Grading My 2010 Predictions: A Good, Solid B+

Happy New Year!  With 2011 now upon us, a review of my 2010 predictions is probably a little overdue. (It's like soooo last year!)  Nevertheless, it's important every once in a while for us bloggers - and you normal folk - to stop judging other people's mistakes and look back at our own.  So here we go.

Last January, I provided a laundry list of predictions on several different trade issues, broken down by predictive difficulty into three categories: (1) low hanging fruit (i.e., pretty "easy" predictions based on existing facts and trends); (2) 50/50s; and (3) total shots in the dark.  So how did I do?  Well, I'll let you be the judge of that, but my official scorecard is below.  Correct predictions are in green; incorrect predictions are in red; and so-so predictions are in yellow.  Feel free to mock me in the comments.

Low Hanging Fruit

(1) The WTO's Doha Round won't collapse entirely, but it also won't be any closer to completion. 2011 will become the new target date (for whatever that's worth). This one was probably the easiest of all predictions, but there's good reason for optimism in 2011.  Let's hope the White House is up to the task.

(2) There will be no change to US farm and "green energy" subsidy policies.  With the Obama administration paying off Brazilian cotton farmers instead of modifying the United States' WTO-illegal cotton subsidies, and with the year-end tax deal containing billions of additional taxpayer dollars for the debacle that is American corn ethanol and other green energy policies, we scored a really unfortunate "correct" on this one.


(3) Bilateral and regional FTAs will continue at a furious pace across the world, but (4) new US negotiations under the Trans-Pacific Partnership (TPP) Framework will be interminably slow. I can't find any stats on FTAs completed in 2010 (sorry), but I think it's pretty safe to say that (except in the United States, natch) bilateral/regional FTA negotiations continued apace in 2010.  As for TPP, it's still theoretically on schedule to be completed by the end of 2011, but the current members are still stuck on several procedural issues, and membership ain't exactly settled either.  (Oh, and the US appears to already be backing away from that end-2011 goal, although it's unclear whether that's just smart politics/diplomacy.)

(5) There will be no "trade war" between the United States and China.  As I said at the time, "Sure, the WTO cases, strong words, and AD/CVD actions will continue, but that's hardly a 'trade war.'"  I think that's a pretty good summary of what we saw thislast year.  Score one for pragmatism and sanity over media hype and congressional bluster.

50/50s

(1) 2010 will see a significant increase in anti-subsidy actions under domestic trade laws and WTO rules. At the time, I saw two main reasons for this conclusion: "(i) The massive proliferation of government subsidies in 2009 and increased tradeflows in 2010; and (ii) the continuation of all US farm subsidies."  And while there have certainly been new CVD cases and WTO disputes over green subsidies and US biofuels (or biofuels byproducts), I can't grade this one as a true "correct," because I said "significant increase," and there just hasn't been an explosion of new cases.  So I'm giving myself a "so-so" here - mostly because, as any good lawyer knows, I should have given myself more wiggle room by avoiding a strong adjective like "significant."  Silly me.

(2) Congress will approve none of the pending US FTAs.  Pathetic, but correct.  What's funny/sad about this one is that this was actually not such an easy prediction in January of last year.  A lot of well-informed people actually thought that the Colombia and/or Panama deals could squeak through before the election season kicked into high gear.  Silly optimists.

(3) Eco-protectionism will increase around the world.  We didn't see carbon tariffs emerge anywhere, but there were oodles of new green subsidies and onerous "environmental" standards, including those on "food safety" here in the US.  (Heritage's Jim Roberts has a nice mid-year rundown here.)  And because I wisely didn't use the adjective "significant," I'm giving myself an admittedly tepid "correct" here.

Total Shots in the Dark

(1) The failure of Cap and Trade in the Congress will cause the EPA to begin reviewing import regulations on GHGs and GHG-intensive products.  Cap and trade did die in Congress, but, as far as we know, this prediction was incorrect: the EPA didn't start looking at new import regulations based on their GHG content (although those already-planned regs did come online last year).  But with the Obama administration now looking to use the EPA and other regulatory agencies to advance an environmental agenda that it can no longer achieve through Congress, my prediction might've just been off by a year.  We shall see.

 (2) China will not unpeg its currency vs. the US dollar (despite 12 more threatening NYT columns by Paul Krugman).  I was wrong on both counts: (1) since June, the RMB has appreciated about 3.5% against the US dollar and kept moving in that direction even after Congress adjourned for the year (thus killing that silly China currency legislation); and (2) Paul Krugman wrote way, way more than 12 columns on China currency last year.  But hey, betting on Chinese economic policy and/or Paul Krugman's ranting habits can put even Nostradamus in the poor house.  Alas.

