Trade

What Happened to U.S. Wages During Mass Immigration?

by David Bier on May 20, 2013 · 0 comments

in Features, Immigration, International, Trade

immigrants-1843-16jll8jAmerica’s immigration debate often focuses on how immigrants affect the welfare state, even though many immigration restrictionists would oppose immigration even if we did wall off the welfare state for new immigrants. “It’s logical that if you bring in a massive supply of low-wage workers, you’re going to pull the workers down,” said Sen. Jeff Sessions, R-Ala., recently. But history contradicts this notion. Immigration pushes wages for U.S. workers up, not down.

America’s first Secretary of Treasury Alexander Hamilton would not have agreed with Sen. Sessions. He thought immigrants pushed Americans up, not out, of the labor market. “Foreign emigrants… exhibit a large proportion of ingenious and valuable workmen, in different arts and trades, who, by expatriating from Europe, have improved their own condition, and added to the industry and wealth of the United States,” Hamilton said in 1790. He found “the use of immigrants will leave Americans free to engage in more dignified pursuits.”

History proved Hamilton correct. Historian Aristide Zolberg notes in his recent treatise on the history of American immigration that by the turn of the 20th century, manufacturing’s “skilled upper component consisted largely of natives or ‘old’ immigrants, whereas the lower semiskilled and unskilled one was filled by newcomers,” and that “recent research has confirmed contemporaneous reports of an overall increase of real wages in manufacturing.” In other words, by taking lower-skilled jobs, immigrants created better opportunities for Americans elsewhere in the economy, as predicted by Hamilton and by Say’s Law.

From 1890 to 1914, more than 15 million people poured into the United States, mostly from Europe. More than 1.3 million came in  1907 alone. That would be like 4 million coming in one year today–which would be four times the number allowed in legally last year. Despite this enormous increase in the workforce, worker compensation rose 40 percent over that era. Overall, America’s fastest period of economic growth was during the time of mass immigration (4.17 percent annually). By the end of the period, Henry Ford was paying automobile assembly line workers the highest wages in the world, despite the immigration flood, or as Say’s Law indicates, partly because of it.

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Coalition Urges Reform of Sugar Program

by Fran Smith on May 10, 2013 · 0 comments

in Agriculture, Environment, International, Trade

The Hill picked up our coalition’s release on reforming the U.S. sugar program. The letter, sent to all Senate and House offices, was pretty blunt in its assessment of sugar policy:

The program is an outdated relic of the 1930s that has outlived its purported usefulness. It is a central planning scheme that—

—Allocates the domestic supply

—Restricts imports of sugar

—Sets prices substantially higher than the world price

—Buys up surplus sugar and sells it at a loss to ethanol producers

Ten taxpayer, advocacy, and public policy groups signed on to the missive, which also pointed out who benefits and who loses:

The U.S. sugar program is a classic public choice case of concentrated benefits and dispersed costs: of how special interests can trump the public interest. A small number of sugar producers receive enormous benefits, while the costs are spread across the U.S. economy, hitting consumers and the sweetener-using industries.

The groups urged policymakers to reform or eliminate the program.

Seven Ways Heritage Concluded Immigration Reform Will Cost $6.3 Trillion

by David Bier on May 9, 2013 · 0 comments

in Economy, Features, Immigration, International, Nanny State, Trade

Post image for Seven Ways Heritage Concluded Immigration Reform Will Cost $6.3 Trillion

The Heritage Foundation’s report this week that suggests legalization for unauthorized immigrants will result in a $6.3 billion fiscal deficit is an important conversation starter about the need for welfare reform. But the mere fact that legalizing the status of unauthorized immigrants in the United States will increase some costs for taxpayers should not, by itself, stand in the way of immigration reform, as John Locke once noted. Nonetheless, the report significantly overestimates the fiscal costs of legalization in at least seven ways.

1. Using a 51-year time frame: $6.3 trillion sounds huge, but when you break it down annually, it is a much smaller figure of $123 billion. Heritage has criticized the Congressional Budget Office for not evaluating fiscal impact beyond 10 years, which is true. But that’s for a good reason. To forecast fiscal and economic conditions 10 years into the future is extremely difficult in the first place and rarely very accurate—predicting 5 decades into the future is totally impossible. For example, what if high-paying jobs in the future don’t require a college degree, as the Bureau of Labor Statistics predicts? What if we reform entitlements? What if income mobility increases? Does anyone honestly think that anyone in 1953 could have predicted the economic condition of the U.S. in 2003, let alone the economic condition of a subset of that population 50 years from now?

