US Trade Policy Agenda 2011: Could We Actually Be Getting Through to Them?

Last week, USTR released the President's annual Trade Policy Agenda, and nobody paying attention would be surprised to see that the document spends a disproportionate amount of ink extolling the virtues of American exports (and USTR's efforts to expand them, of course).  But this year's report was somewhat surprising in one respect: it actually acknowledged the benefits of imports too - a message that has been, as I and others have often lamented, almost totally absent from previous Obama administration speeches and documents.  Indeed, as you may recall, last year's US Trade Agenda was so totally lacking in discussion of the benefits of imports for American families and businesses that I concluded at the time, "[i]t's as if the folks at USTR waved a magic mercantilist wand and made imports virtually disappear."  (To get the full effect, go check out the word-count stats in that blog post.  It's pretty unreal.)

This year, however, things are different.  Imports have made a bit of a comeback.

Now, look, it's not as if USTR was suddenly conquered by free market economists, so the report certainly continues to overemphasize exports and praise the administrations' new "enforcement" (read: import-limiting) initiatives.  But, still, check out these statements (emphasis mine):

• Pages 1-2: "Two-way trade is essential to American economic growth and success. Ninety-five percent of consumers reside beyond our borders, and the International Monetary Fund forecasts that nearly 83 percent of world growth over the next five years will take place outside of the United States. To reach our full potential for employment and economic growth, America must engage globally to sell more goods and services abroad.... Imports can also play a positive role, serving as inputs to value-added U.S. production and supporting well-paying jobs here in the United States. Imports also offer U.S. consumers variety and affordability as they look to get the most out of their household budgets."

• Page 18: "U.S. trade preference programs also benefit the American economy. While GSP is designed to promote economic growth across the developing world, U.S. businesses and consumers benefit through cost savings on imports, through access to more goods and services, and through import-supported jobs from docks to manufacturing plants to retail stores. Americans benefit in similar ways from AGOA, ATPA, and other programs. The ATPA also has a positive effect on drug-crop eradication and crop substitution in the Andean region where the raw material for cocaine is grown, as well as job growth in export oriented industries there.... Failure to renew and extend these programs will undermine the economic development efforts of many poor countries and negatively affect U.S. businesses and consumers. The Administration will work with Congress in 2011 to secure long-term reauthorization of these two essential trade programs."

• Page 18 (again): "The link between increased trade and better jobs, as well as trade’s consumer benefits, is well established and on display in American society every day. Yet many Americans still feel strongly that trade’s costs outweigh its benefits."

Not bad, USTR.  Not bad at all.  It's almost as if someone in the Obama administration is actually listening to our criticism of their mercantilist rhetoric and has amended the official US trade agenda accordingly.

Of course, this is nothing but a rhetorical shift - the Obama administration's actual policy priorities are still unfortunately focused on exports and "enforcement," and, except for those relatively tiny trade preference programs, not a single one aims to liberalize our own, still highly protected, market (and to explain to the American people the moral and economic case for that liberalization).  And even rhetorically, the imbalance is still pretty stark - as I mentioned above, the vast majority of the trade agenda's rhetoric is export- and enforcement-centric.  (Case in point, the conclusion: "In order to accelerate a job-rich, robust recovery here in America and balanced economic growth around the world, U.S. trade policy must be bold, with an appropriate focus on exports and a strong commitment to enforcing America’s rights.")

But, hey, it's a start.  And who knows, maybe next year the administration will actually deliver some of those sweet, sweet import benefits that they've finally started talking about.

(Then again, 2012 is an election year, so I'll believe it when I see it.)

