exports

What’s Expected on Trade in the State of the Union Address

by Fran Smith on January 25, 2011

in Agenda for Congress, International, Trade

In his State of the Union address tonight, President Obama will finally set out his agenda and timetable on three pending free trade agreements — with South Korea, Colombia, and Panama, with few surprises. As expected and as announced earlier this month by U.S. Trade Representative Ron Kirk, the president will announce that he’ll send implementing legislation to Congress on the U.S.-Korea Free Trade Agreement by July 1 of this year.  That’s good news, since this FTA is expected to deliver significant economic and geopolitical benefits to both countries.

Disappointing though will be the president’s declaration that both the Colombia and Panama FTAs still have problems to be worked out before Congress can consider those agreements.  This, after the Colombia pact was signed in 2006, and the Panama FTA in 2007.  And, in 2007, the Democrat-controlled House also insisted that stringent new labor and environmental provisions be added to both FTAs and to all subsequent trade agreements.  What else does the administration — and union supporters — want to force on our close trading partners and allies before they can trade freely?

Given that the new House Ways and Means Committee chairman Dave Camp and major business leaders — at a hearing today — said that all three FTAs should be considered in the next six months, President Obama could announce a timetable for the Colombia and Panama trade pacts that gives the Administration wiggle room for trade union opponents. I expect he’ll move that timetable up a bit for the Korea FTA.

Also expected in the SOTU address will be the president’s heavy emphasis on the economic importance of increased exports, especially in creating jobs — and his National Export Initiative announced last year. Forgotten about, though, will be mention of the benefits of imports — in also providing jobs, but, more importantly, in providing consumers with greater choice in goods, including products that are inexpensive and lets them keep more of their hard-earned money, and in increasing competition so that better products emerge.

Andrew Sullivan Blames Tea Party for Budget-Busting Deal That He, Not It, Supported

by Hans Bader on January 21, 2011

in Deregulate to Stimulate, Economy, Employment, Politics as Usual, Sanctimony

The deficit is largely the result of “feel-good” bipartisan policies supported by the political establishment. But rather than taking credit for the deficit it helped to create, the liberal establishment blames it on political outsiders like the Tea Party who have little influence over public policy. Sometimes, the Tea Party is accused of supporting policies it had nothing to do with.

Writing at his blog at The Atlantic, liberal journalist Andrew Sullivan recently faulted the “Tea Party” for the recent budget-busting deal between Obama and congressional leaders that exploded the deficit by extending tax cuts, unemployment benefits, and government handouts: “immediately after the election, moreover, they did a deal borrowing a huge amount more and adding $700 billion to the debt.”

The irony is that Sullivan, one of Obama’s biggest cheerleaders, had earlier endorsed that very deal, a deal also endorsed by other liberal media like the Washington Post because of the government handouts it contained. In an explanation that was hard to follow, Sullivan said that this new “stimulus package financed by borrowing” would somehow create “the best context for serious reform” of the nation’s finances, providing a “big new stimulus” that would help Obama “as he moves toward re-election.”

By contrast, some Tea Partiers publicly opposed the deal. A Wall Street Journal article quotes a Tea Party activist and Senate candidate saying that “she decided to run after watching Congress pass legislation during this month’s lame duck session, including a package of tax cuts, that added to the national debt.”

Most Tea Party bloggers took no position on the deal. The few that did either opposed it or reluctantly supported it as the best one could expect from a government that would still be dominated by liberals in the next Congress (with Democrats controlling both the White House and the Senate).

I criticized the deal in a blog post that was reproduced at a blog called “Freedom Action“” that includes many Tea Party members. It drew no objections from any blogger or reader at that site (which has more than 300 members). I noted that the billions it will spend on extending unemployment benefits won’t stimulate the economy, but will financially burden states. 30-40 state unemployment funds are already insolvent or teetering on the edge, thanks to past federal extensions of unemployment benefits. Giving people unemployment benefits for years on end discourages people from taking lower-paying jobs, and results in some recipients gaming the system. It encourages people not to relocate in search of work, and not to take productive jobs that they think are beneath them, even if those jobs are the only jobs that they will realistically find once their jobless benefits come to an end, because of the disappearance of the type of job they once performed.

