A trade policy nerd can only be subjected to blatant protectionist nonsense for so long. So, after months of hearing/reading/seeing myths about Trade Promotion Authority, the Trans-Pacific Partnership and free trade more broadly, I finally cracked. The result is a 3500+-word debunking of the nine most common myths (just like old blog times!). The intro and direct links are below.
Enjoy!
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Top Nine Myths About Trade Promotion Authority And The Trans-Pacific Partnership
The current debate over Trade Promotion Authority proves, once again, that the classic description of the anti-globalization movement—as “largely the well-intentioned but ill-informed being led around by the ill-intentioned and well informed”—still holds true. Despite the tireless efforts of trade policy experts to explain why TPA and the U.S. trade agreements it’s intended to facilitate are, while imperfect, not a secret corporatist plot to usurp the U.S. Constitution and install global government, myths and half-truths continue to infect traditional and social media outlets.
Because these myths—originating with the same old anti-trade bedfellows that have been with us for decades—have duped a lot of good folks who are otherwise predisposed to support liberty and free markets (including some in Congress), and because the House of Representatives is poised to vote on TPA in the coming days, here is one last debunking of the top nine myths about TPA, the Trans-Pacific Partnership (TPP), and U.S. free-trade agreements (FTAs) more broadly.
To save some time, you can skip to your favorite myth by clicking on the links below.
Myth 1: TPA and U.S. FTAs are unconstitutional and undemocratic!
Myth 2: TPA grants the president new and unlimited powers!
Myth 3: TPA sets legally binding congressional rules for U.S. trade negotiations!
Myth 4: Once TPA is approved, Congress will be powerless to stop TPP or other FTAs!
Myth 5: TPP is being negotiated via a dangerous and unprecedented level of secrecy!
Myth 6: FTAs, completed via TPA, undermine U.S. sovereignty!
Myth 7: TPP is a secret backdoor for a parade of horribles (and TPA lets that happen)!
Myth 8: FTAs (and free trade generally) benefit large corporations at the expense of working people!
Myth 9: TPA doesn’t matter!
Showing posts with label Politics. Show all posts
Showing posts with label Politics. Show all posts
Tuesday, June 9, 2015
Sunday, June 23, 2013
The Deck is Depressingly Stacked Against Subsidy Reformers
It's long been known that folks who support significant reforms to state and federal subsidy programs face a really uphill battle. They're easily demagogued as "anti-farm/environment/jobs/whatever," and taxpayer subsidies are a classic case of "concentrated benefits and diffuse costs," with subsidy recipients far more organized and motivated than reformers (and Joe Taxpayer) to push their agendas through the government. However, there is another reason why real subsidy reform is so darn difficult: government benefactors brazenly rig the game in favor of their cronies.
And during last week's House debate on the bloated, subsidy-packed Farm Bill, we got a rare glimpse into one way that the riggers do it.
Before I get to that, however, a little background is necessary. You may recall that in late-December of last year Congress passed a slew of temporary extensions to certain farm subsidy programs in order to avoid what the media dubbed the "Dairy Cliff." Congress' motivation for this last-minute action was suddenly-intense media attention and fear of voter backlash to the skyrocketing milk and other commodity prices that would've resulted from the subsidies’ expiration and the resumption of a dormant 1949 farm law that fixed food prices well above current levels. (A good summary of the mess is here, if you're interested.)
With this in mind, let's now fast-forward to last week's House debate over the new Farm Bill. In order to avoid another "Dairy Cliff" when/if the bill expired, an enterprising congressman – Rep. Paul Broun (R-GA) – proposed an amendment to the House version of the Farm Bill that would repeal the dairy provisions of the 1949 law, thus protecting US consumers from the threat of sky-high dairy prices. Although passage of such an amendment would seem like a no-brainer, this is Congress, and Broun's amendment was easily defeated by a bipartisan vote of 309-112. Apparently the House has no desire to prevent another Dairy Cliff in the future, and in a rare moment of candor, Rep. Collin Peterson (D-MN) - former Chair of the House Agriculture Committee and arguably the US Farm Lobby's BFF - explained why he has worked to keep the 1949 law - a ticking time bomb embedded in US agriculture policy - on the books. In rising to oppose Broun's amendment, Peterson stated:
As Cato's Sallie James explained on Friday, "so long as this [1949] law is part of the national legislative fabric, we’ll have a dairy cliff (or some other commodity-themed cliff) every five years." And, instead of actually deliberating the cost and merit of our bloated, archaic farm subsidy programs, sheepish Members of Congress will simply approve those subsidies in order to avoid the media scrutiny and voter backlash that these intentional "cliffs" inevitably produce.
More broadly, this is the uphill battle that subsidy reformers face. Not only is the playing field severely titled in favor of subsidy recipients due to the simple nature of subsidies and politics, but many of the supposed referees in Congress have intentionally rigged the game even further in the recipients' favor. It's this kind of institutional disadvantage that makes real change extremely difficult (if not impossible), regardless of the overwhelming evidence in support of reform.
Hopefully, a little scrutiny of revealing statements like Peterson's will help tilt the playing field back a little bit, but I'm not holding my breath.
And during last week's House debate on the bloated, subsidy-packed Farm Bill, we got a rare glimpse into one way that the riggers do it.
Before I get to that, however, a little background is necessary. You may recall that in late-December of last year Congress passed a slew of temporary extensions to certain farm subsidy programs in order to avoid what the media dubbed the "Dairy Cliff." Congress' motivation for this last-minute action was suddenly-intense media attention and fear of voter backlash to the skyrocketing milk and other commodity prices that would've resulted from the subsidies’ expiration and the resumption of a dormant 1949 farm law that fixed food prices well above current levels. (A good summary of the mess is here, if you're interested.)
With this in mind, let's now fast-forward to last week's House debate over the new Farm Bill. In order to avoid another "Dairy Cliff" when/if the bill expired, an enterprising congressman – Rep. Paul Broun (R-GA) – proposed an amendment to the House version of the Farm Bill that would repeal the dairy provisions of the 1949 law, thus protecting US consumers from the threat of sky-high dairy prices. Although passage of such an amendment would seem like a no-brainer, this is Congress, and Broun's amendment was easily defeated by a bipartisan vote of 309-112. Apparently the House has no desire to prevent another Dairy Cliff in the future, and in a rare moment of candor, Rep. Collin Peterson (D-MN) - former Chair of the House Agriculture Committee and arguably the US Farm Lobby's BFF - explained why he has worked to keep the 1949 law - a ticking time bomb embedded in US agriculture policy - on the books. In rising to oppose Broun's amendment, Peterson stated:
When I was chairman and did the last farm bill, we maintained the permanent law, and we did it for a reason, which is that it is very hard to get these farm bills done, and sometimes you need some motivation to get people to move. That's the main reason we left it there.In short, Rep. Peterson admitted on the House floor that congressional refusal to repeal the 1949 law - and its hidden threat of high prices, market uncertainty and serious consumer pain - is solely intended to extort new (or extended) farm subsidies out of future Congresses. And, as last December showed, it's quite the effective strategy. So, it seems that, for Rep. Peterson and his subsidy-loving friends in Congress, not only do you "never let a serious crisis go to waste," but if such a crisis doesn't appear naturally, you just hardwire one into US law. Simply amazing.
As Cato's Sallie James explained on Friday, "so long as this [1949] law is part of the national legislative fabric, we’ll have a dairy cliff (or some other commodity-themed cliff) every five years." And, instead of actually deliberating the cost and merit of our bloated, archaic farm subsidy programs, sheepish Members of Congress will simply approve those subsidies in order to avoid the media scrutiny and voter backlash that these intentional "cliffs" inevitably produce.
More broadly, this is the uphill battle that subsidy reformers face. Not only is the playing field severely titled in favor of subsidy recipients due to the simple nature of subsidies and politics, but many of the supposed referees in Congress have intentionally rigged the game even further in the recipients' favor. It's this kind of institutional disadvantage that makes real change extremely difficult (if not impossible), regardless of the overwhelming evidence in support of reform.
Hopefully, a little scrutiny of revealing statements like Peterson's will help tilt the playing field back a little bit, but I'm not holding my breath.
Monday, April 29, 2013
Unilateral Import Liberalization Is Helpful, Egalitarian and - Yes - Politically Possible
The Heritage Foundation's Bryan Riley has a great new study out today arguing in favor of the unilateral elimination of all - yes, all - US barriers to imports. Here's the summary:
Congress routinely makes targeted, short-term tariff cuts through “miscellaneous tariff bills.” While conventional wisdom is that unilateral tariff cuts are politically impossible, these bills show that it is possible to reduce tariffs. Proponents of such tariff cuts argue that the cuts support U.S. jobs; critics argue that the economic value of miscellaneous cuts is modest, and that the process is open to abuse. While it is healthy to discuss ways to maximize the benefits provided by miscellaneous tariff bills, the United States would see the most economic benefit from across-the-board tariff reform. The best possible reform would be for the U.S. Congress to eliminate all remaining import tariffs and quotas.After noting that the United States rates a dismal 38th place in Heritage's ranking of trade freedom (and would jump to first if if eliminated all barriers), Riley explains that import liberalization is one of the few things on which economists - left, right and center - can actually agree, with over 85% of them repeatedly favoring the policy in recent surveys. The reasons for this are obvious:
Tariffs make Americans poorer by transferring dollars from the country’s most competitive industries to the industries that have the best political connections.
