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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Unreal.

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

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

Bipartisan Push to End the (Regressive, Immoral) Shoe Tax

The Heritage Foundation's Bryan Riley and the GlobalWorks Foundation's Ed Gresser have a new briefer rightly supporting the long-overdue passage of the Affordable Footwear Act (H.R. 2697 and S. 108).  They argue:

Liberals and conservatives have plenty to disagree about. But faced with continuing high levels of unemployment and slow economic growth, they should agree on a few things—and one is that Congress should find ways to help Americans at the bottom rung of the economic ladder. The Affordable Footwear Act (AFA) is one such effort. Introduced by Joe Crowley (D–NY) and Lynn Jenkins (R–KS) in the House of Representatives and Roy Blunt (R–MO) and Maria Cantwell (D–WA) in the Senate, it would repeal many of the disproportionately high tariffs on shoe imports and save American families as much as $3 billion a year.

The AFA was first introduced in 2009, but three years later, Americans continue to pay more than they should for footwear. Now is the time for Congress to reduce tariffs on shoes and help all Americans save a few dollars on their next pair of work boots, pumps, or sneakers.

The whole thing is worth reading, but my, umm, "favorite" part is their explanation of the very real and significant cost of our existing tariff system, particularly for lower income American families:

Americans bought about 2.3 billion pairs of shoes in 2010—many designed here, but virtually all stitched and glued overseas.[3] The value of these shoes at the border was $22.6 billion, and the U.S. government collected footwear duties amounting to $2.3 billion—and a closer look finds that the government is charging poor families the most. Tariffs are 8.5 percent for leather dress shoes, rising to 20 percent for running shoes and peaking at more than 60 percent for some grades of cheap sneakers—the highest tariffs imposed on any manufactured good. For a pair of canvas sneakers with rubber soles that costs $10 to import, the government charges an additional $2.90 in import taxes....

Tariffs inflate the cost of the cheapest shoes by about one-third. As the sneakers travel through the supply chain on the way to the retailer’s shelf, the tariffs may be magnified by retail markups and state sales taxes. The $10 pair at the border is a $30 pair in the store, with the tariff now accounting for as much as $8.70, even though the original tariff provided the federal government just $2.90 in tariff revenue. In larger terms, these markups mean the tariff that raises $2.3 billion may cost shoppers billions of dollars more.

Footwear tariffs are a hidden, regressive tax on a household necessity. They reduce the amount of income families have to spend on other goods and services. This expense is most onerous for low-income families with children, who spend the largest share of their income on shoes and other necessities of life.

In short, this a tax rate that is highest on those who can least afford it.  It would be difficult, I think, to find a more unquestionably absurd and immoral US government policy (although I'm sure several come close).  Heck, even protectionists would be hard-pressed to justify the current tariff system on shoes or oppose the AFA, given the mind-blowing fact that, as Gresser and Riley note, there are virtually no footwear producers (or production jobs) in the United States anymore.
 
When I first reported on the Affordable Footwear Act back in 2010, I opined:

Free traders in Congress (all two of them!) have reintroduced the "Affordable Footwear Act" (H.R. 4316 ) which would mandate the unilateral elimination of abnormally high US tariffs on imports of low-cost shoes that aren't even made in America anymore. The bill highlights a great example of the idiocy and immorality of US tariffs and is a good first step to remedying such nonsense. Of course, the fact that legislation scrapping a pointless tax on a basic necessity that disproportionately harms poor Americans can't pass with overwhelming bipartisan support is a sad commentary on the state of US trade policy, wouldn't you say?

Considering that two more years have passed and Congress still hasn't repealed these tariffs, I'd say that "commentary" is markedly sadder at this point, wouldn't you?

