President Obama has spent billions of dollars in taxpayer money on subsidizing foreign firms through his failed “green energy” programs, so it was ironic and hypocritical when he attacked outsourcing in his State of the Union address. As former congressional economist Chris Edwards notes, Obama made many blatantly false claims about outsourcing and corporate taxation in his speech. Here are just a few:

Claim: “Right now, companies get tax breaks for moving jobs and profits overseas.”

False: There are no such breaks. Instead, we punish U.S. and foreign businesses for investing and creating jobs here.

Claim: “If you’re a business that wants to outsource jobs, you shouldn’t get a tax deduction for doing it.”

False: There is no such tax deduction. . .

Claim: “From now on, every multinational company should have to pay a basic minimum tax.”

False: We’ve already got a corporate “alternative minimum tax,” and it’s an idiotic waste of accounting resources that ought to be repealed.

Claim: “It is time to stop rewarding businesses that ship jobs overseas.”

False: We penalize them for locating jobs here. Besides, the overseas operations of U.S. companies generally complement domestic jobs by boosting U.S. exports.

Claim: “Companies that choose to stay in America get hit with one of the highest tax rates in the world.”

True: Our rate is 40 percent, which compares to the global average rate of just 23 percent.

The irony of the president’s claims is that he himself is the Outsourcer-in-Chief and King of Outsourcing, given how many jobs have been — and will be — driven out of America thanks to government subsidies in the $800 billion stimulus package that were given to foreign firms (like a bankrupt Australian company), and Obama administration financial regulations that effectively discriminate against American companies in favor of overseas firms, and impose billions in new costs on American manufacturers. American manufacturers face a growing mountain of red tape that has caused layoffs among medical device manufacturers, and 4,300 employees of an insurance company were recently laid off due to the 2010 Dodd-Frank law backed by the Obama administration. The Dodd-Frank law is also expected to drive well-paying proprietary-trading jobs overseas to Europe. The Obama administration has also imposed harmful and costly labor and employment regulations on American manufacturers.

Weirdly enough, President Obama supports taxpayer-subsidized outsourcing by companies headed by his political supporters (like GE), even while criticizing non-subsidized (free-market-based) outsourcing, which — unlike taxpayer-subsidized outsourcing — can actually save American jobs by reducing the cost of finished goods sold by American companies. (A struggling firm’s decisions to outsource some functions can actually save American jobs in the long run. An American manufacturer of a finished product, facing stiff cost competition from overseas manufacturers, can reduce its overall costs, and thus avoid going out of business, by outsourcing low-skill jobs producing crude components of the finished product to low-wage overseas workers, thus enabling the more valuable finished product designed or assembled by skilled American workers to be cost-competitive with finished goods produced entirely overseas.)

The Associated Press evaluates some of Obama’s claims in “Fact Check: Obama Pushes Plans That Flopped Before.”

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.

A second candidate for inclusion, surprisingly, is Iceland. The small volcanic country of less than 320,000 people was severely damaged by the recent financial crisis, and effectively went bankrupt. In reorganizing, they looked at the euro as an alternative currency to stabilize their economy. However, spooked by the recent euro crisis and some sovereignty issues (mainly loss of control over their fishing), they could instead look at the loonie, the famed Canadian dollar. In fact, Canadian authorities are able to provide Iceland with the currency needed (a small country does not need that many dollars to monetize itself). Canada is willing to do so, and both economies are (presently) reliant on natural resources and fishing. Their monetization with Canadian dollars would be unilateral, which means no currency union (like El Salvador in 2001). This would make Iceland’s transition into NAFTA a very easy one.

Given the positive results of NAFTA since its enactment, an expansion to cover the North Atlantic shouldn’t be any less successful. Britain and Iceland have very similar economies to current members of NAFTA, and it would only strengthen North America’s position as a regional trade hub, this time covering the North Atlantic.

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.

Since Norway is not part of the European Union, imports from other nations are subject to tariffs and other protectionist restrictions. Butter tariffs in Norway equaled 25 kroner per kilo (about US$ 4.25), effectively eliminating any incentive to import butter from abroad. While the tariff was lowered to four kroner in December allowing Norway to import more than 750 tons of butter for consumers and 1,000 tons for industry, it will do little to solve the shortage, as it will take time for butter to become available to consumers.

The result: A black butter market. One seller on a Norwegian auction website offered 500 grams (1.1 pounds) of butter Tuesday for roughly 30 times the normal price. Two Swedes were arrested in Norway for smuggling around 550 pounds of butter into Norway. Danish and Swedish airports are selling butter at their free-duty shops. Swedish supermarkets are enticing Norwegian customers living near the border with free butter. In short, market forces and regulations have created some incredible situations in one of the wealthiest nations in the world.