Countries with low tariffs, such as New Zealand and Singapore, are more prosperous than countries with high, protective tariffs, such as India and Venezuela. The latest rankings of trade freedom around the world, developed by The Heritage Foundation and The Wall Street Journal in the 2013 Index of Economic Freedom, demonstrate how citizens of countries that embrace free trade have higher average incomes than citizens of countries that do not.Riley then looks at several examples of countries - including Australia, Chile, China, New Zealand, Canada, and Mexico - unilaterally liberalizing import barriers to great economic success. And while all of this historical and economic data are great, I think the following passage is my favorite because it really hits home just how obscenely immoral our current tariff/quota system really is, as it disproportionately punishes both poor countries and poor Americans:
Former WTO Director-General Mike Moore observed: “You know, the least-developed countries account for less than 0.5 percent of world trade, yet where they have areas of excellence, they’re not allowed to export to the United States or to Europe.”
In the United States, the average tariff on products from developing countries is much higher than on products from developed countries. For example, imports from Bangladesh faced an average U.S. tariff of 15 percent in 2012, but imports from Belgium faced an average tariff of just 0.7 percent. The overall U.S. average tariff on products from the U.N.’s Least Developed Countries list in 2012 was 3.9 times higher than the average tariff on products from other countries.
Imposing tariffs on imports from developing countries makes it more difficult for people in those countries to escape poverty, and keeps them dependent on U.S. aid dollars. In 2011, the U.S. government sent Bangladesh $218 million in economic aid, and collected $746 million in tariffs. If the U.S. government cut the 15 percent effective tariff on imports from Bangladesh, it could keep some aid dollars at home.
In 2011, U.S. the government collected $28.6 billion in tariff revenue, and spent $31.7 billion on foreign economic aid....
Although some people argue that it is politically impossible to cut tariffs unilaterally in the United States, in fact most U.S. tariffs are already close to zero. The United States’ tariff problem stems from the country’s two-tier regime consisting of shoes, clothing, and related items on one tier, and everything else on the other.
Tier One items including shoes and clothing account for less than 6 percent of total imports, but tariffs on these items account for 47 percent of U.S. tariff revenue.[28] As the liberal blog ThinkProgress observed, tariffs are highly regressive: “The kinds of goods where freer trade would mostly benefit the poor are exactly the kinds of goods where trade is least-free.” A study in the Journal of Diversity Management found that tariffs are higher for clothing purchased by low-income consumers, and also higher for women’s clothing than for men’s clothing....So not only does our tariff/quota system hurt the US economy, but it also benefits rich, politically-connected US industries (like these guys) at the expense of developing countries and the most vulnerable American citizens. Now if that isn't a good enough reason to reform the system, then I don't know what is.
Riley concludes by making several great recommendations for reform and by noting that import liberalization isn't nearly as radioactive as some politicians and political hacks claim because the United States government routinely passes import liberalization bills in the form of temporary, small scale programs like the Generalized System of Preferences and the Miscellaneous Tariff Bill. The same economic and moral principles supporting these bills - eliminating cronyism and helping the economy, US consumers and less-developed countries - obviously would apply to broader liberalization measures (and, of course, to much greater effect). Indeed, when Congress failed to reauthorize GSP in 2011, one champion of import liberalization got on his high horse and explained what's at stake:
The exclusion of the Generalized System of Preferences from the package means that this important program will lapse on December 31, hurting American consumers and businesses as well as workers and farmers in many of the world's poorer countries....This is exactly right, and it echoes many of the findings in Riley's study. So who, you might ask, is this great, economically-literate champion of free trade?
U.S. businesses and consumers benefit from the GSP program through cost savings on imports. Also, according to a 2005 U.S. Chamber of Commerce study, the program supports over 80,000 American jobs associated with moving GSP imports from the docks to farmers, manufacturers and ultimately to retail shelves. U.S. imports under GSP exceeded $20 billion in 2009 and are on pace to exceed $27 billion in 2010. GSP saved U.S. importers nearly $577 million in duties in 2009. The program was instituted on January 1, 1976, by the Trade Act of 1974. In addition to its benefits to American families, GSP is designed to promote economic growth in the developing world by providing preferential duty-free entry for about 4,800 products from 131 designated beneficiary countries and territories.
The typically mercantilist and import-skeptical Obama administration's USTR, that's who.
So with all of the economic benefits and moral arguments for import liberalization so clear, it kinda makes you wonder what's keeping President Obama from supporting a bigger, better, more permanent version of GSP, eh?
Sunday, November 4, 2012
The Last Four Years and the Next
With the election only two(!) days away and with every "pundit" with an internet connection offering his/her views on President Obama's first term, there's no better time than now to provide my opinion on the United States' trade and related policies in the Obama years. Unfortunately, there's simply no way to sugarcoat it: the President's international economic policies have fallen short on almost every level.
This conclusion will likely come as no surprise to readers of this blog, and I'm not going to spend all night reiterating the many criticisms that I've explored here since mid-2009. Instead, I'd like to keep this (relatively) short, so if you want more support for anything said below, feel free click the hyperlinks below at your leisure.
But before I start kvetching, let me quickly note the "good" things that the Obama administration has done since they took over US trade policy in 2009:
This conclusion will likely come as no surprise to readers of this blog, and I'm not going to spend all night reiterating the many criticisms that I've explored here since mid-2009. Instead, I'd like to keep this (relatively) short, so if you want more support for anything said below, feel free click the hyperlinks below at your leisure.
But before I start kvetching, let me quickly note the "good" things that the Obama administration has done since they took over US trade policy in 2009:
- First, and most importantly, they have avoided serious backsliding into protectionism, particularly with China. As I explained the other night, the President and his team have resisted the strong calls from their Democrat allies in Congress to label China a currency manipulator or to impose duties on Chinese imports on the basis of alleged currency manipulation. Each of these policies is economically, legally and strategically wrongheaded, so it's good that the administration ignored them. Moreover, they have avoided the imposition of broad-based protectionism, although they have implemented (or failed to stop Congress from implementing) many discrete anti-trade policies (discussed below). However, as I've repeatedly explained, there is a big difference between pushing good trade policies and not destroying the economy (and US diplomatic relations) through protectionism. In other words, "Obama 2012: Not Totally Horrible" is hardly a good campaign slogan. We deserve - and really need - better.
- Second, I think the administration has done a reasonably good job of using WTO dispute settlement to advance US and broader free trade interests. They are on pretty solid ground to brag about the number of cases that they've initiated to end other WTO Members' anti-trade practices. Dispute settlement is a legitimate and effective way to curtail foreign protectionism, and it's good that, instead of imposing unilateral measures, the administration went to the impartial WTO. However, it's important to note that (1) three of those disputes (challenging Chinese trade remedies actions against US chicken, automobile and steel exports) are the direct result of US protectionism (China retaliated after President Obama imposed tariffs on Chinese tires); (2) the administration didn't have much of a choice: dispute settlement is what WTO Members are supposed to do when faced with foreign protectionism, and most unilateral alternatives violate global trade rules; and (3) as discussed below, the administration's stubborn non-compliance with adverse WTO rulings and continued imposition of WTO-inconsistent trade and subsidy policies has undermined the moral force of the United States' anti-protectionism efforts at the WTO. So the disputes are good, but bad policy prevents them from being much, much better.
Unfortunately, these reasonably-good things are significantly outweighed by the following policy failings:
- A dramatic decline in global competitiveness. As I detailed in July, the United States has declined - in some cases significantly - in every independent study of global economic strength and competitiveness since President Obama took office. These studies reflect a failure by the Obama administration to implement tax, trade and regulatory policies that could help US businesses and workers compete and prosper in the global economy. Since July, the World Economic Forum's latest Global Competitiveness Index has dropped the United States another two places (now 7th, from 2nd in 2009, 4th in 2010 and 5th last year); respondents' top three problems with the US economy are inefficient government bureaucracy, tax rates and tax regulations - all things that the Obama administration could've addressed (especially when Democrats had total control of the US government in 2009-2010) but instead completely ignored. The United States also has dropped from 10th to 12th in the Legatum Institute's Prosperity Index, with the US economy a mediocre 20th overall. This is not good at all.
- A dramatic decline in economic freedom. The United States' drop in global competitiveness has - perhaps not surprisingly - coincided with a decline in economic freedom. According to the Heritage Foundation's Index of Economic Freedom, the United States now ranks a depressing 10th in the world overall (down from 6th in 2009) and an even-more-depressing 37th in trade freedom. The Fraser Institute's 2012 Economic Freedom of the World Report shows a similar decline, ranking the United States only the 18th(!) freest economy in the world, down from 8th in 2005. I won't debate here whether economic freedom means economic prosperity (despite strong correlations among the two), but you can draw your own conclusions.
- Trade policy stagnation. As I explained last week, US trade policy has slowed to a crawl during the Obama years, and American leadership - a staple of the global trading system since the 1940s - has all but disappeared. There is no better indicator of this stagnation than US involvement in free trade negotiations. The President spent the first three years of his term letting the WTO's Doha Round of multilateral trade talks die on the vine and working up the "courage" to face down his own party and submit implementing legislation for FTAs with Colombia, Panama and South Korea that had been completed and signed by President Bush in 2006-07. And when Obama finally did get around to these deals, he made the most economically-significant one - the Korea free trade agreement - less free by raising or extending tariffs on automobiles in both the United States and Korea, and he refused to send them to Congress unless he received a billion dollar extension of the problematic Trade Adjustment Assistance worker subsidy. (For details on the FTA debacle, go here.) Furthermore, the only new trade negotiations that the Obama administration has formally initiated are those for the Trans-Pacific Partnership - talks that were actually started by the Bush administration, have moved interminably slowly due to US recalcitrance on various issues, and, because most TPP members are already US FTA partners, will only produce significant economic gains if other countries - like Japan or China - end up joining down the road. Meanwhile, other countries are liberalizing at a breakneck pace (for example Canada, which has concluded nine FTAs since mid-2007 and is currently negotiating four more).
