Yes, Of Course We Should End the Cuban Embargo

My latest at The Federalist:

Communist-hating lovers of liberty have offered myriad reasons to oppose the current Cuban embargo (see, for example, here and here), but today I want to focus on the most basic: over the last two decades, the United States government has utterly failed to justify its forcible, legislated ban on Americans’ freedom of travel, contract, and commerce. Because we live in a country of natural rights and limited, constitutional government, the state alone bears a heavy burden of proving that its restrictions on individual liberty are in fact warranted. In the case of free trade, and especially freedom of movement, this means that there is a strong presumption in favor of Americans’ right to freely travel to wherever they want, and transact with whomever they want—one that may only be overcome where the state establishes a compelling interest in prohibiting or limiting those actions.  

Read the whole thing here.

Global Supply Chains Are Freakin' Amazing

The folks at NPR's Planet Money have an excellent new series on a simple T-shirt's journey from a cotton field in Mississsippi to your dresser drawer.  In the process, they demonstrate the complex, amazing and, at times, difficult world of modern trade, development and global supply chains.  The teaser video is below, and the whole series is available here.  Take the time and watch/read the whole thing. They have really outdone themselves.

New Article: "America’s Horrible, No Good, Messed-Up Trade Policy (and How to Fix It)"

[Ed. note: This article was first published in The Federalist, which you really should be reading by now.]

Americans currently pay high taxes on food, clothing, automobiles, industrial inputs and other goods and services, and their own United States Trade Representative is vigorously fighting other countries to keep it that way. Even worse, the government’s efforts all but ensure that removing such taxes – and easing the artificial burdens they place on American families and businesses – will remain unnecessarily, and irrationally, difficult for years to come.
 

This is the awful state of American trade policy, and serious reform is long overdue.
 

Americans tend to think of the United States as some sort of free trade bastion in which unfettered globalization is – for better or worse – simply a way of life. However, while many U.S. tariffs were lowered decades ago, several tariff “peaks” remain in certain politically-connected areas like food, clothing, footwear and automobiles. Moreover, “non-tariff barriers” to trade – subsidies, regulations, etc. – have proliferated in recent years, and many “trade remedies” duties – based on allegations of “unfair” trade – also remain in place, particularly for industrial inputs like steel and chemicals.

The pros and (mostly) cons of these government measures vary, but one thing remains constant: their staunch and unflinching defense by the U.S. government in global free trade agreement negotiations. In these venues, gains are viewed as coming only from new access for U.S. exports and investment, while imports are the unfortunate price that America must pay for such “victories.” For example, as negotiations in both the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) gained momentum earlier this year, blubbering American journalists were quick to proclaim President Obama’s supposed “free trade renaissance” and strong support for expanding U.S. exports, but uniformly failed to report on the fact that his firm resistance to negotiating partners’ calls for lower U.S. trade barriers was a major reason for the agreements’ continuing difficulties. Nor did any such reports delve into the fact that those barriers, while certainly good for certain well-connected companies in the United States, injured the vast majority of American individuals and firms. And when TPP negotiators inevitably miss their much-ballyhooed and over-promised 2013 deadline for completing the agreement, you can bet that these facts will not receive top billing (or maybe even passing mention). Instead, only trading partners’ refusal to heed U.S. export demands will be blamed.

Trade and Reciprocity

The Obama administration, of course, is not the first to engage in such negotiating tactics and instead is simply the latest White House to do so. In fact, since the 1930s, American trade policy has utilized a “reciprocity” model of trade negotiations in which the United States treated any trade liberalization (e.g., the reduction of tariffs), no matter how smart or moral, as a “concession” that is only to be traded for another nations’ own acceptance of new U.S. exports or investment. Moreover, the diplomatic origins of the reciprocity model have ensured that trade liberalization is treated as a foreign, rather than domestic, policy area in which trade negotiations take on a zero-sum, war-like mentality where benefits are “won” or “lost”, instead of mutually achieved. Put most simply, exports are an unquestioned good to be pursued, while imports are an unmitigated bad to be resisted. Full stop.

Even though U.S. foreign and domestic policy – as well as economics, politics and society more broadly – has changed dramatically in the intervening decades, U.S. trade policy remains mired in this 20^th century, cold-war framework, as the current TPP and TTIP negotiations make abundantly clear. Unfortunately, some things to not get better with age, and U.S. trade policy is certainly one of those things. In fact, there are at least five fundamental problems with the United States’ mercantilist, reciprocity-based approach to international trade.
 

First and most basically, it is economically ignorant. Since Adam Smith first penned The Wealth of Nations, there has been a near-universal economic consensus in support of the elimination of trade barriers regardless of whether other nations do likewise. For this reason, there is quite literally no policy issue on which more economists – left, right and center – agree more, and the supposed death of the “free trade consensus” in academia has been wildly exaggerated.
 

This support, however, goes far beyond mere economic theory: there is also an endless array of empirical and historical evidence demonstrating the value of free trade and free markets. In fact, just last week the Heritage Foundation rounded up a lot of the latest data in order to (once again) resoundingly conclude that trade and investment liberalization is awesome, and that Congress should unilaterally eliminate tariffs on a wide range of products in order to boost the U.S. economy (including U.S. manufacturers). Heritage is certainly not alone: policy shops across the political spectrum, including Brookings, AEI and my colleagues at the Cato Institute, have produced similar studies in the past. And, as Dan Ikenson and I explained in a 2009 paper for Cato, the facts not only support free trade, but also destroy the various myths used by protectionists to undermine public support for such policies, including the greatly-exaggerated “death” of American manufacturing; the alleged link between imports, the trade deficit and U.S. jobs; and the idea that foreign companies and governments routinely cheat in order to gain an “unfair” advantage over their American counterparts.

Second, the reciprocity model has proven increasingly ineffective in producing tangible trade liberalization gains for U.S. businesses and consumers. The biggest example of this failure is WTO’s Doha Round of multilateral trade negotiations, which remains comatose after 12 years of missed deadlines, unkept promises and angry finger-pointing among stubborn nations that refuse to make further “concessions” to finalize the multi-trillion-dollar deal. Even the WTO’s “mini package” of supposedly-low-hanging fruit – intended to jump-start Doha during this December’s ministerial meetings in Bali, Indonesia – appears in doubt.
 

Smaller, regional/bilateral deals aren’t faring much better. Indeed, according to a recent report from the Asian Development Bank, the entire TPP is at risk of collapsing due to nations’ demands for various protectionist exceptions (or “carve-outs”) from the deal’s general free trade and non-discrimination rules:

The need to provide exemptions, or “carve outs,” to avoid a collapse in negotiations also raises concerns over the final form the TPP will take. The secrecy surrounding the negotiations makes it difficult to assess progress, but—from what is known—there is the risk of degenerating into a series of loosely tied bilateral deals. Indications are that the two largest TPP members—the U.S. and Japan—are proceeding along bilateral lines, threatening the demanding single-undertaking approach the TPP is supposed to adopt. 

Although the number of countries involved in these negotiations is much lower than at the WTO, for instance, it does not translate to a commensurate reduction in diversity in terms of disparate interests. These interests often conflict, especially in a context where the agenda is far more ambitious than any other proposed thus far. The recent round of negotiations that took place in Brunei Darussalam in August 2013 was reported to have made very little progress, highlighting the difficulties being faced as the TPP moves toward finding common ground on the more difficult issues.

Bloomberg has more on the ADB report and the TPP’s current problems here. Among the carve-outs demanded by TPP participants are Japan’s agricultural protectionism and Malaysia’s imposition of discriminatory regulatory barriers to tobacco, but many such demands originate in Washington, including three of the negotiations’ most contentious issues:

• Sugar protectionism. The United States has not only resisted calls to liberalize archaic tariffs and quotas on sugar imports, but also refused to reopen the current U.S.-Australia FTA, which completely excludes sugar from the Agreement.
• Textiles, apparel and footwear. The Obama administration has repeatedly refused requests from Vietnam and other large exporters to lower U.S. tariffs on textiles, clothing and shoes, and has demanded complicated “rules of origin” that will dramatically narrow the goods that could qualify for preferential access to the U.S. market.
• Automobiles. The United States also has vigorously fought Japan over U.S. tariffs on automobiles (2.5% for cars and a whopping 25% for light trucks) – a nearly-identical request that delayed the implementation of the U.S.-Korea FTA for several years after it was originally signed by the Bush Administration.

