Permitting Oil and Gas Exports Is a No-Brainer

The following entry was cross-posted at the Cato Institute's blog, Cato at Liberty:

Following today’s deadline for interested party comments, the U.S. Department of Energy will begin to consider sixteen pending applications to export natural gas to countries like Japan with whom the United States does not have a free trade agreement.  The issue is a contentious one: energy producers, many other U.S. companies and a large, bipartisan swath of Congress have urged DOE to approve all export license applications, but opposition has materialized among certain domestic consuming industries and environmental groups.  As a result, the Obama administration has delayed consideration of all but one application, and is expected to eventually permit a portion of the remaining exports in an attempt to placate both sides of the debate.

As I explain in a new Cato Institute paper, however, such a Solomonic decision might achieve the administration’s political objectives but will do nothing to fix the fundamental problems raised by U.S. export regulations for natural gas or similar rules for crude oil.  These exports continue to be governed by licensing systems adopted when the United States was a net energy importer and dependent on fossil fuels for energy production – a picture far different from the production, price, and trade realities that exist today due to revolutionary fossil fuel extraction technologies like hydraulic fracturing (“fracking”) and horizontal drilling.  In fact, domestic production of crude oil and natural gas has skyrocketed in recent years, driving down prices, boosting downstream industries, creating ample export opportunities and potentially reversing the United States’ historic position as a net energy importer.  However, our gas and oil export licensing systems – respectively governed by the Natural Gas Act of 1937 and the Energy Policy and Conservation Act of 1975 – continue to treat fossil fuel exports as a rarity and subject them to a long, opaque approval process under which the federal government retains ample discretion to approve or deny most export license applications.

Perhaps unsurprisingly, these outdated systems, and the restrictions they impose on U.S. exports, create a host of problems:

• First, by 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.  And contrary to certain politicians’ claims, independent reports show that the exportation of oil and gas would not cause a traumatic spike in prices, thus enabling consumers to continue to benefit from hypercompetitive U.S. fuel and feedstock supplies.

• Second, restricting U.S. gas and oil exports could hurt the U.S. economy. Recent studies indicate that these exports - even in unlimited quantities - would not only benefit U.S. energy producers, but also increase real household income.

• Third, both export licensing systems raise serious concerns under global trade rules.  The General Agreement on Tariffs and Trade (GATT) prohibits WTO Members from imposing export restrictions implemented via slow or discretionary licensing systems like those at issue here.  Moreover, several nations, including the United States, impose anti-subsidy measures (called “countervailing duties” or “CVDs”) on downstream exports (e.g., steel) due to export restrictions on their upstream inputs (e.g., iron). Thus, the crude oil and natural gas licensing systems could lead to anti-subsidy duties on energy-intensive U.S. exports that negate the very price advantages created by the licensing systems – a heightened risk, given that American exporters are increasingly targeted by foreign CVD actions.

• Fourth, current policy contradicts several other Obama administration priorities.  Most obviously, restricting oil and gas exports undermines the president’s National Export Initiative and stands in stark contrast to his full-throated advocacy of other energy exports, particularly renewables like biofuels and solar panels. Moreover, the use of export restrictions to benefit downstream industries contradicts longstanding U.S. policy of using countervailing duties to discourage foreign imports that unfairly benefit from export restrictions on upstream inputs.  Finally, the U.S. government has long opposed restrictive and opaque export licensing systems in WTO negotiations and dispute settlement.  The current U.S. export licensing regulations for oil and gas contradict these positions and undermine multilateral efforts to rein in such restrictions.

If President Obama really wants to develop America’s vast energy resources, grow the U.S. economy, restore some coherence to U.S. trade and energy policy, and avoid potentially embarrassing trade conflicts, he should order DOE to immediately approve all, not just some, of the pending license applications for natural gas and crude oil.  He then should pursue, with Congress, an overhaul of our archaic licensing systems so that they reflect the new American energy landscape and the United States’ position as a global export power.  Such reforms would bolster investment, production, and employment in the oil and gas sector, stabilize the U.S. energy market and benefit the overall economy, avoid the myriad policy and legal problems raised by the current system, and produce a rare moment of bipartisan comity in Washington.  It’s a no-brainer.

License to Drill: The Case for Modernizing America’s Crude Oil and Natural Gas Export Licensing Systems

That's the pun-tastic name of my new briefer for the Cato Institute.  Here's introduction:

Revolutionary extraction technologies have helped increase the supply of fossil fuels in the United States, driving down prices, spurring economic activity, and potentially reversing the longtime status of the United States as a net energy importer to a significant exporter. Impeding that transition are outdated federal regulations—in particular discretionary export licensing systems for natural gas and crude oil—that restrict exports, distort domestic energy prices, deter investment, and encourage graft. They also subvert some of the Obama administration stated policy objectives and could run afoul of U.S. international trade obligations.

Despite the potential economic windfall, opposition to exporting natural gas and crude oil has materialized among certain domestic consuming industries and environmental groups, causing the administration to delay any approvals on pending export-license applications. But there are compelling reasons to approve those applications and to overhaul our disjointed, anachronistic, export license systems to properly reflect the new energy landscape. This paper describes those reasons and provides a basic roadmap for reform.

The full paper is available on Cato's website here.  Probably my favorite part is the section on the inconsistency between the Obama administration's use - intentional or otherwise - of archaic licensing systems to restrict oil and gas exports and various other White House policies:

First, the restrictive export licensing systems undermine the National Export Initiative (NEI) and its goal of doubling U.S. exports between 2009 and 2014. Second, the administration’s reticence with respect to fossil fuel exports stands in stark contrast to its full-throated advocacy of other energy exports, particularly renewables like bio fuels and solar panels. Indeed, the September 2010 White House report setting forth the NEI’s priority recommendations calls for increased government support for renewable and nuclear energy exports—but never mentions oil or natural gas. A November 2012 follow-up report lauds the U.S. government’s efforts to achieve these objectives, yet continues to ignore American fossil fuels, despite the massive increases in production and export potential that occurred between 2010 and 2012. Furthermore, increased fossil-fuel exports could actually spur domestic production of renewable energy through higher oil and gas prices. According to the EIA, the role of renewables in electricity generation would be “greater in a higher-gas-price environment.”

Third, the use of export restrictions to benefit downstream industries contradicts longstanding U.S. policy with respect to export restraints and illegal subsidies. The Commerce Department repeatedly has imposed anti-subsidy duties on imports to countervail subsidies resulting from foreign export restrictions on upstream inputs. The administration’s embrace of similar restrictions would not only be hypocritical, but would also expose U.S. exports of energy-intensive products (e.g., fertilizer) to “copycat” duties in key foreign markets.

Fourth, the U.S. government has long opposed restrictive and opaque export licensing systems in WTO negotiations and dispute settlement. For example, in China—Raw Materials (DS394), the U.S. government challenged China’s “non-automatic” export licensing systems for various raw materials as impermissible restrictions on exportation in violation of GATT Article XI. In March 2009, the United States and several other countries submitted a proposal to the WTO Negotiating Group on Market Access calling for increased disciplines on Members’ use of export licensing. The current U.S. export licensing regulations for oil and gas contradict these positions and undermine laudable efforts to rein in such restrictions globally.

Be sure to read the whole thing. And I'd be remiss not to note some of the other recent work on this topic:

• Heritage's Nicolas Loris on the economic benefits of natural gas exports and empowering states to control their own energy policy.

• The Peterson Institute's comments urging DOE approval of pending natural gas export license applications.

Enjoy!

"Export-Oriented America"

GMU's Tyler Cowen has a new article in the American Interest that explores a lot of the issues that I've been covering here for the last few years.  Cowen first provides three reasons to think that the United States could become an export powerhouse in the next few years (hint: none of them involve China's currency or President Obama's National Export Initiative):

First, artificial intelligence and computing power are the future, or even the present, for much of manufacturing.... Factory floors these days are nearly empty of people because software-driven machines are doing most of the work....

