The Idiocy And Immorality of American Tariffs

From the United States International Trade Commission (ITC) comes further proof that US tariff policy is, as the the kids say, freakin' whack.

(Ed. note: the kids haven't said that in a decade, if ever.) 

In a new report (PDF) released last week, the ITC estimated "changes in U.S. welfare, output, employment, and trade that would result from the unilateral elimination of significant import restraints, specifically U.S. tariffs and tariff-rate quotas on certain agricultural products, textiles and apparel, and other manufactured products."  In non-nerdspeak: the ITC examined what would happen to the US economy if the government just woke up one day and decided to remove all major barriers to trade in goods.  Their results are probably surprising to many people, particularly those lost souls who listen to their elected officials' demands for reciprocal, tit-for-tat, tariff reductions in global trade negotiations.  Most broadly, the ITC projected that:

U.S. economic welfare, as defined by total public and private consumption, would increase by about $4.6 billion annually by 2013 if all significant restraints quantified in this report were unilaterally removed. Exports would expand by $5.5 billion and imports by $13.1 billion....

For most liberalized sectors, prices faced by households and domestic producers would both fall.

Put simply, by just removing trade barriers, the US Government could improve the lives of American families and businesses by $4.6 billion per year over the next four years.  This "free stimulus" also could expand US exports by $5.5 billion over the same period.  Crazy, huh? 

Granted, $4.6 billion isn't a lot of money in the grand scheme of things, but it's still nothing to sneeze at. And unlike all the other economic "stimulus" nincompoopery out there, these benefits would cost the US government, and thus us taxpayers, nothing!  Yet these self-defeating trade barriers remain in place and our trade negotiators and politicians demand reciprocal "concessions" from other countries before even considering eliminating them.  Indeed, compared to the last version of the ITC report, most of these restrictions are exactly the same as they were two years ago when the economy was still humming along.  How does this make sense? (Hint: It doesn't.)

Now, critics of free trade and defenders of the "reciprocity model" of trade negotiations could argue that the ITC's projections are unsound, and they may well have a point.  Projecting the impact of tariff reductions or increases is nearly impossible because the changes themselves will directly and indirectly affect all sorts of economic behavior.  Fortunately, the most common critics of free trade have been singing the ITC's praises for months now, ever since it recommended the imposition of 55% tariffs on Chinese tire imports under Section 421 of US Trade Law.  For example, Congressman Sander Levin (D-MI) recently lauded the economic analysis of the "independent, bipartisan" ITC in the tires case, and United Steelworkers President Leo Gerard had similarly complimentary things to say.  So I'm sure that now the same ITC analysis demonstrates the overall economic benefits of unilateral tariff elimination, these guys will continue their praise and support of the Commission's findings, right? 

Riiiiiiiiight.

Anyway, even if the ITC's modeling is off, their new report remains highly valuable because it spotlights where the biggest US barriers to trade remain and the effects of those barriers on everyday Americans. And it's these incontrovertible findings that should have most Americans pretty ticked off. 

The table below is from the 2009 ITC report (click to enlarge).  It shows the products that face the highest import and export tariffs in the United States, as well as the US-world price difference caused by those import barriers.

As you can see, some of the highest trade barriers in the United States are on things that American families use everyday - food (cheese, butter, milk, sugar, tuna, etc.), clothing (including thread, fabric and textiles) and shoes.  The taxes on these necessities range from a few percent to almost 48 percent, and these trade barriers result in US prices that are up to 57 percent higher than prices for the same goods in other markets.  So, for example, US trade policies force American families to pay $1.57 for a stick of butter, while Canadian families pay only a dollar for the exact same thing.  Nothing like a 57% butter tax to help the Joneses really tough-out the recession, huh?  Awful.

Unfortunately, because these goods are necessities, it's not like Americans can protest the policies by boycotting the protected products.  We all need shoes, clothing and food, and these are across-the-board price increases.  Worst of all, this "necessities tax" is highly regressive, as it forces the poorest Americans to fork over the largest share of their paychecks in order to buy the protected/taxed products.

And the US government is taxing American families and businesses for what?  To help the American butter/sugar/textile/whatever industry?  Actually, yes, that's exactly what our tariff policies are doing and have done for decades - regressively taxing American consumers and businesses in order to line the pockets of well-connected special interest groups like the US sugar lobby.  Seen this way, American tariff "peaks" are just like earmarks: legislative creations championed by in-the-bag politicians that force you and me to pay higher prices for the stuff we need in order to subsidize the pols' cronies.  (And disproportionately harming the neediest of Americans in the process!)

Considering the current economic malaise, I'd say it's about time that such an idiotic, immoral system is overhauled, wouldn't you?  (And maybe we could ditch our outdated reciprocity model of trade negotiations while we're at it.)

Now who's with me?

Biofuels Update: GAO Dips Its Pinky Toe Into The Pool Of Unintended Consequences; Sen. Grassley Screams "Everybody Out!"

