Obama's Jobs Bill Contains Protectionist Provisions (Shocking, I Know)

Is anyone - and I mean anyone - surprised by this news:

President Barack Obama's jobs plan has raised concerns in top trading partner Canada because of measures that would restrict foreign companies from participating in infrastructure projects....

Obama has proposed a $447 billion package of tax cuts and spending measures to spur hiring and revive a stalled economy, but the plan will be difficult for the Republicans to support and parts of it may never materialize.

The so-called Buy American clause prohibits the use of foreign-made iron, steel and other manufactured goods in public works projects.

...Republicans, which control Congress, are likely to block the Buy American provision because they believe it delays infrastructure projects and causes supply chains to freeze up unnecessarily...

Canada is the largest U.S. trading partner, with two-way trade worth about $1.4 billion a day.

In particular, Canadian Trade Minister Ed Fast stated today:

The U.S. Administration has just released details of the American Jobs Act. The Administration is proposing the inclusion of Buy American provisions as a part of the infrastructure funding proposal. Our government is committed to delivering free trade leadership and Canadians can count on our government to defend free and open trade on the world stage. In this fragile economic recovery, we know history has shown protectionist measures stall growth and kill jobs. I have instructed Canadian officials to initiate the consultation process that was established as part of the 2010 Canada-U.S. Agreement on Government Procurement. Our government will raise with the Obama Administration and Congress concerns regarding measures that impede access for Canadian workers and businesses to the U.S. market, as we did for earlier U.S. stimulus programs.

The text of Obama's American Jobs ActNameless Jobs Plan (heh) is available here, and Fast is correct to be concerned because Section 4(a) of the proposed legislation states quite clearly that "None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States." Section 231 contains another Buy American provision that's a carry-over from the 2009 Stimulus* Bill.

Speaking of the Stimulus*, as you may recall the extensive Buy American provisions in that law turned out, well, just about as poorly as the rest of the darned thing:

As I've already noted, the Stimulus* Bill's Buy American provisions have been an abject disaster - harming many US companies and literally causing the destruction of perfectly good raw materials out of fears that they didn't comply with a unnavigable labyrinth of bureaucratic regulations. And the GAO recently found that these same Buy American rules were creating massive inefficiencies in construction and manufacturing projects across the country. Awful.

Awful, indeed.  And, of course, a clear sop to American labor unions.  Good thing for us that Stimulus II: Son of StimulusObama's jobs plan will never, ever become law, as most everyone understands that it's a cynical campaign tool rather than a real attempt to improve the US economy (heck, even congressional Democrats think it's garbage).

Nevertheless, the inclusion of the Buy American provisions in Obama's new jobs plan is still important because, unlike the original Stimulus*, it wasn't drafted by protectionist congressional Democrats and instead came straight from the White House.  Thus, it's a clear signal that the President is perfectly willing to use protectionism (or threats of protectionism) to advance his re-election campaign.

It's also further proof (as if you needed any more) that President Obama has no principled commitment to free trade and instead promotes or rejects it as the political winds demand.  Given the 2012 election season and the dismal state of the US economy, those winds are going to be blowing in the wrong direction for the next 14 months.  Thus, no one should be surprised when the President pushes more protectionist proposals, regardless of how they hurt our economy, irk our trading partners, embolden domestic protectionists or further undermine America's decades-old image as the world's free trade leader.

Wednesday Quick Hits

Lots of great stuff out there for your reading pleasure:

• Cato's Dan Griswold helpfully explains why all those allegedly "conservative/libertarian" arguments against FTAs are bunk.  (More on that here.)

• A ton of former USTRs and other US officials, from both parties, urge President Obama to get off his butt and submit all pending FTAs to Congress asap.

• Magic bean economics, Carolina-style: if your stimulus* can't create those mythical green jobs, then just spend $1 million more to reclassify existing jobs.  Problem "solved"!

• Aw, poor little crony capitalists: ethanol's apparently on the outs in Washington; I'll believe it when I see it.

• The Obama administration released its 2011 trade policy agenda yesterday; in response, the world let out a collective yawn and tried not to snicker when USTR Kirk said that his "Administration has blazed a new trail on trade." (I'll be providing an exciting review in the next few days.  Stay tuned!)

• Cato's Dan Ikenson is boycotting ABC and Disney because the once-venerable World News Tonight has made a conscious decision to air a week of jingoistic, fearmongering garbage.  (Of course, you already knew that.)

• The Koch brothers fight back against the Left's slander/libel, and in the process show that ethical, well-run businesses don't need or want protective tariffs.

