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:

International Trade:
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.

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:

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.

Granted, each of the GOP's China trade proposals allows for ample wiggle-room, and it's very likely that a President Romney would pursue a much less aggressive approach (indeed, the platform later on page 49 states that the GOP "welcome[s] the increase in trade and education alliances with the U.S. and the opening of Chinese markets to American companies").  Regardless, "Commercial discrimination will be met in kind" is a recipe for heightened protectionism and possibly a trade war, not a responsible, economically and legally sound policy from the supposed "adult in the room" on US international trade policy and politics.  And the sign that such rhetoric - in GOP's defining policy document, no less - sends to the rest of the world is nothing short of embarrassing.  The only bright side for Republicans, I guess, is that the Democrats' platform promises to be even worse.

Hooray, lesser of two evils!

More to come, I'm sure.

Breaking the Mercantilist Campaign Feedback Loop

In a new post at his Foreign Policy blog, Dan Drezner argues that, sure, the protectionist rhetoric coming from both US presidential campaigns is mind-numbingly bad, but - hey - don't worry about it:

It's ridiculously offensive, however, because it baldly asserts that doing business with Mexico, China or Switzerland is un-American. Other idiocies like the Olympic-uniform controversy feed into the public perception that having the other countries make stuff is an abomination of the first degree.

So, does it matter for policy? Well.... no.

Mario Cuomo once said "You campaign in poetry. You govern in prose." Now, Mario Cuomo was clearly the world's worst poetry connoisseur. Still, to update his observation for our current needs, we can say, "You campaign as a mercantilist; you govern as a free-trader."...

Americans loooooooove mercantilism, so this kind of [protectionist] rhetoric makes tactical sense during a campaign. As stomach-churning as I find this kind of ad, I must reluctantly agree with Yglesias and Brooks that it doesn't matter all that much for governing....

Although I agree wholeheartedly with Drezner that President Obama and Governor Romney don't actually believe much of the protectionist nonsense that they're spewing on the campaign trail, I must disagree that their rhetoric "doesn't matter for policy."  Sure, neither candidate will enter office and instantly start a trade war with China or throw US "outsourcers" in jail.  But that doesn't mean that mercantilist - and outright protectionist  - campaign rhetoric doesn't take a toll on American trade policy, which is actually pretty crappy these days.  I covered much of this stuff last month (and in this 2011 Cato paper with Dan Ikenson), so I'll just paste the highlights here, but be sure to read the whole thing if you haven't already:

[W]hile Romney's position probably won't lead to the implementation of new protectionist policies if he becomes President (undeniably good news), Obama's similar protectionist proclamations in 2008 show us that such rhetoric is far from harmless. Indeed, as Ikenson and I noted last year, historical data from Pew's annual survey of US views on trade show that American attitudes toward trade are shaped largely by what Americans hear from the media and their elected (or campaigning) officials:

The dramatic decline in pro-trade sentiment between 2007 and 2008 coincided with a U.S. presidential primary election campaign season in which the Democratic candidates routinely criticized U.S. trade policy and certain trade partners. Perhaps most memorable was the late-February 2008 debate at Cleveland State University on the eve of the Ohio primary, when the late Tim Russert extracted renunciations of NAFTA and pledges from candidates Hillary Clinton and Barack Obama to reopen and renegotiate terms of the agreement...

The results of the 2009 Pew poll... suggest that political leaders can indeed influence public opinion about trade. The greatest fluctuation in public support for trade between 2007 and 2009 came from self-identified Democrats — those paying most attention to the Democratic primary elections and President Obama's early speeches — with opposition swinging wildly from 37 percent in 2007 up to 50 percent in 2008 and down to 30 percent in 2009. Meanwhile, support among Republicans remained steady during this period, as the issue was almost nonexistent during the GOP primaries and rarely discussed by Republican nominee John McCain during the general election campaign.

Assuming that Romney's China-bashing speeches and commercials have a similar effect on the electorate in 2012, it's quite likely that public support for free trade will wane this year and into next. Indeed, the harmful effects of Romney's message on US trade sentiment could be even bigger than in 2007-08, given that the Democratic party (including President Obama) routinely engages in protectionist pandering during election season, and Romney's position as the leader of the Republican party will certainly diminish the GOP's traditional pro-trade counterweight.

Thus, while Romney's political advisers may view his China-bashing as a harmless way to help pave the road the White House in 2012, President Romney and his team may arrive there in 2013 facing an trade-hostile US electorate that makes any major free trade policies too politically unpalatable to be undertaken.

And they'd have only themselves to blame.

So, if/when this all happens, does anyone actually expect the Romney administration to advocate its new trade proposals using anything except the same old, self-defeating mercantilist arguments? I try to be optimistic - really, I do! - but it sure ain't easy.

So we'll probably do this all over again in 2014 and 2016 and, well, until we find a politician brave - and smart! - enough to ditch the mercantilism and adopt a new approach to trade based on the realities of today's global economy and the abject falsity and immorality of the anti-trade position. Trust me, these politicians do exist (I've worked with them), but it's increasingly - and depressingly - clear that they won't be in the White House anytime soon.

I think that just about covers it, but let me add a few points:

First, I think that one of the reasons why Americans' views on trade policy are so malleable is because it's just not a big concern for them - consistently falling outside the top 10 issues that voters consider "very important."  Most people don't have direct interaction with trade (i.e., they're not importers or exporters or trade lawyers or policy wonks).  The issue also isn't in the news much, and when it is, the reporting is typically shoddy or simply parroting some dumb politician's protectionist demagoguery.  Thus, people are far more likely to buy into politicians' campaign "facts" and promises on trade than on other issues, like education or health care, where they have direct experience and strongly-held views.

This lack of interest, as public choice theory teaches us, also permits unprincipled politicians to pursue protectionism/mercantilism while in office or to spew ridiculous protectionist myths on the campaign trail because the only people really paying attention are those that stand to reap the concentrated benefits of such policies.  Only the most principled politicians avoid such temptations and pursue an unabashed and "true" free trade position (i.e., no trade barriers and no subsidies).

Second, the combination of malleable public opinion, a lazy/uniformed media and a large number of unprincipled, poll-driven politicians creates a vicious negative feedback loop (one I've experienced firsthand), whereby hackish politicians and their super-smart political consultants cite to sagging poll support for trade to justify their own protectionism or mercantilism, without ever acknowledging that their rhetoric might very well be driving those bad poll numbers.  This feedback loop is illustrated by the following (very high-tech) graphic: 

Mercantilist/protectionist pablum --> bad poll result --> more mercantilist/protectionist pablum --> another bad poll result.

Rinse. Repeat.  And, of course, American trade policy will continue to suffer. (See my June post, and the great article by Ramesh Ponnuru cited therein, for more details on that.)

Finally, it already appears that we're seeing this dynamic play out again in 2012.  The Financial Times reported earlier this week that "The Mellman Group, a Democratic polling organisation, and North Star Opinion Research, a Republican counterpart, will on Monday release the results of a survey showing 62 per cent of Americans want to get tough with China 'and use every possible means to stop their unfair trade practices.'"  The FT goes on to note that this poll - being pushed by (surprise!) an anti-trade US manufacturing group - explains why Obama and Romney are racing to out-protectionist each other on China trade, but neither the article nor the poll's snazzy factsheet ever considers the undeniable fact that economically-anxious American voters have been constantly bombarded by protectionist propaganda - from both political parties and a lot of mainstream media outlets - over the last couple years.  This is bound to have an effect on future US policy: sure, President Romney or President Obama won't be starting a trade war with China in 2013, but the tit-for-tat US-China protectionism will almost certainly continue.  And the American economy will be worse off for it.