Canada Continues to Pwn the United States - to US Companies' and Workers' Serious Detriment

Readers of this blog will know that I've long celebrated Canada's commitment to lowering government-induced costs on domestic industries in order to boost their global competitiveness.  The Canadian government has been reducing corporate taxes and tariffs on imports of industrial inputs for a couple years now, and a recent Reuters article indicates that the Canadians have no intention of reversing course.  In fact, they're going full steam ahead and, in the process, making the United States look pretty pathetic:

Canadian Finance Minister Jim Flaherty said on Sunday the government would eliminate tariffs on dozens more products used by Canadian manufacturers, aiming to lower their costs and encourage more hiring.

The initiative would scrap custom duties on 70 items used by businesses in sectors such as food processing, furniture and transportation equipment.

Flaherty, who estimated the tariff cuts would save Canadian businesses C$32 million ($30.5 million) a year, said the cuts were part of the Conservative government's overall free trade policy.

"We believe in free trade in Canada," Flaherty said on CTV's "Question Period" program. "Some of these old-fashioned tariffs get in the way. So we're getting rid of them."

As part of its Economic Action Plan to pull Canada through the global slowdown of 2008-09, the government has eliminated more than 1,800 tariff items, providing about C$435 million a year in tariff relief. Its stated goal is to make Canada a tariff-free zone for manufacturers by 2015.

AEI's Mark Perry has some great commentary on this news, and I highly recommend that you check out the whole thing.  His bottom line: "Even though we usually think of increasing exports as the route to increased domestic manufacturing output and employment, Canada's trade policy of reducing tariffs for its manufacturing sector highlights the important contribution of imports to domestic manufacturing."

Meanwhile, the United States continues to impose high tariffs on many of these same products, thus putting US companies at a distinct disadvantage vis-a-vis their Canadian counterparts.  Further exacerbating this disadvantage is our horrendous corporate tax burden, as made distressingly clear by the latest World Bank report Paying Taxes.  The WSJ comments:

A report released this month exposes some unpleasant truths about America's uncompetitive system for taxing businesses.

The Paying Taxes 2012 study, produced by the World Bank, International Finance Corp. and PricewaterhouseCoopers, ranks countries based on the ease or difficulty of paying business taxes. The Maldives came in first, followed by Qatar and Hong Kong. America clocks in at 69 out of 183 countries, down one spot from last year and 23 places shy of its finish in 2009...

The authors note that many countries have cut tax rates for businesses in recent years—an average of 8.5 percentage points since 2006. Three of the top five economies in the table—Hong Kong, Singapore and Ireland—offer businesses generally flat profit taxes. America is behind the curve. Its total tax rate of 46.7% (factoring in Social Security and other taxes on top of the 35% rate on corporate income) places the U.S. at an abysmal 131 in the tax-rate ranking, behind the likes of the U.K., Finland, Norway, Switzerland and Ghana.

The biggest changes in the rankings come from steps to streamline taxation. South Korea climbed five places in one year, to 44, after combining several labor-related taxes onto one form and one payment. In all, 123 out of 183 economies in the survey have made at least some tax improvements since 2006.

America's decline in the rankings is attributable to tax-policy stagnation as other countries reform their own revenue codes. Already a notably complex system with the second-highest corporate tax rate in the world after Japan, the U.S. tax code appears ever more cumbersome compared to countries that grow simpler and cheaper by the year. The Netherlands has improved only two spots since the 2008 survey, to 34, even with important reforms that cut the hours needed for compliance to 127 from 250 and the total tax rate to 40.5% from above 45%. Hong Kong won high marks in part for its flat, low-rate corporate taxes and partly for an easy-to-use electronic filing system.

One of the countries cutting business taxes over the last few years is - you guessed it - Canada.  As I noted in this 2010 FoxNews op-ed:

Canada didn’t stop with tariffs. It also slashed the corporate tax rate to 18 percent. And the rate will fall farther -- to 16.5 percent next year and to 15 percent a year later. The Harper government reasoned that such tax cuts would help make Canada one of the world’s most attractive destinations for international business investment. And they certainly have a point: Canada’s 2010 marginal effective tax rate is more than 16 percentage points lower than the United States’ 34.2 percent rate and two points below the OECD average.