Each of these issues not only hurts U.S. consumers (more on that below), but threatens the completion of the TPP itself – an absolutely dumbfounding prospect, given these sectors’ relative insignificance for both the agreement and the U.S. economy.

The third flaw in the current system is that it’s needlessly messy and archaic. Every U.S. FTA, from NAFTA to KORUS, contains a different “schedule” which dictates the level and timing new market access for individual FTA partners’ goods and services. Rules of origin and other commitments also vary widely across agreements, thus creating an impenetrable web of rules and regulations and making the U.S. tariff code look like the Rosetta Stone. As a result, the exact same product will be subject to different taxes and rules based solely on its origin and the year in which it enters the country, and U.S. businesses often make sourcing decisions based on FTA rules rather than a product’s actual value. (And, of course, they must spend millions of dollars annually to determine those rules!)

Not only is this process costly and inefficient, but it is wholly out of step with the 21^st century world of seamless and ever-changing global supply chains. Today, product components are often sourced from multiple countries and assembled in another, and sourcing patterns routinely change based on market developments. (See, e.g., the evergreen “origins” of the iPhone and its competitors.) Arcane trade rules prevent such dynamism and thus hurt U.S. companies and consumers. Put another way, goods today are “made on earth,” but our trade agreements reflect a bygone era of vertical manufacturers, simplistic designs and old-fashioned notions of bilateral trade among individual nations. It makes no sense. None.

Fourth, the United States’ “free trade” policy has proven to be a horrible tool for actually achieving and sustaining public support for trade liberalization and free markets. For one thing, focusing on exports, FTAs and arcane market access issues (e.g., pharmaceutical patent protections) gives many Americans the not-totally-unwarranted impression that our trade policy is little more than a tool of large multinational exporters and investors at the expense of American workers. That is hardly a way to achieve grassroots support for important economic policy!

More importantly, the constant focus on exports and resistance to any type of import liberalization actually breeds public misunderstanding and distrust of trade liberalization. As Dan Ikenson and I explained in 2011:

The pervasive view that exports are good and imports are bad is a central misconception upon which rests the belief that trade negotiations and “reciprocity” are essential to trade liberalization. Under this formulation, an optimal trade agreement, from the perspective of U.S. negotiators, is one that maximizes U.S. access to foreign markets and minimizes foreign access to U.S. markets. An agreement requiring large cuts to U.S. tariffs, which would thus deliver significant benefits to consumers, would not pass political muster unless it could be demonstrated that even larger export benefits were to be had. This misguided premise that imports are the cost of exports and should be minimized lies at the root of public skepticism about trade. Ironically, it is also a prominent feature of the favored pro-trade argument.

There is nothing, of course, wrong with exports or pursuing new market access for U.S. businesses. The political appeal of that message is obvious, and exports do contribute to economic growth and, thus, job creation. However, the U.S. government’s relentless obsession with exports and reciprocity not only confuses the public and reinforces bad economics, but also creates a large and unnecessary opening for misleading protectionists:

[The mecantilist] message invites the following retort: if exports help grow the economy and create jobs, then imports must shrink the economy and cost jobs. In failing to explain why that conclusion about imports is wrong, trade proponents have yielded the floor to trade skeptics, who have been more than happy to manufacture talking points about the “deleterious” impact of imports on the U.S. economy. Most of those talking points are misleading or plain wrong, but there has been inadequate effort to correct the record. As a result, too many Americans accept the mercantilist fallacy that exports are good, imports are bad, and the trade account is a scoreboard.

Birdcages across the country are lined with op-eds from protectionist union leaders, businessmen and “consumer protection” groups that turn FTA proponents’ mercantilist message against them. Indeed, just this month I was treated to a piece in my hometown paper from the NC AFL-CIO, arguing that the U.S.-Korea FTA – and U.S. free trade policy more broadly – was a clear disaster for North Carolina because imports from Korea increased in the agreement’s first year, while U.S. exports declined. (Nevermind the fact that Korea’s economy was struggling mightily in 2012 and thus represented a low-demand export market, or that free trade resoundingly benefits the Tarheel state.) Sadly, using the Obama administration’s own misguided metric for gauging an FTA’s success (i.e., exports and the trade balance), the union had a point and thus capably hoisted the administration on its own mercantilist petard. And until the U.S. government changes this shortsighted, incorrect approach to trade policy and messaging, this rhetorical weapon will be readily available to protectionists, and public opinion will remain subject to the whims of meaningless statistics instead of economic consensus and actual historical fact.

Trade and Morality

Finally, the current approach to U.S. trade policy is manifestly immoral. Government intervention in voluntary economic exchange on behalf of some citizens necessarily comes at the expense of others and is inherently unfair, inefficient, and subverts the rule of law. At their core, trade barriers like those for sugar, clothing, footwear and automobiles are the triumph of coercion and politics over free choice and economics. The protectionist policies that USTR fights to maintain are the result of productive resources being diverted to achieve political ends and, in the process, taxing unsuspecting consumers to line the pockets of the special interests that succeeded in enlisting the weight of the government on their side.
 

This immorality has a clear and tangible cost. In 2011, Americans paid over ten billion dollars in tariffs on clothing alone, and another two billion each for shoes and automobiles – $29 billion total that year and $40 billion total in 2012. These taxes also raise the prices of goods made here at home and, as a result, American families pay much more for everyday staples like butter, milk, ice cream, sugar, tuna, apparel and shoes than their foreign counterparts. And American companies do the same for industrial inputs like ball bearings, steel and cement.
 

Protectionism is akin to earmarks, but it comes out of the hides of American families and businesses instead of the general treasury. And under the current trade negotiations system, our government is essentially choosing certain U.S. businesses and workers – those seeking protection and those seeking new export markets – over everyone else in America. As a result of these taxpayer-funded efforts, U.S. families pay higher prices for everyday essentials, and import-consuming companies struggle to remain globally competitive. (See, for example, U.S. candy makers who have moved their operations, and thousands of jobs, overseas due to sky-high sugar prices here.) Why on earth should our government pursue such an obviously immoral approach to international economic policy? Obvious answer: it shouldn’t.

A Better Path Forward

Fortunately, there is a much better, simpler way forward for U.S. trade policy. Most obviously, the United States should (i) immediately and unconditionally eliminate tariffs on basic human necessities like food, clothing, shoes, as well as industrial inputs that U.S. manufacturers rely upon to remain globally competitive; and (ii) phase out all other tariffs over a relatively short transition period. This change, coupled with matching rhetorical shift about the domestic benefits of trade liberalization, would instantly put the United States back at the forefront of global economic policy and in line with longstanding economic doctrine, fundamental fairness and modern business practices.
 

And, contrary to popular belief, such moves are politically possible: not only have countries like Australia, Chile, China, New Zealand, Canada, Mexico and Colombia pursued unilateral import liberalization in recent years in order to boost their economies, but the U.S. government also has done so via more limited initiatives like the Generalized System of Preferences and the Miscellaneous Tariff Bill (and sold such policies by – rightly – emphasizing their benefits to U.S. businesses and consumers). These policies would resonate with policymakers on the right and left, particularly in this era of increasing bipartisan disdain for corporate welfare. They would be consistent both with conservatives’ principled opposition to higher taxes and big government interventionism, and with liberals’ opposition to regressive taxation.
 

Furthermore, the unilateral elimination of tariffs would not lead to a flood of “unfair” imports that destroy U.S. industry because we already have trade remedy laws designed to address such situations and, due to years of domestic industry lobbying, are extremely biased towards protection. (Not to mention the fact that the vast majority of imports are already “fairly traded.”)
 

Speaking of which, the United States also should pursue fundamental reforms of its trade remedy laws to ensure that they actually address unfair and injurious imports (rather than domestic lobbying) and take into account the broader public interest – including U.S. consumer concerns. Our government should be ever vigilant of the fact that American consumers, not foreign exporters or governments, pay U.S. “unfair” trade duties, and these measures should therefore be a last resort.