And until we start having a better political discussion about trade and globalization - maybe, oh I don't know, starting with smart pundits like Drezner and Brooks getting a little more worked up about the stuff our "leaders" are saying on TV for 18 straight months - other, more significant (and much needed) reforms to US trade policy also will remain out of reach.

I guess that's a really long-winded way of saying that, yes, this stuff matters for policy.  Unfortunately.

Playing with Protectionist Fire

I've frequently cautioned against supposedly free-market Republicans toying with "I'm a free trader but [blank]" protectionism on the grounds that the strategy is misguided on economic, principled and political grounds.  A new web ad from far-left Democrat Tammy Baldwin - who's running for Senate in Wisconsin - really hits this last point home, and shows that Republicans who toy with protectionism are playing with political fire:



There are a lot of substantive problems with Baldwin's anti-China demagoguery, but I'm not going to waste my time re-hashing them here.  Instead, let's just focus on the politics.  The "bi-partisan" measure which Balwdin claims she spearheaded through the House and will "punish [China] for making billions breaking trade rules" is H.R. 4105 - the legally and substantively dubious bill that overturned a US federal court ruling and allows the U.S. Department of Commerce to keep imposing countervailing duties on imports from China and other "non-market economies."  Contrary to Baldwin's claims, however, she didn't really lead the charge on H.R. 4105.  No, that inglorious distinction falls to none other than the bill's sponsor, Ways & Means Chair and sometimes-free-trader Republican Dave Camp (R-MI), who not only sponsored the bill but also, along with his fellow Republican (and mostly-free-trader) Trade Subcommittee Chair Kevin Brady from Texas loudly advocated the bill's passage and ensured its way-too-rapid passage through the U.S. House of Representatives.  Camp even went so far as to get his staff to issue a "fact" sheet which accused us critics of H.R. 4105 of peddling "myths."  As one publication wrote shortly after the House vote:

In the House – where H.R. 4105 was passed on Tuesday by a vote of 370 to 39 – the bipartisan bandwagon was driven by Representatives Dave Camp (R-Michigan), chairman of the House Ways and Means Committee, and Kevin Brady (R-Texas); as well as Sander Levin (D-Michigan) and Jim McDermott (D-Washington).

Baldwin's political fib aside, her ad remains instructive because it shows what Republican "protectionism-lite" breeds: even stronger and more onerous anti-market demagoguery from politicians - usually Republicans' opposition - who typically have no problem taking the protectionism to the next level and now have "bi-partisan" cover to do so.

In this case, Camp's and Brady's strong support for H.R. 4105 helped lay the groundwork for way-more-protectionist Baldwin's first Senate campaign ad.  And given that myriad hackish media reports emerged after the CVD/NME bill became law - here's one crediting campaigning Democratic Senator (and bigtime protectionist) Sherrod Brown for passing the Senate bill and helping save Ohio jobs - it's almost certain that we'll see more campaign ads like Baldwin's, in which anti-trade Democrats use Republican-sponsored China trade legislation to seek a "bi-partisan" advantage over their (mostly) pro-trade Republican competitors through unabashed protectionist pandering.

Thus, the Baldwin ad serves as a cautionary tale for Republican politicians who are tempted to dabble in part-time protectionism for short-term political gain: it might seem like a great, mostly-harmless idea at the time, but it could end up helping their Democrat competition - most of whom have far fewer reservations about going "full protectionist" on the campaign trail - get elected.

(Unfortunately, it doesn't appear that Governor Romney will be heeding these lessons anytime soon.  Sorry, Japan.)

Behold, the Utterly Dismal State of American Trade Politics

One of this blog's most frequent refrains is the argument that free traders in the United States - particularly those in the political sphere - need to drastically change course in order to restore the pro-trade consensus here.  Cato's Dan Ikenson and I have written not one, but two papers on this subject since 2009, each arguing that (i) protectionist positions mostly revolve around a few very-trite-and-easily-debunked myths about imports, the trade deficit, foreign competition and the US manufacturing sector; and (ii) the case for free trade is far deeper and broader than the standard pro-trade mercantilism that you most often hear in Washington DC.

Despite ample evidence and polling data supporting our views, it has become abundantly clear in this election cycle that almost no one on Capitol Hill, in the White House, or out on the campaign trail is listening.  In a great new Bloomberg op-ed, NRO's Ramesh Ponnuru (who, by the way, years ago authored one of the great takedowns of Public Citizen and their protectionist benefactor Roger Milliken) explains that DC remains populated by alleged free traders using the same old mercantilist arguments, and that those arguments appear to be increasingly self-defeating (and delusional):

Economists, or at any rate the vast majority of them, say nations should lower their barriers to imports because it promotes the efficient allocation of resources. That argument doesn’t depend on whether other countries are making trade agreements with one another. It doesn’t even depend on whether those countries have barriers against our imports. The theory suggests that if nations lower their barriers to one another’s imports, they will make more gains than if only one country does so. It also suggests that a country makes itself better off by lowering its barriers unilaterally. 

U.S. politicians who support free trade rarely make any such argument, and haven’t done so for decades. Instead they make mercantilist arguments for free trade, in which we must regrettably open our markets to foreign imports as the price for getting other countries to do the same for our exports. In debates over trade agreements, both sides typically accept the notion that imports are bad and exports are good. The question becomes whether the agreement will do more to boost imports or exports.

It isn’t uncommon for administrations that seek to liberalize trade overall to erect barriers for the benefit of this or that industry. The Bush administration briefly imposed steel tariffs to placate members of Congress from the Rust Belt. The Obama administration has placed tariffs on tires (at a cost of at least $900,000 for each job saved). This tactic fits comfortably within the political consensus for free-trade mercantilism. 

In recent years, the debate has narrowed still further because both sides have converged rhetorically. Protectionists in the U.S. do not advertise themselves as such: They say they favor free trade so long as it is fair. Free traders don’t wish to be portrayed as supporting unfairness, and so everyone calls himself a supporter of “free and fair trade.” 

Whatever its theoretical inadequacy, free-trade mercantilism has worked pretty well since World War II. It has enabled a vast expansion of global trade and thus of global wealth. But it is yielding diminishing returns as a strategy for liberalizing trade. Public support for open trade has fallen in the U.S. Majorities in the 1990s thought “the opportunity for economic growth through increased U.S. exports” outweighed the “threat to the economy from foreign imports.” They no longer do.

Ponnuru then concludes that the current mercantilist approach to trade has proven to be a "political failure," and that "the failure of almost anyone in politics to make the real and unequivocal argument for [free trade] has almost certainly been one" of the reasons why public support for it is in the crapper.

If this solid argument sounds familiar to you, it should: it's almost exactly what Ikenson and I argued last year as we explained just how pro-trade mercantilism "sows the seeds of its own destruction":

Many of trade's most vocal and active proponents in government and the private sector have relied too heavily and for too long on a faulty marketing strategy, which posits that more trade and more trade agreements mean more export opportunities, and more exports mean more economic growth and more jobs. The political appeal of that message is obvious, and there is nothing dishonest about it. Exports do contribute to economic growth, which is essential to job creation.

