One hopes that the dictator of North Korea suffered greatly before he died. After all, his totalitarian and communist (pardon the redundancy) policies have cause untold death and misery.

But let’s try to learn an economics lesson. In a previous post, I compared long-term growth in Hong Kong and Argentina to show the difference between capitalism and cronyism.

But for a much more dramatic comparison, look at the difference between North Korea and South Korea.

Hmmm… I wonder if we can conclude that markets are better than statism?

And if you like these types of comparisons, here’s a post showing how Singapore has caught up with the United States. And here’s another comparing what’s happened in the past 30 years in Chile, Argentina, and Venezuela.

The Brutal Impact of North Korean Statism is a post from Cato @ Liberty - Cato Institute Blog

North Korea’s “Dear Leader” Kim Jong-il is dead. There is now no prospect of negotiating and implementing a new nuclear agreement with the North in the near future. The so-called Democratic People’s Republic of Korea is likely to be consumed with a power struggle which could turn violent. Washington’s best policy option is to step back and observe.

After his stroke three years ago, Kim anointed his youngest son, Kim Jong-un, as his successor. However, the latter Kim has had little time to establish himself. The previous familial power transfer to Kim Jong-il took roughly two decades. There are several potential claimants to supreme authority in the North, and the military may play kingmaker.

Some observers hope for a “Korean Spring,” but the DPRK’s largely rural population is an unlikely vehicle for change. Urban elites may want reform, but not revolution. If a North Korean Mikhail Gorbachev is lurking in the background, he will have to move slowly to survive.

During this time of political uncertainty no official is likely to have the desire or ability to make a deal yielding up North Korea’s nuclear weapons. The leadership will be focused inward and no one is likely to challenge the military, which itself may fracture politically.

Nor is China likely to play a helpful role. Beijing views the status quo as being in its interest. Above all else, China is likely to emphasize stability, though it may very well attempt to influence the succession process outside of public view. But China does not want what America wants, preferring the DPRK’s survival, just with more responsible and pliable leadership.

Washington can do little during this process. The United States should maintain its willingness to talk with the North. American officials also should engage Beijing over the future of the peninsula, exploring Chinese concerns and searching for areas of compromise. For instance, Washington should pledge that there would be no American bases or troops in a reunited Korea, which might ease Beijing’s fears about the impact of a North Korean collapse.

Most important, the Obama administration should not rush to “strengthen” the alliance with South Korea in response to uncertainty in the North. The Republic of Korea is well able to defend itself. It should take the steps necessary to deter North Korean adventurism and develop its own strategies for dealing with Pyongyang. America should be withdrawing from an expensive security commitment which no longer serves U.S. interests.

Kim Jong-il imposed unimaginable hardship on the North Korean people. However, what follows him could be even worse if an uncertain power struggle breaks down into armed conflict. Other than encourage Beijing to use its influence to bring the Kim dynasty to a merciful end, the United States can—and should—do little more than watch developments in the North.

North Korea: Kim Jong-il’s Death and the Coming Succession Struggle is a post from Cato @ Liberty - Cato Institute Blog

The AP and others are reporting that North Korean leader Kim Jong-Il has died at the age of 70. This has long been expected, but what comes next is unclear. The best case scenario would be a smooth transition to new leadership, one that is committed to opening up North Korea’s ossified political system and reforming its decrepit economy. That is unlikely, however. If a power struggle ensues, the North Korean people will be caught in the middle. The countries with the most at stake in the event of a complete collapse of the DPRK — especially South Korea and China — should take the lead in helping the North Koreans to sort out their future.

Kim Jong-il Is Dead is a post from Cato @ Liberty - Cato Institute Blog

Three issues are likely to dominate the talks this week between President Obama and South Korean President Lee Myung-bak. On the economic front, the two leaders will emphasize the extensive potential benefits of the bilateral free trade agreement.

On the security front, there will be considerable discussion of both North Korea’s nuclear-weapons program and the future of the U.S.-South Korean alliance. Unfortunately, leaders of the two countries are locked into increasingly obsolete and dysfunctional policies with respect to both issues. New thinking on those security matters is badly needed.

