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!
+++++
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 Protectionist Myths. Show all posts
Showing posts with label Protectionist Myths. Show all posts
Tuesday, June 9, 2015
Thursday, October 31, 2013
New Article: "America’s Horrible, No Good, Messed-Up Trade Policy (and How to Fix It)"
[Ed. note: This article was first published in The Federalist, which you really should be reading by now.]
Americans currently pay high taxes on food, clothing, automobiles, industrial inputs and other goods and services, and their own United States Trade Representative is vigorously fighting other countries to keep it that way. Even worse, the government’s efforts all but ensure that removing such taxes – and easing the artificial burdens they place on American families and businesses – will remain unnecessarily, and irrationally, difficult for years to come.
Americans currently pay high taxes on food, clothing, automobiles, industrial inputs and other goods and services, and their own United States Trade Representative is vigorously fighting other countries to keep it that way. Even worse, the government’s efforts all but ensure that removing such taxes – and easing the artificial burdens they place on American families and businesses – will remain unnecessarily, and irrationally, difficult for years to come.
This is the awful state of American trade policy, and serious reform is long overdue.
Americans tend to think of the United States as some sort of free trade bastion in which unfettered globalization is – for better or worse – simply a way of life. However, while many U.S. tariffs were lowered decades ago, several tariff “peaks” remain in certain politically-connected areas like food, clothing, footwear and automobiles. Moreover, “non-tariff barriers” to trade – subsidies, regulations, etc. – have proliferated in recent years, and many “trade remedies” duties – based on allegations of “unfair” trade – also remain in place, particularly for industrial inputs like steel and chemicals.
The pros and (mostly) cons of these government measures vary, but one thing remains constant: their staunch and unflinching defense by the U.S. government in global free trade agreement negotiations. In these venues, gains are viewed as coming only from new access for U.S. exports and investment, while imports are the unfortunate price that America must pay for such “victories.” For example, as negotiations in both the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) gained momentum earlier this year, blubbering American journalists were quick to proclaim President Obama’s supposed “free trade renaissance” and strong support for expanding U.S. exports, but uniformly failed to report on the fact that his firm resistance to negotiating partners’ calls for lower U.S. trade barriers was a major reason for the agreements’ continuing difficulties. Nor did any such reports delve into the fact that those barriers, while certainly good for certain well-connected companies in the United States, injured the vast majority of American individuals and firms. And when TPP negotiators inevitably miss their much-ballyhooed and over-promised 2013 deadline for completing the agreement, you can bet that these facts will not receive top billing (or maybe even passing mention). Instead, only trading partners’ refusal to heed U.S. export demands will be blamed.
Trade and Reciprocity
The Obama administration, of course, is not the first to engage in such negotiating tactics and instead is simply the latest White House to do so. In fact, since the 1930s, American trade policy has utilized a “reciprocity” model of trade negotiations in which the United States treated any trade liberalization (e.g., the reduction of tariffs), no matter how smart or moral, as a “concession” that is only to be traded for another nations’ own acceptance of new U.S. exports or investment. Moreover, the diplomatic origins of the reciprocity model have ensured that trade liberalization is treated as a foreign, rather than domestic, policy area in which trade negotiations take on a zero-sum, war-like mentality where benefits are “won” or “lost”, instead of mutually achieved. Put most simply, exports are an unquestioned good to be pursued, while imports are an unmitigated bad to be resisted. Full stop.Even though U.S. foreign and domestic policy – as well as economics, politics and society more broadly – has changed dramatically in the intervening decades, U.S. trade policy remains mired in this 20th century, cold-war framework, as the current TPP and TTIP negotiations make abundantly clear. Unfortunately, some things to not get better with age, and U.S. trade policy is certainly one of those things. In fact, there are at least five fundamental problems with the United States’ mercantilist, reciprocity-based approach to international trade.
First and most basically, it is economically ignorant. Since Adam Smith first penned The Wealth of Nations, there has been a near-universal economic consensus in support of the elimination of trade barriers regardless of whether other nations do likewise. For this reason, there is quite literally no policy issue on which more economists – left, right and center – agree more, and the supposed death of the “free trade consensus” in academia has been wildly exaggerated.
This support, however, goes far beyond mere economic theory: there is also an endless array of empirical and historical evidence demonstrating the value of free trade and free markets. In fact, just last week the Heritage Foundation rounded up a lot of the latest data in order to (once again) resoundingly conclude that trade and investment liberalization is awesome, and that Congress should unilaterally eliminate tariffs on a wide range of products in order to boost the U.S. economy (including U.S. manufacturers). Heritage is certainly not alone: policy shops across the political spectrum, including Brookings, AEI and my colleagues at the Cato Institute, have produced similar studies in the past. And, as Dan Ikenson and I explained in a 2009 paper for Cato, the facts not only support free trade, but also destroy the various myths used by protectionists to undermine public support for such policies, including the greatly-exaggerated “death” of American manufacturing; the alleged link between imports, the trade deficit and U.S. jobs; and the idea that foreign companies and governments routinely cheat in order to gain an “unfair” advantage over their American counterparts.
Second, the reciprocity model has proven increasingly ineffective in producing tangible trade liberalization gains for U.S. businesses and consumers. The biggest example of this failure is WTO’s Doha Round of multilateral trade negotiations, which remains comatose after 12 years of missed deadlines, unkept promises and angry finger-pointing among stubborn nations that refuse to make further “concessions” to finalize the multi-trillion-dollar deal. Even the WTO’s “mini package” of supposedly-low-hanging fruit – intended to jump-start Doha during this December’s ministerial meetings in Bali, Indonesia – appears in doubt.
The need to provide exemptions, or “carve outs,” to avoid a collapse in negotiations also raises concerns over the final form the TPP will take. The secrecy surrounding the negotiations makes it difficult to assess progress, but—from what is known—there is the risk of degenerating into a series of loosely tied bilateral deals. Indications are that the two largest TPP members—the U.S. and Japan—are proceeding along bilateral lines, threatening the demanding single-undertaking approach the TPP is supposed to adopt.
Although the number of countries involved in these negotiations is much lower than at the WTO, for instance, it does not translate to a commensurate reduction in diversity in terms of disparate interests. These interests often conflict, especially in a context where the agenda is far more ambitious than any other proposed thus far. The recent round of negotiations that took place in Brunei Darussalam in August 2013 was reported to have made very little progress, highlighting the difficulties being faced as the TPP moves toward finding common ground on the more difficult issues.
Bloomberg has more on the ADB report and the TPP’s current problems here. Among the carve-outs demanded by TPP participants are Japan’s agricultural protectionism and Malaysia’s imposition of discriminatory regulatory barriers to tobacco, but many such demands originate in Washington, including three of the negotiations’ most contentious issues:
- Sugar protectionism. The United States has not only resisted calls to liberalize archaic tariffs and quotas on sugar imports, but also refused to reopen the current U.S.-Australia FTA, which completely excludes sugar from the Agreement.
- Textiles, apparel and footwear. The Obama administration has repeatedly refused requests from Vietnam and other large exporters to lower U.S. tariffs on textiles, clothing and shoes, and has demanded complicated “rules of origin” that will dramatically narrow the goods that could qualify for preferential access to the U.S. market.
- Automobiles. The United States also has vigorously fought Japan over U.S. tariffs on automobiles (2.5% for cars and a whopping 25% for light trucks) – a nearly-identical request that delayed the implementation of the U.S.-Korea FTA for several years after it was originally signed by the Bush Administration.
