On China Trade, Paul Ryan Toes the (New, Fake) Company Line

Well, that certainly didn't take long:

In his first remarks touching foreign policy since becoming Mitt Romney's running mate, Paul Ryan had tough words for China in this manufacturing-heavy battleground state.

"They steal our intellectual property rights. They block access to their markets. They manipulate their currency."

He continued, "President Obama promised he would stop these practices. He said he’d go to the mat with China. Instead, they’re treating him like a doormat. We’re not going to let that happen. Mitt Romney and I are going to crackdown on China cheating. We’re going to make sure that trade works for Americans."

Sigh.  Although I'm certainly not a fan of Ryan's comments, they're utterly unsurprising given that China-bashing has been a central plank of Romney's economic platform for almost a year now, and that his new running mate has hardly been a strong and outspoken champion for trade liberalization during his twelve years in Congress.  (Something I acknowledged again last night.)  However, as I noted on Sunday, Rep. Ryan has a pretty good voting record on China trade, having approved Permanent Normal Trade Relations for China back in 2000 (as part of its WTO accession) and, more importantly, opposing a 2010 bill that would have authorized the Department of Commerce to treat "currency manipulation" as a countervailable subsidy - virtually identical to one of the things that Governor Romney promises to do on "Day 1" of his Presidency.

A smart reporter was quick to note this blatant conflict, to which the Romney campaign responded with a classic bit of political non-speak:

The Romney campaign responds that the president already has sufficient authority to act on China's currency manipulation, and a Romney-Ryan administration would do exactly that.

“Like Gov. Romney, Congressman Ryan believes America must take aggressive action to confront nations like China that cheat on trade," says spokesman Brendan Buck. "He believes this can be done most effectively when the president has the freedom to take appropriate action, and that we need a president like Gov. Romney who is committed to doing just that instead one like President Obama who has shown he won’t.”

Umm, yeah, if you can make sense of Mr. Buck's soundbite, please let me know because I certainly can't.  However, because campaign journalists don't understand the basics of US trade law, it appears he got away with it... for now, at least.  That said, I'd be remiss not to counter the paraphrased notion above that President Romney could unilaterally label China a currency manipulator or impose duties on Chinese products on his first day in office.  As I explained back when Romney's big plan first landed:

First... Treasury's assessment and designation of foreign countries as "currency manipulators" is conducted pursuant to US law (22 U.S.C. § 5301-5306), which defines "currency manipulators" as countries that "manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade.” Treasury's assessment must be done in consultation with the IMF and pursuant to pretty strict guidelines. In short, the President can't just tell Treasury to designate a country a "currency manipulator," and he/she certainly can't do it publicly via Executive Order (as Romney's plan promises). To do so would not only violate the letter of the law, but also destroy the Treasury report's credibility.

Second, the President can't just instruct the Commerce Department to begin imposing countervailing duties on Chinese goods. Pursuant to US trade law and regulations, the imposition of countervailing duties on imports requires (i) a petition from an affected industry or self-initiation by Commerce (something that never happens) requesting remedial tariffs on a discrete subset of allegedly subsidized imports; (ii) preliminary and final findings, based on extensive evidence (including rebuttal from Chinese producers, US importers and the Chinese government), of that said imports are being subsidized; and (iii) preliminary and final findings by the non-partisan International Trade Commission that said imports are injuring the US industry. Each of these steps is required by US law and WTO rules. So Romney's plan to, on the very first day of his presidency, just start imposing CVDs on Chinese imports would be in direct conflict with both US law and the United States' WTO obligations.

On the second point, it's also important to note that, even a more subtle approach which simply directed Commerce to begin treating "currency manipulation" as a countervailable subsidy would raise red flags because the Department has repeatedly found that currency policies do not meet the definition of a countervailable subsidy under US law.  (This is why anti-China protectionists have been begging for China currency/CVD legislation for the past several years!)  Now, yes, DOC can theoretically change its policy where it has a reasonable basis to do so, but it is extremely unlikely that "Presidential pressure" would qualify as such (and that still wouldn't obviate some serious WTO concerns).  And, anyway, is the Romney campaign really trying to say that its big China trade plan is to strong-arm the Commerce Department into reversing its longstanding policy of not treating currency undervaluation as a countervailable subsidy?  I doubt it.

