Political Litmus Tests, ctd.

A few weeks back, I explained why a candidate's stance on free trade served as a good political litmus test:

I'm probably one of the few people on the planet who views candidate's trade policy as a key determinant of whether I'll vote for him/her. That's kinda crazy, I know, but if you study trade policy and politics like I do, you realize pretty quickly that a candidate's stance on free trade is quite predictive of whether he/she generally puts facts and principle before politics and self-interest. You see, public figures who support free trade and reject protectionism are pretty brave souls. They turn down eager corporate and union donations from those unseemly rent-seekers who seek to thwart international competition at the expense of American companies and families. They ignore attacks on their patriotism from misguided demagogues. And they openly push policies which, despite their overwhelming economic and historical support, are met with public hostility and ignorance and an unethical opposition willing to take full advantage thereof.

On the other hand, those who freely discard their free market, trade liberalization ideals (or who never had them in the first place) are either ignorant of basic law and economics or are willing to eschew those facts in order to gain a short-term political advantage based on misunderstood public opinion polls. Neither option is very flattering and each raises serious questions as to the candidate's fitness as a leader and public servant.

In today's Washington Post, columnist George Will identifies another good litmus test (and one I've frequently discussed here) - ethanol:

Life poses difficult choices, but not about ethanol. Government subsidizes ethanol production, imposes tariffs to protect manufacturers of it and mandates the use of it — and it injures the nation’s and the world’s economic, environmental, and social (it raises food prices) well-being.

Where does a certain GOP frontrunner stand on this no-brainer of an issue and what does his stance say about his political courage and ability to beat President Obama in 2012?

Go grab some popcorn, read Will's column and find out for yourself.

Income Inequality Round-up

The blogosphere was a-twitter (see what I did there?) this week with debate over the Occupy Wall Street protests and income inequality.  I've written a lot about this subject over the last couple years, and I particularly liked these new items on this oft-discussed issue:

• AEI's Jim Pethokoukis has been blogging up a storm on income inequality over the last few days.  First, he has seven great reasons why President Obama is wrong about the perils of rising inequality.  Then, he follows up by explaining why income inequality is liberals' new "global warming."  He had even more great stuff to say last week (here and here).

• Jim's colleague Mark Perry also has an excellent post on one of the biggest reasons why most discussions of income inequality are misguided: today's 1% or 5% or 99% won't be tomorrow's.  He concludes "In the discussions on income inequality and wage stagnation, we frequently hear about the 'top 1%' or the 'top 10%' or the 'bottom 99%' and the public has started to believe that those groups operate like closed private clubs that contain the exact same people or households every year. But the empirical evidence... tells a much different story of dynamic change in the labor market—people and households move up and down the earnings quintiles throughout their careers and lives. Many of today’s low-income households will rise to become tomorrow’s high-income households, and some will even eventually be in the 'top 10%' or 'top 1%.'"

• NYU professor - and one of my intellectual idols - Richard Epstein explodes the head of his PBS interviewer when he explains in typical Epsteinian detail why income inequality is actually an unmitigated "good thing" (AEI's Nick Schulz has more on that fact here):

• The WSJ's Mary Anastasia O'Grady has another great video explaining the real conclusions we should draw from the latest CBO study on income inequality:

•  Finally, courageous radio host and investment guru Peter Schiff took a video camera down to the epicenter of the Occupy movement and tried to talk some sense into the protesters about income inequality, capitalism and government.  Fantastic:

Bursting the Currency Hawks' Bubble

The Wall Street Journal yesterday had a great article which singlehandledly exposes the silliness of currency hawks' argument that threatening China with retaliatory tariffs will somehow "pressure" the Chinese into appreciating the Yuan (and, of course, magically saving the US economy).  In fact, China's latest response to the angry rants of certain US senators and GOP presidential candidates should make it abundantly clear to everyone that the Chinese government is motivated entirely by self-interest (and self-preservation) rather than what some good-haired politician is telling folks 2000 miles away:

China said that rapid yuan appreciation in the near term is out of the question as it would harm China's economic growth, in one of the strongest responses yet to U.S. pressure for a faster rise in the currency.