However, that message invites the following retort: if exports help grow the economy and create jobs, then imports must shrink the economy and cost jobs. In failing to explain why that conclusion about imports is wrong, trade proponents have yielded the floor to trade skeptics, who have been more than happy to manufacture talking points about the "deleterious" impact of imports on the U.S. economy. Most of those talking points are misleading or plain wrong, but there has been inadequate effort to correct the record. As a result, too many Americans accept the mercantilist fallacy that exports are good, imports are bad, and the trade account is a scoreboard.

The pervasive view that exports are good and imports are bad is a central misconception upon which rests the belief that trade negotiations and "reciprocity" are essential to trade liberalization. Under this formulation, an optimal trade agreement, from the perspective of U.S. negotiators, is one that maximizes U.S. access to foreign markets and minimizes foreign access to U.S. markets. An agreement requiring large cuts to U.S. tariffs, which would thus deliver significant benefits to consumers, would not pass political muster unless it could be demonstrated that even larger export benefits were to be had. This misguided premise that imports are the cost of exports and should be minimized lies at the root of public skepticism about trade. Ironically, it is also a prominent feature of the favored pro-trade argument.

We conclude by explaining how a more robust pro-trade message - one which focuses on the economic benefits of exports and imports and, more importantly, the moral case for free trade and against protectionism - can improve highly-malleable public opinion and help free trade advocates win the trade debate once and for all.

As noted above, however, no one seems to be listening.  Indeed, things appear to be deteriorating, as the presumptive leader of the pro-trade Republican Party, Mitt Romney, not only has taken the mercantilist route when advocating FTAs, but also has vocally embraced protectionism - at least when it comes to China.  I've already lamented Romney's troubling turn on China, but recent reports indicate that he has really been ramping up the rhetoric over the last few weeks.  First, his top spokespeople are being anything but shrinking violets on the issue:

Mitt Romney’s calls for confronting China as a currency manipulator, intellectual property thief and trade cheat are what distinguishes his economic vision from Republican orthodoxy, his top policy adviser said.

Lanhee Chen, policy director for the presumptive Republican presidential nominee, said while Romney’s plan for “robust” action to confront China on trade issues may be at odds with some in his party and Democrats, it is at the core of his strategy for improving the economy.

“Here’s a place where Governor Romney is really calling for a different approach, for example, confronting China on their currency manipulation, on their intellectual property stealing, on the barriers they put up really to competition from foreign firms,” Chen said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend.

“This is really a path forward that will be quite different from” policies under Presidents Barack Obama and George W. Bush, Chen said.

Romney, 65, “has been in touch” with former Secretary of State Henry Kissinger, a China specialist who disagrees with Romney’s aggressive stance, Chen said, adding: “But look, the bottom line is, Governor Romney is going to do what it takes to get our economy going, including confronting China, and there will be some in both parties that will disagree with him.”

Video of Chen's aggressive comments are here.  And, speaking of video, the Romney campaign has cranked out several anti-China TV ads too:

Two of Mitt Romney’s first three television ads of the general-election campaign boast of how he’d stand up to China as soon as he becomes president...

On the campaign trail, Romney labels China’s leaders as “cheaters” and “currency manipulators.” His ads say the Republican nominee would be a president who “stands up to China on trade and demands they play by the rules.” He has vowed to issue,on his first day in office, an executive order labeling China a currency manipulator.

So, it's abundantly clear that Team Mitt will be yelling about China all the way through November (regardless of what the facts say).  At the same time, however, the article above makes clear that most observers - myself included - don't think that Romney will actually keep his anti-China promises if he becomes the next POTUS.  Indeed, BusinessWeek notes that, according to an unnamed source within the campaign, "all of Romney’s top advisers disagreed with the candidate’s vow to take a harder line on China with new tariffs and an official designation as a 'currency manipulator.'”  Thus, it's pretty clear that Governor Romney's position on China is intended to be a cynical political maneuver rather than a hard promise to impose new taxes on US consumers and to start a trade war with one of America's largest trading partners.  In that way, Romney's China pledges are pretty similar to President Obama's ultimately-empty 2008 promises to re-negotiate NAFTA.

But while Romney's position probably won't lead to the implementation of new protectionist policies if he becomes President (undeniably good news), Obama's similar protectionist proclamations in 2008 show us that such rhetoric is far from harmless.  Indeed, as Ikenson and I noted last year, historical data from Pew's annual survey of US views on trade show that American attitudes toward trade are shaped largely by what Americans hear from the media and their elected (or campaigning) officials:

The dramatic decline in pro-trade sentiment between 2007 and 2008 coincided with a U.S. presidential primary election campaign season in which the Democratic candidates routinely criticized U.S. trade policy and certain trade partners. Perhaps most memorable was the late-February 2008 debate at Cleveland State University on the eve of the Ohio primary, when the late Tim Russert extracted renunciations of NAFTA and pledges from candidates Hillary Clinton and Barack Obama to reopen and renegotiate terms of the agreement...

The results of the 2009 Pew poll... suggest that political leaders can indeed influence public opinion about trade. The greatest fluctuation in public support for trade between 2007 and 2009 came from self-identified Democrats — those paying most attention to the Democratic primary elections and President Obama's early speeches — with opposition swinging wildly from 37 percent in 2007 up to 50 percent in 2008 and down to 30 percent in 2009. Meanwhile, support among Republicans remained steady during this period, as the issue was almost nonexistent during the GOP primaries and rarely discussed by Republican nominee John McCain during the general election campaign.

Assuming that Romney's China-bashing speeches and commercials have a similar effect on the electorate in 2012, it's quite likely that public support for free trade will wane this year and into next.  Indeed, the harmful effects of Romney's message on US trade sentiment could be even bigger than in 2007-08, given that the Democratic party (including President Obama) routinely engages in protectionist pandering during election season, and Romney's position as the leader of the Republican party will certainly diminish the GOP's traditional pro-trade counterweight.

Thus, while Romney's political advisers may view his China-bashing as a harmless way to help pave the road the White House in 2012, President Romney and his team may arrive there in 2013 facing an trade-hostile US electorate that makes any major free trade policies too politically unpalatable to be undertaken.

And they'd have only themselves to blame.

So, if/when this all happens, does anyone actually expect the Romney administration to advocate its new trade proposals using anything except the same old, self-defeating mercantilist arguments?  I try to be optimistic - really, I do! - but it sure ain't easy.

So we'll probably do this all over again in 2014 and 2016 and, well, until we find a politician brave - and smart! - enough to ditch the mercantilism and adopt a new approach to trade based on the realities of today's global economy and the abject falsity and immorality of the anti-trade position.  Trust me, these politicians do exist (I've worked with them), but it's increasingly - and depressingly - clear that they won't be in the White House anytime soon.