The government response has been unsurprising. As Agricultural Minister Lars Peder Brekk said last week: “The market regulations are important to uphold long-term stability in the production of food in Norway.” Unfortunately for the Norwegian government, only free trade creates stable markets. Complete dependence on domestic markets leaves Norway open to unexpected local calamities that could make prices volatile. Free trade distributes risk among many different countries, so an event in one country will have a smaller effect on availability and overall prices of goods. Finally, given the Norwegian government’s record on butter and unwillingness to change policies, Norwegians might face shortages in other goods as well.

The U.S. sent a strong letter to the European Union warning them that the EU’s airline emissions trading scheme — set to start in January 2012 — should be halted or postponed. If not, the letter from U.S. Secretary of State Hillary Clinton said, “. . . we will be compelled to take appropriate action.” According to the Financial Times (registration required), 42 other countries, including major economic powerhouses, such as China and Brazil, signed onto the letter, which seemed to be timed just before the EU’s highest court renders its decision.

On Wednesday the EU’s Court of Justice is expected to rule in favor of the EU’s plan to charge airlines — domestic and foreign — for their carbon emissions. The EU scheme would cover aviation in its controversial — and collapsing — cap-and-trade system for reducing carbon emissions. All planes landing or taking off in the EU would be forced to pay for their emissions, whether those were emitted over EU airspace or not.

Expanding the failing carbon trading system during a period of failing economies seems to be an act of self-flagellation on the part of the EU in the name of environmentalism. Or maybe they are hoping to bring other countries down to a “level playing field” of wasting billions of dollars that would flow into their coffers. A 2009 study by Matt Sinclair of the UK’s Taxpayers’ Alliance estimated that from its introduction in 2005 through 2008, the EU’s carbon trading scheme has cost European consumers €93 billion. Just last month The Australian reported that the Swiss bank UBS had issued a study stating:

. . . the European Union’s emissions trading scheme has cost the continent’s consumers $287 billion for “almost zero impact” on cutting carbon emissions, and has warned that the EU’s carbon pricing market is on the verge of a crash next year.

In a damning report to clients, UBS Investment Research said that had the €210bn the European ETS had cost consumers been used in a targeted approach to replace the EU’s dirtiest power plants, emissions could have been reduced by 43 per cent “instead of almost zero impact on the back of emissions trading.”

If the EU stands by its plan to exert control over airlines of other countries and to charge them for emissions, many have argued that it would attack the sovereignty of other countries, destroy the international legal system in place for airlines – the Convention on International Civil Aviation – put onerous economic burdens on airlines, and raise the cost of international travel and delivery services.

Retaliation would seem inevitable, which could plunge the fragile world economy into a destructive trade war.

On Monday, I sent this letter to the editor of the Financial Times in response to an appalling column by former British apparatchik Jonathan Powell:

Dear Sir,

It was disappointing to see such a prominent former diplomat as Jonathan Powell subscribe to the notion that Anglo-US relations are reducible to the friendliness or otherwise between US and British leaders. In fact, Britain and the US are tied together by an almost invisible web of culture, shared experience, and history. Leaders on both sides of the Atlantic, such as the current President, have done their best to downplay or cut these links, but they do remain. They could indeed continue to form the basis for a profitable relationship between the two nations. If Europe does not want an independent, free-market-loving country like Britain as part of its monolithic customs union, perhaps the United States should invite Britain to join NAFTA, to form a North Atlantic Free Trade Agreement.

Sincerely,

Iain Murray

Free trade can play an important role in solving the world’s current problems. It is unfortunate that most countries (and in Europe’s case, the Eurozone) seem to be withdrawing into mercantilism.

In a free-trade lesson the U.S. should study, Canada announced that it was eliminating tariffs on imports that Canadian manufacturers use to help spur the economy. Canadian Finance Minister Jim Flaherty noted that tariffs would be cut on about 70 items, the latest in government moves to get rid of all tariffs by 2015. Already Canada has abolished tariffs on more than 1800 items — relief that is expected to provide about $423 million annually.

This strategy contrasts sharply with the U.S. mercantilist approach – exports good, imports bad – and the U.S. focus on trade deficits instead of also looking at the economic benefit of imports, as providing greater choice and lower-cost goods for consumers and critical inputs for manufacturers, who can create jobs.

As CEI’s Daniel Rivera Greenwood has noted:

 . . . there seems to be a correlation between large trade deficits and reduced unemployment, as well as a larger economic output. Why? One reason is that a large proportion of U.S. imports are actually manufacturing inputs, used to produce goods in the United States. In fact, the most recent data available from the U.S. Census Bureau (August 2011) shows that 57 percent (US$106 billion worth) of all U.S. imports are capital goods and industrial supplies materials, the basis of the domestic manufacturing sector.