The more the world relies on smart machines, the more domestic wage rates become irrelevant for export prowess. That will help the wealthier countries, most of all America. This logic works on both sides. America is using less labor in manufacturing, but China is too, even as its manufacturing output is rising. The fact that Chinese manufacturing employment is falling along with ours means that both our higher wages and their lower wages are becoming less relevant for the location of manufacturing decisions. The less manufacturing has to do with labor costs and relative wage levels, the greater the comparative advantage of the United States....

The second force behind export growth will be the recent discoveries of very large shale oil and natural gas deposits in the United States. Come 2030, the United States may well be the new Saudi Arabia of energy markets. We have new fossil fuel discoveries to draw upon, enough to fuel this country for decades, and there is plenty of foreign demand for those resources....

[T]he third reason why America is likely to return as a dominant export power: demand from the rapidly developing countries, and not just or even mainly demand for fossil fuel. As the developing world becomes wealthier, demand for American exports will grow. (Mexico, which is already geared to a U.S.-dominated global economy, is likely to be another big winner, but that is a story for another day.)

In the early stages of growth in developing nations, importers buy timber, copper, nickel and resources linked to construction and infrastructure development. Those have not been U.S. export specialties, and so a lot of the gains from these countries’ growth so far have gone to Canada, Australia and Chile. Usually American outputs are geared toward wealthier consumers and higher-quality outputs, which is what you would expect from the world’s wealthiest and most technologically advanced home market. To put it simply, the closer other nations come to our economic level, the more they will want to buy our stuff. Indeed most of those nations are growing rapidly, so we can expect their attentions to shift toward American exporters. The leading categories of American exports today—civilian aircraft, semiconductors, cars, pharmaceuticals, machinery and equipment, automobile accessories, and entertainment—are going to be in the sweet spot of growing demand in what we now call the developing world....

Just as Canada and Australia have prospered over the past ten years because their specialties matched Chinese demands, the United States is likely to be the bigger winner in the next ten years as Chinese (and other) demands mature. It’s a trend that has clearly already begun. In 2010, for instance, American exports to China rose by 32 percent, according to a 2011 report by the U.S.-China Business Council. Furthermore, American companies, with their practicality and marketing expertise, will be well positioned to convert scientific innovations from Chinese labs into new commercial products once such innovations start to arrive in large numbers.

So far, so good. Cowen goes on to explain that America's new export strength "will resurrect the United States as a dominant global economic power," helping to resolve the United States budget, trade and diplomatic problems.  I especially like Cowen's optimism that "[t]he opposition to free trade as it existed during the 1980s, and which led even Ronald Reagan into auto protectionism, is almost gone, and these pro-export developments mean that it won’t come back anytime soon."  I wonder, however, whether this new US support for free trade could be undermined as US exports are increasingly subject to trade remedies actions in key foreign markets like China - ironic, considering that the United States has always been one of the biggest users (and defenders) of trade remedies to curb foreign imports.  On the other hand, maybe it will result in a significant change in US trade remedies policies in forums like the WTO, seeking to impose, rather than rebuff, more stringent disciplines on nations' application of trade remedies measures.

That interesting hypothetical aside, Cowen goes on to explain the big downside to the United States big export surge:

The new export-based prosperity may not translate into higher wages for everyone, or even most people, in the United States. Skilled laborers who work with smart machines or even hold advanced managerial jobs will continue to make big gains, as the numbers have been showing for some time. Capital will do well too, especially if it is geared toward export success.... [S]ignificant segments of the American workforce are likely to continue suffering falling real wages, even in a time of rising export prowess.

As the number of American jobs in manufacturing has fallen dramatically, it is often forgotten that American manufacturing output has continued to rise, even during some slow times. In the past decade, the flow of goods coming from U.S. factories has gone up by a third as capital has increasingly become a greater share of input over labor....

[W]e’ll probably see a lot of the American workforce accept lower wages. A lot of American exporters are already experimenting with a two-tiered wage structure, with significantly lower wages for incoming workers....

To some extent, these trends resonate with the old saying, “Live by the sword, die by the sword.” Jobs in the export sector face intense competition, precisely because U.S. companies are increasingly selling into a global market, and that means wages in this sector cannot be guaranteed to rise. They might, and they might not, depending on how creative, efficient and well managed we are. Services, in contrast, are often produced inefficiently, but the jobs are more extensively cocooned within a protected domestic market, often based on government privileges and market-distorting third-party payment schemes.

Although I agree (and have argued for a long while now) that US manufacturing exports are not some magic bullet for the US labor market, I'm inclined to quibble a bit with Cowen's repeated characterization of the US services sector as "cocooned within a protected domestic market."  While that's certainly true for government jobs and certain health care and education jobs, it's definitely not the case for an increasing number of services jobs - for example in medicine, engineering, IT and, yes, even law (trust me) - that totally dominate in the face of real and growing global competition (precisely because US services providers are much more "creative, efficient and well managed" than their global counterparts).  Cowen seems to imply later (see below) that a such a dynamic services sector is to be expected in the coming years; I'd argue that, in this respect, the future is indeed now (and it's not nearly as dystopian as Cowen makes it out to be).

Nevertheless, Cowen next explains that even his overly-bad news comes with a silver lining:

There is the prospect of a better career path, accompanying future export gains, that stands a chance of making life less grim for the working class. Some of the new technological and export-related breakthroughs will consist of making education and health care more affordable, often through software and smart machines that bypass the current credentialized control of those fields. Imagine getting an online medical diagnosis from a smart machine like IBM’s Watson, or learning mathematics from an online MITx program or one of its successors. The American poor and lower middle class will have considerably greater opportunities, at least if they are savvy with information technology and disciplined enough to take advantage of these new free or cheaper goods. Of course, this will not come close to helping everybody. These internet tools reward the self-motivated, who will be disproportionately well educated, even if their parents lack higher education, wealth and connections. Many of the rest will still fall by the wayside.

Even American earners who must cope with stagnant wages will probably reap big gains from new opportunities to lower their basic living expenses. Imagine a family earning $37,000 per year that has much cheaper education and health care costs, thanks to government benefits and internet-based innovation. No one will be tempted to call such households wealthy, but they won’t fit the standard measure of poverty either. They will have positive experiences in their lives and lots of free and nearly free goods....

The internet will continue to make it easier for small businesses to export, but many of the growth areas, including fossil fuels, heavy equipment and cars and other high-tech items will remain the province of big business. America will likely see a new age of corporate titans selling their products and services to the entire world, and the world as a whole will be far wealthier than in times past. The wealthiest American earners will be very wealthy indeed, even by current standards. Due to their export activities, they will take an increasingly global perspective, and they will give away lots of their money, just as Bill Gates has expanded his philanthropy abroad.

Cowen concludes by predicting that the growing divide between the hyper-productive and over-protected will grow to dominate our society and our politics:

These days, this old portrait of the two-tiered economy, originally applicable to a developing economy, may be re-emerging for the United States. We had not thought through seriously enough the possibility that the world’s most technologically advanced economy would, over time, develop persistent and indeed growing productivity differentials across sectors. It clearly has, and the social and political frictions this has caused now dominate our politics—or soon will.

One way to understand this is to note a neglected implication of Moore’s Law for computer processing speed, namely that its use in the value-added process benefits some economic sectors much more than others. In this case the static sector consists of the protected services (a big chunk of health care, education and government jobs), and the dynamic sector is heavily represented in U.S. exports, often consisting of goods and services rooted in tech, connected to tech, or made much more productive by tech innovations. Piece by piece, bit by bit, we Americans are replicating the two-tiered developing economy model, albeit from a much higher base level of wealth and productivity.

A battle between the "static sector" (e.g., public sector and industrial unions) and the "dynamic sector" (e.g., industrialists, non-union workers and professional services)?  Is this really, as Cowen contends, the distant future of American politics?

Or is "the future" right now?

NEWSFLASH: Administration Still Clueless About Global Competitiveness

Last week, I detailed why the Obama Administration's fiscal policies were utterly clueless when it came to improving US businesses' global competitiveness.  Those criticisms remain valid, and perhaps even more so, now that the White House has released its big corporate tax "reform" plan (to see why, go here, here, here, here and here - for starters).  Thus, I'm going to ignore the President's campaign talking points tax "plan" and focus on another critical aspect of US companies' international competitiveness that the President and his advisers completely ignore: import liberalization and global supply chains.