If You Read Only Two Things Today, Read These Two Things

I'm sure I'll be found guilty of overselling these two articles, but alas.  First up is Kevin Williamson's hilarious, deadly-accurate critique of the administration's wrongheaded China currency scapegoating.  My favorite lines:

Obama and the Sinophobe wing of the Democratic party have seized upon what is for them a nearly perfect issue: the valuation of China’s currency, the renminbi. The issue is complicated enough to accommodate the intellectual vanity of the president and his coterie while consigning most voters to a state of rational ignorance, and the narrative is flexible enough to be used to explain away a great many varieties of bad economic news. It’s the all-purpose phlogiston of the self-consciously cerebral policy set. Massive trade deficits? Blame the renminbi. Investment in decline? Blame the renminbi. The fact that Obama’s reckless State of the Union promise to double American exports is starting to look like the sort of thing a luckless gambler says to himself before putting his Greyhound-ticket money on the craps table in Vegas? Blame the renminbi. Persistent levels of historically high unemployment? Chinamen are stealing our jobs and using their artificially devalued currency to do it....

The People’s Republic of China is a for-profit police state, and we should not be under any illusions about the chances of its reforming its ways and further liberalizing its economy and politics, or the possibility of its chauvinistic rulers’ acting with regard to anything other than the ruthless pursuit of their national interest, in whatever distorted way they define that. While Deng Xiaoping’s much-vaunted economic-liberalization program worked undeniable wonders, the thawing of the Chinese economy came to a halt years ago, and if there is any political progress in sight, it is not obvious. All of which really ought to be of interest only to full-on Sinologists, because, the Obama administration’s populist fist-shaking notwithstanding, China’s economic policy is not what ails America — any more than Japan’s economic policy was what ailed America during the Carter years, that awful interlude during which Honda and Toyota viciously conspired to dump affordable, reliable, fuel-efficient automobiles on unsuspecting Americans who really wanted to buy an AMC Gremlin but were duped into an upgrade by those inscrutable Orientals and their long-game industrial policies. China’s economic policy is what ails China. Fortunately, today as in the 1970s, most of what is troubling the U.S. economy is the result of decisions taken in the United States, not in faraway Asian capitals. The American problem is in Washington, not in Beijing....

How Japan went wrong is a big and complicated and contested story, and it is really beside the point: What most matters right now is what Beijing thinks happened to Japan. In the Chinese version, the United States forced Japan to allow the yen to appreciate, with Washington orchestrating the Japanese catastrophe with malice aforethought. So when Barack Obama comes around saying, in effect, “Pump up that renminbi — or else!” the guys in Beijing are pretty sure they’ve heard that story before, and they do not plan to be played for chumps the way they think the Japanese were. They drive tanks over people who don’t see the world the way they do, and they are not going to be bullied by Professor Obama....

So what should the United States “do” about China? Nothing. Nada. Sit on our national hands. Economists who have looked at the renminbi situation conclude that the currency is indeed undervalued, but that it could climb as much as 6 percent with basically no effect on the U.S.-China trade relationship. Even if the renminbi were allowed to climb the full 20 or 30 percent by which the most fearful China hawks believe it to be undervalued, it is extraordinarily unlikely that this would have the effect of causing manufacturing employment to shift from China to the United States. If that $5 plastic toy at Wal-Mart goes up to $6, is that suddenly going to make California, Ohio, or New Jersey more attractive to low-end manufacturers than China, India, or Bangladesh? Doubtful. In all likelihood, the result would simply be that the United States would pay more for its imports than it does today — meaning that our trade deficit would get worse, not better. Paying more money for the same amount of stuff would not make us any richer, nor would replacing Chinese imports with imports from Vietnam, Mexico, or Honduras.

As a matter of pure economic calculation, the costs of trying to force Beijing to act in accordance with Washington’s desires almost certainly are greater than the value we would derive from whatever marginal success we might have in the endeavor. For all the talk about our “competitiveness” vis-à-vis China, the complexities of the relationship, the differences in comparative advantage, and the fundamental unknowability of the future all make it difficult even to define “competitiveness” in this context, and more difficult to cultivate it intelligently — and much more difficult to cultivate it intelligently by pressuring Beijing to act in ways Beijing is not inclined to act.