The comments by a spokeswoman for the Ministry of Foreign Affairs on Wednesday reflect China's growing anxiety as its domestic economy slows and demand for its exports is threatened by economic stagnation in Europe and the U.S.... 

"In the short term, pushing for rapid yuan appreciation is not possible. If Chinese economic growth slows, it will reduce global aggregate demand," Ms. Jiang said.

In public comments about the issue, Chinese officials have stressed that yuan reform will be gradual, but haven't explicitly said that rapid appreciation is off the table.

The WSJ article also notes what some of us have been saying for a while: due to the Chinese currency and other economic policies, the economy could be in big trouble if the government doesn't figure out a way to appreciate their currency and curb inflation, while maintaining economic growth (and employment):

The comments also come after Chinese Premier Wen Jiabao on Tuesday called for China to "fine-tune" its economic policies to support growth, adding to speculation that China may at some point shift away from its focus on curbing inflation.

Yuan appreciation could be one way to offset inflation, but a return to a growth focus could lead to Beijing considering slowing the trend as a way to help China's exporters. 

China now faces a dilemma, as some economists have begun arguing that the country's situation justifies slower yuan appreciation, while external pressure on China to keep the yuan rising is likely to remain intense....

Standard Chartered economist Stephen Green projected Tuesday that the yuan's appreciation against the dollar will slow to 3% to 4% in 2012 from 5.5% in 2011, due to China's slowing economic growth.....

China has other levers that it is already pulling to fine-tune its economic policy beyond the yuan's value. Measures are being rolled out to support smaller companies, which have been starved of access to credit. And Beijing may move to lift restrictions on bank lending, analysts say.

Stronger stimulus measures like interest rate cuts don't look likely, with inflation still alarmingly elevated. On Tuesday, Mr. Wen reiterated that maintaining price stability remains the government's top priority.

Meanwhile, China's currency has actually appreciated quite a bit over the last few years, including in 2010-2011:

Since 2005, the yuan has risen around 30% against the U.S. dollar, and it is now "close to a reasonable equilibrium level," Foreign Ministry spokeswoman Jiang Yu said at a regular press briefing.... 

On Wednesday, Bank of America-Merrill Lynch economist Lu Ting said that due to recent dollar strength, the yuan has actually appreciated by 4.1% against a broader basket of currencies since the end of July...

The dollar late in the Asia trading day Wednesday was at 6.3533 from 6.3604 late Tuesday, with the yuan higher against the dollar for the fourth straight trading day....

The yuan has risen 3.7% against the U.S. currency so far this year and 7.4% since June 2010, when China essentially unpegged its currency from the dollar.

And yet, despite all of these facts...

Political pressure on China from abroad to allow faster yuan appreciation is unlikely to abate in the near future. A U.S. Senate bill that would penalize China for its currency policies may be stalled in the House of Representatives, but the U.S. presidential elections in November 2012 are likely to keep the issue in the headlines for at least the next year, with Republican presidential hopeful Mitt Romney already pledging to declare China a currency manipulator.  

Will they ever learn?

Obama's Tire Tariffs: A Very Valuable Failure

A few months after President Obama's 2009 decision to impose steep tariffs on Chinese tires under Section 421 of US trade law, I noted that it was looking to be an abject failure in terms of its core (and only) objective: helping the US tire industry and its workers.  Well, it's now been two years, and a (relatively) new report from the US-China Business Council (h/t Andy Roth) proves unequivocally that my initial impressions were dead-on:

Two years ago, the Obama administration imposed punitive tariffs on imported low-end tires from China. The objective was to protect and restore low-end tire manufacturing jobs in the United States. But do trade tariffs create jobs? Were tariffs the right or wrong remedy?

The answer: Probably the wrong remedy. US imports of the low-end tires involved in the case have actually increased substantially since the tariffs were imposed—but have shifted from China to other countries. And, there is no objective evidence that the tariff boosted US tire manufacturing jobs.

The paper goes on to show that, according to US government data, "[t]he biggest beneficiaries of the tariffs are probably tire producers in Korea, Thailand, Indonesia, Mexico and other countries that replaced supply from China."  Of course, anyone who understands trade diversion could have predicted this outcome (and a lot of us did - including US Trade Representative Ron Kirk who hilariously told a Brazilian delegation that they should welcome the President's decision because they'll export more tires to the US).  Unless US manufacturers are the second-most competitive producer of widgets on the planet, tariffs on imports from the #1 widget producer will almost always result in an increase in imports from other countries' widget producers, not from the US producers.  This is not just basic economics, it's also common sense - very well-documented common sense.

