American Media Finally Starting to Notice the Problems Caused by US Export Restrictions on Oil & Gas

Decades-old US laws currently prevent the free exportation of American crude oil and natural gas, thus raising a host of economic, legal and policy problems.  This is not a good thing, but it fortunately appears that the stalwart American media are starting to notice.  Unfortunately, it took them a heckuva long time to do it, as two recent news stories make clear.

First, several media outlets picked up a new National Association of Manufacturers analysis which finds that US natural gas export restrictions likely violate WTO rules.  This Reuters clip is pretty indicative of the media coverage:

A lobbying group pressing the U.S. government to speed approval of U.S. natural gas and coal export proposals released a report on Tuesday contending that long delays in the approval process may violate global trade rules.  

The National Association of Manufacturers commissioned James Bacchus, a former Democratic Congressman and World Trade Organization judge, to pen the report, which it says sends a message to the Obama administration and Congress that they should accelerate the approval process and lift regulatory barriers…  

The NAM asked Bacchus to consider whether delays by the Department of Energy in issuing licenses to export liquefied natural gas to certain countries violate obligations under World Trade Organization rules.  

In the report Bacchus concluded that both actions violate the General Agreement on Tariffs and Trade, which forbids export restrictions. "The United States has always been a strong advocate of rules that forbid export restrictions and has been forceful in challenging export restrictions imposed by other countries," said Bacchus, warning that "the tables may be turned on the United States directly in the WTO."

NAM and Bacchus are right to raise this issue (and on the legal merits), and it’s good to see the media report the problem.  However, it’s surprising that this new analysis is treated as some sort of revelation, given that a certain Cato Institute scholar first warned of the WTO and other policy problems surrounding the natural gas export system (and a similar one for crude oil) almost ten months ago:

Beyond the economic problems, both export licensing systems raise serious concerns under global trade rules. First, the U.S. export licensing regimes for natural gas and crude oil likely violate U.S. obligations under the General Agreement on Tariffs and Trade (GATT). Under GATT Article XI:1, WTO Members are generally prohibited from imposing quantitative restrictions on imports and exports. Under Article XI and related WTO jurisprudence, “discretionary” licensing systems (i.e., those in which the administering authority has the freedom to grant or deny a license) and systems in which applications are delayed for several months constitute impermissible restrictions on export quantities. On the other hand, licensing systems in which approval is automatic and relatively quick (e.g., five days) have been found to be lawful.

Based on these standards, both the U.S. natural gas and crude oil licensing systems appear to violate GATT Article XI:1. Each system provides the administering agency (DOE or BIS) with the discretion to grant or deny an export license based on subjective and nonbinding criteria (the “public interest” or “national interest” standards). Moreover, the pending export license applications have been delayed for several months (and, in a few cases, years). Both of these facts support findings of GATT violations.

Another think tank expert came to similar conclusions around the same time.  Thus, these legal concerns have been pretty common knowledge now for quite a while (and originally weren’t pushed by a “lobbying group”).  It’s really odd that they’re today being treated as novel.

Second, the Wall Street Journal reported this week that startling increases in US crude oil production, combined with onerous export restrictions, have led to a glut of domestic oil, a host of potential problems for domestic oil producers and newfound focus on the 1970s era export law:

The U.S. Gulf Coast—home to the world's largest concentration of petroleum refineries—is suddenly awash in crude oil.  So much high-quality U.S. oil is flowing into the area that the price of crude there has dropped sharply in the past few weeks and is no longer in sync with global prices.  In fact, some experts believe a U.S. oil glut is coming. "We are moving toward a significant amount of domestic oversupply of light crude," says Ed Morse, head of commodities research at Citigroup….  

And the glut on the Gulf Coast is likely to grow. In January, the southern leg of TransCanada Corp.'s Keystone pipeline is set to begin transporting 700,000 barrels a day of crude from the storage tanks of Cushing, Okla., to Port Arthur, Texas.

The ramifications could be far-reaching, including lower gasoline prices for American drivers, rising profits for refineries and growing political pressure on Congress to allow oil exports. But the glut could also hurt the very companies that helped create it: independent drillers, who have reversed years of declining U.S. energy production but face lower prices for their product….  

"Not one person saw this coming," says Paul Sankey, an energy analyst at Deutsche Bank. He says he expects growing production to eventually push prices of West Texas Intermediate crude, the U.S. benchmark, below $80 a barrel, down from $97.38 Thursday. The industry "will start screaming" for Congress to lift the export moratorium, he says.  

