2012 GOP Platform on Trade: the Good, the Bad, and the Really Ugly

The Republican Party has released its 2012 Platform, and it's pretty much what you'd expect given the past few months of campaign and congressional rhetoric: it mostly supports free trade, yet does so in a mercantilist way and contains some pretty harsh - and indeed protectionist - words for today's trade bogeyman, China.  In fact, the platform seems like it was almost entirely lifted from Gov. Mitt Romney's 2011 economic plan, for the better and the worse.  Although there are various trade-related elements throughout the platform, the main "international trade" section can be found on pages 6-7 and I'll focus on it tonight:

International Trade:
More American Jobs, Higher Wages, and A Better Standard of Living

International trade is crucial for our economy. It means more American jobs, higher wages, and a better standard of living. Every $1 billion in additional U.S. exports means another 5,000 jobs here at home. The Free Trade Agreements negotiated with friendly democracies since President Reagan’s trailblazing pact with Israel in 1985 facilitated the creation of nearly ten million jobs supported by our exports. That record makes all the more deplorable the current Administration’s slowness in completing agreements begun by its predecessor and its failure to pursue any new trade agreements with friendly nations.

This worldwide explosion of trade has had a downside, however, as some governments have used a variety of unfair means to limit American access to their markets while stealing our designs, patents, brands, know-how, and technology—the “intellectual property” that drives innovation. The chief offender is China, which has built up its economy in part by piggybacking onto Western technological advances, manipulates its currency to the disadvantage of American exporters, excludes American products from government purchases, subsidizes Chinese companies to give them a commercial advantage, and invents regulations and standards designed to keep out foreign competition. The current Administration’s way of dealing with all these violations of world trade standards has been a virtual surrender.

Republicans understand that you can succeed in a negotiation only if you are willing to walk away from it. Thus, a Republican President will insist on full parity in trade with China and stand ready to impose countervailing duties if China fails to amend its currency policies. Commercial discrimination will be met in kind. Counterfeit goods will be aggressively kept out of the country. Victimized private firms will be encouraged to raise claims in both U.S. courts and at the World Trade Organization. Punitive measures will be imposed on foreign firms that misappropriate American technology and intellectual property. Until China abides by the WTO’s Government Procurement Agreement, the United States government will end procurement of Chinese goods and services.

Because American workers have shown that, on a truly level playing field, they can surpass the competition in international trade, we call for the restoration of presidential Trade Promotion Authority. It will ensure up or down votes in Congress on any new trade agreements, without meddling by special interests. A Republican President will complete negotiations for a Trans-Pacific Partnership to open rapidly developing Asian markets to U.S. products. Beyond that, we envision a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a “Reagan Economic Zone,” in which free trade will truly be fair trade for all concerned.

I've been over most of these ideas before, so there's no need to get long-winded tonight.  Instead, here's a quick summary of the good, the bad and the ugly in the GOP platform's international trade section:

The Good. The platform expresses unequivocal support for international trade and free trade agreements.  Especially noteworthy is (i) formal party support for the Trans-Pacific Partnership - something we've suspected but not really heard from the GOP's top dogs; and (ii) a loud call for restoration of Trade Promotion Authority - an absolutely critical legal tool for the President's ability to effectively negotiate new trade deals.  Although I'll start complaining in just a second, the GOP's embrace of international trade is definitely a good thing, especially given the economic anxiety out there right now and the strong anti-outsourcing and anti-trade stuff we've been hearing from most Democrats.  Maybe the Dem Platform will surprise us and not contain similar protectionist positions this time around, but until then, the GOP remains the better party when it comes to public support for good trade policy.

The Bad.  The platform continues the failed approach of selling free trade through a single-minded focus on exports and reciprocal trade (i.e., only opening our market if others open theirs).  As I've repeatedly discussed, this strategy is not only economically ignorant, but it also undermines public support for free trade by reinforcing the erroneous notion that imports - and by extension the US trade deficit - are somehow bad for the US economy.  The platform also errs in its support for Romney's "Reagan Economic Zone" - a silly idea from a practical perspective (I've yet to read serious, apolitical trade policy expert express even lukewarm support) and one that implicitly abandons the existing multilateral negotiating framework at the WTO.  That, in my opinion, is a serious mistake - the WTO is and will remain the only real mechanism for broadbased, multilateral trade liberalization, and any alternatives are dangerous non-starters.  The GOP certainly isn't abandoning the WTO altogether - the text above promotes the use of WTO dispute settlement, and the platform on page 49 supports Permanent Normal Trade Relations with Russia in order to reap the benefits of Russia's WTO accession - but the Reagan Zone strongly implies that the GOP no longer sees multilateral negotiations through the WTO as viable.  And that, in my opinion, is a mistake, regardless of the big mess that is the Doha Round.