The only thing not mentioned in the new USCBC report is another commonsense outcome of protectionist tariffs - pain for American consumers in the form of higher prices.  In the case of tires, I've cited anecdotal evidence of such price increases, and a previous USCBC report documented significant price increases in the 10-month wake of President Obama's decision.  It'd be good to see more such analysis in the future.  And, of course, there's that sweet Chinese retaliation against US exporters in direct response to the Section 421 announcement.

Now, while the President's tire tariffs have proven to be an abject failure, they still provide us with an extremely visible and valuable lesson about anti-China protectionism: it inevitably produces higher prices for US consumers and retaliation against US exporters yet rarely helps US manufacturers and workers - something to think about when you hear campaigning politicians in both parties peddling China protectionism as some sort of magical solution to the United States' current economic woes.

It just doesn't work like that, and they should know better by now.

Stifling American Businesses' Global Competitiveness

Last week the World Bank released its annual Doing Business report, which ranks 183 national economies on their ease of doing business based on an analysis of ten economic factors: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency. As the Bank explains, "a high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm." In short, the higher a country is on the list, the better its business environment.

The topline number for the United States isn't bad: we rank 4th on the list behind Singapore, Hong Kong and New Zealand.  However, a closer look at the US rankings reveals some serious concerns:

As you can see, the United States ranks an embarrassing 72nd globally in "paying taxes" - defined by the Bank as "the taxes and mandatory contributions that a medium-size company must pay in a given year as well as... the administrative burden of paying taxes and contributions").  Basically, US companies pay higher corporate taxes - and have a more difficult time paying them - than 71 other countries.  Such a tax burden has a crippling effect on American companies global competitiveness, and the World Bank study is further proof of just how desperately the current US tax system needs a fundamental overhaul.  The Obama administration has repeatedly promised to reform the US corporate tax system but has yet to provide even a proposal (shocking, I know).  Fortunately, there appear to be several GOP Presidential hopefuls who, unlike the current White House resident, are serious about lowering the ridiculous tax burden that US companies now face.

The United States also ranks poorly in other key economic areas, such as starting a business (13th) and trading across borders (20th) - both vitally important for business formation and global competition.  Contrary to what you might expect, the trade category doesn't analyze protectionist tariffs but instead measures the "time and cost (excluding tariffs) associated with exporting and importing a standardized cargo of goods by ocean transport."  As I've frequently discussed here, such "trade facilitation" (e.g., customs rules, export controls, etc.) issues might be boring, but they're just as important as tariffs (and sometimes even moreso).

Finally, it's important to note where some of the big developing countries rank on this list.  Brazil ranks 126th overall; India ranks a frightening 132nd; and the global powerhouse China ranks only 91st.  In short, it's far easier to do business in the United States than it is in China, and this massive divide in the costs of doing business helps explain why global companies don't all instantly move to the countries with the cheapest labor supplies (and why a lot of them are coming back to the United States after dabbling abroad).  Keep that in mind the next time you hear someone ignorantly rambling about the "race to the bottom" or some politician peddling protectionism as solution to the "inevitable decline" of America's global competitiveness.  In fact, there are a lot of obvious ways that the government could create a better business environment for American companies, and decline is anything but inevitable.

Podcast on FTAs, China Currency and Trade Policy/Politics

The folks at RedState's "Coffee & Markets" had me on this morning to talk FTAs, China currency and US trade policy/politics.  Unsurprisingly, I lack the technical expertise to download the podcast and post it here, but you can just click over to RedState to listen there or download it to your iPod.

Enjoy!

New Op-Ed: "One Cheer (At Most) for Our New Free Trade Agreements"

The Daily Caller today published a new (and somewhat depressing) op-ed of mine.  Here's the tease:

The recent congressional passage of U.S. free trade agreements with South Korea, Panama and Colombia has elicited an outbreak of Beltway backslapping. Some congratulations are certainly warranted, but a closer look at just how these FTAs arrived on the president’s desk reveals serious problems with not only the agreements themselves, but also the current state of U.S. trade policy.