Overall, I'd say that this was a pretty good effort.  I nailed the low-hanging fruit, did pretty well on the 50/50s, and missed the total shots in the dark.  Next week, I'll try to match this effort for 2011, but that's not going to be an easy task.  While 2010 was a pretty zany year, 2011 is shaping up to be even zanier.

Thanks for reading and commenting over the past year.  It's be a fun ride.  May you and yours have a truly dominant 2011.

Umm, Yeah, About that Protectionist Campaign Platform...

So I've been on vacation for a few days.  Did I miss anything important?  (Sorry, I couldn't resist.)

It should come as no surprise to readers of this blog that yesterday's election results were met with a few late-night fist-pumps from your humble correspondent.  For more than a year now, I've publicly lamented and exposed many American politicians' trite, moronic and/or just-plain-false campaign tactics based on trade protectionism.  And when the Democratic Party decided that a cavalcade of anti-trade myths would become a key component of their 2010 arsenal, I was loudly rooting for abject failure because if, as I said about six weeks ago, the "Democrats' broader protectionist plans go down in flames" it could dramatically undermine the "conventional wisdom" that anti-trade myth-peddling is a surefire political winner and that supporting free trade is political poison.

And after last night's results, I'd say that more than a few "free trade fist-pumps" are warranted.

First, the Chamber's John Murphy provides us with a nice little scoreboard of last night's results (and takes a well-deserved swipe at the protectionists over at Public Citizen):

Some candidates, mostly Democrats, tried to win votes by tapping into anxiety about trade with China, "offshoring," and trade agreements. The anti-trade activists at Public Citizen recently contended that "[v]irtually every Democrat in a tough race has at least one paid television ad attacking offshoring, and many propose changes to the tax system to combat it."

It didn’t work. Public Citizen identified 36 new "fair trade" House members in a report issued after the 2008 election.... The activist group argued that opposition to free trade agreements played an important role in their election.

And yet 20 of those 36 House members were defeated on November 2. Fourteen were re-elected (four of whom are Republicans), and two are locked in races that are too close to call as of 10:00am on November 3... Other outspoken opponents of trade agreements such as Phil Hare, Zack Space, and Joe Sestak lost.

Murphy provides a handy tally of the protectionist losers here.  (Feel free to take a moment to click-and-gloat.  I know I sure did.)  Cato's Dan Griswold then helpfully explains that several self-avowed free traders also had a good night last night:

Republicans Pat Toomey, Rob Portman, and Mark Kirk all won Senate seats in the industrial heartland yesterday (Pennsylvania, Ohio, and Illinois, respectively) and all three voted in favor of major trade agreements during their time in the U.S. House. None of them ran away from their records on trade.

The Portman victory is especially sweet, considering that (i) he was a former US Trade Representative during the heyday of G.W. Bush's trade expansion efforts, (ii) he was elected in the very trade-skeptical state of Ohio (home of uber-protectionist Sherrod Brown); (iii) his opponent Lee Fisher ran a zillion ads criticizing (often falsely) Portman for his free trade positions; and (iv) he still won by a whopping 18 percentage points!

Giddyup.

Another protectionist loser not reported above was Rep. Gene Taylor (D-MS) - an 11-term congressman who routinely sponsored legislation to withdraw the United States from NAFTA and inadvertently began my "protectionist campaigning for dummies series" when his staffer anonymously challenged me to a blog-fight after I derided the aforementioned protectionist legislation.  (Oops!)  And incumbent Senator Russ Feingold (D-WI) also got blown-out despite laughably accusing challenger Ron Johnson of supporting "unfair trade deals" and - heaven forbid! - "creative destruction."

The quick take from these results and a few others is pretty simple, I think: rampant protectionism proved to be a pretty bad strategy for political victory last night, and being a free trader wasn't an automatic recipe for failure either.  And I think it's safe to say that the conventional political wisdom on trade deserves to finally be put out of its misery, wouldn't you?

Granted, last night wasn't perfect.  For example, one of my favorite challengers - unapologetic free trade Republican Jason Levesque up in Maine - lost to the House's top protectionist, Mike Michaud.  So, being a free trader also isn't some sort of magical path to electoral success, either.

But hey, Murphy, Griswold and I have never, ever claimed that it would be, or that being a protectionist - however misguided and ethically, umm, ambiguous that position might be - automatically doomed an ambitious pol to failure.  Instead, we've been merely trying to say that protectionism ain't the super-effective political strategy that the DNC's braintrust (and Public Citizen's professional anti-traders) swore up-and-down that it would be.

