Daniel Rivera Greenwood

The North American Free Trade Agreement liberalized trade between the three North American nations — Mexico, the United States, and Canada — to great success and positive overall effects on the economy, even though some anti-trade activists argue otherwise. Now, should we expand the agreement to include other nations in Europe?

The European Union crisis has left the region’s currency union and single market very unstable, and the lack of consensus regarding bailouts to some of its members has left other members questioning their future in the Union. In fact, some of Britain’s MPs are looking to call a referendum to discuss whether or not the U.K. should continue to be part of the European Union. Conflicts have risen between London and Brussels, most recently about the British veto thwarting an EU pact directed at shoring up the foundations of the euro.

If the United Kingdom does leave the European Union, would they join NAFTA? For one, the United States, Canada, and the United Kingdom have some shared history, and New York and London’s financial markets are the biggest in the world. Allowing these two markets to trade freely would allow American capital in the U.K., and U.K. capital would find itself funding American industry, research, and development. The U.S. accounts for 90 percent of U.K.’s North American trade, even when this is only 16 percent of all British trade. NAFTA might even be more of a natural fit for the U.K. than the EU is, since the British welfare state is considerably smaller than the average EU member state, and its tax rates are lower — small wonder why Britain has weathered the crisis better than Greece or Portugal. Finally, American goods would be easier to find on British shelves and showrooms, boosting American producers.

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Post image for Butter-nomics: Protectionism and Food Shortages

Norway, a fully industrialized country and ranked first in the latest Human Development Index, a United Nations’ metric that tries to quantify the quality of life across countries, is suffering through a butter shortage, a common food staple and an important input in the food industry. Food shortages wouldn’t be out of place in places like Cuba, North Korea, Venezuela and some poor Sub-Saharan nations; it is almost unfathomable that they occur in one of the most developed nations in the world.

Norwegian authorities seem puzzled by the shortage and subsequent rise in butter prices. They blame a new low-carb high-fat diet craze for the additional demand. Additionally, heavy rains during the summer affected grazing areas for cows, which resulted in reduced milk production. The shortage is especially alarming during the Christmas season, where many traditional recipes rely on significant amounts of the dairy product. Norwegians have actually resorted to churning their own butter, including a restaurant owner interviewed by The Wall Street Journal: “We have to [churn butter]. We can’t get hold of any butter, not any at all. And it’s right before Christmas, so we have a lot of customers. It’s really strange. It takes a lot of time since we use hand mixers.”

While the diet combined with unfavorable conditions for dairies has limited the amount of available domestic butter, it doesn’t address the biggest issue for the limited quantities of the good: trade regulations.

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Alabama, South Carolina, and Georgia are joining the list of states with tough anti-immigration laws. On January 1, most of those laws are going into effect. Undocumented immigration may seem like a serious threat, but the so-called solutions are nothing more than intrusive economic regulations that destroy economic growth and hurt Americans.

Misconceptions about immigration explain these laws. First off, immigration is not a zero-sum game. There are not a finite number of jobs. Each job that an immigrant has is not one that a native would have had. A study by Pia Orrenius and Madeline Zavodny conclusively shows that immigrants have an overall positive effect on native born Americans, and that increasing the levels of immigration will increase America’s economic growth.

Immigrants and natives barely even compete for the same types of jobs. Immigrants make up 17 percent the U.S. workforce (25 years and older) and are typically either low-skilled or very highly skilled. Orrenius and Zavodny note that immigrants make up 47 percent of workers in the United States with less than a high school degree and 27 percent of all doctorates.

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Post image for Farm Bill: Bailouts, Special Interests, and Pheasants

The infamous “secret farm bill,” negotiated by the leadership of the agriculture committees with little transparency and discussion, will not pass as part of the debt-reduction “supercommittee” recommendations, since discussions between Democrats and Republicans in the committee broke down. This means that the covert farm bill will not enjoy fast-track approval in Congress.

Now the new farm bill negotiations will be made public, and the new bill, expected to be based on the “secret” one, will probably face stiff opposition from both Republicans and Democrats. The contents of that farm bill, negotiated by Senate Agriculture Committee Chairman Debbie Stabenow (D-Mich.) and House Agriculture Chairman Frank Lucas (R-Okla.), are still a mystery. They did not release the full details of their negotiations, even to their own committee members.

The Hill reported that the secret bill eliminated lump sum direct payments to farmers (which in some cases meant that farmers who didn’t produce agricultural goods still received them) and replaced them with a “revenue based supplement to traditional crop insurance.” This type of insurance system would reduce the cost of farm bill programs when prices are sufficiently high. However, if prices fall below a certain threshold, taxpayers will pay for this insurance and costs can rise significantly. Ultimately, this program amounts to a privatization of gains (if prices are good, farmers keep all profits) and a socialization of losses (if crop prices are low, taxpayers are on the hook for federal insurance).

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The annual session of United States – China trade talks was held last week, in the Chinese city of Chengdu. These talks look for ways to improve economic ties between the countries, and focused on currency issues, intellectual property and market access issues.

These discussions are a nice break from U.S. official rhetoric that places confrontation with the Chinese ahead of community-building and strengthening trade relations. Obama’s recent visit to Australia, where he committed 2,500 U.S. Marines to “project power and deter threats to peace,” was clearly aimed at Beijing. China’s response was unsurprising: they questioned the move and declared that they would watch developments closely, and took President Obama’s words as provocation.