Adam Bedard, a market analyst for High Sierra Energy, a subsidiary of NGL Energy Partners, agrees that pressure will rise on the federal government to loosen crude-oil export restrictions, which date back to the 1973 OPEC oil embargo. Oil storage in the Gulf region appears to be filling up, he says. "It's like someone built a superhighway where there wasn't one before."

Again, the WSJ should be commended for highlighting this important story and the serious economic and legal problems caused by US export restrictions on crude oil.  However, it’s laughable to say that “not one person saw this coming.”  Indeed, that very same Cato scholar warned of this problem back in February:

[B]y depressing domestic prices and subjecting export approval to the whims of government bureaucrats, the U.S. licensing systems retard domestic energy production, discourage investment in the oil and gas sectors, and destabilize the domestic energy market. Artificially low prices prevent producers from achieving a sustainable rate of return on the massive up-front costs required to drill and extract oil and gas, and investors lack any assurances under the discretionary licensing systems that domestic prices will not collapse when output increases.  Such concerns have led the IEA to recently warn that U.S. export restrictions put the “American oil boom” at risk. 

This modern day Nostradamus then drilled down (pun intended!) on the problem for Reuters in June:

[A] bipartisan swath of federal and state officials is pressing for new infrastructure, like the Keystone XL pipeline, to move a glut of domestic oil from the center of North America to Gulf ports. This is a crucial step, but unless Congress reforms archaic restrictions on crude oil exports, all that black gold’s going nowhere….  

[B]y curtailing exports and subjecting license approvals to the whims of bureaucrats, the current system slows domestic production, breeds economic distortions, discourages investment and destabilizes energy markets.  

U.S. oil producers, for example, lose an estimated $10 billion a year due to their inability to sell crude in foreign markets. They’ve also spent hundreds of millions of dollars building “mini-refineries” in the Midwest and Gulf region to circumvent the current restrictions and export a slightly processed, cheaper product — leaving another $1.7 billion in potential profit on the table.  

As Rube-Goldbergian as this sounds, producers have few alternatives, given that U.S. oil consumption has collapsed in recent years and building new refinery capacity is virtually impossible in many “environmentally friendly” states. These problems prompted the head of the International Energy Agency to warn recently that U.S. export restrictions put the “American oil boom” at risk….

Given these problems, it’s clear that the current crude oil export licensing system needs to go. Congressional supporters of the U.S. energy boom must lead the charge.
If advocates really want to develop our vast energy resources and expand the economy, they should craft a licensing policy that reflects the new energy landscape and the immense U.S. export potential.  They’d also be restoring some overall coherence to U.S. trade and energy policy — and avoiding potentially embarrassing trade conflicts. If they ignore these restrictions, and their many flaws, the nascent U.S. oil boom could be snuffed out.

Sounds familiar, eh?  If only there were some sort of “search engine” or something that would allow curious journalists to find such things on the internet.  Alas, maybe next year.

Sour grapes aside, these news items raise two far-more-important points.  First, it’s good to see that the media are finally, after only a year, catching on to the many unnecessary problems created by US oil and gas export restrictions.  Hopefully, they’ll keep at it (even if they continue to ignore me). 
Second, and maybe more obviously, these export restrictions – dating back, in the case of gas, to the 1930s! – are causing serious, serious problems for the United States: distorting energy markets, eliminating jobs, depressing economic growth, creating global trade frictions and undermining other, worthwhile US government policies.  They reflect a bygone era of US energy homogeneity and scarcity.

Isn’t it time that our laws – and our political leaders – caught up?

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.

Giving Obama's Free Trade Legacy Some Much Needed Perspective

Over the last several weeks, Americans have been treated to a pretty constant stream of news stories applauding President Obama's new found affection for free trade.  The impetus for this fawning coverage is obvious: since the end of 2012, the Obama administration has repeatedly thrust trade - in particular the inclusion of Japan in the ongoing Trans-Pacific Partnership talks and the launch of FTA negotiations with the EU - into the spotlight.  The administration does deserve some credit for finally, after four years of depressing inaction, putting the United States back in the free trade game (a game we not only used to dominate, but also kinda, you know, invented), but the media reaction to these announcements - i.e., assuming the FTAs' timely completion and all-but-anointing President Obama to be the greatest free trade president in the history of anything ever - has been utterly ridiculous.  Fortunately, Cato's Dan Ikenson has finally had enough and today does his best Winston Wolfe impression by throwing some much-needed cold water on the media's coronation party.  First, he quickly recites the administration's actual record on trade so far:

[B]efore anyone awards the president the Nobel Trade Prize for a job yet done, consider this: in four-plus years, this administration has concluded zero trade agreements, while launching 13 WTO cases against various trade partners. For 50 months, enforcement and domestic protectionism—not liberalization—have dominated the trade agenda....