The third flaw in the current system is that it’s needlessly messy and archaic. Every U.S. FTA, from NAFTA to KORUS, contains a different “schedule” which dictates the level and timing new market access for individual FTA partners’ goods and services. Rules of origin and other commitments also vary widely across agreements, thus creating an impenetrable web of rules and regulations and making the U.S. tariff code look like the Rosetta Stone. As a result, the exact same product will be subject to different taxes and rules based solely on its origin and the year in which it enters the country, and U.S. businesses often make sourcing decisions based on FTA rules rather than a product’s actual value. (And, of course, they must spend millions of dollars annually to determine those rules!)
Not only is this process costly and inefficient, but it is wholly out of step with the 21st century world of seamless and ever-changing global supply chains. Today, product components are often sourced from multiple countries and assembled in another, and sourcing patterns routinely change based on market developments. (See, e.g., the evergreen “origins” of the iPhone and its competitors.) Arcane trade rules prevent such dynamism and thus hurt U.S. companies and consumers. Put another way, goods today are “made on earth,” but our trade agreements reflect a bygone era of vertical manufacturers, simplistic designs and old-fashioned notions of bilateral trade among individual nations. It makes no sense. None.
Fourth, the United States’ “free trade” policy has proven to be a horrible tool for actually achieving and sustaining public support for trade liberalization and free markets. For one thing, focusing on exports, FTAs and arcane market access issues (e.g., pharmaceutical patent protections) gives many Americans the not-totally-unwarranted impression that our trade policy is little more than a tool of large multinational exporters and investors at the expense of American workers. That is hardly a way to achieve grassroots support for important economic policy!
More importantly, the constant focus on exports and resistance to any type of import liberalization actually breeds public misunderstanding and distrust of trade liberalization. As Dan Ikenson and I explained in 2011:
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.
There is nothing, of course, wrong with exports or pursuing new market access for U.S. businesses. The political appeal of that message is obvious, and exports do contribute to economic growth and, thus, job creation. However, the U.S. government’s relentless obsession with exports and reciprocity not only confuses the public and reinforces bad economics, but also creates a large and unnecessary opening for misleading protectionists:
[The mecantilist] 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.
Birdcages across the country are lined with op-eds from protectionist union leaders, businessmen and “consumer protection” groups that turn FTA proponents’ mercantilist message against them. Indeed, just this month I was treated to a piece in my hometown paper from the NC AFL-CIO, arguing that the U.S.-Korea FTA – and U.S. free trade policy more broadly – was a clear disaster for North Carolina because imports from Korea increased in the agreement’s first year, while U.S. exports declined. (Nevermind the fact that Korea’s economy was struggling mightily in 2012 and thus represented a low-demand export market, or that free trade resoundingly benefits the Tarheel state.) Sadly, using the Obama administration’s own misguided metric for gauging an FTA’s success (i.e., exports and the trade balance), the union had a point and thus capably hoisted the administration on its own mercantilist petard. And until the U.S. government changes this shortsighted, incorrect approach to trade policy and messaging, this rhetorical weapon will be readily available to protectionists, and public opinion will remain subject to the whims of meaningless statistics instead of economic consensus and actual historical fact.
Trade and Morality
Finally, the current approach to U.S. trade policy is manifestly immoral. Government intervention in voluntary economic exchange on behalf of some citizens necessarily comes at the expense of others and is inherently unfair, inefficient, and subverts the rule of law. At their core, trade barriers like those for sugar, clothing, footwear and automobiles are the triumph of coercion and politics over free choice and economics. The protectionist policies that USTR fights to maintain are the result of productive resources being diverted to achieve political ends and, in the process, taxing unsuspecting consumers to line the pockets of the special interests that succeeded in enlisting the weight of the government on their side.
This immorality has a clear and tangible cost. In 2011, Americans paid over ten billion dollars in tariffs on clothing alone, and another two billion each for shoes and automobiles – $29 billion total that year and $40 billion total in 2012. These taxes also raise the prices of goods made here at home and, as a result, American families pay much more for everyday staples like butter, milk, ice cream, sugar, tuna, apparel and shoes than their foreign counterparts. And American companies do the same for industrial inputs like ball bearings, steel and cement.
Protectionism is akin to earmarks, but it comes out of the hides of American families and businesses instead of the general treasury. And under the current trade negotiations system, our government is essentially choosing certain U.S. businesses and workers – those seeking protection and those seeking new export markets – over everyone else in America. As a result of these taxpayer-funded efforts, U.S. families pay higher prices for everyday essentials, and import-consuming companies struggle to remain globally competitive. (See, for example, U.S. candy makers who have moved their operations, and thousands of jobs, overseas due to sky-high sugar prices here.) Why on earth should our government pursue such an obviously immoral approach to international economic policy? Obvious answer: it shouldn’t.
A Better Path Forward
Fortunately, there is a much better, simpler way forward for U.S. trade policy. Most obviously, the United States should (i) immediately and unconditionally eliminate tariffs on basic human necessities like food, clothing, shoes, as well as industrial inputs that U.S. manufacturers rely upon to remain globally competitive; and (ii) phase out all other tariffs over a relatively short transition period. This change, coupled with matching rhetorical shift about the domestic benefits of trade liberalization, would instantly put the United States back at the forefront of global economic policy and in line with longstanding economic doctrine, fundamental fairness and modern business practices.
And, contrary to popular belief, such moves are politically possible: not only have countries like Australia, Chile, China, New Zealand, Canada, Mexico and Colombia pursued unilateral import liberalization in recent years in order to boost their economies, but the U.S. government also has done so via more limited initiatives like the Generalized System of Preferences and the Miscellaneous Tariff Bill (and sold such policies by – rightly – emphasizing their benefits to U.S. businesses and consumers). These policies would resonate with policymakers on the right and left, particularly in this era of increasing bipartisan disdain for corporate welfare. They would be consistent both with conservatives’ principled opposition to higher taxes and big government interventionism, and with liberals’ opposition to regressive taxation.
Furthermore, the unilateral elimination of tariffs would not lead to a flood of “unfair” imports that destroy U.S. industry because we already have trade remedy laws designed to address such situations and, due to years of domestic industry lobbying, are extremely biased towards protection. (Not to mention the fact that the vast majority of imports are already “fairly traded.”)
Speaking of which, the United States also should pursue fundamental reforms of its trade remedy laws to ensure that they actually address unfair and injurious imports (rather than domestic lobbying) and take into account the broader public interest – including U.S. consumer concerns. Our government should be ever vigilant of the fact that American consumers, not foreign exporters or governments, pay U.S. “unfair” trade duties, and these measures should therefore be a last resort.
Other regulatory reforms also are necessary, such as the elimination of most U.S. subsidy programs and various forms of “regulatory protectionism,” such as the Lacey Act and Dodd-Frank rules on “conflict minerals,” all of which thwart competition, raise prices and distort domestic and global markets.
Finally, the United States should complement these important changes by coupling them with “American competitiveness agenda” in order to give U.S. workers and companies what they really need to compete in today’s global economy: lower individual and corporate taxes in order to reflect new global norms, limits on lawfare and professional/occupational licensing, energy deregulation, etc. Such changes would boost economic growth, eliminate most domestic demands for protection from low-cost foreign competition, and, combined with the aforementioned tariff liberalization, boost U.S. exports without the need for slow and messy reciprocal trade negotiations. (Remaining trade barriers could be addressed via more aggressive litigation of existing rights and obligations under WTO rules and a “name and shame” approach to the most egregious transgressors.)
The global economy is advancing at a breakneck pace, but U.S. trade policy is stuck in neutral. Our elected leaders ignore basic facts and economics and pursue negotiations that not only benefit a well-connected cabal of businesses and lobbyists at the expense of U.S. consumers, but also undermine long-term public support for free trade. This archaic, immoral approach has produced diminishing returns in recent years and has called into question almost 70 years of U.S. leadership in the global economy. Meanwhile, other countries press ahead with agendas that better serve their citizens and reflect the realities of modern global supply chains, multinational investment and other key aspects of the 21st century economy.