But, of course, no one in the press pool or on the Obama campaign will ever get into these thorny issues with the Romney/Ryan team, so this is all just me ranting into the interwebs academic anyway.  And, like I've said a few times now, there are good reasons (Rep. Ryan's pro-trade votes being one of them) to expect that President Romney would, like President Obama before him, ditch the China protectionism the minute he arrived in the Oval Office.

But that doesn't mean I have to sit back and enjoy it.

Why Free Traders (and Policy Fans) of All Political Stripes Should Root for Paul Ryan

A few days ago, I examined Republican Vice Presidential candidate Paul Ryan's congressional votes on subsidies and international trade, and concluded that he had a pretty good, but not great, record.  But that unfortunate fact doesn't mean that I'm not rooting for the guy - I definitely am, and if you support better US trade policies or simply wish for political campaigns to focus more on real policy issues rather than stupid trivia, then you should too.

Regardless of your political affiliation.

In today's Wall Street Journal, the Hoover Institute's Robert Barro begins to explain what I mean by the bold statement above.  He first notes that "The level of economic commentary during the presidential campaign has not been high" - a disturbing fact that I've repeatedly lamented here.  Then, after quickly explaining the basic - and almost universally-accepted - economic truths about the overwhelming benefits of free trade (including outsourcing) and the undeniable harms of "socialistic" business subsidies, Barro discusses why Mitt Romney's selection of Ryan - most definitely not a vocal free trade zealot - matters for these issues:

With the addition of conservative thinker and budget expert Rep. Paul Ryan to the Republican presidential ticket, we can hope that the economic dialogue will become more serious. And perhaps this added substance will extend beyond the important issue of long-term fiscal reform to encompass the enduring but still crucial debate about socialism versus capitalism.

The post-Ryan political conversation thus far appears to be fulfilling Barro's hopes.  For example, earlier this week, the WSJ reported that Ryan's selection has set off a debate about the proper scope of government:

Amid growing complaints about the pettiness of American politics, the 2012 presidential campaign is turning into a far-reaching, big-picture debate over the size and scope of government.

Mitt Romney's choice of Rep. Paul Ryan of Wisconsin, an uncommonly assertive spokesman for free markets and small government, to be his running mate on the Republican ticket has highlighted the differences between them and President Barack Obama...

Until now, in a 2012 campaign bristling with negative attacks and accusations about the character of the two candidates, big policy choices have been eclipsed.

That changes with the selection of Mr. Ryan, author of detailed conservative budget plans that call for major changes to many social programs, offering voters a choice: Are welfare services a safety net, or can they breed dependency? Is Medicare a social contract with the elderly, or unsustainable and in need of repair? And will cuts in government spending hurt economic growth, or foster a more robust private sector?

Myriad stories along the same lines have emerged over the last few days, and it seems that almost everyone with a Twitter or Facebook account has seen or posted something about the Ryan plan, the budget, Medicare cuts or some other serious policy issue.  Contrast this with the last several months of soul-crushing, superficial "debates" about tax returns, Olympic uniforms, who ran Bain Capital and when, fast food chicken, dogs (on car roofs or dinner plates), and... well, you get the idea.  The level of election-related discourse has undeniably improved in the last week.

Now, I have no idea whether this improvement will last through November.  I actually think it will because both sides seem to think that the other's fiscal position is political kryptonite, but, frankly, it's not just the public budget and economics debate that has me rooting for Paul Ryan - it's what a Romney/Ryan victory would mean for the longstanding behind-the-scenes fight between policy advisers and political hacks, especially during campaign season.  As I've repeatedly mentioned here in the context of trade, that fight - one that I've unfortunately experienced firsthand - tends to go something like this:

Adviser: There is ample historical and empirical evidence showing that policy [X] is the superior  position from an economic and moral perspective.

Hack (briefly looking up from his blackberry): Umm, yeah, that's great, dude, but policy [X] polls poorly, and we're just not gonna take the risk in an important election year. On the other hand, the public just loves policy [Y], so we're gonna stick with that, even though we all know it's an inferior position.  Now if you'll excuse me, I gotta jet - need to meet [politician] at Morton's for a fundraiser.

Adviser (mumbling under his breath): I hope you get hit by a taxi.