Sens. Brown, Schumer Wade Into US-China Solar Panels Fight, Reveal Stunning Ignorance of (or Disdain for) Global Trade Rules

Tomorrow, the US Department of Commerce is expected to announce preliminary anti-dumping duties on Chinese solar panels in the latest chapter of the US-China dispute over trade in "green" goods.  (As you may recall, China won Round 1 of the solar panels skirmish when Commerce announced "surprisingly low" preliminary countervailing (anti-subsidy) duties on Chinese imports, but tomorrow's preliminary AD duties will likely be quite large.)  Perhaps sensing an opportunity to steal a little of the limelight from tomorrow's big announcement, sinophobic Senate protectionists Sherrod Brown (D-Steelworkers Union) and Chuck Schumer (D-Himself) announced their own master plan to stick it to China:

Senators Charles Schumer and Sherrod Brown introduced legislation that would allow only US-made solar panels to qualify for the 30% solar tax credit individuals and businesses receive when they install solar systems.

70% of the parts for qualifying solar panels would have to be made in the US. If the solar panels are manufactured here, 50% of parts must be US-made.

The vast majority of solar panels used for US systems are now made in China. The legislation would encourage those manufacturers to locate in the US....

Sherrod Brown says, "We can't trade our dependence on foreign oil for dependence on Chinese-made solar panels. We went from a solar trade surplus with China to a solar trade deficit in a matter of years. Ohio workers can compete with anyone in the world, but they deserve access to a level playing field. When the Chinese government provides direct export subsidies to its solar manufacturers, that's not competing - it's cheating. And it's costing American jobs in solar manufacturing. The American tax code should not make matters worse by encouraging the purchase of Chinese-made solar panels. Our plan will ensure that American tax incentives support American solar panel manufacturers."

The summary of the new legislation is here, and Senator Brown's statement above makes clear that the bill is intended to counter unfair Chinese trade policies that violate global trade rules and thereby promote Chinese solar panels at the expense of those from other countries like the United States.  Now, leaving aside the fact that the industry-friendly Commerce Department just found those Chinese "export subsidies" to be relatively tiny, there's one big problem with Brown and Schumer's big plan: it's a blatant violation of WTO rules too.

As I noted a few months ago with respect to another hair-brained tax plan, tax breaks or credits that are conditional on the recipient's use of "local content" are expressly prohibited by the WTO Agreements:

First, Article III of the General Agreement on Tariffs and Trade (GATT) contains the National Treatment rule, which requires Members to treat imported goods the same as or no less favorably than domestically-produced goods so as to ensure that discriminatory internal taxes are not used to afford protection to domestic industry.

Second, the WTO Agreement on Trade-Related Investment Measures (TRIMs Agreement) essentially interprets and clarifies the provisions of GATT Article III (and Article XI) where measures are linked to "investment rights." The Agreement disciplines the use of investment measures by prohibiting things like local content requirements and trade-balancing requirements. Both types of measures discriminate against imported products by subjecting their “purchase or use” by an enterprise to less favorable conditions than the purchase or use of domestic products. In particular, a "local content requirement" is a law which mandates the purchase/use - or gives businesses and/or individuals an incentive to purchase/use - domestically-made goods over their imported counterparts. And it's prohibited by the TRIMs Agreement.

TRIMs are not limited to laws/regulations that deal with investment; instead, WTO jurisprudence interpreting the TRIMs Agreement has broadly construed it as covering any "advantage" under domestic law. For example, the WTO Panel in Indonesia – Autos rejected the argument that the TRIMs Agreement had to be limited in application only to foreign investment laws, and instead found that the Agreement prohibits "local content requirements, compliance with which may be encouraged through providing any type of advantage.”

Thus, any law which conditions access to a government-provided "advantage" (such as a tax break or deduction) on the purchase/use of domestic goods (or goods from a domestic supplier) will run afoul of the TRIMs Agreement. For example, that WTO Panel in Indonesia – Autos found that Indonesian programs providing tax advantages to cars that were manufactured using a certain percentage of local content violated the TRIMs Agreement.

If that's not clear enough for you, the "Illustrative List" of WTO-inconsistent measures that is annexed to the TRIMs Agreement should do the trick (emphasis mine):

TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require:  

(a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production; or

I'd say that pretty neatly sums up the Brown/Schumer solar tax bill, wouldn't you?  So, in sum, the Senators are seeking to counteract the Chinese government's trade "cheating" with... that's right... some of their very own trade cheating!

Nice.

Now, it's pretty clear that this new proposal isn't going anywhere, and that the Senators are probably just looking for a little attention. (Brown is running for re-election afterall, and we all know that classic joke about ol' Chuck Schumer.)  So, you might ask, why bring the bill up?  Well, other than to poke a little fun at two of the Senate's biggest protectionists, I actually think there are two broader points to be made here.  First, with the US economy still struggling and millions of Americans still out of work (or too discouraged to even try), are meaningless publicity stunts like this bill really what our elected officials should be devoting their time to?  The answer there, it seems, is a pretty resounding "no."

Second, and more importantly for my purposes, this bill provides excellent evidence that neither of these Senators - who routinely chastise China and other countries for violating global trade rules and push protectionist policies seeking to counter this "cheating" - actually gives a lick about (or understands) global trade rules.  If they did, they wouldn't be pushing garbage like this.

So, the next time that you hear Senators Brown or Schumer berating China or some other country for its pernicious trade cheating, please be sure to remember that these guys (a) don't know what the heck they're talking about; or (b) are just jealous that they can't cheat too.

Either way, it's not a very flattering conclusion.

Perfect: US TPP Negotiating Positions Getting Bogged Down by a Product We Don't Even Make Anymore

I've expressed more than a little skepticism about the Obama administration's ambitious plan to complete the Trans-Pacific Partnership by the end of the year.  My concerns relate more to systemic issues (e.g., the lack of a consensus view on the framework for market access schedules), rather than product-specific ones.  But maybe I should start sweating the latter as much as, or more than, the former. It seems that a minor war has broken out over - no joke - US tariffs on footwear.  Here's Businessweek with some details:

The Footwear Distributors and Retailers of America, which wants an end to the trade barriers, says tariffs for some types of shoes can run as high as 67.5 percent, and when the costs get passed on, they effectively triple the price of foreign-made shoes. New Balance, based in Boston, says the duties that help sustain its U.S. athletic footwear production are as high as 20 percent and asks that they be preserved.

The 7 million pairs of shoes New Balance produces each year in the U.S. make up only a quarter of U.S. sales, says Matthew LeBretton, director of public affairs. The rest are made in the U.K., China, Indonesia, and Vietnam. “If this is purely a business decision, then it’s very clear that you make more profit by making shoes in Asia than in the United States,” LeBretton says. “We aren’t purists, but we are doing this for reasons that are other than financial impact. It’s the right thing for us to do. We suffer as a country when we lose the ability to manufacture.” He adds that producing in the U.S. lets New Balance react faster to demand from U.S. stores and helps those stores maintain lower inventory. The company also says local workers maintain better quality control than workers abroad.

Keeping the tariffs is important because most of New Balance’s jobs are in communities where there are few other options for employment, says Senator Olympia Snowe (R-Me.). “They’re paying 46¢ an hour in Vietnam, and New Balance is paying $10 an hour here, plus all the benefits,” Snowe says. “It’s not a level playing field. Our government has to finally wake up and understand that.”

Nike has supporters, too. “I really believe that the government should not negotiate agreements for one company,” says Matt Priest, president of the footwear distributors association. Representative Earl Blumenauer (D-Ore.), whose district is home to Nike employees and the U.S. headquarters of Adidas (ADS), says keeping the tariffs taxes millions of consumers to keep a few thousand jobs.