The aforementioned World Bank report rewards Canada for these and other corporate improvements by raising its ranking from 28th in 2009 to an impressive 11th this year, noting that "Canada made paying taxes easier and less costly for companies by reducing profit tax rates, eliminating the Ontario capital tax and harmonising sales taxes."  As the WSJ editorial notes above, the United States dropped from an already-bad 46th to an abysmal 69th over the same period.

So, good for Canada.  Really, really bad for American businesses and workers.

Isn't it about time we got with the program?

Sen. Sessions Uses Jedi Mind Trick to Defend His Indefensible Sleeping Bag Protectionism

Question: When is a legislative provision imposing a tax on all Americans in order to financially benefit a single, politically-connected manufacturer in a Senator's backyard not an earmark?

Answer: When a United States Senator says it isn't, goshdarnit!

Please allow me to explain.  A rather substantial stink has recently been building on Capitol Hill due to Sen. Jeff Sessions' (R-AL) desire to increase taxes on US sleeping bag consumers in order to benefit an American manufacturer of those products who just so happens to be located in Sessions' home state of Alabama.  The Hill gives us a good rundown of the issue:

While Republicans mounted a chorus of opposition to earmarks in spending bills this week, Sen. Jeff Sessions has been quietly blocking a routine tax measure to demand the addition of what is basically an earmark: a new tariff that would benefit a single small business in his state....

Sessions is arguing for a tariff on Bangladeshi sleeping bags to benefit an Alabama company called Exxel Outdoors, which claims to be the only U.S. manufacturer of discount sleeping bags.

CEO Harry Kazazian told Roll Call the tariffs are needed to close a loophole in the Generalized System of Preferences, which allow for duty-free import of certain products from developing nations.

Enacted during President George H.W. Bush’s presidency, the law applies to goods that would not provide direct competition to domestic manufacturers and was designed to help the economic growth of developing nations.

Since it was passed, the legislation has largely gone unnoticed. Aides in both parties said it has typically been renewed through unanimous consent agreements and has become one of the background bills agreed to during evening wrap-ups in the Senate.

But over the past year, Exxel has found its business threatened by the GSP, as companies have begun importing inexpensive sleeping bags from Bangladesh essentially duty-free.

Kazazian said Wednesday that could spell the end for his Haleyville, Ala., company....

Earlier this year, Sessions sought to include language in the renewal of the GSP to close the loophole and save Exxel’s Alabama plant, but he has been unable to reach an agreement with Democrats and Republicans, who are pushing to pass the bill as is.

After numerous proposals to address the situation, Sessions opted to place a hold on the bill, which at this late date in the session means the GSP is likely to lapse at the end of the year.

Ok, let's fill in a few blanks here that The Hill missed.  The GSP and other tariff preference programs provide duty-free access for about 5000 different imported goods from developing countries not only to benefit those countries, but also to benefit the myriad American businesses and families that consume those imports.  The bill essentially eliminates vestiges of protectionism - high tariffs that remain in the US tariff schedule due to old school cronyism - that force American consumers to pay more for the protected goods.  In short, and to use a phrase that protectionists just love, US preference programs "level the playing field" for beneficiary developing countries seeking to compete in the US market by lowering or eliminating existing tariffs that have tilted the playing field in domestic producers' favor.  This "leveling," of course, also provides lower prices for US consumers.  Indeed, according to the US International Trade Commission, US prices for high-tariff goods like clothing, dairy products, shoes and ball bearings are significantly higher than global prices, thus imposing a regressive tax on all consumers and forcing American families to expend more of their paychecks on the protected finished goods (and American businesses to pay more for the protected inputs).  So GSP and other preference programs essentially provide tax cuts for all US consumers - tax cuts that disproportionately benefit those on the lower-end of the income scale. 