- Rampant proliferation of trade-distorting subsidies. Starting with the Stimulus* bill in 2009 and snowballing ever since, the dramatic expansion of federal subsidies on President Obama's watch has hurt the US economy, bred cronyism, distorted trade and investment patterns, undermined US efforts to push needed trade reforms in other areas, and raised diplomatic tensions. Need proof? Just read my paper or related blog posts (or take a look at Solyndra). 'Nuff said.
- Trade remedies malfeasance. Just as the United States has cranked-up the subsidies and screamed about Chinese subsidization, it has also employed trade remedies - particularly anti-subsidy (countervailing duty) measures - against foreign imports. As I explain in my new paper and elsewhere, the application of CVDs can, in theory, help curtail foreign and domestic subsidies, but the administration's current anti-subsidy policies - particularly those related to China - reflect capture by domestic industries and unions, often violating US law and WTO rules and leading to taxes on US businesses and consumers that are far in excess of that needed to remedy foreign subsidization. Meanwhile, the administration has also proposed numerous changes to US anti-dumping policies, again targeting China, that also will likely lead to more and higher duties. And let's not forget the utter debacle that was the President's decision to impose tariffs on Chinese tires pursuant to the "special safeguard mechanism" (Section 421) of US trade law. Thus, while support for trade remedy-based protectionism is undoubtedly a bi-partisan affliction, President Obama has proven himself to be especially ill over the last few years.
- Discrete protectionism. The administration hasn't totally avoided protectionism over the last few years. Beyond the tire tariffs, we saw, among other things, bans on Chinese chicken and Mexican trucks, as well as the proliferation of "Buy American" policies. We also saw significant increases in "regulatory protectionism," including through the Lacey Act and Dodd-Frank's conflict minerals provisions. Most of these anti-trade actions (and many others) were the result of the administration's consistent view that trade policy is a political tool to buy votes or to secure other, more important policies, regardless of the harms imposed on US businesses and consumers. All of these actions are deserving of scorn.
- WTO non-compliance. The Obama administration also has failed to comply with various adverse WTO rulings against, for example, US aircraft and cotton subsidies and several AD/CVD measures on Chinese imports. You may remember that the cotton case is particularly galling, as the administration has agreed to pay $130 million per year to Brazilian - yes, Brazilian - cotton farmers in order to avoid formal retaliation from Brazil. The federal government is also still paying out money - and facing retaliatory tariffs - under the Byrd Amendment, which was ruled WTO-inconsistent in 2003(!). And we still haven't fully resolved the ongoing mess of zeroing in anti-dumping investigations. (All that campaign bragging about WTO disputes doesn't look so hot now, eh?)
- Trade rhetoric and advocacy. Finally, the Obama administration has promulgated some of the most problematic rhetoric on trade and international economics of any presidential administration of the last 30 years. Yes, President Obama and his staff occasionally speak well of free trade (typically in theory or outside of DC), and every administration unfortunately advocates "fair trade" and overemphasizes exports. But this President and his staff have been pretty darn awful, particularly during election years, as they have vocally pushed mercantilism, attacked outsourcing, treated our trading partners as adversaries, and routinely decried foreign "cheating." As I've repeatedly explained, the Executive Branch is politically and legally positioned to be the US government's foremost advocate for trade liberalization, and when the President shirks this duty, it can have serious repercussions at home and abroad. And here we are.
These points make clear that "Not Totally Horrible" really is the best thing you can say about US international economic policy in the Obama years. This is hardly a ringing endorsement, and as I noted the other night, I see very little chance that the President and his team will ditch their political cynicism and dramatically improve US trade and related policies during a second Obama term. And since there's no chance that Gary Johnson will be the next President of the United States, that leaves Mitt Romney, who - as I explained previously - is much more likely than the current President to actively pursue trade liberalization and reassert US leadership in the global trading system. It's by no means guaranteed, but - considering just how far US trade policy has fallen over the last few years - it simply can't get any worse.
Indeed, the President's record goes beyond the discrete trade, tax and regulatory policies outlined above; it's indicative of his administration's political worldview and why I think Obama's not deserving of another four years. As I have repeatedly explained, a politician's - particularly the President's - views on trade and protectionism speak volumes about his or her broader political principles:
Of course, it didn't have to be this way. Until the middle of the last decade, American trade and global economic policy wasn't really a partisan issue - just look at Bill Clinton, who not only championed NAFTA and the WTO but also forcefully pushed for China's entry into the World Trade Organization. And for a few fleeting moments in 2009, President Obama and his team looked to be following in Clinton's free trade footsteps. Heck, Cato's Dan Ikenson and I even gave them a pretty detailed road map on how they could do it. But then Obamacare happened, and Chinese tires, and Dodd-Frank, and green subsidies/protectionism, and Mexican Trucks, and "Make It in America," and Bain Capital and so on and so on. For political gain, they willfully turned away from decades of bipartisan, pro-trade consensus; they made their choice.
And on Tuesday we get to make ours.
P.S. I honestly have no idea what will happen in this week's election; my gut says narrow - 15 electoral votes or so - Romney win, but I could easily see it going the other way. I sincerely hope that, regardless of who wins, the next four years of international economic policy are better than the last. This economy, and global trade policy, can use all the help they can get.
Indeed, the President's record goes beyond the discrete trade, tax and regulatory policies outlined above; it's indicative of his administration's political worldview and why I think Obama's not deserving of another four years. As I have repeatedly explained, a politician's - particularly the President's - views on trade and protectionism speak volumes about his or her broader political principles:
A candidate's stance on trade is predictive of whether he, once elected, will put facts and principle before politics and self-interest. Politicians who reject protectionism turn down eager corporate and union campaign donations from unseemly rent-seekers trying to thwart international competition at the expense of American families and companies.Viewed through this lens, the aforementioned trade policy failings look even worse, wouldn't you say?
They ignore demagogic attacks on their patriotism. And they openly support policies which, despite their overwhelming economic and historical support, are met with public hostility or disinterest and an unethical opposition willing to take full advantage thereof.
On the other hand, politicians who peddle protectionism are either ignorant of history and economics or are willing to discard their... ideals and prey on voter fears for short-term political advantage.
Of course, it didn't have to be this way. Until the middle of the last decade, American trade and global economic policy wasn't really a partisan issue - just look at Bill Clinton, who not only championed NAFTA and the WTO but also forcefully pushed for China's entry into the World Trade Organization. And for a few fleeting moments in 2009, President Obama and his team looked to be following in Clinton's free trade footsteps. Heck, Cato's Dan Ikenson and I even gave them a pretty detailed road map on how they could do it. But then Obamacare happened, and Chinese tires, and Dodd-Frank, and green subsidies/protectionism, and Mexican Trucks, and "Make It in America," and Bain Capital and so on and so on. For political gain, they willfully turned away from decades of bipartisan, pro-trade consensus; they made their choice.
And on Tuesday we get to make ours.
P.S. I honestly have no idea what will happen in this week's election; my gut says narrow - 15 electoral votes or so - Romney win, but I could easily see it going the other way. I sincerely hope that, regardless of who wins, the next four years of international economic policy are better than the last. This economy, and global trade policy, can use all the help they can get.
Wednesday, October 31, 2012
How Politics Crippled US Trade Policy (and Why That Matters Right Now) [UPDATED]
On Monday night, I had the privilege of speaking to a great group in Sarasota, Florida as part of the National Committee for US-China Relations' annual China Town Hall 2012. My kind NCUSCR hosts recorded my presentation (on "Three Myths About the US-China Trade and Economic Relationship"), and I'll be sure to post that video here when I get it. In the meantime, I'd like to comment on what was, in my humble opinion, one of the most interesting aspects of the Town Hall: how the unscripted remarks of US Ambassador to China (and former Secretary of Commerce) Gary Locke revealed the political cynicism that has driven the last four years of American trade policy and hobbled US leadership in the global trading system.
Locke's opening speech (via live webcast) was uneventful - a basic, scripted recitation of Obama campaign talking points about ensuring a stable US-China relationship, while focusing on "leveling the playing field," increasing US exports, and lauding the administration's trade "enforcement" actions against "unfair" Chinese trade, particularly through the WTO. However, Locke veered from these talking points in the impromptu Q&A, and in doing so revealed surprisingly deep, nuanced and - dare I say - impressive views of US-China trade policy. Most notably, Locke lauded the benefits of not only US exports, but also Chinese imports and investment, and he discussed the complementary, rather than antagonistic, aspects of bilateral trade relationship. It was by no means perfect: the campaign talking points did creep into Locke's responses (especially on "leveling the playing field" and the administration's hypocritical subsidy finger-pointing) and, like any diplomat, he avoided some of the touchier foreign policy questions. But after those points were exhausted, Locke repeatedly spoke of US-China trade and investment in terms that revealed a strong understanding of how the global economy actually works and why both nations must work to expand bilateral (and global) trade and avoid mutually-destructive protectionism.
This, of course, is a far cry from the angry campaign rhetoric spouted by President Obama and his surrogates, as well as the mercantilist trade and subsidy policies that they have pursued over the last few years. And the contrast between this depressing rhetoric/policy and Locke's "improved" China understanding makes two things very clear: (1) the Obama administration isn't ignorant about China trade or free trade more broadly - they know the "truth"; but (2) politics has severely limited their willingness - or ability - to push good trade rhetoric and policy inside our borders.