The Ugly.  I guess it shouldn't be a surprise, but it's really a shame that America's "free market" party has warmly embraced Romney's zealous contempt for all things China trade-related.  This includes support for (i) countervailing duties on Chinese imports due to currency manipulation; (ii) mysterious "punitive measures" on foreign firms found engaging in IPR theft; and (iii) support for a "Buy AmericanAnything-But-Chinese" procurement policy.  Leaving aside for the moment the fact that each of these proposals raises serious legal and practical concerns (see, e.g., here on currency; there's not really a vehicle under US law for the second; and the third could violate WTO rules if it singled out China), there are much bigger problems with such talk: 

• First, the scary chest-thumping overshadows far more legitimate gripes about bad Chinese trade policies (like subsidies and IPR enforcement).  When you're screaming about attacking imports and investment, people tend not to notice your more subtle gripes about real problems in the Chinese market. 

• Second, and more importantly, these proposals expressly condone self-destructive retaliatory protectionism that defies economic sense and free market principles.  As I've repeatedly warned, there is absolutely no reason why such "logic" couldn't be applied to other "offending" countries, and the protectionist slope is very, very slippery.  Saying "we only meant it for China" is likely not going to serve as an adequate defense when the well-funded protectionists come knocking on the White House door.  And, by empowering these anti-trade forces, such proposals also won't help improve tepid American support for free trade.  In short, Pandora's Box has been opened, and it remains to be seen whether Republicans can control the nastiness inside.  The Democrats - who once supported things like NAFTA, China trade and the WTO (see, e.g., Bill Clinton) - sure couldn't.

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

Hooray, lesser of two evils!

More to come, I'm sure.

Breaking the Mercantilist Campaign Feedback Loop

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

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

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

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

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

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

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

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

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

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

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

And they'd have only themselves to blame.

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

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

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

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

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

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

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

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

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

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

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

No Joke: US Export Promotion Effort Funded by... Taxing Exports

The Office of Senator Jim DeMint has done some worthwhile digging into the Obama administration's new US tourism promotion effort, "Brand USA," and what they've uncovered is actually more ridiculous than you'd expect.  The report's goal is to show that the new export promotion program - remember: domestic tourism is actually an "export" because foreign dollars are spent here on US goods and services - is rife with cronyism, over-spending and general mismanagement.  (The lede: "High-powered executives are enjoying luxury accommodations all over the world, all in the name of promoting tourism for the U.S. government." Yikes.)

Now, this news is certainly not good for US taxpayers, but let's face it: this type of stuff is unfortunately pretty commonplace in government and we're not talking about a lot of money here.  On the other hand, it's this seemingly-innocuous passage that caught my attention:

Established through the 2010 Travel Promotion Act, Brand USA is eligible to receive up to $100 million annually generated through new taxes paid by foreign travelers.

I freely admit that prior to today I had only a vague recollection that this Act - passed during the halcyon days of total Democrat control of the White House and Congress - even existed.  A little Googling reveals a snazzy Brand USA website and the text of the Travel Promotion Act, which was included as Section 9 in another bill reauthorizing the Capitol Police (no joke) and provides in subsection (d) for the establishment of a "Travel Promotion Fund" and then in subsection (e) for a "Travel Promotion Fund Fee."  The good folks at Global Trade Alert have summarized that fee as follows:

The law institutes a new fee of $10 or more on visitors traveling to the United States from the 35 countries that participate in the Visa Waiver Program (VWP) . This new tax is supposed to raise an estimated $200 million per year, which will be used to help fund a new “Corporation for Travel Promotion.” The purpose of this new corporation is to promote tourism to the United States.

The bill developed from the “Travel Promotion Act of 2009” (S.1023 as originally introduced...), a bill that would establish a program for the promotion of travel to the United States, and provide for two separate means of funding this program. One would be a fee of at least $10 on each traveler from certain countries that enter the United States, and the other an unspecified set of assessments on the travel industry in the United States. These fees might be inconsistent with the national-treatment principle of GATT Article III and (perhaps more appropriately) GATS Article XVII.

I'm certainly not going to get into the trade law weeds regarding the WTO-consistency of the Travel Promotion Fund Fees (although that is an interesting issue).  Instead, I just want to clarify that this is an actual US law that is designed to promote tourism exports by imposing a new tax on - and thus discouraging - tourism exports.

Seriously.

Now, I'm no mercantilist, but even I can see that if you want to encourage exports it's probably not a good idea to - you know - tax them.  (Then again, this is the same US government that imposed new taxes on imports in order to fund trade-liberalizing free trade agreements, so maybe they're just being consistent.)

This export promotion law becomes an even worse idea when we learn, as Senator DeMint's office helpfully informs us, that a good portion of these export taxes aren't even funding tourism exports but instead are helping, among other things, "CEOs from some of the nation’s most successful hotels and resorts... to book top-of-the-line venues to entertain other members of the travel industry."