In the case of sleeping bags, the US tariff schedule imposes a 9% tax on all imports of these products, thus preventing typical foreign producers from competing freely in the US market and forcing American retailers and consumers to pay more of their hard-earned money for sleeping bags.  GSP eliminates that regressive tax for imports from (economic powerhouse) Bangladesh, thus enabling Bangladeshi producers to compete with US producers on a truly level playing field (i.e. one without any artificial barriers to trade due to a 0% tariff)  and allowing Americans to pay less for their sleeping bags, if they so choose.  We don't know where the money saved will go - maybe to savings or camping trips or S'mores or whatever - but what we do know is that American consumers won't be forced to waste their money on non-competitive domestic sleeping bags.  They, of course, can very well choose to buy the American sleeping bags if they want, but that choice simply is not good enough for Sen. Sessions and his cronies.  They want to amend GSP such that we are all forced to pay more for sleeping bags in order to "save" (read: prolong the inevitable demise of) a tiny sleeping bag manufacturer in Alabama.

And Senator Sessions is willing to take down the entire GSP program to do it, thus jeopardizing exporters and consumers of not only sleeping bags but also lots of other things that we use everyday like tires, jewelry, carpets, luggage, gloves, etc etc.  According to the Coalition for GSP, total 2009 trade in products covered by GSP totaled over $20 billion, thus saving American families and companies (and their thousands of workers) millions of dollars annually and providing poor countries with a fantastic, free market way to help their citizens escape abject poverty.  Yet all of these benefits - and others resulting from another preference program targeting the Andean region (ATPA, which covers Colombia, Ecuador and Peru) - will disappear next week because of a little earmark for an Alabama sleeping bag manufacturer and its 70 workers.  Nice, eh?

Now, some, including Sen. Sessions argue that Bangladesh doesn't compete "fairly" with the United States because of its cheap labor costs, so this 9% tax is desperately needed to truly "level the playing field" and allow Exxel to compete in the US market.  Now, leaving aside for a moment the absurdity of calling a 9% tariff on fairly-traded goods a "playing field-leveler," or the cold-yet-important economic question of whether American citizens should be subsidizing labor-intensive industries that simply can't compete on price with other, lower-cost manufacturers (hint: they shouldn't), does Sessions' "competitiveness" argument hold any water?  In short, no for two important reasons.  First, it's a real stretch to believe that a 9% tariff on sleeping bags from a single country will solve Exxel's competitiveness problems over the long-term, when America's anti-competitive tax and regulatory regime pose a much higher threat than some manufacturers in poverty-stricken Bangladesh.  As Exxel's own CEO admits, "I spend more on health care in one month than they spend all year on labor,” and ObamaCare will only make those costs worse.  Moreover, the United States has the highest corporate tax rate in the developed world.  So attacking GSP simply masks Exxel's real economic problem - a domestic business environment that is, at present, hostile to business - and in the process harms lots of other (over-taxed and -regulated) American businesses that rely on GSP-elgible imports to remain globally competitive.  Clearly, the Senator's approach to America's competitiveness problems is an awful deal for the US economy.

Second, GSP has a built-in "surge protector" for hyper-competitive products from beneficiary developing countries called a "competitive needs limitation."  If imports from a country break the CNL (either total import value or as a share of total imports), they lose their GSP status.  So the idea that super-competitive duty-free sleeping bags from Bangladesh are flooding the US market simply defies reality.  Indeed, a quick review of US import stats from 2008-2010 reveals that China dominates the import market for sleeping bags and is once again increasing its market share here, and that Bangladesh, while gaining market share over the last few years, is still running a very, very distant second:

So if we revoke Bangladesh's duty-free status, the chart above makes clear that most likely outcome is not Exxel's resurgent dominance in the US market but instead (i) more market share for China, (ii) higher prices for US consumers and (iii) the denial of a critical lifeline to one of the world's poorest countries.  Awesome.