The data from 2010 prove our point quite nicely.  So, hey, here's a crazy idea: maybe it's time we stopped spending tens of millions of dollars every two years to propagate protectionist myths for (increasingly disproven) political gain, and instead had a real debate about the issues - one based on facts rather than fear and reallllly bad "conventional wisdom."

(Sorry, Public Citizen.)

(And protectionist politicians.)

Hocus POTUS: 2010 US Trade Policy Agenda Makes Imports Magically Disappear!

With little fanfare, the United States Trade Representative today published its annual report on US trade policy - the 2010 Trade Policy Agenda and 2009 Annual Report.  As was to be expected, the Obama administration's trade policy plan for 2010 (available here) places an extremely heavy focus on exports, in particular the new National Export Initiative, and the report balks on ensuring passage of any pending US Free Trade Agreements in 2010 (told ya so!).  Also as expected, the 2010 agenda downplays the important role that imports play for American businesses and families, and USTR Ron Kirk's statements announcing his agency's new report relay a similarly unbalanced, exports-only approach to US trade policy.

Now, I've discussed many times the White House's tragic, mercantilist obsession with exports and the US trade deficit, and the deleterious effects on the American trade debate of an "exports-good-imports-bad" approach to trade policy.  And the USTR's 2010 trade agenda obviously continues that disturbing trend, so there's no need to rehash my previous arguments here.  But I must admit that even I am amazed at the dramatic extent to which the Obama administration's report on American trade policy has completely ignored imports and the critical importance of unfettered access to foreign goods, services and investment for the US economy.  It's as if the folks at USTR waved a magic mercantilist wand and made imports virtually disappear.

Just how far did they go?  Well, consider these basic word-count statistics.  In the 17-page agenda--

• The word "import" or "imports" is mentioned a total of 5 times;

• The word "export," "exports," "exporter" or "exporters" is mentioned 54 times;

• The word "consumer" or "consumers" is mentioned once (and only as "consumer protection" in reference to potential foreign market access barriers!)

• The word "balance" (or some form of it) is mentioned 11 times;

• The term "playing field" (as in one that is tilted against the United States and must be "leveled") is mentioned twice; and

• The term "market access" is used 12 times, but only twice with respect to imports (and both of those dealt with providing access to poor nations to help their development - never was it used to explain how such access benefits US businesses and consumers).

I could go on, but I'm pretty sure you get the idea.  (Almost as troubling: the word "labor" is used 17 times, and the word "environment" (or some form of it) is used 23 times - yikes).  Now, one could argue that it's not the quantity of a word's usage, but the quality of that usage.  Indeed, if the word "imports" were used only once in the entire 2010 trade agenda, but it was in some awesome statement about how USTR will ensure that American businesses and families reap even greater benefits from import access/competition in 2010, then the number of times that the word was used would be utterly meaningless.  Sadly, however, this is not the case.  Indeed, of the five whole times that the word "import" or "imports" was used in the 2010 trade agenda, it was not once used in a discussion of import benefits to the American economy.  Nada.  Zilch.  Zero.  (And, by contrast, the report devotes a robust paragraph to "limiting the impact of dislocations" allegedly caused by those nasty ol' imports.  Ugh.)

Indeed, based on my initial reading, the most promising statement in the entire 2010 US Trade Agenda about import benefits has to to with this rivetingly ambiguous statement about trade in environmental goods (p. 11):

The United States will back trade initiatives that will lower the cost and enhance the efficacy of our energy and environmental strategies.  For example, we fully support fast-tracking action with willing partners in the WTO’s work on liberalizing trade in innovative, climate-friendly goods and services through tariff reductions that will stimulate their global markets. These technologies can make our societies more energy efficient and less dependent on imported fossil fuels. This is a good environmental policy with strong jobs potential through greater exports.

Feel the excitement!  (And you gotta give credit to USTR, they couldn't let that extremely vague reference to import benefits slide without concluding on an "increased exports" high note.  Such diligence.)

So there you go, folks.  The 2010 US Trade Agenda - the document establishing the annual trade agenda for one of the world's (alleged) "free trade champions" - has made imports magically disappear.  Fortunately for American families and businesses, however, they're not really going anywhere.

(At least, I don't think so.)

State of the Union: Trade

President Obama devoted two paragraphs to US trade policy in his State of the Union address tonight:

[W]e need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.

We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. And that’s why we will continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea, Panama, and Colombia.

I've already stated my many concerns re: a recovery strategy based on manufacturing exports, and while I certainly give the President credit for sounding kinda supportive of the pending FTAs and the WTO's Doha Round, his craptastic 2009 efforts in these areas (and others!) belie any new and real commitment to their success.  I'd be thrilled to see his 2010 agenda prove me wrong, but considering that President Obama's 2009 trade agenda also expressed support for pending FTAs and the Doha Round, I'd say that a hefty dose of skepticism is warranted.