I The adviser may or may not have said that last thing, but you couldn't really blame him if he did.  This debate plays out over and over in political offices and on related conference calls across the country: principled wonks want a political debate about important policy issues, but political consultants, armed with polls and focus group testing, are scared to death of "real" debates' repercussions and thus seek to avoid them like the plague.  So we're stuck with month-long political fights about whether Harry Reid's friend's cousin's dogsitter saw Mitt Romney's 1997 1040EZ - fights that, by displacing real policy discussions, prevent better public understanding of important issues and thus doom the political discourse to repeat its vicious cycle of vapidity over the next election cycle.

As a result, real policy solutions rarely, if ever, materialize.

This is precisely what's caused our dismal political discourse about international trade, and US trade policy has therefore suffered.  The debate over entitlement reform has faced a similar fate: the debts have mounted as the political can has been kicked down the road, and both parties' political cowardice is to blame.  With the Ryan pick, however, it appears that we'll finally have a substantive debate about the need for serious entitlement reform - an issue that, also like free trade, is politically risky but supported by ample economic evidence (see Barro's op-ed for a refresher course, if needed).  And while it's totally unclear whether a Romney/Ryan victory will actually ensure real entitlement reform, what seems clear is that it should have a serious impact on the future of America's political discourse.  If they win, the wonks finally have proof that forcing a real debate about real policy in the face of uncertain public opinion is not a political deathblow.  In short, it shows that the American people can, given the right message and the right facts, overcome their ignorance, sift through the demagoguery and vote for good policy instead of good hair.

If Romney/Ryan lose, however, the policy advisers - and the political discourse more broadly - are in pretty deep trouble for the foreseeable future.  In the aforementioned internal debate, the hacks will have not only those risky poll numbers, but also the following conversation-ending addendum:

"And you do remember what happened with Romney and that Ryan guy, right?  Yeah, that's what I thought."

And at that point, I will pack up my briefcase and move to the countryside, forever unable to turn on the TV for fear of watching yet another bipartisan assault on outsourcing or Medicare reform or whatever.  (Shudder to think.)

So I root for Paul Ryan.  He might not be the best free trader; he might not be my "perfect candidate"; and his victory might not even ensure a conservative solution to our real entitlement crisis.  But if he loses, lord help us, the hacks will have won, and our political discourse will get even worse.

And our TV-watching won't be the only thing to suffer.

Paul Ryan on Trade and Subsidies: Not Perfect, But Reason for Optimism (UPDATED)

Since the political world is currently obsessed withfocused on Mitt Romney's VP choice, Wisconsin Congressman Paul Ryan, there's no better time than now to steal a few cheap pageviews and look at how the dashing young nerd voted on trade barriers and subsidies during his 12-plus years in the US House of Representatives.  Fortunately, the good folks at Cato have done most of the legwork and have tabulated Ryan's votes on these issues between 1999 (his first year there) and 2011, and overall, Rep. Ryan's record is a mixed bag: he's been very good on trade barriers (supporting the free trade position 87% of the time - 46 of 55 votes) and so-so on subsidies (opposing subsidies 50% of the time - 11 of 22 votes).  The full list of Ryan's votes is pasted  at the bottom of this blog post here (and, of course, is available at Cato's website).  If you click on the legislation itself, you'll find Cato's "free trade" take on the bill.

A few comments:

• Cato's list doesn't yet include votes for 2012, and there are two pretty big ones from this year that warrant mention.  First is Ryan's unfortunate 2012 vote in favor of H.R. 4105 - the bill to apply the US countervailing duty law to imports from countries like China and Vietnam that are designated as "non-market economies" under the US antidumping law.  I've discussed at length why that protectionist law was a very bad idea, and the legislation was opposed by grassroots fiscal conservative groups like the Club for Growth, FreedomWorks and National Taxpayers Union.  But considering only 39 House Republicans were brave (and smart) enough to oppose H.R 4105, Rep. Ryan's "aye" vote certainly doesn't mean he's suddenly become a hardcore protectionist.  In fact, if you look at Ryan's voting history below, it appears he has a small blind spot for trade remedies measures (as do many Republicans, unfortunately), so this vote may be consistent with Ryan's previous position on trade and protectionism.  On the other hand, Ryan joined 90 other fiscal conservatives and voted against the 2012 reauthorization of the Export-Import Bank - a reversal from several previous votes in support of the Bank and its subsidies, so the Congressman may actually be a little better on subsidies than his Cato scorecard indicates.