The Government Accounting Office released a new report on ethanol subsidies, and its fiscal findings are only surprising to those not paying attention.   Oil  & Gas Journal has the report's highlowlights:

A federal tax credit of 45¢/gal established to help the domestic ethanol industry probably won’t stimulate production beyond levels that new renewable fuels standards specify for this year unless oil prices climb significantly, the Government Accountability Office said.

The Volumetric Ethanol Excise Tax Credit also may no longer be needed to stimulate US corn-based ethanol production because the industry has matured, its processing is well understood, and its production capacity is already near the effective RFS limit of 15 billion gal/year, GAO said in a report issued on Oct. 2....

In other words, the GAO has concluded that in the current energy market, millions of dollars of taxpayer funds used to support ethanol production are being completely wasted (unless of course, you're the guy receiving that money!).  Shocking, I know.  More interesting than the fiscal findings, however, are GAO's conclusions regarding the long-term environmental impact of US biofuels production:

GAO said for agriculture, many experts believe biofuel production has contributed to crop increases as well as higher prices for livestock, poultry, and, to a lesser extent, food. “They believe that this trend may continue as the RFS expands,” it said.

“For the environment, many experts believe that increase biofuels production could impair water quality by increasing fertilizer runoff, and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat,” the report said.

“However, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation, and improvements in biorefinery processing,” it added.

GAO said except for greenhouse gas emissions, EPA currently is not required by law to assess environmental effects to determine which biofuels are eligible for inclusion in the RFS.

GAO said many researchers interviewed for the report suggested there is general agreement on the approach for measuring biofuels production’s direct effects on lifecycle GHG emissions but disagreement about how to estimate the indirect effects on global land use change, which EPA is required to assess in determining RFS compliance.

“In particular, researchers disagree about what nonagricultural lands will be converted to sustain world food production to replace land used to grow biofuels crops,” it said....

The report recommended that in addition to the GHG emissions analysis required under EISA, Congress may want to consider requiring the EPA administrator to develop a strategy assessing the effects of increased biofuels environment on all stages of the lifecycle (cultivation, harvest, transportation, conversion, storage, and use) and to use this assessment to determine which biofuels are eligible for consideration under the RFS. “This would ensure that all relevant environmental effects are considered concurrently with lifecycle [GHG] emissions,” GAO said.

In other words, the GAO is recognizing that biofuels production might have significant, unintended consequences that could outweigh its direct environmental benefits.  Pretty cool, huh?  Even cooler: if the EPA were to follow the GAO's recommendations, it would for the first time assess "all relevant environmental effects" of ethanol production during all stages of production and use.  That would be great news, and it's about time, considering many experts have been screaming about ethanol's environmental problems for years.

Unfortunately, the US ethanol industry and its very powerful friends in Congress are going to bury this GAO report faster than you can say "corn."  For example, here's a press release from the office of Senate Finance Ranking Member Charles Grassley (R-IA) on the GAO Report:

Senator Chuck Grassley today released the following comment after a Government Accountability Office report suggested that the ethanol production tax credit should be revisited. Grassley has long been one of the most outspoken advocates in Congress for developing domestically produced alternative, renewable energy such as ethanol. Grassley is the ranking member of the Senate Finance Committee, which has jurisdiction over federal tax policy, and one of two working family farmers in the United States Senate.

“Home-grown ethanol is the shining star in our efforts to reduce our dependence on dirty, imported fossil fuels. It would be short-sighted to shoot ourselves in the foot and end a tax credit that helps ensure that the Renewable Fuels Standard we in Congress enacted is a floor and not a ceiling for ethanol use. This tax credit helps ethanol producers increase efficiencies and production methods as they move toward the development of the next generation of biofuels. Ethanol remains relatively new, especially when you compare it to the oil industry, which has been around for 100 years and still receives extensive government support.”

Grassley, of course, is from Iowa, which has both the highest ethanol capacity and production in the country.  My not-so-bold prediction is that Senator Grassley will have plenty of company in Congress, and that most every politician from the top-producing ethanol states (see link above) will loudly protest the GAO report and its recommendations.

Ain't politics grand?

A Lesson In Rent-Seeking, Farmer-Style

Who knew farmers were such good lobbyists and their Senators were so attentive? (Note: rhetorical, sarcastic question.) The Politico reports today that a schism in the "Farm Lobby" has developed over the Senate's Cap-and-Trade legislation:

Cracks are emerging within the powerful farm lobby, as the agriculture community fractures over the sweeping climate and energy bill expected to be taken up by the Senate this fall.

...

Though most farm lobbyists see offsets as a lucrative revenue stream for at least some agriculture producers, not all back the legislation. The divide largely stems from whether farm groups believe global warming is a major threat to agriculture. One key group — the American Farm Bureau Federation — believes that higher fuel, fertilizer and other costs resulting from climate legislation could hurt farmers more than higher temperatures. “We just don’t think that the costs are going to outweigh any money that you get from offsets,” said Rick Krause, senior director of congressional relations for the AFBF.

But the National Farmers Union, which represents roughly 250,000 farm families, believes that changed weather patterns stemming from global warming could have a significant impact on farmers’ livelihoods.

FarmerFight!