The global economy is advancing at a breakneck pace, but U.S. trade policy is stuck in neutral. Our elected leaders ignore basic facts and economics and pursue negotiations that not only benefit a well-connected cabal of businesses and lobbyists at the expense of U.S. consumers, but also undermine long-term public support for free trade. This archaic, immoral approach has produced diminishing returns in recent years and has called into question almost 70 years of U.S. leadership in the global economy. Meanwhile, other countries press ahead with agendas that better serve their citizens and reflect the realities of modern global supply chains, multinational investment and other key aspects of the 21st century economy.
It’s time America did the same.
Wednesday, September 12, 2012
New Study on Import Benefits
The Heritage Foundation published a great study today further debunking the protectionist myth that imports into the United States harm the US economy and destroy American jobs. In "Trade Freedom: How Imports Support U.S. Jobs," Heritage scholars Derek Scissors, Charlotte Espinoza and Terry Miller argue:
Be sure to read the whole Heritage study here.
It is a common misperception that importing goods to America comes at the cost of American jobs. In fact, imports contribute to job creation on a large scale. The increased economic activity associated with every stage of the import process helps support millions of jobs in the U.S. This Heritage Foundation analysis shows that over half a million American jobs are supported by imports of clothes and toys from China alone. These jobs are in fields such as transportation, wholesale, retail, construction, and finance. Understanding the positive role of imports with respect to jobs, in addition to their other benefits, is critical to adopting the correct trade policy and thus to bolstering the economy.The whole report is worth reading, but I especially like how Heritage dismantles other "studies" out there - relied on by certain, ahem, campaigning politicians - that erroneously connect the US trade deficit with job losses. On the China version of these studies, the authors state:
Those who attack China often do not examine real economic events: They do not measure actual failed businesses and actual job losses. Instead, they assume the U.S.–China trade deficit means that both production and production jobs are moving from the U.S. to China. If this were true, many jobs would have moved back to the U.S. from China when the bilateral deficit fell by more than $30 billion in 2009. Of course, no jobs actually moved. Instead, millions of jobs were lost, due not to trade flows, but simply because of economic contraction during the financial crisis.Yep. Now, if only certain campaigns would stop parroting politically-convenient numbers based on absolute hokum in a shortsighted attempt to scare up a few votes. Alas.
Even absent a crisis, the U.S.–China trade deficit does not have the impact on jobs that many protectionists believe it has. If the bilateral trade deficit were eliminated, jobs would not move to the U.S., because the U.S. does not trade with China alone. Furniture production and similar jobs would move from China, not to the U.S., but rather to other countries where furniture can be made cheaply. The idea that millions of American jobs have been lost to China relies on bad trade numbers, bad economics, and a completely fictional view of the world.
Be sure to read the whole Heritage study here.
Thursday, August 23, 2012
Another Year, Another Bogus China Study
So the union-friendly folks over at the Economic Policy Institute have released their annual report "calculating" the number US jobs lost because of trade with China. This year's EPI report is pretty much identical to past editions: same (erroneous) methodology, same (erroneous) doom-and-gloom protectionist conclusions. I really shouldn't give the "study" an iota of bandwith, but because it will undoubtedly be mentioned by ignorant journalists or opportunistic politicians looking to respectively score a few cheap pageviews or scare a few unwitting voters, here's all you need to read:
If you look closely, you'll see that EPI's report shows "cumulative US job losses" supposedly caused by US-China trade plummeting in 2009 - thus indicating a major "gain" of about 300,000 China trade-related jobs in America between 2008 and 2009. This big "victory," of course, is due to the fact that the China-US trade deficit plummeted in 2009 because of the Great Recession, and, as noted above, EPI's "jobs" calculation is wholly dependent on the trade deficit.
But you know what else plummeted in 2009? Oh, right, total US employment:
So can someone at EPI - or in the office of, say, Senator Schumer - please call or email me to reconcile the Institute's amazing "improvement" in US-China trade-related jobs in 2009 with the depressing collapse in total non-farm jobs (and the soaring US unemployment rate) shown in the official US employment data? I hereby promise that I will post any explanation in full on my little ol' blog.
Yeah, I'm not holding my breath waiting for the phone to ring on that one.
Anyway, over the next few months, we will undoubtedly be deluged with protectionist rhetoric - from both political parties, unfortunately - about the pernicious effects of the US-China trading relationship on the American job market, and, if history is any guide, EPI's study promises to play a supporting role in such demagoguery. But the next time you hear some campaigning politician breathlessly claim that Chinese imports are destroying millions of American jobs, be sure to remember the chart above, and that said politician is either stunningly ignorant or willfully trying to scare and deceive you.
- My 2010 blog post dismantling of EPI and its study (including boatloads of links from myriad scholars decrying EPI's asinine "trade deficit = job losses" methodology); and
- Today's quick dismissal of the EPI report by the US-China Business Council.
Finally, one quick observation: I just love this chart in EPI's new study entitled "Cumulative U.S. jobs displaced by growing trade deficits with China since 2001":
If you look closely, you'll see that EPI's report shows "cumulative US job losses" supposedly caused by US-China trade plummeting in 2009 - thus indicating a major "gain" of about 300,000 China trade-related jobs in America between 2008 and 2009. This big "victory," of course, is due to the fact that the China-US trade deficit plummeted in 2009 because of the Great Recession, and, as noted above, EPI's "jobs" calculation is wholly dependent on the trade deficit.
But you know what else plummeted in 2009? Oh, right, total US employment:
Unemployment shot up in 2009 from 7.7 percent in January to 10.1 percent in October before settling at 10 percent in December. Behind those percentages were more than 4.1 million people who lost their jobs during the year. According to data from the Bureau of Labor Statistics, that's the most job losses in a year since 1940.Funny, I can't seem to find a 2010 version of EPI's annual paper that highlights the impressive 2009 "improvement" in their US jobs picture. How weird. (You can check the BLS numbers - non-farm payrolls and unemployment rate - here, if you really want. Heck, it'd be a lot more informative than reading the EPI study.)
So can someone at EPI - or in the office of, say, Senator Schumer - please call or email me to reconcile the Institute's amazing "improvement" in US-China trade-related jobs in 2009 with the depressing collapse in total non-farm jobs (and the soaring US unemployment rate) shown in the official US employment data? I hereby promise that I will post any explanation in full on my little ol' blog.
Yeah, I'm not holding my breath waiting for the phone to ring on that one.
Anyway, over the next few months, we will undoubtedly be deluged with protectionist rhetoric - from both political parties, unfortunately - about the pernicious effects of the US-China trading relationship on the American job market, and, if history is any guide, EPI's study promises to play a supporting role in such demagoguery. But the next time you hear some campaigning politician breathlessly claim that Chinese imports are destroying millions of American jobs, be sure to remember the chart above, and that said politician is either stunningly ignorant or willfully trying to scare and deceive you.
Tuesday, June 5, 2012
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.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.
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.
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.Video of Chen's aggressive comments are here. And, speaking of video, the Romney campaign has cranked out several anti-China TV ads too:
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.”
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...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.
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.
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...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.
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.
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.
Wednesday, May 30, 2012
Huge New Report Further Crushes Protectionist Myths about Trade, Jobs & Outsourcing
The OECD recently concluded a giant new report on the effects of open markets on employment, and the consensus conclusion couldn't be any clearer: free trade is awesome. In the process of coming to that (admittedly broad and obvious) conclusion, the authors of the myriad studies included in the final OECD Report also debunk a whole host of protectionist myths still floating around out there about imports, jobs and outsourcing (President Obama, please take note). Here's the press release announcing the new Report (emphasis mine):
But all the trade stuff's important too, particularly during yet-another-election-season featuring scores of US politicians spewing populist nonsense about the allegedly horrible effects of imports and outsourcing on American jobs. At the risk of sounding like a broken record, isn't it about time we stopped listening to these people?