Seoul and Washington routinely contend that they will not tolerate North Korea having a nuclear arsenal. But other than the long-standing attempt to isolate Pyongyang internationally, U.S. and South Korean officials present no plausible strategy for preventing Kim Jong-il’s regime from expanding its nuclear capabilities. The much-touted six-party talks clearly have not worked. Moreover, without China’s active cooperation to deny crucial food and energy aid to North Korea (and there is no indication that Beijing is willing to take that step), North Korea cannot be truly isolated. Obama and Lee need to consider the possibility of learning to live with a nuclear North Korea, since the current U.S.-South Korean strategy for dealing with the nuclear issue is hopelessly ineffectual.

Policy regarding the bilateral security alliance is no better. Predictably, Lee and Obama will reaffirm the importance of that alliance. But from the standpoint of American interests, this commitment makes little sense. The principal effect of Washington’s security blanket for South Korea is to enable that country to shamelessly free-ride on America’s military exertions. Despite being located next to perhaps the most dangerous and unpredictable country in the world—Kim Jong-il’s North Korea—South Korea continues to spend an anemic 2.5 percent of its gross domestic product on defense. That is woefully inadequate, and the only reason Seoul can get away with such irresponsible behavior is that South Korean leaders believe they can rely on the United States to take care of their country’s security—at the expense of American taxpayers.

That arrangement was dubious even when South Korea was a weak, traumatized country facing a North Korea strongly backed by both the Soviet Union and Communist China. Today, South Korea is a wealthy country, and Moscow and Beijing regard North Korea as an embarrassment, not a crucial ally.

President Obama should inform Lee that an America whose government is hemorrhaging red ink at the rate of $1.5 trillion a year can no longer afford to subsidize the defense of free-riding allies—especially those that are perfectly capable of providing for their own defense. This summit meeting creates an opportunity for Washington to begin phasing-out the obsolete military alliance with South Korea.

Obama-Lee Summit: Time for New Thinking on the Korean Peninsula is a post from Cato @ Liberty - Cato Institute Blog

Almost a thousand days into his term, President Obama has at last submitted the trade agreements with South Korea, Colombia, and Panama for an up or down vote in Congress.

All three agreements appear to have majority support in both the House and the Senate. Organized labor is putting up its usual anti-free-trade fight against all three, with AFL-CIO boss Richard Trumka coming out swinging in a Politico op-ed this week. He makes the standard union argument that Colombia is an unworthy free-trade partner because of ongoing violence against union members in that country.

In a Free Trade Bulletin earlier this year, my Cato colleague Juan Carlos Hidalgo and I examined the commercial benefits of the agreement with Colombia as well as the hollowness of the union charge. In the past decade, Colombia has made tremendous progress against violence in general, and especially violence aimed at union members. In fact, as we write in the FTB:

The statistics on the number of killings against union members vary depending on the source, with the figure from the government’s Ministry of Social Protection being lower than that of the National Union School (ENS for its acronym in Spanish), a Colombian nongovernmental organization affiliated with the labor movement. However, both sources show a steep decline in the number of killings since 2001. Moreover, when compared with the total number of homicides in the country, killings of union members clearly have dropped at a faster rate than those of the general population (see Figure 1).

Critics of the FTA fail to recognize that violent crime affects all levels of Colombian society, not only trade unions. What is more, the statistics show that union members enjoy more security than the population at large.

Looking at the homicide rate as defined by the number of murders per 100,000 inhabitants, the rate for the total population in 2010 was 33.9 per 100,000, whereas the rate for union killings was 5.3 per 100,000 unionists that same year (using the statistics of the ENS). That means that the homicide rate for the overall population is 6 times higher than that for union members.

Having just returned from a speaking trip last week to Medellín, Colombia, I can vouch that, after a difficult period of battling Marxist guerrillas and drug cartels, Colombia has once again become a normal country with a growing economy. Medellín is a bustling, business-oriented city with the usual challenges of traffic congestion. The students I spoke with at EAFIT University seemed eager for closer ties with the United States, and they do not understand why it has taken almost five years since the signing of the agreement for Congress to schedule a vote on it.