So, really, we have an export tax that's bizarrely intended to promote exports but really just promotes the lavish expenditures of certain big exporters and, of course, the generous and helpful bureaucrats facilitating those expenditures.

You simply cannot make this stuff up.

(h/t Ben Domenech)

Behold, the Utterly Dismal State of American Trade Politics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And they'd have only themselves to blame.

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

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

Thinking Inside the Box on Trade

Former Minnesota Governor and GOP Presidential hopeful Tim Pawlenty delivered a rousing speech today on his economic vision for America.  The full text of the speech is here, and it's unsurprisingly receiving praise and sneers from the chattering classes (sometimes both in the same commentary).  His calls for a serious reduction in the corporate tax rate from 35% to 15%, the elimination of tax loopholes and a flattening of individual tax rates will certainly help improve American companies' global competitiveness (and attract foreign investment).  And his repeated call for reform of ethanol subsidies is, as I've already noted, not bad considering a lot of his current GOP primary competition.

But Pawlenty's stance on free trade was, well, utterly pedestrian::

Just as the federal government must break down barriers within our domestic markets. We must break down barriers in international markets.

Congress should ratify completed free trade agreements with South Korea — and Colombia. And complete the agreement with Panama. We should start new bilateral talks with our trading partners. To promote our exports.

President Obama set a goal of doubling exports. Yet his policies have prevented this. Mine will achieve it.

Ahh, yes, the political siren-song of mercantilism.  Grrreat.  Of course, this exports-good-imports-not-so-much position is in line with Pawlenty's previous statements on trade, as noted in the Club for Growth's handy primer on the candidate:

In an interview during a trade mission to China in 2010, Pawlenty said that “we all agree from an American perspective that the Chinese manipulation of their currency and pegging of it to the dollar is inappropriate and unfair.” In later comments, Governor Pawlenty did not rule out imposing tariffs on China.

Also, Pawlenty fought against lower trade barriers on sugar when CAFTA was being considered by Congress, and he was in favor of retaining the temporary steel tariffs imposed by President Bush.

While we understand the political considerations Pawlenty had in trying to protect his home state sugar beet industry, his support of trade barriers is equivalent to support of higher costs for consumers – both in Minnesota and across the country.

A 2011 MinnPost article described Pawlenty’s attitude towards trade policy this way: “Pass pending free trade deals with Colombia, Panama and South Korea while looking for more. And don’t be afraid to call out trading partners – China by name – when they don’t live up to their end of the bargain. ‘I’m for free trade, but I’m not for being a chump,’ he said to the approval of the crowd.”

Pawlenty's mercantilist message is, as the Club rightly notes, problematic from an economic perspective, and, of course, it contradicts the strong support for cutting most other types of taxes that the candidate outlined in his pro-growth speech today.  Furthermore, as Dan Ikenson and I noted in a recent paper, Pawlenty's exports-only trade message is also both unnecessary and counter-productive from a political standpoint.  In short, it's just the same old pablum.

Fairly or not, Pawlenty's been routinely characterized as an uninspiring "second-tier" candidate.  On some issues, his speech today might help the Governor shake that reputation, but his unoriginal stance on trade - one that fails to recognize the benefits of imports and the realities of a today's globalized economy, and that contradicts the rest of his pro-growth, low-tax message - sure won't.

Tuesday Quick Hits

Work's been pretty rough these last few days, but here are some quick hits to get you through the slower blogtimes:

• "Zeroing" took yet another hit last week: this time by the Court of Appeals for the Federal Circuit, which ruled last Thursday that the Department of Commerce needs to revisit its use of the WTO-illegal methodology in antidumping annual reviews because (i) DOC had abandoned the practice in investigations; and (ii) the US government had failed to offer a good (well, any) reason for the different approach in reviews.  WorldTradeLaw.net's Simon Lester offers some good commentary on the CAFC decision, and the WSJ rightfully applauds it: "thanks to statistical sleight-of-hand, American consumers have paid billions of dollars more over the years in higher prices either because antidumping duties raised prices on imports or because those duties sheltered domestic companies from downward price competition. This was bad economics, and now it turns out it was bad law, too. The World Trade Organization has dinged Washington repeatedly for zeroing. Commerce and Congress have done their best to avoid complying, at considerable expense to American credibility abroad. Most recently, Commerce attempted to stop zeroing for new antidumping investigations while keeping the practice for existing duties, to placate both the WTO and domestic protectionists. Last week's appellate court ruling puts an end to that charade by finding that under existing U.S. law Commerce has to either zero in all cases or zero in none. Since the department has abandoned zeroing for new investigations, there's reason to hope the Obama Administration will disavow zeroing entirely instead of searching for some way around a carefully reasoned and forceful appellate ruling."  Indeed.  I'd only add that the US courts have been the last refuge of America's zeroing proponents (i.e., protectionists) and their buddies in Congress, so the CAFC's latest decision must have them squirming something fierce this week.  And that thought makes me smile.