Now, this isn't the first time that I've exposed the administration's blind spot when it comes to the clear connection between duty-free access to imports and US companies' ability to compete and "win" in the global economy.  (And I'm certainly not the only one.)  But a new piece by trade gadfly Greg Rushford really hits this point home by repeatedly documenting the abject silliness (and economic ignorance) that is the President's mercantilist obsession with exports (and concomitant disregard for imports).  In the piece, Rushford follows President Obama's recent "Made In America" road trip - in which he trumpets various companies' export successes - and then explains the dirty little secret behind that success: imports and even - gasp! - outsourcing.

First, President Obama on February 15th traveled to a Master Lock factory in Milwaukee to proclaim that "[w]e need an economy that is built to last, that is built on American manufacturing, and American know-how, and American-made energy, and skills for American workers, and the renewal of American values of hard work and fair play and shared responsibility."  What he failed to mention, however, is how Master Lock actually does business:

In Milwaukee, Master Lock now employs more than 400 workers, some 100 of them having been brought back from its Chinese facilities. The company also has about 700 more workers in Nogales, Mexico. Together, the Milwaukee and Nogales plants account for perhaps 55 percent of the company's lock production, with the remainder still in China, according to press reports....

And while praising Master Lock's manufacturing exports, President Obama failed to mention how the company's product is, you know, actually manufactured:

While at first glance, a padlock seems like a pretty simple thing to make, Master Lock's unionized Milwaukee work force has reason to know otherwise. Master Lock's vice president for global supply chains, Bob Rice, wrote a memo to the company's Asian suppliers last year, listing as examples 20 different products the company needed to import from China, each with its own SKU number.

Locks have parts that come from just about anywhere: keys, cylinders assemblies, ball bearings, plated shackle stop pins, anti-saw pins, screws, cylinder external assemblies, cases and cylinder retainer blocks. In 1995, the last year for which publicly available documentation is available for U.S. Customs' records, Master Lock made nine of 11 such components in Milwaukee. But the lock case and cylinder retainer block were needed from Taiwan --- and those two parts represented an estimated 25- 35% of the total cost of the finished padlock.

More recently, in 2010 Master Lock made U.S. Customs officials work a bit to determine where one padlock model was really made. The padlock was made of ten different components from various countries, with the principal components being a lock body made in Milwaukee and a shackle from China. All the components were then assembled in Mexico. Customs determined that the finished padlock should be marketed as a product of Mexico --- but that "Mexican" padlock also employed workers from Milwaukee to the Middle Kingdom.

Sometimes, Master Lock imports parts from Mexico, like unfinished padlock lock bodies and shackle assemblies that are then finished in Milwaukee, where the cylinder locks are attached. Those padlocks are labeled Made in USA --- but again, there's more to the American success story. Workers of the World: you have really become united....

Odd that Obama left these important facts out, huh?  It's almost as if he doesn't care about using the loudest microphone in the world to spread economic ignorance.  But I digress...

Rushford then follows President Obama to a Boeing plant in Everett, Washington to show that the company's production of the new 787 Dreamliner "is a great example of how we can bring jobs and manufacturing back to America."  Obama added that his administration wanted "to make it easier for companies like Boeing to sell their products all over the world, because more exports mean more jobs."  However:

The president didn't admit what every economist would immediately recognize: to export those Dreamliners, Boeing's workers need access to raw materials and components from all over the world.

Dreamliners may be Made in America, but with essential imports sourced from so many other places that it's difficult to know where to begin. There's the Integrated Surveillance System Processor and an Integrated Navigation Radio, from Canada. There's also a Valve Control Unit from Germany --- passengers can thank that for keeping their cabin air pressure within tolerable limits. And there's a turbine engine exhaust nozzle, brought in from Mexico from titanium sheets made in China. Those are just the first three telling examples that show up from a glance through US Customs records --- with each import necessary to the American workers in places like Everton.

That doesn't even get to the big-ticket items: the Rolls-Royce Trent 1000 engine, the testing in wind tunnels in the UK and France; the Mitsubishi Heavy Industries' wing; Italian horizontal stabilizers, doors from France, and other critical components from Sweden, India, South Korea --- it's a very long list. The Dreamliner is as cosmopolitan as the American people. Boeing's American workers should love imports, because their jobs depend upon them.

Finally, Rushford explains that it's not just US manufacturing companies that benefit from import liberalization and global supply chains.  Services firms, like those who helped build Miller Park in Milwaukee, also reap major dividends:

Miller Park was built by American (union) workers, with tons and tons of domestic materials. But that's not the whole story. The subcontractor for the stadium's renowned retractable steel roof was Mitsubishi Heavy Industries, Ltd. Mitsubishi bought high-strength steel from Luxembourg, which was shipped to Mitsubishi fabrication yards in China and Japan. The finished steel components were then shipped to the Port of Los Angeles, where they were unloaded by American longshoremen and then driven by Teamsters to Milwaukee.
Other steel that went into Miller Park came up the Mississippi River from the Port of New Orleans, according to sources at that port. And Haven Steel Products, Inc., headquartered in Kansas City, made the steel for the stadium's bowl that supports the roof. Other key work was done by Wisconsin Electrical Power Co.,not to mention the intrepid workers who put in the all-important beer-supply pipes.

Arup, the United Kingdom's experienced design firm, was responsible for most of the engineering design for Miller Park, working also with design teams from Dallas, Los Angeles, and Milwaukee. Arup, headquartered in London, has sent its consultants and engineers just about everywhere in recent decades: including New York's Tappan Zee Bridge, the 2nd Ave. Subway; Japan's Kansai International Airport, and the Sydney Opera House. Miller Park, like the others, was truly Made in the World....

Back when President Obama announced his National Export Initiative in 2010, I first highlighted the administration's odd habit of trumpeting US exporters who just so happen to rely on imports.  Rushford's piece makes clear that the White House hasn't kicked that habit and remains as economically uninformed as ever (well, at least publicly).

And just in case you think that Rushford and I are cherry-picking, think again.  The 2012 Economic Report of the President - quietly released last week - shows that the Obama administration's complete disregard for import liberalization is very much intentional.  That report's section on International Trade and Finance goes to great lengths to (i) praise goods and services exports (particularly the increase in US exports since their post-crash nadir in 2009); (ii) denigrate goods and services imports (for, example by lamenting the trade deficit and lauding opportunities to decrease exports of services imports); and (iii) not mention - even once! - the demonstrably positive effects of import liberalization on US firms' global competitiveness (despite spending several pages on ways to improve such competitiveness).  This complete disregard for import liberalization is, in my estimation, a new low (previously set by the President's 2010 Trade Policy Agenda) and a serious step backwards from the administration's much-improved 2011 Agenda.

If the President and his economic team can't even mention such an obvious and critical aspect of American businesses' ability to compete in today's global economy, then why on earth should we trust them on related issues like tax reform?


Oh, right, we shouldn't.

ITC: Eliminating Import Barriers = $2.6B in GDP and $9B in New Exports

Last night I alluded to a new ITC study on import barriers and global supply chains, but I didn't mention the report's headline finding.  The study, which is an update of a periodic report that I last discussed in 2009, found that the simple, unilateral elimination of existing US trade barriers would benefit the US economy to the tune of billions of dollars:

The U.S. International Trade Commission (Commission) estimates that U.S. economic welfare, as defined by total public and private consumption, would increase by about $2.6 billion annually by 2015 if the United States unilaterally ended (“liberalized”) all significant restraints quantified in this report. Exports would expand by $9.0 billion and imports by $11.5 billion. These changes would result from removing import barriers in the following sectors: sugar, ethanol, canned tuna, dairy products, tobacco, textiles and apparel, and other high-tariff manufacturing sectors.

Now, a few billion dollars here and there is certainly not going to save the $15 trillion US economy, but it still isn't chump change and, unlike other government "stimulus" unilateral liberalization involves no new government spending (and thus no new Solyndras!).  Moreover, there is simply no justification for the artificially high prices on basic manufacturing inputs and consumer necessities (especially food, clothing and footwear) that American businesses and families must pay in order to subsidize the well-connected American industries that produce these artificially expensive products.  None.