As the Heritage Foundation notes, “The consequences of extended unemployment benefits are some of the most conclusively established results in labor economic research. Extending either the amount or the duration of UI benefits increases the length of time that workers remain unemployed. UI benefits subsidize unemployment. They reduce the incentive unemployed workers have to search for new work and to make difficult choices–such as moving or switching industries–to begin a new job.” (The deal also contains other disincentives to work.)

Admittedly, the deal is not as economically-destructive as some of the measures that Obama previously pushed through Congress on party-line votes, such as the $800 billion stimulus package, which actually shrank the economy in several ways. (The stimulus used “green-jobs” subsidies to send American jobs overseas. 79 percent of those subsidies went to foreign firms, such as an Australian firm that imported Japanese wind turbines, effectively outsourcing American jobs. It also wiped out jobs in America’s export sector.)

“Model” Foreign Aid Recipient Uses Foreign Aid to Repress Its Citizens

by Hans Bader on November 23, 2010 · 8 comments

in Deregulate to Stimulate, Economy, International, Personal Liberty, Politics as Usual, Property Rights, Sanctimony, Trade, Zeitgeist

Ethiopia is considered a model recipient of foreign aid by international aid agencies, since it uses much of the aid on its people, rather than just to fill the Swiss bank accounts of its rulers (as is often the case with foreign-aid receiving countries). But it uses the aid to promote political repression, by giving – or denying – such aid to hungry villagers based on whether they support the ruling party, as a recent article in the New York Review of Books explains. By solidifying the Ethiopian government’s control, foreign aid gives the government the ability to put off doing things that would expand economic growth — like letting farmers own their own land.

Most Ethiopians are subsistence farmers, and 85 percent of all Ethiopians live in the countryside. Land was collectivized in the 1970s during the Red Terror of the Marxist Mengistu regime, and today, Ethiopian peasants lease rather than own land.

Ethiopia is one of the world’s hungriest counties. In its percentage of chronically malnourished people, it’s edged out in Africa only by a few war-torn countries like the Congo and Liberia, and its misgoverned neighbors, Eritrea (which is governed by a Stalinist control-freak) and Somalia, which is in a state of anarchy. Ethiopia is also the most populous country in Africa after Nigeria, with more than 80 million people.

On paper, Ethiopia’s backward economy supposedly grows by 10 percent or more per year. In reality, those statistics are cooked, and its economy probably grows by no more than 5% annually — barely enough to keep pace with a population growth rate of at least 3.3%.

Ethiopia’s economy is more government-controlled than most of Africa (with government monopolies over things like telecom), although admittedly its government is not as incompetent as many Third World governments in running what it does control. Billions in foreign aid allow the government to artificially achieve modest economic growth despite outmoded, state-controlled development policies and a stunted private sector. In the absence of the aid, the government might be forced to liberalize the economy to create genuine economic growth — the way countries in East Asia like South Korea that were once incredibly poor became rich after they pursued a free-market path.

Ethiopia is also the home of teff, a nutritious, drought-resistant, high-protein grain that could easily be exported and marketed to health nuts and greenies if the country had a decent transportation system or modern trade infrastructure. (Health nuts will eat even things that aren’t grain, like quinoa, if you call them “organic whole grain cereal” and trumpet the fact that they are grown by Third World peasants). Because of its economic backwardness, Ethiopia is missing out on this kind of marketing. So are fat people, who could perhaps lose weight if they ate the teff grown in the Ethiopian highlands, rather than starchier, less nutritious grains.

Photo Credit: WikiMedia User Andro 96

More Stimulus Money Wasted

by Hans Bader on October 21, 2010

in Deregulate to Stimulate, Economy, Politics as Usual, Stimulus to Nowhere

A lot of money was wasted in weatherization projects paid for by the stimulus package, note The New York Times Green Blog and Professor Jonathan Adler.

