for employment, while raising our overall standard of living.
A Globalized Reading List
If you are looking for a good book on globalization and trade, an excellent source of ideas is the book review section of the Yale Center for the Study of Globalization. The site features excerpts and reviews of the latest books covering all aspects of the subject.
I have an understandable soft spot for the latest posting, on my new Cato book titled Mad about Trade: Why Main Street America Should Embrace Globalization.
Filed under: International Economics and Development; Trade and Immigration
The Tire Tariff and the Invertebrate President: A Fable
Anyone still inclined to minimize the meaning of President Obama’s Chinese tire tariff decision should read George Will’s column today.
It is not only the direct costs of this particular decision, which are numerous and tallied in the article (and in this paper), that should concern us. Will’s bigger concern is the foreshadowing of more protectionism from a president who has proven to have no qualms about looking straight into other people’s eyes and claiming that his administration opposes protectionism, favors free trade, and is working to advance pending trade agreements through Congress, all while remaining “invertebrate as he invariably is when organized labor barks.”
Is this a sign of schizophrenia? No, it’s worse. What we have here is a president who views trade policy as nothing more than a tool to advance his own political standing with groups that are hostile to commerce. Since groups on the left have grown disenchanted that some of the most socialist elements of the health care debate might be left on the cutting room floor, why not try to placate them with anti-business, anti-consumer, anti-globalization protectionism? Will makes the link between tire tariffs and the health care debate in his concluding sentence.
A president who fancies himself economically enlightened and internationalist would treat trade policy as a means to promoting economic growth and sound foreign relations. This president, regrettably, views trade policy as a sacrificial pawn in the service of politics as usual.
Congress to Lift the Travel Ban to Cuba?
Bloomberg News reports today that the U.S. House may pass a bill by the end of the year lifting the almost five-decade-old ban on travel to Cuba by American citizens. The step is long overdue. According to the article:
A group of House and Senate lawmakers proposed in March ending restrictions to allow all U.S. citizens and residents to travel to Cuba. [Rep. Sam Farr, a California Democrat] said the legislation, known as the “Freedom to Travel to Cuba Act,” also has enough votes to clear the Senate, where Senator Byron Dorgan, a North Dakota Democrat, and Republican Senator Michael Enzi of Wyoming introduced the legislation.
As Rep. Farr succinctly added, “If you are a potato, you can get to Cuba very easily, but if you are a person, you can’t, and that is our problem.”
I rebut a lot of what Sen. Dorgan has said about free trade and globalization in my new book, Mad about Trade, but on the issue of the Cuban embargo and travel ban, Sen. Dorgan and most of his fellow Democrats are pushing in the right direction, while most Republicans still vote to maintain our failed policies. For more on why the travel ban and embargo should be lifted, read my speech at Rice University in 2005.
Here is one issue where those of use who support less government and more economic freedom really can hope for progressive change.
Trade Delivers Peace and Bargain Prices
For a fair and authoritative (and did I mention favorable?) assessment of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, you can read William H. Peterson’s review in today’s Washington Times.
Dr. Peterson is an adjunct scholar with the Heritage Foundation and the Ludwig von Mises Institute who holds a Ph.D. in economics from New York City University. In his review he writes:
Daniel Griswold’s tour de force explores, reasons and documents how import competition benefits the American consumer, seeing him move ahead toward greater peace incentives, lower real prices, more choices, better quality. Mr. Griswold also tracks how the big-box retailers such as Wal-Mart, Home Depot and Best Buy deliver the world’s goods mostly by sea via millions of big, truckload-size containers. …
So Mr. Griswold would have the United States adopt or maintain trade policies best for most Americans, especially the poor and middle class, no matter what other nations do. Says the author: Let’s drop the remaining barriers separating us from ongoing growth and peace policies enhancing the global marketplace. Bully for him.
Information at the beginning of the review should have given the cover price of the book as $21.95. It is available with a nice discount at Amazon.com along with a peek inside at the table of contents and selected pages.
Obama’s Tire Tariff Could Raise Prices by 20 to 30 Percent
President Obama’s decision to impose a 35 percent tariff on imported tires from China was not an act of statesmanship. The White House admitted as much by announcing its decision at 10 p.m. on Friday evening in order to minimize news coverage.
A few union leaders are cheering, but in just about every other way our country is worse off. Among the biggest losers will be low-income American families. The tariffs apply to lower-end tires that sell for $50 or $60 each, compared to $200 for higher-end tires. As The Wall Street Journal reported this morning:
The low end of the market will feel the impact of the tariff most, as U.S. manufacturers, who joined the Chinese in opposing the tariffs, have said it isn’t profitable to produce inexpensive tires in domestic plants.
“I think within the next 60 days you’ll see some pretty significant price increases,” said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for “entry-level” tires could increase 20% to 30%.
The anti-poor bias of U.S. tariffs is one of the themes of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization. With his decision Friday, President Obama has revealed himself to be a friend of the status quo.
Filed under: International Economics and Development; Trade and Immigration
Thursday Links
- Michael Tanner on the Obama health care speech: All sizzle, no substance.