Sen. Sessions, however, will have none of these measly economic or legal arguments.  So let's talk in terms that he apparently does understand: politics and public image.  Apparently, the good Senator isn't worried that his efforts might scuttle GSP, ATPA and all of the programs' attendant economic benefits, or that his efforts, while winning about 71 votes in Alabama, will do little to help Exxel in the long-run.  But he is very, very upset that some people in Congress (and the media) are calling him (gasp!) a low-down dirty earmarker:

Sessions flatly denies the provision he is seeking is an earmark. His office claimed he is trying to undo an old earmark.

“Bangladesh gets to ship sleeping bags to America without paying a cent of taxes, and they get to use materials from China without paying a cent of taxes either,” Sessions spokesman Stephen Miller said Wednesday. “This outrageous earmark for Bangladesh is crushing America’s top sleeping bag manufacturer, Exxel, and threatening their workers’ jobs.

“Sen. Sessions is trying to end that injustice, and eliminate that earmark, by ensuring that Bangladesh and China have to play by the same rules as everyone else in the world. He is fighting to close a gaping loophole in our trade laws so that companies in America are at least allowed to compete on the same playing field. We need to stop giving Bangladesh workers an earmark so we can give these Alabama workers a fighting chance. Or is the message we want to send this Christmas that we will keep this loophole in place, even as our nation struggles with crippling unemployment?”

But that argument isn’t sitting well with Democrats or Republicans.

“Sen. Sessions is putting politics ahead of a remarkably successful program that supports more than 80,000 U.S. jobs and sustains economic growth and employment in Alabama and across the U.S. and the globe. Rather than working to sustain thousands of American jobs and small businesses — including many in Alabama — Sen. Sessions is looking to carve out protections for one single sleeping bag producer,” a Senate Democratic aide said.

A GOP aide agreed, arguing that, “You can call it whatever you’d like, but when you’re holding up legislation that effects a wide swath of the economy for a carve-out benefiting one company, it certainly doesn’t look good.”

The aide pointed out that the Senate GOP’s internal earmark ban for next year would bar not only traditional earmarks such as line-item appropriations, but also tax provisions and tariffs that would benefit an individual company.

Even the Senate’s earmark disclosure rules clearly define the tariff change Sessions is seeking as an earmark. For instance, the rules require the disclosure of any “congressionally directed spending items, limited tax benefits, or limited tariff benefits.” Limited tariff benefits are specifically defined by Senate rules as “a provision modifying the Harmonized Tariff Schedule of the United States in a manner that benefits 10 or fewer entities.”

So to recap: Republicans and Democrats in Congress call Session's protectionism an earmark; the GOP's new ban on earmarks classifies Sessions' protectionism as an earmark; and existing Senate rules define Sessions' protectionism as an earmark (three cheers for that, by the way).  Yet when asked about whether the Senator is demanding an earmark, his staffer responds with, in essence, "hey, he's not an earmarker; everyone else is the earmarker," and then angrily adds that his boss' attempts to increase taxes on Bangladeshi sleeping bags (which, by law, are paid by American importers who then pass those costs onto American consumers, of course) from 0% to 9% is actually "leveling the playing field."  Touchy touchy!

But hey, maybe Sessions is right.  I mean, if you think about it, the existing GSP program, which has been law for decades and benefits all American consumers at the expense of a few, insular domestic industries, is an "earmark"... for the American people.  And raising taxes from 0% to 9% on sleeping bags from Bangladesh does "level the playing field"... for Chinese producers.  So you see, folks, this is all just a silly misunderstanding.

(And remember, these are not the droidsearmarks you're looking for.  You may go about your business.  Move along.)

Back-to-School Blues

From the Heritage Foundation comes a fantastic/distressing graphic showing why the kids shouldn't be the only ones upset while back-to-school shopping this August.  Indeed, mom and dad have plenty of reasons to be miffed too:

Nothing like adding a few hundred unnecessary bucks to American families' back-to-school budgets to really start the 2010 school year off right, huh?  Although I'm sure that these working moms and dads will, like, totally be comforted knowing that their hard-earned dollars are going to line the pockets of America's well-connected shoe/t-shirt/lunchbox/etc. producers and their unions. 