Professor Mark Perry also makes those points well in an article today. As Perry notes:

We sometimes forget that “tariffs” and “duties” are really “taxes” on imports; and therefore eliminating or reducing tariffs or duties is the same thing as eliminating or reducing taxes on consumers and businesses buying foreign products.  In the same way that “tax cuts” can stimulate economic activity, “tariff cuts” do the same, and that’s the approach being taken in Canada.

That’s a good lesson in what free trade is all about.

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.

Both sides agreed on a few points. First, China will head up a new permanent office to enforce intellectual property and antipiracy regulations. U.S. officials said that they worked and progressed in getting Chinese markets access for U.S. new energy car makers and beef and poultry.

Issues not discussed include the yuan’s exchange rate, which U.S. lawmakers have decried as damaging to the U.S. economy. However, U.S. officials still maintain that the U.S. trade deficit with China needs to be addressed, and call it a trade imbalance. As U.S. Trade Representative Ron Kirk put it: “We would be missing a real opportunity to address other issues that contribute to the competitive imbalance between U.S. exporters and Chine if we were to singularly focus on currency.” Secretary Bryson echoed those sentiments by saying that addressing market-access issues in China would contribute to the trade deficit with China.

However, as we have posted on OpenMarket before, a trade deficit is not a symptom of a dysfunctional economy. Trade deficits are actually a signal that our economy has moved away from manufacturing into other more specialized and better remunerated industries.

The U.S. Department of Commerce should instead focus its on eliminating harmful and unnecessary domestic policies that hurt businesses and damage economic recovery.

Have a listen here.

Conflict minerals are goods that come from sources that use the revenues to fund civil wars and other atrocities. CEI Founder and President Fred Smith talks about why restricting conflict mineral trade can mean more violence, not less. He also discusses why the Gibson guitar company was unjustly raided by the federal government for importing wood that may or may not have been illegally harvested by its suppliers.

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.

Among possible bills, the American Farmland Trust has put together a review of 10 different proposals, and highlights their strengths and weaknesses. Most proposals would eliminate direct payments, as well as other costly and inefficient programs like ACRE (Average Crop Revenue Election) but still give considerable aid to farmers. The American Farmland Trust published a report that summarizes 10 proposals and their components.

The small amount of information that is leaking about the farm bill negotiations seems to point toward a bill that would eliminate direct payments but would tie handouts to commodity prices. While this might eliminate costs when commodity prices are high, costs could balloon if prices fall. In a free market, lower prices might signal producers that they should close their operations or switch to more profitable products. In this system, it rewards bad investments and misuse of land. A new type of crop insurance program may also be included in the recommendations.

While these subsidies are costly to taxpayers, some legislators are moving to eliminate some of the more costly and inefficient programs. The Free Market Sugar Act, introduced by Rep. Joe Pitts (R-Penn.), and Danny Davis (D-Ill.), would repeal the loan program to sugar producers and eliminate most sugar imports and production controls, resulting in cheaper sugar. These representatives have candy manufacturers in their districts, which have difficulty competing because of the high costs of domestic sugar. Their bill shows that alternatives exist, at no cost to taxpayers, which would give back some competitive advantage to the United States.

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.

The U.S. sugar program, part of the 2008 Farm Bill, is a policy that protects sugar producers at consumers’ and manufacturers’ expense.  At the same time the program increases sugar expenditures by American consumers and manufacturers by about $2.4 billion, it adds $1.4 billion in extra income for sugar producers.

The costs go beyond businesses’ and consumers’ pockets. A U.S. Department of Commerce report found that from 1997 to 2009, more than 112,000 jobs were eliminated in the sugar containing industries.  Supporters of the program claim that artificially inflating sugar prices supports jobs in the sugar producing sector. But, according to the same report, for every job in that sector, approximately three jobs are lost in the sugar containing industries. Unsurprisingly, there are around 600,000 sugar using jobs in the United States, as opposed to only 20,000 jobs in the sugar producing sector. Artificially propping up a few jobs with few beneficiaries at a larger group’s expense is inefficient and inexcusable.

In a time of high unemployment (9.1 percent in August), politicians should move to eliminate programs that increase the federal budget deficit and eliminate jobs. Companies like Judson-Atkinson, and larger ones like Hershey, are forced to close facilities or move them to other countries as a result of expensive sugar in the United States. And while labor cost differences are real and play a role in companies’ bottom line, artificially expensive inputs do not help United States’ competitiveness.