• Ryan's Ex-Im epiphany also parallels an overall improvement on trade and subsidies since entering Congress in 1999.   Ryan's worst vote in support of trade barriers is easily his 1999 support for steel quotas - an utterly indefensible vote - but, other than a few votes related to national security (Cuba, Burma, etc.), a couple inexplicable votes against letting Mexican trucks travel on US roads, and those aforementioned trade remedies votes, he's been quite good since the early 2000s.  Contrast this with a "fiscal conservative" like Rick Santorum, who not only voted consistently in favor of trade barriers but also sponsored myriad bills seeking to prohibit import competition and force US consumers to subsidize US producers (many of whom just-so-happened to be his constituents).  Clearly, Ryan's a big improvement over that kind of Republican.  Meanwhile, he seems to have been more willing to support subsidies - including farm subsidies - during his first few terms (although that 2008 auto bailout vote certainly isn't pretty).  However, more recently - perhaps in tandem with his position as a budget leader in the House - he has opposed almost all business subsidies, including those for US agribusiness.  This "evolution" reflects either shrewd political calculation (casting more principled - yet politically sensitive - votes as his seat becomes more secure) or a real policy improvement (perhaps as he learned just how these votes breed cronyism and harm the economy).  Maybe it's a little of both.

• Perhaps Ryan's most interesting recent trade/subsidy vote is his 2010 opposition to the Currency Reform for Fair Trade Act, which would have authorized the US Department of Commerce to impose countervailing duties on imports from countries that have "misaligned" currencies (h/t Marc Ross).  That bill - a WTO-inconsistent mess that would've provoked a trade war with China and opened the door to painful duties on imports from many countries, not just China - passed overwhelmingly in the House by a vote of 348-79.  Thus, Ryan's opposition reflects an admirably principled position in defiance of not only the House majority, but also a majority of his GOP colleagues.  It also puts Rep. Ryan in the entertaining position of disagreeing with his possible future boss, Mitt Romney, who unfortunately has supported labeling China a "currency manipulator" and slapping CVDs on Chinese and other imports due to their governments' currency policies.  As I've repeatedly lamented, Romney's position on China trade is bad policy and politics, but it's also likely nothing more than campaign bluster.  Ryan's opposition to China currency protectionism - when it actually mattered, no less - could be a welcome sign that, contrary to his promises, President Romney wouldn't attack Chinese imports on his first day in office.  Of course, Ryan's recent support for HR 4105 tempers this enthusiasm a bit, but that bill wasn't nearly as toxic as the currency measure.  So overall, this is a good sign that a Romney administration would, like Ryan's record on trade and subsidies more broadly, be good - but not great - on trade.

Not to mention a marked improvement over the current occupant of the White House.

[UPDATE: The Ryan trade vote table that was pasted into this post was causing some serious problems for the blog's formatting and interface, so it's been moved here.]

[UPDATE2: The Club for Growth's Andy Roth notes via email that Ryan also supported the 2010 "Congressional Made in America Promise Act"  - a bill that wasn't on the Cato scorecard and would "clarify the applicability of the Buy American Act to products purchased for the use of the legislative branch, to prohibit the application of any of the exceptions to the requirements of such Act to products bearing a Congressional seal, and for other purposes."  Again, Ryan joined a very large majority, but still: we all know how dumb such Buy American provisions are.]

[UPDATE3: Cato's Simon Lester opines on Ryan's Cuba-related votes, concluding that he is, in fact, a politician.  Shocking, I know!]

Tuesday Quick Hits

Work's been pretty rough these last few days, but here are some quick hits to get you through the slower blogtimes:

• "Zeroing" took yet another hit last week: this time by the Court of Appeals for the Federal Circuit, which ruled last Thursday that the Department of Commerce needs to revisit its use of the WTO-illegal methodology in antidumping annual reviews because (i) DOC had abandoned the practice in investigations; and (ii) the US government had failed to offer a good (well, any) reason for the different approach in reviews.  WorldTradeLaw.net's Simon Lester offers some good commentary on the CAFC decision, and the WSJ rightfully applauds it: "thanks to statistical sleight-of-hand, American consumers have paid billions of dollars more over the years in higher prices either because antidumping duties raised prices on imports or because those duties sheltered domestic companies from downward price competition. This was bad economics, and now it turns out it was bad law, too. The World Trade Organization has dinged Washington repeatedly for zeroing. Commerce and Congress have done their best to avoid complying, at considerable expense to American credibility abroad. Most recently, Commerce attempted to stop zeroing for new antidumping investigations while keeping the practice for existing duties, to placate both the WTO and domestic protectionists. Last week's appellate court ruling puts an end to that charade by finding that under existing U.S. law Commerce has to either zero in all cases or zero in none. Since the department has abandoned zeroing for new investigations, there's reason to hope the Obama Administration will disavow zeroing entirely instead of searching for some way around a carefully reasoned and forceful appellate ruling."  Indeed.  I'd only add that the US courts have been the last refuge of America's zeroing proponents (i.e., protectionists) and their buddies in Congress, so the CAFC's latest decision must have them squirming something fierce this week.  And that thought makes me smile.