Uh oh.  Be sure to read the whole thing here.  Your thoughts, as always, are welcome in the comments.

China-bashing:Good Politics, Bad Consequences

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

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

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

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

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

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

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

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

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

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

But other than that...

The FTAs' Price Tag, ctd.

By the time most of you read this, the House and Senate will have passed implementing legislation for the Korea, Colombia and Panama FTAs, thus ending a long and tortuous path for these trade agreements.  But before we put the FTA saga to bed for good, I've been looking at a few of the more, ahem, interesting details surrounding these deals.  Last night I went through the CBO scoring of the implementing legislation, and noted that it increased merchandise processing fees on imports from countries other than the three FTA partners to the tune of about $4.3 billion.  I forgot, however, to examine the CBO scoring of the expanded Trade Adjustment Assistance and Generalized System of Preferences legislation accompanying the FTAs.  As you'll recall, this legislation is only being considered now because President Obama refused to formally submit the FTAs to Congress unless he had assurances that expanded TAA would get reauthorized.  The CBO report (conveniently released only late last week) on TAA/GSP is available here, and the key table laying out the new TAA-related spending and revenues (i.e., taxes) is below:

As you can see, the President's demands that TAA expansion be included with the FTAs will cost US taxpayers over $1.1 billion over the next five years.  Meanwhile, an increase in the merchandise processing fees from 0.21% to 0.3464% ad valorem on US imports will offset the cost of TAA expansion by raising over $2.4 billion in new customs fees paid by US importers (and, thus, American consumers).  The TAA bill then lowers those fees to only 0.174% in 2016, allegedly providing some $600 million in "savings" for US import consumers between 2016 and 2019.

And there's where things get a little more interesting.

As I noted last night, the CBO score for the KORUS also raises revenues (again, $4.3 billion) by increasing merchandise processing fees.  The schedule for those new fees is here:

Now, please notice how the KORUS-related fee increase (also from 0.21% to 0.3464%) doesn't begin until 2016 - just as the TAA-related fee increase is supposedly lowered to 0.174% (a little lower than the current 0.21%).  In short, there are conflicting merchandise fees - and thus budgetary effects - in 2016-2019. (And, in case you're wondering, I also checked the text of the legislation, and each bill amends the exact same provision of US law - 19 USC 58c(a)(9)).

So what the heck is going on here?  I'm certainly no budget guru, but I only see two options:

(1) Assuming that the KORUS law supersedes the TAA law, then those $600 million in consumer savings don't actually exist.

(2) Assuming that the TAA law supersedes the KORUS law, then those $4.3 billion in consumer taxes don't actually exist.

I don't know about you, but I'm guessing it's the former scenario, and if so, we can add another $600 million to CBO's scoring of (and thus the price tag of) the expanded TAA bill.

Sweet.

FTA Round-up

With both the House and Senate poised to vote on, and approve, pending US FTAs with Colombia, Korea and Panama tomorrow, it seemed like a good time to provide some recent must-read items to get you caught up to speed:

• The Competitive Enterprise Institute just issued a great new study documenting the Obama administration's failed - and economically harmful - strategy of delaying ratification of our pending FTAs in order to appease US labor unions (through, for example, revised FTA obligations, side agreements and reauthorization of expanded TAA).  CEI provides good support for something that I've been saying here for years: placating anti-traders, especially unions, is a fool's errand.

• Speaking of economically harmful delay of these FTAs, the Korea Herald reports that the recently-ratified EU-Korea FTA (started years after the still-pending US-Korea FTA) is reaping major benefits for European carmakers.  Good for them.

• However, as the FT's Alan Beattie explains in this new op-ed, the economic value of these FTAs shouldn't be oversold, and their final ratification has come at a pretty big price.  He concludes: "The US, along with all countries that trade – poor and middle-income as well as rich – is presented with a complex array of interlocking issues by the operation of globalisation: technological change, migration, exchange rates, capital movements and geopolitical power politics, as well as flows of goods and services.  Reducing the globalisation debate to passing three bilateral trade deals – at the cost of adding momentum to a potentially dangerous currency bill – is a very long way from being a proportionate response. In net terms, this was a bad week in Washington for free trade and real free-traders should recognise it."