• Politicians of both parties are lining up in support of the US-Colombia FTA - a strong signal that the Obama administration could finally send the Agreement to Congress sometime soon (everybody likes a winner!).  Dem Senators Baucus and Kerry gave the FTA a nice (albeit mercantilist) plug in a recent WSJ op-ed, and the (admittedly dwindling) New Democrat Coalition in the House fired off a letter to the President calling on him to submit all three pending FTAs asap.  Meanwhile the US business community is also upping the pressure, as this US Chamber blogpost and Caterpillar ad make clear.  Eternal optimist Monica Showalter of IBD has gleefully noticed all of this news and notes something important on Facebook: "With Obama and Santos scheduled to meet Thursday, and Santos refusing up until this point to meet Obama unless there's free trade - I think it is going to happen."  A very insightful point, and I hope she's right, but I'll believe it when I see it.  (Although this announcement re: the Canada-Colombia FTA certainly adds more pressure on the USA.) [Update: Monica has more in this new IBD editorial.]

• Speaking of that Kerry-Baucus op-ed, Cafe Hayek's Don Boudreaux gives it "two cheers," and withholds the third because of something that I've been arguing here for a long time: "A third cheer would be in order had not the senators relied upon a wholly mistaken reason to justify this particular move toward freer trade. In their essay, U.S. imports and American consumers are mentioned a total of zero times, while U.S. exports and American producers (such as farmers, firms, and workers) are mentioned 23 times.... The senators’ argument for freer trade in this particular case undermines the larger effort to persuade the public that free trade is to everyone’s long-term advantage – an advantage that is measured by increases in what we’re able to consume and not by increases in what we must sacrifice."  Exactly!!

• Cato's Ted Galen Carptenter explains why China's inevitable rise to superpower status isn't so inevitable, and why the United States has a lot to say about it.

• The Mercatus Center's Veronique de Rugy explains something I already know and have known for a few years now: the Alternative Minimum Tax sucks and should be eliminated asap.  Mind-blowing fact: "Congress created the AMT in 1969 to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes....  According to the Congressional Budget Office, last tax season 4.5 million taxpayers were affected by the alternative minimum tax, an increase of more than 4 million taxpayers since 1970."  Sonova...

• The WSJ Asia pens an excellent editorial on how the Japan tragedies have clearly revealed just how dependent American businesses and workers are on imports in this modern era of global supply chains.  The whole thing is worth reading, but here's my favorite passage: "Despite the fears of Japanese products a generation ago, in reality those imports have allowed America to keep its place as the world's largest economy by a country mile. We hope someone on President Obama's economic team is taking note. Trade opponents can always point to the jobs they claim trade has "cost" Americans, but it's rarer to see such an obvious example of how Americans are hurt when trade is suddenly interrupted. The point extends to imports from everywhere. American auto-industry fears over car imports from South Korea have so far helped block ratification of a Korea-U.S. free-trade agreement. That bit of politics hurts Americans who would export to Korea under the deal, but it also hurts the Americans who would benefit from Korean imports. Such as, say, small businesses that use pick-up trucks and currently face higher domestic prices and less competition thanks to a 25% tariff on imported trucks."  Amen.

• Last week USTR released its annual national trade estimate (NTE) report on foreign trade barriers.  It's never anything earth-shattering (and involves a lot of cut-and-pasting from previous years), but it's still a good place to find the next US WTO dispute or two.  (If you don't mind wading through the chaff.)

• Paul Ryan: Stud.

Now that should keep you busy until I come up for air...

Well, That Didn't Take Long

On Sunday, your humble correspondent heaped a little praise on USTR for its rhetorical refocusing of the US Trade Policy Agenda from ridiculously-export-oriented in 2010 to only mostly-export-oriented in 2011.  In particular, the new Agenda actually had several passages which made clear and coherent references to the benefits of imports for US businesses and consumers - a welcome change for those of us who have been constantly complaining about the administration's absurd mercantilist positions over the last two-plus years.

Sadly, it appears that USTR's trade epiphany was rather short-lived.

Reviewing USTR Ron Kirk's prepared remarks before the Senate Finance Committee today, Steve Lamar points out over email:

Number of times Ambassador Kirk talks about exports – 7

Number of times Ambassador Kirk talks about imports – 1*

*Use of the word “imports” is in this context: “In December, the WTO upheld our right to take action to stop a harmful surge of Chinese tire imports...”

Aaaaannnnd we're right back to 2010.  I guess all it took was a little public/political scrutiny to put the new "free trader" version of USTR right back in the ol' mercantilist closet.  (Shocking, I know.)

On the bright side, I guess balance has been restored in the trade universe (or something).

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.)

With (Trade) Friends Like These...