Uninteresting DC inside baseball aside, the Politico article is great because it provides a perfect example of political rent-seeking by a powerful lobbying group and how it can simultaneously destroy legislation and line the interest group's pockets with taxpayer cheese. Keeping in mind that a cap-and-trade can only "work" if emissions are, duh, capped, check out the awesome shwag (bolded) that a few Senators have snagged for their farmer buddies. I provide my notes in [CAPS]:

The climate and energy bill passed by the House in late June allows polluters to buy “offsets,” essentially paying to implement carbon-reduction programs on farms or forests. The offsets reduce the total greenhouse gas emissions of the polluters, allowing them to stay under the emissions cap, and give farmers an additional revenue stream. Under a deal negotiated by Rep. Collin Peterson (D-Minn.), chairman of the House Agriculture Committee, the USDA, instead of the Environmental Protection Agency, would oversee the offset program. [YES, IT MAKES PERFECT SENSE FOR THE USDA, INSTEAD OF THE EPA, TO ADMINISTER A CRITICAL ASPECT OF AN ENVIRONMENTAL PROGRAM THAT AFFECTS FARMERS AND NON-FARMERS ALIKE.]

The House legislation would cap the annual amount of domestic offsets, but, in the Senate, Peterson and farm lobbyists are pushing to include unlimited offsets. [UNLIMITED OFFSETS = UNLIMITED CARBON EMISSIONS = THE BILL IS WORTHLESS.] They’d like to increase opportunities for farmers to earn offset credits for programs they already have in place, a practice that supporters call “stacking credits” and that opponents deride as double-dipping. Farm lobbyists are also pushing the Senate to provide a percentage of free allowances to the agricultural sector to help cushion the economic impact on farmers and to fund the development of new technologies to increase production efficiencies. ["FREE ALLOWANCES" = "LUCRATIVE REVENUE STREAM" = FREE MONEY, WOOHOO!]

...

Smaller groups are split over how the offsets would affect their industries. [I.E., WHETHER THEIR FREE MONEY AND UNLIMITED OFFSETS WOULD MAKE UP FOR MORE EXPENSIVE INPUTS/ENERGY]

Cotton, potato, fruit and vegetable growers might see less benefit from offsets than would wheat and corn growers, farm lobbyists say. ["NO FAIR, YOU GET MORE FREE MONEY THAN I DO!"]

“If there are certain significant segments that aren’t going to be included in this thing, that’s part of our decision-making process,” Kraus said. ["WE'LL OPPOSE THIS UNLESS THERE'S ENOUGH FREE MONEY FOR EVERYONE."]

The NFU is lobbying for the legislation to include resources for farmers who have a tougher time participating in offset programs. [NFU DEMANDS EVEN MORE FREE MONEY FOR THOSE THAT DON'T EMIT A LOT OF CARBON.]

Other differences have arisen over a proposal that would increase the minimum amount of ethanol mixed into gasoline from 10 percent per gallon to 15 percent. Farmers are pushing the proposal, which would increase the market for ethanol, but ranchers fear higher feed and fuel costs. ["INCREASE THE MARKET" = FORCE PEOPLE TO BUY MORE ETHANOL AND THUS GIVE CORN FARMERS AN INCREASED "REVENUE STREAM" FROM A HORRIBLY INEFFICIENT AND EXPENSIVE FUEL.]

Sen. Tom Harkin (D-Iowa), chairman of the Agriculture Committee, is considering inserting language in the climate bill that would raise the minimum blend to 15 percent — even if that means overriding a decision by EPA, which is currently reviewing the proposal. [THAT PESKY EPA AGAIN!]

“It is my feeling that EPA has a strong bias against ethanol,” he told reporters earlier this month. “But we can also legislate it. We can legislate a change.” [YES, THE "BIAS" IS THAT ETHANOL IS NOT ENVIRONMENTALLY FRIENDLY AND INCREASES FOOD PRICES.]

So to recap: Farmers Lobby has successfully lobbied to remove the "Cap" in the Cap-and-Trade Bill, and they're getting paid a lot of taxpayer money to do it. Very impressive.

Is is any wonder why we libertarians are suspicious of any government plan, regardless of how "well-intentioned" it might be?

Shocked & Appalled, part 163

The Hill reports on a verrrry interesting development regarding lobbying for Stimulus* dollars. Here's the backstory:

In March, President Obama announced that government officials would not be allowed to consider the views of lobbyists regarding specific stimulus projects unless the requests are put in writing. The materials also had to be posted on an agency’s website within three business days of receipt. Lobbyists have said that the policy was one more example of the administration's disdain for their industry.

And here's the inevitable reversal, unsurprisingly dropped on a Friday evening:

Now, the just-revised rules will allow government personnel to accept meetings and calls from federally registered lobbyists on the implementation of stimulus projects. The head of the Office of Management and Budget, Peter Orszag, issued a new guidance late Friday regarding the administration's communications with registered lobbyists about economic recovery funds.

I, for one, am simply shocked at this development. This is not a very hopchangey move by the White House. How on earth could the evil lobbyists have won? Oh, wait. My hopechange-o-meter has dropped to an all-time low.

Well, at least those K Street leeches are nowhere near ObamaCare!

What's that? Oh, crap.