Other regulatory reforms also are necessary, such as the elimination of most U.S. subsidy programs and various forms of “regulatory protectionism,” such as the Lacey Act and Dodd-Frank rules on “conflict minerals,” all of which thwart competition, raise prices and distort domestic and global markets.
 

Finally, the United States should complement these important changes by coupling them with “American competitiveness agenda” in order to give U.S. workers and companies what they really need to compete in today’s global economy: lower individual and corporate taxes in order to reflect new global norms, limits on lawfare and professional/occupational licensing, energy deregulation, etc. Such changes would boost economic growth, eliminate most domestic demands for protection from low-cost foreign competition, and, combined with the aforementioned tariff liberalization, boost U.S. exports without the need for slow and messy reciprocal trade negotiations. (Remaining trade barriers could be addressed via more aggressive litigation of existing rights and obligations under WTO rules and a “name and shame” approach to the most egregious transgressors.)

The global economy is advancing at a breakneck pace, but U.S. trade policy is stuck in neutral. Our elected leaders ignore basic facts and economics and pursue negotiations that not only benefit a well-connected cabal of businesses and lobbyists at the expense of U.S. consumers, but also undermine long-term public support for free trade. This archaic, immoral approach has produced diminishing returns in recent years and has called into question almost 70 years of U.S. leadership in the global economy. Meanwhile, other countries press ahead with agendas that better serve their citizens and reflect the realities of modern global supply chains, multinational investment and other key aspects of the 21^st century economy.

It’s time America did the same.

TV News Revelation: Imports Are Good (VIDEO)

This CNBC piece is unquestionably great, and they deserve major props for running it.  But my favorite part is, without question, the concluding "wow" from the anchor who works for a business news network yet acts as if the idea that imports are actually good for the US economy - a fundamental tenet of market economics that has decades of empirical support - is some sort of grand revelation.



Wow, indeed.

Of course, given the hackish trade stuff that pervades the mainstream media (*cough*ABC*cough*), perhaps the CNBC anchor here can be forgiven for being surprised by basic trade economics.

Hopefully, more pieces like this will occur and cause people of all stripes to finally understand just how dumb (and immoral) mercantilism and protectionism are.

But I'm not holding my breath.

Tackling Regulatory Protectionism, Finally

I've occasionally peered into the abyss that is the barriers to international trade imposed by the US regulatory regime, but I've never been courageous enough to tackle the very important - yet mind-numbingly difficult - task of rigorously documenting these non-tariff barriers and their deleterious effects on the US economy.  Fortunately, Cato's Sallie James and Bill Watson have proven up to the task with a brand new paper:

Despite the impressive success of trade liberalization, domestic industries continue to find ways to use the power of government to protect themselves from foreign competition. The practice of using domestic environmental or consumer safety regulation as a way to disguise protectionist policy has become a serious and growing problem in the United States. This regulatory protectionism harms the U.S. economy and violates our trade obligations.

A number of factors combine to explain the rise in regulatory protectionism. Economic globalization has provided Americans with access to a wide range of imported products. This has enabled consumers to demand not only high-quality products at low cost but also products that are produced according to consumers’ philosophical or ethical preferences. Simultaneously, domestic producers seeking protection from this influx of imports must find alternative shelters now that the use of tariffs and quotas is constrained by international law and economic good sense. The consequence is a perfect storm in which social welfare activists and special commercial interests join forces to promote regulatory regimes that unfairly and unnecessarily restrict imports.

There is already a system of laws in place to prevent regulatory protectionism. The rules of the international trading system recognize that domestic laws can be just as protectionist as tariffs. Many of the disciplines of World Trade Organization (WTO) law are embedded in the rules U.S. administrative agencies follow when setting new regulations.

But the U.S. government must take its WTO obligations more seriously. Prior to implementing a new regulation, federal agencies should be required to evaluate the possibility that less trade-restrictive alternatives could meet regulatory goals as effectively as their preferred proposal. Also, the U.S. government should not dilute or bypass the multilateral rules of the WTO through bilateral or regional negotiations that accept managed protectionism.

This paper uses a number of recent examples of protectionist regulations to show that the enemies of regulatory protectionism are transparency and vigilance. Policymakers should be skeptical of regulatory proposals backed by the target domestic industry and of proposals that lack a plausible theory of market failure. These are red flags that the proposal is the product of privilege-seeking special interests disguised as altruistic consumer advocates.

James and Watson examine such regulatory boondoggles as the Lacey Act, catfish inspection, Dodd-Frank's  provisions on "conflict minerals", the long-running ban on Mexican trucks, mandatory food labeling, prohibitions on certain flavored cigarettes, and supposed environmental protections for cute, cuddly little dolphins and sea turtles.  They demonstrate that, although these regulations might sound (or even start out as) benign or well-intentioned, they often end up undermining free trade and benefiting discrete domestic special interest groups that are, deep-down, seeking to use non-tariff barriers to thwart international competition at US consumers' expense.  They also offer up a sound critique of various anti-trade groups' criticisms of global trade (i.e, WTO and FTA) rules that discipline this discriminatory, regulatory protectionism, and offer up a nice litmus test to ensure that future regulatory adventurism doesn't thwart free trade in the process.

My favorite line comes from James' new blog post on the paper:

As we discuss in our paper, tariffs and other conventional trade barriers have fallen over the years, so the barriers that remain are more regulatory in nature, and more sensitive to negotiate. What we’re essentially left with is the difficult issues. They get to the heart of national sovereignty and, on a practical level, require the participation of regulatory administrators who may have very little or no trade negotiation knowledge or experience. They also have little incentive to concede their power. Whereas trade negotiators are paid to, well, negotiate, regulators are paid to inhibit commerce.

Indeed.  Be sure to read the whole paper here.

Protectionism's Cool... Until It Punches You In The Mouth

One of the reasons that protectionist laws and policies - thoroughly debunked in theory and practice - stick around is the fact that the costs of such actions are diffuse (e.g., tariffs force me to pay a few bucks more for a toaster) while their benefits are highly concentrated (e.g., the toaster manufacturer, protected from foreign competition, makes millions from those higher prices).  Thus, too few people spend the time to understand why free trade is the morally and economically optimal position, even though, on the whole, they'd benefit a lot from fully liberalized trade.  This is Public Choice Theory 101.

But, lemme tell ya, the ignorant sure smarten up quickly once protectionist policies begin to hurt them more directly.  The latest example of this truth comes from the Washington Examiner's Sean Higgins, who observes that US environmentalists - longtime opponents of free trade - have suddenly changed their tune because specific anti-trade policies against solar panels are hurting their "green" objectives:

They're not quoting free market economists Friedrich Hayek or Milton Friedman yet, but some environmentalist voices are asking whether protectionist trade policies aren't undermining renewable energy. And the broader Green movement may be listening.

What has them concerned is that the escalating trade war over the China's cheap solar panels. Domestic manufacturers have pushed hard for tariffs on them, and the White House has agreed.

That threatens to put the brakes on solar panel installation in the United States, which has taken off in the last few years, thanks in large part to those same cheap imports.

"Tariffs on Chinese solar are bad for us all," warned Sierra Club blogger Garvin Jabusch in a May posting. The policy, he said, is making solar panels "much less affordable for U.S. consumers."

In a post last month on the environmental news website Grist.org, Terry Tamminen, former secretary of the California Environmental Protection Agency, wrote: "If China is subsidizing solar panels, let's thank them and ask them to do more."

Last week, Bill Waren, trade policy analyst for Friends of the Earth, concluded a lengthy blog post with this warning: "Trade complaints will not solve our problems; in fact, in the long run, they may undercut clean energy and low carbon policies globally."

It's a thorny issue for the environmentalist movement. Generally they've favored any federal action that boosts the domestic renewables industry. They've also tried to build ties with Big Labor, forming the BlueGreen Alliance. And they've tended to scorn anything that smacks of free market economics.

Consider this the green trade war's silver lining, I guess.  Maybe next time these environmentalists - having now experienced firsthand the pain and immorality of protectionism - won't be so fast to bash the WTO (which has been trying to finish a big agreement on liberalization of trade in environmental goods) or to embrace protectionism.

Maybe.