Yep.  Next, Ikenson mentions another, ahem, minor hurdle to completing ambitious trade agreements in a rapid fashion - our totally unnecessary lack of a lead trade negotiator:

For starters, wouldn’t the president have delegated someone capable and experienced to take ownership of the trade agenda if he were really committed to leaving a trade policy legacy? U.S. trade representative Ron Kirk announced more than one year ago that he would be leaving his post early in a second Obama administration. Yet there is nobody vetted and ready to take the reins of trade policy. Kirk’s official resignation came at the end of last month—though he has been hanging around to help out on account of … “sequestration.”

The most prominent name floated for U.S. Trade Representative has been the OMB’s Jeff Zients, the person most closely associated with President Obama’s proposal to subsume the USTR under the enforcement-centric Commerce Department—again, not exactly the substance of trade legacy-building. Members from both parties in Congress have demanded a better candidate if the president expects his trade agenda to be taken seriously.

I'd be remiss not to note that the Obama administration also had a really tough time finding Kirk back in 2008-09 because at least one candidate (rightly, in retrospect) saw that trade policy would be a low priority in the Obama White House and thus turned the job down.  But I digress...

Back to the current situation.  Ikenson then points out the myriad landmines in the TPP and EU deals themselves:

Accomplishments, not rhetorical intentions, should serve as the basis for our judgments. Anyone can announce initiatives. President Obama is quite proficient at reciting litanies of initiatives. But it remains to be seen how he handles the situation when the deals require his confronting allied interests and dismantling their protectionist perches. In fairness, the administration’s trade negotiators have been working hard toward a Trans-Pacific Partnership agreement with 10 Pacific-rim nations. But let’s see where this goes before we start writing history. There’s still a lot of ham left on that bone.

The administration has verbally committed to completing the TPP negotiations by the end of this year and the just-announced Transatlantic Trade and Investment Partnership negotiations with Europe by the end of next year—both virtual impossibilities given where things stand in those negotiations and between the White House and Congress. So we already have a credibility problem.

Both sets of agreements are likely to include provisions that penetrate deeper than usual into the domestic regulatory space of all countries involved. Understandably, this is generating resistance—particularly to U.S. demands for extra investor and intellectual property protections. Some of the groups that were instrumental in defeating SOPA and PIPA legislation last Congress are beginning to mobilize in response to concerns that the TTIF could be a backdoor to IP-based restrictions that affect internet use and data sharing, among other issues. U.S. negotiators are making serious demands on matters they claim to be central to 21st century trade, yet they appear unwilling to give ground on the 18th century protectionism still afforded U.S. textile and footwear producers.

I bring attention to these details not to pick a fight about Obama’s trade record, but to emphasize that facts matter. So do characterizations. Readers should know about growing resistance to U.S. demands that threaten to prolong or derail the TPP and TTIP negotiations. Readers should know that if the talks break down or produce less ambitious outcomes, that there is probably more to the story than the official U.S. account, which will pin the blame on foreign intransigence. Readers should know that the U.S. government engages in all sorts of protectionist policies and then relies on media to characterize trade as a zero-sum contest between U.S. producers and foreign producers. Under this rubric, U.S. protectionism is presented as a necessary response and it becomes patriotic to support our own trade barriers—the very protectionism that hurts us the most....

Furthermore, the administration has barely begun to do anything substantive with respect to securing Fast Track negotiating authority from the Congress, which it will need to get any trade agreements approved by the legislature. Congress is largely in the dark about what the administration has been negotiating in the TPP. The administration’s cavalier attitude toward this potentially arduous process betrays either a lack of understanding or concern that Congress, if it grants that authority, will attach all sorts of conditions that may render moot the past couple years of negotiations on the TPP....

AEI's Claude Barfield also deftly details the many serious hurdles facing the TPP and the TTIP - definitely worth a read. (Conclusion: "The administration is misguided in bowing to the EU’s frantic plea for a crash, two-year timetable for FTA negotiations. Such a course will fail — and of much greater significance, it may well imperil a successful conclusion of the strategically and economically vital TPP negotiations."  Ouch.)