• Politicians of both parties are lining up in support of the US-Colombia FTA - a strong signal that the Obama administration could finally send the Agreement to Congress sometime soon (everybody likes a winner!).  Dem Senators Baucus and Kerry gave the FTA a nice (albeit mercantilist) plug in a recent WSJ op-ed, and the (admittedly dwindling) New Democrat Coalition in the House fired off a letter to the President calling on him to submit all three pending FTAs asap.  Meanwhile the US business community is also upping the pressure, as this US Chamber blogpost and Caterpillar ad make clear.  Eternal optimist Monica Showalter of IBD has gleefully noticed all of this news and notes something important on Facebook: "With Obama and Santos scheduled to meet Thursday, and Santos refusing up until this point to meet Obama unless there's free trade - I think it is going to happen."  A very insightful point, and I hope she's right, but I'll believe it when I see it.  (Although this announcement re: the Canada-Colombia FTA certainly adds more pressure on the USA.) [Update: Monica has more in this new IBD editorial.]

• Speaking of that Kerry-Baucus op-ed, Cafe Hayek's Don Boudreaux gives it "two cheers," and withholds the third because of something that I've been arguing here for a long time: "A third cheer would be in order had not the senators relied upon a wholly mistaken reason to justify this particular move toward freer trade. In their essay, U.S. imports and American consumers are mentioned a total of zero times, while U.S. exports and American producers (such as farmers, firms, and workers) are mentioned 23 times.... The senators’ argument for freer trade in this particular case undermines the larger effort to persuade the public that free trade is to everyone’s long-term advantage – an advantage that is measured by increases in what we’re able to consume and not by increases in what we must sacrifice."  Exactly!!

• Cato's Ted Galen Carptenter explains why China's inevitable rise to superpower status isn't so inevitable, and why the United States has a lot to say about it.

• The Mercatus Center's Veronique de Rugy explains something I already know and have known for a few years now: the Alternative Minimum Tax sucks and should be eliminated asap.  Mind-blowing fact: "Congress created the AMT in 1969 to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes....  According to the Congressional Budget Office, last tax season 4.5 million taxpayers were affected by the alternative minimum tax, an increase of more than 4 million taxpayers since 1970."  Sonova...

• The WSJ Asia pens an excellent editorial on how the Japan tragedies have clearly revealed just how dependent American businesses and workers are on imports in this modern era of global supply chains.  The whole thing is worth reading, but here's my favorite passage: "Despite the fears of Japanese products a generation ago, in reality those imports have allowed America to keep its place as the world's largest economy by a country mile. We hope someone on President Obama's economic team is taking note. Trade opponents can always point to the jobs they claim trade has "cost" Americans, but it's rarer to see such an obvious example of how Americans are hurt when trade is suddenly interrupted. The point extends to imports from everywhere. American auto-industry fears over car imports from South Korea have so far helped block ratification of a Korea-U.S. free-trade agreement. That bit of politics hurts Americans who would export to Korea under the deal, but it also hurts the Americans who would benefit from Korean imports. Such as, say, small businesses that use pick-up trucks and currently face higher domestic prices and less competition thanks to a 25% tariff on imported trucks."  Amen.

• Last week USTR released its annual national trade estimate (NTE) report on foreign trade barriers.  It's never anything earth-shattering (and involves a lot of cut-and-pasting from previous years), but it's still a good place to find the next US WTO dispute or two.  (If you don't mind wading through the chaff.)

• Paul Ryan: Stud.

Now that should keep you busy until I come up for air...