- Why Main Street should embrace globalization. Plus, why international trade doesn’t cause unemployment at home.
- Should the IRS have the right to share your tax information with foreign governments? How about totalitarian ones? It may not be so far off.
- Libertarian news anchor John Stossel leaving ABC for Fox.
- Podcast- Obama: Hey, lets force everyone to have insurance, and fine Americans who don’t comply.
A Flat Tire for Low-Income Drivers?
Will the President raise taxes on new tires?
President Obama will need to decide any day now whether to impose tariffs on lower-end automobile tires imported from China. As my colleague Dan Ikenson has ably argued, the decision will tell us much about whether the president believes trade policy should serve the general interest of all Americans, or whether it is simply a political tool to satisfy key constituencies.
Neglected in the news coverage of the pending decision is the impact it could have on consumers. The imported tires targeted by this Section 421 case are of the cheaper variety, the kind that low-income Americans would buy to keep their cars on the road during a recession. If the president decides to impose tariffs, his union supporters will cheer, but “working families’ will find it more difficult to keep their cars running safely.
A central theme of my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, is that import competition is a working family’s best friend, especially imports from China. As I write in an excerpt published in today’s Washington Examiner,
Imports from China have delivered lower prices on goods that matter most to the poor, helping to offset other forces in our economy that tend to widen income inequality. …
Imposing steep tariffs on imports from China would, of course, hurt producers and workers in China, but it would also punish millions of American consumers through higher prices for shoes, clothing, toys, sporting goods, bicycles, TVs, radios, stereos, and personal and laptop computers.
We will see shortly if President Obama will punish low-income Americans who drive.
Obama Administration Sides With Special Interests and Status Quo on Sugar Imports
Pardon me while I pile on the post earlier today by my colleague Sallie James about the Obama administration refusing to allow more sugar to be imported to the United States. The U.S. Department of Agriculture this week declined to relax the quotas the federal government imposes on imported sugar despite soaring domestic prices and understandable complaints from U.S. confectioners and other sugar-consuming businesses about potential shortages.
For all his talk about change, President Barack Obama has shown no inclination to pursue meaningful reform of U.S. agricultural programs. He supported the subsidy-laden and protectionist farm bill that finally passed Congress in 2008. On the eve of the U.S. presidential election in October 2008, he wrote a letter to the U.S. sugar industry reminding growers that they were one special interest that had nothing to fear from an Obama administration.
In his letter, he offered the sugar lobby this assurance:
With respect to the sugar program specifically, while it’s true I have had concerns about the program, I will commit to listening and working with you in the future to ensure that we have a safety net that works for all of agriculture.
He then went on to criticize his opponent John McCain for opposing the farm bill and voting consistently against the sugar program (or, as Obama put it, “against sugar growers”).
In my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, I call the sugar program “the poster boy for self-damaging protectionism.” As I write in the book,
When the program is not raising prices for consumers at the store, it is savaging the bottom line for American companies. Artificially high domestic sugar prices raise the cost of production for refined sugar, candy and other confectionary products, chocolate and cocoa products, chewing gum, bread and other bakery products, cookies and crackers, and frozen bakery goods. Higher costs cut into profits and competitiveness, putting thousands of jobs in jeopardy.
If the president is looking for good bedtime reading on why he should dump the sugar program, I suggest he go straight to pages 147, 154-55, 160-62, and 170-72.
Is Buying an iPod Un-American?
We own three iPods at my house, including a recently purchased iPod Touch. Since many of the iPod parts are made abroad, is my family guilty of allowing our consumer spending to “leak” abroad, depriving the American economy of the consumer stimulus we are told it so desperately needs? If you believe the “Buy American” lectures and legislation coming out of Washington, the answer must be yes.
Our friends at ReasonTV have just posted a brilliant video short, “Is Your iPod Unpatriotic?” With government requiring its contractors to buy American-made steel, iron, and manufactured products, is it only a matter of time before the iPod—“Assembled in China,” of all places—comes under scrutiny? You can view the video here:
In my upcoming Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, I talk about how American companies are moving to the upper regions of the “smiley curve.” The smiley curve is a way of thinking about global supply chains where Americans reap the most value at the beginning and the end of the production process while China and other low-wage countries perform the low-value assembly in the middle. In the book, I hold up our family’s iPods as an example of the unappreciated benefits of a more globalized American economy:
The lesson of the smiley curve was brought home to me after a recent Christmas when I was admiring my two teen-age sons’ new iPod Nanos. Inscribed on the back was the telling label, “Designed by Apple in California. Assembled in China.” To the skeptics of trade, an imported Nano only adds to our disturbingly large bilateral trade deficit with China in “advanced technology products,” but here in the palm of a teenager’s hand was a perfect symbol of the win-win nature of our trade with China.