This serious limitation, of course, is not confined to China trade: over the last 40-something months, the Obama administration has viewed trade policy through an almost-entirely political lens and has consistently put cheap politics before good policy. This started in early 2009 when the President shelved his surprising pro-trade rhetoric and the pending FTAs with Korea, Colombia and Panama in order to shore-up partisan support for Obamacare and then Dodd-Frank. And this approach continued for the next several years, leading to less-than-surprising results:
Nevertheless, it's quite telling that the President's most impressive trade policy achievement has very likely been the avoidance of an economy-crippling trade war with China, one of the United States' largest trading partners. (No, implementing three moldy Bush-era FTAs after making them worse and attaching a costly, union-appeasing worker subsidy is not a trade policy achievement. It just isn't.) Indeed, aside from the instances of protectionism mentioned above (and a few others), the last few years more aptly reflect not a devolution into Smoot-Hawley-style protectionism, but instead a complete lack of trade liberalization here - no unilateral reduction of domestic trade barriers, no new FTAs, no completed WTO negotiations, etc etc. As I've often discussed here, this stagnation (and discrete regression) is almost entirely due to the Obama administration's political decision that it is unable or unwilling to take on its base of unions, environmentalists and other anti-trade groups.
So, yes, the United States hasn't become an overtly protectionist country during the Obama years, but stagnation and "not totally destroying the economy" is hardly a good US trade policy. It's also not harmless: not only is the United States hurting its consumers and exporters by failing to keep up with rapidly trade-liberalizing countries like Canada, but our politics-driven stagnation also has led to a depressing lack of American leadership in the global economy. This latter point has serious implications for the multilateral trading system - something that I've often lamented here and that Bloomberg discusses in a new editorial on US-China trade:
Unless you think that the President's team will abandon their consistent and long-held political strategy upon re-election, or that the Democratic Party's base will suddenly embrace broad-based trade liberalization (stop laughing), this doesn't seem very likely, does it?
On the other hand, I think Mitt Romney's politics actually give him, if elected, a decent chance to reassert the United States' global leadership on trade. It's no secret that I seriously dislike Romney's aggressive China trade policy - an economically and legally-ignorant position that, like President Obama's actual policies, seems entirely driven by political cynicism. Yet Romney's previous actions and statements have, like Ambassador Locke's, revealed that he does actually understand free trade and the global economy, and he, unlike President Obama, would have almost none of the President's political impediments to pursuing "big" free trade policies. In short, he won't be kowtowing to the unions/greens or the Michaud/Brown anti-trade coalition in Congress, but could still be looking to (supposedly) trade-skeptical Ohio for 2016.
Thus, while I think that Romney's China bashing politics could hinder his ability as President to quickly pursue freer bilateral trade with China, I'm confident that he'd have an easier time than President Obama advocating policies that could put the United States back at the forefront of the global economy: WTO and FTA negotiations (even with China, eventually), unilateral liberalization, subsidy reforms, etc. No, I don't think that outcome is guaranteed - Romney's closest advisers clearly share some of the Obama administration's political cynicism on trade. However, the contrast between Locke's free trade statements and the last several years of problematic trade protectionism and stagnation make clear that things can't get much worse and probably won't get any better during Obama's second term.
Romney at least has a shot at making US trade policy better, and, unfortunately, I think that's just about the best we can hope for these days.
UPDATE: Steve Craven adds an excellent point via Facebook that I totally forgot about:
Locke's opening speech (via live webcast) was uneventful - a basic, scripted recitation of Obama campaign talking points about ensuring a stable US-China relationship, while focusing on "leveling the playing field," increasing US exports, and lauding the administration's trade "enforcement" actions against "unfair" Chinese trade, particularly through the WTO. However, Locke veered from these talking points in the impromptu Q&A, and in doing so revealed surprisingly deep, nuanced and - dare I say - impressive views of US-China trade policy. Most notably, Locke lauded the benefits of not only US exports, but also Chinese imports and investment, and he discussed the complementary, rather than antagonistic, aspects of bilateral trade relationship. It was by no means perfect: the campaign talking points did creep into Locke's responses (especially on "leveling the playing field" and the administration's hypocritical subsidy finger-pointing) and, like any diplomat, he avoided some of the touchier foreign policy questions. But after those points were exhausted, Locke repeatedly spoke of US-China trade and investment in terms that revealed a strong understanding of how the global economy actually works and why both nations must work to expand bilateral (and global) trade and avoid mutually-destructive protectionism.
This, of course, is a far cry from the angry campaign rhetoric spouted by President Obama and his surrogates, as well as the mercantilist trade and subsidy policies that they have pursued over the last few years. And the contrast between this depressing rhetoric/policy and Locke's "improved" China understanding makes two things very clear: (1) the Obama administration isn't ignorant about China trade or free trade more broadly - they know the "truth"; but (2) politics has severely limited their willingness - or ability - to push good trade rhetoric and policy inside our borders.
This serious limitation, of course, is not confined to China trade: over the last 40-something months, the Obama administration has viewed trade policy through an almost-entirely political lens and has consistently put cheap politics before good policy. This started in early 2009 when the President shelved his surprising pro-trade rhetoric and the pending FTAs with Korea, Colombia and Panama in order to shore-up partisan support for Obamacare and then Dodd-Frank. And this approach continued for the next several years, leading to less-than-surprising results:
The WTO's Doha Round is dead, despite a pretty good opportunity to force the issue back in late 2010. The Obama administration took three years to implement already-dusty FTAs with Korea, Panama and Colombia and actually insisted on watering the deals down with new protectionist provisions in order to finally agree to move them. And while countries around the world are signing new trade agreements left and right, we've signed exactly zero and have eschewed important new participants and demanded absurd domestic protectionism in the one agreement that we are negotiating (the TPP). Meanwhile, on the home front the President has publicly championed mercantilism, as his minions quietly pursued myriad efforts to restrict import competition and consumer freedom, embraced competitive devaluation and maintained WTO-illegal policies (while publicly denouncing protectionism, of course).Amazingly enough, the Obama administration's China trade policy is probably the brightest spot of the last few years, as the President has for the most part ignored the increasingly-large protectionist wing of his party (e.g., avoiding labeling China a currency manipulator or lobbying for currency-based countervailing duties on Chinese imports) and pursued much of his China-related enforcement through the impartial WTO dispute settlement system. And although his China trade remedies policies - particularly countervailing duties on green energy and non-market economy imports - have stunk, support for these economically- and legally-dubious taxes on US consumers is a bipartisan affliction.
Nevertheless, it's quite telling that the President's most impressive trade policy achievement has very likely been the avoidance of an economy-crippling trade war with China, one of the United States' largest trading partners. (No, implementing three moldy Bush-era FTAs after making them worse and attaching a costly, union-appeasing worker subsidy is not a trade policy achievement. It just isn't.) Indeed, aside from the instances of protectionism mentioned above (and a few others), the last few years more aptly reflect not a devolution into Smoot-Hawley-style protectionism, but instead a complete lack of trade liberalization here - no unilateral reduction of domestic trade barriers, no new FTAs, no completed WTO negotiations, etc etc. As I've often discussed here, this stagnation (and discrete regression) is almost entirely due to the Obama administration's political decision that it is unable or unwilling to take on its base of unions, environmentalists and other anti-trade groups.
So, yes, the United States hasn't become an overtly protectionist country during the Obama years, but stagnation and "not totally destroying the economy" is hardly a good US trade policy. It's also not harmless: not only is the United States hurting its consumers and exporters by failing to keep up with rapidly trade-liberalizing countries like Canada, but our politics-driven stagnation also has led to a depressing lack of American leadership in the global economy. This latter point has serious implications for the multilateral trading system - something that I've often lamented here and that Bloomberg discusses in a new editorial on US-China trade:
The global trading system suffers from a lack of leadership. The U.S.’s narrow focus on China’s bad behavior and its own agenda of preferential trade deals underscores the point. Although the multilateral system has survived the global economic slump better than many expected, it’s no thanks to the efforts of governments to strengthen it.Bloomberg's proposal is a good one, I think - US trade leadership at the WTO and elsewhere is desperately needed - and it brings me back to Ambassador Locke. As noted above, his unscripted statements away from Washington reveal an Obama administration that fully understands the major problems facing the global economy and US trade policy, yet willingly ignores them for political gain. In other words, there is simply no chance that the President and his underlings will just wake up in a few months and think "Gee, we were, like, totally wrong about free trade; we have to ditch the mercantilism and kick-start the global trading system ASAP!" They instead would have to voluntarily change a cynical political calculus that has secured Obamacare, Dodd-Frank and, of course, the President's re-election. Given these facts, ask yourself this: what are the chances that an Obama White House will restart America's trade leadership and lower US trade barriers in 2013?
The U.S., as the architect of the WTO system, should reaffirm its commitment to the larger idea. So should China. Theirs is already the most important bilateral relationship in the world. They can benefit themselves and everybody else by forming a partnership to strengthen the multilateral trading system. More goodwill and a lot more ambition on both sides will be needed to make it happen.
Unless you think that the President's team will abandon their consistent and long-held political strategy upon re-election, or that the Democratic Party's base will suddenly embrace broad-based trade liberalization (stop laughing), this doesn't seem very likely, does it?