Brave Reps Fight the Congressional Ag Subsidy Machine; Machine Yawns

A couple weeks ago, I wrote about the valiant bi-partisan effort in the US House of Representatives to repeal American cotton subsidies that have been repeatedly ruled illegal under WTO rules and have caused the Obama administration to insanely subsidize Brazilian cotton farmers to the tune of $150 million in order to delay Brazil's imposition of $1 billion in sanctions on US exports pursuant to those WTO rulings.  Back then, Reps. Jeff Flake (R-AZ), Ron Kind (D-WI), Paul Ryan (R-WI), and Barney Frank (D-MA) sent a great letter to President Obama pointing out the insanity of our current farm policy and asking that the White House lead the repeal effort - a letter that apparently went straight from Capitol Hill to the Oval Office trashcan.  (Shocking, I know.)

Undaunted, these brave and lonely Congressmen gained two more colleagues, Dave Reichert (R-WA) and Earl Blumenauer (D-OR), and issued on May 4 another sternly-worded letter on the absurd American cotton subsidies and the embarrassing US-Brazil dispute.  This time, the letter went to an equally unreceptive audience, if not moreso - the Chairs and ranking members of the Senate and House Agriculture committees: Sens. Blanche Lincoln (D-AR) and Saxby Chambliss (R-GA), and Reps. Collin Peterson (D-MN) and Rep. Frank Lucas (R-OK).  The full text of the letter is printed below, and you've gotta admire the signatories' efforts - there's simply no doubt that they have a very strong argument that the current US cotton subsidy situation is obscene. 

However, you've also gotta chuckle at the idea of this letter landing on the desks of proven cotton-benefactors Lincoln and Chambliss, of "Wheat Leader" Peterson, and of farm subsidy "champion" Lucas (whose district, by the way, has received almost 3.4 billion in farm subsidies since he took office).  Yeah, I'm sure that these subsidy-loving pols are going to get right on this matter.  You know, right after they finish keynoting the next annual meeting of the National Cotton Council.

But hey, at least these guys are trying.  That's a helluva a lot more than we can say about Lincoln, Chambliss, Peterson or Lucas.  Or President Obama for that matter.

------

The Honorable Blanche Lincoln
Chairman
Senate Committee on Agriculture, Forestry and Nutrition
328 Russell Senate Office Building
Washington, DC 20510-6200

The Honorable Collin Peterson
Chairman
House Committee on Agriculture
1301 Longworth House Office Building
Washington, DC 20515

The Honorable Saxby Chambliss
Ranking Member
Senate Committee on Agriculture, Forestry and Nutrition
416 Russell Senate Office Building
Washington, DC 20510-6200

The Honorable Frank Lucas
Ranking Member
House Committee on Agriculture
1305 Longworth House Office Building Washington, DC 20515


Dear Senators Lincoln and Chambliss and Congressmen Peterson and Lucas,

With the April 6, 2010 announcement by U.S. Trade Representative Kirk and Secretary of Agriculture Vilsack of an agreement between the U.S. and Brazil over the cotton dispute, the need to overhaul our domestic commodity support programs is more apparent than ever. Among other commitments, the Administration has agreed to begin paying Brazil $147.3 million annually for “technical assistance and capacity building” to head off the threat of retaliatory tariffs on exports costing U.S. industry $560 million and unprecedented sanctions against U.S. intellectual property rights costing $260 million. We will subsidize both U.S. cotton farmers as well as Brazilian agribusiness until the issue is resolved or until the passage of the next farm bill, while Brazil retains its right to move forward with its countermeasures.

It is clear that the necessary authority to resolve this issue rests with Congress and we write to respectfully inquire about respective committee plans moving forward. Between the threat to American innovation from cross retaliation against intellectual property rights of U.S. companies and budgetary pressures that make the payments to Brazil all the more disconcerting, there is a growing need to make fundamental changes in the U.S. farm policy. Passage of the next farm bill is years away at best and at worst there is no guarantee that it will include sufficient reforms to prevent Brazil from putting into place the tariffs and sanctions they have deferred for now. We believe it is imperative that the Committees address this issue and request that your Committees consider legislation that would resolve the cotton issue in advance of the coming farm bill reauthorization. Alternatively, if the farm bill is deemed to be the appropriate process to address this issue, we urge the Committees to rank the cotton issue among your top farm bill priorities and ask that you commit to ensuring the inclusion of sufficient legislative reforms to put this matter to rest.