Washington probably cannot get Beijing to change its ways, but Washington can change its own ways, which would be considerably more productive and a heck of a lot less likely to lead to a trade war — or a war war. We can start with acknowledging what has made our competitors stronger over the years: savings, investment, and innovation — the things that lead to productivity, the only economic measure that really matters, being as it is the factor that enables high levels of employment, high wages, and general prosperity. A recent report from the nonpartisan and excruciatingly sober-thinking Brookings Institution offered four main things the United States should do in response to the rise of China. Three of them were content-free: “Blah, blah, blah, be more assertive, elicit support of other emerging blah, blah, blah, high-level engagements.” But the first one was: “Get real on deficit reduction.”

Under Obama-Pelosi-Reid, we have been levying a heavy tax on the future to fund today’s spending. Republicans now have a chance to change that, and it is essential that they do, because everybody can do the math on this question: As the expatriate investor and Asia bull Jim Rogers put it in an interview with National Review earlier this year, “If you look at the huge creditor nations in the world, they’re all in Asia: China, Hong Kong, Singapore, India. Saudi Arabia, if you want to go that far west. This is where the money is — and you know where the debts are.” But taking the necessary steps would put President Obama at odds with his fellow Democrats and cause Professor Krugman and Robert Reich to keen like veiled women at a Levantine funeral procession. Obama would still rather be at odds with the Chinese, who don’t get to vote in 2012 and haven’t been big campaign donors since the Clinton administration.

Amen, Kevin. Amen.  There's a lot more juicy goodness in the article (it's long and worth it), so be sure to read the whole thing.

Next up is my sometimes-colleague* Dan Ikenson who, it appears, has finally given up on the faint hope that President Obama could be America's next great free trade president, and fires off a stinging criticism of the President's big NYT op-ed on India and his hopes for US-Asia trade.  His comments are similar to my my own on the op-ed, but he adds a lot of meat to the bones that I (lazily) threw out there:

At the beginning of the Obama administration, I had the audacity to hope that the new president would defy conventional wisdom and become a proponent of trade and a good spokesman for its benefits. Scott Lincicome and I even wrote a 20,000-plus word Cato analysis explaining why the economic, geopolitical, and domestic political environment offered the president a unique opportunity to steer his party back to its pro-trade roots....

Alas, our study, “Audaciously Hopeful: How President Obama Can Restore the Pro-Trade Consensus,” was just a little too. It fell on deaf ears. It was ignored. In fact, it’s almost as if the past two years of trade policy were conducted to spite the recommendations in that paper...
Despite all that, I remained audacious (or gullible) enough to hold a glimmer of hope that the president would finally see the wisdom in our advice—given the new political landscape. That glimmer was snuffed out with publication of an oped in the New York Times this past Saturday, in which President Obama betrays profound misunderstanding of trade and its purpose. The president portrays trade as an enterprise that is won or lost at the negotiating table, where only the most savvy or most committed negotiators can succeed in bringing home the spoils. The president promises to fight hard to get Americans their fair shake from this dog-eat-dog process, while actual producers, consumers, workers, and investors are relegated to tertiary roles.

The central dysfunction between Americans and trade is the assumption—reinforced in the president’s op-ed—that exports are good, imports are bad, the trade account is the scoreboard, and our trade deficit means that we are losing at trade. That dysfunction resides comfortably within a zero-sum worldview, which the president touts in a purposeful cadence throughout the oped....

By opining about trade without understanding that its real benefits are manifest in imports (here’s Don Boudreax’s elaboration of that process), the president is simply reinforcing myths that will continue to confuse and divide Americans. As long as politicians insist that our trade account is a scoreboard and that a surplus is a trade policy success metric, Americans will continue to be skeptical about trade.

As with Williamson's piece, be sure to read all of Ikenson's much-warranted diatribe here.  It's a fantastic example of (a) why mercantilist policies or rhetoric don't advance (and often retard) free trade, open markets and public support therefor; (b) how many of us - even sorta-partisans like me! - had genuine hopes that Obama would be pretty good on trade; and (c) based on Obama's two-years in office, just how silly we were to harbor those hopes.