Assembling iPods obviously creates jobs for Chinese workers, jobs that probably pay higher-than-average wages in that country even though they labor in the lowest regions of the smiley curve. But Americans benefit even more from the deal. A team of economists from the Paul Merage School of Business at the University of California-Irvine applied the smiley curve to a typical $299 iPod and found just what you might suspect: Americans reap most of the value from its production. Although assembled in China, an American company supplies the processing chips, a Korean company the memory chip, and Japanese companies the hard drive and display screen. According to the authors, “The value added to the product through assembly in China is probably a few dollars at most.”
The biggest winner? Apple and its distributors. Standing atop the value chain, Apple reaps $80 in profit for each unit sold—an amount higher than the cost of any single component. Its distributors, on the opposite high end of the smiley curve, make another $75. And of course, American owners of the more than 100 million iPods sold since 2001—my teen-age sons included—pocket far more enjoyment from the devices than the Chinese workers who assembled them.
To learn a whole lot more about how American middle-class families benefit from trade and globalization, you can now pre-order the book at Amazon.com.
Canada and Jefferson’s Natural Progress
Thomas Jefferson famously opined that “the natural progress of things is for liberty to yield and government to gain ground,” but Canada has bucked that gloomy forecast in recent years. As my co-authored op-ed in the Washington Post yesterday showed, Canada has:
- Cut government spending
- Cut government debt
- Balanced its budget consistently
- Pre-funded its version of Social Security to make it solvent
- Decentralized power within its federation of provinces
- Cut taxes, particularly corporate taxes
Meanwhile, the United States has headed in the opposite direction in each of these policy areas. Consider further that Canada has other economic policy advantages over the increasingly uncompetitive welfare state to its south:
- Canada has more liberal immigration policies for highly skilled workers than does the United States, which has added greatly to the entrepreneurial vibrancy of Canada’s economy.
- Canada has long had a stable, efficient, and competitive financial sector, which avoided the government-assisted meltdown that occurred in the United States.
- Canada has a home ownership rate as high as the United States, yet it does not have a distortionary mortgage interest tax deduction.
- Canada recently implemented large Roth IRA style savings accounts, which are much more flexible than the U.S. version.
- The Canadian federal capital gains tax rate is 14.5 percent, which compares to the current 15 percent in the United States and 20 percent under Obama’s tax plan.
- Canada has no federal ministry or department of education. The K-12 schools are the sole responsibility of the provinces, yet Canadian kids generally do better than American kids on international tests.
- In recent years, Canada has probably been more supportive of NAFTA, and free trade in general, than its main trading partner, the United States.
Major pro-market reforms are possible in advanced welfare states — Jefferson can be proven wrong, as Canada illustrates. U.S policymakers can prove Jefferson wrong as well. They can start by cutting spending, decentralizing power out of Washington, and making pro-growth tax reforms in response to globalization, as Canada has, rather than imposing self-defeating “Buy America” provisions and making childish rants about “corporations moving jobs offshore.”
Filed under: International Economics and Development; Tax and Budget Policy
Globalization and Tax Reform
Despite the recession, globalization continues to exert pressure for beneficial tax reforms. From Tax Notes International today:
Jordanian Finance Minister Bassem al-Salem on April 20 confirmed that the government is working on draft legislation that would cut corporate tax rates drastically, reducing them in some cases by more than half.
Al-Salem said the government will seek to introduce a single 12 percent tax rate for most corporate entities, although companies in the banking, insurance, and mining sectors would pay tax at a rate of 25 percent. The current corporate tax rates range from 15 percent to 35 percent for different profit levels and also differ by business sector.
The draft legislation would also rationalize individual income tax, custom duties, and other taxes to increase efficiency, al-Salem said. Jordan has about 100 different taxes.
Al-Salem said the tax cuts are needed because many countries in the region either don’t have taxes at all or have much lower tax rates than Jordan’s, making them more attractive jurisdictions for investment.
The full story on taxation and globalization is here.
Filed under: International Economics and Development; Tax and Budget Policy
New Podcast: ‘El Salvador’s Choice’
El Salvador is becoming an economic success story in Central America, says Cato scholar Juan Carlos Hidalgo.
Since 1992, the country has undertaken an aggressive program of liberalization that has transformed its economy and yielded major improvements in various socioeconomic areas. In a new study, Hidalgo explains how El Salvador “is showing the rest of the region how economic freedom can pave the way for development and how globalization offers great opportunities for developing countries that are willing to implement a coherent set of mutually supportive market reforms.”
In today’s Cato Daily Podcast, Hidalgo explains how despite recent economic reforms, next week’s election in El Salvador could end with a government that has great admiration for the policies of Hugo Chavez that would turn El Salvador away from market-based reforms.
A third of the [voting] population is under thirty. So that means many young voters don’t remember El Salvador as it was during the early 1990’s… Young people have trouble paying for their cell phone bills, have trouble paying their gas bills and have trouble paying for tuition in colleges. What they don’t remember is fifteen years ago they didn’t have cars, their parents didn’t have cars, their parents didn’t have any cell phones and their parents lived in shanty towns….
…Even though they talk about emulating the socialist revolution in Venezuela, they haven’t been explicit about dismantling democratic institutions in El Salvador.
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