More broadly, the President's words revealed an unflinchingly mercantilist worldview - exports are good, imports are bad, full stop - but this archaic, self-defeating outlook is also nothing new, so it's not like tonight's speech gave me any reason to get all worked up on a school night.  (He also repeated the tiresome pablum about ending tax breaks for "companies that ship our jobs overseas," and that's similarly out of touch with economic reality.)

In sum: same old, same old.  My 2010 predictions remain unchanged.

2010 Predictions, Ctd. (Subsidy Edition)

Looks like one of my 2010 predictions is shaping up quite, ahem, nicely.  As you may recall, I predicted that 2010 would see a significant increase in anti-subsidy cases because of, among other things, "the massive proliferation of government subsidies in 2009 and increased tradeflows in 2010."  Well, according to Reuters, conflict appears to be brewing between developed and developing countries over this very issue:

Rich-country members of the World Trade Organisation blocked calls on Friday by developing countries to examine the possible protectionist impact of bailouts and financial stimulus packages.

Developing countries believe bailouts can have an unfair protectionist effect by helping industries in states that can afford them; typically high-income countries and some major emerging countries like China.

At a meeting of the WTO's trade policy review body, the United States and Japan blocked proposals for future WTO analyses of trade measures to cover fiscal measures such as bailouts, according to an official who attended the meeting.

The European Union did not reject the proposal completely but said it required further study so it could be conducted in a realistic and pragmatic manner.

The chairman of the WTO, Hungary's ambassador to the body Istvan Major, said he would continue discussions on this issue, but did not set a timeframe for further moves.

The WTO's regular protectionism reports, introduced in response to the financial crisis, have focused on conventional trade measures such as tariff increases and anti-dumping duties.

The call to include bailouts and stimulus packages was led by Argentina, backed by Ecuador, Cuba, Brazil, India and China.

Adding such measures to the WTO's "protectionism list" is a very good idea - subsidies can distort domestic and foreign markets just as much as tariffs can.  So it's surprising that the United States would block such a move, isn't it?  (Note: not actually surprising at all.)  Regardless, it's clear that a lot of countries are focusing on the potential economic disruption caused by all of the subsidies, bailouts, "stimuli" and rescue packages unleashed in 2009.  And if tradeflows do indeed continue to increase in 2010, domestic countervailing duty cases, or WTO subsidy challenges, might not be far behind.

Don't say I didn't warn you.

Depressing Trade Stat of the Day

From IBD's latest editorial on the miserable state of US Trade Policy:

Recent White House visitor records show that President Obama and his officials have scheduled meetings with the likes of Change to Win union boss Anna Burger 32 times, SEIU boss Andy Stern 28 times, AFL-CIO boss Richard Trumka eight times and ultra-protectionist United Steelworkers boss Leo Gerard eight times. And his U.S. Trade Representative, Ron Kirk? Well, he merited a mere two visits.

Yikes. Now granted, it's all but certain that all (or even most) of these meetings didn't focus on trade, and I do know that the President and his USTR met at least once outside the Oval Office (to golf and discuss tariffs on Chinese tires!), but still, them's some skewed numbers.

Is it any wonder that that my 2010 outlook is so darn bleak?

(H/T Andy Roth)

My Sound (and Unsound) Trade Predictions for 2010

I had begun drafting a long series of blogposts grading the White House's 2009 trade policy (conclusion: a good, solid D+) but stopped because (a) the depression overwhelmed me, and (b) year-in-reviews are so last decade. (And anyway, it's too easy to be proven right when you simply review what happened last year, and where's the fun in that?)  So instead, I've decided to provide my somewhat-educated predictions for what 2010 will hold for US and global trade policy.  I've split my forecasts into three sections - (1) low-hanging fruit, (2) 50/50s, and (3) total-shots-in-the-dark - based on how obvious/difficult the prediction is.  And now that you've bookmarked this page in order to mock me in about 360 days, let's get things started.

Low Hanging Fruit

(1) The WTO's Doha Round won't collapse entirely, but it also won't be any closer to completion. 2011 will become the new target date (for whatever that's worth).  This, I think, is the easiest of all the 2010 trade predictions.  For the reasons why the Round won't be completed anytime soon, just re-read my December post-mortem here, and also keep in mind one other critical fact: even if the United States gets its act together, and even if there's a breakthrough on agriculture subsidies and industrial market access (two very big "ifs"), completion of the entire Doha Agreement - especially in the area of services and industrial market access exceptions - would still require months of intensive negotiations and technical work on individual countries' tariff schedules and services schedules.  And there's no possible way that such work is completed in 2010 barring a miracle breakthrough this winter.  None.