Trade talks will continue this month. Maine lawmakers are applying pressure on the administration to keep cuts in athletic footwear tariffs out of any final agreement. The U.S. hasn’t made any decision, says Carol Guthrie, a spokeswoman for Ron Kirk, the U.S. Trade Representative, in an e-mail. “Footwear is an area of interest for Vietnam and remains a sensitive item for the U.S.,” Guthrie says. “The challenge we will face is how to address this product, and we continue to consult with Congress and stakeholders on how to do so.”

Greg Rushford adds in a recent op-ed for the Wall Street Journal Asia that this is not just a fight between protectionist New Balance and free trade Nike/Adidas for a tiny slice of the TPP.  In fact, this skirmish is affecting the entirety of the TPP negotiations; thus, there are a lot of other US companies also hoping that the Obama administration stops shilling for New Balance in order to save the struggling agreement:

The White House is demanding TPP partners, chiefly Vietnam, agree to new rules that would bring transparency and market-oriented efficiencies to their inefficient (and often corrupt) state-owned enterprises. SOEs are indeed a drag on Vietnam, comprising around 38% of the economy. Prime Minister Nguyen Tan Dung has struggled with the problem for years with little result.

Though the U.S. is pushing Vietnam to help itself by reforming SOEs, Hanoi wants something in return. The country is America's second-largest supplier of clothing, and Mr. Dung's trade negotiators insist the U.S. get rid of high tariffs on clothing and footwear, which generally range from 18% to 36%.

This is a chance for Mr. Obama to live in a "21st century economy," as he often says. Unfortunately, he seems to be caught in 18th century mercantilism.

The American president is in tight with the U.S. textile lobby, which supported him in 2008. The industry has benefited from high tariffs and various protectionist schemes since the 1700s. So U.S. trade negotiators have taken a hard line against liberalizing the U.S. rag trade. The Vietnamese know a double standard when they see one, and are incensed. No deal on market access for us, no deal on SOEs, they say.

Here's how the debate plays out in Washington. On the "21st century" side are the mainstays of the American economy. Giants like Boeing, General Electric, Intel, Microsoft, New York Life, Citi and Federal Express strongly support a TPP that would write new competition and transparency rules for Asian government-run corporations. Opposing the TPP deal is one shoe manufacturer in New England that employs about 1,200 Americans, New Balance Athletic Shoe, and a handful of mid-sized textile manufacturers in the American south.

The giants of American manufacturing and finance, which have major offshore operations, can't get serious consideration from this White House. Mr. Obama—the "Buy American" candidate—stands behind any company like New Balance that vows to keep jobs at home.

So, there we have it: New Balance (and Maine's uber-protectionist champions in Congress) versus the world, and the fate of the TPP could hang in the balance.  Fantastic.

Now, for the moment, I'm going to ignore the economic falsehoods spewed by LeBretton and Sen. Snowe about the state of US manufacturing or the idea that developing country labor costs are some sort of unfair game-ender for US manufacturers.  Instead, I just want to focus on the idea that New Balance actually still makes a lot of shoes in the United States (and thus that their fight is really about valiantly protecting US shoe manufacturing, regardless of how dumb the economics are).  The Businessweek article seems to indicate that tons of New Balance shoes are still made here and thus hang in the, umm, balance, but Rushford spills the beans:

[B]ehind the pro-American propaganda is a harder economic truth. New Balance makes 75% of its shoes in places like Indonesia and China, even some in Vietnam. The remaining 25% come from the New England factories. But most of those sneakers aren't really "Made in America," but "Made in the U.S.A. of Imported and Domestic Components," as the technical label reads. To be the former, at least 70% of the sneakers must be made from components sourced domestically. Company officials declined to comment or provide a detailed breakdown of their Asian-made components.

This much is clear: New Balance imports shoe parts from Asia and then has their American workers glue the shoes together. Without imported components, the American workforce couldn't make shoes at a competitive price.

Why is New Balance against giving Hanoi trade concessions? Its operations in Vietnam are tiny compared to elsewhere in Asia. But tariff cuts would give a big boost to its competitors, Adidas and Nike, which have significant footprints in Vietnam.

The company's patriotism feels even flatter if you consider Nike and Adidas, which unashamedly manufacture their footwear in Asia, together employ some 27,000 Americans. This highly paid workforce in marketing, logistics, design and advertising is 22 times New Balance's American presence.

In New Balance's defense (sorta), Rushford's oped also makes clear that the Obama administration isn't sandbagging the TPP negotiations only for shoes - southern textile manufacturers and their heavily-unionized workers are also getting in on the action (and I hear sugar's getting an, ahem, sweet, deal too).  Nevertheless, both articles above firmly establish that TPP is struggling, in part at least, because of the White House's staunch, politically-motivated defense of archaic tariffs on a product that isn't even "made in the USA" anymore.

Unreal.

Word on the street is that Canada's enthusiasm for joining the TPP negotiations may be waning, and that the US ally and major global player might be looking elsewhere for a trade deal.  If so, that would be a huge loss for the TPP.

But after reading the articles above, could you really blame them?

And Now for a Much-Needed Dose of US-China Trade Optimism

After today's lopsided vote on whether to maintain the United States' antagonistic countervailing duty policy against China and other "non-market economies," it's easy to get depressed about the state of US-China trade relations.  Fortunately, a brand new paper from Cato's Dan Ikenson gives us a much-needed dose optimism, and some solid guiding principles for the future of US-China trade relations.  The paper opens with the pretty dismal state of finger-pointing bilateral affairs:

An emerging narrative in 2012 is that a proliferation of protectionist, treaty-violating, or otherwise illiberal Chinese policies is to blame for worsening U.S.-China relations. China trade experts from across the ideological and political spectra have lent credibility to that story. Business groups that once counseled against U.S. government actions that might be perceived by the Chinese as provocative have changed their tunes. The term "trade war" is no longer taboo.

The media have portrayed the United States as a victim of underhanded Chinese practices, including currency manipulation, dumping, subsidization, intellectual property theft, forced technology transfer, discriminatory "indigenous innovation" policies, export restrictions, industrial espionage, and other ad hoc impediments to U.S. investment and exports.

Indeed, it is beyond doubt that certain Chinese policies have been provocative, discriminatory, protectionist, and, in some cases, violative of the agreed rules of international trade. But there is more to the story than that. U.S. policies, politics, and attitudes have contributed to rising tensions, as have rabble-rousing politicians and a confrontation-thirsty media. If the public's passions are going to be inflamed with talk of a trade war, prudence demands that the war's nature be properly characterized and its causes identified and accurately depicted.

Those agitating for tough policy actions should put down their battle bugles and consider that trade wars are never won. Instead, such wars claim victims indiscriminately and leave significant damage in their wake. Even if one concludes that China's list of offenses is collectively more egregious than that of the United States, the most sensible course of action — for the American public (if not campaigning politicians) — is one that avoids mutually destructive actions and finds measures to reduce frictions with China.