• Jagdish Bhagwati takes a different, but kinda similar, angle, lamenting that "Congress and the president apparently have plenty of time to discuss bilateral FTAs with South Korea, Colombia, and Panama, as well as the regional Trans-Pacific Partnership (TPP), but none for negotiating the non-discriminatory Doha Round, which is languishing in its tenth year of talks." 

• Not to be outdone, Australian Marc-William Palen actually goes a bit further than Beattie and Bhagwati and argues that the FTAs' price tag - TAA - shows that the President is, deep-down, a protectionist.

• Speaking of the FTAs' price tag, the CBO released its cost estimates for the Korea, Colombia and Panama implementing legislation.  The Korea report is by far the most interesting, as it shows that the FTA's implementing legislation includes almost $8.5 billion in new customs users fees - $4.1 billion in extensions and, more importantly, $4.3 billion in increased merchandise processing fees because the FTA implementing legislation raises the fee from 0.21% to 0.3464% of a shipment's value.  I've already gone over why raising taxes on American import consumers to fund a free trade agreement is really misguided, but I do think it's very interesting that the revised KORUS legislation includes an exemption from these new fees for imports from Korea.  Colombia and Panama legislation provides for a similar exemption.  So, really, Korean, Colombian and Panamanian imports into the US will get a double benefit from the respective FTAs - lower tariffs and cheaper customs fees.  Unfortunately, US consumers of non-Korean/Panamanian/Colombian imports will be left holding the tab, and the FTAs' overall trade liberalization benefits will be muted.  Sigh.

• Finally, AEI's Phil Levy explains that, although the FTAs should definitely help the US economy, their tortuous path to final implementation is indicative of the sad state of US trade leadership.  Yep.

That's all for now, folks.  

The China Threat that Isn't, Ctd.

Remember how China, armed with a "manipulated currency" and massive government subsidies, was allegedly taking all of America's manufacturing jobs?  Well, it looks like the Chinese are in a giving mood all of a sudden.  First, the FT reports on a new study by Boston Consulting Group (available here) showing that the "re-shoring" phenomenon (discussed frequently here) is picking up speed:

Rising Chinese labour costs are changing the economics of global manufacturing and could contribute to the creation of 3m jobs in the US by 2020, according to a study being released on Friday.

The Boston Consulting Group analysis says the new jobs will be generated by a “re-shoring” of manufacturing activity lost to China over the past decade.

“Re-shoring is part of a broad trend that will emerge as ... production gradually swings back to the US,” Hal Sirkin, a senior partner at the consultancy, told the Financial Times.

The Boston Consulting Group estimates that the trend could cut the US’s merchandise trade deficit with the rest of the world, excluding oil, from $360bn in 2010 to about $260bn by the end of the decade. The shift would also reduce its soaring deficit with China, which reached $273bn in 2010 and has triggered an intense political controversy over China’s exchange rate policies.

“While Chinese labour costs are rising, US competitiveness has been improving,” says Mei Xu, the Chinese-born co-owner of Chesapeake Bay Candle, which makes candles and other home fragrance products. “We can invest in automation to make our candles in a factory near Baltimore for a similar cost to doing the same job in China.”

Chesapeake Bay Candle has created 50 jobs, with another 50 likely next year, since it invested in US production. Half of the company’s production is now US-based. Last year all of its products were made in China.

According to Ms Xu, her company can now react more rapidly to customer design requests, while cutting out hold-ups due to transport delays and customs bureaucracy....

John Heppner, of the security division of Fortune Brands, a US consumer goods company, said its Wisconsin padlock factory hired 100 workers after “a reappraisal of whether it makes sense to base as much of our manufacturing in China”.

The BCG study is definitely worth reading in full, so be sure to check it out.  And according to another article out today, this time in the Wall Street Journal, Chesapeake Bay Candle and Fortune Brands definitely aren't alone:

Globalization has come full circle at Otis Elevator Co.

The U.S. manufacturer, whose elevators zip up and down structures as diverse as the Empire State Building and the Eiffel Tower, is moving production from its factory in Nogales, Mexico, to a new plant in South Carolina.