I've frequently lamented the attempts of many advocates of trade liberalization and FTAs to champion free trade policies through an exports-only, essentially mercantilist, approach.  Tonight's State of the Union Address - and protectionists' responses to it - perfectly demonstrate why my angst is well-deserved and why free trade proponents in Congress, the White House and the US business community need to ditch the mercantilism and adopt a new sales pitch.

Beyond the simple fact that there are myriad moral and economic arguments for open markets that are equal to or better than an export-centric approach, one of the biggest problems with a "free trade" message based only on exports is that it's completely self-defeating.  As I said last year when commenting on the President's post-State of the Union statements on trade to a group of GOP congressmen:

Obama states that "the suspicion about trade agreements is that they're all one way." Ok, that's true, but what's feeding that suspicion is not the FTAs themselves, or most Americans' real-world experiences with imports and free trade, but rather political demagoguery and media misreporting on imports, the trade deficit and the state of US manufacturing.... Until these myths are corrected - until the American people understand that imports are good for US businesses and consumers, that US manufacturing output is still the world's largest, and that the US trade balance is not some "free trade scorecard" - any attempt to sell free trade through an exports-only focus will actually enhance Americans' suspicions, rather than alleviate them. Americans simply will look at the trade deficit (which the US has held since the 1960s, so it's not like it's going away anytime soon) and think that we're "losing" at trade, and that our supposedly "reciprocal" FTAs stink. Why? Because the President told them that exports are the only thing that matter, and that the only reason that American companies aren't exporting more is because our trading partners are cheating by illegally denying US companies access to their markets....

Protectionists, of course, are more than happy to exploit this glaring vulnerability and, as I've noted many times here, they've tailored their trade-skeptical (and myth-filled) messages to prey on the public's misconceptions about trade - many of which are fueled by free trade advocates' shoddy trade salesmanship.

Case in point: President Obama's State of the Union sales pitch on the US-Korea FTA:

To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.

The message here is clear: FTA = exports = jobs.  And while exports are certainly a fine and laudable goal, the immediate protectionist response to this argument is exactly as predicted:

• Whether trade creates U.S. jobs depends on net export gains and reducing the trade deficit, which our past policies have not done.
• U.S. export growth under past Free Trade Agreements (FTAs) has been less than half that to countries with which we do not have FTAs.
• The U.S. International Trade Commission's (USITC) official study of the Korea FTA that Obama will emphasize concluded that the deal would increase the U.S. trade deficit.
• Korea FTA's chief U.S. negotiator admitted it would not be a boon for U.S. exports.
• Beware of administration claim that the Korea FTA will "support" 70,000 jobs; the core question is what net effect the Korea FTA will have on U.S. employment.
• The Economic Policy Institute projects American job losses from the Korea FTA at 159,000.
• The December 2010 Obama supplemental Korea trade deal does not alter the increased trade deficit, job loss findings.
• The USITC study identified nine losing U.S. economic sectors that include many high-wage industries, including auto and electronics manufacturing.
• Beware of the administration claim that the Korea FTA could reduce the U.S. trade deficit.
• The auto manufacturing industry may lose a significant number of workers due to the Korea FTA.
• Lack of currency manipulation disciplines in the Korea FTA mean agriculture could also lose out.

Every single one of these arguments is based on the same old protectionist myths about imports, the US trade deficit, and the state of US manufacturing.  And, despite the fact that these myths (and bogus "stats" like those from the union-backed Economic Policy Institute) have been routinely debunked here and elsewhere, they unfortunately sound almost-plausible when cast against the backdrop of the President's mercantilist SOTU statements on exports and the US-Korea FTA (and, of course, other, similar statements from pro-trade members of Congress and the US business community).

Just as troubling is the fact that the anti-trade "response" above actually came out yesterday!  In short, the "pro-trade" message coming from the White House and Congress has become so stale and predictable that anti-traders don't even have to wait until after the message has been delivered before they respond with their tired, mythtastic talking points.  (It must be nice to get paid for repeatedly cutting and pasting the same old arguments over and over again, huh?)

Could you imagine if the President and other trade advocates ever changed their mercantilist tune and spoke about the benefits of both exports and imports?  Or if they defended each American's freedom to engage in voluntary, mutually beneficial transactions with whomever he or she pleases, regardless of the political boundaries involved?  Or if they denounced protectionism as a pernicious, regressive tax on American consumers designed to line the pockets of a few well-connected producers?  Or if they simply explained that the American manufacturing sector has resumed its decades-long rise and remains the world's largest, or that an expanding US trade deficit is closely associated with economic growth, or that 55% of all imports are capitol goods and equipment that American businesses use to remain globally competitive?

For starters, anti-traders' responses couldn't be mailed-in anymore; and they'd actually have to come after the President's remarks, not before them.  Maybe they'd come up with new arguments, but seeing the dreck that they currently peddle, I'm not so sure that they could.  And considering that they've been relying on the same tired playbook for the last twenty-odd years, it would definitely be fun watching them scurry to come up with new dreck for a change.