Governments that foster open markets and resist protectionism have the best chance of stimulating inclusive economic growth and creating high-value jobs, according to a new study from 10 international organisations presented in Paris.
Policy Priorities for International Trade and Jobs, launched by OECD Secretary General Angel Gurria during the annual OECD Forum, shows that protectionist and discriminatory trade measures do not protect or preserve jobs. On the contrary, closing markets is actually more likely to stifle growth and put additional pressure on labour markets.
The report, a product of the International Collaborative Initiative on Trade and Employment (ICITE)*, analyses the complex interactions between globalisation, trade and labour markets. Drawing on numerous studies covering different parts of the globe and countries at very different levels of development, the report highlights the powerful role trade can play in driving growth and improving employment.
Of the 14 main studies undertaken since 2000 reviewed in the report, all 14 have concluded that trade plays an independent and positive role in raising incomes.
Through its impact on productivity, trade also raises average wages. Over the 1970-2000 period, manufacturing workers in open economies benefitted from pay rates that were between 3 and 9 times greater than those in closed economies, depending on the region. In Chile, workers in the most open sectors earned on average 25% more in 2008 than those in low-openness sectors.
Fears of the impact of offshoring may be exaggerated. Studies for the United Kingdom, United States, Germany and Italy demonstrate that off-shoring of intermediate goods has either no impact or, if any, a positive effect on both employment and wages.
The report also shows, however, that openness to trade is not enough. Complementary policies – such as sound macroeconomic policies, a positive investment climate, flexible labour markets and adequate social safety nets – are needed to realise the full benefits of trade....
The ICITE report debunks the principal argument against freeing up trade – the supposed impact of imports on jobs. The report says that there is no systematic link between imports and unemployment. Instead, evidence shows that in country after country, both exports and imports push productivity growth upward while helping create better skilled and higher paying jobs.
Offshoring and outsourcing by developed countries – two commonly-cited negative aspects of globalisation – often complement, rather than replace domestic jobs, while creating new, higher-wage opportunities in developing countries, according to the report.There is enough in this report to keep even the nerdiest of trade nerds busy for a long while. I especially like the part about the necessity of "complementary policies" to realize the full benefits of free trade. That's something I've been arguing here for a while now - open markets are awesome, but their benefits are seriously undermined unless they're accompanied by sound fiscal policies (especially tax policies), a streamlined, predictable regulatory environment and a dynamic labor market. Without these things, all the trade in the world won't fix what ails the US and other struggling economies.
But all the trade stuff's important too, particularly during yet-another-election-season featuring scores of US politicians spewing populist nonsense about the allegedly horrible effects of imports and outsourcing on American jobs. At the risk of sounding like a broken record, isn't it about time we stopped listening to these people?
Wednesday, May 9, 2012
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:
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:
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?
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.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 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.”
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.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.
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.
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.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.
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.
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?
Sunday, May 6, 2012
New McKinsey Study Pokes Fatal Holes in Common Trade Myths
Readers of this blog know that one of the themes here has been dismantling pervasive "protectionist myths" that mislead the public into supporting - and thereby empower politicians to implement - anti-trade policies. Now, a new study from McKinsey, "Trading myths: Addressing misconceptions about trade, jobs, and competitiveness," contributes to this line of attack scholarship. There are a few things here that I don't totally support (e.g., erroneously labeling an expanding trade deficit a per se "deterioration"), but the whole thing is definitely worth a read. Some of the myths addressed include the following:
Now, if only a few of our political leaders - from either party - would listen.
(h/t ToGetRichIsGlorious)
Myth: Mature economies are losing out to emerging markets in trade and thus face increasing trade deficits.
Reality: The trade balance of mature economies has remained largely stable in the aggregate and even begun to improve. There are wide variations between individual countries, but no evidence supports claims of a wholesale deterioration of the trade balance between the mature and emerging economies over the past decade.
Myth: Manufactured goods driveThe authors also hit on several other myths in the report, such as:deteriorating[SL: sorry, I couldn't resist] trade deficits.
Reality: Imports of primary resources, whose prices have been rising sharply, are the largest negative contributor to the trade balance of mature economies. In 2008, mature economies ran a 3.3 percent of GDP trade deficit in primary resources but a 0.5 percent of GDP surplus in manufactured goods and specifically a 1.6 percent surplus in knowledge-intensive manufacturing. Some individual mature countries run trade deficits in knowledge-intensive manufacturing.
Myth: Trade is at the heart of the loss of manufacturing jobs.
Reality: Changes in the composition of demand and ongoing productivity increases are the main reasons for the decline in the number of such jobs in mature economies. The share of manufacturing in these countries’ total employment is bound to decline further, from 12 percent today to less than 10 percent in 2030, according to our analysis. MGI finds that trade or offshoring are responsible for the loss of around 20 percent of the 5.8 million US manufacturing jobs eliminated between 2000 and 2010.
Myth: Mature economies create jobs only in low-paid, low‑value domestic servicesAfter dispatching all of these myths, the authors make several policy suggestions that also should sound familiar to this blog's readership:
Myth: Service trade is small, and emerging economies with low‑cost talent will capture any increase
Myth: “Service economies” such as the United States are the world leaders in service trade
- Resist protectionist pressures.
- See emerging economies as an opportunity, not a threat.
- Push vigorously for the fuller liberalization of trade in services, where restrictions remain high.
- Gear trade-related policy toward supporting—and benefiting from—comparative advantage in attractive stages of global value chains (like R&D and design), and avoid any emphasis on sustaining or creating direct employment through manufacturing exports.
- Improve measurements of global value chains and services trade.I, unsurprisingly, think that if the federal government implemented these policy solutions, US businesses and workers would be much, much better positioned to dominate the 21st century global economy. (And I've been screaming it from the rooftops for a few years now.)
Now, if only a few of our political leaders - from either party - would listen.
(h/t ToGetRichIsGlorious)
Monday, March 5, 2012
GPX Update: Critical "Deadline" Passes, World Doesn't Implode (Plus Comments on Ways & Means "Facts")
As you may recall, today was the big "deadline" for congressional passage of legislation amending the US countervailing duty law to apply to imports from non-market economies like China and Vietnam. If Congress hadn't acted by today - so we were repeatedly told by the Obama administration and various Members of Congress - myriad US companies and workers would suffer an onslaught of subsidized Chinese and Vietnamese imports as the Commerce Department was forced to immediately terminate the CVD orders that were protecting them from such viciousness. Well, the Senate "passed" its version of the bill today (by "unanimous consent," meaning no formal consideration, natch), but the House still hasn't acted. It's expected to vote as soon as tomorrow, but before it does, are US companies or workers going to suffer?
No, of course not.
So why hasn't the world imploded, you ask? Well, also as predicted, the Obama administration today petitioned (more here) the Court of Appeals for the Federal Circuit - the court responsible for the "bombshell" ruling in GPX Int'l Tire Corp v. United States that the US CVD law didn't apply to NME imports - for a rehearing. The court will likely reject that petition in a few weeks, but the ruling will only become "final" (and thus binding on DOC) when all appeal avenues are foreclosed. Because the administration will just-as-certainly appeal the GPX ruling to the Supreme Court, this means that - and, again, as I've repeatedly explained - the GPX ruling won't be final until the Supreme Court denies the appeal request. This could quite literally take several months, so those poor little US companies and can rest assured that they have nothing to worry about before then.