As I explained in an interview with the city’s leading newspaper (conducted in English, but translated here in Spanish), the politicians in Washington have run out of excuses for not establishing free trade between our two countries.

[Our Cato colleague Doug Bandow made the case for a trade agreement with South Korea in a study we released last year.]

Finally, a Vote on the Three Trade Agreements 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

On Monday, a group of 41 Senate Democrats, led by Sen. Debbie Stabenow (MI) sent a letter to President Obama, praising his administration’s recent decision to abandon its erstwhile promotion of the three pending trade deals as “job creators” and instead warn Congress it won’t submit the pacts for a vote unless they can be assured that a stimulus-enhanced version of trade adjustment assistance will be renewed.

The letter contains much about the benefits of the program, with little mention of its costs to taxpayers and even less concern shown for the innocent consumers whose pockets have been picked for decades to maintain the jobs lost when trade is allowed to flow more freely. That’s pretty standard fare for protectionists, who rely on the hidden and dispersed nature of the costs to get support for their policies. What’s new about this situation is the ratchet effect — the base TAA program is still in place, so what they are asking for is a renewal of part of the stimulus as a pre-condition for supporting trade liberalization. Note that the stimulus changes included a removal of the requirement that job losses be linked to a trade agreement (a feature, not a bug of the program, according to the Senators).

Wait, did I say a renewal of TAA-plus would be a pre-condition for supporting trade agreements? Not necessarily. Note this telling paragraph of the letter:

While we the undersigned may have differing views on elements of the trade agenda – with some of us looking forward to supporting the pending trade agreements with South Korea, Colombia, and Panama, and others skeptical of the impact of the agreements -we are unified in our belief that the first order of business, before we should consider any FTA, is securing a long-term TAA extension.  [emphasis added]

As I’ve said repeatedly, I understand (even if I don’t support) the political calculation that TAA is necessary — and worth it– if it secures votes for trade liberalization. But reading between the lines, some of the letter signers have no intention voting for the trade agreements, even if the mega-TAA is approved.  What we have here is a reversal of the grand bargain on trade liberalization, that gave extra welfare to workers who lost their job because of freer trade in exchange for support for trade agreements that lowered trade barriers. That ‘grand bargain’ has been tenuous for years now, of course — witness the complete lack of movement on the trade agreements even after the 2009 enhancement of TAA, at least until recent months. But now, rather than using TAA to buy votes for trade liberalization, the administration and their allies appear to using pretty-much-assured votes for trade liberalization to buy TAA. As a Wall Street Journal editorial said on Friday, it’s extortion.

TAA Reversal on Grand Bargain is a post from Cato @ Liberty - Cato Institute Blog

• Osama bin Laden’s death gives us a chance to end what might have become an era of permanent emergency and perpetual war.
• The Cold War ended–what are we doing in Korea?
• Two cheers for President Obama for ending eight (well, three) tax breaks to oil companies.
• Does Osama bin Laden’s death mean an end to U.S.-Pakistan relations?
• Please join us next Tuesday, May 10 at 4:00 p.m. Eastern for a Cato Book Forum on America’s Allies and War: Kosovo, Afghanistan, and Iraq, by University of Mary Washington political scientist Jason W. Davidson. Council on Foreign Relations senior fellow and Georgetown University international relations professor Charles Kupchan will join Professor Davidson in a discussion of the book and its themes, particularly U.S. relations with NATO allies, moderated by Cato director of foreign policy studies Christopher A. Preble. Complimentary registration is required of all attendees by Monday, May 9 at noon Eastern. We hope you can join us in person, but we encourage you to watch online if you cannot attend personally.

Wednesday Links is a post from Cato @ Liberty - Cato Institute Blog

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.

Finally, a Breakthrough on the Colombia Trade Agreement is a post from Cato @ Liberty - Cato Institute Blog

Fear of war has become a new constant for the Korean peninsula.  On Monday South Korea initiated a military exercise in the Yellow Sea and North Korea threatened to retaliate.  Seoul went ahead without any response from the North, but the region retains the feel of a bomb with an unstable fuse.