2. Ignoring economic growth: Economists are virtually unanimous that immigrants create economic growth that results in increased tax revenues, but Heritage explicitly ignores this factor in its analysis. The White House Council of Economic Advisers found in 2007 that “annual wage gains from immigration are between $30 billion and $80 billion” to natives. The same year, Economist Giovanni Peri found that wages for workers with at least a high school degree grew by 2 percent due to immigration between 1990 and 2004. In 2012, UCLA economist Raúl Hinojosa-Ojeda incorporated economic growth into his analysis and found legalization would raise GDP by $1.5 trillion over 10 years. Economist Douglas Holtz-Eakin’s admittedly rudimentary analysis found that economic growth due to immigration reform would reduce the deficit by $2.5 trillion.

3. Ignoring effects of progressive taxation on the poor: Progressive taxation means that the government shifts that tax burden onto the rich, but that doesn’t mean that the poor don’t incur the costs of taxation. In tax policy, Heritage argues that all income taxes targeting the rich ultimately impact the poor. For instance, in 2004, Heritage concluded that the Bush tax cuts for higher-earners “boost the incomes of all Americans.” This admits that although the poor don’t pay many taxes directly, they incur the costs of taxes indirectly. Heritage should note this in its report.

4. Including U.S. citizen children: James Pethokoukis at the American Enterprise Institute rightly notes that 40 percent of the spending the report describes is on U.S. citizens, the children of unauthorized immigrants. Heritage justifies including these Americans because the National Research Council’s 1997 estimate of the costs of illegal immigration included them. The problem is that the NRC’s estimate was of the impact of illegal immigration in general—not the cost of a policy change, legalization, as Heritage’s report is supposed to be estimating.

5. Doesn’t actually estimate the cost of legalization: Not only does Heritage’s number include the cost of U.S. citizen children who would receive services regardless of legalization, but it also includes the cost of “population-based” services, like police, fire, and parks that would be spent regardless of whether there was a change in policy. More than 20 percent of the cost comes from these services alone.

6. Ignoring enforcement costs: The Heritage report ignores the fiscal costs of continuing enforcement-only policies and certainly not ramping them up as the report recommends. College of William and Mary professor of economics Rajeev Goyle estimated in 2005 that if we could find all 11 million deportable immigrants, the cost of mass deportation to be $206 billion over 5 years, or $41 billion annually. Five years later, the Center for American Progress put the number at $285 billion over 5 years. Immigration and Customs Enforcement (ICE) has found that it costs at the margin $12,500 to deport a single person. This translates to $144 billion, ignoring the capital costs.

The economic cost of deporting 11 million immigrants also includes also the lost productivity from the flood of workers leaving. Even a strong enforcement effort that reduces the number of unskilled workers by 28 percent would lower GDP by $80 billion per year or 0.5 percent of the income of U.S. households, according to economists Peter Dixon and Maureen Rimmer. In 2012, Raúl Hinojosa-Ojeda found that the number would likely be $2.6 trillion in lost GDP over 10 years (Prof. Goyle found the same number in 2005). In 2012, the Department of Agriculture looked at the economic impact of cutting the unauthorized population in half over 15 years. It found that it would reduce U.S. wages by 1 percent, $150 billion.

7. Not analyzing the whole bill: Heritage only looked at the impact of legalization—it ignored the fiscal impact of all the other portions of the bill, including admitting far more highly-skilled individuals and guest workers who are ineligible for welfare benefits. These effects could very well offset any fiscal deficit that remains.

It is true that America has a redistribution problem, but that doesn’t mean that immigration reform will hurt the economy or the government’s budget. It just means that if we reform both welfare and immigration, the gains will be that much greater.

Europe’s “Green Energy” Initiatives Don’t Want Your Help

by Geoffrey McLatchey on May 8, 2013 · 0 comments

in Energy, Environment, International, Trade

As European renewable energy initiatives seek to radically reform their means of energy production, it would make sense that it be done in the most affordable way possible. However, leading European solar groups have teamed up with EU officials to make sure this is not the case. In light of recent EU allegations of Chinese solar panel dumping in European markets, The European Commission is set to impose a 47 percent tariff on Chinese solar panel imports beginning June 6. A recession plagued Europe driven by renewable energy policies is shooting itself in the foot by implementing a tariff that will increase the price of its energy production.