Finally, Ikenson explains what's really driving President Obama's new embrace of trade, and it's hardly flattering:

Alas, President Obama has not found religion on trade after all. He’s merely run out of options. The TPP was motivated from the outset as a means to regain some of the influence—on policy and institution-building in the Asia-Pacific—presumed to have been lost to China, as America toiled in Iraq and Afghanistan. Persistently high unemployment, despite four years of stimulus, subsidies, and bloated federal spending, had finally led the administration to its last resort: trade liberalization.

So there you have it. A president who has settled on trade agreements as a last resort to spur investment and create jobs shouldn’t inspire too much confidence that he’s in it for the long haul and that he’ll be willing to make the tough political decisions ahead, particularly if the economy starts to improve and his affection for trade agreements proves fleeting.

Oof.  I'd say that Ikenson's bitter assessment is pretty much a pitch-perfect review of President Obama's real free trade legacy (so far, at least), and it's either telling or sad that the media can't seem to grasp these easily Google-able facts.  Indeed, foreign media reports of the administration's pre-negotiations with Japan regarding its entry into the TPP hardly inspire confidence in the President's resurgent free trade bona fides:

Japan plans to agree to let the United States maintain its automobile tariffs for a certain period during preparatory talks for joining the Trans-Pacific Partnership free-trade negotiations, sources said Tuesday.

As the United States fears a possible surge in Japanese auto exports to the U.S. market under the TPP, Japan is set to agree that the United States will be allowed time to eliminate the tariffs in an attempt to extract a U.S. concession over Japan’s agricultural tariffs once it enters the TPP negotiations, the sources said.

Japan’s participation in the TPP negotiations has been opposed by the U.S. auto industry, as well as by Japanese farming groups fearful of cheaper agricultural imports. Japan currently imposes high tariffs on farm products such as rice and wheat to protect domestic farmers.

The United States currently imposes tariffs of 25 percent on trucks and 2.5 percent on cars.

To summarize: the United States is demanding the maintenance of high tariffs on imported trucks (and lower ones on cars) as the "price" of Japan's entry into free trade negotiations, and in return, Japan will get to keep high tariffs on farm products like rice and wheat.  Such a deal is sadly illiberal but it really shouldn't shock anyone: it's quite similar to the one that the administration worked out for the US-Korea FTA re-negotiation back in late 2010.  But, still, since when does vigorously protecting protectionism permit fawning reports of a president's commitment to free trade?

Seriously, man. What the...?

Thus, all the breathless media coverage of the president's free trade renaissance places the responsible journalists into one of three categories: (i) ignorant dupes fooled by savvy USTR and White House press shops; (ii) hopeless, overly-optimistic Obamaphiles blinded by their love for The One; or (iii) complicit hacks acting as the administration's unofficial PR wing.  None of these is very flattering, but - after comparing the media's Pollyannaish reports with the realities presented by Ikenson, Barfield and other trade experts - there really isn't any other option.

Fortunately, there's always foreign media.

China's "Ghost Cities" Go Mainstream, But Will Anyone Actually Notice?

From Business Insider comes news that 60 Minutes has done an in-depth profile of China's ghost cities - only a couple years after many of us started noticing this creepy and telling phenomenon, but, hey, better late than never.  BI has plenty of good screenshots worth perusing, but here's the whole video for your viewing pleasure:


After seeing this crazy video (or any of the others that have been floating around since 2009), how can anyone steadfastly declare the inevitability of China's future economic dominance or take headlines like the following seriously?

BREAKING: China sets 7.5% goal for 2013 growth with 3.5% inflation target
— Bloomberg News (@BloombergNews) March 5, 2013

(Hint: they can't.)

Silver Linings...

Readers of this blog know that, despite my support for many Republican politicians' free market proposals, I haven't been shy in my criticism of Mitt Romney's stance on US-China trade.  A new "infographic" from Team Mitt makes clear that his sinophobic chest-thumping was not merely a primary play to fans of The Donald, but instead will be a central theme and distinguishing element of Romney's general election campaign (h/t Ben Domenech):

Ugh.  I will not repeat the reasons why I'm not a fan of this campaign strategy (go here and here for that), but I may have discovered the bright-side to the Governor's distressing China protectionism:

It's producing a sudden surge of media skepticism regarding currency hawks' claims.

You see, it used to be that only principled, free-market publications like the Wall Street Journal and the Financial Times would actually spare the ink to explain why well-oiled politicians' anti-China proposals lacked seriousness.  Now, however, a quick Google search reveals overtly skeptical pieces of Romney's China stance from Bloomberg (multiple, actually), the New York Times, the LA Times, the Seattle Times, the New Republic and several other "mainstream" outlets.

