Mexico

Mexico’s Retaliation — A Good Idea?

by Fran Smith on August 17, 2010 · 1 comment

in International, Legal, Trade

Cato’s Dan Ikenson posted today in favor of the trade retaliation measures announced by Mexico in response to the U.S. refusal to open its market to Mexican trucks, as the U.S. had agreed to do under the North America Free Trade Agreement.  Dan details the 15-year history of U.S. intransigence–which involves labor unions, environmental groups, and Congress putting up road blocks.  This recent move by Mexico expands the list of products that will have punitive duties imposed, since their earlier imposition of tariffs didn’t get the U.S. moving.

As a general rule,  I don’t support trade retaliation for a host of reasons — the first being that the measures end up harming people, the consumers in Mexico who have their choices restricted or face rising prices on those goods, and the U.S. exporters, who likely will face falling Mexican demand for the affected goods. Retaliation may also harden the opposition to free trade in the U.S., especially among the NAFTA-haters — the labor unions and environmentalists.

Trade retaliation also can escalate in a tit-for-tat fashion.  “We’ll find something we can get you on,” whether it be a pseudo-phyto-sanitary standard or some other non-tariff approach.

In favor of the Mexican retaliation, a solid argument could be made that the U.S. has acted egregiously in not living up to its NAFTA commitments over a 15-year period.  And Dan Ikenson has made a convincing case. A trade agreement is a contract, with procedures included for settling disputes relating to the agreement.  Mexican followed the rules, brought its complaint, and a NAFTA panel unanimously ruled in favor of them in 2001.  But, the U.S. delayed and tried to wiggle out of its commitments. So Mexico does wear the “white hat” in this dispute, and its actions are justified in the context of NAFTA.

What I’m concerned about is how the labor unions will use this and spin it — with calls of  “unfair” and “unsafe”– to further undermine support for free trade.  Already, the Teamsters’ Jim Hoffa has asked the president to challenge Mexico on the tariffs and said the only way to solve the problem is to not to open the U.S. borders to “unsafe” Mexican trucks but to “renegotiate” NAFTA.  And the labor unions have been running the trade show in Washington, with Congress’ advice and consent.  They have held up the three pending free trade agreements with Panama, Colombia and South Korea, and labor unions’ latest trade attack is focused on Guatemala for not abiding by their labor commitments in the Central America Free Trade Agreement.  They are flexing their muscles for the battles to come.  And it doesn’t bode well for progress on free trade.

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.

Stimulus Ignites Job-Killing Trade War With Canada

by Hans Bader on May 15, 2009 · 1 comment

in Economy, Employment, Energy, Environment, Global Warming, International, Odds & Ends, Politics as Usual, Stimulus to Nowhere, Trade

The $800 billion stimulus package pushed through by Obama has ignited a trade war with Canada, reports the Washington Post. In response to vague “buy American” provisions in the stimulus, “A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.”

A trade war is also underway with Mexico, thanks to a provision in the stimulus package that blocked a measley 97 Mexican truckers from U.S. roads. That minor NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs.

Obama’s protectionism echoes Herbert Hoover’s protectionism, which helped spawn the Great Depression. President Hoover signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

Unemployment is now even higher than what Obama predicted it would be without the stimulus. The White House now admits that there will be no job growth until 2010. The Congressional Budget Office repeatedly predicted that the stimulus would shrink the economy “in the long run,” but increase it in the short run, i.e., by the next election.

But so little of the stimulus money has gone into sectors of the economy where unemployment is high (like construction and transportation) that it seems to be doing nothing for the economy even in the short run. The $100 billion it pours into education — a sector where unemployment is very low, and where the U.S. also spends more per capita than almost every other country — appears likely to be wasted. Only 5.9 percent of the stimulus will go to transportation, a small amount compared to the amount of money it showers on state governments, which are using it to continue to provide lucrative pension and health benefits for state employees, whose wages continue to rise much faster than private sector workers.

Obama is following in Herbert Hoover’s footsteps on taxes and spending. In the Great Depression, Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. Similarly, Obama has proposed higher marginal tax rates, which will produce another $1.9 trillion in tax increases. One of Obama’s own advisers now says that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to those that deepened the Great Depression.

Hoover imposed regressive taxes that burdened consumers, like the Revenue Act of 1932. Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. Obama privately admitted to the San Francisco Chronicle (which didn’t report it) that under his “plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s 1932 excise tax increase was. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air. It is also chock full of corporate welfare, regional favoritism, political pay-offs, and give-aways to special interests.

LibertyWeek 41: SCOTUS Scurry

by Richard Morrison on May 5, 2009

in CEI Projects, Podcast

Richard Morrison and Cord Blomquist team up with special guest co-host Jeremy Lott to bring you Episode 41. We begin with a farewell to famed quarterback, Republican Congressman and former CEI Distinguished Fellow Jack Kemp. We then move on to China’s flu-related roundup of Mexican nationals, the race to replace Justice Souter and the new opportunity to SuperPoke the President of the United States. We round out the show with Andrew Cuomo’s allegations of scandal and a modest helping of Olympic News.

Can he terminate protectionism?

by Fran Smith on March 26, 2009

in Economy, Trade

It seemed like California Gov. Arnold Schwarzenegger didn’t have guts, despite his super-macho screen image.  Yesterday, however, he wrote to  members of the California Congressional Delegation, the country’s most powerful delegation in terms of the key leadership positions they hold, where he urged them to restore the pilot Mexican trucking program to avert trade retaliation.

Schwarzenegger pointed out how Congress’ termination of the program will hurt the economy and jobs, particularly in California:

. . . we must not allow safety to serve as a smokescreen for protectionist measures that cause more economic harm at a time when this country already has serious challenges to overcome. . . .  The termination of the pilot program has not made U.S. roads safer, but it has hurt the economy of California and the nation as a whole.

Beyond my concerns related to this particular episode, I am troubled by the disturbing signals it sends to our most valued trading partners.  In times of economic distress, the one sure way to worsen the plight of American workers is to retreat behind arbitrary and disingenuous protectionist walls.  Now is precisely the time for Congress to further open markets to American products rather than raising additional barriers to trade.

See earlier posts on Mexican trucking here, here, and here.  Will Democratic leaders stand up to the Teamsters on this issue?  Don’t count on it — too many are indebted to the unions for their 2008 win.