That said, I see three reasons why world leaders won't take my advice and put Doha entirely out of its misery: (i) they don't want to admit failure on their watch; (ii) there are probably many well-intentioned folks who honestly believe that if Doha goes down, it will take the entire multilateral trading system with it; and (iii) there are hundreds upon hundreds of international diplomats who, without Doha, would need to find another excuse to go to (or live in) Geneva.  So the Doha gravy train must continue.

(2) There will be no change to US farm and "green energy" subsidy policies.  The Obama administration has long been a supporter of US ethanol subsidies and has reiterated that stance, as well as strong support for subsidizing all other kinds of "green" stuff, in 2009.  It also has left US sugar policy untouched and refused to change US cotton subsidies, despite multiple adverse WTO rulings.  And if you know of anyone who thinks that the Democrat party will take on US agribusiness in a 2010 election year that's already shaping up to be brutal for them, well, please politely inform him or her that he/she's certifiably insane.

(3) Bilateral and regional FTAs will continue at a furious pace across the world, but (4) new US negotiations under the Trans-Pacific Partnership (TPP) Framework will be interminably slow.  My thoughts on TPP are here, and that pessimism came before we saw that the already-controversial Vietnam - a potential TPP signatory - was publicly announcing its desire to increase trade ties with, ahem, Iran.  Oops.  Worldwide, the explosion of bilateral/regional FTAs will undoubtedly continue as an insufficient surrogate for the troubled Doha Round. 

(5)  There will be no "trade war" between the United States and China.  Sure, the WTO cases, strong words, and AD/CVD actions will continue, but that's hardly a "trade war."  Indeed, given the immense size of the US-China trade relationship, these types of skirmishes will almost certainly increase in 2010, but a few billion dollars in conflict, out of several hundred billion in trade, does not a "trade war" make.  (Caveat: if the US somehow imposes carbon tariffs, or if it deems China a "currency manipulator" in Treasury's semi-annual report on the subject, all bets are off.  But I think that the chances of those things happening are very remote.)

50/50s

(1) 2010 will see a significant increase in anti-subsidy actions under domestic trade laws and WTO rules.  I see two main reasons for this conclusion:

• The massive proliferation of government subsidies in 2009 and increased tradeflows in 2010.  2009 saw unprecedented "stimulus actions" (read: massive government subsidies) in the United States and abroad, huge sums of federal money thrown at "green" projects, and bailouts of strategic sectors like the US auto industry.  China fired a warning shot this fall when it initiated separate countervailing duty (CVD) investigations of (allegedly) subsidized US exports of automobiles, chicken and steel products, and the US has targeted Chinese subsidies for a while now (at home and in the WTO).  There's no reason to expect that such actions will slow down in 2010, and other countries are similarly exposed.  Moreover, US exports have surged in 2009, and world trade overall is expected to increase in 2010.  Such increased tradeflows could intensify domestic lobbying for import protection and might provide nations with the grounds for demonstrating that subsidized exports have "injured" their domestic industries or distorted global markets.
  
• US farm subsidies have not abated.  I see two reasons why WTO Members could step-up their challenges of US farm subsidy programs in 2010.  First, the 2008 Farm Bill will have been in effect for over a year, and it typically takes nations about that long to figure out how domestic subsidy programs have worked in practice and affected foreign markets.  Second, some WTO Members have withheld challenges of US subsidy programs pending the completion of the Doha Round.  Given the Round's continued stagnation, and US refusal to reform its farm programs or engage fully in Doha, 2010 might be the year that these nations finally pull the trigger.  (I'd also note that Brazil has already earned the right to retaliate against US cotton subsidies and is threatening to do so in 2010.)

(2) Congress will approve none of the pending US FTAs.  The US-Korea FTA has the least chance (read: no chance) of passage in 2010 for myriad reasons, most importantly the continued opposition to the FTA by the US auto industry - which appears, by the way, to have hired half the lobbyists in Washington - because the FTA would eliminate a 25% tariff on Korean light trucks and SUVs (although the Big Three would never admit that's their real reason for opposing, of course).

Pending FTAs with Panama and Colombia would have had a better chance of passage in 2010, but that was before (i) the health care debate got pushed into late-January 2010 (at the absolute earliest); and (ii) protectionists in the House convinced a "majority of the majority" (i.e., 129 House Democrats) to sign on to their anti-trade opus (ironically named the TRADE Act) that demands renegotiation of existing FTAs.  The TRADE Act isn't getting passed by Congress in 2010 (or ever), but it will definitely put a damper on any efforts by the White House - which is utterly unwilling to expend political capital on the FTAs as long as health care isn't finished - to push through the Colombia or Panama FTAs in the small window of time after the health care debate ends and before the election year's "silly season" begins in June (after which trade deals become untouchable in Congress).  Now, there is a chance for Congress to pass the Colombia and Panama FTAs after the November 2010 elections, but that's also small given the ample appropriations work that will likely be left to address before the December recess.