In the short term Washington has no choice but to uphold its alliance obligations to the South.  However, Pyongyang’s increasingly erratic behavior offers a dramatic reminder of the most important cost of the unilateral security guarantee:  the threat of war.

The alliance was created at a different time in a different world—1953, after the conclusion of a war which had devastated the peninsula.  Only U.S. military support preserved South Korea’s independence.  Since then the South has developed economically and is well able to protect itself.  The U.S. should begin turning over defense responsibilities to Seoul, with an expeditious withdrawal of all American troops.  The defense treaty, with America’s promise to forever guard the South, irrespective of circumstance, should be turned into a framework for future cooperation in cases of mutual interest.

The U.S. no longer can afford to maintain Cold War alliances as if the Cold War still existed.  Commitments like that to South Korea are expensive, since they drive America’s military budget.  More important, as we see in Northeast Asia, alliances also increase the possibility of war for the U.S.  It is time to update America’s military commitments to reflect today’s world.

Who Should Defuse the Korean Bomb? is a post from Cato @ Liberty - Cato Institute Blog

If you want to understand how global integration and cross-border investment have left U.S. trade policy in need of a new purpose, check out today’s Wall Street Journal article about the Apple iPhone’s complex production-supply chain.  (And then see this analysis for more depth and detail.) The story is both testament to the benefits of globalization and the latest indictment of a decrepit international trade flow accounting system that nourishes misleading trade skeptics and misinforms policy.

Following in the footsteps of a groundbreaking and widely-cited 2007 UC-Irvine study, which disaggregated the components of a Chinese-assembled Apple iPod and assigned its constituent value to the companies and countries responsible for their production, two researchers at the Asian Development Bank Institute applied a similar analysis to the Apple iPhone. Like the UC-Irvine iPod study before it, the ADBI analysis found that just a tiny fraction of the cost of producing the iPhone is Chinese value-added. The only Chinese input is labor, which is used to assemble the components manufactured in other countries. The value of that labor accounts for $6.50 or 3.6 percent of the total cost of $178.96 to produce an iPhone (about the same percentage as the iPod). The other 96.4 percent of that total is the cost of components produced (and the labor and overhead employed to produce those components) in Japan, Germany, South Korea, the United States, and several other countries. This breakdown is very similar to that found for the iPod in 2007, and the punch lines are identical.

While firms in Japan and Germany account for the most expensive parts (and quite obviously benefit from the advent of the iPhone), most of the value of the iPhone (like the iPod) accrues to Apple, which reaps the lion’s share of the approximately 100 percent markup. When iPhones sell for $399 in the United States, the difference between that retail price and the $178.96 cost of production goes to retailers, distributors, marketers, other firms in the supply chain, and to Apple, which distributes some earnings to its shareholders and retains some for research and development, supporting engineering and design jobs higher up the value chain so that the virtuous circle can continue.

Rather than appreciate how this complementary process harnesses the benefits of our globalized division of labor, some begrudge iPod and iPhone sales in the United States for adding to the bilateral trade deficit. Technically, for every $399 iPhone sold in the United States, the U.S. bilateral trade deficit with China increases by $178.96. Even though only $6.50 of that iPhone is Chinese value, under our antiquated, pre-globalization, method of tallying a nation’s imports and exports, the entire $178.96 is chalked up as an import from China because that was the product’s final point of assembly. According to the authors of the ADBI study, iPhones added $1.9 billion to the politically volatile U.S. trade deficit with China in 2009. Alas, this is the basis of the claim—popular among the most shameless trade critics—that America has a “high-tech” trade deficit with China.