And let's not forget about that sweet, sweet $9 billion in new exports.  As we all know, the Obama administration is desperately trying to push export expansion as part of its US economic recovery plan.  For example, just yesterday on ABC's "This Week" Austan Goolsbee, the former chair of Obama's Council of Economic Advisers, said that the United States needs to "refocus" its economic strategy by looking to exports and investment.  So, considering the ITC's repeated findings, I guess the White House is busily readying legislation to eliminate existing US import taxes on sugar, ethanol, canned tuna, dairy products, tobacco, textiles and apparel, ball bearings and other manufacturing sectors, right?

Unfortunately, no.  In fact, they've repeatedly pursued the exact opposite approach, erecting, rather than eliminating, US obstacles to imports.  Off the top of my head, they've raised tariffs on things like tires and chicken; they've proposed new trade remedies rules (twice) that would almost invariably lead to increased duties on a wide range of imports; they still haven't allowed Mexican trucks on US roads; they've repeatedly embraced "Buy American" procurement policies; and they've even negotiated higher tariffs on cars and trucks as part of the US-Korea FTA.  So the next time you hear an administration official talk about increasing US exports, be sure to remember that $9 billion worth of exports (and the American jobs that go with them) voluntarily sitting on the sidelines.

And then tell that official to call the ITC asap.

Trade Remedies and US Competitiveness

Today Cato's Dan Ikenson published a new paper on the US antidumping law and American competitiveness.  Here's the paper's setup in Ikenson's Forbes op-ed on the same subject:

During the decade from January 2000 through December 2009, the U.S. government imposed 164 antidumping measures on a variety of products from dozens of countries. A total of 130 of those 164 measures restricted (and in most cases, still restrict) imports of intermediate goods and raw materials used by downstream U.S. producers in the production of their final products. Those restrictions raise the costs of production for the downstream firms, weakening their capacity to compete with foreign producers in the United States and abroad.

In all of those cases, trade-restricting antidumping measures were imposed without any of the downstream companies first having been afforded opportunities to demonstrate the likely adverse impact on their own business operations. This is by design. The antidumping statute forbids the administering authorities from considering the impact of prospective duties on consuming industries—or on the economy more broadly—when weighing whether or not to impose duties.

That asymmetry has always been insane, but given the emergence and proliferation of transnational production and supply chains and cross-border investment (i.e., globalization)—evidenced by the fact that 55% of all U.S. import value consists of raw materials, intermediate goods, and capital equipment (the purchases of U.S. producers)—it is now nothing short of self-flagellation.

Here's my favorite part:

If you need more evidence that the antidumping status quo is weighted heavily against import-consuming U.S. industries, consider this gem: three of the nine mineral raw materials that are the subject of the U.S. case against China in the WTO (magnesium, silicon metal, and coke) are simultaneously subject to U.S antidumping restrictions. That’s right! With our own import restricitons firmly in place, the United States is suing China to remove its export restrictions on the same products. That sounds like an excellent use of resources.

And here's the paper's basic conclusions:

The NEI should include a serious commitment to antidumping reform. At a minimum, consuming industries should be given legal standing to participate fully in antidumping proceedings, antidumping measures should be rejected if the projected costs of those restrictions on those firms and on the broader economy exceed some reasonable threshold, and any duties applied should not exceed the level found necessary to remedy injury to the petitioning domestic industry.

Be sure to read the whole thing here.

Weekend Quick Hits

Apologies for the light blogging this week - it's been a brutally long one for your humble correspondent.  But here's a treasure-trove of headlines to make up for my absence:

• Alternate headline: Former USTR Portman Joins Gaggle of Protectionist Senators to Ask Current USTR Kirk to Pursue Silly Protectionist Policy that USTR Can't Actually Achieve. (Silly letter available here.)

• Must-read WSJ analysis: Blather in Washington won't affect the US-China exchange rate; Chinese inflation will.  (Yes, this should sound very familiar.)

• In case you missed it, AEI's Claud Barfield ably responds to my blog post on the United States' sordid history of "FTA bullying."  His future analysis on this issue promises to be great.

• Forbes analysis: US corporations pay a LOT of taxes, especially those dastardly oil companies!

• Shocker: "Both the European and global carbon markets could significantly increase costs for EU steelmakers, while at the same time reducing the potential for offsetting those costs, speakers at Steel Business Briefing’s Green Steel Strategies conference in Brussels argued.  European Union Allowance (EUA) prices are expected to rise to around €40/tonne by 2020, according to forecasts presented by Carine Hemery of carbon market analysts Orbeo. Moreover, the amount by which steelmakers can cut their costs by offsetting with UN carbon credits, called Certified Emissions Reductions (CERs), could fall from around €3-4/t currently to just €1-2/t in 2013-2020, she adds."  Me: Is lobbying for carbon tariffs soon to follow?

• Vladimir Putin puts on a clinic on "How Not to Improve Your Country's Chances of Getting Into the WTO Anytime Soon."

• According to a new report by sympathetic environmentalists, governments and industries are lying to us about the efficacy of wind power generation.  I'm shocked!

• Cato's Dan Griswold deflates the silly White House rhetoric that we're "on track" to double US exports in the next 5 years.

• WorldTradeLaw.net's Simon Lester has an insightful blog post about the "dangers of talking about competitiveness" in the context of international trade rules (and disputes).  I agree.

• China's commerce ministry (MOFCOM) announced preliminary anti-dumping and countervailing duty rates for sedans and SUVs from the United States.  As you'll recall, this case started back in 2009 as a not-so-subtle response by the Chinese government to the President's decision to impose safeguards duties on Chinese tires under Section 421 of US trade law.  Final rates in the China AD/CVD case will be out in a few months.

• US-China business Council released state-by-state data on US exports to China between 2000 and 2010.  The results are pretty staggering.  For example, exports to China from my home state of North Carolina - a place that's unfortunately (and irrationally) represented by many a protectionist politician - increased over 500% since 2000 and now stand at over $2.2 billion. 

• Arnold Kling discusses a new paper on trade and US employment trends that's (rightfully) getting a lot of buzz.  Tyler Cowen has more praise and discussion here.

• The 2011 Name of the Year bracket is out, and it is as awesome as ever.

• Finally, ReasonTV follows my lead but enlists the far-more-persuasive Sallie James to implode Bernie Sanders' insane war on the imported trinkets that are were sold at the Smithsonian giftshops:

Wednesday Quick Hits

Lots of headlines since last week, so let's get right to it:

• Cato's Dan Ikenson provides some much-deserved criticism of USTR's jubilation over the WTO's totally-expected ruling that last year's Section 421 decision against Chinese tire imports was consistent with global trade rules.  (Others agree.)

• AEI's Claude Barfield rightly admonishes the Politico's John Maggs for his reallllly bad reporting on US FTAs' likely path through Congress.

• Cato's Dan Mitchell and Chris Edwards explain just how embarrassing it is that, with Japan's decision to lower its corporate tax rate, the United States now has the highest statutory corporate tax rate of all OECD nations.  Edwards provides a great chart: 

Me: The next time that a protectionist complains about imports, outsourcing and a lack of American competitiveness, feel free to share this chart with him/her. 

• Columnist David Harsanyi explains that Americans are just plain wrong about the state of American manufacturing. (Gee, I wonder where they could have gotten the wrong idea?)

• Revealing WSJ interactive charts on US debt levels.  Guess what? Everyday Americans have moderated their debt levels, but Uncle Sam's tab just keeps on growing and growing and growing.

• Paul Krugman, mercantilist.

• AEI's Phil Levy (at a very interesting forum on the National Export Initiative) explains, starting at about 1:37 the pitfalls of trying to sell free trade through mercantilism (i.e., free trade = exports = jobs) approach (h/t Bryan Riley):

• Chinese inflation is becoming a pretty serious issue.  More here.

• Festivus is real.  Bring on the airing of grievances and feats of strength!

• Finally, GMU's Don Boudreaux takes to xtranormal to create a nice little cartoon explaining the idiocy of protectionism (h/t Simon Lester):

 That should keep y'all busy for a while.  Enjoy!