Eighty percent of homes audited by federal investigators in Illinois “failed final inspection ‘because of substandard workmanship.’ In some cases, technicians who tuned up gas-fired heating systems did so improperly, so that they emitted carbon monoxide ‘at higher than acceptable levels.’”  In two-thirds of the homes audited, “contractors billed for labor charges that had not been incurred and for materials that had not been installed.” Illinois itself “had found a 62 percent error rate when it re-inspected homes weatherized by CEDA,” and that “some of the work created fire hazards.”

Stimulus money also went to prisoners and dead people, wasteful welfare spending, abandoned bridges to nowhere, and unnecessary government buildings.  The stimulus subsidized foreign green jobs and wiped out jobs in America’s export sector.

Liberal newspapers, like the editorial boards of The Washington Post and The New York Times, now parrot false claims by the Obama administration that the stimulus has “saved or created” jobs, and cite a non-existent consensus among economists in support of that claim.  But in reality, many leading economists, including Nobel Prize winners, were skeptical of the stimulus, including but not limited to Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales. The “‘stimulus’ is not the road to economic recovery. It’s the problem, not the solution, writes Nobel laureate economist Vernon L. Smith.” The Cato Institute even ran full-page ads in The New York Times and Washington Post, featuring a statement signed by 200 economists opposing the stimulus package.

The Washington Post itself once admitted that there was no consensus among economists for the stimulus, conceding that “[f]iscal stimulus is far from a sure-fire remedy. Economists disagree about the efficacy of every pump-priming effort from the New Deal to last year’s tax rebates. In general, fiscal policy had fallen out of favor in economics. . .Many economists note Japan’s failed attempt to borrow and spend its way out of a recession during the 1990s” through “repeated stimulus packages. As it is, Japan piled up a massive debt and recovered only modestly, leaving it vulnerable to today’s downturn.” (See Editorial, “Priming the Pump,” Jan. 25, 2009, at p. B6).

Job Losses and Productivity Gains

by Fran Smith on October 5, 2010

in Economy, Employment, Trade

I came across this chart tracking U.S. manufacturing jobs and U.S. productivity over the past 38 years (posted yesterday by Mark Perry).

It’s worth considering, especially in today’s climate when free trade — particularly NAFTA — is pointed to as the chief culprit in lost manufacturing jobs.  And when a lot of people have bought into that myth hammered over and over by labor unions and politicians running from their records in raising taxes and costs for businesses — from stimulus packages to new financial constraints to Obamacare.

That’s not to say that free trade doesn’t cause job losses in some sectors, while creating jobs in others. But, contrary to the current rhetoric, an export-centric approach to trade is not the answer. Imports are not just “cheap” consumption goods, stereotyped as a t-shirt from Wal-Mart.  Rather, imports provide consumers with greater choices over a range of prices and quality levels — they also increase competition, which fuels the search for innovation in better value, better quality.

Check out this podcast by Russ Roberts in early 2010 on the economics of trade and specialization.

Tricks Against Trade

by Fran Smith on September 15, 2010

in International, Trade

Public Citizen’s Global Trade Watch is up to its tricks against trade again.  Noted for its past expertise in destroying the Seattle WTO negotiations, the group is now taking a new stance against free trade agreements (FTAs), though not by their usual rhetoric that they cost jobs and a “race to the bottom.”  Their new approach is that FTAs actually lower exports. The group just published a “study” purportedly showing that exports to countries that have free trade agreements with the U.S. showed less export growth than did exports to countries that don’t have FTAs.

I guess they are saying that even though these pacts lower tariffs and other trade barriers on many goods and services–making U.S. products and services cheaper for trade partners to import–they have a negative effect on U.S. exports.  A bit counter-intuitive, but theirs is not to reason why — Public Citizen states that quite clearly — but to show that past and, of course, future trade agreements will harm rather than help the U.S. economy.