Fantastic Video: "I, Smartphone"

We free traders have often cited Apple's iPod, iPhone and iPad as perfect examples of the power of free trade and open markets.  Now there's a fantastic new video from the Institute for Faith, Work and Economics which plays off Leonard Read's classic "I, Pencil" essay (made famous by Milton Friedman) and, I think, more clearly demonstrates in three minutes the benefits of free markets, specialization and global supply chains than three years of my blog posts:



Awesome stuff.  Uncle Milty (whose 100th birthday is Tuesday) would be proud.

(h/t Andy Roth)

More on the Idiocy of Our Current Political Discourse re Trade

Last night, I promised that I wouldn't get into the weeds explaining the blatant economic ignorance currently displayed by our political leaders on the issues of trade and outsourcing.  I'm glad I avoided that aspect because today's Wall Street Journal contains a fantastic recap of many of these economic facts.  Not much of this information will be new to readers of this blog, but it is, in my view, the best and most concise summary of many of the economic reasons why free trade, and imports in particular, is undeniably good for the US economy.  After setting the stage with a quick summary of the political firestorm surrounding those made-in-China US Olympic uniform, the WSJ lays out why politicians' anti-import/trade posturing defies all economic sense:

[I]mports of all kinds drive American jobs and export competitiveness. Most goods imported by the U.S. are used to make other goods. The Washington-based Trade Partnership, which studies such things, says that 62% of the $2.2 trillion of imports in 2011 were inputs for producers.

These include oil, precious metals, minerals, green coffee and lumber. But the list also includes motor vehicle parts, semiconductors, aircraft engines and parts, steel products, fertilizers, plastics and machinery and other equipment. American companies buy these products, make other things with them or add value and then sell their output at home and abroad. If they can't buy these imports at good prices, U.S. producers can't compete globally.

Protectionists portray imports as coming from Third World sweat shops that undercut American labor. But half of U.S. imports come from such developed countries as Canada, Japan and Germany. In 2011 imports from low-income countries amounted to less than 1% of the U.S. total.

Even finished goods imported by the U.S. often have a U.S. export component. Today's manufacturers, no matter where they are located, use an international supply chain that employs Americans. U.S. research, development and design—high-paying jobs—are behind much of what is made overseas.

And what about those Ralph Lauren-designed berets? Well, the American Apparel and Footwear Association says that while their industries are now dominated by imports, these two markets in the U.S. employ more than four million people in everything from design to marketing, merchandising and retail. The International Trade Commission says more than half of the value of imported apparel sold in the U.S. is American. The Commerce Department says that more than 50% of direct importing operations in the U.S. are small businesses.

Imports also raise U.S. living standards. According to Cato Institute trade analyst Dan Ikenson, prices of many tradeable goods like electronics, toys, furniture and apparel in the U.S. have been dropping over the last decade even as the price of nontradeables like health care and education have increased sharply.

President Obama says he wants to double U.S. exports from 2009 to 2014, which makes sense even if the government will have little to do with it. As the U.S. Chamber of Commerce points out, 80% of the world's purchasing power is outside the U.S. along with 95% of consumers.

But this export boom won't happen if the U.S. doesn't keep its own markets open. Protectionism will impoverish our best customers. And there is a risk that trading partners will retaliate with their own new trade barriers. Both would be devastating for U.S. producers: Fast-growing middle-income countries like Mexico and China are also the fastest growing export markets for the U.S.

Understanding these facts, as well as the undeniable moral depravity of politicians' anti-trade and anti-outsourcing demagoguery (something known since the time of Adam Smith), I again ask:

Why on earth is the Republican party indulging such garbage (see, e.g., this most recent, depressing example) instead of attacking it?

Seriously.

An Outsourcing and Protectionism Thought Experiment

The political news is replete these days with discussions of outsourcing and trade, and two stories are driving the chatter: (1) whether US presidential candidate Mitt Romney's firm Bain Capital outsourced US-based business operations to foreign countries; and (2) why the Ralph Lauren-designed uniforms of the US Olympic team are made in China, instead of the United States.  The political discourse on both of these issues has been soaked in economic ignorance, with a depressing, bi-partisan consensus among our political "leaders" that both foreign outsourcing and the private purchase foreign-made goods are "bad" things for America and even downright unpatriotic.  In response, President Obama and Senate Majority Leader Harry Reid have proposed legislation restricting, respectively, (i) US corporations' ability to engage in foreign outsourcing and (ii) the US Olympic Committee's purchase of foreign-made uniforms for the Games.  And, unfortunately, neither the Romney Campaign nor the Republican Party has challenged the underlying assumption in the Democrats' allegations and proposals that somehow outsourcing and free trade are bad, unpatriotic things.

I will not waste my time today again going over just how economically-ignorant these proposals are, nor will I re-hash the vast academic agreement, supported by mountains of empirical evidence, that both outsourcing and trade improve public welfare in the United States and abroad.  Instead, I simply want to pose a basic question for those who accept, promote or even consider the idea - supported by myriad politicians, journalists and pundits - that these private international transactions are somehow "wrong" and deserving of derision:

If it is unpatriotic or immoral for a private company to outsource certain operations to foreign entities or for a private organization to purchase foreign goods, is it also unpatriotic and immoral for private American citizens travel abroad?  And should the government therefore restrict that activity too?

Before you answer, let's walk this through:  Each of these activities involves an American's private, voluntary purchase of a foreign product.  In the case of outsourcing/offshoring, a private US party chooses to spend its money to purchase foreign labor.  In the case of Olympic uniforms, it's the private (remember: the USOC is a private entity) purchase of foreign goods.  And in the case of travel abroad, private citizens are choosing to directly purchase non-US goods (clothes, souvenirs, etc.) and services (hotels, rental cars, restaurants, etc.) in foreign countries, as opposed to having them shipped here.  Each activity involves a voluntary transaction between an American party and a foreign party that, theoretically, replaces the American's purchase of a similar product from a US-based competitor, be it a worker, manufacturer or service-provider.  And the only differences among these private, international transactions are the type of product purchased and the point-of-sale - neither of which should affect one's views on the subject (unless maybe he or she has an irrational hatred of container shipping).

So, again, is my private decision to travel abroad and, for example, to spend my hard-earned American dollars at EuroDisney instead of Orlando - thereby depriving Floridians of those dollars - somehow "unpatriotic" or immoral?  Obvious jokes aside, should I be prohibited from, or condemned for, going to EuroDisney?

If not, then why do politicians loudly and confidently assert - almost entirely unchallenged by the media or their political opponents - that a company's or individual's voluntary decision to purchase foreign labor or foreign goods is somehow unpatriotic or immoral?  And why do these same politicians advocate policies seeking to discourage, restrict or even ban such activities?

If so, then why don't our politicians also support government restrictions - for example, taxes or outright prohibitions - on or condemn foreign travel?  Or, at the very least, why don't they create a system to ensure "balanced trade" in tourism by, for example, passing a law permitting US citizens to travel abroad and purchase foreign goods or services only when foreign citizens purchase equal amounts of stuff when they travel to the United States? ("Sorry, sir, you can't get a federal travel permit go see the Great Wall of China because we haven't had enough Chinese citizens come here to see the Grand Canyon.")  In a similar vein, why don't President Obama and Senator Reid fight for a new law authorizing the US Department of Commerce to monitor "unfair" pricing of, of government subsidies to, foreign tourist attractions and to tax Americans traveling to these places in the amount of the "unfair" or subsidized price? ("Sorry, sir, you must pay us an extra 23% tax on your plane ticket to France because the French government unfairly subsidized the construction and maintenance of the Eiffel Tower.")

These might sound like silly questions but, really, they shouldn't be taken so lightly: we already have laws on the books restricting similar exercises of consumer freedom, and our politicians routinely propose further limits.  For example, the US government often forces American citizens to pay an extra tax on imported goods because these items are supposedly priced at hypercompetitive - and thus "unfair" - prices (aka "dumping").  Senator Reid and his colleagues routinely propose legislation limiting or restricting American purchases of certain "fairly traded" foreign goods or services - the Olympic uniforms being only the most recent example - and they also oppose efforts (e.g., free trade agreements) to eliminate these restrictions.  And, of course, President Obama has repeatedly advocated that the US government raise taxes on private American companies who purchase foreign labor (i.e., "eliminating tax breaks for companies that move jobs overseas.")

