protectionist

“Illegal” Green Energy Subsidies

by Brian McGraw on October 15, 2010

in Energy, Trade

In a move that surprised no one, The New York Times reported today that the U.S. agreed to go ahead and formally investigate a complaint filed by the United Steelworkers in early September, accusing China of illegally subsidizing their green energy industry. The original story on the filing of the case is here. A summary of the complaint is here.

Two quotes from the summary, emphasis mine:

The USW petition details the broad range of WTO-inconsistent policies that China has employed to vault ahead of the United States as a leading producer and exporter of green technologies. These practices include discriminatory laws and regulations, technology transfer requirements, restrictions on access to critical materials, and massive subsidies that have caused serious prejudice to U.S. interests. Together, these practices have given Chinese producers an upper hand in accessing investment, technology, raw materials and markets, while foreclosing these same opportunities to U.S. producers. The Chinese government has invested hundreds of billions of dollars to unfairly advantage its producers and exporters, undercutting U.S. companies and workers and distorting billions of dollars of world trade.

China’s massive domestic subsidies to green technology are distorting trade and harming producers in other countries. In its economic stimulus package, for example, China gave more than $216 billion to subsidize green technologies – more than twice as much as the U.S. spent in the sector and nearly half of the total “green” stimulus spent worldwide. These subsidies are helping Chinese producers ramp up production, seize market share, drive down prices, and put global competitors out of business.

The USW are angry that China is subsidizing green energy MORE than the U.S. does. Their language is unclear, but they agree that the U.S. subsidizes green energy, unfortunately just not to the extent that the Chinese do. This article indicates that the stimulus package reserved $43 billion for renewable energy.

The Energy Information Administration estimated that in 2008 annual subsidies for the renewable energy industry were 4.87 billion (and this group makes a convincing case that their estimates are far lower than reality). Does the WTO account for subsidy levels versus total population? If China has four times the population of the United States, can they give a subsidy that’s larger in absolute terms but smaller in relative terms?

I am not a lawyer; it’s possible that certain types of subsidies are legal while others aren’t. Regardless, it is pretty clear that the U.S. has been on the wrong side of numerous international trade violations — and even if not wrong legally, is wrong in spirit here. See the dispute over Mexican trucks, the international gambling ban, the U.S. Brazilian cotton dispute, and many others.

Regardless of how you feel about the accusations of a weak currency (see CEI’s Fran Smith on the issue here), the U.S. cannot with a straight face accuse China of illegally subsidizing its green energy sector. Until the case is resolved, or goes away, this will be another great talking point for politicians who are more than willing to cater to protectionist fears. Nancy Pelosi has already seized the opportunity.

Finally, this is another great time to look at the mission statement of the USTR:

American trade policy works toward opening markets throughout the world to create new opportunities and higher living standards for families, farmers, manufacturers, workers, consumers, and businesses. The United States is party to numerous trade agreements with other countries, and is participating in negotiations for new trade agreements with a number of countries and regions of the world.

The Office of the U.S. Trade Representative (USTR) is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries. The head of USTR is the U.S. Trade Representative, a Cabinet member who serves as the president’s principal trade advisor, negotiator, and spokesperson on trade issues.

The relevant parts are the first paragraph, where they forgot to include “politically favored” when describing businesses and manufacturers (they could also delete consumers from the list and stop pretending). The relevant part of the second paragraph is where they reveal that the USTR is nothing more than a tool of the Obama administration, who has been depressingly bad on trade issues.

Take a Look at U.S. Tariffs – They Raise Costs and Restrict Choice

by Fran Smith on September 29, 2010

in International, Trade

With so much focus on “unfair” trade vis-à-vis U.S. trade partners, especially China, it’s sometimes sobering to look at protectionist U.S. policies that restrict imported goods and services by slapping them with high tariffs.  The Business Insider provides a good start in its focus on 25 imported products that have the biggest U.S. tariffs. Take a look at the highlighted tariffs that range from 20 percent on some dairy products to 37.5 percent for leather shoes, then 163.8 percent on unshelled peanuts up to a whopping 350 percent for imported tobacco.

But what do these tariffs mean for consumers?  Obviously, they raise their costs.  Ed Gresser of the Progressive Policy Institute has written extensively on how U.S. tariffs are really regressive — they hurt the poor the most by increasing the costs of needed goods, such as shoes and clothes.  Here’s what Gresser says:

Though the tariff system is smaller than other taxes, it is far more regressive. This is because poor people spend a greater share of their income on clothes and shoes than do wealthy or middle-class people. The cheap and simple goods made in poor countries and bought by low-income Americans are subject to far higher tariffs than luxury goods. An acrylic sweater attracts a 32 percent tariff, while a cashmere sweater gets only 4 percent; a polyester bra is tagged with a 17 percent tariff, while one made of silk gets less than three percent; and a cheap stainless steel fork is hit with a 19 percent tariff, while a silver-plated spoon has none at all.

Since the Business Insider feature only looked at tariffs, it missed some of the most egregious protectionist programs in the U.S. — the U.S. sugar program that guarantees sugar producers a certain price by restricting domestic supply as well as sugar imports.  Or take the U.S. cotton program that subsidizes a small number of cotton producers at taxpayer expense and makes it uncompetitive for many poor countries to export their cotton to the U.S.  As with these and other protectionist policies, they generally help a small group of producers by restricting competition, but the costs are borne by consumers in terms of fewer choices and higher prices.

Another Hoover on trade?

by Fran Smith on September 15, 2009 · 1 comment

in Economy, International, Trade

President Obama’s slapping of tariffs on tires imported from China is the latest in a series of protectionist moves by the U.S. that threaten the world trading system, risk retaliation by the U.S.’s largest foreign creditor, and ultimately harm consumers.  A Wall Street Journal editorial today titled “A Protectionist President” points out that Obama’s trade stance could be following in the disastrous footsteps of President Hoover.

The reality is that without the U.S. leading by example, the world trading order is likely to deteriorate into every country for itself. This is especially dangerous amid a global recession in which world merchandise trade volume fell by roughly 33% from the second quarter of 2008 to June 2009. Reviving trade flows is crucial to restoring global growth.

Mr. Obama may not intend to start a trade war, but then Hoover didn’t set out to pick one either. His political abdication is what made it possible, however, and trade passions once unleashed can be impossible to control. On his present course, President Obama is giving the world every reason to conclude he is a protectionist.

The Chinese have said they may retaliate on the tire tariffs by restrictions on U.S. chicken and auto parts.  That indeed could escalate to the detriment of U.S. manufacturers and producers and the jobs they maintain.  But U.S. consumers, especially lower-income consumers, could face immediate and substantial increases on lower-cost tires, many of which come from China.  Some tire distributors estimate that the cost of a $50 tire could rise to $85.  Since U.S. manufacturers mainly produce higher-priced tires, this protectionist move will do virtually nothing  for U.S. jobs in the tire industry, except perhaps appease the trade unions, especially the United Steelworkers, which have been clamoring for more protection.