On the other hand, I think Mitt Romney's politics actually give him, if elected, a decent chance to reassert the United States' global leadership on trade. It's no secret that I seriously dislike Romney's aggressive China trade policy - an economically and legally-ignorant position that, like President Obama's actual policies, seems entirely driven by political cynicism. Yet Romney's previous actions and statements have, like Ambassador Locke's, revealed that he does actually understand free trade and the global economy, and he, unlike President Obama, would have almost none of the President's political impediments to pursuing "big" free trade policies. In short, he won't be kowtowing to the unions/greens or the Michaud/Brown anti-trade coalition in Congress, but could still be looking to (supposedly) trade-skeptical Ohio for 2016.
Thus, while I think that Romney's China bashing politics could hinder his ability as President to quickly pursue freer bilateral trade with China, I'm confident that he'd have an easier time than President Obama advocating policies that could put the United States back at the forefront of the global economy: WTO and FTA negotiations (even with China, eventually), unilateral liberalization, subsidy reforms, etc. No, I don't think that outcome is guaranteed - Romney's closest advisers clearly share some of the Obama administration's political cynicism on trade. However, the contrast between Locke's free trade statements and the last several years of problematic trade protectionism and stagnation make clear that things can't get much worse and probably won't get any better during Obama's second term.
Romney at least has a shot at making US trade policy better, and, unfortunately, I think that's just about the best we can hope for these days.
UPDATE: Steve Craven adds an excellent point via Facebook that I totally forgot about:
I had pretty much the same reaction, Scott, listening to Locke in Honolulu. And Obama has already answered your question about how likely he is to pursue trade liberalization in a second term - by not asking Congress for trade promotion authority. TPA, curiously, is in the Republican platform, but no Democrat is pushing for it. That tells me Obama isn't even serious about the TPP negotiation.Indeed. (Now if only I can figure out how to do trade work from Hawaii.)
Friday, October 19, 2012
How Does Your Congressman or Senator Measure Up on Trade and Subsidies?
As readers of this blog know, I frequently rely on the Cato Institute's free trade ratings to quickly note a Congressman's or Senator's voting record on free trade and subsidies, and with the November elections only a few weeks away (thank goodness), there's no better time than now to review the performance of our elected officials. Cato released the latest update of its invaluable, easily-searchable trade ratings today, and trade policy analyst Bill Watson blogged on some of their topline findings (none of which should come as a surprise to those of us who follow this stuff on a regular basis):
Hopefully they'll be joined by even more principled colleagues in 2013.
The site offers excellent insight into the positions and ideologies of our elected officials, and I encourage you to investigate it at your leisure. As a primer, I would like to point out two important observations of my own in this post.Each of these points is important, and it's one of the reasons why I've repeatedly said that an elected official's trade/subsidy record, rather than his/her party or rhetoric, is an excellent guide as to whether he or she is a principled politician. As I noted in a somewhat-recent IBD oped:
First, free trade is not a partisan issue. It is true that Free Traders tend to be Republicans and Interventionists tend to be Democrats, but the bulk of both parties are somewhere else on the graph and there is no obvious partisan correlation. For example, John Boehner (R-OH) and Nancy Pelosi (D-CA) have fairly similar scores that place them between Interventionist and Internationalist. There are plenty of Democrats who vote against trade barriers and plenty of Republicans who vote in favor of subsidies. It’s often regional interest rather than partisan affiliation that affects voting patterns, as demonstrated by Marco Rubio’s (R-FL) support for sugar subsidies.
Second, senators from the same state can have widely different approaches to trade, especially in swing states. Three large swing states in the current presidential election have a Democratic senator elected in the 2006 midterm election and a Republican senator elected in the 2010 midterm election. Senators Rob Portman (R-OH), Pat Toomey (R-PA), and Roy Blunt (R-MO) have earned high marks so far since joining the Senate in 2011. Senators Sherrod Brown (D-OH), Bob Casey (D-PA), and Claire McCaskill (D-MO) have established themselves as solid Interventionists. Brown and Casey are among the most devout protectionists in Congress today.
The votes database suggests the hypothesis that giving lip service to free trade while advocating protectionism to boost manufacturing is a middle-of-the-road position for swing state voters that candidates are wise to adopt. But it also says that free trade can win elections in Ohio and Pennsylvania.
A candidate's stance on trade is predictive of whether he, once elected, will put facts and principle before politics and self-interest. Politicians who reject protectionism turn down eager corporate and union campaign donations from unseemly rent-seekers trying to thwart international competition at the expense of American families and companies.Such principle transcends partisan identity or local politics, and there's no better example of this than the comparison of the stellar free trade record of Tea Party champion Sen. Jim Demint (R-SC) with the pretty bad record of his Palmetto State GOP colleague Sen. Lindsay Graham. (Indeed, Graham regularly partners with also-bad Sen. Chuck Schumer to sponsor protectionist China currency legislation.) It's also quite telling that a lot of the Tea Party "radicals" like DeMint, Toomey, Sen. Rand Paul (R-KY) and several freshmen House Republicans have great trade/subsidy records. These folks clearly get it.
They ignore demagogic attacks on their patriotism. And they openly support policies which, despite their overwhelming economic and historical support, are met with public hostility or disinterest and an unethical opposition willing to take full advantage thereof.
On the other hand, politicians who peddle protectionism are either ignorant of history and economics or are willing to discard their conservative ideals and prey on voter fears for short-term political advantage.
Hopefully they'll be joined by even more principled colleagues in 2013.
Wednesday, October 17, 2012
Yes, Subsidies Helped Kill Solyndra - American Subsidies
Although most people are busy talking about yesterday's announced bankruptcy of battery-maker - and Department of Energy subsidy recipient - A123 Systems, I'd like to kick it old school tonight and discuss the granddaddy of Obama administration green "investment" debacles, Solyndra. As I've noted here and in my new Cato Institute paper (full version here), when Solyndra went belly-up, the company and the Obama administration were quick to blame Chinese subsidies for the company's demise. Well, it turns out that they were half-right: subsidies did help kill Solyndra, but they came from Washington, not Beijing.
Surprised? So am I, actually, so please allow me to explain.
First, a new article from Quartz' energy and science expert Christopher Mims explores the root causes of Solyndra's demise and concludes that a collapse in polysilicon prices, not Chinese dumping, is to blame:
What neither Mims nor Silver happen to mention, however, is why polysilicon prices collapsed. Yes, Mims notes new US investment and huge increases in domestic polysilicon production capacity, but he doesn't explore the drivers of that investment/expansion. A little digging, however, reveals that the huge increases in capacity - and resulting collapse in Solyndra-killing polysilicon prices - were caused, at least in part, by massive subsidization by the US government. You see, it turns out that US polysilicon producers were some of the biggest recipients of Obama administration "green" subsidies, primarily through DOE programs begun or dramatically expanded as part of the 2009 Stimulus bill.
Indeed, a very quick search of "polysilicon" on DOE's website reveals the following examples - each bragging about how federal subsidies helped bring new polysilicon capacity online:
So to recap: the Obama administration gave a $500 million dollar loan guarantee to a company that was dependent on sky-high polysilicon prices, but simultaneously threw hundreds of millions of dollars at domestic polysilicon producers. The latter subsidies - when combined with billions in indirect subsidies to solar producers and consumers - inevitably helped stoke overcapacity in the domestic and global polysilicon markets and a resulting collapse in polysilicon prices that - wait for it - eviscerated Solyndra's business plan and ultimately killed the company. And when Solyndra declared bankruptcy, the Obama administration immediately blamed China.
You cannot make this stuff up.
There are certainly some important timeline questions here that I'm not willing or able to handle tonight (for example, did the administration subsidize Solyndra with any knowledge of the company's polysilicon-dependent business plan or that the 48C subsidies were helping bring tons of new polysilicon capacity online?), but answering those isn't necessary for tonight's purposes. Instead, what's sufficient is to just point out (i) the problematic, incoherent and anything-but-surprising effects of the United States' out-of-control green subsidy policies; and (ii) the fact that blaming Chinese solar subsidies, instead of failed US policy, appears to be a really misguided (and/or misleading) approach.
So I'll ask, once again: isn't it time for a change?
Surprised? So am I, actually, so please allow me to explain.
First, a new article from Quartz' energy and science expert Christopher Mims explores the root causes of Solyndra's demise and concludes that a collapse in polysilicon prices, not Chinese dumping, is to blame:
Solyndra made tube-shaped solar collectors because they were good at optimizing what was, at the company’s inception in 2005, a scarce and extremely expensive good: the pure, crystalline polysilicon needed to make a solar panel. Solyndra’s “big idea” was to change the shape of the solar panel so that it could get the same performance using significantly less silicon.Mims provides plenty of links to support his conclusions, but, hey, don't just take his word for it. Instead, take a gander at the recent congressional testimony of Jonathan Silver, Executive Director of the US Department of Energy's Loan Programs Office, explaining why Solyndra failed:
At first, this seemed like the right bet: In 2008, the cost of polysilicon reached $400 a kilogram. Today that same kilo will cost you $30.
Companies that continued to make conventional, flat solar panels were able to reap the benefits of this collapse in price. And what brought about this price collapse was an explosion of US and global polysilicon manufacturing.
“Over the last several years, US industry leaders made massive investments in silicon production capacity that rapidly pushed down the price of silicon and therefore crystalline silicon solar panels,” says Walker Frost, a spokesperson for Suntech, one of the Chinese manufacturers currently being sued by Solyndra.
Globally, there are now more than 170 startups and established companies making polysilicon. The solar industry used to be dependent on the cast-offs from the microchip manufacturing industry, but the profits reaped by polysilicon manufacturers through 2008 were so large that capacity has since exploded. There’s now so many companies making polysilicon that industry analysts at GTM Research now predict that price pressure and consolidation will leave behind only a dozen survivors by the end of the decade.