So, seriously, why don't President Obama and Senator Reid propose similar limits on Americans' foreign travel and tourism purchases?  Instead of simply demanding that US Olympic Uniforms be made in the United States, why doesn't Senator Reid also demand that all American citizens be prohibited from going to London to watch the Games at all?  Just think of all those private American Dollars that  Senator Reid's patriotic law could force to be "better" spent at Disney World or a NASCAR race, thus supporting American jobs?

And instead of only assailing Mitt Romney's patriotism for being affiliated with a company that engaged in outsourcing, why doesn't President Obama drive a few miles to Dulles International Airport and browbeat the happy American families there who are just about to enjoy a week in Europe?  

I could go on, but I think you get the idea.

The fact is that our politicians don't propose such forcible restrictions on Americans' voluntary international transactions because doing so would be political suicide.  For some reason, the American people are inherently suspicious of government restrictions on their freedom to travel abroad and thus require an immense burden of proof from the government - most notably on national security grounds - to accept any such limits.  Perhaps this is because travel restrictions are imposed directly on individual citizens (instead of in bulk to US importers at the border) or are closely associated with totalitarian/communist regimes, but for whatever reason, a majority of Americans oppose laws that forcibly limit or prohibit their freedom to leave the United States and spend their time and money abroad.  Thus, broadbased travel restrictions have have absolutely zero political support and only very limited ones exist today (e.g., to specific countries like Cuba, Iran or North Korea). 

Yet, other than the insignificant differences mentioned above, there is nothing separating foreign tourism restrictions from the limits that Senator Reid and President Obama are demanding be placed on American companies.  In this light, it's clear that such proposals are not only economically ignorant, but also quite obviously immoral.  And it's these policies, not the voluntary, private actions of their targets that deserve our derision.  Or, to put it another way, the accusers, not the accused, should be roundly criticized for their transparently cynical advocacy of restrictions on our personal freedoms.

So isn't it time Republicans stopped playing along with these offensive political ploys and started asking some very basic questions about the moral implications of their political opponents' allegations and policies?  Is this really too much to ask?

On second thought, maybe I should quit while I'm ahead.

Is Missing American Trade Leadership Beginning to Bear Protectionist Fruit? (Hint: Kinda Looks Like It)

Over the past few years, I and several other US trade-watchers have lamented the United States' dwindling leadership on global trade and economic issues and warned of that trend's troubling potential ramifications.  It appears that at least one of our breathless predictions may finally be coming true.  Starting in mid-2009 - when it became depressingly clear that the Obama administration viewed trade in mostly political terms and thus would not be advancing a robust, proactive free trade agenda - we free traders expressed grave concern that US recalcitrance could harm not only US companies and workers, but also the entire global free trade system.  As I explained in a 2009 oped urging the President to adopt a robust pro-trade agenda (as outlined in this contemporary Cato Institute paper):

Since the 1940s, the US has led the charge to remove international barriers to goods, services and investment. The result: a global trade explosion that has enriched American families, spurred innovation, enhanced our security and helped millions escape poverty. Every US president since Herbert Hoover has championed free trade because of its proven benefits....

Because of today's rules-based multilateral trading system and the interdependence of global markets, US fecklessness on trade shouldn't lead to devastating protectionism akin to the Smoot-Hawley-induced tariff wars of the 1930s. But it's still a problem. In 2008, global trade contracted for the first time since 1982, and protectionist pressures abound. The WTO's Doha Round is comatose, even though an ambitious deal could inject US$2 trillion into the reeling global economy. Considering the US has steered every major trade initiative in modern history, any chance for significant progress on trade will disappear without strong American leadership - in word and deed.

Since that time, the President has clearly not taken free traders' advice.  The WTO's Doha Round is dead, despite a pretty good opportunity to force the issue back in late 2010.  The Obama administration took three years to implement already-dusty FTAs with Korea, Panama and Colombia and actually insisted on watering the deals down with new protectionist provisions in order to finally agree to move them.  And while countries around the world are signing new trade agreements left and right, we've signed exactly zero and have eschewed important new participants and demanded absurd domestic protectionism in the one agreement that we are negotiating (the TPP).  Meanwhile, on the home front the President has publicly championed mercantilism, as his minions quietly pursued myriad efforts to restrict import competition and consumer freedom, embraced competitive devaluation and maintained WTO-illegal policies (while publicly denouncing protectionism, of course).

Pretty stark when you lay it all out like that, huh?

Despite this depressing state of affairs, it did not appear that the United States' diversion from its long free trade legacy had resulted in a tangible increase in global protectionism (although the death of Doha certainly isn't a good thing).  Unfortunately, a new blog post from the FT's Alan Beattie indicates that those chickens may finally be coming home to roost:

One of the very few bright spots in governments’ generally grim recent performance of managing the world economy has been that trade protectionism, rampant during the Great Depression, has been relatively absent.

That may no longer be the case. The WTO, fairly sanguine about the use of trade barriers over the past few years, warns today that things are getting worrying. The EU made a similar point yesterday. And this monitoring service has been pointing out for a long time that a lot of the new forms of protectionism aren’t counted under the traditional categories, thanks to gaping holes in international trade law.

After glancing at the bi-partisan protectionism on display in the 2012 US presidential campaign, Beattie concludes that, on the global trade stage, "things are looking scarier than they have for a while."  I'm certainly inclined to agree, and one need only look South to Brazil's frighteningly rapid transition from once-burgeoning free trade star to economically-stagnant, unabashed protectionist to see a scary example of why.

And while I agree with Beattie that the world still isn't likely to descend into a 1930s-style trade war - we can thank the WTO and the proliferation of free market economics for that - the rising specter of global protectionism is undoubtedly distressing.

And, of course, it has risen just as America's free trade leadership has faded away.

Now, as we all know, correlation does not necessarily mean causation, and it's frankly impossible to know just how much the dearth of US trade leadership has actually affected global trade policies.  But I think it's pretty safe to say that it certainly hasn't helped matters.  Just ask yourself this: how can the US admonish Brazil or any other country about its distressing mercantilism when the President is himself routinely preaching - and his administration is busy implementing - similar policies?  How can we decry the global "currency wars" when we're discretely advocating a similar strategy?  How can we push back against nations' increasing use of market-distorting subsidies or regulatory protectionism when we're....

I think you get the idea.

As I've frequently noted here, it was a Democrat - Secretary of State Cordell Hull - who over 70 years ago began a global free trade movement that until very recently had been led - in word and deed - by Republican and Democratic administrations alike.  And while the distressing recent spike in global protectionism may not have been caused by a lack of American trade leadership, it is very, very likely not going to recede until the United States regains its long-held place at the front of the trade liberalization pack.

[Final note: it looks like former USTR and current World Bank chief Robert Zoellick agrees.]

Huge New Report Further Crushes Protectionist Myths about Trade, Jobs & Outsourcing

The OECD recently concluded a giant new report on the effects of open markets on employment, and the consensus conclusion couldn't be any clearer: free trade is awesome.  In the process of coming to that (admittedly broad and obvious) conclusion, the authors of the myriad studies included in the final OECD Report also debunk a whole host of protectionist myths still floating around out there about imports, jobs and outsourcing (President Obama, please take note).  Here's the press release announcing the new Report (emphasis mine):

Governments that foster open markets and resist protectionism have the best chance of stimulating inclusive economic growth and creating high-value jobs, according to a new study from 10 international organisations presented in Paris.

Policy Priorities for International Trade and Jobs, launched by OECD Secretary General Angel Gurria during the annual OECD Forum, shows that protectionist and discriminatory trade measures do not protect or preserve jobs. On the contrary, closing markets is actually more likely to stifle growth and put additional pressure on labour markets.

The report, a product of the International Collaborative Initiative on Trade and Employment (ICITE)*, analyses the complex interactions between globalisation, trade and labour markets. Drawing on numerous studies covering different parts of the globe and countries at very different levels of development, the report highlights the powerful role trade can play in driving growth and improving employment.