(3) Eco-protectionism will increase around the world.  I've already laid out my reasoning for why I think carbon tariffs and other forms of "green protectionism" will likely increase in the wake of the Copenhagen failure, and we've already seen some early evidence of that in the EU (see previous link).  And while Cap and Trade appears dead in the United States for 2010, there have already been some troubling signs that the United States will protect its green industries in other ways, or that US states will take eco-protectionist matters into their own hands (US Constitution be damned!).  Finally, we'll likely see more protectionist regulations - like this one in Mexico against used car imports - that use the premise of "environmentalism" or "clean energy" to restrict imports.   Oh, and did I mention all of those green subsidies and potential CVD cases against them?  Exactly.

Total Shots in the Dark

(1) The failure of Cap and Trade in the Congress will cause the EPA to begin reviewing import regulations on GHGs and GHG-intensive products.  I've laid out my case here, but this is admittedly a total guess - especially in 2010.  But if Cap and Trade is dead, and the administration needs something to brag about at the next UN climate change conference in Mexico City, then an aggressive EPA program to regulate GHG emissions might be in the works for 2010.  And if that happens, then domestic industries (and their congressional servants) will loudly demand some sort of anti-leakage measures targeting imports.  I highly doubt that border measures or other taxes on imports will be instituted in 2010, but I wouldn't be surprised at all to see the EPA begin to explore some form of import regulation. 

(2) China will not unpeg its currency vs. the US dollar (despite 12 more threatening NYT columns by Paul Krugman).    Ok, that last part is a joke - he'll probably only write five more columns.  But I digress.  On the bigger point, most currency traders are anticipating that China will unpeg its currency sometime in 2010.  I am unconvinced.  China's miraculous growth in 2009 and its 2010 forecasts are, well, a tad suspect, and I think that China will still be gun-shy about a controlled float of the RMB throughout most of 2010.  Moreover, with the White House looking to spend dollars as fast as it can print them, the fixed USD-RMB exchange rate is actually a way for China to temper US attempts to devalue the dollar (and thus China's dollar holdings).  But who knows?

*     *     *

So there you have it.  Apologies for the depressing outlook; I do hope I'm wrong on many of these.  And please feel free to let me have it in the comments (or elsewhere).

[Final notes: these predictions are based on nothing more than my personal gut feelings, public reports and my own earlier analyses.  Moreover, nothing you read here should in any way be construed as legal or investment advice.  Duh.]

Best/Worst of Times, ctd.

Yesterday I warned:

[I]f America goes down the failed road of overregulation, cronyism, nationalization and protectionism, Americans won't benefit from global innovation and development. Instead, the intense competition for capital and talent that we'll face from a gaggle of rapidly developing rivals will only serve to hasten our inevitable decline.

And, right on cue comes this little nugget straight from today's headlines:

Goldman Sachs is reviewing its London operations in a move that could lead to entire departments being shifted overseas, the Daily Telegraph newspaper reported Monday. Goldman has asked an internal team to look at various strategies following the introduction of a U.K. windfall tax on bonuses and ahead of plans to introduce a new 50% top income tax rate in April, the report said. The review is in its early stages and could also recommend making no changes, it added. One of the units likely to be reviewed is Goldman's proprietary trading arm, with Geneva seen as a likely destination for the unit because tax on performance fees can be negotiated with the Swiss government, the newspaper reported.

If only Congress were forced to name its next piece of anti-market legislation the "Singapore/Geneva/China Full Employment Act," then maybe people would finally get the picture. Alas.

The Best of Times, the Worst of Times

I've tried to avoid reading and/or commenting on the seemingly omnipresent wailing and gnashing over how bad this past decade - the "awful aughts" - was.  It always struck me as both self-centered ("look at how critical I can be about my decade!") and somewhat progressive ("everyone's miserable, so government must now save us!") to claim that the just-ended year/decade/century was oh-so-horrible.  Moreover, it also seemed to me that the people who believe that the aughts were the worst.decade.ever have intentionally ignored many of the awesome things that these past 10 years have produced, at home and abroad.  And most of this is the direct product - or by-product - of good ol' fashioned free market capitalism.