Protectionist Campaigning for Dummies, pt. 3

My blog post yesterday rebutting an anonymous congressional staffer's factual misrepresentations about NAFTA, free trade and US manufacturing elicited an immediate reply from the anonymous staffer himself - Mr. Brian (aka "Researcher") Martin, policy director for Congressman Gene Taylor (D-MS).  I promised Brian this morning that I'd reply to his new comment tonight, and that's what I'll be doing here.  Brian's reply is lengthy, so I am not going to paste it below.  But if you'd like to see the comment in all its glory, you can view it in the comments section of the aforementioned blog entry.

First and foremost, I'd like to thank Brian for commenting here.  While I'm quite sure that it wasn't his intent, Brian's comments have allowed me to focus some disparate themes that have been floating around my blog since its inception.  Last night, I focused on some of the most prevalent myths propagated by protectionists - US manufacturing decline, trade and manufacturing jobs, and trade and national security - and systematically debunked each of them.  Judging by the nice response I've received, I think I did a pretty decent job.  Tonight, however, I'd like to take a slightly different approach and focus on the many standard rhetorical devices that protectionists use, especially in American politics, to win arguments about free trade.  Such focus, I think, is important because, as Americans' continuing trade suspicions and the many protectionist policies in place make clear, such political tactics have proven very, very successful for the anti-traders.  Well, just my luck, Brian's comment from last night stands as a fantastic example of how such rhetorical tricks are used in practice.  And, quite honestly, after a quick re-read of Brian's comment tonight, I realized that my approach here is quite necessary because a direct and substantive rebuttal of his main claims would simply rehash 99% of yesterday's blog post.  And where's the fun in that?

So here we go.  In all, I found five common rhetorical tricks used by Brian to justify his protectionist position (which, I think, still remains the dissolution of NAFTA and other US free trade agreements).

Trick #1: The ad hominem attack.  The protectionist knows that, because free trade is almost universally supported by economists and economic historians worldwide, the free trader will come armed with boatloads of great data and historical evidence supporting his claim.  By contrast, the protectionist will have only a few datapoints, so he often seeks to discredit his opponent's arguments and data by simply calling the opponent bad names (don't laugh: this approach is often successful).  Case in point: while my blog entry (and many others like it) presented a ton of historical evidence undermining Brian's original protectionist myths, Brian's response cited very little such evidence and instead attacked me personally.  Indeed, if you didn't know me and were only judging me by Brian's comment, you'd very likely think that I woke up every morning on a mountain of money, drove to work in my Bentley and spent my days at the office dressed like the monopoly man and conspiring with my fellow "smug elitist investment banker/lawyer" buddies about how we can create the next big "investment bubbles" while simultaneously oppressing America's working poor (whom I "know nothing about and obviously care nothing about.")

Now, normally, I'd leave this nonsense be and just move on to the next rhetorical trick, but as my workday dragged on today Brian's mischaracterizations really ate at me.  Why?  Well, because if Brian did know me, he probably wouldn't have tried the "fat-cat" ad hominem attack (even though it's quite en vogue these days among the demagogues).  He probably would have known that I don't come from privilege, that I've worked a job every year of my life since I was 15 - several of which for minimum wage right beside the people I supposedly "care nothing about," that my first job out of college paid $200/week, that I paid my way through college and law school with part-time jobs, student loans and credit card debt (which literally leveraged me to the brink), and that I didn't do all that just so I could someday become a heartless "investment lawyer" (whatever that is) out to "make millions of dollars from [poor workers'] suffering."  And, sure, all of my work and debt paid off, and I'm doing well now, but come on, Brian: do you really think that a guy like me - a guy who has schlepped dirty ice skates, cleaned bathrooms, sold women's shoes(!) and literally been so cash-strapped that he ate one meal per day (double quarter pounder extra value meal) to stretch his budget - is really trying to advocate policies that would undermine the US economy and destroy America's working poor?  Hardly.  The fact is that I do what I do - and blog here - because I've seen first hand just how helpful free trade is for those working poor, and just how cynical, manipulative, political and pernicious protectionists and their policies can be.