The imposition of this tariff could not come at a worse time for European consumers. In pursuit of “green energy” production, the U.K. and Germany have already initiated plans to essentially do away with existing energy sources. As I noted in The Commentator, the result has been higher energy prices. Solar power production, being both expensive and inefficient relative to alternative sources, is an industry that requires substantial subsidies to exist. A tariff on Chinese solar panel imports means a step in the wrong direction in terms of making solar energy a more viable energy source.

A tariff on cheap Chinese solar panels not only makes energy production more expensive, but it invites retaliation from the EU’s second largest trading partner at a time when free trade is imperative for economic recovery. The dumping allegations, originally brought forth by German company SolarWorld last September, have already worked to substantiate a 31 percent tariff on Chinese panel imports in the U.S. In response to the U.S. tariff, Chinese officials have threatened a retaliatory tariff. Critics of the new EU tariff worry China will respond in similar fashion.

As Europe seeks to make their renewable energy sources work, it is clear that protectionist policies are not the best strategy for doing so. Renewable energy’s two biggest drawbacks come in the form of efficiency and affordability. Cheap Chinese imports help to solve the latter problem in the solar energy realm. Instead, European solar panel prices rise as the interests of SolarWorld and other European big solar groups stifle foreign competition and take precedence over the consumer.

How Online “Marketplace Fairness Act” Could Tax Your 401(k)

by John Berlau on May 6, 2013 · 9 comments

in Economy, Legal, Nanny State, Personal Liberty, Regulation, Trade

Today, the Senate likely will pass the Marketplace Fairness Act, which would force online retailers to collect sales taxes for states in which purchasers reside. Most have heard how this will hit us when we purchase goods over the Internet. But a lesser-known problem is the legislation also would enable states to levy new taxes on 401(k) and other savings vehicles.

How? The bill authorizes states to “require all sellers not qualifying for the small seller exception [$1 million in sales or less] to collect and remit sales and use taxes with respect to remote sales sourced to that Member State.” Yet “sellers” and “sales” are never specifically defined, and there are no specific exemptions for certain types of products or services.

Financial experts say this means states tax “sales” such as stock trades in a mutual fund or brokerage account, or even contributions to pension plans such as 401(k)s that were designed to be tax-free until retirement.

The American Society of Pension Professionals and Actuaries, a group of more than 11,000 retirement plan and benefits professionals, warns the bill “would allow states to impose a financial transaction tax that would apply to American workers’ 401(k) contributions and other transactions within worker’s accounts.” The group notes that “over 70 million workers could be affected” by such taxes, which “could significantly reduce workers savings over time, threatening their retirement security.” The group calls for “a clear exception” for transactions within a 401(k) account.

Yet this is not the only financial service the bill could enable states to tax, experts say. Grover Norquist of Americans for Tax Reform asks in a letter to Sen. Mike Enzi, R-Wyo., a chief GOP proponent of the legislation, “Will financial products that are sold over the Internet, such as portfolio management services, credit reporting service apps, or insurance service, fall under MFA taxation authority?”

The Securities Industry and Financial Markets Association (SIFMA), representing securities firms and asset managers,  issued a statement urging hearings  on the MFA’s impact on financial services. As written, “the bill could lead to unexpected costs being passed on to consumers of financial services, including sales taxes on services or state-level stock transaction taxes,” the group said.

Similarly, the Financial Services Roundtable, which represents banks, insurance companies and brokerage firms, states these concerns: “A transaction tax on financial services products will hurt retail investors, retired Americans, and small businesses, effectively making it more expensive for them to invest and plan for the long-term. Without hearings, these implications and others will not be properly addressed.”

These potential scenarios, taken seriously by financial policy experts, illustrate the inherent problem of the bill. Forcing a business without any physical presence in a state to tax that state’s consumers is taxation without representation. As my colleague Jessica Melugin, an adjunct fellow at the Competitive Enterprise Institute, has written, “This bill would undermine that federalist principle by allowing one state to reach into the borders of another and tax businesses that have no political voice in the taxing state.”

As Melugin concludes in a Washington Times op-ed, state sovereignty does not just mean protection from the interference of the federal government. It also means freedom from encroachment of other states. “The legislation does away with the crucial notion that one state’s sovereignty stops where another state’s begins,” she writes. ”Under this cartel, state tax laws extend everywhere commerce happens on the Internet.”