Should we lament a trade deficit in iPhones or any other products assembled abroad, particularly when those products comprise U.S. value-added and support high-paying U.S. jobs? I think not.  As I wrote last year:

U.S. factories and workers are more likely to be collaborating with Chinese factories and workers in production of the same goods than they are to be competing directly. The proliferation of vertical integration (whereby the production process is carved up and each function performed where it is most efficient to perform that function) and transnational supply chains has joined higher value-added U.S. manufacturing, design, and R&D activities with lower-value manufacturing and assembly operations in China. The old factory floor has broken through its walls and now spans oceans and borders. Though the focus is typically on American workers who are displaced by competition from China, legions of American workers and their factories, offices, and laboratories would be idled without access to complementary Chinese workers in Chinese factories. Without access to lower-cost labor in places like Shenzhen, countless ideas hatched in U.S. laboratories—which became viable commercial products that support hundreds of thousands of jobs in engineering, design, marketing, logistics, retailing, finance, accounting, and manufacturing—might never have made it beyond conception because the costs of production would have been deemed prohibitive for mass consumption. Just imagine if all of the components in the Apple iPod had to be manufactured and assembled in the United States. Instead of $150 per unit, the cost of production might be multiple times that amount.

Consider how many fewer iPods Apple would have sold; how many fewer jobs iPod production, distribution, and sales would have supported supported; how much lower Apple’s profits (and those of the entities in its supply chains) would have been; how much lower Apple’s research and development expenditures would have been; how much smaller the markets for music and video downloads, car accessories, jogging accessories, and docking stations would be; how many fewer jobs those industries would support; and the lower profits those industries would generate. Now multiply that process by the hundreds of other similarly ubiquitous devices and gadgets: computers, Blu-Ray devices, and every other product that is designed in the United States and assembled in China from components made in the United States and elsewhere.

The Atlantic’s James Fallows characterizes the complementarity of U.S. and Chinese production sharing as following the shape of a “Smiley Curve” plotted on a chart where the production process from start to finish is measured along the horizontal axis and the value of each stage of production is measured on the vertical axis. U.S. value-added comes at the early stages—in branding, product conception, engineering, and design. Chinese value-added operations occupy the middle stages—some engineering, some manufacturing and assembly, primarily. And more U.S. value-added occurs at the end stages in logistics, retailing, and after-market servicing. Under this typical production arrangement, collaboration, not competition, is what links U.S. and Chinese workers.

The proliferation of cross border investment and global production-supply chains is a major reason the world averted a global trade war of 1930s proportions during and in the wake of the recession, as described in this paper; it explains why Chinese currency appreciation between 2005 and 2008 did not reduce the U.S. trade deficit with China during that period, and why Yuan appreciation, alone, going forward will have no discernible impact on the deficit in this paper; and, it explains why the world should rejoice in China’s becoming the world’s largest exporter in 2009, in this oped.

Global integration requires new thinking about trade statistics, which should be reported on a constituent value-added basis, if at all.  It also requires that trade policy get with the times and consist of goals that are not mired in the old  “Us” versus “Them” way of thinking.  Relying on old-fashioned trade statistics for 21st century policy decisions is a recipe for disaster.

Lies, Damned Lies, and Trade Statistics is a post from Cato @ Liberty - Cato Institute Blog

Where will the new Tea-Party-backed members of Congress come down on trade issues, such as the newly revised trade agreement with South Korea or the next farm bill?

Those elected to the House are the biggest question marks because very few of them have had to think much about trade, never mind actually cast a vote on it. In an op-ed in the Philadelphia Inquirer this week, I try to discern what direction the new members will take the generally pro-trade Republican Party, and which direction they should take it in light of the movement’s free-market, limited-government principles.

For my full take, see “Are Tea Partiers Anti-trade?”

Are Tea Partiers Anti-trade? is a post from Cato @ Liberty - Cato Institute Blog

The U.S. and South Korean governments have agreed to changes in the free trade agreement negotiated by the Bush administration. The president rightly lauded the FTA as a good deal for Americans:

“This agreement shows the U.S. is willing to lead and compete in the global economy,” the president told reporters at the White House, calling it a triumph for American workers in fields from farming to aerospace.”

Approving the FTA has taken on added urgency after the European Union negotiated a similar accord with the South. Once that agreement takes effect, Europeans would have better access than Americans to the world’s 13th largest economy. Protectionism is always foolish, but especially so when one’s competitors are promoting open markets.

The accord also offers important geopolitical benefits. With much nervousness in the U.S. and throughout East Asia over an increasingly assertive China, Washington should work to break down barriers to Americans trading with China’s neighbors. Already Koreans do more business with China than the U.S. While the FTA won’t reduce the appeal of products from next door China in South Korea, it will allow American producers to compete more freely in that market.