Of the 14 main studies undertaken since 2000 reviewed in the report, all 14 have concluded that trade plays an independent and positive role in raising incomes.
Through its impact on productivity, trade also raises average wages. Over the 1970-2000 period, manufacturing workers in open economies benefitted from pay rates that were between 3 and 9 times greater than those in closed economies, depending on the region. In Chile, workers in the most open sectors earned on average 25% more in 2008 than those in low-openness sectors.

Fears of the impact of offshoring may be exaggerated. Studies for the United Kingdom, United States, Germany and Italy demonstrate that off-shoring of intermediate goods has either no impact or, if any, a positive effect on both employment and wages.

The report also shows, however, that openness to trade is not enough. Complementary policies – such as sound macroeconomic policies, a positive investment climate, flexible labour markets and adequate social safety nets – are needed to realise the full benefits of trade....

The ICITE report debunks the principal argument against freeing up trade – the supposed impact of imports on jobs. The report says that there is no systematic link between imports and unemployment. Instead, evidence shows that in country after country, both exports and imports push productivity growth upward while helping create better skilled and higher paying jobs.

Offshoring and outsourcing by developed countries – two commonly-cited negative aspects of globalisation – often complement, rather than replace domestic jobs, while creating new, higher-wage opportunities in developing countries, according to the report.

There is enough in this report to keep even the nerdiest of trade nerds busy for a long while.  I especially like the part about the necessity of "complementary policies" to realize the full benefits of free trade.  That's something I've been arguing here for a while now - open markets are awesome, but their benefits are seriously undermined unless they're accompanied by sound fiscal policies (especially tax policies), a streamlined, predictable regulatory environment and a dynamic labor market.  Without these things, all the trade in the world won't fix what ails the US and other struggling economies.

But all the trade stuff's important too, particularly during yet-another-election-season featuring scores of US politicians spewing populist nonsense about the allegedly horrible effects of imports and outsourcing on American jobs.  At the risk of sounding like a broken record, isn't it about time we stopped listening to these people?

New McKinsey Study Pokes Fatal Holes in Common Trade Myths

Readers of this blog know that one of the themes here has been dismantling pervasive "protectionist myths" that mislead the public into supporting - and thereby empower politicians to implement - anti-trade policies.  Now, a new study from McKinsey, "Trading myths: Addressing misconceptions about trade, jobs, and competitiveness," contributes to this line of attack scholarship.  There are a few things here that I don't totally support (e.g., erroneously labeling an expanding trade deficit a per se "deterioration"), but the whole thing is definitely worth a read.  Some of the myths addressed include the following:

Myth: Mature economies are losing out to emerging markets in trade and thus face increasing trade deficits.

Reality: The trade balance of mature economies has remained largely stable in the aggregate and even begun to improve. There are wide variations between individual countries, but no evidence supports claims of a wholesale deterioration of the trade balance between the mature and emerging economies over the past decade. 

Myth: Manufactured goods drive deteriorating [SL: sorry, I couldn't resist] trade deficits.

Reality: Imports of primary resources, whose prices have been rising sharply, are the largest negative contributor to the trade balance of mature economies. In 2008, mature economies ran a 3.3 percent of GDP trade deficit in primary resources but a 0.5 percent of GDP surplus in manufactured goods and specifically a 1.6 percent surplus in knowledge-intensive manufacturing. Some individual mature countries run trade deficits in knowledge-intensive manufacturing.

Myth: Trade is at the heart of the loss of manufacturing jobs.

Reality: Changes in the composition of demand and ongoing productivity increases are the main reasons for the decline in the number of such jobs in mature economies. The share of manufacturing in these countries’ total employment is bound to decline further, from 12 percent today to less than 10 percent in 2030, according to our analysis. MGI finds that trade or offshoring are responsible for the loss of around 20 percent of the 5.8 million US manufacturing jobs eliminated between 2000 and 2010.

The authors also hit on several other myths in the report, such as:

Myth: Mature economies create jobs only in low-paid, low‑value domestic services

Myth: Service trade is small, and emerging economies with low‑cost talent will capture any increase

Myth: “Service economies” such as the United States are the world leaders in service trade

After dispatching all of these myths, the authors make several policy suggestions that also should sound familiar to this blog's readership:

- Resist protectionist pressures.

- See emerging economies as an opportunity, not a threat. 

- Push vigorously for the fuller liberalization of trade in services, where restrictions remain high.

- Gear trade-related policy toward supporting—and benefiting from—comparative advantage in attractive stages of global value chains (like R&D and design), and avoid any emphasis on sustaining or creating direct employment through manufacturing exports.

- Improve measurements of global value chains and services trade.

I, unsurprisingly, think that if the federal government implemented these policy solutions, US businesses and workers would be much, much better positioned to dominate the 21st century global economy.  (And I've been screaming it from the rooftops for a few years now.)

Now, if only a few of our political leaders - from either party - would listen.

(h/t ToGetRichIsGlorious)

Exploring Partisanship and FTAs in the US Congress

Keith Hennessey has a great analysis on his blog of the recent congressional votes on the Korea, Colombia and Panama FTAs, and the results are pretty much what anyone reading this blog would expect: Republicans overwhelmingly supported the FTAs, while a majority of Democrats opposed them.  The whole thing is worth reading, but here's a great summary chart that he put together:

Hennessey posits that this partisan breakdown is why President Obama sat on the agreements for almost three years:

The two years of renegotiations were politically convenient for President Obama, as they allowed him to avoid asking Speaker Pelosi to bring up legislation that most of her caucus opposed....   

All three FTAs split his party deeply with most of his partisan allies opposed.  By taking two years to renegotiate the FTAs, he did not have to put his House allies in an uncomfortable position while he was relying on them to enact the stimulus, health care, and Dodd/Frank.

Readers of this blog will know that I've been saying this for years now: the FTAs' delay was clearly a case of the President putting his own political interests above the interests of American exporters and consumers (and the US economy more broadly).

Hennessey also uses his analysis to make some broader conclusions about congress and "free trade."  The most astute conclusion, in my opinion is that "[t]he [FTA] renegotiation and a Democrat in the White House provided more political cover for on-the-fence Democrats to vote aye. That would suggest these ratios are a free trade high water mark for the Democratic party."

I'm definitely inclined to agree there too, but I'd strongly caution against using FTA votes as a barometer for "free trade" support more generally.  You may think I'm picking nits here, but this is a pretty important distinction if you're trying to measure partisan support for "free trade," not just FTAs.  As you may recall, the FTAs were sold by the White House and congressional Republicans on purely mercantilist (exports only) grounds, and many Republicans who voted for the FTAs have supported or proposed anti-trade measures in the past.  For example, 16 Senate Republicans recently voted for the horribly-protectionist China currency bill, and Sen. Jeff Sessions singlehandedly blocked implementation of the trade liberalizing GSP program last December.  So while Hennessey's FTA analysis gives us a great idea about future congressional support for other trade agreements (e.g., the under-negotiation Trans-Pacific Partnership), and gives us a gauzy sense of which political party supports "free trade" more broadly, it probably shouldn't be used to determine future partisan support for non-FTA trade legislation.  Unfortunately, GOP support drops significantly when a trade agreement isn't involved.

Do Free Market Policies Lead to a "Race to the Bottom"? (Hint: No)

The recent entry of Texas Governor Rick Perry into the Republican presidential race has produced a stampede of bad op-eds and blog posts from Democrats and other liberals seeking to discredit him and/or Texas' amazing successes.  There are a lot of bad hit-pieces out there at this point - and a lot of great rebuttals (see, e.g., here, here, here, here and especially here) - but for my money the worst so far is today's Politico op-ed by Delaware Governor Jack Markell, who warns that Governor Perry's radical, free market ideas would lead to a "race to the bottom" in the United States:

Perry argues that if the nation adopts his approach to business development — based on less regulation, less taxation and less litigation — the economy “will absolutely take off like a rocket.”

Perry’s priorities are not unimportant. But there are lots of countries with no regulation, little taxation and no real threat of litigation — usually also where wages are low and much of the wealth resides with a tiny slice of the elite.

That’s a lousy model for middle-class Americans....