Fortunately, a few sane individuals have stepped up to rebut the aughts' depressing criticism.  For example, GMU's Tyler Cowen reminds us that not everything is about the United States:

The raging economic growth rates of China and India are well known, though their rise is part of a broader trend in the economic development of poorer countries. Ideals of prosperity, freedom and the rule of law have probably never been more resonant globally than they’ve been over the last 10 years, even if practice often falls short. And for all of the anticapitalistic rhetoric that has emerged from the financial crisis, national leaders around the world are embracing the commercialization of their economies.

Putting aside the United States, which ranks third, the four most populous countries are China, India, Indonesia and Brazil, accounting for more than 40 percent of the world’s people. And all four have made great strides. Indonesia had solid economic growth during the entire decade, mostly in the 5 to 6 percent annual range. That came after its very turbulent 1990s, marked by a disastrous financial crisis and plummeting standards of living.

Brazil also had a consistently good decade, with growth at times exceeding 5 percent a year. There is lots of talk that the country has finally turned the corner, and, within its borders, there is major worry that its currency is too strong — a problem that many other countries would envy.

Elsewhere in South America, Colombia and Peru have made enormous progress and Chile is on the verge of becoming a “developed” country; it will soon be joining the Organization for Economic Cooperation and Development.

To be sure, in Africa, there is still enormous misery. Nonetheless, overall standards of living rose in a wide variety of countries there, with economic growth for the continent as a whole at more than 5 percent in most years. Many basic essentials, like water, sanitation, electricity and especially telephones, are more commonly available.

One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. We turn information about politics and economics into stories of good guys versus bad guys and identify progress with the triumph of the good guys. In the process, it’s easy to neglect the underlying forces that improve life in small, hard-to-observe ways, culminating in important changes.

In a given year, an extra percentage point of economic growth may not seem to matter much. But, over time, the difference between annual growth of 1 percent and 2 percent determines whether you can double your standard of living every 35 years or every 70 years. At 5 percent annual economic growth, living standards double about every 14 years.

All great points, and Cowen continues to note that these tremendous global gains probably mean that even the United States - despite its obvious and overreported missteps - benefited during the aughts:

To the extent that the rest of the world becomes wealthier, there’s more innovation, as my colleague and co-blogger Alex Tabarrok, professor of economics at George Mason University, argued recently. China, for instance, is moving toward the research frontier in areas such as solar power, scientific instruments, engineering and nanoscience, all of which can benefit the United States. Unlike the situation of just a few decades ago, a genius born in Mumbai now stands a good chance of becoming a notable scientist, whether at home or abroad.

It might be pleasant to boast that America is — or should be — a world leader in every area, but the practical reality is that if some other country solves the problem of green energy, so much the better for us.

The subtler point is that a wealthier China, India, Brazil and Indonesia will lead to more customers for new innovations, thereby producing greater rewards for successful entrepreneurs, no matter where they live. There are so many improvements in cellphones these days because there are so many cellphone customers in so many countries.

To put it bluntly, if the United States takes one step back and the rest of the world takes two steps forward, even in purely selfish terms we should consider accepting the trade-off, if only for the longer run. Most of us gain from the wealth and creativity of other countries, even if we can’t always feel like the top dog.

I couldn't agree more.  Of course, if America's politicians embark on a decade of economic isolationism - taxing imports and exports, while hindering capital and labor flows - most of these benefits disappear. (More on that below.) 

Nevertheless, the miracles of free market capitalism were not isolated to the developing world in the last decade. As Jonah Goldberg reminds us:

[T]he decade of capitalism saw one of the world’s richest men, Warren Buffett, pledge more than $30 billion to a foundation created by another offspring of capitalism, Bill Gates, for the purpose of aiding the world’s poor. Surely capitalism should get some of the credit, since the book on philanthropy in non-capitalist systems is shorter than the guide to cities without Starbucks.

Capitalism doesn’t just create generous wealthy people, but generous poor people, too. Americans give twice as much to charity as the most generous European nations, and the most generous Americans are, in fact, poor Americans....

As it always does, capitalism drove innovation over the last decade. The BlackBerry was introduced in 1999, but the iPhone didn’t exist in 2000, nor did the iPod. YouTube was a fantasy, and no one could even imagine why you’d ever need something like Facebook or Twitter (in fairness, some people still ask that question). iTunes was launched in 2003, and five years later it was outselling Wal-Mart as the No. 1 music retailer. Government-funded basic research in medical science deserves some credit for breakthroughs, but it’s worth remembering that lots of countries invest in basic research. America, with its markets, stands alone as the leading, arguably sole, source of medical innovation. Breakthrough drugs are as American as apple pie.