Perhaps the most blatant and extensive example of this new scrutiny, however, comes from Reuters today in an "insight" column focusing on a time "when Romney wasn't so tough on China."  I couldn't care less about that time (Ooooh, he did business with China at Bain! Oooh, he courted China when he was in charge of the Olympics!  Zzzzzzzzz), but what did get me excited (stop laughing) were the following excellent passages on the, you know, actual facts about China's currency policies, the US economy and certain politicians' and pundits' claims that forceful anti-China actions (read: tariffs) are the only solution to the Red Menace's pernicious currency manipulation:

Romney and his campaign have often talked about how three companies that Bain invested in during this period - the Staples Inc, Sports Authority Inc and Domino's Pizza Inc chains - have gone on to create more than 100,000 jobs combined.

What he does not discuss is the role China is playing in these businesses. For example, of 80 items randomly chosen in a Sports Authority store in Washington, D.C., earlier this month, about two-thirds were Chinese produced - including tennis balls, bikes and boxing gloves.

At a Staples outlet in New York, the figure was more like 40 percent, including staplers, glue and rulers. The percentage may be bigger on a sales basis because a lot of the higher-priced goods, like computers and other electronic gear, come from China.

To be sure, it is not clear how much China-sourcing the companies did when Romney was at Bain. Staples and Sports Authority had no comment.

There is nothing unusual about U.S. retailers getting their wares made in China; the biggest, including Wal-Mart Stores Inc, do so.

But if China revalues its currency, companies like Staples would face higher costs and might have to raise prices. The retailer might also look for cheaper alternatives - it already produces a significant number of products in countries such as Mexico and Egypt.

A stronger yuan could increase dollar revenues from China for companies like Domino's, which sells there, but any major trade tensions with Beijing could hold back the expansion of U.S. companies in the country....

The saber-rattling from Romney has worried business executives. Behind closed doors, some grumble that he is wasting political capital on the currency question when there are bigger problems to resolve with China, such as access to its financial markets and protecting U.S. companies' intellectual property.

"Given his background, many of us had assumed he would take a broader view," said Erin Ennis, vice president of the U.S.-China Business Council, which represents about 250 companies that do business with China, including Dow Chemical Co, Ford Motor Co and Apple Inc.

Thomas Donohue, president of America's largest business lobby, the U.S. Chamber of Commerce, said the yuan's rise in recent years had taken away the case for declaring China a currency manipulator. "You can't make that argument anymore," he said in April.

The yuan has appreciated nearly 30 percent since China broke its peg to the U.S. dollar in 2005. When adjusted for inflation, it is up about 40 percent against the greenback, and China labor and other manufacturing costs have climbed.

Talks between Washington and Beijing about adjusting the yuan's value are already under way and have shown some progress.

But still, Romney's declaration of China as a currency manipulator would carry risks. If the United States' third-largest export market feels it is being unfairly targeted, it could fight back with more than just words.

In 2009, when the Obama administration imposed tariffs on low-end tires from China, Beijing immediately launched a formal anti-dumping probe of American exports of chicken and auto parts.

The World Trade Organization has since ruled that the United States is entitled to impose the extra duties on Chinese tires. The two countries are still fighting over the chicken parts, and new disputes have arisen over solar panels, wind turbine towers and rare earths.

With the world's two largest economies tightly intertwined and Washington increasingly seeking Beijing's help on diplomatic issues, the fear is that China could not only slow the appreciation of the yuan but also retaliate in other areas important to the United States, such as U.S. farm exports and Western sanctions against Iran.

If these passages sound familiar, they should: they're pretty much identical to many of the arguments that we (sane) free traders have made over the past few years in opposing any sort of aggressive US protectionism based on alleged Chinese currency manipulation:

• Adverse effects on US consumers (including many companies and their workers) caused by any big appreciation of the RMB? Check.

• Trade diversion to other low-cost markets rather than increased US manufacturing as Chinese imports get more expensive? Check?

• Context of the significant appreciation of China's currency against the dollar, as well as increases in domestic labor costs and export prices, over the last few years? Check.

• Potential Chinese retaliation against US investors and exporters in response to any US unilateralism? Check.

• Questioning the strategic logic of any US threats (i.e., that China might actually slow RMB appreciation if it feels its being strong-armed by the United States)? Check.