In 2009, Solyndra appeared to be well-positioned to compete and succeed in the global marketplace. Solyndra manufactured cylindrical, thin-film, solar cells, which avoided both the high cost of polysilicon—a crucial component used in conventional solar panels — and certain costs associated with installing flat panels. But polysilicon prices subsequently dropped significantly, taking Solyndra, and many industry analysts, by surprise. Among the principal beneficiaries of this pricing environment were four of Solyndra’s Chinese competitors, which sell polysilicon panels and received $20 billion in credit from the China Development Bank in the 2010.In short, polysilicon prices "surprisingly" collapsed, thus benefiting the Solyndra's Chinese competitors (yes, sure, they were subsidized competitors - you know, just like Solyndra). However, were it not for this "surprising" collapse, these competitors would never have realized such benefits. Thus, the key to Solyndra's bankruptcy wasn't China, but low polysilicon prices and the destruction of the company's business model.
These developments made Solyndra’s business model more challenging. The company attempted to cut costs and enhanced its sales and marketing efforts, which resulted in increased sales and revenues. In fact, its revenues increased 40% between 2009 and 2010, from $100m to $140m. But Solyndra’s efforts to gain market-share left it short of capital and, by the summer of 2010, the company faced the prospect of bankruptcy if it could not secure an influx of new cash.
What neither Mims nor Silver happen to mention, however, is why polysilicon prices collapsed. Yes, Mims notes new US investment and huge increases in domestic polysilicon production capacity, but he doesn't explore the drivers of that investment/expansion. A little digging, however, reveals that the huge increases in capacity - and resulting collapse in Solyndra-killing polysilicon prices - were caused, at least in part, by massive subsidization by the US government. You see, it turns out that US polysilicon producers were some of the biggest recipients of Obama administration "green" subsidies, primarily through DOE programs begun or dramatically expanded as part of the 2009 Stimulus bill.
Indeed, a very quick search of "polysilicon" on DOE's website reveals the following examples - each bragging about how federal subsidies helped bring new polysilicon capacity online:
- $44.85 million to Pennsylvania's AE Polysilicon via the Advanced Energy Manufacturing Tax Credit (aka "Section 48C");
- $154 million to Washington's REC Silicon via the same Advanced Energy Manufacturing Tax Credit — "the highest amount awarded to a recipient under the Recovery Act" (woo hoo!);
- $275 million loan guarantee to California's Calisolar Inc. (which also apparently benefited from millions of dollars worth of R&D subsidies through UC Berkeley);
The 2010 IRS factseet on the $2.3 billion in Section 48C tax credits also shows a $128 million subsidy to Wacker Polysilicon and another $51.6 million to Calisolar. (These are just the ones I could quickly pinpoint with "polysilicon" in their names; no doubt there are other producers who received 48C tax credits and/or one of the many other state and federal subsidies available to green energy producers.)
This cursory review makes clear that the Obama administration, and especially the 2009 Stimulus Bill, gave hundreds of millions of dollars in direct subsidies to domestic polysilicon producers. These subsidies inevitably - and totally unsurprisingly - helped cause polysilicon prices to drop (and led to a Chinese anti-subsidy investigation of US exports which targets the aforementioned tax subsidies and several other state-level programs). Moreover, all the state and federal subsidies to downstream solar manufacturers like Solyndra and to US solar energy consumers further stoked US polysilicon investment and production and further reduced prices.
And down goes Solyndra.
So to recap: the Obama administration gave a $500 million dollar loan guarantee to a company that was dependent on sky-high polysilicon prices, but simultaneously threw hundreds of millions of dollars at domestic polysilicon producers. The latter subsidies - when combined with billions in indirect subsidies to solar producers and consumers - inevitably helped stoke overcapacity in the domestic and global polysilicon markets and a resulting collapse in polysilicon prices that - wait for it - eviscerated Solyndra's business plan and ultimately killed the company. And when Solyndra declared bankruptcy, the Obama administration immediately blamed China.
You cannot make this stuff up.
There are certainly some important timeline questions here that I'm not willing or able to handle tonight (for example, did the administration subsidize Solyndra with any knowledge of the company's polysilicon-dependent business plan or that the 48C subsidies were helping bring tons of new polysilicon capacity online?), but answering those isn't necessary for tonight's purposes. Instead, what's sufficient is to just point out (i) the problematic, incoherent and anything-but-surprising effects of the United States' out-of-control green subsidy policies; and (ii) the fact that blaming Chinese solar subsidies, instead of failed US policy, appears to be a really misguided (and/or misleading) approach.
So I'll ask, once again: isn't it time for a change?
Monday, September 10, 2012
Where's the Love for the President's Signature Trade Enforcement Achievement?
As you may recall, President Obama has repeatedly lauded his 2009 decision to impose prohibitive tariffs on Chinese tires under Section 421 of US trade law as the poster child for his big trade enforcement initiative. For example, in his 2012 State of the Union Address, Obama bragged about how the duties saved "over a thousand jobs" and were a shining example of how the he stands up for the American worker (or something). And just last week the President reiterated this theme in his speech to the DNC when he spoke of how his administration "stood up to China on behalf of our workers."
Those super-awesome tire tariffs, however, expire in a few weeks, and, while I'm certainly thrilled to see them go, their expiry leaves me wondering one simple question:
So what's going on here? If those tariffs are as great as the President has repeatedly claimed and have saved so many American jobs, wouldn't he have fought tooth-and-nail to prevent them from expiring in a few weeks? He clearly has the legal authority to do so, and, as we all know, once the duties expire, it's very likely that Chinese exporters will regain much of the market share that they lost to other imports during 2009-2012. And, let's face it, it's not like the US economy is just humming along these days. Moreover, the United States doesn't lose its right to impose import protection under Section 421 ("the China-specific safeguard") until December 2013 (12 years after China acceded to the WTO), so the President could have extended those "job-saving" tariffs for another 15 months (at the very least).
The President's silence is thus quite notable, and perhaps some enterprising journalist can ask him about it the next time that he brags about "standing up to China" on the campaign trail. Could it be that maybe those tariffs weren't nearly as great as the President has repeatedly claimed, and that several independent reports have shown that they imposed massive harms on the American economy for very, very little gain? And does the President perhaps want to avoid a very-public spotlight on these inconvenient facts during an election season?
(Yes, all of those questions are sarcastic and rhetorical, but it would nevertheless be wonderful to see someone raise them with the Obama campaign.)
Those super-awesome tire tariffs, however, expire in a few weeks, and, while I'm certainly thrilled to see them go, their expiry leaves me wondering one simple question:
If the President's tire tariffs were as awesome as he says they were, why hasn't anyone - in the industry, unions or the Obama administration - fought to have them extended?Under US law (19 USC Sec. 2451), any import protection measures imposed under Section 421 will apply "to the extent and for such period as the President considers necessary to prevent or remedy the market disruption." And President Obama's September 2009 proclamation announcing the tire tariffs established that they would apply for three years from the date they were first imposed (September 26, 2009):
4. Pursuant to section 421(a) of the Trade Act (19 U.S.C. 2451(a)), I have determined to provide import relief with respect to new pneumatic tires, of rubber, from China, of a kind used on motor cars (except racing cars) and on-the-highway light trucks, vans, and sport utility vehicles, provided for in subheadings 4011.10.10, 4011.10.50, 4011.20.10, and 4011.20.50 of the HTS.However, US law also allows any Section 421 measures to be extended upon the request of the affected domestic industry (including the union members who filed the original complaint) or... yes... the President himself:
5. Such import relief shall take the form of an additional duty on imports of the products described in paragraph 4, imposed for a period of 3 years. For the first year, the additional duty shall be in the amount of 35 percent ad valorem above the column 1 general rate of duty. For the second year, the additional duty shall be in the amount of 30 percent ad valorem above the column 1 general rate of duty, and in the third year, the additional duty shall be in the amount of 25 percent ad valorem above the column 1 general rate of duty.
(o) Extension of actionYet neither the unions nor the President ever requested that the tire tariffs be extended, and the deadline for a petition (i.e., 6-9 months before September 25, 2012) has clearly passed. Such silence is pretty surprising when you consider that the Section 421 case is the centerpiece of an Obama administration trade enforcement strategy that has taken center stage during the 2012 presidential campaign.
(1) Upon request of the President, or upon petition on behalf of the industry concerned filed with the Commission not earlier than the date which is 9 months, and not later than the date which is 6 months, before the date any relief provided under subsection (k) of this section is to terminate, the Commission shall investigate to determine whether action under this section continues to be necessary to prevent or remedy market disruption.
(2) The Commission shall publish notice of the commencement of any proceeding under this subsection in the Federal Register and shall, within a reasonable time thereafter, hold a public hearing at which the Commission shall afford interested parties and consumers an opportunity to be present, to present evidence, and to respond to the presentations of other parties and consumers, and otherwise to be heard.
(3) The Commission shall transmit to the President a report on its investigation and determination under this subsection not later than 60 days before the action under subsection (m) of this section is to terminate.
(4) The President, after receiving an affirmative determination from the Commission under paragraph (3), may extend the effective period of any action under this section if the President determines that the action continues to be necessary to prevent or remedy the market disruption.
So what's going on here? If those tariffs are as great as the President has repeatedly claimed and have saved so many American jobs, wouldn't he have fought tooth-and-nail to prevent them from expiring in a few weeks? He clearly has the legal authority to do so, and, as we all know, once the duties expire, it's very likely that Chinese exporters will regain much of the market share that they lost to other imports during 2009-2012. And, let's face it, it's not like the US economy is just humming along these days. Moreover, the United States doesn't lose its right to impose import protection under Section 421 ("the China-specific safeguard") until December 2013 (12 years after China acceded to the WTO), so the President could have extended those "job-saving" tariffs for another 15 months (at the very least).