I'd only add that I first read the Goldberg article on my Kindle, then later pasted it into my blog from my Google reader on my Dell laptop using wireless high-speed internet, while my HDTV (purchased at 0% interest and now paid-in-full) played the NFL Network's RedZone Channel.  Oh, and tomorrow I plan to telecommute to work because I need to meet the Kenmore repairman - scheduled online - at home so he can fix my convection oven.  And all of these cool things were born (or dramatically improved and proliferated) in the aughts.  But like Goldberg mentioned, it wasn't only gadgetry that improved in America, but also the American way of life: for example, today we're living longer and working fewer hours to afford life's necessities than we were only ten years ago.

In short, free market capitalism is awesome, and it was really, really awesome during the last decade.

Of course, not everything's hunky-dory out there today.  But as opposed to the aught-haters, I don't think it has to do with the alleged failures of capitalism or wage-stagnation or the Iraq/Afghan wars or climate change or any other progressive pandemic.  Instead, the darkest clouds on America's horizon are the product of its recent repudiation of the free market, not the market's few, alleged ills.  Goldberg mentions this at the end of his column:

Free markets are in disrepute these days, particularly by the people running Washington. For them, government is the solution and capitalism is the problem. If they have their way over the next decade, they won’t cure what allegedly ails capitalism — people will still steal and lie — but they will impede everything that makes capitalism great. And that will be bad for everyone....

Washington's new anti-capitalist love affair would certainly make Americans and the rest of the world worse off, but Goldberg, I think, misses a related and equally troubling fact - while we diss the free market, many other nations are embracing it and excelling.  As Reason's Ron Hart warns:

Korean automaker Hyundai registered record sales in August. Chinese telecom manufacturer Huawei might soon pass Cisco in sales. Brazil’s jet maker Embraer is, according to Cessna CEO Jack Pelton “scaring us to death.” And more IPOs are happening away from America’s overly regulated capital markets. In addition, India has heart bypass surgery outcomes equal to the U.S. at half the cost, and Singapore is willing to pay U.S. biotech research stars about $715,000 in annual salaries.

In short, we do not have a monopoly on capitalism. We risk losing out to a world market that moves faster and with more resolve today than ever before. Our new political class does not seem to care that innovation and capitalism are fleeing....

This, I fear, is right.  As Cowen noted above, the rising tide of global free market capitalism has the potential to lift all boats, regardless of where the biggest gains are made (and America need not dominate at everything).  And as Goldberg noted, America is still the world's great innovator, market leader and philanthropist.  But developing economies' embrace of most everything that made the United States' economy great - free markets, property rights, labor and capital mobility, technological innovation, free trade, and so on - has allowed them to move up the economic ladder very, very quickly.  While their development - and direct competition - is a good thing for the United States and the rest of the world, the anti-market policies now so en vogue in Washington's snootiest salons threaten to turn the developing world from America's partner to its rival or even its adversary. 

Put simply, the continued enrichment of the developing world is only a good thing for the United States if it continues to embrace free market capitalism. In that case, we might not always lead at everything, but we will be just fine - better even - as the world rapidly develops around (and with) us.  On the other hand, if America goes down the failed road of overregulation, cronyism, nationalization and protectionism, Americans won't benefit from global innovation and development. Instead, the intense competition for capital and talent that we'll face from a gaggle of rapidly developing rivals will only serve to hasten our inevitable decline.

And that would make the next decade far more depressing than the last.

New Year, New Media

Happy New Year!

Although 2009 was a pretty depressing year for US trade policy (more on that later), it was pretty fruitful for your faithful correspondent.  On the personal side, I celebrated yet another year (my 33rd) of health, happiness and prosperity - the third with my awesome wife Elizabeth.  My family's doing great, and I have more friends today than I did a year ago.  All good things.

On the professional side, I was blessed to stay gainfully employed during an epically wretched year for lawyers.  I also co-authored a well-received policy paper for the Cato Institute, penned several op-eds for "old" and "new" media outlets, and, of course, started this little blog.  If 2010 ends up being anywhere near as successful as 2009, I'll be thrilled.

Speaking of the new year, I've resolved for 2010 to further integrate myself (read: sell-out) into the world of new media.  So I've finally gotten a facebook page and a twitter account, and each of these media will re-publish entries from this blog as they're released (it's magic!).  So if you've read this blog or any of my other stuff and, for some bizarre reason, longed to become my "friend" on Facebook or to "follow me" on Twitter, well, now you can.

Lucky you.

I've also tweaked a few things on the blog itself to make it more "web-friendly."  Beyond the Facebook and Twitter stuff, I've added a "ShareThis" button at the bottom of every blog entry that will let readers share the entry on Facebook, Twitter, Digg or pretty much any other whizbang site out there.  All at the click of a button.  (Like I said, magic.)

Anyway, thanks for reading, and here's hoping that 2010 is your best year yet.

-Scott