Crazy thoughts, I know.

Monday Quick Hits

There have been several interesting developments over the last few days, so let's get right to them:

• Eight weeks after the 2010 mid-term elections, the Obama administration, ahem, boldly announces that it has begun the process of looking into whether it will maybe start letting Mexican trucks onto US roads again.  The Transportation Department proposal is here.  The Teamsters are "deeply disappointed," and Mexico sounds pleased, so this is looking pretty good.  But let's be very clear here: nothing has changed yet.  Mexican trucks are still banned from US roads, and $2.4 billion worth of US exports will continue to face retaliatory Mexican tariffs - as they have since 2009 - until this agreement is finalized.  Today, USTR Ron Kirk and his Mexican counterpart Bruno Ferrari optimistically announced that it could be at least 4-6 months before the program begins (it apparently needs congressional approval), and Mexico will stop adding or removing products from its retaliation list.  Nevertheless, the tariffs will remain: "Once we have dates, time frames and the manner in which this Nafta mandate will be met, we'll present and discuss the process to lift the retaliatory tariffs," Ferrari said.

• Are things looking up for the US-Colombia FTA's prospects in the 112th Congress?  According to Inside US Trade, ranking member of the House Ways & Means Committee Sander Levin (D-MI) and Senate Finance Committee Chair Max Baucus (D-MT) separately have announced trips to Colombia over the next few weeks.  These visits will definitely give both top Democrats (and any others joining them in body or spirit) a new excuse to support the FTA, despite strong resistance from US labor unions and many, if not most, of their fellow Dems.  As you may recall, similar trips to Peru back in 2007 gave Levin and former Ways & Means chairman Rangel cover to support the US-Peru FTA.  On the other hand, supporters of the US-Colombia FTA shouldn't get too excited - the FTA remains organized labor's most-hated pending agreement; the White House still hasn't gotten behind the agreement (although the Daley Chief-of-Staff pick is a reason for optimism); and Levin and Baucus are some of the Democratic Party's more reasonable folks on trade, especially trade agreements that would boost automobile and beef exports.  Nevertheless, the Levin/Baucus trips are a good thing, and maybe, just maybe, they're a sign that the Democrats' absurd resistance to the Colombia FTA is fading.

• Martin Feldstein, former chair of Reagan's Council of Economic Advisors recently predicted that the US-China current account deficit should disappear in the next few years.  Today, China announced its 2010 trade balance, and its surplus is dramatically smaller than anyone was expecting.  "Chinese exports increased 31.3 percent last year as global demand recovered, but the extent of China's outperformance was underlined by a 38.7 percent jump in imports, fueled by its voracious appetite for oil, iron ore and other commodities." As a result, "China's full-year [2010] trade surplus was 38 percent lower than its pre-crisis peak of nearly $300 billion in 2008."  I've repeatedly cautioned that global supply chains now limit the predictive value of these trade stats.  Nevertheless, it appears - on the surface at least - that some changes are afoot.

• The Daily Caller reports that the United States is missing out on being a big exporter of, wait for it, horse meat.  But because of a 2007 USDA rule that effectively banned the slaughter of horses, the 1 billion global consumers of horse meat get their food elsewhere.  Oh, and here's a real shock: the "saved" American horses apparently suffer far worse fates than the slaughterhouse, and they're causing serious environmental problems in several Western states.  And the Law of Unintended Consequences wins again.

• Politico: "Leaders of 1,655 companies and associations sent letters this week to ever member of Congress pressing for passage of all three pending free trade agreements (Korea, Colombia, Panama). House letter: http://politi.co/gGKSkb Senate: http://politi.co/gsIam3."  Me: please note the letters' typical overemphasis on exports.  Sigh.

• New research shows that bank deregulation had a significant, beneficial effect on income inequality.  Says Cato's Mark Calabria: "[W]e need to examine banking regulation/deregulation as it actually occurs and is implemented, and not how we believe some all knowing, benevolent government would impose it. The odds seem to me that the more extensive is banking regulation, the more likely it is to be captured by economic elites and narrow interests."

That's all for now.  Happy reading.  (And Go Ducks.)

Selling Trade in the 21st Century

Frequent readers of this blog (all six of them!) know that one of my many pet peeves is the attempt by supporters of free trade to try to sell it to the general public using a mercantilist, exports-only approach.  As I've explained ad nauseam, not only is this approach unnecessary in a 21st century global economy, but it's also self-defeating:

This approach - championed by Republican and Democrat administrations alike - is one that focuses almost entirely on expanding US exports, while completely ignoring the proven benefits of imports and foreign investment for US businesses and consumers. And it is manifest in America's insistence on "reciprocal" trade negotiations with other countries - a decades-old system in which the United States only agrees to open its markets if our trading partners open theirs too. Of course, this outdated system (and the United States' blind commitment to it) reinforces the idea that exports are good, and imports are the bad things that we must reluctantly accept in order to gain new export markets.