And as we are just now finding out, that “everywhere” could include your 401(k) account, individual retirement account, and mutual fund. So to borrow a phrase from investing, the House needs to undertake some much-needed due diligence on this bill, rather than rusbhing it through as the s0-called upper chamber likely will do.

Transatlantic Speakers Express Strong Support Of U.S.-EU Trade Pact

by Fran Smith on May 1, 2013 · 0 comments

in Agenda for Congress, International, Trade

A high-level panel of experts yesterday pointed out the mutual economic benefits of a broad transatlantic trade pact between the United States and the European Union. At the event, co-sponsored by Meridian International Center, the U.S. Chamber of Commerce, the Spanish think tank Foundation for Analysis and Social Studies (FAES), the Center for the Study of Presidency and Congress, and the Ronald Reagan Building and Trade Center, the speakers emphasized the significant contributions to jobs and growth a trade agreement between the two parties would bring. They noted that the title of the proposed agreement endorsed by both the U.S. and the EU  is  “The Transatlantic Trade and Investment Partnership.”

Leading off the program was the former president of Spain, José María Aznar, who spoke of the need to bring the U.S. and the EU together in a trade partnership to formalize the strong economic and cultural ties that already exist and to remove still existing trade barriers. He noted that such an agreement would not only enhance the competitiveness of these developed countries, but also could help promote the free exchange of goods and services throughout the world.  Aznar pointed to the just-published report by FAES, “TAFTA: The Case for an Open Transatlantic Free Trade Area,” which provides a roadmap for removing tariff and non-tariff barriers.

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U.S. Government Bans French Cheese Based On Food Prejudices

by Hans Bader on April 30, 2013 · 0 comments

in Features, Health and Illness, International, Nanny State, Personal Liberty, Precaution & Risk, Regulation, Trade

Post image for U.S. Government Bans French Cheese Based On Food Prejudices

The U.S. government is banning a standard, normal-smelling French cheese based on its own squeamishness. The cheese in question is Mimolette, a commonplace, orange French cheese so mild in flavor that I once confused it with cheddar when I visited my French relatives and ate it for the first time. The ban has triggered protests in New York City, reports the Global Post:

Around 40 protesters took to the streets of New York on Saturday to demonstrate against a US ban on mimolette that has angered lovers of the distinctive French cheese.

Since March, several hundred pounds of the bright orange cheese have been held up by US customs because of a warning by the Food and Drug Administration that it contained microscopic cheese mites.

The mites are a critical part of the process to produce mimolette, giving it its distinctive grayish crust.

The US decision has angered importers and consumers, who have even set up a Facebook page titled “Save the Mimolette.”

Benoit de Vitton, an importer of the cheese. . . said he was baffled by the recent blockade, noting he has imported mimolette for two decades without a problem.”They are afraid of allergies,” he said. “But we’ve been doing this for 20 years without any problem.”

Who cares if it has tiny, invisible mites in it? Cheese is the product of bacteria. Good yogurt has live cultures of bacteria in it, and that is beneficial for your health. Food that is alive can be good for you. The human body is full of living, friendly microbes that keep us alive. The cheese mites in Mimolette are there to enhance its flavor: as Wikipedia notes, the “crust of aged Mimolette is the result of cheese mites intentionally introduced to add flavor by their action on the surface of the cheese.”

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Will EU “Cultural Diversity” Exception Undermine U.S.-EU Trade Talks?

by Fran Smith on April 25, 2013 · 0 comments

in International, Trade

A possible bump in the road  toward  a U.S.-EU trade agreement emerged  today as a parliamentary committee of the European Commission voted to begin trade talks with the U.S. but to allow a “cultural exception” for film and audio-visual subsidies. That means that the EU would be carving out this exception early on, possibly creating an obstacle to real progress on eliminating non-tariff trade barriers between the two parties.

The amendment to allow this exception was pushed by France, which wants to continue to receive substantial subsidies for its film industry and to limit the amount of foreign programs shown in France. German film subsidy bodies also endorsed the need for EU countries — in the name of “cultural diversity” — to subsidize their domestic film industries. The European Commission  in its assessment of state aid to the industry endorses the cultural significance of the industry:

Audiovisual works, particularly films, play an important role in shaping European identities. They reflect the cultural diversity of the different traditions and histories of the EU Member States and regions. Audiovisual works are both economic goods, offering important opportunities for the creation of wealth and employment, and cultural goods which mirror and shape our societies.

