international trade

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.

Exploiting the Poor: International Trade

by Alex Schibuola on October 20, 2010 · 3 comments

in International, Labor, Trade

On last week’s Stossel (no video available yet), was mentioned that rich countries gain their wealth through the exploitation of poor countries. Professor Marc Hill of Columbia University opined that businesses operating in poor countries ought to pay workers an extra dollar per hour for their services. It’s a very nice thought at first; however, there’s no such thing as a free lunch (as I’ve mentioned — but it’s one of those things one can never say enough).

While companies could pay an extra dollar per hour of work, this increases the costs of producing their output. Let’s say that it’s shoes. Higher wages increase the costs of production and lead to a reduced supply of shoes. A lower supply of shoes entails a higher price for shoes and a lower quantity of shoes demanded (because people can’t afford the same amount at the higher prices). The reduced supply of shoes also means something more subtle: you need fewer workers to produce a reduced supply. While the workers who keep their jobs do benefit, what about the workers who lose their jobs?

This is one aspect of “fair trade” advocates that I find abhorrent. After imposing fairness, they completely ignore the unintended consequences of their “fairness.” They forget about the workers who lost their jobs as a result of “fairness.” In instances where attempts at free trade were subverted under the guise of waiting for fair trade, they forget about the workers who never even got the chance to take jobs.

Fair traders, by virtue of their actions, say, “Yes, so they’re starving and impoverished, and have lower economic growth, but at least they don’t have to work in sweatshops earning unfair wages. Besides it’s not a consequence of my fairness, it’s because of greedy capitalists. Now, I can sleep better at night, knowing that I created some positive benefits.” Even though the costs were far greater.

This same logic applies to the minimum wage as well.

No Chickening Out on Trade Retaliation

by Fran Smith on September 28, 2010 · 1 comment

in International, Trade

Trade relations between the U.S. and China are heating up, with both countries bringing antidumping charges against the other — some in retaliation for earlier actions.  With the House of Representatives primed to take up a bill allowing the U.S. to levy tariffs on Chinese imports to protest China’s currency intervention, China announced it was slapping a huge tariff on imports of U.S. poultry. This would up the chicken tariff to a minimum of 50.3 percent and a maximum of 105.4 percent on chicken products imported from the U.S. — an escalation from an earlier tariff tacked on by China in retaliation for the U.S. slapping a higher tariff on Chinese tires last year.

Last Friday, the House Ways and Means Committee approved H.R. 2378, the Currency Reform for Fair Trade Act. (Note to readers: whenever “fair trade” is used instead of “free trade,” it’s almost always supporting a protectionist policy.)  Almost immediately on September 26 — though apparently not connected — China’s ministry of commerce announced that it had concluded a year-long antidumping investigation of U.S. poultry imports and concluded that the chickens were being sold to China at lower than production costs.

This was followed quickly by a September 27 announcement by the U.S. Department of Commerce that the People’s Republic of China and Mexico were unfairly dumping seamless refined copper pipe and tube, and the U.S. would be imposing dumping duties on those imports pending a thorough investigation by the International Trade Commission.

Currently, the ITC has numerous investigations in their final stages involving Chinese imports. Here’s the current list: Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses from China and Indonesia; Drill Pipe from China; Magnesia Carbon Bricks from China and Mexico; Narrow Woven Ribbons from China and Taiwan; Seamless Refined Copper Pipe and Tube from China and Mexico; Seamless SLP Pipe from China; Woven Electric Blankets from China. 

It’s not likely that these actions and others will advance President Obama’s goal of doubling exports in five years as part of an economic recovery plan.  Important trade partners such as China and Mexico that have retaliated against some U.S. protectionist policies may encourage other countries to take action.  Tit-for-tat trade remedies won’t improve U.S. competitiveness, but can undermine the international trading system.

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.

CEA’s Annual Report: Trade is good, but we need to make sure it’s good for everyone

by Fran Smith on February 12, 2010

in Economy, International, Trade

While snowstorms were raging in the D.C. area, the White House released the Economic Report of the President and the Council of Economic Advisers’Annual Report 2010. I haven’t had a chance yet to study  the 462-page document, but did review the chapter dealing with international trade – Chapter 10, beginning on page 274.