While the U.S. cotton program has undergone revision by both Congress and the Administration, these changes were insufficient to resolve the cotton issue. Now the stakes have been raised with a wide array of American businesses being used as a lever against the U.S. in Brazil’s authorized retaliation. It is clear that our agricultural subsidies are outdated and are quickly becoming a liability for future trade growth. We understand these matters are complex. However, without such a commitment or plans to deal with the issue in advance of the farm bill, it would unfortunately appear that the Administration’s actions will have only delayed the inevitable retaliation against American businesses and workers at the cost of $143.7 million per year.

We look forward to working with you to address the pressing need to reform the agricultural subsidy programs, and in particular the cotton programs, so that they will help rather than hinder international trade.


Sincerely,


JEFF FLAKE
RON KIND
PAUL RYAN
BARNEY FRANK
DAVID REICHERT
EARL BLUMENAUER

Increasing Exports: Right Way, Wrong Way

As I've already discussed, the President's new push to dramatically increase American exports has two main prongs: (i) export promotion efforts; and (ii) trade enforcement.

On the latter, it appears that the White House's 2011 budget allocates new funds for trade compliance and overseas enforcement efforts.  Unfortunately, I've already listed several problems with the idea that "enforcement efforts" can significantly increase exports, and Cato's Dan Ikenson really lays the smack down today in a new blog entry:

According to what metric are we failing to enforce trade agreements? The number of WTO complaints lodged? Well, the United States has been complainant in 93 out of the 403 official disputes registered with the WTO over its 15-year history, making it the biggest user of the dispute settlement system. (The European Communities comes in second with 81 cases as complainant.) On top of that, the United States was a third party to a complaint on 73 occasions, which means that 42 percent of all WTO dispute settlement activity has been directed toward enforcement concerns of the United States, which is just one out of 153 members.

Maybe the enforcement metric should be the number of trade remedies measures imposed? Well, over the years the United States has been the single largest user of the antidumping and countervailing duty laws. More than any other country, the United States has restricted imports that were determined (according to a processes that can hardly be described as objective) to be “dumped” by foreign companies or subsidized by foreign governments. As of 2009, there are 325 active antidumping and countervailing duty measures in place in the United States, which trails only India’s 386 active measures.

Throughout 2009, a new antidumping or countervailing duty petition was filed in the United States on average once every 10 days. That means that throughout 2010, as the authorities issue final determinations in those cases every few weeks, the world will be reminded of America’s fetish for imposing trade barriers, as the president (pursuing his “National Export Initiative”) goes on imploring other countries to open their markets to our goods....

Sure, the USTR can bring even more cases to try to force greater compliance through the WTO or through our bilateral agreements. But rest assured that the slam dunk cases have already been filed or simply resolved informally through diplomatic channels. Any other potential cases need study from the lawyers at USTR because the presumed violations that our politicians frequently and carelessly imply are not necessarily violations when considered in the context of the actual rules. Of course, there’s also the embarrassing hypocrisy of continuing to bring cases before the WTO dispute settlement system when the United States refuses to comply with the findings of that body on several different matters now. And let’s not forget the history of U.S. intransigence toward the NAFTA dispute settlement system with Canada over lumber and Mexico over trucks. Enforcement, like trade, is a two-way street.

And sure, more antidumping and countervailing duty petitions can be filed and cases initiated, but that is really the prerogative of industry, not the administration or Congress. Industry brings cases when the evidence can support findings of ”unfair trade” and domestic injury. The process is on statutory auto-pilot and requires nothing further from the Congress or president. Thus, assertions by industry and members of Congress about a lack of enforcement in the trade remedies area are simply attempts to drum up support for making the laws even more restrictive. It has nothing to do with a lack of enforcement of the current rules. They simply want to change the rules.

Well, I think we can finally put the enforcement debate to bed, wouldn't you say?  That said, Ikenson's and my analyses leave untouched the second prong of the President's export plan - export promotion efforts.  On this issue, the White House's 2011 budget provides a 20% increase in the budget of the Department of Commerce's International Trade Administration for export promotion efforts (through the Foreign Commercial Service), as well as millions of dollars for similar efforts through the Foreign Agricultural Service and the Ex-Im Bank.  The White House claims that the ITA funding increase alone will expand US exports by $4.4 billion in 2011, but is a simple policy of throwing more money at ITA and other export promotion agencies really a realistic plan to significantly increase American exports?

Well, the stats sure appear to say "no."   As the table below indicates (my calculations), there's no correlation between US exports and funding for the ITA (in $1000).


