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already got a corporate “alternative minimum tax,” and it’s an idiotic waste of accounting resources that ought to be repealed.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