The President's silence is thus quite notable, and perhaps some enterprising journalist can ask him about it the next time that he brags about "standing up to China" on the campaign trail. Could it be that maybe those tariffs weren't nearly as great as the President has repeatedly claimed, and that several independent reports have shown that they imposed massive harms on the American economy for very, very little gain? And does the President perhaps want to avoid a very-public spotlight on these inconvenient facts during an election season?
(Yes, all of those questions are sarcastic and rhetorical, but it would nevertheless be wonderful to see someone raise them with the Obama campaign.)
Monday, August 27, 2012
2012 GOP Platform on Trade: the Good, the Bad, and the Really Ugly
The Republican Party has released its 2012 Platform, and it's pretty much what you'd expect given the past few months of campaign and congressional rhetoric: it mostly supports free trade, yet does so in a mercantilist way and contains some pretty harsh - and indeed protectionist - words for today's trade bogeyman, China. In fact, the platform seems like it was almost entirely lifted from Gov. Mitt Romney's 2011 economic plan, for the better and the worse. Although there are various trade-related elements throughout the platform, the main "international trade" section can be found on pages 6-7 and I'll focus on it tonight:
The Good. The platform expresses unequivocal support for international trade and free trade agreements. Especially noteworthy is (i) formal party support for the Trans-Pacific Partnership - something we've suspected but not really heard from the GOP's top dogs; and (ii) a loud call for restoration of Trade Promotion Authority - an absolutely critical legal tool for the President's ability to effectively negotiate new trade deals. Although I'll start complaining in just a second, the GOP's embrace of international trade is definitely a good thing, especially given the economic anxiety out there right now and the strong anti-outsourcing and anti-trade stuff we've been hearing from most Democrats. Maybe the Dem Platform will surprise us and not contain similar protectionist positions this time around, but until then, the GOP remains the better party when it comes to public support for good trade policy.
Hooray, lesser of two evils!
More to come, I'm sure.
International Trade:I've been over most of these ideas before, so there's no need to get long-winded tonight. Instead, here's a quick summary of the good, the bad and the ugly in the GOP platform's international trade section:
More American Jobs, Higher Wages, and A Better Standard of Living
International trade is crucial for our economy. It means more American jobs, higher wages, and a better standard of living. Every $1 billion in additional U.S. exports means another 5,000 jobs here at home. The Free Trade Agreements negotiated with friendly democracies since President Reagan’s trailblazing pact with Israel in 1985 facilitated the creation of nearly ten million jobs supported by our exports. That record makes all the more deplorable the current Administration’s slowness in completing agreements begun by its predecessor and its failure to pursue any new trade agreements with friendly nations.
This worldwide explosion of trade has had a downside, however, as some governments have used a variety of unfair means to limit American access to their markets while stealing our designs, patents, brands, know-how, and technology—the “intellectual property” that drives innovation. The chief offender is China, which has built up its economy in part by piggybacking onto Western technological advances, manipulates its currency to the disadvantage of American exporters, excludes American products from government purchases, subsidizes Chinese companies to give them a commercial advantage, and invents regulations and standards designed to keep out foreign competition. The current Administration’s way of dealing with all these violations of world trade standards has been a virtual surrender.
Republicans understand that you can succeed in a negotiation only if you are willing to walk away from it. Thus, a Republican President will insist on full parity in trade with China and stand ready to impose countervailing duties if China fails to amend its currency policies. Commercial discrimination will be met in kind. Counterfeit goods will be aggressively kept out of the country. Victimized private firms will be encouraged to raise claims in both U.S. courts and at the World Trade Organization. Punitive measures will be imposed on foreign firms that misappropriate American technology and intellectual property. Until China abides by the WTO’s Government Procurement Agreement, the United States government will end procurement of Chinese goods and services.
Because American workers have shown that, on a truly level playing field, they can surpass the competition in international trade, we call for the restoration of presidential Trade Promotion Authority. It will ensure up or down votes in Congress on any new trade agreements, without meddling by special interests. A Republican President will complete negotiations for a Trans-Pacific Partnership to open rapidly developing Asian markets to U.S. products. Beyond that, we envision a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a “Reagan Economic Zone,” in which free trade will truly be fair trade for all concerned.
The Good. The platform expresses unequivocal support for international trade and free trade agreements. Especially noteworthy is (i) formal party support for the Trans-Pacific Partnership - something we've suspected but not really heard from the GOP's top dogs; and (ii) a loud call for restoration of Trade Promotion Authority - an absolutely critical legal tool for the President's ability to effectively negotiate new trade deals. Although I'll start complaining in just a second, the GOP's embrace of international trade is definitely a good thing, especially given the economic anxiety out there right now and the strong anti-outsourcing and anti-trade stuff we've been hearing from most Democrats. Maybe the Dem Platform will surprise us and not contain similar protectionist positions this time around, but until then, the GOP remains the better party when it comes to public support for good trade policy.
The Bad. The platform continues the failed approach of selling free trade through a single-minded focus on exports and reciprocal trade (i.e., only opening our market if others open theirs). As I've repeatedly discussed, this strategy is not only economically ignorant, but it also undermines public support for free trade by reinforcing the erroneous notion that imports - and by extension the US trade deficit - are somehow bad for the US economy. The platform also errs in its support for Romney's "Reagan Economic Zone" - a silly idea from a practical perspective (I've yet to read serious, apolitical trade policy expert express even lukewarm support) and one that implicitly abandons the existing multilateral negotiating framework at the WTO. That, in my opinion, is a serious mistake - the WTO is and will remain the only real mechanism for broadbased, multilateral trade liberalization, and any alternatives are dangerous non-starters. The GOP certainly isn't abandoning the WTO altogether - the text above promotes the use of WTO dispute settlement, and the platform on page 49 supports Permanent Normal Trade Relations with Russia in order to reap the benefits of Russia's WTO accession - but the Reagan Zone strongly implies that the GOP no longer sees multilateral negotiations through the WTO as viable. And that, in my opinion, is a mistake, regardless of the big mess that is the Doha Round.
The Ugly. I guess it shouldn't be a surprise, but it's really a shame that America's "free market" party has warmly embraced Romney's zealous contempt for all things China trade-related. This includes support for (i) countervailing duties on Chinese imports due to currency manipulation; (ii) mysterious "punitive measures" on foreign firms found engaging in IPR theft; and (iii) support for a "Buy AmericanAnything-But-Chinese" procurement policy. Leaving aside for the moment the fact that each of these proposals raises serious legal and practical concerns (see, e.g., here on currency; there's not really a vehicle under US law for the second; and the third could violate WTO rules if it singled out China), there are much bigger problems with such talk:
- First, the scary chest-thumping overshadows far more legitimate gripes about bad Chinese trade policies (like subsidies and IPR enforcement). When you're screaming about attacking imports and investment, people tend not to notice your more subtle gripes about real problems in the Chinese market.
- Second, and more importantly, these proposals expressly condone self-destructive retaliatory protectionism that defies economic sense and free market principles. As I've repeatedly warned, there is absolutely no reason why such "logic" couldn't be applied to other "offending" countries, and the protectionist slope is very, very slippery. Saying "we only meant it for China" is likely not going to serve as an adequate defense when the well-funded protectionists come knocking on the White House door. And, by empowering these anti-trade forces, such proposals also won't help improve tepid American support for free trade. In short, Pandora's Box has been opened, and it remains to be seen whether Republicans can control the nastiness inside. The Democrats - who once supported things like NAFTA, China trade and the WTO (see, e.g., Bill Clinton) - sure couldn't.
Hooray, lesser of two evils!
More to come, I'm sure.
Tuesday, August 21, 2012
Congratulations, Non-US Exporters, Investors and Consumers!
Tomorrow, Russia will officially become the World Trade Organization's 156th Member. At that time, exporters, investors and consumers from around the world will immediately begin to enjoy myriad new trade benefits that the newly-liberalized Russian market will offer - benefits that, unfortunately, their US counterparts will not share because of their government's incompetence.
Before I get into all that nonsense, however, a little backstory on Russia's WTO accession is necessary. Last month, the Russian government finalized its pre-accession obligations, and the WTO announced that the country would become a WTO Member on August 22 (tomorrow):
I was wrong.
In a classic case of "government being government," the Obama administration, the Democratically-controlled Senate and the Republican-controlled House could not get their collective act together before the August recess to grant Russia PNTR, despite the fact that (i) all sides (leadership, at least) agreed that they wanted to make PNTR happen; (ii) both key committees (Senate Finance and House Ways & Means) had overwhelmingly approved their respective PNTR bills; (iii) the US business community strongly supported PNTR; (iv) US labor unions - typically the biggest impediment to congressional approval of trade-related legislation - were relatively quiet on PNTR; and (v) all sides had appeared to agree on passing human rights legislation - the "Magnitsky Act" - to calm any nerves that approval of PNTR (and the Putin regime's seemingly constant thumb in the United States' eye) might fray in Congress. And when our political "leaders" failed to get PNTR done, they all blamed each other for this grave injustice and then promptly went on vacation.
Like I said, classic government. (And, yes, I feel like Flounder for ever trusting them.)