Trick #2: Seizing the moral high ground.  As I've already made clear in discussing trick #1, protectionists just love to claim that their protectionism has moral backing, while dirty free traders like me are heartless souls who are just out to make a buck (see, e.g., Edwards, John).  Brian claims to speak for Mississippi's working class and he apparently knows what's best for them - including the fact that not all of them "can or should become software engineers, investment bankers, or investment lawyers."  Brian also assigns an odd sort of moral superiority to manufacturing over services, and casts me as just out to create a nation of unemployed workers and underemployed hamburger-flippers.  Of course, nothing could be further from the truth.  In fact, the greatest case for free trade is a moral one.  As I said a few weeks ago:

[Free trade] is rooted in some of the very ideals upon which the United States was founded: the pursuit of life, liberty, and happiness, and the rule of law. Every American should be free to transact with whomever he wishes to transact, regardless of the nationality or location of the other party. Voluntary exchange is inherently fair, benefits both parties, and allocates scarce resources more efficiently than a system under which government dictates or limits choices. Individuals deciding for themselves how and with whom to conduct commerce will advance their own well-being, and thus the nation’s, far more efficiently than would some centralized authority that tries to influence private decisions by tipping the scales.

Furthermore, government intervention in voluntary economic exchange on behalf of some citizens at the expense of others is inherently unfair, inefficient, and subverts the rule of law. Instead of individuals seeking to optimize their conditions subject to the rules, they are incentivized to divert resources from productive endeavors to changing the rules to their advantage through politics and backroom dealmaking.

Alas, this very sound and simple justification for free trade has been distorted over the years by groups seeking to tip the scales in their favor. They mischaracterize trade in the ancient but false dichotomy of the haves versus the have-nots. Evil corporations, they say, benefit from trade while regular people suffer its wrath. The public is told that companies like Wal-Mart profit from trade, but that the vast benefits afforded Americans who shop at Wal-Mart—benefits like more-affordable clothing, food, and other everyday products—count for nothing. The public is told that trade enriches the Chinese government, but that the benefits to U.S. manufacturers and their workers from record export sales to Chinese customers over the past few years are meaningless. In the political realm, trade is never about individuals acting in their own best interest by transacting with whom they choose to transact. Instead, trade is a zero-sum game featuring the collective “Us” versus the collective “Them,” and “they” are gunning for “our” jobs and wealth using underhanded tactics.

 I think that sums up Brian's attempted moral superiority pretty perfectly, so I'm just going to leave it at that.

Trick #3: claiming that correlation is causation.  Protectionists routinely find causation where only correlation actually exists.  They do this by blaming imports and free trade for concurrent problems and events that actually have little or nothing to do with trade.  In Brian's case, he tries to convince us that free trade and FTAs like NAFTA are to blame for the manufacturing job losses across the country and in Mississippi all because NAFTA began at that time, or because imports or the trade deficit increased over the same period.  Indeed, Brian claims that "Mississippi has lost 40% of its manufacturing jobs since 1994" when NAFTA began, and even though he acknowledges "Nissan opening a plant in the state" since then, he wants us all to desperately believe that free trade (and NAFTA in particular) - not productivity gains, technology or changing consumer tastes - caused all of those job losses.  Of course, after I've clearly demonstrated that imports, trade deficits (which Brian again brings up in his reply), total trade and FTAs have nothing to do with manufacturing job losses, and that developing and developed countries around the world are losing manufacturing jobs, Brian's "causation" mirage falls apart. 

As an aside, perhaps one of the best examples of the "causation-correlation" trick comes from the 2008 presidential campaign when the Obama-Biden team accused John McCain of supporting free trade policies that, they asserted, shut down a Corning plant in Pennsylvania and eliminated the jobs of hundreds of local manufacturing workers.  The reality, however, was far different.  As FactCheck.org wrote back in 2008, the Corning plant actually made cathode ray tubes (CRTs) for old-school TVs that weren't being made anymore.  Thus, it was technology and consumer preference that eliminated those jobs, not free trade agreements or a rising trade deficit.  But you can't attack someone for supporting flat-screen TVs, so.... (Of course, we all know who won that election, so I'm certainly not saying that such garbage isn't effective.)