So given the fact that the big "deadline" urgently pushed by the bill's supporters has come and gone without an ounce of harm to US businesses and workers, one must ask the obvious question:
On what other issues are they misleading us and much of Congress?
Well, if the new release by the House Ways & Means Committee is any indication, the answer to that question is "a whole helluva lot." That document purports to respond to the many "myths" being circulated about H.R. 4105 by providing the actual "facts." Yet even a cursory review of the Committee materials reveals that they are about as factual as the aforementioned "deadline" for urgent congressional action (i.e., not very). Thus, I've decided to quickly respond to each item with the "actual facts" below.
So let's get started.
"Myth": "H.R. 4105 Applies Punitive Tariffs"
"Fact": Since 2007, the Commerce Department has applied countervailing duties to Chinese products where it determines that China has provided unfair subsidies that violate its WTO obligations. These duties are not punitive; they counter the unfair Chinese subsidies. In fact, in 2005, Club for Growth President Chris Chocola joined 220 Republicans in voting for a bill that would have done exactly the same thing. The last five RSC chairmen all voted for that bill. Currently, 27 RSC Members are co-sponsors of H.R. 4105 and identical legislation passed the Senate with unanimous support.
ACTUAL FACT: Of course the duties imposed since 2007 are punitive. That's the whole point of all of the domestic litigation and WTO cases that the administration keeps losing: the simultaneous application of CVDs and anti-dumping duties to NME imports currently offsets (via duties) allegedly unfair subsidies twice because the NME methodology in the anti-dumping investigation already corrects for any potential subsidies. Because our "unfair trade" laws are only supposed to be remedial (i.e., they're only supposed to remedy the alleged dumping or subsidization taking place rather than punish US importers by taxing them above the level of dumping/subsidization), the current policy of double counting is contrary to both US law and WTO rules. If the duties weren't "punitive," the US courts and the WTO wouldn't have found them to be illegal. Duh.
And, of course, H.R. 4105 expressly doesn't apply to the many past instances of double counting - and the millions of dollars of punitive duties paid by US importers and consumers - that have occurred since 2007.
"Myth": "These tariffs don't 'level the playing field'"
"Fact": Chinese subsidies massively distort the free market. Countervailing duties re-establish a free, fair, and competitive marketplace. These duties can be applied only to subsidies that the Commerce Department determines violate China's WTO obligations.
ACTUAL FACT: No one is arguing that Chinese subsidies don't distort markets (of course, so do US subsidies, but that's a fight for another time). The argument here is that anti-dumping and countervailing duties applied to imports from China (as an NME) punish US importers and consumers above and beyond the amount allegedly necessary to supposedly "level the playing field." As such, current practice - which H.R. 4105 totally protects (see below) - ensures a wholly uneven playing field against US consumers and in favor of a few domestic companies who want to be insulated from foreign competition. (This is why those few companies and their congressional benefactors are lobbying so hard to keep that sweet, sweet import protection.)
So, look, if you want to use the CVD law to address distortive Chinese subsidies, go ahead (I guess). But until you designate China a market economy and stop addressing subsidies via the non-market economy methodology in dumping cases, the application of CVDs to Chinese imports is punitive and thereby biased against American import consumers, many of whom are US manufacturers who need foreign inputs to remain globally competitive. Indeed, about 55% of all US imports are inputs used by US manufacturers, and about 80% of all trade remedies duties are applied to such goods. Talk about an uneven playing field.
"Myth": "It will further escalate a trade war with China"
"Fact": This legislation simply allows the United States to continue applying CVD as it has for the past five-years and it is fully compliant with our WTO obligations.
ACTUAL FACT: First, by gratuitously protecting the Commerce Department's ability to use both CVDs and anti-dumping duties on Chinese (and other NME) imports in a punitive manner, the United States is making it very, very clear that (a) it intends to vigorously fight for the antagonistic policy in US courts and the WTO; and (b) it has no intention of designating China a "market economy" before 2016 (when it is bound to do so pursuant to China's WTO accession protocol). There is simply no way that the Chinese Government - which has won a key victory at the WTO on this issue - won't take this as a big slap in the face (and it's already grousing about the CVD/NME issue).
Next, it is utterly disingenuous to state unequivocally that this bill is "fully compliant with our WTO obligations," and it raises some serious red flags. Most importantly, the bill doesn't prohibit Commerce from double counting, which the WTO has ruled is illegal ("We find instead that the imposition of double remedies, that is, the offsetting of the same subsidization twice by the concurrent imposition of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement."). Instead, the bill merely requires DOC to address double counting where (i) it has been demonstrated by a foreign exporter that the subsidies at issue have lowered its U.S. import prices; and (ii) DOC has determined that it can "reasonably estimate" the extent to which those subsidies have affected the anti-dumping duty on the same imports. As I noted last week, this raises several obvious problems:
The bill also raises serious WTO concerns because it applies to the 24 CVD orders and millions of dollars of related duties that the US government imposed and collected without lawful authority to do so. Although a WTO panel or the Appellate Body hasn't ruled on whether such "retroactivity" is WTO-consistent, a panel has expressed a distaste for it, and there are several WTO provisions that could apply (e.g., GATT Articles X:2 and XXIII:1(b)).
"Myth": "It harms U.S. importers"
"Fact": Current CVD orders affect less than two percent of trade with China - but they provide targeted relief for those industries that are being affected by China's unfair subsidies - subsidies that violate China's WTO obligations. H.R. 4105 maintains the status quo and ensures that the Commerce Department can continue to apply countervailing duties to non-market economies like China. Not acting could invalidate existing orders that impact over 80 American companies and tens of thousands of American workers in 38 states across this country. Job creators including the Chamber of Commerce, the National Association of Manufacturing, and the National Council of Textile Organizations support H.R. 4105.
ACTUAL FACT: First, I've already refuted the myth (no, seriously, a real myth) that congressional inaction will "impact over 80 American companies and tens of thousands of American workers in 38 states across this country." That's just not true. At all.
Second, please notice how the "facts" above never refute the allegation that H.R. 4105, or current Obama administration policy, harms US importers. Perhaps that's because I've documented several first-hand accounts of the very real pain that these policies impose on American businesses and workers. Or the fact that the legislation demonstrates a clear anti-importer bias by applying retroactively to existing CVD orders yet only prospectively for double counting (thereby maximizing duties to the fullest extent possible). And let's not forget the undeniable fact that this legislation will pull the rug out from under the many American companies who have challenged the current policy via the normal legal process:
And if that little fact in and of itself doesn't tell you everything you need to know about this bad legislation, then nothing will.
Finally, there is one thing in this Ways & Means "fact" that is actually true (crazy, I know): This bill does only affect "two percent of China trade." So, please someone tell me, why are the US Trade Representative and Secretary of Commerce publicly claiming that congressional inaction "would have substantial adverse economic implications for our country"? Something doesn't add up here, huh?
"Myth": "It continues WTO-inconsistent 'Double Counting'"
"Fact": The legislation directly addresses potential double counting. H.R. 4105 brings the United States into compliance with an adverse determination by the WTO Appellate Body about the potential for "double remedy" in applying the antidumping and CVD law at the same time to a non-market economy. The legislation requires Commerce to adjust antidumping duties to address any possible double remedy.
ACTUAL FACT: The bill certainly mentions double counting, but, as noted above, it sure as heck doesn't "require[ ] Commerce to adjust antidumping duties" or ensure that the United States will be in compliance with the Appellate Body's ruling. It literally only requires Commerce to address double counting if (i) foreign exporters meet an almost-impossible burden and (ii) Commerce decides it has the ability to do so. Those are two loopholes so big you could drive separate freight trains through 'em. (And if you've ever actually been involved in an AD/CVD investigation, you know full-well that Commerce is extremely willing to don the engineer's cap and drive those trains.)