The president deserves credit for pushing the agreement forward, but he also needlessly held up ratification by two years. Moreover, his “fix” punishes American consumers. As the official government fact sheet explains:

Car Tariff Elimination: The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The 2010 supplemental agreement keeps the 2.5 percent U.S. tariff in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate that tariff in the fifth year.

Truck Tariff Elimination: The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.

That is, the Obama administration forced a delay in the reduction of U.S. auto tariffs. This obviously hurts Korean exporters, but the highest price will be paid by American consumers. The provision is simply a special interest payoff to the auto industry, which already has benefited from a big federal financial bail-out. So much for bringing “change” to Washington.

Free trade is good for Americans. That means bringing down foreign trade barriers. It also means bringing down U.S. trade barriers.

Promoting Free Trade–Sort Of is a post from Cato @ Liberty - Cato Institute Blog

Shortly after unveiling a new uranium enrichment facility, North Korea has shelled a disputed island held by the Republic of Korea.  A score of South Koreans reportedly were killed or wounded.

These two steps underscore the North’s reputation for recklessness.  Unfortunately, there is no easy solution: serious military retaliation risks full-scale war, while intensified sanctions will have no impact without China’s support.

Instead, the U.S. should join with the ROK in an intensive diplomatic offensive in Beijing.  So far China has assumed that the Korean status quo is to its advantage.  However, Washington and Seoul should point out that Beijing has much to lose if things go badly in North Korea.

The North is about to embark on a potentially uncertain leadership transition.  North Koreans remain impoverished; indeed, malnutrition reportedly is spreading.  With the regime apparently determined to press ahead with its nuclear program while committing regular acts of war against the South, the entire peninsula could go up in flames.  China would be burned, along with the rest of North Korea’s neighbors.

The U.S. also should inform Beijing that Washington might choose not to remain in the middle if the North continues its nuclear program.  Given the choice of forever guaranteeing South Korean and Japanese security against an irresponsible North Korea, or allowing those nations to decide on their own defense, including possible acquisition of nuclear weapons, the U.S. would seriously consider the latter.  Then China would have to deal with the consequences.

Beijing’s best option would be to join with the U.S. and South Korea in offering a package deal for denuclearization, backed by effective sanctions, meaning the cut-off of Chinese food and energy assistance.  Otherwise, Beijing might find itself sharing in a future North Korean nightmare.

Beijing Key in Controlling North Korea’s Recklessness is a post from Cato @ Liberty - Cato Institute Blog

This has been a tough month so far for President Obama and his policies.

After the “shellacking” that he, his party, and his domestic policies suffered at the hands of American voters last week, his international economic policies were no more popular among his counterparts at the G20 summit this week in Seoul, South Korea.

Even the sympathetic editors at the New York Times declared in a front-page (print edition) headline this morning: “Obama’s Economic View Is Rejected on World Stage: China, Britain and Germany Challenge U.S.—Trade Talks with Seoul Fail, Too.”

The other leaders at the summit were right to reject the president’s demands that China be singled out for its currency policies, as I’ve written before, and the South Korean government was right to reject his demands for changes in the U.S.-Korea trade agreement that has been waiting for more than three years for congressional approval.

Although not perfect, the U.S.-Korea agreement is a solid step forward. As my Cato colleague Doug Bandow wrote in a recent study, the agreement would sharply reduce trade barriers between our two nations while deepening our commercial and security ties with a key democratic ally in the Asian Pacific.

The Koreans rightly refused to substantially alter the sections of the agreement relating to automobiles. The agreement would eliminate tariffs on all automobile trade between the two countries. Ford, Chrysler, and the United Auto Workers union oppose the deal, claiming that it does not address non-tariff barriers that allegedly hinder U.S. exports to the Korean market.

As I posted in this space a few days ago, there are perfectly normal market reasons why Americans buy a lot more Korean cars than vice versa. The real agenda of Ford, Chrysler, and the UAW is not to gain greater access to the Korean market, but to prevent any greater access of their Korean competitors to the U.S. market.