“It is beyond the scope of this paper to explore in detail why the United States has had lower export growth with FTA partner countries: the central point is that the claim that export growth to FTA partners has been higher than export growth to non-FTA partners is not supported by the actual U.S. government trade flow data.”

In a quick perusal of the 42-page report, what I found most interesting is that the FTA countries were listed in numerous charts and graphs, but nowhere could I find a listing or a mention of which non-FTA countries were included in the analysis.

Isn’t that a somewhat basic analytic flaw — to have specifics about one group you’re analyzing and to use aggregate numbers for the group you’re comparing?

Here are a few more quick observations on the study.  Nowhere do the authors discuss other factors that might explain lower exports than expected in FTA countries.  What was happening in the specific countries?  Could the fact that Mexico had a devastating currency crisis in 1994 — right when the North America Free Trade Agreement went into effect — have anything to do with their diminished ability to import goods and services from the U.S.? After all, Mexico’s GDP declined approximately 7% in 1995.

Also, is China included in the non-FTA countries? If so, then that country’s phenomenal growth over the past 10 years would almost by itself affect the results.  In 2009, China had an 8.7 percent GDP growth rate and imported $69.6 billion of goods and services from the U.S.  The global financial crisis affected U.S. exports to China much less than those to other important markets feeling the brunt of the economic downturn.

In addition, of the top ten countries in terms of U.S. exports, only two have free trade agreements with the U.S. But, of course, since we don’t know which countries Public Citizen used for its “non-FTA” group, there’s no way of knowing if some or most of the top ten were in the list or of analyzing their economic conditions.

Despite what I consider are considerable problems with this report, it’s bound to be used by the anti-trade forces arming themselves for future battles on the pending FTAs with South Korea, Colombia, and Panama.  Betcha too the report will be used in the lead-up to the November elections, as trade-bashing seems to be becoming one of the defining Democratic issues.

Record Federal Spending Increase Due to Wasteful Spending Like the Failed Stimulus Package

by Hans Bader on September 1, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, International, Natural Resources, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere, Trade, Zeitgeist

Federal domestic spending increased by a record 16 percent this year, thanks to wasteful spending by the Obama administration, such as its “huge economic stimulus package.”

The $862 billion stimulus package increased unemployment by wiping out thousands of jobs in America’s export sector, while giving 79 percent of its green-jobs funding to foreign firms.

Obama falsely claimed that the $787 billion stimulus package was needed to prevent “irreversible decline,” but the Congressional Budget Office admitted that it would actually shrink the economy “in the long run.”  As the Washington Examiner notes, “If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent . . . The reality is that it passed 10.3 percent.”

“Nearly two-thirds of Americans do not believe the $787 billion stimulus package the president passed last year has helped create jobs, according to a new Pew Research Center poll.”As the Washington Examiner notes, “a recent survey of business economists showed they didn’t think the stimulus was creating jobs, either.”  President Obama falsely claimed that virtually all economists supported his stimulus package, but this was patently untrue at the time he made this claim, when at least 200 economists publicly opposed it, and it  is even more untrue now.

Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.   Germany, which avoided adopting a huge American-style stimulus package, has an unemployment rate much lower than ours, and experienced a massive 9 percent growth rate in the second quarter of 2010.

“President Obama’s policies would add more than $9.7 trillion to the national debt over the next decade, congressional budget analysts said” earlier.

More Mercantilist Claptrap

by Fran Smith on August 27, 2010

in Economy, International, Trade

No wonder people are confused about the trade issue when they read mercantilist articles like the front-pager by Howard Schneider in the Washington Post today – “Economic growth slowed by trade gap.”

According to this article’s premise, it sounds like we would all be better off if we just exported and didn’t import any goods and services.  Here’s the article’s lead sentence:

A widening U.S. trade deficit has become a substantial drag on economic growth as the country’s exports struggle to keep pace with the swelling sums that Americans are again spending on imported goods.