The start of that chapter provides a strong defense of open trade, following the theories of both Adam Smith and David Ricardo regarding specialization and comparative advantage:

“Initially, trade was about introducing products (such as spices) from one market to another, providing consumers with choices they previously did not have. Still today, trade can offer consumers different goods and different varieties of products already available to them and bring new technology from other countries. By allowing countries to specialize based on skills or endowments, trade can also allow countries to improve their standards of living. Trade can also help a country increase its overall output by allowing firms or industries to take advantage of economies of scale or by encouraging the growth of more productive firms. Thus, trade has the potential to increase the overall quantity of goods and services that a given economy can produce with its resources-and hence increase the overall standard of living-making global commerce a cooperative, not a competitive venture.”

Yet the discussion soon veers off  to promote the need to make sure that everyone shares in the benefits of trade:

“In the past, however, the gains from our trade policies have not been shared sufficiently, and technological change and globalization have left many behind.”

What to do about those people who don’t benefit quickly and equally from trade?  Here’s where the true message is revealed.  The CEA report notes that the federal government already has numerous programs on “trade adjustment assistance, worker retraining, and temporary relief programs,” to help them, but much more is needed – progressive taxation, expansion of the social safety net, as well as changes in the health care and education systems.  Here’s the argument for more progressive taxes:

“A progressive tax rate combined with trade allows those who realize substantial income gains from globalization to still prosper a great deal relative to the state where there is no trade and incomes are taxed at a flat rate. And it does so while making sure that those who face lower incomes from globalization also obtain benefits-not just through the lower prices and expanded choices associated with trade, but also through lower taxation.”(Boldface added.)

Besides the illogic of the boldfaced statement, guess what is used as an example of someone who prospered a great deal from trade and globalization but may have crowded out others who were disadvantaged by that success?  J.K. Rowling!

“At the same time, it is distinctly possible that some American authors who would have captured a larger share of the “magic-oriented book” market had there been no trade in literature were crowded out by Rowling’s success . . .”

Was that a tongue-in-cheek acknowledgment that the argument makes no sense?  One can only hope.

Stimulus Package Forces States to Raise Taxes, Harms Economy

by Hans Bader on January 2, 2010 · 2 comments

in Deregulate to Stimulate, Economy, Employment, International, Labor, Politics as Usual, Stimulus to Nowhere, Trade

The federal government’s $800 billion stimulus package, which failed to cut unemployment, is now forcing states and local governments to raise taxes. The Wall Street Journal describes how “stimulus dollars came with strings attached that are now causing enormous budget headaches . . . At the behest of the public employee unions, Congress imposed ‘maintenance of effort’ spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs,” such as ”welfare, if the state took even a dollar of stimulus cash,” even if a state’s tax revenue has since fallen due to the recession.  “So when states should be reducing” their spending ”to match. . . lower revenue collections, federal stimulus rules mean many states will have little choice but to raise taxes.”

Obama claimed the stimulus package was needed to prevent the economy from suffering from “irreversible decline,” but the Congressional Budget Office admitted that the stimulus package actually would shrink the economy “in the long run.”  Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.

The Washington Examiner says that “75,000 jobs” Obama has claimed credit for are “clearly imaginary” or “highly doubtful.”  That includes thousands of jobs the administration claims credit for creating in nonexistent Congressional districts. As the Examiner notes:

If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent this year. The reality is that it passed 10.3 percent in October. So now the stimulus books are being cooked to mollify an anxious public worried that real-world jobs continue to disappear and angry that Obama has thrown almost $1 trillion down the stimulus rathole.

The stimulus package actually destroyed thousands of real world jobs by triggering trade wars with Canada and Mexico that killed jobs in America’s export sector (the stimulus package barred a measley 97 Mexican truckers from U.S. roads, a minor NAFTA violation that led to massive Mexican retaliation against U.S. exports of 40 farm products and kitchen goods worth $2.4 billion).  It also is wiping out jobs by inflicting costly mandates on state governments (such as repealing welfare reform, and imposing costly “prevailing wage” regulations and expensive racial set-asides).