The bill also doesn't correct for all of the old CVD orders - ones that most definitely used a WTO-inconsistent AD/CVD methodology. As I said last week:
But other than that....
"Myth": "It harms the U.S. negotiating position on legitimate bilateral trade concerns"
Fact: The legislation is fully consistent with U.S. WTO obligations and should not affect other bilateral trade negotiations. In fact, failing to enact this legislation would be a "give-way" to the Chinese as the U.S. would unilaterally drop an important and legal enforcement tool. The CVD law is an important WTO enforcement tool permitted by the WTO to counteract market-distorting Chinese subsidies. Some of our biggest trading partners, including the European Union, Mexico, and India, also apply the CVD law to China.
ACTUAL FACT: Again, the bill isn't "fully consistent" with US WTO obligations, and Commerce could apply CVDs (or address Chinese subsidies via the NME anti-dumping methodology) without congressional legislation. The agency simply was barred from applying both CVDs and NME/AD measures and thereby penalizing US importers and consumers (and foreign exporters). And although several countries like the EU apply CVDs law to imports from China, none (that I know of, at least) have done so with concurrent NME anti-dumping measures. The EU just announced a new CVD case against China which mirrors an earlier NME/AD case (its first ever concurrent AD/CVD cases against China in the EU), and guess what? China immediately threatened to bring a WTO challenge.
"Myth": "It lets the Obama Administration 'vote present' ... [and] lets the administration avoid the tough choice on China and the "non-market economy" methodology"
"Fact": China is not a market economy. Arguing that it is ignores the massive intervention of the Chinese government in its economy. The bill addresses any potential double counting that arises from simultaneously applying antidumping and countervailing duties to China and brings the United States fully into compliance with its WTO obligations.
ACTUAL FACT: Ok, one last time: congressional inaction doesn't require designating China as a "market economy" (even though that's a very good idea), and it certainly doesn't resolve the double counting issue. As I said in a recent op-ed: "By doing nothing, [Congress] can force the administration to make the choice that should have been made years ago: either stop imposing CVDs on NME imports and thus return to the previous policy of addressing Chinese and Vietnamese subsidies through anti-dumping measures, or designate both countries 'market economies' and address their subsidies via the normal CVD process." This legislation allows President Obama to avoid this choice entirely and to maintain the WTO-inconsistent status quo. It also eviscerates several American companies' valid legal challenges to the existing, punitive policy - a policy that harms US consumers and lines the pockets of well-connected domestic industries seeking government protection from import competition.
And that's a fact.
No, of course not.
So why hasn't the world imploded, you ask? Well, also as predicted, the Obama administration today petitioned (more here) the Court of Appeals for the Federal Circuit - the court responsible for the "bombshell" ruling in GPX Int'l Tire Corp v. United States that the US CVD law didn't apply to NME imports - for a rehearing. The court will likely reject that petition in a few weeks, but the ruling will only become "final" (and thus binding on DOC) when all appeal avenues are foreclosed. Because the administration will just-as-certainly appeal the GPX ruling to the Supreme Court, this means that - and, again, as I've repeatedly explained - the GPX ruling won't be final until the Supreme Court denies the appeal request. This could quite literally take several months, so those poor little US companies and can rest assured that they have nothing to worry about before then.
So given the fact that the big "deadline" urgently pushed by the bill's supporters has come and gone without an ounce of harm to US businesses and workers, one must ask the obvious question:
On what other issues are they misleading us and much of Congress?
Well, if the new release by the House Ways & Means Committee is any indication, the answer to that question is "a whole helluva lot." That document purports to respond to the many "myths" being circulated about H.R. 4105 by providing the actual "facts." Yet even a cursory review of the Committee materials reveals that they are about as factual as the aforementioned "deadline" for urgent congressional action (i.e., not very). Thus, I've decided to quickly respond to each item with the "actual facts" below.
So let's get started.
"Myth": "H.R. 4105 Applies Punitive Tariffs"
"Fact": Since 2007, the Commerce Department has applied countervailing duties to Chinese products where it determines that China has provided unfair subsidies that violate its WTO obligations. These duties are not punitive; they counter the unfair Chinese subsidies. In fact, in 2005, Club for Growth President Chris Chocola joined 220 Republicans in voting for a bill that would have done exactly the same thing. The last five RSC chairmen all voted for that bill. Currently, 27 RSC Members are co-sponsors of H.R. 4105 and identical legislation passed the Senate with unanimous support.
ACTUAL FACT: Of course the duties imposed since 2007 are punitive. That's the whole point of all of the domestic litigation and WTO cases that the administration keeps losing: the simultaneous application of CVDs and anti-dumping duties to NME imports currently offsets (via duties) allegedly unfair subsidies twice because the NME methodology in the anti-dumping investigation already corrects for any potential subsidies. Because our "unfair trade" laws are only supposed to be remedial (i.e., they're only supposed to remedy the alleged dumping or subsidization taking place rather than punish US importers by taxing them above the level of dumping/subsidization), the current policy of double counting is contrary to both US law and WTO rules. If the duties weren't "punitive," the US courts and the WTO wouldn't have found them to be illegal. Duh.
And, of course, H.R. 4105 expressly doesn't apply to the many past instances of double counting - and the millions of dollars of punitive duties paid by US importers and consumers - that have occurred since 2007.
"Myth": "These tariffs don't 'level the playing field'"
"Fact": Chinese subsidies massively distort the free market. Countervailing duties re-establish a free, fair, and competitive marketplace. These duties can be applied only to subsidies that the Commerce Department determines violate China's WTO obligations.
ACTUAL FACT: No one is arguing that Chinese subsidies don't distort markets (of course, so do US subsidies, but that's a fight for another time). The argument here is that anti-dumping and countervailing duties applied to imports from China (as an NME) punish US importers and consumers above and beyond the amount allegedly necessary to supposedly "level the playing field." As such, current practice - which H.R. 4105 totally protects (see below) - ensures a wholly uneven playing field against US consumers and in favor of a few domestic companies who want to be insulated from foreign competition. (This is why those few companies and their congressional benefactors are lobbying so hard to keep that sweet, sweet import protection.)
So, look, if you want to use the CVD law to address distortive Chinese subsidies, go ahead (I guess). But until you designate China a market economy and stop addressing subsidies via the non-market economy methodology in dumping cases, the application of CVDs to Chinese imports is punitive and thereby biased against American import consumers, many of whom are US manufacturers who need foreign inputs to remain globally competitive. Indeed, about 55% of all US imports are inputs used by US manufacturers, and about 80% of all trade remedies duties are applied to such goods. Talk about an uneven playing field.
"Myth": "It will further escalate a trade war with China"
"Fact": This legislation simply allows the United States to continue applying CVD as it has for the past five-years and it is fully compliant with our WTO obligations.
ACTUAL FACT: First, by gratuitously protecting the Commerce Department's ability to use both CVDs and anti-dumping duties on Chinese (and other NME) imports in a punitive manner, the United States is making it very, very clear that (a) it intends to vigorously fight for the antagonistic policy in US courts and the WTO; and (b) it has no intention of designating China a "market economy" before 2016 (when it is bound to do so pursuant to China's WTO accession protocol). There is simply no way that the Chinese Government - which has won a key victory at the WTO on this issue - won't take this as a big slap in the face (and it's already grousing about the CVD/NME issue).