Riiiiiiight. 

And (as I've repeatedly noted) let's also not forget that these taxes are highly regressive, costing poor Americans a far greater percentage of their paychecks than wealthy Americans.  So the next time a protectionist talks about how these tariffs are necessary to ensure "fair trade," try not to laugh in his/her face, ok?

Happy shopping, everyone.

(h/t Andy Roth)

p.s. I've been traveling for business and the internet connection here hasn't afforded me much ability to blog since last week.  I'll be back online soon - there's plenty of new stuff to complain about.

Monday Quick Hits

A few things to note on a slow news day here in the nation's snow-covered capital:

• Vietnam has filed its first ever WTO dispute settlement challenge - against the United States' practice of "zeroing" in anti-dumping administrative reviews of Vietnamese shrimp imports.  The complaint is available on the WTO's website here.  I've discussed the practice of zeroing several times, most notably the United States' new strategy of "settling" certain WTO complaints against US zeroing.  Those cases, however, dealt with original investigations, not reviews, where the US appears to still be fighting tooth-and-nail at the WTO.  Indeed, the EU just asked the WTO to let it impose over $400 million in retaliatory tariffs on US exports due to the United States' refusal to comply with adverse WTO rulings against US zeroing in administrative reviews.  (So much for that grand plan to expand US exports, huh?)  Given the varying US responses to zeroing cases, the new Vietnam complaint - and the new-ish one by South Korea on zeroing in original investigations - will be worth watching.  (Oh, and yes, it's completely absurd that the US still hasn't given in on zeroing.)

• Free traders in Congress (all two of them!) have reintroduced the "Affordable Footwear Act" (H.R. 4316 ) which would mandate the unilateral elimination of abnormally high US tariffs on imports of low-cost shoes that aren't even made in America anymore.  The bill highlights a great example of the idiocy and immorality of US tariffs and is a good first step to remedying such nonsense.  Of course, the fact that legislation scrapping a pointless tax on a basic necessity that disproportionately harms poor Americans can't pass with overwhelming bipartisan support is a sad commentary on the state of US trade policy, wouldn't you say?

• China announced the preliminary results of its anti-dumping investigation against US imports of chicken.  Duties ranged from 43.1% to 105.4%, and a final determination isn't expected for several months.  Preliminary results of China's countervailing duty investigation against the same US product will be out in the next couple months.  And, yes, we all remember how this investigation came about - *cough*tires*cough*.  (Nice WSJ editorial on this whole mess here.)

• Finally, we have some China trade news that all Americans - protectionists and free traders alike - can support: American "shoot-first" point guard, and troubled NBA castoff, Stephon Marbury has been shipped off to China.  He's running point for the Shanxi Brave Dragons, and is already one of the Chinese Basketball Association's biggest stars.  Noted Knicks fan and China antagonist Sen. Chuck Schumer has thus far been unavailable for comment.

That's all for today.  Now if you'll excuse me, I need to go prep for the next blizzard that will be hitting DC tomorrow.

The Idiocy And Immorality of American Tariffs

From the United States International Trade Commission (ITC) comes further proof that US tariff policy is, as the the kids say, freakin' whack.

(Ed. note: the kids haven't said that in a decade, if ever.) 

In a new report (PDF) released last week, the ITC estimated "changes in U.S. welfare, output, employment, and trade that would result from the unilateral elimination of significant import restraints, specifically U.S. tariffs and tariff-rate quotas on certain agricultural products, textiles and apparel, and other manufactured products."  In non-nerdspeak: the ITC examined what would happen to the US economy if the government just woke up one day and decided to remove all major barriers to trade in goods.  Their results are probably surprising to many people, particularly those lost souls who listen to their elected officials' demands for reciprocal, tit-for-tat, tariff reductions in global trade negotiations.  Most broadly, the ITC projected that:

U.S. economic welfare, as defined by total public and private consumption, would increase by about $4.6 billion annually by 2013 if all significant restraints quantified in this report were unilaterally removed. Exports would expand by $5.5 billion and imports by $13.1 billion....