Ikenson proceeds to systematically make his case, noting the recent outbreak of tit-for-tat US-China protectionism and the recent CVD/NME debate.  He then concludes:

The most significant determinant of the quality and direction of the U.S.-China relationship is American self-confidence. In other words, U.S.-China relations will be driven more by actions in Washington than by actions in Beijing. If the U.S. economy starts to grow at a stronger pace and businesses begin to invest and hire more rigorously, the temptation of politicians and the media to scapegoat China for self-induced, domestic woes will diminish.

Even though China-bashing polls well, responsible policymakers should be looking beyond the politics to find bridges, olive branches, and solutions that remind people in both countries of the importance and mutual benefits of the relationship. Gestures of goodwill could go a long way toward stopping and reversing the recent deterioration of relations.

Good stuff.  I particularly liked this additional commentary from Ikenson on Cato's blog:

But before getting all righteous and patriotic and demanding that China be deemed an economic pariah worthy of exceptionally harsh treatment, keep in mind that the U.S. government has been found out of compliance with its WTO obligations more than any other WTO member, and it remains out of compliance on a few issues to this very day.

In some respects, the Chinese are emulating the tack taken by U.S. policymakers during the past three presidential administrations and ten congresses by presuming there is no policy or practice that violates WTO rules unless and until that policy or practice has been determined by the WTO Appellate Body to be out of conformity, and sometimes not until after retaliation has been authorized, and sometimes not even then.

The CVD/NME issue is a perfect example of the United States' problematic "do-as-I-do-not-as-I-say" trade policies.  USTR has repeatedly complained about China's opaque and WTO-inconsistent imposition of trade remedies on US exports, yet at the very same time it vigorously defends the United States' own opaque and WTO-inconsistent AD/CVD policy on Chinese (and other NME) imports.  That's not really the way to ensure better Chinese behavior on the global trade front, now is it?

It would, however, make an awesome 1980s public service announcement:



Be sure to read Ikenson's new paper here.

Your Official Guide to the Real Free Traders in Congress

I know that Cato has an indispensable scorecard on the free traders in Congress, but that usually isn't released until several months after a congressional session ends.  In the meantime, let today's roll call vote on the CVD/NME bill (H.R. 4105) be your guide.  According to today's vote, there are exactly 39 principled free traders in the US House of Representatives, all of whom are Republicans and many of whom are "Tea Party" freshmen (further destroying that ridiculous "Tea Partiers are ignorant protectionists" meme):

• Amash
• Bachmann
• Broun (GA)
• Burgess
• Canseco
• Chaffetz
• Duncan (SC)
• Fincher
• Flake
• Fleming
• Flores
• Franks (AZ)
• Gardner
• Garrett
• Gosar
• Graves (GA)
• Hall
• Harris
• Hensarling
• Huelskamp
• Jordan
• Kingston
• Lamborn
• Lance
• Mack
• McClintock
• Mulvaney
• Nugent
• Pearce
• Pompeo
• Quayle
• Scalise
• Schmidt
• Schweikert
• Scott (SC)
• Southerland
• Stearns
• Walsh (IL)
• Yoder

Kudos to these Members.  Today's vote makes clear (a) just how far the Democratic Party has fallen with respect to trade; and (b) just how difficult trade remedies reform is in the United States, despite multiple court and WTO rulings in support of reform and control of the House by the supposedly "free market" Party.

Fortunately, we have an election in the House every two years.

Congratulations Chinese Sleeping Bag Exporters!

While most of us were enjoying the holidays, the Obama administration quietly announced its intention to raise import taxes on sleeping bags from Bangladesh that used to qualify for duty-free treatment under the US Generalized System of Preferences (GSP).  According to the USTR announcement (emphasis mine):

United States Trade Representative Ron Kirk announced today the outcome of the Obama Administration’s 2010 Annual Review under the Generalized System of Preferences (GSP) program. Congress created the GSP program in the Trade Act of 1974 to help developing countries expand their economies by allowing certain goods to be imported to the United States duty-free.

Ambassador Kirk said, “GSP is an important element both of this Administration’s trade agenda and of its efforts to help developing countries grow their economies through increased trade. The annual review of GSP helps us to ensure that the program is working as it should and that developments affecting country and product eligibility are taken into account, consistent with the GSP statute. A well-functioning GSP program also helps U.S. businesses, workers, and consumers by lowering the costs of imported goods, including those used as inputs for U.S. manufacturing.”

Based on the Administration’s review of product petitions accepted for the 2010 GSP Annual Review, President Obama determined that one product – certain non-down sleeping bags – should be removed from eligibility for duty-free treatment under GSP because it is import-sensitive in the context of GSP.

As you may recall, the Bangladeshi sleeping bags were the subject of a big controversy last year as Sen. Jeff Sessions caused GSP to expire in an attempt to force USTR to stop granting those imports duty-free treatment and thus protect - allegedly - Alabama sleeping bag manufacturer Exxel Outdoors.  Well, it looks like the Senator was finally successful, as Congressional Quarterly[$] makes clear (emphasis mine):

The Obama administration is removing certain Bangladeshi-made sleeping bags from a special duty-free list, a victory for an American sporting equipment company and its congressional allies, including Republican Sen. Jeff Sessions of Alabama.

The U.S. trade representative’s (USTR) office announced Thursday that it is agreeing to a petition from Exxel Outdoors Inc., which has its main factory in Haleyville, Ala., to stop granting duty-free status to certain “non-down” sleeping bags under the Generalized System of Preferences, which reduces tariffs on certain imports from developing countries.

Exxel has been fighting to get the sleeping bags — which compete with its own sleeping bags — off the list for years. Many lawmakers went to bat for the firm, including Rep. Robert B. Aderholt, R-Ala., but Sessions, the state’s junior senator, became their highest-profile champion after he forced a temporary expiration of the GSP program in 2010 over the issue.

He fought repeatedly in 2011, during the debate over the stalled Bush-era trade bills with South Korea, Colombia and Panama, to force USTR to take the provision off the list.

Without GSP duty-free status, there is a 9 percent tariff on the sleeping bags, which are mainly made in Bangladesh. Sessions argued that exempting those products from tariffs violated the spirit of the GSP program, which is not supposed to help foreign companies at the expense of American firms....

Harry Kazazian, Exxel’s CEO, said Thursday that the administration had made the right choice. Kazazian argued that his company does business internationally and is not anti-trade....

“The way the trade laws were written in GSP, regarding sleeping bags, wasn’t fair,” he said from the company’s Los Angeles corporate headquarters, adding that the tariff waiver could have forced him to move the Alabama factory offshore. The company also has a plant in Shanghai.

Exxel has spent $90,000 on lobbying expenses related to GSP issues in the last three years, according to the Center for Responsive Politics.

So to recap:

• Raising tariffs on sleeping bags and thereby preventing dirt-poor workers in Bangladesh (per capita income of $641/year!)  from enjoying the export and development benefits intended by GSP?  CHECK! 

• Tens of thousands of dollars spent on shady corporate lobbying - and lots of hard work by the congressional beneficiaries - to raise those tariffs?  CHECK!

• "Alabama" company with its corporate headquarters - and high-paid professional services jobs - in Los Angeles (not Alabama)?  CHECK!

• "Alabama" company with production facilities in China?  CHECK!

Behold, protectionism in all its crony-tastic, poverty-inducing glory!  