Impressive.  Indeed, I think the only thing separating Reuters' skepticism from my own is the legal dubiousness of any currency-related trade measures like countervailing duties.  But as impressive as this new article and its brethren are, I don't seem to remember similar analyses over the last few years when candidate-turned-President Obama routinely groused about Chinese currency manipulation and its devastating effects on the US manufacturing sector.  Sure, there was the occasional news report on Chinese currency appreciation or some other insular event that proved free traders' points about the pointlessness of China currency antagonism, but nothing - nothing - like the column above.  (The only thing I could find was this 2011 Washington Post editorial, and it blames Congress and never explains the flipside of RMB appreciation.)

So, nice work, Governor Romney: you've apparently opened the media's eyes to the myriad flaws in currency hawks' plans.  If that was your secret plan all along, I'm impressed. (Again, stop laughing.)

And, hey, who knows: at this rate maybe Reuters' detailed legal analysis will arrive in late October when they're really desperate.

(P.s. And before you start thinking that the China currency issue puts a +1 in President Obama's column, here's his top political adviser strongly implying that his boss is the real "trade warrior" in the 2012 race.  Boy, I sure can't wait for the two candidates to duke it out over that inglorious distinction.  Sigh.)

Horribly Misplaced China Priorities, Ctd.

From Steve Craven comes more evidence today that the Mainstream Media are finally catching on to the fact that the US government's obsession with China's currency is really misguided.  On monday, the WSJ's Peter Stein saw the light, and today the NYT's David Leonhardt does the same:

When China’s president, Hu Jintao, visits here next week, the exchange rate between Chinese and American currency will inevitably become a big topic of conversation....

Yet the focus on the currency has nonetheless become excessive. The truth is that the exchange rate is not the main problem for American companies hoping to sell more products in China and, in the process, create more jobs in this country. The exchange rate does not need to be the focus of next week’s meetings.

For the United States, the No. 1 problem with China’s economy is probably intellectual property theft. Technology companies, for example, continue to notice Chinese government agencies downloading software updates for programs they have never bought, at least not legally.

No wonder China has become the world’s second-largest market for computer hardware sales — but is only the eighth-largest for software sales.

Next on the list, say people who work in China or do business there, is the myriad protectionist barriers China has put up. These barriers make this country’s recent efforts at “buy American” protectionism look minor league. In some cases, Beijing has insisted that products sold in China must not only be made there but be conceived and designed there. The policy goes by the name “indigenous innovation.”...

Arthur Kroeber, a Beijing-based consultant and editor of the China Economic Quarterly, goes so far as to call the currency discussion a distraction. “What exactly there is to be gained by quibbling over a point or two in the annual appreciation rate,” Mr. Kroeber says, “is beyond me.”

Be sure to read the whole thing.  I don't agree with everything in there (especially on the value of congressional attacks on China's currency policies or of "Buy American" legislation), but it's an informed and fair-minded piece.  And it provides further proof that, the more that people really look at US-China trade issues, the more they see that currency is a red herring that diverts finite government resources from far more important US-China trade issues, like market access and IPR.

And speaking of that red herring, it appears that, just as predicted, inflation is doing to the real value of China's currency (and thus Chinese exports) what the Chinese government's interventions are trying to prevent via the nominal exchange rate:

When garment buyers from New York show up next month at China’s annual trade shows to bargain over next autumn’s fashions, many will face sticker shock.

“They’re going to go home with 35 percent less product than for the same dollars as last year,” particularly for fur coats and cotton sportswear, said Bennett Model, chief executive of Cassin, a Manhattan-based line of designer clothing. “The consumer will definitely see the price rise.”

Inflation has arrived in China. And after Tuesday’s release of crucial financial statistics by China’s central bank, few economists expect Beijing officials to be able to tame rising prices any time soon....

Higher global commodity prices, as well as rising wages in China, play roles in the increasing cost of Chinese goods. But economists say the main reason for the inflation now is China’s foreign exchange reserves, which surged by a record amount in the fourth quarter....

[T]hat cheap currency policy seems to be reaching its limits. The extra renminbi are feeding inflation. That is starting to undermine exporters’ price competitiveness — just as a stronger renminbi would do if Beijing was not intervening to begin with.

Money supply figures for December, which the central bank released on Tuesday, showed that cash and bank deposits were increasing at a rate twice as fast as even China’s soaring economy. Ever more renminbi are available to buy goods and services.

Victor Fung, the group chairman of Li & Fung in Hong Kong, a 35,000-employee trading company that supplies most of the world’s big retailers with Asian goods, said that contracts signed late last year would produce a jump of 10 to 20 percent in the import prices of consumer goods arriving at American ports by the second quarter of this year.

“By the middle of this year, you’ll see considerable diversion of trade away from China,” which will start to bring down the United States trade deficit with China, Mr. Fung said in an interview.