The trade talks, led by U.S. Commerce Secretary John Bryson and Chinese Vice Premier Wang Qishan centered around the notion that, as Bryson said, “many in the U.S., including the business community and the Congress, are moving toward a more negative view of our trading relationship.” Wang echoed those sentiments, while urging U.S. officials and lawmakers to ease restrictions on Chinese high-tech exports and grant market economy status to China — which would make its firms less liable to dumping statutes and provide better access for its producers.  In negotiating its accession to the World Trade Organization, China agreed to be treated as a “non-market economy” for 15 years, which leaves the country more open to charges of anti-dumping.

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The Hill reports that a new “secret Farm Bill” will be included with the super committee’s debt deal. As The Hill points out, legislators are “using the super committee to avoid what would be a more public, election-year debate in 2012, when the current farm bill expires and new legislation would be scheduled for writing.”

As mentioned on OpenMarket before, this presents a big moral hazard problem. Legislators are using the secrecy and lack of accountability present in super committee deliberations and adding legislation beneficial only to narrow sectors of the economy. In the farm bill’s case, the super committee asked members of the Agriculture Committee to come up with $23 billion in cuts by November 1, and although the deadline has passed, the Agriculture Committee is still working on the proposal. Beyond these details, information is difficult to obtain.

Under “normal” farm bill negotiations, input from farmers, communities and advocacy groups would be accounted for, and negotiations would be made public. With the super committee, the bill is being negotiated behind closed doors, and would be passed as part of the debt reduction deal, not as a stand-alone bill.

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Post image for U.S. Sugar Program Hurts Businesses and Kills Jobs

CBS San Antonio affiliate KENS 5 reports that a San Antonio candy company, Judson-Atkinson Candy Company, has ceased operations after 110 years of making candy. The company has been forced to lay off more than 100 employees, and currently has only 14 people in its production facility. The family-run business says that the company simply can’t compete with firms outside the U.S., since domestic companies pay more for candies’ main ingredient: sugar. According to the owner of the company, Amy Atkinson Voltz, the candy company pays more than twice the international price for sugar, which caused an additional $2 million in costs for the company. “It’s totally unfair competition,” Atkinson said. “It’s been really hard. We had to bring in employees who had worked here 20-plus years and tell them that we were not going to produce candy right now.”

With the costly and unnecessary U.S. sugar program, it’s no surprise that American candy and beverage manufacturers have a hard time competing against international products from countries like Brazil and Mexico. While some domestic manufacturers are able to switch to alternative products like high fructose corn syrup, its application is limited in the candy manufacturing and baking industries.

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The Joint Select Committee on Deficit Reduction, commonly referred to as the Super Committee, is a bipartisan committee looking for ways to prevent a sovereign default from occurring in the United States, by cutting $1.5 trillion from the 2012-2021 budgets. While in the face of current events this may seem sensible, politicians are taking advantage of the secretive nature of the Super Committee to introduce costly new programs in bills.

Recently, 27 House members sent a letter to congressional Super Committee co-chairs last week, voicing concerns that members of the agricultural committee were using the deficit reduction process to keep and introduce new programs into the Farm Bill, without any sort of oversight. The letter (which can be found here), signed by representatives from both parties, mentions the lack of congressional review and oversight stemming from the fact that “recommendations [from the Super Committee] are not subject to amendment or filibuster. Congress implemented these rules to dull the pain of politically contentious but fiscally responsible measures. Yet, it has become apparent that some believe they can create new programs and entitlements with limited Congressional scrutiny and input.”

It is alarming that even when the United States government faces large budget deficits (which has forced Congress to raise its debt ceiling), congressmen try to sneak in costly amendments, regulations, and earmarks that will benefit only a few individuals in privileged areas. The nature of the political system rewards politicians who look for irresponsible and unjust “pork” for their districts, while fiscally responsible members tend to be penalized by their own voters. This is the tragedy of the political system, and the result of large national policies that create concentrated benefits, but diffused costs.

In yesterday’s Washington Times, Brett Decker (editorial page editor)  reviews Patrick J. Buchanan’s book Suicide of a Super Power: Will America Survive to 2025? In his article titled Buchanan: Take the China Test, he rallies against free trade and China, with half truths and fear-mongering to appeal to individuals who see trade with China as a negative thing.

Decker starts his story by narrating his visit to a car dealership, on the look-out for an American muscle car, but becomes distraught when he sees that “the domestic content was only 55%,” and that the transmission was manufactured in China. The author was also shocked to find that a box of nails, and even a box of fruit, was manufactured by the Chinese. As Decker puts it, “the reds had invaded my refrigerator.” He challenges readers to take the China Test: “Anytime you buy anything, flip it over and read the label to see if it was made in [China].” He concludes the paragraph by saying that “America is making less all the time”, which is simply not true. In fact, according to the Federal Reserve, manufacturing output has steadily increased since 1975, as this graph prepared by the Mercatus Center’s Veronique De Rugy shows:

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Post image for Don’t Fear the Trade Deficit — Embrace it

In the evening of October 12,  the U.S. House of Representatives and the Senate both passed the Free Trade Agreements with Colombia, South Korea and Panama. The press, members of Congress and senators all highlighted the job-creating potential of these treaties, because of their boost to exports and the manufacturing sector.

These stories leave out an important element: The value of imports. In an open market system, where countries are able and willing to trade with one another, imports play an important role in providing choices and in the development of new and better products.  They also contribute to the specialization of the domestic labor force, which ultimately increases welfare and output.

However, critics point to the trade deficit as a problem that costs American jobs. The U.S. trade deficit has indeed grown since the 1970s, and in 2010 equaled US$500 billion (in 2008, it equaled nearly US$800 Billion).  These critics argue that as people substitute domestic goods with imports, domestic industry employment will fall, and many people will lose their jobs. However, a simple analysis of unemployment, output and trade deficit data shows almost no relationship between a rise in the trade deficit and a rise in unemployment or a decrease in economic output.

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