Monday Quick Hits

Lots of interesting stuff over the last two weeks, so let's get right to it:

• FedGov economists: Increasing exports won't increase US manufacturing jobs.  Three economists from the US International Trade Commission write, "While export promotion is often seen as a strategy of increasing manufacturing employment, in the past decade US employment growth has all been in the services sectors. Even though manufacturing is important in itself, the promotion of US exports is likely to generate more indirect jobs in wholesaling, transport, and professional services than direct jobs in manufacturing."  Of course, you already knew this because you read my post on the issue last November(!).

• While loudly demagoguing manufacturers that ship jobs overseas, the administration is spending millions of taxpayer dollars to train foreign IT workers.  Holy policy disconnect, Batman!

• On the bright side, lousy US trade policy can't hold back global trade.  From The Economist: "Trade has not been devastated by the raft of protectionist actions taken during the downturn. According to the World Bank, the rise in tariffs and anti-dumping duties explains less than one-fiftieth of the collapse in world trade during the recession. For the most part, the fall in trade reflected a drop in demand." Even better, early evidence suggests that "re-balancing" is occurring: "There is even some evidence that activity has rebalanced from the lopsided trade pattern that existed just before the crisis. Then, the share of emerging-world imports that came from rich countries had been on a steadily declining path. But now demand from emerging economies is helping to prop up rich-world exports to a larger degree than is commonly realised. According to IMF figures, of nine emerging markets in the G20, seven got a higher share of their imports from rich countries in 2009 than they did a year earlier. Just 59% of China’s imports came from rich countries in 2008, but this rose sharply to 66% in 2009. India obtained 42% of its imports from rich countries in 2008, but last year this rose to 47%."  Gee, and we didn't even have to impose self-flagellating 35% tariffs on China to do it! (Paul Krugman was unavailable for comment.)

• Sen. Lincoln may be going down in flames, but she's gonna subsidize everything on her way out.  Behold, desperation efforts from Arkansas' queen of farm subsidies: "Large-scale farms would disproportionately benefit from a $1.5 billion disaster aid package for which Sen. Blanche Lincoln says she's secured funding, an advocacy group said in a report released Thursday. Lincoln, who is in a tough re-election fight in Arkansas, has said she's received assurances from the White House that the Agriculture Department would fund $1.5 billion administratively for farmers who lost crops in 2009. Democrats agreed to cut the aid from a small business lending bill last week. The Environmental Working Group on Thursday projected that the largest share of the aid — $210 million — could go to Lincoln's home state with 270 farms collecting more than $100,000 each in disaster subsidies."

• Shocker: BMW outpaces its European rivals by making cars that people actually want.  From the WSJ (subscription): "Making cars people want to buy is a better investment proposition than making cars governments have to bribe people to buy. Just look at BMW, the top-performing European auto stock this year even as rivals received a substantial boost from scrapping incentives. Through design and good fortune, an expectation-beating second quarter could be a harbinger of further outperformance by the German company."

• Something to remember the next time you hear your congressman/senator badmouthing China and/or pining for a trade war.  The US China Business Council recently released its annual report on US exports to China (helpfully broken down by congressional district).  Their overall conclusions: "'Even with a global recession, American businesses and American workers continue to benefit from expanding opportunities to sell high-value manufactured goods to the China market, the world’s fastest growing economy,' USCBC President John Frisbie said. 'A clear trend that began in 2000 continued in 2009: Exports to China continued to outpace export growth to other global markets,” Frisbie continued. “US exports to China have jumped 330 percent since 2000, compared to 29 percent to the rest of the world.'”

• The Obama administration celebrates CAFTA's 5th birthday by filing a labor complaint against Guatemala.... naturally.  My favorite quote: "In a statement released yesterday by the Guatemalan Ministry for Foreign Affairs, the Central American country expressed surprise at the complaint, and was even more taken aback by Washington’s decision to announce the dispute in such a public fashion. The Ministry’s statement also alluded to Guatemala’s concerns that the complaint could be politically motivated."  Playing politics with US trade policy?  This administration?  Never!

• Leaked: WTO sides with China in dispute over US barriers to chicken imports.  Per Reuters: "A World Trade Organization panel has ruled in favor of China in its dispute with the United States over an effective U.S. ban on imports of Chinese chicken, a Chinese source said on Tuesday. The WTO issued a ruling in the poultry dispute to the two parties on Monday, but it remains confidential until it is published in a couple of months time. There was no official comment from Chinese or U.S. authorities. Asked whether China had won the case, the source, who is familiar with the ruling, told Reuters: 'You could say that ... It went well.'"

• Video: Vietnam continues to take market share from China.  Bloomberg: "The communist nation drew 13.5 percent of the Association of Southeast Asian Nations' foreign direct investment pool in 2008, up from 4.4 percent two years earlier, according to the 10-member group."

Monday Quick Hits

Lots to clear off here, so let's get right to it:

• New Peterson Institute study: imports don't put downward pressure on wages.  The authors conclusions: " This analysis suggests that the fears of rising US wage inequality from developing-country imports in recent years are unwarranted. While conventional trade theory makes such expectations plausible our investigation reveals they are far off the mark.... US industries competing with developing country imports are not particularly intensive in unskilled labor. Moreover, the relative effective prices of the US industries that are unskilled labor–intensive have actually increased rather than decreased since the early 1990s.  Changes in effective US prices from whatever cause have not mandated changes in relative wages. Neither have changes that can be ascribed to import prices mandated increases in wage inequality.... The goods exported by developing countries are highly imperfect substitutes for those produced by developed countries. This means that for the most part, unskilled US workers are not competing head to head with their counterparts in developing countries. It also suggests that methodological approaches to the question of trade and wages that measure the net factor content of trade or that assume that imports and domestic products and/or tasks are close substitutes rest on extremely shaky grounds." (h/t Alec Van Gelder)

• US manufacturers: Obama's National Export Initiative is "misguided" because it's economically illiterate.  Money passage:
  

  David Speer, chief executive of Illinois Tool Works, a large diversified manufacturer widely seen as a bellwether for the sector, noted that most big industrial companies have spread their manufacturing operations around the world, making the focus on exports a poor reflection of the health of the sector.
  
  The export drive “is very misdirected”, Mr Speer said in an interview with the Financial Times. “You often hear the politicians say: ‘those are US jobs that went overseas, they should be here.’ Well, most of the jobs go overseas for rational reasons – that’s where the growing market is.”
  
  “We’re not going to be any better off by saying: ‘we’re going to ship our product to China from the US’,” Mr Speer said.
  
  “We can’t do it. It won’t work. We won’t be able to compete – for lots of reasons, the smallest of which is the wage rates. It’s logistics, it’s the duties, it’s the closeness to the customer end-market that you can’t service remotely.”
  
  The ITW chief’s comments reflect a view expressed in private by many industrial companies that the export drive is unfeasible and gives the false impression that lost manufacturing jobs in the US will be replaced.

  Gee, now where have we heard that before?
  

• WSJ (subscription): Changes in China's currency won't change trade surplus because bigger, systemic changes are needed.  Cato's Dan Ikenson adds more here.  (And, yes, all of this also sounds vaguely familiar.) 

• WTO releases its Annual Report.  The new publication has lots of good info on the WTO's history and recent activities.

• AEI's Claude Barfield: Here's the real "big news" about the President's big weekend announcement re: the US-Korea FTA.  "Finally, for Washington inside baseballers, it is interesting that the planning and announcement of this decision was carried out by the National Security Council (NSC). This will undoubtedly feed the speculation that the White House staff really directs key U.S. trade policy decisions and that Michael Froman, the NSC Deputy Director for International Economics, is really the “go-to” guy, rather than U.S. Trade Representative Ron Kirk."

• Mark Perry: Colombia's economy is dominating because of its commitment to free markets and free trade.  Too bad the President didn't make an FTA announcement about them last weekend too, huh? 

• Sen. Jim DeMint (R-SC): The current system for requesting miscellaneous tariff suspensions is awful; my legislation will fix it.  Me: it also would end an ongoing spat between some US manufacturers and anti-earmark Republicans in Congress. 