For most liberalized sectors, prices faced by households and domestic producers would both fall.

Put simply, by just removing trade barriers, the US Government could improve the lives of American families and businesses by $4.6 billion per year over the next four years.  This "free stimulus" also could expand US exports by $5.5 billion over the same period.  Crazy, huh? 

Granted, $4.6 billion isn't a lot of money in the grand scheme of things, but it's still nothing to sneeze at. And unlike all the other economic "stimulus" nincompoopery out there, these benefits would cost the US government, and thus us taxpayers, nothing!  Yet these self-defeating trade barriers remain in place and our trade negotiators and politicians demand reciprocal "concessions" from other countries before even considering eliminating them.  Indeed, compared to the last version of the ITC report, most of these restrictions are exactly the same as they were two years ago when the economy was still humming along.  How does this make sense? (Hint: It doesn't.)

Now, critics of free trade and defenders of the "reciprocity model" of trade negotiations could argue that the ITC's projections are unsound, and they may well have a point.  Projecting the impact of tariff reductions or increases is nearly impossible because the changes themselves will directly and indirectly affect all sorts of economic behavior.  Fortunately, the most common critics of free trade have been singing the ITC's praises for months now, ever since it recommended the imposition of 55% tariffs on Chinese tire imports under Section 421 of US Trade Law.  For example, Congressman Sander Levin (D-MI) recently lauded the economic analysis of the "independent, bipartisan" ITC in the tires case, and United Steelworkers President Leo Gerard had similarly complimentary things to say.  So I'm sure that now the same ITC analysis demonstrates the overall economic benefits of unilateral tariff elimination, these guys will continue their praise and support of the Commission's findings, right? 

Riiiiiiiiight.

Anyway, even if the ITC's modeling is off, their new report remains highly valuable because it spotlights where the biggest US barriers to trade remain and the effects of those barriers on everyday Americans. And it's these incontrovertible findings that should have most Americans pretty ticked off. 

The table below is from the 2009 ITC report (click to enlarge).  It shows the products that face the highest import and export tariffs in the United States, as well as the US-world price difference caused by those import barriers.

As you can see, some of the highest trade barriers in the United States are on things that American families use everyday - food (cheese, butter, milk, sugar, tuna, etc.), clothing (including thread, fabric and textiles) and shoes.  The taxes on these necessities range from a few percent to almost 48 percent, and these trade barriers result in US prices that are up to 57 percent higher than prices for the same goods in other markets.  So, for example, US trade policies force American families to pay $1.57 for a stick of butter, while Canadian families pay only a dollar for the exact same thing.  Nothing like a 57% butter tax to help the Joneses really tough-out the recession, huh?  Awful.

Unfortunately, because these goods are necessities, it's not like Americans can protest the policies by boycotting the protected products.  We all need shoes, clothing and food, and these are across-the-board price increases.  Worst of all, this "necessities tax" is highly regressive, as it forces the poorest Americans to fork over the largest share of their paychecks in order to buy the protected/taxed products.

And the US government is taxing American families and businesses for what?  To help the American butter/sugar/textile/whatever industry?  Actually, yes, that's exactly what our tariff policies are doing and have done for decades - regressively taxing American consumers and businesses in order to line the pockets of well-connected special interest groups like the US sugar lobby.  Seen this way, American tariff "peaks" are just like earmarks: legislative creations championed by in-the-bag politicians that force you and me to pay higher prices for the stuff we need in order to subsidize the pols' cronies.  (And disproportionately harming the neediest of Americans in the process!)

Considering the current economic malaise, I'd say it's about time that such an idiotic, immoral system is overhauled, wouldn't you?  (And maybe we could ditch our outdated reciprocity model of trade negotiations while we're at it.)

Now who's with me?