The talks in Seoul this week reportedly foundered on the specific U.S. demand that Korea relax its emission and mileage standards so that U.S. automakers can more easily modify their cars for the Korean market. How ironic. It has become part of the Democratic mantra on trade that agreements must strengthen the environmental and labor standards of our trading partners. Yet here U.S. negotiators were strong-arming the Korean government to weaken its own standards while the Obama administration seeks to impose higher mileage and emission standards on cars sold in the United States.

There is still time to save the U.S.-Korea agreement and to present it to the potentially more trade-friendly Congress that will convene in January. But for now, President Obama has chosen to serve the narrow interests of two domestic automakers and their union rather than the overall economic and strategic interests of the American people.

President Obama Represents UAW Rather Than U.S. in Korea Trade Talks is a post from Cato @ Liberty - Cato Institute Blog

The next G20 Summit, to be held November 11-12 in South Korea, is right around the corner. For free traders, the summit has taken on added meaning because of the promise President Obama made during the most recent G20 Summit held last June in Toronto to advance the U.S.-Korea free trade agreement (FTA):

The last time I was in Korea, I said that I would be committed to moving [the FTA] forward. And today I indicated to President Lee that it is time that our United States Trade Representative work very closely with his counterpart from the ROK to make sure that we set a path, a road, so that I can present this FTA to Congress…. I want to make sure that everything is lined up properly by the time that I visit Korea in November. And then in the few months that follow that, I intend to present it to Congress. It is the right thing to do for our country.

We agree, Mr. President. To help policymakers understand the high stakes and potential gains of the agreement, Cato Senior Fellow Doug Bandow has authored the new Cato Trade Briefing Paper, “A Free Trade Agreement with South Korea Would Promote Both Prosperity and Security,” released today.

A preview of Doug’s analysis also was published yesterday in the Daily Caller, under the title “South Korea Free Trade Agreement Key to Prosperity and Security.”

Upcoming G20 Summit in Seoul Raises Stakes for U.S.-Korea Trade Deal is a post from Cato @ Liberty - Cato Institute Blog

National Journal‘s Paul Starobin asks at the National Security Experts blog “Are America’s Alliances Fraying?” Starobin notes that two normally reliable allies, Brazil and NATO member Turkey opposed an additional round of sanctions against Iran. Meanwhile, President Obama has failed to persuade Europeans to provide large numbers of troops to Afghanistan. “Is the ability of Washington to assemble coalitions on behalf of its global objectives starting to ebb?” Starobin asks. “Are our alliances fraying — and if so, why? Does this trend have to do with our flailing economy, with inept diplomacy, or with some other set of factors?”

Excerpts from my response:

It is hardly newsworthy when one of America’s allies bucks Uncle Sam. It has become an almost daily occurrence.

[...]

But just because the United States has had difficulty keeping its allies in line doesn’t mean that it can’t assemble a coalition to deal with common challenges. It all depends on whether the parties agree on the nature and severity of the threat, and on the best means for mitigating it. In this context, the multinational naval task force operating off the Horn of Africa has had great success beating back piracy in the region. The countries that choose to participate agree that piracy poses a threat to their commercial interests, and are willing to band together in a loose coalition — and not as part of a formal, permanent alliance — in order to deal with the challenge. Their contributions are generally consistent with their interests; the benefits seen as in line with the costs.

Alliances are no different, or, at least, they shouldn’t be. Alliances are supposed to be sustained by interests. (British Foreign Secretary Lord Palmerston’s observation that “nations have no permanent friends or allies, they only have permanent interests” has been repeated so many times that it has become cliched). And yet, the United States has maintained its commitment to NATO, South Korea and Japan in recent months, even as it is obvious that the parties do not share common interests. The alliances have become an end in and of themselves, instead of the means to an end.

[...]

When she presented the Obama administration’s national security strategy late last month, Secretary of State Hillary Clinton declared that NATO was one of several global commitments that was “embedded in the DNA of American foreign policy.”