So tomorrow, American exporters and investors will be at a disadvantage versus their foreign competitors in the Russian market. Word on the street is that the US business community expects Congress to pass legislation granting Russia PNTR in mid-September after they return from summer break, and I'm still inclined to agree (reinforced belief in government incompetence, notwithstanding). If that actually happens - an admittedly big "if" - then the short delay here shouldn't really matter much from a strictly economic perspective - some of Russia's biggest trade liberalizing moves won't instantly happen tomorrow, and a few weeks' delay shouldn't dramatically disadvantage US companies.
That said, any economic harm here is simply inexcusable, given that Russia PNTR was pretty much the only major trade item on the US government's 2012 Trade To-Do List and that there was bi-partisan support for getting it done. Even worse, however, is the broader signal that this whole episode broadcasts to the rest of the world. Since 2009, I've lamented waning US leadership in the global economy - a problem starting in the White House but definitely permeating Congress too - and the United States' utter inability to implement a no-brainer, one-sided trade measure is yet another example of America's slow fall from the top the international trade food chain. So while tomorrow's PNTR snafu may not hurt US businesses too much, it has definitely hurt the already-injured reputation of a country that not too long ago was the world leader on international economic issues.
And that's a shame, regardless of the newly-opened Russian market.
UPDATE: Cato's Bill Watson has more here. He comes to a similar conclusion but notes a nice stat that I missed: "The Peterson Institute for International Economics has estimated that increased access to Russia's market due to its entry into the WTO will increase annual U.S. exports to Russia to $22 billion — double the current $11 billion — within five years."
Before I get into all that nonsense, however, a little backstory on Russia's WTO accession is necessary. Last month, the Russian government finalized its pre-accession obligations, and the WTO announced that the country would become a WTO Member on August 22 (tomorrow):
Russian President Vladimir Putin signed into law 21 July Parliamentary legislation bringing Russia’s trading laws into compliance with the international standards set under the WTO. The presidential approval follows passage of accession implementation legislation 18 July by the Federal Council, the upper house of Parliament and by the lower house, the Duma, on 10 July. Today, Russia officially notified the WTO Secretariat that the ratification process was completed thereby clearing the way for the country to become the organization’s 156th member on 22 August....As the release makes clear, the Russian economy is pretty big, and the WTO's December announcement of Russia's accession details the many ways that this pretty big market will be liberalized starting tomorrow. I won't get into all of those tonight, but here are a few highlights with respect to other WTO Members' goods exports to Russia:
In 2011, Russia was the world’s ninth largest exporter, shipping $522 billion in goods and $54 billion in services to its trading partners. Last year, Russians imported $323 billion in goods and $90 billion in services.
Russia’s terms of membership, including the Working Party Report for Russia’s Accession, the Protocol of Accession were adopted by the WTO at the eighth Ministerial Conference on 15-17 December 2011.
On average, the final legally binding tariff ceiling for the Russian Federation will be 7.8% compared with a 2011 average of 10% for all products...The WTO release explains similar trade benefits for services imports, investment, intellectual property, and it elaborates on how the Russian government has - or has committed to in the near future - liberalized its economy with respect to subsidies, price controls, export restrictions, technical regulations/standards, government procurement, and transparency. Thus, WTO Members' citizens stand to reap nice economic gains from Russia's WTO accession. These hypothetical benefits for the United States were made clear in a December 2011 Cato Institute study which noted, among other things, the following facts about the expanding US-Russia trade relationship:
The average tariff ceiling for agriculture products will be 10.8%, lower than the current average of 13.2%. The ceiling average for manufactured goods will be 7.3% vs. the 9.5% average today on manufactured imports.
The final bound rate will be implemented on the date of accession for more than one third of national tariff lines with another quarter of the tariff cuts to be put in place three years later....
Quantitative restrictions on imports, such as quotas, bans, permits, prior authorization requirements, licensing requirements or other requirements or restrictions that could not be justified under the WTO provisions would be eliminated and not (re) introduced.
Through the first three quarters of 2011, Russia ranked 31st among nations as a market for U.S. goods exports, and 16th as a source of U.S. goods imports. In two-way trade (exports plus imports), Russia ranks as America's 23rd largest trading partner, just below Thailand and Nigeria....So, clearly, Russia's WTO accession is an economic no-brainer for the United States. For this reason, I boldly predicted back in April that, before Russia become a WTO Member in August 2012, Congress would pass and the Obama administration would sign a new law granting Russia permanent normal trade relations (PNTR) - a basic prerequisite for the United States (including its exporters, investors and consumers) to reap any of the benefits of Russia's WTO accession. (WTO rules require Members to provide each other with PNTR on a reciprocal basis before the trade between them will be covered by the WTO Agreements.)
Trade with Russia has, however, grown significantly over the past decade. From 2000 to 2010, U.S. goods exports to Russia increased by 187 percent and U.S. imports from Russia increased by 235 percent. During the same period, total U.S. exports and imports grew 63 percent and 57 percent respectively....
U.S. trade with Russia is highly concentrated in a few select industries. In 2010 the top five import categories (according to the 2-digit Harmonized System) made up over 70 percent of total U.S. imports from Russia.5 These categories included precious stones and metals, inorganic chemicals, mineral fuels, aluminum, iron and steel, and fish and other seafood.... U.S. exports to Russia are also highly concentrated: aircraft, machinery, and meat (according to the 2-digit Harmonized System) make up about 60 percent of U.S. exports to Russia....
Following a dip during the "Great Recession" of 2008–09, U.S. exports to Russia have rebounded strongly. The increasing economic liberalization and development of Russia in recent years has coincided with increased U.S. exports, with the growth rate of U.S. exports to Russia twice as large as the growth rate of U.S. exports to the rest of the world. By some estimates, U.S. exports to Russia could double in the five years following its accession to the WTO.
Demand within the Russian market for U.S. goods and services is significant and increasing. Moreover, that demand spans across multiple economic sectors, including agriculture, services, capital equipment, manufactures, machinery, and advanced technologies. In 2010, for example, 66 million Russians were Internet users. This number is expected to jump by 20 percent in 2011, stoking demand for U.S.-branded computer software and hardware.9 As a condition of its WTO entry, Russia has committed to joining the Information Technology Agreement, which eliminates duties on a wide range of IT, communication, and other high-tech hardware. Also, Russia is the 8th largest market for U.S. exports of PVC and other polymers, and exports of these goods grew 500 percent between 2008 and 2010.
Furthermore, Russia will require an estimated 960 new civilian aircraft in the next 20 years to replace its aging fleet, and a proposed reduction from 20 percent to 7.5 percent in tariffs on wide body aircraft would benefit U.S. producers significantly.10 Growing demand for Russia's vast natural resources — including farming, mining, oil, and energy products — drives Russian demand for heavy and complex machinery, which the United States is in an optimal position to export. Russia has committed to a bound tariff (upon entering the WTO) of 5 percent in this sector.
I was wrong.
In a classic case of "government being government," the Obama administration, the Democratically-controlled Senate and the Republican-controlled House could not get their collective act together before the August recess to grant Russia PNTR, despite the fact that (i) all sides (leadership, at least) agreed that they wanted to make PNTR happen; (ii) both key committees (Senate Finance and House Ways & Means) had overwhelmingly approved their respective PNTR bills; (iii) the US business community strongly supported PNTR; (iv) US labor unions - typically the biggest impediment to congressional approval of trade-related legislation - were relatively quiet on PNTR; and (v) all sides had appeared to agree on passing human rights legislation - the "Magnitsky Act" - to calm any nerves that approval of PNTR (and the Putin regime's seemingly constant thumb in the United States' eye) might fray in Congress. And when our political "leaders" failed to get PNTR done, they all blamed each other for this grave injustice and then promptly went on vacation.
Like I said, classic government. (And, yes, I feel like Flounder for ever trusting them.)
So tomorrow, American exporters and investors will be at a disadvantage versus their foreign competitors in the Russian market. Word on the street is that the US business community expects Congress to pass legislation granting Russia PNTR in mid-September after they return from summer break, and I'm still inclined to agree (reinforced belief in government incompetence, notwithstanding). If that actually happens - an admittedly big "if" - then the short delay here shouldn't really matter much from a strictly economic perspective - some of Russia's biggest trade liberalizing moves won't instantly happen tomorrow, and a few weeks' delay shouldn't dramatically disadvantage US companies.
That said, any economic harm here is simply inexcusable, given that Russia PNTR was pretty much the only major trade item on the US government's 2012 Trade To-Do List and that there was bi-partisan support for getting it done. Even worse, however, is the broader signal that this whole episode broadcasts to the rest of the world. Since 2009, I've lamented waning US leadership in the global economy - a problem starting in the White House but definitely permeating Congress too - and the United States' utter inability to implement a no-brainer, one-sided trade measure is yet another example of America's slow fall from the top the international trade food chain. So while tomorrow's PNTR snafu may not hurt US businesses too much, it has definitely hurt the already-injured reputation of a country that not too long ago was the world leader on international economic issues.
And that's a shame, regardless of the newly-opened Russian market.
UPDATE: Cato's Bill Watson has more here. He comes to a similar conclusion but notes a nice stat that I missed: "The Peterson Institute for International Economics has estimated that increased access to Russia's market due to its entry into the WTO will increase annual U.S. exports to Russia to $22 billion — double the current $11 billion — within five years."
Thursday, August 16, 2012
On China Trade, Paul Ryan Toes the (New, Fake) Company Line
Well, that certainly didn't take long:
A smart reporter was quick to note this blatant conflict, to which the Romney campaign responded with a classic bit of political non-speak:
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 alljust 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.
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.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.
"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."
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.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:
“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.”
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.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.
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.
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
But that doesn't mean I have to sit back and enjoy it.