• The UK: here's a simple reminder of why Americans should fight tooth-and-nail against a VAT.  (And, yes, that's twenty - two-zero - percent tax on top of everything else.) 
  

Australia Investigates US Biofuels Exports: A Sign of Things to Come?

Because of the US-Brazil cotton dispute, the irrationality of American agriculture subsidies and their problems under global trade rules have been in the spotlight a good bit lately.  But now that the dispute has been "resolved" (for now), it seemed that - much to the pleasure of US agribusiness and their congressional patrons - things would be quieting down on the ag-subsidy/trade front.  Well, recent news out of Australia could thwart those plans and make for a rougher-than-expected summer, as Law360 explains:

The Australian government has decided to probe allegations that U.S. companies are dumping biodiesel in the country and benefiting from subsidies, a year after the European Union imposed anti-dumping duties on U.S. biodiesel producers including Archer Daniels Midland Co. and Cargill Inc.

The Australian Customs and Border Protection Service said in a report Monday that it was investigating a complaint by a domestic company, Biodiesel Producers Ltd., that biofuel from the U.S. had been exported to the country at dumped prices.

According to the report, Customs believes there are reasonable ground to support the claim that U.S. biodiesel is being dumped in Australia and that the U.S. industry is receiving countervailable subsidies.

There also appear to be reasonable grounds to support the claim that the dumping and subsidies have injured the Australian market by causing lost sales and market share, price undercutting, and loss of employees, Customs said.

The report estimated the dumping margins for U.S. biodiesel at 38 percent in January 2009 and 26 percent in February 2010.

It also described tax credits available to U.S. biodiesel producers as countervailable subsidies, which amounted to 40 percent of the estimated export price.

Customs wrote to the U.S. government about the allegations on June 7, but did not get a response, according to the agency....

Customs will now conduct a formal investigation and decide whether to recommend that the Australian government impose anti-dumping and countervailing duties on the U.S. products. The minister for home affairs has the final authority to impose the duties.

In July, the EU imposed five-year anti-dumping and countervailing duties on imports of biodiesel from the U.S....

The tariffs counter an American subsidy of $1 per biodiesel-gallon to producers of blended biodiesels. U.S. exporters commonly export biodiesel in a B99 blend — 99 percent biodiesel and 1 percent petroleum diesel — in order to take full advantage of the subsidy, according to the EC.

These subsidies allow biodiesel companies to capture a 17.2 percent share in the European market, compared with 0.4 percent in 2005, at the expense of European producers, according to the commission.

ADM was hit with countervailing duties of €237 a ton and an anti-dumping duty of €68.60 a ton, while Cargill was given anti-dumping duties of €213.80 a ton and an anti-dumping levy of zero.

As the article makes clear, this is the second trade action against American biofuels exports, and if the EU case is any guide, an Aussie finding that the US illegally subsidizes biofuels exports appears pretty likely.  (They still have to prove injury or threat of injury before imposing remedial tariffs on those products, of course, but that's entirely case-specific so we can't really speculate about it.)  So with two trade investigations of American biofuels exports, you'd think that the Obama administration and Congress might begin to recalibrate US biofuel policies - particularly when those policies have come under intense scrutiny for a lot of other non-trade reasons (like the fact that corn ethanol is really inefficient and might actually harm the environment).

Well, folks, think again:

June 23, 2010 - Agriculture Secretary Tom Vilsack today released a report outlining both the current state of renewable transportation fuels efforts in America and a plan to develop regional strategies to increase the production, marketing and distribution of biofuels. The report provides information on current production and consumption capacities as well as projections to meet the Renwewable Fuels Standard (RFS2) mandate to use 36 billion gallons of biofuel per year in America's fuel supply by 2022.

"The Obama Administration has made domestic production of renewable energy a national priority because it will create jobs, combat global warming, reduce fossil fuel dependence and lay a strong foundation for a strong 21st Century rural economy, and I am confident that we can meet the threshold of producing 36 billion gallons of biofuel annually by 2022," Vilsack said. "The current ethanol industry provides a solid foundation to build upon and reach the 36 billion gallon goal. As we prepare to celebrate Independence Day, we must reaffirm our commitment to bring our country closer to complete energy independence and this report provides a roadmap to achieve that goal."...

The report provides data on the significant impact the ethanol industry will have on job creation. It is estimated that as many as 40 direct jobs and additional indirect jobs are created with each 100-million-gallon ethanol facility built. USDA plans to adopt regional strategies that allow the placement of biorefineries in areas of economic distress through the leveraging of regional resources for transportation, labor and feedstocks. The regional strategy provides greater potential for economic benefit.

Yes, you read that correctly.  Instead of reevaluating problematic US biofuels policies, the Obama administration is doubling-down.  And in case you're wondering, USDA's new report (available here) - while chock-full of discussion about the need for existing and planned "incentives" (read: subsidies) for corn ethanol and other biofuels - completely fails to mention the potential for trade infractions and the significant duties on US exports that they can produce.  Yep, nary a mention of those EU tariffs, the new Australian investigation, or other possible trade cases.  Such non-reporting is particularly, umm, interesting, considering the administration's single-minded obsession with expanding US exports as part of its National Export Initiative.

Odd that they wouldn't mention that, huh?

Now, the administration's selective memory aside, all of this news raises broader and more important questions - ones that I've raised in the past - about the future of US biofuels subsidies, as well as other "green energy" policies that could produce similar trade frictions, particularly now that the President is determined to double US exports by 2015 under NEI.  For example, consider this story from today's Wall Street Journal:

Through the Department of Energy, [the US government]'s guaranteeing loans to clean-energy companies. But the loan program's success depends on the viability of firms involved. And a closer look at two big recipients reveals some of the risks in store for taxpayers.

First, take Solyndra, which makes solar-energy panels for commercial rooftops, and has a $535 million government-guaranteed loan. Solyndra's chief selling point is its cylindrical panel-design, which is said to reduce installation costs for users. However, there is no shortage of solar-panel manufacturers, and the prices of flat polysilicon panels have already plunged, boosting their affordability.

There are doubts about Solyndra itself. Despite the cheap government loan, Solyndra last week withdrew plans to do a $300 million initial public offering. It decided instead to sell $175 million of debt to existing investors. The IPO cancellation wasn't unexpected. In its IPO registration, Solyndra's auditor said that the company's weak financial performance raised "substantial doubt about its ability to continue as a going concern."

What is more, Solyndra has applied for a second government-backed loan, of $469 million, to help expand its manufacturing capacity. The company said that, if it doesn't get the second loan, it intended to raise financing from other sources that included the now-cancelled IPO....

Next, consider electric car maker Tesla Motors, which has a $465 million government-backed loan and is expected to do an IPO at the end of this month. The company will stop producing the vehicle it became known for, the Roadster sports car, and focus instead on a premium sedan called the Model-S. This car's selling point is that, according to Tesla, it will be able to travel up to 300 miles per-charge-a far higher "range" than other manufacturers are claiming for their electric cars. Tesla says it hasn't actually based its range projections on a working Model-S prototype but on internal computer models. And, according to its IPO filing, potential new government testing standards could result in a 30% cut to Tesla vehicles' advertised ranges.

Leaving aside the absurdity of a flat-broke nation subsidizing sketchy firms with borrowed money, stories like this have "future trade problem" written all over them.  You see, cheap government loans to struggling domestic companies are a common example of an illegal (or "countervailable") subsidy under global trade rules.  And, if Solyndra and Tesla survive (a big "if" from the looks of it), their exports to other nations that produce similar solar panels/electric cars would be very vulnerable to national trade remedies cases, just like those EU and Aussie cases against US biofuels.   And if those cases result in new tariffs and copycat cases in other markets (a very common occurrence), these companies will lose precious foreign market share and, in some cases, could even go bankrupt entirely unless alternative markets quickly materialize. Big problem.

The US is simultaneously (i) throwing billions of tax dollars at companies like ADM, Cargill, Solyndra and Tesla through various agriculture and energy programs and (ii) pushing these companies' exports through the NEI.  As I mentioned months ago, such a combination is a recipe for trade frictions and maybe even a bunch of new investigations of - and eventual tariffs on - US agricultural and "green energy" exports.  So is the Australian biofuels case, and the EU one before it, a harbinger of bad things to come or just isolated instances caused by unique market conditions?