Fifteen years ago, Otis Elevator joined the stampede of U.S. manufacturers who moved production to Mexico in a bid to save money. Now they're moving it all back. Tim Aeppel explains why on The News Hub.

More startling: Otis says the move will save it money.

What's happening at Otis is part of a broader shift in the way manufacturers tally costs.

Their outlook has been changing as the cost of producing abroad has risen and they have devised more efficient ways to make things close to where they want to sell them.

International companies ranging from Ford Motor Co. to General Electric Co. have started returning to the U.S. some jobs that they had previously shipped offshore, a process sometimes dubbed as "reshoring."...

A number of forces are behind the modest influx. Wages and other costs are going up in foreign countries—especially China—while pay in many industrial sectors inside the U.S. has risen slowly or even fallen in many cases. Transportation costs have grown, as have the costs of holding large stocks of inventory, a common precaution when producing goods far from their end market.

Companies also recognize how moving jobs to the U.S. at a time of high unemployment can enhance their image. "A lot of companies still don't publicize plant closures in the U.S.-which they're still doing," says Mr. Paul, while going out of their way to tout moving jobs back into the country. But longer term, he says, there should be genuine gains for the American economy and workers.

Stephen Maurer, the head of the manufacturing practice at consultants AlixPartners LLP, says some things will always be made in low-cost places, like clothes, "because they involve tons of labor."

But for many other goods, the numbers are shifting. In new study, Mr. Maurer found that it's still cheaper to make a long list of basic industrial goods in places like Vietnam, Russia, or Mexico, but the gap has shrunk. Some analysts say this trend is accelerating and will eventually make the U.S. the cheapest place to produce a wider range of goods. Otis thinks that's already the case for its elevators....

Among other things, the [South Carolina] plant will be closer to many of the company's customers, about 70% of whom are on the East Coast of the U.S.

The company figures that will lower its freight and logistics costs 17.3%.

Another 20% of savings, the company says, will come from "efficiencies" of having all its white-collar workers associated with elevator design and production located at the new factory....

It also will be easier for customers to visit the plant. Nogales is 65 miles from the nearest U.S. commercial airport, in Tucson, Ariz.

That AlixPartners study on what they call "near-shoring" is here.  The WSJ article goes on to say that not all jobs leaving China are coming to the states - other, low-cost, labor-intensive ones are heading to Mexico.  But regardless of whether the manufacturing jobs are heading to the United States or to Mexico, three things are abundantly clear: (i) rising costs in China are causing more than a trickle of manufacturers to leave the country and move elsewhere; (ii) many companies are discovering that its actually better for their bottom lines to manufacture in the United States; and (iii) the idea that China is going to inevitably take all of the United States' manufacturing jobs is, once again, proving to be a somewhat misguided prognostication.

Maybe it's news like this that caused AEI's Dan Blumenthal to list in a new FP op-ed the following items among his "top ten unicorns about China policy":

3. China will inevitably overtake America, and America must manage its decline elegantly. This is a new China-policy unicorn. Until a few years ago, most analysts were certain there was no need to worry about China. The new intellectual fad tells us there is nothing we can do about China. Its rise and America's decline are inevitable. But inevitability in international affairs should remain the preserve of rigid ideological theorists who still cannot explain why a unified Europe has not posed a problem for the United States, why postwar Japan never really challenged U.S. primacy, or why the rising United States and the declining Britain have not gone to war since 1812. The fact is, China has tremendous, seemingly insurmountable problems. It has badly misallocated its capital thanks to a distorted financial system characterized by capital controls and a non-market based currency. It may have a debt-to-GDP ratio as high as 80 percent, thanks again to a badly distorted economy. And it has created a demographic nightmare with a shrinking productive population, a senior tsunami, and millions of males who will be unmarriageable (see the pioneering work of my colleague Nick Eberstadt).

The United States also has big problems. But Americans are debating them vigorously, know what they are, and are now looking to elect the leaders to fix them. China's political structure does not yet allow for fixing big problems....

4 (related to 3). China is America's banker. America cannot anger its banker. In fact, China is more like a depositor. It deposits money in U.S. Treasurys because its economy does not allow investors to put money elsewhere. There is nothing else it can do with its surpluses unless it changes its financial system radically (see above). It makes a pittance on its deposits. If the United States starts to bring down its debts and deficits, China will have even fewer options. China is desperate for U.S. investment, U.S. Treasurys, and the U.S. market. The balance of leverage leans toward the United States....