And then it goes on to say:

But the spike does raise fresh concerns about whether some of the same factors that led to the economic crisis, including U.S. overconsumption, are beginning to reemerge. The yawning deficit may also prove frustrating for the Obama administration as it seeks to create jobs by boosting U.S. exports.

But what about choices?  Does the U.S. produce everything we consumers – and producers — want and need at prices we can afford?  Of course not.   And therein lies the confusion, as with this assertion:

At a basic level, trade deficits represent a loss of wealth for a country – money flowing abroad for goods and services produced elsewhere, supporting businesses and workers in other countries.

I would offer that the lack of imports would also “represent a loss of wealth” for consumers and producers.

Cato’s Dan Griswold points out a major oversight of the Post writer – he ignores the fact that many of those “overconsumed” imports actually provide inputs for producers to use to produce goods for export!

That view neglects the supply-side role of imports. More than half of what we import consists of goods consumed by producers-capital machinery, raw materials, parts and other intermediate inputs. Those imports help us produce more, not less. The Keynesian view also confuses cause and effect: Imports usually grow in response to RISING domestic demand. Consumers more eager to spend “swelling sums” on imports typically buy more domestically produced goods as well.

Imports, when they represent less expensive alternatives, also may put more discretionary funds in the hands of consumers to purchase other goods or services, to save, or to invest.

Maybe some Post editor noticed some of the problems with that article – a different trade article with a coauthor is on the front page of the online edition.

Government Spends Billions Bailing Out Foreign Firms and Countries, and Replacing American Jobs With Foreign Green Jobs

by Hans Bader on August 12, 2010

in Agriculture, Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, International, Natural Resources, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere, Trade, Zeitgeist

Our government spent as much money bailing out foreign firms as some countries spent on stabilizing their entire financial system.  Much of the money in the $140 billion AIG bailout actually went to mismanaged foreign firms that dealt with AIG.  The government also used that bailout to give billions to the Wall Street investment firm Goldman Sachs, an immensely rich and profitable company that didn’t even need the money.  (While harming most banks, and the productive  sectors of the economy, the recent financial reform bill will benefit politically-connected Goldman Sachs, which endorsed it.  Goldman Sachs is one of the biggest donors to liberal politicians.)

Earlier, the Obama administration devoted $6 billion in taxpayer money to bailing out Greece, which ran into trouble because of generous pensions that let many occupations like hairdressers retire at age 50.

American workers are also suffering due to the stimulus package.  It is using taxpayer subsidies to replace U.S. jobs with foreign green jobs. It also destroyed thousands of jobs in America’s export sector.

Even more jobs will end up overseas if the Obama administration’s poorly conceived global warming legislation passes.

Reason magazine has an insightful article called “Five Lies About the American Economy.”

131,000 Jobs Lost in July; Obama Aide Abandons Ship; Economists Criticize Obama; More Bailouts

by Hans Bader on August 6, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Politics as Usual, Regulation, Sanctimony, Stimulus to Nowhere, Trade, Zeitgeist

“Non-farm job losses hit 131,000 in July,” on top of a loss of 97,000 jobs in May and June.  Another Obama economic advisor is abandoning ship.

Nobel Prize-winning economists Gary Becker and Vernon Smith criticized the Obama administration’s economic policies, such as its massive deficit spending and politicization of the economy.  Last year, Obama advisor (and economist) Martin Feldstein warned that Obama’s policies would lead to “serious inflation and higher taxes down the road.”  Administration economists botched deficit projections by at least $2 trillion.

The House is expected to pass a $26.1 billion bailout of state and local government sought by public employee unions, which will aid bloated and mismanaged school districts.  There is talk that the Obama Administration will give away billions of dollars in new mortgage bailouts at taxpayer expense, as a way to buy votes.

The stimulus package is costing $75 billion more than predicted.  It also inadvertently wiped out thousands of jobs in America’s export sector.

Obama’s polices would add $9.7 trillion to the national debt, according to the Congressional Budget Office.

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