The reality, of course, is that both exports AND imports are good, and there are mountains of empirical and anecdotal evidence supporting this central truth - especially in this modern era of global supply chains and multinational investment. But when our leaders' attempts to sell trade focus only on exports, and when "reciprocity" becomes the central tenet of national trade policy, the obvious, yet completely wrong, implication is that the trade balance (exports minus imports) is a "scorecard," and that a trade deficit (more imports than exports) means that we are "losing" at trade. And, sadly, this false implication is readily manipulated by protectionists seeking to restrict global trade (and, by extension, individuals' right to voluntarily engage in, and benefit from, it).

More discussion of this fact is here, here, here and here - did I mention this was a pet peeve?  Thus, you can imagine my consternation when the well-intentioned folks at the US Chamber of Commerce released their Top 10 Reasons Trade is Good for America, and it focused almost entirely on exports.

Here we go again.

Fortunately, Cato's Dan Ikenson saved me a lot of time and effort and provided a fantastic amended version of the Chamber's top 10 list.  Dan's edits are in bold:

1. The United States is the number one manufacturing nation in the world, and that success depends on exports. And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.

2. The United States is the world’s number one services exporter and has been since services trade data have been tracked. And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.

3. U.S. agricultural exports support nearly a million jobs in the United States. And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.

4. 95 percent of the world’s consumers lives outside the United States... as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.

5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.

6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.

7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales... and in manufacturing.

8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports. And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.

9. U.S. companies with overseas investments account for 45 percent of all U.S. exports. And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports, pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.

10. Trade supports 38 million jobs in the United States–more than one in five American jobs. And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

Great stuff, and certainly worth repeating at every possible opportunity.  But if you ask me, what's as great or greater is Dan's rock-solid reasoning for trumpeting his amended top-10 list (beyond the basic economics, of course):

Informing new members and reminding old of the benefits of exports to U.S. businesses and workers is clearly a worthwhile objective of the Chamber, the business community, and really anybody interested in economic growth. But in some respect there’s a preaching-to-the-choir element in that approach. You’re not going to find too many policymakers opposed to exports, and the administration has constructed a whole new bureaucracy devoted to the proposition that exports should double in five years.

Where the trade agenda has stalled (and where it always has problems) is on the rough terrain that—for lack of a better catchphrase—might be called “rationalizing” imports. That’s been the hard part of trade adovcacy over the years: “We had to cede some access to our markets, but look what we got in exchange!”

In pitching the very same bilateral trade agreements two and three years ago that the business community is pitching today, then-USTR Susan Schwab liked to remind Congress that the United States had an aggregate trade surplus with the countries with whom the Bush administration had concluded free trade agreements, as though that were the appropriate success metric. “We export more to them than we import from them; let’s call this a triumph!” But anyone inclined to accept that statistic as conclusive could simply visit the Commerce Department’s website and see that, at the time, our overall trade account was in deficit by about $800 billion. Thus, if “exports minus imports” is the measure by which we judge the benefits of trade, then America should shun trade entirely. That sales approach doesn’t seem to be in short- or long-run equilibrium. Mercantilist arguments only ensure that every step forward on trade requires a full-fledged battle. We need better—that is, more comprehensive—salesmanship of trade for the new Congress.

Yes, yes, yes and yes.  As Dan notes, and as I've said repeatedly here, a winning trade sales pitch includes the economic benefits of both exports and imports, as well the basic and obvious morality of free trade (and, by extension, the immorality of protectionism).  Indeed, in a modern political climate increasingly skeptical of Big Government and crony capitalism, the latter moral arguments are probably the most compelling of all.  Otherwise, we're just repeating the same old losing arguments which cede almost the entire playing field to the other side.

Until the well-intentioned folks in Congress, the US business community and elsewhere understand these very simple facts and begin to embrace a smarter trade marketing strategy, a majority of Americans will never buy what free traders are selling.  And after decades of trying - and failing - to market free trade through mercantilism, it's not like we could do any worse.

Wednesday Quick Hits

Lots of headlines since last week, so let's get right to it:

• Cato's Dan Ikenson provides some much-deserved criticism of USTR's jubilation over the WTO's totally-expected ruling that last year's Section 421 decision against Chinese tire imports was consistent with global trade rules.  (Others agree.)

• AEI's Claude Barfield rightly admonishes the Politico's John Maggs for his reallllly bad reporting on US FTAs' likely path through Congress.