Next, it is utterly disingenuous to state unequivocally that this bill is "fully compliant with our WTO obligations," and it raises some serious red flags. Most importantly, the bill doesn't prohibit Commerce from double counting, which the WTO has ruled is illegal ("We find instead that the imposition of double remedies, that is, the offsetting of the same subsidization twice by the concurrent imposition of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement."). Instead, the bill merely requires DOC to address double counting where (i) it has been demonstrated by a foreign exporter that the subsidies at issue have lowered its U.S. import prices; and (ii) DOC has determined that it can "reasonably estimate" the extent to which those subsidies have affected the anti-dumping duty on the same imports. As I noted last week, this raises several obvious problems:
- It could be impossible for a foreign exporter to prove that a tax break (for example) it received has affected its US import prices, and the mere imposition of this burden could violate WTO rules. The WTO Appellate Body ruled that DOC and other national authorities have an affirmative obligation to ensure that double counting does not take place in AD/CVD investigations ("In the same way... as an investigating authority is subject to an affirmative obligation to ascertain the precise amount of the subsidy, so too is it subject to an affirmative obligation to establish the appropriate amount of the duty under Article 19.3."). By placing part of the burden to establish and then remedy double counting on foreign exporters (indiead of on DOC alone), this provision would seem to directly contradict the Appellate Body's ruling.
- Commerce has repeatedly stated, for example before the Court of International Trade, that it has no idea how to "reasonably estimate the extent to which the countervailable subsidy... has increased the weighted average duty margin." And even if Commerce does figure something out, nobody has any idea whether the WTO or the courts would find Commerce's methodology to be legal.
- The bill also doesn't ensure that Commerce's new methodology, assuming the agency determines that it actually can develop one, will address the full extent of double counting, instead of a small fraction of it.
The bill also raises serious WTO concerns because it applies to the 24 CVD orders and millions of dollars of related duties that the US government imposed and collected without lawful authority to do so. Although a WTO panel or the Appellate Body hasn't ruled on whether such "retroactivity" is WTO-consistent, a panel has expressed a distaste for it, and there are several WTO provisions that could apply (e.g., GATT Articles X:2 and XXIII:1(b)).
"Myth": "It harms U.S. importers"
"Fact": Current CVD orders affect less than two percent of trade with China - but they provide targeted relief for those industries that are being affected by China's unfair subsidies - subsidies that violate China's WTO obligations. H.R. 4105 maintains the status quo and ensures that the Commerce Department can continue to apply countervailing duties to non-market economies like China. Not acting could invalidate existing orders that impact over 80 American companies and tens of thousands of American workers in 38 states across this country. Job creators including the Chamber of Commerce, the National Association of Manufacturing, and the National Council of Textile Organizations support H.R. 4105.
ACTUAL FACT: First, I've already refuted the myth (no, seriously, a real myth) that congressional inaction will "impact over 80 American companies and tens of thousands of American workers in 38 states across this country." That's just not true. At all.
Second, please notice how the "facts" above never refute the allegation that H.R. 4105, or current Obama administration policy, harms US importers. Perhaps that's because I've documented several first-hand accounts of the very real pain that these policies impose on American businesses and workers. Or the fact that the legislation demonstrates a clear anti-importer bias by applying retroactively to existing CVD orders yet only prospectively for double counting (thereby maximizing duties to the fullest extent possible). And let's not forget the undeniable fact that this legislation will pull the rug out from under the many American companies who have challenged the current policy via the normal legal process:
Since 2007, these US importers have paid millions of dollars in duties that, according to the Court of Appeals for the Federal Circuit, the US government had no legal authority to collect. Thus, right now, those companies (particularly the plaintiffs in the original GPX case) have a very legitimate and hard-fought right to compensation from the government (e.g., refunds of all those illegal duties paid). Such compensation could keep their businesses afloat or even fund expansion (and jobs!). Yet congressional legislation could invalidate their legitimate legal claims (and the millions they're owed), and cost them millions more in duties and legal fees.Indeed, it's this very real pain that has caused grassroots groups like the National Taxpayers Union and FreedomWorks to join the free market Club for Growth in opposing H.R. 4105. Meanwhile, the Ways & Means Committee gets its support from the US textile and steel industries: two groups that are notorious users (and abusers) of US trade laws and more blatant forms of protectionism to prevent fair competition and force US consumers to subsidize (via higher prices) their businesses.
And if that little fact in and of itself doesn't tell you everything you need to know about this bad legislation, then nothing will.
Finally, there is one thing in this Ways & Means "fact" that is actually true (crazy, I know): This bill does only affect "two percent of China trade." So, please someone tell me, why are the US Trade Representative and Secretary of Commerce publicly claiming that congressional inaction "would have substantial adverse economic implications for our country"? Something doesn't add up here, huh?
"Myth": "It continues WTO-inconsistent 'Double Counting'"
"Fact": The legislation directly addresses potential double counting. H.R. 4105 brings the United States into compliance with an adverse determination by the WTO Appellate Body about the potential for "double remedy" in applying the antidumping and CVD law at the same time to a non-market economy. The legislation requires Commerce to adjust antidumping duties to address any possible double remedy.
ACTUAL FACT: The bill certainly mentions double counting, but, as noted above, it sure as heck doesn't "require[ ] Commerce to adjust antidumping duties" or ensure that the United States will be in compliance with the Appellate Body's ruling. It literally only requires Commerce to address double counting if (i) foreign exporters meet an almost-impossible burden and (ii) Commerce decides it has the ability to do so. Those are two loopholes so big you could drive separate freight trains through 'em. (And if you've ever actually been involved in an AD/CVD investigation, you know full-well that Commerce is extremely willing to don the engineer's cap and drive those trains.)
The bill also doesn't correct for all of the old CVD orders - ones that most definitely used a WTO-inconsistent AD/CVD methodology. As I said last week:
[T]he legislation's double counting provisions only apply prospectively from the date that the bill becomes law. This means that the provisions won't apply to all of the old cases in which anti-dumping and countervailing duties included double counting, and that Commerce will not go back and recalculate any of those duties, even though the bill's general CVD/NME provisions apply retroactively to them. (This retroactive/prospective discrepancy is a prime indicator of just how biased against US importers/consumers the bill is.) The only exception to this rule are the four cases (of 24 total) on which China challenged and won at the WTO. Thus, there are 20 other cases and many duties that will remain artificially (illegally) high via double counting, and that could be - and very likely will be - challenged at the WTO.Oh, and it could raise new WTO challenges on other grounds (like retroactivity).
But other than that....
"Myth": "It harms the U.S. negotiating position on legitimate bilateral trade concerns"
Fact: The legislation is fully consistent with U.S. WTO obligations and should not affect other bilateral trade negotiations. In fact, failing to enact this legislation would be a "give-way" to the Chinese as the U.S. would unilaterally drop an important and legal enforcement tool. The CVD law is an important WTO enforcement tool permitted by the WTO to counteract market-distorting Chinese subsidies. Some of our biggest trading partners, including the European Union, Mexico, and India, also apply the CVD law to China.
ACTUAL FACT: Again, the bill isn't "fully consistent" with US WTO obligations, and Commerce could apply CVDs (or address Chinese subsidies via the NME anti-dumping methodology) without congressional legislation. The agency simply was barred from applying both CVDs and NME/AD measures and thereby penalizing US importers and consumers (and foreign exporters). And although several countries like the EU apply CVDs law to imports from China, none (that I know of, at least) have done so with concurrent NME anti-dumping measures. The EU just announced a new CVD case against China which mirrors an earlier NME/AD case (its first ever concurrent AD/CVD cases against China in the EU), and guess what? China immediately threatened to bring a WTO challenge.
"Myth": "It lets the Obama Administration 'vote present' ... [and] lets the administration avoid the tough choice on China and the "non-market economy" methodology"
"Fact": China is not a market economy. Arguing that it is ignores the massive intervention of the Chinese government in its economy. The bill addresses any potential double counting that arises from simultaneously applying antidumping and countervailing duties to China and brings the United States fully into compliance with its WTO obligations.