Hardly. While a bipartisan consensus in Washington is enamored of Europe’s dependence upon the United States, most Americans tire of defending our wealthy European allies who are eminently capable of defending themselves. The resentment has only grown as these same allies have shown precious little enthusiasm for supporting the United States in its hour of need in Afghanistan.

[...]

We have created a class of wealthy and secure allies who lack the capability, but most importantly the will, to act on their own behalf, let alone in the service of the world’s policeman.

Read the full response here.

America’s Alliances: Frayed, but not Disappearing is a post from Cato @ Liberty - Cato Institute Blog

The U.S. remains stuck in Iraq, as the country moves toward a potentially messy and not so democratic (lots of disqualified parliamentary candidates, etc.) election.  Iran’s refusal to back away from its nuclear program has intensified calls for an American military strike — which, Sarah Palin assures, would even help the president politically.  North Korea unsurprisingly is showing reluctance to rejoin international talks over its nuclear program: renewed proposals for a U.S. military build-up in South Korea and even war against the North are likely to follow.  And then there is Afghanistan.

Even though President Barack Obama talks about deadlines and drawdowns, there is little in present policy to suggest that the U.S. will be able to leave Afghanistan in even the mid-term.  Afghan President Hamid Karzai certainly doesn’t think so.  He figures on U.S. military support for at least another decade, with continuing international financial support for years after that.

Reports the Associated Press:

Afghan President Hamid Karzai warned Thursday that foreign troops must stay in his country for another decade, as world powers agreed on an exit map including a plan to persuade Taliban fighters to disarm in exchange for jobs and homes.Divisions emerged between the U.S. and its partners over Kabul’s willingness to offer peace to Taliban leaders who once harbored al-Qaida, instead of the more limited deal for lower-ranking fighters emphasized by the Americans.

All agree that reconciliation means bringing on board what Mark Sedwill, NATO’s newly appointed civilian chief in Afghanistan, called “some pretty unsavory characters.”

The conference was called to help the U.S. and its allies find a way out of the grinding Afghan war amid rising U.S. and NATO casualties and falling public support. NATO has agreed to accelerate the training of Afghan security forces and gradually transfer more combat responsibility to them.

“With regard to training and equipping the Afghan security forces, five to 10 years will be enough,” Karzai told the BBC. “With regard to sustaining them until Afghanistan is financially able to provide for our forces, the time will be extended to 10 to 15 years.”

It sounds a bit like the Afghan equivalent of the Eagles’ Hotel California.  Defeat or bribe the Taliban and keep Karzai in power, and we will have “won” — but we still won’t be able to leave.  And the Afghan government, assuming it achieves a modicum of honest competence, will still have little incentive to meet even President Karzai’s distant check-out date.  Who in Kabul will want to do without abundent Western cash 10 or 15 years from now?

In 2001 the U.S. had a simple, important, and achievable mission in Afghanistan:  disrupt al-Qaeda and oust the Taliban.  American military forces succeeded.  Alas, we’ve spent the succeeding eight years attempting to build a nation state where none exists.  It’s time to draw down our forces and again focus on combatting terrorists.

Hotel Afghanistan: We Can Check Out but Never Leave 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

At 85, former South Korean president Kim Dae-jung has died of heart failure.  Elected in 1997, he was the architect of South Korea’s “Sunshine Policy” with the so-called Democratic People’s Republic of Korea, highlighted by the first South-North summit with North Korean dictator Kim Jong-il.  Kim Dae-jung’s presidency ended in disappointment — Pyongyang took advantage of South Korean generosity while corruption reached into his family.

But he fought heroically for human rights against the South’s old military regime.  He ran for president in an election stolen by Park Chung-hee and was kidnapped while in exile in Japan. He avoided death at sea when the Reagan administration, alerted to the crime, warned Seoul that he had better arrive alive in South Korea.

I met him in 1989 shortly after his defeat in the first free election after the dissolution of military rule.  Imperious but principled, he seemed destined to spend the rest of his life in opposition.  But he persevered and triumphed.

Kim Dae-jung’s flaws were manifest, but his personal courage and commitment to democracy were without question.  May he rest in peace.

Former South Korean President Kim Dae-jung Dies is a post from Cato @ Liberty - Cato Institute Blog