But there are only limited alternatives to China as a supplier of cheap goods. As American retail chains scramble to shift orders to other countries like Bangladesh and the Philippines, they are finding that inflation is emerging as an issue across much of Asia.

What is more, the far smaller factories in other Asian countries have little capacity to absorb the huge orders that Chinese factories routinely handle, corporate executives and economists said....

Hu Xingdou, an economist at the Beijing Institute of Technology, said that a more accurate gauge of inflation would show consumer prices rising 10 percent a year. The National Bureau of Statistics has said it is actively studying ways to improve the consumer price index.

Inflation in China is not just the result of China’s currency market intervention, although Mr. Hu and other economists describe it as the biggest single cause. Another cause is aggressive lending by Chinese banks, despite repeated demands by regulators to slow things down.

Rising prices for exports are also caused by wage increases for Chinese blue-collar workers, whose pay has been climbing as much as 15 percent a year. Those workers have more clout than they once did because the supply of factory labor from rural areas, which once seemed inexhaustible, is starting to dry up — a result of three decades of China’s “one child” policy of family planning, as well as a big expansion in university enrollment.

And globally, strong demand from consumers in China and other emerging economies is pushing up not only gasoline prices, but also the prices of cashmere, rabbit fur, cotton, copper and many other commodities....

The effect of higher prices in China on broad measures of American inflation is far from clear. The rule of thumb for many consumer products, from shoes to garments to toys, is that the import price is only a quarter to two-fifths of the final retail price, which also includes transportation within the United States and the wages, rent, electricity bills and other costs incurred by stores.

After showing little change for nearly two years, import prices for goods arriving from China at American docks rose from September to November at a rate equivalent to an annual rise of 3.6 percent....

Mr. Model of Cassin, who is visiting Beijing this week from his company headquarters just off Seventh Avenue, said that the world had changed and that Chinese manufacturers were now more interested in catering to their domestic market than in offering rock-bottom prices to big American companies.

“All of a sudden, they’re more interested in selling domestically,” he said. “The American wholesaler will fight them on $5. The domestic retailer doesn’t care as much.”

The Economist has more on this very interesting issue here, and let's please not forget that all of these changes are happening without self-defeating American protectionism.  In short, basic economics is doing what aggressive American unilateralism can't - and should never try to - do, and it's doing it pretty quickly at this point.  Or put another way: contrary to the doomsaying "experts" like Paul Krugman, doing nothing re: China's currency is working out just fine, thankyouverymuch.

The media are starting to understand these facts.  Better late than never.  The big question is whether our politicians will ever catch on and ditch the currency obsession for a smarter China trade policy. 

Speaking of which, the Australian reports that - hey look at that! - the WTO's Doha Round talks have been resuscitated and that completion in 2011 is a real possibility that will depend entirely on the leadership of the US, China, India and Brazil:

Ten years later, and having been revived twice after collapsing under a mountain of disagreements, the round continues to limp along under the guidance of singleminded Director-General Pascal Lamy, who is resolutely determined to extract an agreement from the WTO's 153 members.

Lamy, a former European Union trade commissioner and French political adviser who succeeded Supachai Panitchpakdi in 2005, told The Australian in Sydney that the leaders of the G20 agreed in Seoul in October that 2011 presented "a window of opportunity" to conclude the round. "I have been saying since July 2008 that 80 per cent of the deal is already on the table. The question is how to get the remaining 20 per cent done," Mr Lamy said.

This is up to the US, China, India and Brazil, who must resolve their differences to close the gap. "The US wants the emerging countries to pay a bit more than what is on the table in a number of areas. China, Brazil and India are saying maybe (we can do more), but we also need to see the price that the US is willing to pay for that," he said.

Intensive negotiations to bridge the final gap started in September and hopefully in the next few months, it will be possible to draw up a new global trade agreement. Other trade developments this year, such as the 10th anniversary of China's accession, and the entry this year of Russia into the WTO, may act as an impetus to wind up the decade-long, sometimes fractious Doha negotiations.

Some of us have been trying to spread the word on the Doha Round, and the desperate need for US leadership, for a while now.  Lamy's comments and more stories like this one will certainly help with that. 

But is President Obama listening?

Protectionism's Unreported Victims

Journalists love to write about the downtrodden victims of import competition, and who can blame them?  Such stories provide the type of fear-mongering, guilt-inducement and myth-reinforcement that American readers eat up!  (Or something.)  Well, regardless of the reasons, the interwebs are chock-full of stories of unemployed textile workers, closed paper mills, scared telemarketers and other general domestic mayhem caused by the omnipotent bogeyman that is "Globalization." The media just can't seem to get enough.