Only time will tell, but if I had to bet on it, my money'd be on the former.

Thursday Quick Hits

I'm still tired from my birthday dinner last night, so you're only getting headlines tonight.  But as my mom would say, somehow I think you'll live:

• Cato's Dan Ikenson is on blog-fire today.  First, he's deflating the China-as-economic-model myth.  Then, he's all up in the President's grill about how our trade remedy laws undermine Obama's big National Export Initiative.  And he still had time to buy me lunch.  Very, very efficient, that guy.

• Germany's ridiculous new law restricting "naked" short-selling not only is economically illiterate, but also could violate global trade rules.  Unglaublich!

• Breaking down the conventional wisdom about the VAT and exports.  (Something to keep in mind next year when the President uses export-expansion as one of his reasons for cramming a VAT down our throats.)

• Everybody loves FTAs except America.  Further proof: Canada-Panama, EU-MERCOSUR, EU-Canada. Good for them.  Bad for us.

• KPMG Report: Mexico is the most tax-competitive country in the world.  The United States now ranks sixth (out of ten), down one spot since last year (grrreat).  And the highest-tax country in the world?  France.  Shocking, I know.

• Speaking of higher American taxes, here's a shock:  it is literally impossible to tax your way out of a fiscal hole.  There's a law and everything (plus one of the coolest charts I've seen in a while).  Oh, there's a good comment on this issue here by Cato's Dan Mitchell.

• China's back to being the #1 holder of US debt.  Cue ominous music and dumb politician statements about "America's banker." 

• The United States Supreme Court decides (kinda) that free speech and free trade don't mix.

• And finally tonight, economists and policymakers often like to sell free trade by explaining how well it works for the American states and how stupid interstate protectionism would be.  This smart move plays to people's inherent understanding and reason and is often successful in converting trade skeptics.  These guys, however, did NOT get that memo:
  
   

It's Official: US Trade Policy is an Embarrassment (But That Could Actually be a Good Thing)

Late Friday night, when you were home nestled all snug in your bed (or out at some bar), the White House issued a Presidential Proclamation that May 16-22, 2010 - yes, the week starting 30 hours after the notice was issued - would be World Trade Week:

NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by virtue of the authority vested in me by the Constitution and the laws of the United States, do hereby proclaim May 16 through May 22, 2010, as World Trade Week. I encourage all Americans to observe this week with events, trade shows, and educational programs that celebrate the benefits of trade to our Nation, American workers, and the global economy.

I don't know about you, but I have been scrambling ever since the big announcement to put together my event/trade show/educational program - my "celebration!" - of the benefits of "trade" (not "free trade") to our nation.  (The Evite is in the mail!)  Cato's Dan Ikenson has done his part with a stirring blog entry/call-to-arms on US trade policy and the President's obvious love therefor:

Mr. President, I applaud your efforts and recognize that decision must not have come easily. There were probably late-night discussions with your staff, contemplative 2am walks through the Rose Garden, and perhaps some sleepless nights. To even imply that trade may be beneficial to Americans—this close to November, no less—was an act of profound political courage.

Indeed.  Ok, ok.  I think that by now you understand that Dan and I are - shocking, I know! - being rather sarcastic about the President's big announcement.  But can you blame us?  Not only was the White House's press release and proclamation more neutered than Bob Barker's dog, but it also was issued a mere 1.5 days before the exciting week was to officially begin.  Thus, only those of us who are really in-the-know were aware enough to RSVP for such riveting USTR World Trade Week Events like USTR Ron Kirk's closed-to-the-press meeting with South Korean Trade Minister Kim Jong-hoon, or the environmental roundtable focusing on trade and illegal logging, or the USTR/Labor Dept. meeting of the Sub-Committee on Labor Affairs created under the United States-Morocco FTA.

World Trade Week Fever, baby!  Catch it!

Of course, the other important fact of the Presidential Proclamation's timing was that it was issued as part of the White House's traditional "Friday Night News Dump."  For those of you who don't know, the Obama administration (like its predecessor) has a long history of releasing bad or embarrassing news on Friday night after the evening news cycle so that the announcements' first TV mention won't be until Saturday morning when most normal people are enjoying their weekends and not watching FOX or CNN.  Indeed, the only other time that the Obama White House has released a Friday night international trade announcement was the President's controversial decision to impose prohibitive tariffs against Chinese tires pursuant to "Section 421" of US trade law - a move that's still biting the President (and American exporters) where the sun don't shine.

So why did the White House release the proclamation on Friday night?  Well, I see two possibilities.  First, they're afraid of stirring up controversy with the trade-hating part of their political base, so this was an easy way to keep it under the radar.  But as Ikenson notes above, the World Trade Week announcement didn't have a single controversial word to it.  Consider this riveting excerpt:

To ensure American companies have free and fair access to global markets, we are enforcing existing trade agreements, addressing issues in pending agreements, and forging new ones that protect our businesses, workers, consumers, and environment. We are also opening new markets and encouraging development with trade preference programs. These steps will bring us closer to accomplishing the ambitious goal I set in this year's State of the Union address to double our Nation's exports over the next five years.

As we pursue measures to safeguard our future prosperity, we must remember that we still have the most innovative and productive workers in the world. We have the most dynamic and competitive economy, and we remain the top exporter of goods and services. As other nations and markets grow, our leadership will not be guaranteed. Yet, our success has never been guaranteed. It has been forged through decades of hard work, ingenuity, optimism, and common purpose.

This week, let us renew the enduring principles that have driven our Nation to the forefront of human progress. With our ships, trucks, trains, planes, and fiber optic lines, we will send our goods and services to every corner of the globe. Together, we will make this new century an American century yet again, and secure a bright future for generations to come.

Ok, so is it really plausible that empty words like these were issued as part of a Friday Night News Dump to avoid scrutiny from unions and other anti-traders?  I mean, even with a few important 2010 primaries tomorrow, it seems like a real stretch to think that the AFL-CIO is going to issue an all-points electoral bulletin against the White House's support for America's "innovative and productive workers" or its "ships, trucks, planes and fiber optic lines." 

I guess it's possible, but I'm skeptical that this is another example of White House free trade cowardice - even this White House.  Instead, I think the more likely reason for the President's Friday night announcement is that his administration is truly embarrassed that it has absolutely nothing to announce.  Pending US FTAs with Panama, Colombia and Korea aren't going anywhere this year, and meanwhile it seems like every other country on the planet is implementing their own trade agreements (without the US) at a breakneck pace.  The WTO's Doha Round is absolutely dead, and the United States' inaction is one of the main reasons why.  The Obama administration still hasn't announced a formal trade policy (and might never do so), and USTR's 2010 "trade agenda" has almost no mention of half of the "trade" equation - imports.  Indeed, the administration's top "free trade" moves - the National Export Initiative and the Trans-Pacific Partnership - are so harmless that not even the staunchest of protectionists have found reason to complain (yet).  As I said a while back, calling the NEI and TPP "free trade" is like calling onanism "free love," and that bad joke still applies today.

Now, I've blogged often about the administration's inaction on trade, but over the past several months I've been joined by many other commentators, mainstream news outlets, American business leaders, and US trading partners.  Even political leaders in the President's own party are beginning to complain about our trade non-policy, so for Obama to loudly and publicly announce the beginning of World Trade Week would call even more attention to what's quickly becoming quite the black eye for the White House.  And I can't really blame them for wanting to avoid more scrutiny on this embarrassing issue.

But hey, there's actually a small silver lining to my dark-clouded theory: if I'm correct and the World Trade Week proclamation was issued late Friday out of embarrassment instead of political cowardice, there might still be hope for this administration on free trade.  It shows that they actually comprehend just how bad their trade non-policy is, instead of thinking that they have over the last 16 months crafted a decent free trade policy that needs to be shielded from anti-trader scrutiny during the 2010 election season.  Because if this is really the President's best shot on trade, we're in deep, deep trouble for the next 2+ years.