6. America's greatest challenge is managing China's rise. Actually, America's greatest challenge will probably be managing China's long decline. Unless it enacts substantial reforms, China's growth model may sputter out soon. There is little if nothing it can do about its demographic disaster (will it enact a pro-immigration policy?). And its political system is too risk averse and calcified to make any real reforms.

Good stuff.  (Bluementhal's foreign policy insights are also worth checking out, of course.)

So given all of this news and analysis (and plenty more like it), can someone please explain to me again why so many US politicians and unions are blaming China for all of America's economic problems and lashing out at the Chinese in order to allegedly prevent China's inevitable destruction of the US economy?

Oh, right.

China Currency Update

The Senate yesterday overwhelmingly voted to proceed on the China currency legislation, clearing the way for a final Senate vote - and almost certain approval - later this week.  Also yesterday, the White House submitted the FTA implementing bills for the Korea, Colombia and Panama FTAs, but since a vote on those agreements isn't expected until next week, I'm going to focus on currency tonight and provide a nice little laundry list of things you should read on the China currency issue before the Senate vote:

• The Club for Growth's Chris Chocola lays out six great reasons why the Senate legislation should die.  He also notes, again correctly, that the United States should fix its own fiscal and regulatory problems instead of scapegoating China.  Speaking of that, am I the only one who finds it horribly appropriate that American pols' fiscal incontinence actually enables China to manage the value of its currency via the purchase of US debt?  And yet they blame China.  Sigh.

• The Senate roll call vote on the motion to proceed is available here.  Please notice that the "nays" include most, if not all, of the "Tea Party" Senators: Coats (R-IN), Coburn (R-OK), DeMint (R-SC), Johnson (R-WI), Lee (R-UT), Paul (R-KY), Rubio (R-FL) and Toomey (R-PA).  So much for that tiresome meme that Tea Partiers are anti-trade Luddites.  Also among the "nays" was Roy Blunt (R-MO), who is the congressional point man for presidential candidate (and reborn currency-hawk) Mitt Romney.  Hmm.

• House Speaker Boehner stated today that the Senate currency legislation is "dangerous" and "well beyond" what Congress should be doing.  In other news, Boehner reported that the sky is blue. [UPDATED: The WSJ rightly applauds Speaker Boehner's "adult" leadership on the currency issue, and chastises the President and a certain GOP presidential candidate for their utter lack thereof.]

• On Sunday, I noted that the Cato Institute and National Review had publicly criticized legislation targeting China's currency practices.  Well, now you can add to the Sanity Chorus the voices of the Heritage Foundation, Brookings Institution, AEI, Washington Post and Wall Street Journal.

• Meanwhile, the Petersen Institute's Joseph E. Gagnon, Nicholas R. Lardy and Nicholas Borst estimate that China's currency policies are causing real economic pain - to the tune of $240 billion per year - to China!  I wonder what noted currency hawk and the authors' PIEE colleague C. Fred Bergsten would say about that.  (Speaking of Bergsten, am I the only one who's confused by his latest op-ed, which calls on the US to devalue its currency by 20% in order to bolster its companies' export competitiveness and then retaliate against China for, err, devaluing its currency by 20% in order to bolster its companies' export competitiveness?)

• Speaking of currency hawks, Paul Krugman drafted yet another op-ed on why China's currency policy is so, so awful.  In it, Krugman (a) proudly admits that the Senate's China currency bill would increase taxes on American families and businesses; (b) also admits that, even if the US does nothing, China's rampant inflation will gradually eliminate the RMB's undervaluation; (c) also admits that the currency bill carries a real risk of starting a "trade war" with China; yet (d) never gets around to explaining how the Senate legislation actually will force China to appreciate the RMB.  Wait, did Dr. Krugman just make our point for us?  I'm so confused.

• And, last, just as the United States is finally getting around to considering its Bush-era FTAs and as the Senate is busying itself with attacking China, guess what our increasingly-awesome neighbors to the North (Canada) - who quickly implemented their FTA with Colombia months ago - are up to?  Well, they're now concluding a new bilateral investment agreement with... wait for it... China!  