And speaking of China (which doesn't qualify for GSP treatment), guess which foreign country has been gobbling up domestic market share for years and easily stands to benefit most from raising tariffs on Bangladeshi sleeping bags?  Oh, right:

Country	2009	2010	2010 YTD	2011 YTD	Percent Change YTD2010 - YTD2011
	In 1,000 Dollars
China	64,426	76,910	67,242	70,962	5.5%
Bangladesh	612	5,324	4,238	5,367	26.6%
United Kingdom	451	298	182	268	47.1%
India	17	0	0	135	51,531.4%
Pakistan	2	6	3	75	2,863.9%
New Zealand	0	0	0	37	N/A
Canada	13	36	28	15	-44.5%
Czech Republic	6	2	2	11	641.1%
Australia	0	35	35	9	-75.2%
Hong Kong	26	100	100	8	-92.0%
Turkey	0	0	0	8	2,728.9%
Mexico	37	5	0	4	N/A
Taiwan	94	11	11	4	-63.1%
Estonia	0	7	7	4	-49.4%
Germany	11	13	13	3	-77.1%
Subtotal :	65,695	82,747	71,861	76,909	7.0%
All Other:	16	165	52	22	-58.5%
Total	65,711	82,912	71,913	76,931	7.0%

So Exxel's Chinese manufacturing facility will all-of-a-sudden become 9 percent more competitive now?  Sweet!  But, hey, at least Exxel's employees in LA will be okay if/when those Chinese sleeping bag imports keep growing, right?

Thanks, Senator Sessions.

UPDATE: Heritage's Bryan Riley makes a great point on this decision that I totally missed: "President Obamas decision to hike tariffs on sleeping bags from developing countries came just one month after Hu Jintao, president of the Peoples Republic of China and General Secretary of the Communist Party of China, announced the elimination of tariffs on 97 percent of items imported from least-developed countries that have diplomatic relations with China."  Ouch.  He then rightly concludes: "Instead of sending billions of dollars in aid to developing countries every year, Congress should remove trade barriers that prevent Americans from doing business with people in those countries....  Congress should take these decisions out of the White House by permanently removing the tariff on imported sleeping bags along with tariffs on all other imports from the worlds developing countries."

China-bashing:Good Politics, Bad Consequences

The Wall Street Journal's Bob Davis explains in must-read column what some of us have known for a while now: poll-driven attacks on China may score some cheap political points, but they also have some really nasty consequences. The entire item is well worth your time, but here are some key sections:

One Republican presidential hopeful, Mitt Romney, has propelled China into the center of the contest by accusing it of "cheating," and by threatening to shut down U.S. markets to Chinese goods unless China lets its currency appreciate significantly. President Barack Obama has attacked Beijing for "gaming the trading system."

The Senate last week overwhelmingly passed legislation to penalize China for its currency policy, through trade sanctions. Unless the House Republican leadership continues to block a vote, the legislation would likely pass the House by a huge margin, as a similar bill did last year.

The debate has become so heated that Republican presidential hopeful Jon Huntsman, a former U.S. ambassador to China, said he backs the Senate bill even though he warns that "slapping penalties" on China could ignite a trade war.

Much of this can be dismissed as election-year posturing. Every president finds that the U.S. has limited options in getting China, the world's second-largest economy and the U.S.'s largest foreign creditor, to adopt market-oriented change. The trick is to get Beijing to see the reform as in its interest, and even then the pace of change is slow....

But political threats, even if they don't become law or policy, have consequences in Beijing and can backfire in ways that Americans may not appreciate. Beijing is in the throes of its own 2012 leadership change, with top politicians jockeying for power. There's no election, but public opinion matters. Being seen as close to the U.S. at a time when Washington threatens to whack Beijing is as much a burden for a Chinese politician as being a pal of China would be for an American candidate campaigning in Cleveland.

Cheng Li, a Brookings Institution China scholar, says the threats from Washington have already hurt a U.S. favorite, Vice Premier Wang Qishan, who is viewed as having an outside shot at becoming Chinese premier, the No. 2 position in China. Mr. Wang has argued that China needs to rely more on domestic consumption rather than exports—precisely the U.S. position.

A backlash against U.S. threats could help Bo Xilai, the nationalist party secretary of Chonqqing, a city that recently shut down 13 Wal-Marts for allegedly selling mislabeled pork. Shutting down a supermarket for such a common infraction is unusual.

He's aiming for a slot on the standing committee of the Politburo. "You're hurting economic policy makers that have strong ties to the U.S," Mr. Li said. "It puts them in an awkward position."...

So American politicians' China demagoguery not only is smarmy politics, bad economics and questionable law, but also could end up slowing reforms in China and pushing sympathetic Chinese politicians from power.

But other than that...

Senators Blindly Promising to "Get Tough" on China's Currency

The US Senate is poised to take up the issue of China's currency policies, and nothing - certainly not some measly little facts that totally undermine the issue's relevance - is going to slow the legislation down.  You see, in today's Senate - one that hasn't passed a budget in almost 900 days - politics trumps reality.  Every single time.

Last Thursday, a bi-partisan group of Senators, led by Sens. Chuck Schumer (D-NY) and Sherrod Brown (D-OH) announced their much-anticipated legislation targeting China's currency policies:

Senators Charles Schumer of New York and Sherrod Brown of Ohio, both Democrats, urged support for legislation pushing China to raise the value of its currency as a way to stem U.S. job losses.

China’s currency policies cost more than 2.8 million U.S. jobs since 2001, the lawmakers said today at a Washington news conference. The legislation would let U.S. companies seek duties on imports from China to compensate for the effect of a weak yuan, which lawmakers said gives Chinese companies an unfair advantage against U.S. manufacturers.

“They get away with economic murder,” Schumer told reporters. “We are fed up; we are not going to take it anymore.” 

Schumer proposed similar measures in each of the past six years. None has received a Senate vote. The bill also is supported by Democratic Senators Robert Casey of Pennsylvania and Debbie Stabenow of Michigan, and Republicans Lindsey Graham of South Carolina, Richard Burr of North Carolina and Jeff Sessions of Alabama.

So to recap the Senators' argument: China's undervalued currency has eliminated 2.8 million US jobs, and these brave Senators want to empower US companies to seek new tariffs on Chinese imports in order to force China's hand.  Sounds almost plausible, but there's one big problem: every single "fact" in that previous sentence is dubious.

At best.

First, the employment study that the Senators cited - by the union-run and union-funded Economic Policy Institute - is total economic bunk.  I've already been over this fact several times, citing to myriad economists who have explained that EPI's methodology, which simply ties the US trade deficit to American job losses, is utter poppycock.  Cato's Dan Ikenson elaborated on this little fact last week, showing how EPI's so-called "findings" fly in the face of both economic theory and reality:

As the chart below (which is based on easily verifiable figures published in the Economic Report of the President) reveals, the trade deficit and job creation appear to be positively correlated. When the deficit rises, employment increases; when the deficit shrinks, employment declines. So, right off the bat, a central premise of [EPI's Robert] Scott’s analysis is in doubt.... 

Last month, the U.S. International Trade Commission published its seventh update to the “The Economic Effects of Significant U.S. Import Restraints” study, which contains a special section on global supply chains. On page xv of the executive summary is a table that not only raises more serious doubts about EPI’s methodology, but should put to rest once and for all the hyperbole employed and anxiety caused by alarmist public relations campaigns and the politicians they serve.