Trick #4: Schmaltzy anecdotes as surrogates for, and superior to, hard data.  Because protectionists only have a few datapoints - manufacturing job losses, the trade deficit, etc. - to support their policies, they resort to a lot of anecdotes, and Brian's reply is no exception.  After laying out his one stat - a 40% decrease in Mississippi manufacturing jobs - Brian then proceeds to "prove" how bad trade is by citing to random anecdotes about problems in Mississippi (disappearing rail lines, depressed wages, etc.) and elsewhere (military procurement), without a shred of supporting evidence of the problems' actual prevalence or their relationship to free trade.  Now, anecdotes are a fine way to settle an barstool argument between friends about whether a dude can actually eat an entire jar of maraschino cherries without barfing, but they are hardly an appropriate way to advocate policies that would dramatically overhaul a 14.2 trillion dollar economy and severely infringe upon individual liberty.  Yet this is precisely what protectionists do.

And I must admit that they're pretty successful at it.  One of the most vivid memories from my first year as a researcher at the Cato Institute was a 1999 congressional hearing on steel tariffs featuring, among others, my boss Dan Griswold.  Dan was slated to go last, and I had helped him put together a blistering array of stats and figures which clearly demonstrated how the proposed tariffs not only wouldn't help the US steel industry, but also would really hurt a lot more American businesses, workers and consumers (through higher prices and limited supply).  Appearing right before Dan, however, was a representative from the UAW who said something to the effect of "I'm no economist, but here in the real world, and not in some Econ 101 class, trade has destroyed our town.  Take for example my friend John who lost his job last year because of cheap imports and no longer has the health benefits he needs to care for his cancer-stricken daughter Betty."  The man provided no support for these statements, other than a sad-looking family, and yet he crushed Dan's great, fact-filled presentation.  (Here's Dan's testimony if you think I'm making this all up.)

So what are free traders to do?  Well, for one, they can reassert the moral high ground, as I noted above.  But they also can use their own anecdotes - about American families and businesses that rely on trade - to supplement the myriad stats and historical facts which support their policies.  This is precisely the approach I took a few weeks ago when debating the President's new export initiative, and it proved quite effective. 

One last, humorous note here.  Every time that I hear a protectionist preface his misleading anecdote with the "Econ 101" line (which Brian uses twice) or the "I'm no economist, but" line, I immediately think of the old SNL skit "Unfrozen Caveman Lawyer."



See what I mean? (Phil Hartman, RIP)

Trick #5: I'm a free trader, but.... - The last rhetorical trick employed by protectionists is the claim that they support "trade," just not this type of trade.  Brian does precisely this when he concludes that he only wants to "repeal NAFTA and take back concessions to China and other countries with which we have high trade deficits, then we just go back to bilateral agreements with the United States negotiating in the interests of the nation as a whole and not just the investment elite."  In other words, Brian wants trade, but he and his fellow government employees want to pick-and-choose what kind of trade (how much, which products and with whom) in order to determine what they think is in the  "interests of the nation as a whole."  Of course, this leaves the door wide open to pretty much oppose any trade at all, but what's even more ridiculous is the insinuation that 535 people on Capitol Hill can determine which specific trade arrangements are in the "national interest," and which aren't.

Now, I don't know about you, but I don't feel even remotely qualified to make such decisions, and I seriously doubt that the US government - including folks like Brian's boss Congressman Taylor - are so qualified.  Moreover, isn't a system of limited government intrusion and isolation from special interest influence a far better way to ensure that the "national interest," rather than the interest of a few well-connected cronies, is pursued?  Or does Brian really want me - after documenting all of the backroom deals, misleading statements and smarmy payoffs that drown US trade politics - to really believe that his boss and other elected officials are absolutely immune from such influence?   

Puh-leeze.

So where does that leave us?  Well, without their rhetorical tricks, protectionists' arguments are pretty light on content, and I hope that I've shown how Brian's comment is no different.  Then again, I really can't blame Brian for his reply: I mean, if you remove all the fluff, all the baseless conclusions and moralizing, and all the personal attacks from the protectionists' arsenal, there's just really not much to say.