Moreover, a detailed review by the Government Accounting Office of US export promotion efforts found serious problems with the current system, yet lack of funding was not one of them:

Specifically, GAO has identified elements of U.S. export promotion activities that warrant attention: (1) coordination; (2) targeted services for small and medium enterprises and other priorities; (3) performance monitoring; and (4) partnerships and methodologies for setting user fees. The expert studies GAO reviewed echo the importance of each of these elements with regard to the activities of foreign export promotion agencies and may be informative for policy discussions about U.S. export promotion activities.

Another GAO Report found other big flaws in the ability of the ITA's Commercial Service to do basic things such as collecting market data and communicating with US businesses.  In short, there's nothing on record which supports the idea that increased funding of US export promotion programs will actually increase exports.

So what does drive US exports?  Well, according to Ikenson, imports and economic growth:

[I]mport growth is much more closely correlated with export growth than is heightened enforcement.  The nearby chart confirms the extremely tight, positive relationship between export and imports, both of which track similarly closely to economic growth.

U.S. producers (who happen also to be our exporters) account for more than half of all U.S. import value.  Without imports of raw materials, components, and other intermediate goods, the cost of production in the United States would be much higher, and export prices less competitive.  If the president wants to promote exports, he must welcome, and not hinder, imports.

Indeed.  Of course, there are other things well-grounded in economic reality that the United States government could do to encourage exports, and none of them involve throwing good money after bad, pursuing irrational "enforcement efforts," or illegally subsidizing US exports.  I've already discussed pending US FTAs with Colombia, Panama and South Korea, and the WTO's Doha Round, but domestic fiscal policy could also play a big role.  For example, the bold alternative budget of Congressman Paul Ryan (R-WI), ranking Member of the House Budget Committee, seeks to increase exports and enhance America's overall global competitiveness by dramatically reforming the United States' absurd corportate tax policies.  Specifically, Ryan's plan would replace America's insane 39% corporate income tax (second highest in the world) with a flat 8.5% "business consumption tax" (BCT) that would encourage investment in US businesses, benefit US exports and spur economic growth:

To level the playing field and eliminate the competitive disadvantage on American businesses and American-made products, the BCT is not imposed on U.S. exports when they leave the U.S. It is instead imposed on foreign imports when they enter the U.S. Thus, the BCT is “border adjustable.” Currently, the U.S. corporate income tax is not border adjustable (i.e., the tax cannot be removed from exports or imposed on imports). In contrast, foreign competitors in Europe have the advantage of removing their own taxes on their exports. The World Trade Organization [WTO] established the requirements for a border adjustable tax system. Direct taxes, such as the corporate income tax, are not border adjustable, but indirect taxes, such as the BCT, are border adjustable....

An uncompetitive business tax climate has forced many U.S. companies to relocate and send jobs abroad, often through mergers and acquisitions with foreign companies. This tax plan reverses the trend.

With an enhanced investment climate, international businesses, particularly capital-intensive industries such as manufacturing, will have a greater incentive to invest in the U.S. and expand production here, which creates jobs.

The United States’ relatively high statutory corporate income tax has led to multinational corporations shifting their profits to lower-tax countries, essentially shifting the tax base overseas. Many U.S. businesses also delay the repatriation of earnings from their foreign affiliates. This plan brings these earnings and profits back to the U.S.

Greater investment in the U.S. will also help to speed the pace of technological innovation in the U.S. economy, a key factor in raising productivity.

There is a clear link between investment and capital formation on the one hand, and productivity and rising living standards on the other. Between 1973 and 1995, for instance, productivity grew at just under 1.5 percent, implying that living standards in the U.S. would double every 50 years. Since 1995, productivity, spurred by technological innovation and investment, has increased at a 3.0-percent rate. This rate implies it will take only 25 years for living standards to double, half as long as under a slower rate of productivity. A business climate that fosters investment, therefore, is one of the keys to future U.S. prosperity.

The way the U.S. taxes international business operations is important because roughly two-thirds of U.S. export trade (a growing share of the U.S. economy) is facilitated by U.S. multinational companies and their foreign affiliates.

Ryan's BCT is essentially a business VAT - applied equally on all domestic consumption (imports and domestic production alike) - and has definite advantages for investment and exports (as long as it's not applied on top of a corporate income tax, of course!).  It's certainly not perfect, but it's at least a novel plan that has some foundation in economic reality.

As opposed to the President's tired and incoherent plan of increased trade enforcement and export promotion funding.