The model favored by Perry is fueled by low-wage jobs, which creates a race to the bottom. The middle-class model involves competing with other countries in a race to the top — to attract research and development operations, high-end manufacturing, design shops and the like.

Now, leaving aside the fact that it's a total myth that the jobs created in Texas are all low-wage "McJobs," or that Perry adopted some sort of scorched earth campaign against government spending - on education, infrastructure or anything else - during his tenure as Governor, I'd like to focus tonight on Governor Markell's main message: that fiscally conservative, free market, "tea party" policies have lead to a "race to the bottom" around the world and would inevitably do the same here in the United States.  Is that really a credible premise?  Are the free market countries championed by fiscal conservatives all banana republics with "low wages" and tremendous income inequality?

In short, no.  Not at all.

Indeed, had the Governor even done the most basic of research, he would have seen that the most "free market" ("free-marketest"?) countries in the world, praised by conservatives and libertarians alike, are also some of the wealthiest, most modern and, in many cases, most "progressive."  For example, the Heritage Foundation's Index of Economic Freedom, which examines countries against a series of fiscally-conservative benchmarks (e.g., low taxes, limited regulations, free trade, small government), lists such backwards, downtrodden places as Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland, Denmark in its top ten "most free" countries.  Indeed, the only country that could possible meet Governor Markell's misleading description is Bahrain.

Meanwhile, the libertarian Frazer Institute's Economic Freedom of the World Report, using similar measures of economic freedom (including limited government), lists most of the same countries that Heritage's Index identified: Hong Kong, Singapore, New Zealand, Switzerland, Chile, Canada, Australia, Mauritius, and the United Kingdom.  What horrible, dangerous countries!

Oh, wait.

On the other hand, the countries that rank near the bottom (or, on Gov. Markell's apparent scale, the top!) of these lists are such liberal paradises as Cuba, Iran, North Korea, Venezuela, Myanmar, Zimbabwe and Libya.

Sign me up!

In all seriousness, this simple example makes it abundantly clear that the Governor has no idea what he's talking about when he says that, if President Rick Perry turned the United States into some sort of "tea party paradise," it would inevitably turn into a third-world disaster zone.  The world's real free market paradigms, according to the very fiscal conservatives that Governor Markell openly derides, are some of the richest, healthiest and most developed countries in the world.  Considering that a simple Google search makes this fact abundantly clear, the Governor's either really slow or really disingenuous.

I'm guessing the latter, but, well, you never know.

But, hey, maybe the Governor has some fantastic ideas of his own that could somehow trump the centuries of proven prosperity that free market capitalism has repeatedly provided across the globe:

Building a sizable, vibrant and growing middle class requires great schools, a highly trained workforce and an attractive and exciting quality of life. That’s why initiatives like common core standards, heightening our focus on STEM education (science, education, engineering and math) and investing in our state and national parks and open space continue to be so important.

Yes, nothing will get this country back on its economic feet faster than Government spending (sorry, "investment") on our state and national parks and, umm, "open space."  We're saved!

Ugh.

No wonder liberals are openly wishing for an alien invasion.  They've clearly run out of earthly ideas.

Unions, Trade and Robots

As I recently discussed in the context of Trade Adjustment Assistance, the economic effects of free trade are strikingly similar to those of technology advances:

As economists like Cafe Hayek's Don Boudreaux frequently note, the beneficial job churn associated with import competition is no different from that associated with technology gains:

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

In short, people lose jobs due to import competition and they lose jobs due to new technologies (a lot more of the latter than the former, by the way), and while those job losses are obviously tough for the affected workers, American society as a whole is clearly better off by letting the free market work. So why do we treat globalization so differently than mechanization? Boudreaux reasons that it's because "the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed"...

The same concepts apply to protectionism: those who oppose free trade are just as misguided as those who oppose mechanization.  So with this in mind, I invite you to read the following obituary of inventor George Devol (emphasis mine):

George C. Devol, 99, a self-taught tinkerer whose invention of the robotic arm revolutionized factories around the world, died of a heart ailment Aug. 11 at his home in Wilton, Conn.

The robotic arm, which Mr. Devol dreamed up in the early 1950s, was originally called the “programmed article handling device.” It was a long name for a relatively simple and very smart machine that, in the coming decades, would become a fixture on modern assembly lines.

The Unimate, as the product became known, was designed to perform jobs that were dangerous or costly for human workers. Mr. Devol sold the first of his robotic arms in 1961 to a General Motors plant in Trenton, N.J., where it was programmed to handle the hot metal used in die casting.

Other early customers included Chrysler and Ford. Partly because of the influence of labor unions, which saw the robots as a threat to U.S. jobs, sales did not take off in the United States.

Mr. Devol’s product was wildly successful in countries such as Japan, however, and in the late 1960s the company signed a deal with Kawasaki Heavy Industries. In 2006, the Institute of Electrical and Electronics Engineers estimated that there were more than 950,000 industrial robots in operation worldwide....

Mr. Devol was inducted into the National Inventors Hall of Fame this year. “Devol’s patent for the first digitally operated programmable robotic arm represents the foundation of the modern robotics industry,” his induction citation reads. “Today, industrial robots have transformed factories into safer places and improved products with precision and consistency.”...

But like most odd couples, Engelberger and Mr. Devol had something important in common. They believed in the potential of robotics for the United States, even at a time when U.S. clients weren’t buying.

“We’re handing it to the Japanese on a platter,” Mr. Devol told The Washington Post in 1983. “I just can’t understand America.”

When he was in his 70s, Mr. Devol began dreaming up an automatic factory that he would lease to companies.

“How can we afford to let a country as big as this go down the drain in manufacturing capability?” he said in a 1984 interview with the Miami Herald. “I’m the perpetual Don Quixote. Always flailing my arms.”

This really explains a lot, doesn't it?

Caterpillar CEO on Trade and How to (Really) Win The Future

President Obama and his underlings just love to talk about improving American competitiveness in order to Win the Future.  But what does the US business community - well, those not on the milky-end of the government teet - think about the current state of American policy and its impact on our companies' future global competitiveness?  Courtesy of HotAir comes a fantastic CNBC interview with the CEO of Caterpillar - one the shining stars of America's thriving manufacturing sector - on just those issues.  It's well worth your 15 minutes:



In short, Mr. Oberhelman sees the global economy not as a threat, but as a great business opportunity.  He's smartly positioned Caterpillar to take full advantage of both foreign and domestic market conditions - through things like advocating robust trade liberalization, currency hedging and maintaining near-total control over business operations in interventionist foreign markets - and he sees competitiveness-killing US government policies, not free trade or low-cost competitors in China or Brazil, as the greatest threat to his company's viability and the future of the American economy.

And what kind of US government policies are undermining our global competitiveness and thus jepoardizing our companies and jobs?  I'll let Oberhelman explain:



My favorite quote:

We've announced three or four arguably brand-new facilities [in the United States] bringing work in from outside. And frankly we weigh all of these things in which state is the most business friendly. It's not a question of labor cost or who's cheaper. If you chase cheap labor around the world, you're never going to win. It's a lot more than that. The state's got to be competitive.  The country's got to be competitive....  You see states going the other way [from Illinois], where they're very pro-business and reducing taxes, and guess where we land our plants that are very competitive.... The latest and greatest is in Texas.  We brought a plant that in the past has assembled hydraulic excavators in Japan for shipment to the U.S.... we've moved that plant to south Texas... 5,000 to 6,000 units a year, 600 to 700 high-paying assembly jobs.

Nice.  And how exactly does Mr. Oberhelman think the current administration is doing to keep American companies strong and competitive?  Well, the answer to that is in the second video, but I'll let HotAir spell it out for you.

(Hint: it's not good.)

It's Officially Time for the White House to Find a New Fake Reason for Stalling those Pending FTAs

Back in December, an enterprising reporter asked then-White House Press Secretary Robert Gibbs why the President was only advocating congressional passage of the US-Korea FTA instead of pushing full-steam-ahead on all three completed-and-signed US FTAs.  Gibbs quickly responded by blaming the FTAs' stagnation on the new "Tea Party Republicans":

Gibbs conceded Friday there was considerable Democratic opposition to the Colombia deal, adding that there are doubts about whether newly-elected, tea party-affiliated Republicans would be enthusiastic about trade pacts. Gibbs called them "not your country-club Republicans."