The stimulus package has since spawned countless examples of government waste and corruption.  Recently, Obama fired an inspector general, Gerald Walpin, who uncovered millions of dollars of waste and fraud in the AmeriCorps program, including by a prominent Obama supporter, endangering the Obama supporter’s ability to administer federal stimulus spending in Sacramento.  Obama’s alleged justification for firing the inspector general turned out to be false.

Regulation of the Day 68: Ironing Tables

by Ryan Young on November 3, 2009

in Economy, International, Regulation, Regulation of the Day, Trade

Regulation begets rent-seeking. When government assumes the power to regulate imports, domestic firms will lobby to use that fact to their advantage.

Case in point: Home Products International (HPI), an American company, makes ironing tables. So does Hardware, a Chinese company. I personally have no idea which firm makes the better ironing table. That’s for consumers to decide.

Or at least it should be for consumers to decide. But it doesn’t always work that way in practice. HPI seems to have already made that decision for us.

At HPI’s request, the International Trade Administration will continue to add anti-dumping duties to the price of the Chinese-made ironing tables. That way HPI doesn’t have to worry as much about competing. Sorry, consumers.

Is this fair? Of course not. But all too often, it is how regulation works.

Leading trade lawyer: real problems with carbon tariffs

by Fran Smith on July 9, 2009 · 1 comment

in Agriculture, Energy, Environment, Global Warming, International, Legal, Trade

Leading trade lawyer Gary Horlick testified yesterday on carbon tariffs before the Senate Finance Committee.  As the Senate prepares an energy suppression/global warming bill, it is attempting to find ways to soften the “border adjustment” provisions in the House-passed bill (H.R. 2454).

Horlick points out some of the practical problems of setting up a carbon tariff system and cautions about the potential effects of such measures on the international trading system.  As he notes, if the production method rather than the end-product is focused on, such processes as agricultural biotechnology may face increased challenges in the World Trade Organization:

It is tempting to say that we can re-interpret existing WTO rules to permit whatever measures are necessary to protect our environment. But do we really want to change those existing rules? The key to the U.S. economy is constant innovation.

One of the important fields where we lead the world of innovation is biotechnology, which is revolutionizing medicine, agriculture, and even many of the environmental concerns dealt with in proposed legislation (such as environmental remediation and renewable fuels). So far the United States has resisted efforts in Europe and elsewhere to limit our market access for our products because of how they are produced – from biotech means. But if we re-interpret WTO rules to allow trade barriers based on how things are made, we open up a can of worms – and might permit other countries to block our biotech exports, including major items such as corn, soybeans, and other crops.

Talk about creating chaos in the world trading system!

To world leaders: halt the spread of protectionism

by Fran Smith on December 8, 2008 · 1 comment

in International, Trade

It’s timely and needed — a new publication gives leading trade economists’ views on “What world leaders must do to halt the spread of protectionism.” In the publication by VoxEU.org (run by The Centre for Economic Policy Research), all of the experts caution that in times of recession, countries often attempt to fend off competition by trade protectionism; to do so, however, would be a huge mistake and plunge the global economy further downward, particularly hurting developing countries.

Instead, these experts argue, deal strongly with domestic economic problems, while taking steps to further the multilateral trade talks in the World Trade Organization’s Doha Round.

It’s well worth a read — short chapters are by such trade notables as Jagdish Bhagwati and Arvid Panagariya, Gary Hufbauer and Jeffrey Schott, and the publication’s editors, Richard Baldwin and Simon Evenett.

The Richardson appointment was nice, but…

by Ivan Osorio on December 3, 2008 · 2 comments

in Economy, Trade

When was the last time the U.S.’s top trade official wasn’t a strong advocate for free trade? It may happen in the new Obama Administration.

According to numerous news reports, President-elect Obama has offered the post of USTR to Rep. Xavier Becerra (D-Calif.), a 16-year member of the House, who serves on the powerful Ways and Means Committee that oversees trade and is a close ally of Speaker Nancy Pelosi — his website lists him as “Assistant to the Speaker.”

Becerra’s record on supporting free trade is a mixed bag. He voted to hold up the Colombia Free Trade Agreement. He voted for the Peru free trade agreement, but against the Oman FTA and the Central America-DR FTA. He is a strong proponent of including non-trade issues in trade agreements, particularly labor and environmental provisions that could act as protectionist trade barriers by forcing poor countries to adopt rich countries’ standards.

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