Table ES.4 of that study indicates that there is more U.S. valued added (U.S. labor, material, and overhead) in U.S. imports than there is Chinese valued added in U.S. imports. Specifically, 8.3 percent of the value of U.S. imports (about $160 billion last year) is U.S. value, while 7.7 percent of the value of U.S. imports is Chinese value added. EPI’s methodology does not account for the U.S. jobs associated with the U.S. value added in U.S. imports.

Furthermore, that same table reveals that U.S. value added accounts for 89 percent of total U.S. consumption (a figure that confirms the findings in a recent San Francisco Federal Reserve study), which means that foreign value-added accounts for just 11 percent of U.S. consumption, making the United States a fairly closed economy—or at least, a relatively non-integrated economy. And China? Well, China only accounts for a measly 0.9 percent of the goods and services consumed in the United States. So, if 2.8 million U.S. jobs were lost to a country that produces less than one percent of what Americans consume, I say its about time we shed those highly inefficient jobs that have been a drag on the U.S. economy. The fact is, however, that 2.8 million is a fiction....

Yes, the 2.8 million job loss figure is a fiction, concocted to support political talking points and a narrow agenda that distract the public from the real problems that ail our economy. Some Chinese government policies are genuine causes for concern, worthy of efforts to resolve, but we limit our capacity to address the real problems effectively when every last gripe becomes a call to arms.

In short, the EPI study is totally worthless for anything other than shameless political demagoguery.  Fortunately for EPI, that just happens to be a certain New York Senator's specialty!  Unfortunately for the rest of us, most reporters hired to cover that Senator's currency shenanigans don't do their homework and instead treat the "study" cited by Schumer (and others) as gospel.

Shame on them.

The second problem with the Senator's argument is that most US companies aren't begging for relief from China's currency policies.  Indeed, a lot of them are literally begging the Senate to back off the currency issue and focus on other, real bilateral trade issues.  For example, just last week over 50 trade associations, representing hundreds (if not more) US companies, sent a letter to Senate leaders asking them to drop the tough currency talk.  The full letter is available online and definitely worth reading, but here are some key excerpts:

We agree with many in Congress and the Administration that China needs a yuan exchange rate that responds to trade flows and that China should move steadily towards a market-determined exchange rate.

However, unilateral legislation on this issue would be counterproductive not only to the goals related to China’s exchange rate that we all share, but also to our nation’s broader objectives of addressing the many and growing challenges that we face in China.

Legislation that would increase tariffs on imports from China is unlikely to create any incentive for China to move expeditiously to modify its exchange policies. Rather, it would likely have the opposite effect and result in retaliation against U.S. exports into China – currently the fastest-growing market for U.S. exports.

We urge you to oppose currency legislation and instead work with and vigorously call on the Administration to develop a robust bilateral and multilateral approach to achieve tangible results, not only on China’s exchange-rate policies, but also on other Chinese policies that are harming American economic interests.

The business group letter also highlights the third problem with Schumer's plan: unilateral US action (i.e., tariffs) against China are unlikely to convince the Chinese government to do anything except resist further Yuan appreciation and retaliate against US exports and companies.  As I said earlier this month about Mitt Romney's misguided plan to aggressively target China's currency via Executive Order:

The idea that the Chinese government would just roll over and concede "defeat" in the face of President Trump[Romney]'s big, macho tariff is absurd.  First, Trump[Romney] fails to grasp that the Chinese government would never, ever do anything that makes it appear weak in the face of American aggression.  Instead, retaliation, not concession, is the far more likely reaction (just as China did when President Obama imposed those tire tariffs), and such sinophobic chest-thumping would likely retard, not quicken, the gradual appreciation of the yuan that China needs to undertake.  Second, China's not nearly as dependent on the US market as Trump[Romney] seems to think.  The EU is now China's biggest export market, and Chinese exports to the US represent under 30% of China's exports to its top 10 export destinations.  So while the US market is big and important, China has other options.  Third, China couldn't rapidly and dramatically appreciate its currency even if it wanted to because any such move would implode the Chinese - and by extension, global - economy.

So the tariffs probably won't change China's behavior, and they definitely will harm US companies and consumers.  Thanks for nothing, Senators.

Finally, it's far from clear that the Yuan remains significantly undervalued against the US dollar.  I've already discussed this inconvenient truth repeatedly, and news last Friday about a massive selloff of Yuan further undermines the conventional wisdom regarding China's currency:

A rush for safe investment havens led to an unexpected drop in the value of the Chinese yuan traded outside the mainland, as global investors eschewed a bet on a currency widely seen as undervalued for the comfort of the U.S. dollar and the Japanese yen. The move will have little effect on yuan as a whole because Beijing still tightly controls the currency. But it offers an example of the uncertainties China could face as it moves in fits and starts to loosen its restrictions on the yuan and give it a more central global role.

The drop took place mostly in Hong Kong, a Chinese city that operates under its own set of laws and the only place where the yuan can be traded outside the Chinese mainland. Chinese officials over the past year have transformed the city into a laboratory for yuan liberalization, allowing everything from the issuance of yuan-denominated bonds to yuan-trade settlement to yuan accounts for individual investors.

Until this week, the Hong Kong-traded yuan had remained broadly in line with the official yuan trading range. But market turmoil Thursday and Friday prompted the Hong Kong price to slump at one point to a discount of as much as 2.5% to the mainland yuan, the biggest gap since China began relaxing its currency restrictions about a year ago. The yuan on the mainland trades in a tight band because of Beijing's restrictions on its currency.

The discrepancy between Hong Kong-traded yuan and mainland yuan, known as of offshore market and the onshore market, respectively, later narrowed somewhat but remained high by historical standards, and late Friday traded at 6.49 yuan to the dollar in Hong Kong, compared with 6.39 yuan in the mainland. The moves fly in the face of currency-market conventional wisdom, which holds that the yuan is set to rise against the U.S. dollar as China soaks up capital and trade flows.

The selling pressure overwhelmed a facility set up by China to sell yuan at the mainland rate, which on Friday was offering investors more dollars for their yuan. Late in the day, Bank of China Ltd.'s Hong Kong arm, the designated clearing bank for the Hong Kong market, said it would temporarily stop buying yuan used for trade settlement as its quarterly quota for such transactions was full....

Market turmoil also roiled the market for yuan nondeliverable forwards, which are offshore derivatives that track the value of the yuan but can't be exchanged for the currency. The dollar one-year forward on Friday was bid as high as 6.47 yuan against the domestic spot rate of 6.39 yuan, implying expectations of a 1.3% yuan fall over the coming months.

Until now, global investors have largely adopted a strategy of shorting the dollar for the yuan on expectations that Beijing would continue to allow its currency to rise. In fact, desire for yuan offshore has caused the Chinese currency traded in Hong Kong to boast a premium over its mainland counterpart at most times.

Now, worries of an economic recession around the globe and a Greek debt default are driving investors back into the relatively safety of the U.S. dollar, leading many investors to sell yuan and other currencies for dollars.

For those of you (like me) who aren't currency experts, investors don't typically flee an "undervalued" Yuan for an "overvalued" Dollar.

So to summarize: the Senators are using a debunked economic study to justify their targeting a problem that might not even exist with a strategy that will never work on behalf of a constituency that doesn't want their help.

But other than that....