If the EU includes this exception in its negotiating mandate, which the trade ministers will vote on in June, it could undermine the talks going forward. The U.S., for example, could try to carve out its own so-called sensitive products, and  the negotiations could falter in tearing down barriers that limit the free flow of goods and services.

The chairman of the EU trade ministers has already expressed his concern about setting out exceptions in the trade talks. Vital Moreira of Portugal was quoted as saying:

If we start to exclude chapters from the negotiations, of course the other side will do the same. Room for negotiations is already very limited and I am convinced this is not helpful.

It doesn’t seem like an encouraging start to what is being heralded as one of the most significant trade and investment agreements to be negotiated.

U.S. Agrees To Japan’s Entry Into Trans-Pacific Partnership Agreement

by Fran Smith on April 12, 2013

in Features, International, Trade

international_trade57131757Today, the Acting U.S. Trade Representative announced that the U.S. has agreed to let Japan enter negotiations on the Trans-Pacific Partnership Agreement, subject to consensus agreement by the other 10 members of the TPP. U.S. Ambassador Demetrios Marantis noted that this agreement results  from lengthy consultations with Japan that were aimed at resolving specific issues between the U.S. and Japan:

Since November 2011, the United States has been engaged in consultations with Japan focused on Japan’s readiness to meet the TPP’s high standards for liberalizing trade and investment, and to address specific bilateral issues of concern in the automotive and insurance sectors, as well as other Japanese non-tariff measures.

With Japan’s entry into the TPP, the 12 countries would account for nearly 40 percent of global GDP and about one-third of all world trade, according to the USTR.

The sticky issues have been and probably will continue to involve the automotive and insurance industries and other non-tariff measures.

In a statement, the USTR said that Japan agreed to double the number of U.S. motor vehicles allowed into Japan under its Preferential Handling Procedure (PHP), which provides U.S. manufacturers with a less complex certification method.

In return the U.S. would phase out its tariffs on Japanese automotive imports.  But that’s not going to happen quickly. Their agreement says that the phase-out will equal the longest staging period for any product in the TPP, and the phase-outs would occur at the end of that period. Since the TPP negotiations haven’t been completed for all products, the exact time frame isn’t yet known.

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NOAA Proposes Tuna-Dolphin Regulations To Comply With WTO Ruling

by Fran Smith on April 10, 2013

in Environment, International, Legal, Trade

dolphin-safe-labelTo comply with a World Trade Organization ruling in a tuna-dolphin complaint brought by Mexico, the U.S. proposed new regulations that would tighten the requirements for allowing tuna to be labeled “dolphin safe.”

The proposal was issued for comments by the National Oceanic and Atmospheric Administration on April 5. It would revise the Dolphin Protection Consumer Information Act (DPCIA) of 1990, which established a dolphin-safe labeling standard for certain tuna products.

Under the original rule, a “dolphin-safe” label could be used only for tuna that was caught without using purse-seine, encircling methods.  But for tuna caught in the Eastern Tropical Pacific Region (ETPR), additional certification was required that “no dolphins were killed or seriously injured” while catching the tuna.

In the U.S. regulations, NOAA also established a domestic tracking and verification program that provides for the tracking of tuna labeled dolphin-safe.

In a case brought by Mexico in 2008, Mexico challenged in the WTO the U.S. dolphin-safe labeling system as violating provisions of the WTO’s General Agreement on Tariffs and Trade 1994 and its Agreement on Technical Barriers to Trade (TBT Agreement).

Mexico’s tuna fishermen catch their fish in the ETPR using purse-seine vessels and complained to the WTO that the U.S. rules unfairly discriminated against Mexico. In the case, US-Tuna II, the WTO Dispute Settlement Body on June 13, 2012, adopted earlier WTO reports finding that the U.S. labeling system did indeed discriminate against Mexican tuna and violated the WTO Agreement on Technical Barriers to Trade.

In its proposed rule, NOAA would expand its current requirements  so all tuna products labeled dolphin-safe — not just tuna harvested by large purse seines in the ETP — would be required to have verification statements from captains, and in some cases observers, that “no dolphins were killed or seriously injured” while harvesting the tuna. In addition, there are new storage requirements so tuna caught using gear designated as dolphin-safe has to be stored separately from tuna caught in non-dolphin-safe gear from the time of capture through unloading.

This case is an important one as some countries use non-tariff barriers to protect their domestic industries or to advance environmental goals. (See a 1996 CEI article about the Basel Convention’s impact on international trade.)

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