One last note: since the blogging will be lighter around here for a while, I'll be tweeting a lot more.  If you're so inclined, you can follow my mostly-trade-related tweets on Twitter at @scottlincicome.

Important Blog Announcement (and Some China Currency Links)

Late last week, I was asked by a GOP presidential campaign to exclusively advise their candidate on trade policy issues.  In order to preserve some semblance of future credibility and to avoid having someone try to tie my, ahem, salty blog language to the campaign, this blog will shift from political commentary to basic trade news/links until my new advisory stint is complete.  I have no idea at this stage whether that stint will be twelve weeks or twelve months (hopefully the latter!).

I'm probably one of the few people on the planet who views candidate's trade policy as a key determinant of whether I'll vote for him/her.  That's kinda crazy, I know, but if you study trade policy and politics like I do, you realize pretty quickly that a candidate's stance on free trade is quite predictive of whether he/she generally puts facts and principle before politics and self-interest.  You see, public figures who support free trade and reject protectionism are pretty brave souls.  They turn down eager corporate and union donations from those unseemly rent-seekers who seek to thwart international competition at the expense of American companies and families.  They ignore attacks on their patriotism from misguided demagogues.  And they openly push policies which, despite their overwhelming economic and historical support, are met with public hostility and ignorance and an unethical opposition willing to take full advantage thereof.

On the other hand, those who freely discard their free market, trade liberalization ideals (or who never had them in the first place) are either ignorant of basic law and economics or are willing to eschew those facts in order to gain a short-term political advantage based on misunderstood public opinion polls.  Neither option is very flattering and each raises serious questions as to the candidate's fitness as a leader and public servant.

I'm happy to say that the candidate I'm advising is a principled free trader (and was so long before I began advising him).  I have no idea if he'll be the next president or even the GOP nominee, but I'm confident that I'll have no regrets being affiliated with this campaign.

So with that, here are a few links to get things started:

• Cato's Dan Ikenson explains why the China currency legislation on which the Senate will likely vote this week is a "desperate mistake."  Key line: "Instead of working hard to change homegrown U.S. policies that inhibit investment, job creation, and growth, our elected officials would choose to lay the blame for our woes at China’s feet, then cross their fingers and hope that their provocative, unilateralist legislation doesn’t unleash a torrent of adverse consequences that would make economic matters even worse. Can there be a stronger admission of failure than to launch such a desperate Hail Mary?"

• NRO's Kevin Williamson details why "Mitt Romney's still wrong on China."  My favorite passage: "If I thought Mitt Romney were just being a Machiavellian calculator, I might be a little more kindly disposed to him: I am all for Machiavellian calculators in the White House, provided they are ruthlessly pursuing our national interests. But I half-suspect that Mr. Romney half-believes what is coming out of his mouth, which is worrisome. If he really intends to slap a 25 percent tariff on Chinese goods, he is embarking on a dangerous and destructive path."

• The Club for Growth explains why its asking lawmakers to vote NO on the China currency legislation.  Their reason: "This is a disastrous proposal that would increase taxes on American consumers, stall the economic recovery, and spark an ugly trade war that would benefit no one." But other than that...

• Cafe Hayek's Don Boudreaux pens an open letter to Rep. Michele Bachmann (R-MN), the latest presidential hopeful (joining Govs. Romney and Huntsman) to signal support for the China currency bill in the Senate.  He asks: "Now that you’ve aligned yourself with America’s screechy protectionists, who insist that it’s harmful for Americans to have too much access to low-priced imports, I’ve a question for you. Would you applaud if Beijing erects a partial blockade against America – a blockade in which Chinese naval and air forces forcibly reduce America’s imports to levels that you and, say, Sen. Chuck Schumer determine are ‘appropriate’?"  Boudreaux sent another letter to the New York Times after it published an anti-China op-ed from C. Fred Bergsten, who relies heavily (solely?) on the US-China trade deficit to support his calls for unilateral US action against China.

• Meanwhile, the WSJ reports that currency traders continue to put downward pressure on the Yuan, even as China's Central Bank is trying to appreciate the currency.  Hmm.

That's all for tonight.