They say that admitting you have a problem is the first step to overcoming that problem.  Maybe the White House's World Trade Week embarrassment is a sign that the President and his advisers have taken, or are almost ready to take, that step.  And if so, maybe there's a little hope for American trade policy after the November mid-term elections.

Maybe.

New Op-Ed: On Trade, It's Put Up Or Shut Up

I have a new op-ed in The Daily Caller today.  I hope you like it; as always, your feedback is welcome.

On trade, it’s put up or shut up

With his signature health care legislation now law, President Obama has a little under three months to prove that he actually supports free trade. After that, all bets are off.

By almost any metric, the Obama administration’s trade policy has been a disappointment. Inaction pervades, and our trading partners have gone from mildly annoyed to downright hostile. But the American trade agenda didn’t always look to be headed this way. In Spring 2009, the White House dramatically reversed the protectionist campaign rhetoric of then-Senator Obama. U.S. Trade Representative Ron Kirk launched an aggressive campaign advocating free trade and denouncing protectionism. The White House’s first Trade Policy Agenda called for ratification of the pending U.S.-Panama Free Trade Agreement “relatively quickly,” and sought to advance other completed FTAs with Colombia and South Korea. The Agenda also unequivocally supported the World Trade Organization and NAFTA, and anticipated congressional renewal of the President’s “fast track” trade negotiating authority.

Then political reality set in.

Immediately following the shift in White House trade rhetoric, congressional protectionists, almost all within Obama’s own Party, launched a stifling counter-offensive. Senator Sherrod Brown (D-OH), for example, expressed disappointment with USTR’s pro-NAFTA rhetoric and pledged to make it clear to President Obama that “our trade policy is not working and that it needs fixing.” Such comments proved effective. The White House abandoned overt free trade actions and speeches in order to secure needed health care votes from anti-trade Democrats – a move that Rep. Henry Cuellar (D-TX) apologetically confirmed at June 2009 Cato Institute event.

As the health care debate stagnated, so did US trade policy, and it remains that way today. Signed FTAs remain shelved, despite the fact that the EU, China and others have negotiated preferential deals with the same FTA partners, each to the competitive disadvantage of American companies. The WTO’s Doha Round negotiations are comatose, even though an ambitious Doha deal would provide billions in benefits to US economy. And US exporters endure superfluous pains because the White House has failed to resolve several bilateral trade disputes, including $2.4 billion in Mexican tariffs resulting from the United States’ NAFTA-illegal ban on Mexican trucking, and the threat of almost $900 million in Brazilian sanctions based on US non-compliance with WTO rulings against American cotton subsidies.

Despite these problems, some might argue that the National Export Initiative and the Trans-Pacific Partnership negotiations are concrete evidence that the Obama administration is dedicated to free trade. But real free trade policies – like the pending FTAs – involve immediate market liberalization at home and abroad. The NEI, by contrast, is a one-sided, non-controversial program which seeks to expand US exports through a timid combination of margin-tweaks that most economists believe will have little effect on US trade flows. Thus, calling the NEI “free trade” is like calling onanism “free love.”

The TPP Agreement, on the other hand, could yield significant trade gains, but would take years complete. Indeed, USTR Kirk lauded the TPP negotiations precisely because they won’t be completed for years. Of course, this is the same USTR whose 2010 Trade Agenda mentioned the word “import” only five times, and never once in terms of domestic market access. So Kirk’s statements about the TPP and the administration’s advancement of the NEI are hardly surprising. They’re just par for the cowardly course.

Throughout all of this, administration officials and the few free trade Democrats in Congress have quietly reassured the US business community that America’s free trade legacy will re-emerge once the contentious health care debate is over. In September 2009, Transportation Department officials told a concerned group of affected exporters that the White House would not resolve the Mexican trucking dispute because the President needed Teamster support for ObamaCare. And at an October 2009 event, Reps. Cuellar and John Tanner (D-TN) assured their audience that the FTAs would progress once the health care debate ended.

Well, folks, health care’s over. Time to put up or shut up.

Most of the United States’ current trade irritants are within the White House’s control to fix, as long as the President willing to expend an iota of political will to get things done. Signed U.S. FTAs have already been ratified by the partners countries and now only require the President to send their respective implementing legislation to Congress for ratification. While many congressional Democrats will resist such legislation, Obama can expect significant support from Republicans, many of whom, like House Trade Subcommittee Ranking Member Kevin Brady (R-TX), have routinely called on the President to submit the trade deals. Other issues show similar potential for bi-partisan resolution. All they require is an end to the White House’s politically-motivated ambivalence.

In late June, Washington will turn its attention to the November mid-term elections, and controversial legislation will become untouchable. If President Obama and his free trade supporters really mean what they’ve said over the past year about the President’s commitment to free trade, the White House will move on one or more of the unresolved trade issues before this “silly season” begins.

If, on the other hand, June comes and goes, and these issues are still unsettled because of the administration’s political calculations, then the die will have been cast. And no amount of excuses will be able to convince American businesses and consumers that this President really cares about free trade.

*     *     *

Bloomberg's Al Hunt strikes a similar note in his op-ed today.  I highly recommend giving it a look.

The VATMan Cometh?, ctd.

Charles Krauthammer today:

That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).

It’s the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

Obama set out to be a consequential president, one on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes; then, ultimately, you have to reduce government spending.

Obama’s strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.

And the VAT is the only trough in creation large enough.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.

Ultimately, even that won’t be enough. As the population ages and health care becomes increasingly expensive, the only way to avoid fiscal ruin (as Britain, for example, has discovered) is health-care rationing.

It will take a while to break the American populace to that idea. In the meantime, get ready for the VAT. Or start fighting it.

Well, that's certainly depressing.  But hey, you can't say I didn't warn you a few months ago (for some different, but mostly the same, reasons):

The White House and Congress are already pushing a huge tax on energy (through Cap and Trade) that would certainly decrease domestic consumption of energy-intensive products (especially if it includes carbon tariffs on imports of these goods).  But Cap and Trade appears dead in the Senate this year, and the White House has already hinted that the legislation might need to be shelved so the administration can focus on deficit-reduction and jobs policies in 2010.

On the other hand, several high level Democrats - including those inside the White House - are openly contemplating a Value-added Tax (VAT) on all domestic consumption.  The VAT not only would significantly temper American consumption, but also would raise massive amounts of new revenue for the cash-strapped US government to pay down its debt (also mentioned in Obama's "strategy" speech) and/or finance major new government programs like trillion-dollar health care "reform."  Finally, VATs are not collected on export sales, and any previous VAT paid on inputs used to make the exported product is typically refunded at the border.  So exports gain new preferential status in the US economy under a VAT system.  In sum, a VAT would be a classic three-fer for the Obama White House: discouraging US consumption, encouraging exports, and (sneakily) raising oodles of revenue for the federal government.  Of course, whether it's actually good for economic growth is a totally different matter (hint: it isn't).

In this light, Obama's odd "Asia strategy" makes a lot more sense: he's essentially giving notice to China and other Asian economies that rely - at least in part - on American consumption that such consumption is going to be dramatically tempered by a new VAT - a policy that also will encourage US exports and help quell fears about an exploding US deficit and an imploding US dollar.  Pillars #1 and #2 are just window dressing.

Of course, the President and his party could avoid all of this "rebalancing" nonsense and encourage strong US and Asian economic growth if they would just stop spending money that the United States doesn't have and lower taxes (particularly capital gains and payroll taxes), not raise them, to encourage savings, investment and hiring.  But that's not how they roll (as the $2 trillion ObamaCare debacle and the President's $3 trillion budget make abundantly clear).  Instead, they're scheming to find a new, secret way to confiscate lots of taxpayer money, discourage American consumption, and boost exports.  Cripes.

So open your wallets, everyone.  The VATman cometh.  Let the "rebalancing" begin.

Since I wrote that little piece of sunshine, the White House introduced its inevitably-ineffectual National Export Initiative, so any future VAT recommendation might be premised on "saving" both the federal budget and the fledgling NEI (with its silly goal to double exports in five years).  Maybe not, but as the debt piles up and US exports don't spike, a serious VAT proposal becomes an increasingly plausible scenario.

As Dr. K says, there's still time for the American people to fight this travesty and to prove us both wrong.  Please, please do so.