He added that there is no firm timeline for pushing the deal, "or, for that matter, the Panama agreement."

Gibbs certainly wasn't alone in pushing this meme.  Indeed even some on the right also ignorantly assumed that tea partiers, and the Republican politicians that they swept into office last year, were stark raving protectionists.  On the other hand, some more enlightened analysts (including your humble correspondent) quickly rebutted these unfounded allegations about the new GOP freshman class in Congress by citing not trite, partisan/media-induced stereotypes but, you know, actual facts like: (i) support for free trade is perfectly in line with Tea Party support for smaller government, lower taxes and the free market; (ii) Tea Party favorites like Sarah Palin and Michele Bachmann, as well as Tea Party organizations like Americans for Prosperity and the Tea Party Express, loudly support free trade; and (iii) almost none of the new GOP freshmen ran on a protectionist platform.

Well, once again, we were right and they were wrong.  (Shocking, I know.)

A few weeks ago, new GOP Congressmen Tom Reed (R-NY) and Rick Berg (R-ND) drafted a letter to the White House urging President Obama to expressly support congressional efforts to pass the three pending FTAs with Colombia, Panama and South Korea within the next six months.  The full letter is available here (and some news reports are here and here).  As you can see, it's a pretty straightforward expression of broad support for free trade (and not just exports or FTAs, either), and considering that 66 of 87 - a whopping 78%! - of all GOP freshmen signed on to the Reed-Berg letter, it's abundantly clear that that the White House's and others' claims/fears about "tea party Republicans" and protectionism were totally unfounded.

Now, some critics might argue that this is hardly a resounding exclamation of GOP support for free trade because 21 frosh didn't sign the letter, but these critics would be dead wrong for several reasons, including:

• More than three-fourths of new GOP members were willing to go out on a limb to sign a general letter supporting free trade and the pending FTAs, even though there is no actual implementing legislation on the table (and thus no pressure from leadership or tangible data/law to support their stance).  Considering the flak to which this public statement of principles will (needlessly) expose these most-vulnerable of House Members from protectionism-peddlers in the DCCC and elsewhere, and considering that the other side is pressing these very same guys to jump on the protectionism bandwagon, these numbers are pretty darn impressive.

• If you look at the breakdown of signers and non-signers (pasted below; yellow/bold is for signers), you see pretty quickly that about 15 of the 22 non-signers are in very difficult, traditionally trade-skeptical districts (rustbelt, textiles, etc) that would make voting for an FTA pretty politically difficult in even the best of times.  So that leaves only about seven folks from states like AL, MS, NH, TN, VA, and WA that shouldn't have a lot of anti-trade constituents and thus should've signed onto the letter.  Count these folks as the only "disappointments" of the bunch, and that represents only 8% of the entire gang.  Moreover, there are several folks from trade skeptical states like Michigan, Illinois, Indiana, Ohio and Pennsylvania who did sign on. (Again, pretty darn impressive.)  Hopefully, in the coming months some of the non-signers will learn more about the issue (here's a great start), ditch the protectionist myths, Big Government and crony capitalism, and come around on the issue.  (And I strongly suspect that many of them will too if/when their votes are needed.)

• The breakdown also shows that Tea Party favorites like Allen West, Tim Scott, Dan Benishek and Kristi Noem are all on board - another strong signal that the "Tea Party protectionism" meme is absolute bunk.

• Finally, from a big picture perspective, this is undeniably good news for the future of not only those pending FTAs but also US trade policy more generally.  I'd guess that the Democrats that these GOP freshmen replaced were at least 75-25 against free trade (esp. those 06-08 Dem freshmen who campaigned on, and championed, protectionism - yikes were they bad), and they were probably much worse than that.  Indeed, only 4% of all House Democrats in the 110th Congress opposed the House resolution to suspend "fast track" consideration of (and effectively kill) the US-Colombia FTA.  So to get 67 new members to wholeheartedly embrace free trade is a very, very good sign.
  

Now, if only we could get the White House to join these new House members and strongly support a bold US free trade agenda.  Fortunately, with today's letter, the President is running out of excuses for why he can't/won't.

(And looks like the MSM needs a new excuse too.)

District	Representative
Alabama 2	Martha Roby (R)
Alabama 5	Mo Brooks (R)
Arizona 1	Paul Gosar (R)
Arizona 3	Ben Quayle (R)
Arizona 5	David Schweikert (R)
Arkansas 1	Rick Crawford (R)
Arkansas 2	Tim Griffin (R)
Arkansas 3	Steve Womack (R)
California 19	Jeff Denham (R)
Colorado 3	Scott Tipton (R)
Colorado 4	Cory Gardner (R)
Florida 12	Dennis A. Ross (R)
Florida 2	Steve Southerland (R)
Florida 22	Allen West (R)
Florida 24	Sandy Adams (R)
Florida 25	David Rivera (R)
Florida 5	Rich Nugent (R)
Florida 8	Daniel Webster (R)
Georgia 7	Rob Woodall (R)
Georgia 8	Austin Scott (R)
Idaho 1	Raúl Labrador (R)
Illinois 10	Robert Dold (R)
Illinois 11	Adam Kinzinger (R)
Illinois 14	Randy Hultgren (R)
Illinois 17	Bobby Schilling (R)
Illinois 8	Joe Walsh (R)
Indiana 3	Marlin Stutzman (R )
Indiana 4	Todd Rokita (R)
Indiana 8	Larry Bucshon (R)
Indiana 9	Todd Young (R)
Kansas 1	Tim Huelskamp (R)
Kansas 3	Kevin Yoder (R)
Kansas 4	Mike Pompeo (R)
Louisiana 3	Jeff Landry (R)
Maryland 1	Andy Harris (R)
Michigan 1	Dan Benishek (R)
Michigan 2	Bill Huizenga (R)
Michigan 3	Justin Amash (R)
Michigan 7	Tim Walberg (R)
Minnesota 8	Chip Cravaack (R)
Mississippi 1	Alan Nunnelee (R)
Mississippi 4	Steven Palazzo (R)
Missouri 4	Vicky Hartzler (R)
Missouri 7	Billy Long (R)
Nevada 3	Joe Heck (R)
New Hampshire 1	Frank Guinta (R)
New Hampshire 2	Charles Bass (R)
New Jersey 3	Jon Runyan (R)
New Mexico 2	Steve Pearce (R)
New York 13	Michael Grimm (R)
New York 19	Nan Hayworth (R)
New York 20	Chris Gibson (R)
New York 24	Richard Hanna (R)
New York 25	Ann Marie Buerkle (R)
New York 29	Tom Reed (R )
North Carolina 2	Renee Ellmers (R)
North Dakota AL	Rick Berg (R)
Ohio 1	Steve Chabot (R)
Ohio 15	Steve Stivers (R)
Ohio 16	Jim Renacci (R)
Ohio 18	Bob Gibbs (R)
Ohio 6	Bill Johnson (R)
Oklahoma 5	James Lankford (R)
Pennsylvania 10	Tom Marino (R)
Pennsylvania 11	Lou Barletta (R)
Pennsylvania 3	Mike Kelly (R)
Pennsylvania 7	Pat Meehan (R)
Pennsylvania 8	Mike Fitzpatrick (R)
South Carolina 1	Tim Scott (R)
South Carolina 3	Jeff Duncan (R)
South Carolina 4	Trey Gowdy (R)
South Carolina 5	Mick Mulvaney (R)
South Dakota AL	Kristi Noem (R)
Tennessee 3	Chuck Fleischmann (R)
Tennessee 4	Scott DesJarlais (R)
Tennessee 6	Diane Black (R)
Tennessee 8	Stephen Fincher (R)
Texas 17	Bill Flores (R)
Texas 23	Quico Canseco (R)
Texas 27	Blake Farenthold (R)
Virgina 9	Morgan Griffith (R)
Virginia 2	Scott Rigell (R)
Virginia 5	Robert Hurt (R)
Washington 3	Jaime Herrera Beutler (R)
West Virginia 1	David McKinley (R)
Wisconsin 7	Sean Duffy (R)
Wisconsin 8	Reid Ribble (R)