• Cato's Dan Mitchell and Chris Edwards explain just how embarrassing it is that, with Japan's decision to lower its corporate tax rate, the United States now has the highest statutory corporate tax rate of all OECD nations.  Edwards provides a great chart: 

Me: The next time that a protectionist complains about imports, outsourcing and a lack of American competitiveness, feel free to share this chart with him/her. 

• Columnist David Harsanyi explains that Americans are just plain wrong about the state of American manufacturing. (Gee, I wonder where they could have gotten the wrong idea?)

• Revealing WSJ interactive charts on US debt levels.  Guess what? Everyday Americans have moderated their debt levels, but Uncle Sam's tab just keeps on growing and growing and growing.

• Paul Krugman, mercantilist.

• AEI's Phil Levy (at a very interesting forum on the National Export Initiative) explains, starting at about 1:37 the pitfalls of trying to sell free trade through mercantilism (i.e., free trade = exports = jobs) approach (h/t Bryan Riley):

• Chinese inflation is becoming a pretty serious issue.  More here.

• Festivus is real.  Bring on the airing of grievances and feats of strength!

• Finally, GMU's Don Boudreaux takes to xtranormal to create a nice little cartoon explaining the idiocy of protectionism (h/t Simon Lester):

 That should keep y'all busy for a while.  Enjoy!

A Trade Agreement Even a Mercantilist Could Love

In all the hoopla surrounding the ongoing soap opera that is US-Korea FTA, many of us have lost sight of another completed-and-signed-yet-still-not-implemented-for-no-good-reason deal - the US-Colombia FTA.  Fortunately for us, the WSJ's Mary Anastasia O'Grady helpfully reminds us today about Colombia.  Her column is definitely worth reading in full, but here are my favorite parts:

Asked about the president's failure to get the amendments he wanted on the signed U.S-South Korea free trade agreement in Seoul, Mr. Locke asserted that the U.S. can't accept "a deal for the sake of a deal" and complained that as it stands now, it doesn't open Korea enough to U.S. producers.

This is mercantilism, a trade philosophy that promises national prosperity through exports. If you are not familiar with the term, it may be because it was last in vogue in the 18th century. It gradually went out of style when policy makers learned that by opening to foreign goods, they could increase the competitiveness of local producers and build wealth.

It is true that mercantilism—a form of economic nationalism—made a comeback in the 20th century under fascism in Europe and Latin America. But that too ended in tears. After World War II, countries relearned the lesson that when both consumers and producers are able to choose from the globe's output, they have the advantage over their counterparts in closed economies. Chile became an export powerhouse by unilaterally opening its markets to the world....

But let's assume the Obama administration is mentally stuck in 1930s Italy and thinking only of exports. It still can't justify its position on Colombia, the third largest market for agricultural imports in Latin America. American farmers now pay an average 16.5% tariff on exports to Colombia. As a result, according to Colombia's ministry of trade, "countries like Argentina [which is part of an FTA] are rapidly displacing U.S. producers. In 2008 American farmers had 46% of the Colombian market; today that share has diminished to 22%."

Next year, Ottawa's Colombia free trade agreement will enter into force, and Canadian producers will join the list of competitors who have an advantage over Americans in the Colombian market. The European Union and South Korea have also signed FTAs with Colombia and will have advantages on the industrial production front.

It's hard to understand what Mr. Obama is thinking about besides his loyalty to the AFL-CIO. But Colombia's plans are clear. It wants to trade with the U.S. But if it is rejected, it will simply buy and sell with the rest of the world.

Good stuff.  Be sure to read it all here.

So to recap: the White House won't move an economically-massive, two-sided agreement in the KORUS because it still doesn't fit their (widely-discredited) mercantilist framework.  Yet they also won't move a smaller, totally-lopsided agreement in the US-Colombia FTA, despite the fact that it's a mercantilist's dream.  Meanwhile, South Korea and Colombia are entering into FTAs with each other and the United States' biggest competitors.

(And as for the US-Panama FTA, well, it's apparently a figment of our collective imagination.)

This all makes perfect sense, wouldn't you say?

Monday Quick Hits

Lots of interesting links over the last few days, so let's get right to 'em:

• Lifelong Democrat laments his party's anti-innovation agenda.

• WSJ's Strassel: why the GOP needs to take on the government's misguided "green energy" movement.

• AEI's Nick Schulz on why a revised American immigration policy must be a central feature of its future competitiveness policy.

• Korean negotiators to their US counterparts: "Hey, if you guys want to re-open the KORUS FTA for autos and beef, then we'd like to re-visit some of your most important/untouchable issues."

• Not all Dems are against free trade and American competitiveness; unfortunately, this important Dem isn't, you know, an elected official anymore.

• Don Boudreaux quickly explains the illogic of mercantilism.

• Russ Roberts so wants to explain the problems with Ben Bernanke's recent China criticisms that he's willing to give away part of his new book for free.

Now, if you'll excuse me, I need to get back to my intense turkey-ingestion training regimen.

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.