Cato's Dan Griswold does a fantastic job debunking the myth that imports cause a majority of American unemployment here and in his great new book Mad About Trade.  But what Dan doesn't mention in his blog entry is the other, totally unreported side of this coin: the very real victims of American protectionism.  About a month ago, I discussed how US tariffs regressively punished - through higher prices - American consumers of basic necessities like food, clothing and shelter.  Well, as the following examples from the last few weeks make clear, there are many other ways that protectionism can harm American businesses, workers and families:

• Reuters reports that the US operations of GPX International Tire have filed for Chapter 11 bankruptcy because of 44% antidumping duties on Chinnese imports of off-road tires.  The duties - different from those imposed by President Obama under Section 421 of US trade law - have jeopardized about 100 jobs at GPX's US facilities in Malden, Massachusetts.

• The AP reports that "Brazil has released a preliminary list of U.S. goods that could be hit with tariffs in response to a World Trade Organization ruling on illegal American cotton subsidies." According to the report, Brazil will hit American fruit farmers, juice producers and pharmaceutical companies with $295 million in annual sanctions as a result of the United States' failure to eliminate the protectionist subsidies to well-connected cotton growers.  The final list is expected to be submitted to the WTO by Nov. 30. Then the targeted American businesses will start paying $295 million in new taxes per year.
  

• Canada's Financial Post reports that the Stimulus* Bill's Buy American provisions are causing pipe fittings in California to be ripped from the ground for the second time in six months because they were stamped "Made in Canada."  The move has cost Cambridge Brass Inc., a Canadian brass fittings manufacturer, more than $1.5 million and has caused it to fire 63 workers since Buy American was introduced last spring.  Similar pain is being felt all over Canada, but for those of you who care only about American jobs, the Financial Post story highlights that US input manufacturers also are suffering from Buy American because many of the materials that the Canadian firms use to manufacture their products come from places like Texas.  Even Cambridge Brass is owned by AY-MacDonald, a US company with headquarters in Michigan.  And of course, the Canadians are threatening to retaliate against other US exporters, as rumors of a US-Canada settlement have faded.
  

• DelmarvaNow informs us that Chinese tariffs on US chicken exports - retaliation for the President's decision to impose prohibitive tariffs on Chinese tires at the request of the United Steelworkers - could seriously hurt small American chicken farmers in tiny towns like Delmar, Maryland that depend on chicken farming. In the piece, chicken grower Betty J. Hastings, a 25-year veteran of the business, describes the situation as "scary."

• MySanAntonio reports that Dallas-based Mary Kay cosmetics is paying $450,000 per month in Mexican tariffs imposed on US cosmetics exports (among others) as direct retaliation under NAFTA for a congressional ban on Mexican trucks from US roads.  (The ban - imposed under the 2009 Omnibus Appropriations Act - was a direct sop to the Teamsters union.)  MySanAntoinio also reports that the ban not only has resulted in tariffs on US exports ($2.4 billion total per year), but also has prevented Mexico's Estafeta - the "FedEx of Mexico” - from delivering letters and packages to US recipients. The result: Estafeta has refused to set up US operations (and hire US workers) until the spat is resolved, and US recipients of those letters/packages pay higher delivery prices.

So there you have it: layoffs, bankruptcies, hidden taxes, frightened old ladies, destroyed property, international intrigue, and congressional payoffs to crony interest groups - all the makings of high political drama!  Yet protectionism stories like these just don't seem to pique the interest of most "mainstream" media outlets, and instead, we readers are treated to trite, MadLib-esque reports of downtrodden mill-worker X and increased import Y from country Z.

No wonder the newspapers are going bankrupt.

Fore!

I'm happy to see that the CBO's deathblow to the White House's latest ObamaCare scheme didn't ruin the President's weekend. According to The Hill--

The commander in chief is out on the links again today, playing a round at Andrews Air Force Base. This is the 10th time in as many weeks that Obama has found time to squeeze in some golf (all weekends, except for one Monday.)

In fact, the White House press corps has come up with a nickname to
refer to the President's golfing habits: "The First Duffer," as they refer to
him in pool reports when he's hitting the links.

The "First Duffer." How cute. Frankly, I have little problem with the President blowing off some steam on the links. I'm just glad to see that the media's coverage of the Obama's golf game is identical to that of his predecessor.

(Please note intense sarcasm.)