ACTUAL FACT: Ok, one last time: congressional inaction doesn't require designating China as a "market economy" (even though that's a very good idea), and it certainly doesn't resolve the double counting issue. As I said in a recent op-ed: "By doing nothing, [Congress] can force the administration to make the choice that should have been made years ago: either stop imposing CVDs on NME imports and thus return to the previous policy of addressing Chinese and Vietnamese subsidies through anti-dumping measures, or designate both countries 'market economies' and address their subsidies via the normal CVD process." This legislation allows President Obama to avoid this choice entirely and to maintain the WTO-inconsistent status quo. It also eviscerates several American companies' valid legal challenges to the existing, punitive policy - a policy that harms US consumers and lines the pockets of well-connected domestic industries seeking government protection from import competition.
And that's a fact.
Tuesday, November 8, 2011
BREAKING: Basic Economics Applies in China Too
As I've frequently mentioned, one of the biggest protectionist myths out there is the idea that the long, slow decline in US manufacturing jobs has been caused by imports. In reality, technology advances and changing consumer tastes, not free trade, are responsible for the vast majority of manufacturing job-losses in the United States, and these basic economic principles apply to every country in the world...
Let's just hope that Chinese politicians don't start ignorantly (or maliciously) blaming free trade like many US politicians do.
(h/t Freakonomics)
...even China:
The parent company of Taiwanese tech giant Foxconn plans to mass produce industrial robots as part of its efforts to cope with labour shortages and rising wages. The project, which is initially forecast to cost the Taiwan-based Hon Hai Precision Industry Tw$6.7 billion ($223 million), was unveiled Saturday when Terry Gou, chairman of the conglomerate, broke ground for the construction of a research and development unit in Taichung, central Taiwan.Now, leaving aside the obvious and disturbing signs of the inevitable robot takeover, this article makes clear what free traders have been saying for a long time now: if you just have to blame US manufacturing job losses on something, blame robots, not China, because the Chinese (and the Germans and everyone else) are dealing with the exact same thing.
"The investment marks the beginning of Hon Hai's bid to build an empire of robots," the Central Taiwan Science Park authorities said in a statement.
The investment will be made through Hon Hai's subsidiary Foxnum, a company focusing on the manufacturing of automation facilities and equipment, it said. Foxconn, hit by a spate of suicides at its Chinese plants, plans to replace 500,000 workers with robots in the next three years, official media earlier reported. Foxconn -- the world's largest maker of computer components, which assembles products for Apple, Sony and Nokia -- plans to use one million robots to do "simple" work, China Business News quoted Gou as saying in August.
Let's just hope that Chinese politicians don't start ignorantly (or maliciously) blaming free trade like many US politicians do.
(h/t Freakonomics)
Monday, May 23, 2011
Supporters of TAA Expansion Need to Find Another Myth
As I noted last week, the White House has refused to submit implementing legislation on pending FTAs with Colombia, Panama and South Korea until House Republicans agree to extend now-expired provisions of the Trade Adjustment Assistance program. These provisions, included in the 2009 Stimulus* Bill, dramatically expanded the scope and coverage (and expense!) of the TAA program to include, among other things, services workers whose jobs were allegedly lost because of trade. Here's how Sen. Debbie Stabenow (D-MI) - of the loudest proponents of the TAA expansion - described the provisions back in February:
extortion demands. But does their call for expanded TAA coverage to protect American services workers from outsourcing to India, China and elsewhere actually jibe with the global economic "realities" about which the Senators allegedly care so dearly?
In short, no. Not at all.
As I recently noted, politicians' breathless claims about the rampant outsourcing of American services (and manufacturing) jobs to places like India and China are far more myth than reality. Indeed, the United States actually ran a trade surplus in services with China (and many other countries) in 2010 and has been a net "insourcer" overall for several years now:
The US ran a relatively tiny services deficit with India in 2010 and a small surplus in 2009, but today comes eye-opening news that Indian corporations might be turning even more often to the US workforce:
In 2009, an update to TAA was enacted to help the program reflect the realities of today's global economy. Created in 1974, TAA originally did not allow service workers to take part in the program, and only those whose jobs were shipped to a country with which the United States has a free trade agreement qualified-in other words, workers whose jobs were sent to China and India were turned away. The 2009 update allowed service workers and those whose jobs were offshored to any country to apply.Today Sen. Stabenow and some of her Senate colleagues repeated this refrain as they announced their support for the White House's latest FTA
In short, no. Not at all.
As I recently noted, politicians' breathless claims about the rampant outsourcing of American services (and manufacturing) jobs to places like India and China are far more myth than reality. Indeed, the United States actually ran a trade surplus in services with China (and many other countries) in 2010 and has been a net "insourcer" overall for several years now:
The US ran a relatively tiny services deficit with India in 2010 and a small surplus in 2009, but today comes eye-opening news that Indian corporations might be turning even more often to the US workforce:
[I]n a reversal of fortunes it now appears that large Indian companies are actually now themselves outsourcing - to U.S. shores.In short, all that dastardly outsourcing has enriched Indian companies and workers, and now they're looking to the United States for not just new customers but also new employees. Very cool. The article even lists the biggest Indian companies that have outsourced work to the United States:
Large corporations that have boomed in India amid the country's nimble economy have been drawn to the U.S. where unemployment has soared....
Experts said that the phenomenon, which could become more widespread in the coming years, is partly due to Indian workers demanding higher wages and higher living standards.
'The U.S. became the fastest-growing location for us last year. We expect that to continue this year,' Genpact chief executive V.N. 'Tiger' Tyagarajan said.
Joseph Vafi, an analyst at Jefferies & Co. in San Francisco told the Washington Post: 'What you have going on in India are salary hikes. As these companies get larger and larger, it just makes sense for them to do some hiring in the States.'
The Indian economy - boosted by a savings culture of large cash deposits - has boomed and is this year predicted to outpace China.
Businesses around the world have targeted India - part of the 'BRIC' emerging economies - for their global expansion.
Residents there have seen an increase in living standards and higher wages, which has led to higher spending.
- Tata Consultancy Services. Tata Consultancy Service is based in Mumbai and had a turnover of $8bn in 2011. They employ more than 200,000 worldwide with a significant number of those, believed to be around 15,000 based as outsourced jobs in the U.S.
- Aegis Communications. Technology firm Aegis is part of the Essar group based in Mumbai with an annual revenue of $15bn. Aegis employs 9,000 in the U.S. at offices throughout the country.
- Wipro. Based in Bangalore, IT specialists Wipro employ around 4,000 people in jobs that have been outsourced to the U.S.
- Genpact. The IT outsourcing company employs 1,500 people in the U.S. but that is expected to triple over the next two years as bosses find it cheaper than employing Indian staff at home.
- Infosys. The company is based in Bangalore with an annual revenue of $100m. They have 130,000 employees worldwide.
Sen. Stabenow and her colleagues claim that a massive expansion of TAA is absolutely necessary to "reflect the realities of today's global economy," so I'm sure when confronted with these indisputable facts about the global dominance of the American services sector (and its workers) - and the obvious benefits of globalization at home and abroad - these caring Senators will stop holding our pending FTAs hostage to a needless and costly TAA expansion, right?
Rrrrriiiight.
Given the fact that these TAA-loving Senators, as well as the politicians in the White House and elsewhere, desperately want to subsidize America's globally-dominant services workers with (even more) borrowed money, it seems to me that they, not those opposed to TAA expansion/extension, are the ones in dire need of a "reality check."
UPDATE: Mark Perry has more on the rapidly changing global labor market.
UPDATE: Mark Perry has more on the rapidly changing global labor market.