• If the GAO's new report on redundant government programs, and the insane amounts of waste that they create, doesn't make you a libertarian (or at least a hardcore fiscal conservative), then I don't know what will.  Seriously.

• Cafe Hayek's Don Boudreaux has declared intellectual war on Ian Fletcher, the self-avowed protectionist, HuffPo blogger and new senior "economist" at something ironically called the "Coalition for a Prosperous America."  As exhibits one, two, three, four, five and six demonstrate, the results of this skirmish are as lopsided as you imagined.

• New Cato Study: the United States effective corporate tax rate is really, REALLY high.

Enjoy.

Valentines Quick Hits

Here are a few headlines for your romantic night with that special someone.  Maybe you could even read a few of them to him/her to get in the mood:

• For those of us out there who waited until the last minute and bought our wives some surprisingly-cheap-yet-high-quality Valentines Day roses from your neighborhood Whole Foods (a "fair trade" advocate, by the way), I hope you checked where the flowers were from.  I did: Colombia.  Heritage's Bryan Riley explains that "Americans saved more than $16 million on roses last year thanks to U.S. trade policy toward Colombia.... As Valentine’s Day approaches, with Mother’s Day not far behind, it is a good time to consider the benefits of the proposed U.S.–Colombia Free Trade Agreement not just for U.S. flower buyers but for the Colombian workforce and U.S. exporters as well."

• Don Boudreaux and David Henderson refute Ian Fletcher's ridiculous claim that, while American manufacturing is at an all-time high and remains the world's largest by value, the problem is that the sector just ain't growing fast enough.  Next up, Fletcher will argue that whether protectionism is idiotically self-destructive depends on what your definition of "is" is.  Seriously.

• Keith Hennessey provides a detailed analysis of the President's allegedly pro-trade statements before the US Chamber of Commerce and arrives at a depressing conclusion that some of us have known for a while now: "This sounds like a free trade agenda, or at least a pro-trade agenda, which would be good from a President whose party often leans heavily toward protectionism. The problem is that the U.S. already has trade agreements with Panama and Colombia. The President is in reality saying that he is undoing those deals. He also appears to be saying that 'unprecedented support from … labor [and] Democrats …' is a precondition to further progress on free trade."  Thus, we're doomed.

• Here's a telling update on that sketchy Chevron-Ecuador dispute that I mentioned a few weeks ago (and further proof that third-party dispute settlement of investment disputes is not as horrible and pernicious as some trade skeptics breathlessly allege).  The Hague is still reviewing the case, but the domestic court has ordered Chevron to pay billions.  And guess who really wins big from the domestic ruling: "The court also ruled that Chevron should pay the Amazon Defense Front, a coalition formed by the plaintiffs, an additional 10% in damages, or about $860 million. The judgment says the amount of the damages could be doubled if Chevron doesn't apologize publicly to plaintiffs by advertising in the next 15 days in newspapers in the U.S. and Ecuador.  Pablo Fajardo, an attorney for the plaintiffs, said his team was still reviewing the 200-page document and couldn't give a full opinion until Tuesday. He said that although he didn't rule out the possibility of appealing to ask for a higher amount, the fact that the judge issued a ruling favorable to the plaintiffs was a 'very positive step.'  Last summer the plaintiffs asked the court for $113 billion in damages."  Ahh, social justice.

• The Economist has a fascinating cover story on a new technology called "3D printing" and how it could totally revolutionize manufacturing.  After reading it, ask yourself this: "Is it really smart for the White House to pin the hopes of America's economic recovery on a dramatic increase in manufacturing employment?"

• I kinda pity Randy Erwin, the founder of the "Buy American Challenge."  I mean, the guy seems well-intentioned and, unlike most anti-traders, he's advocating a purely voluntary import embargo (rather than one produced by political lobbying and enforced by government coercion).  Nevertheless, he's still really, really misguided, as Don Boudreaux and Mark Perry demonstrate.

• The NYT reports that "Over the last decade, the [USDA's Market Access Program] has provided nearly $2 billion in taxpayer money to agriculture trade associations and farmer cooperatives. The promotions are as varied as a manual for pet owners in Japan and a class at a Mexican culinary school to teach aspiring chefs how to cook rice for Mexican consumers. Money also went to large farmer-owned cooperatives like Sunkist, Welch’s and Blue Diamond, which grows and sells almonds. Combined, the three companies had over $2 billion in sales in 2009."  Awesome.

• China's now the world's #2 economy (by country).  Razeen Sally explains in the WSJ that, if China ever wants to become a world leader, it needs to ditch the childish protectionism.

• Harvard professor Martin Feldstein provides a laundry list of reasons why the President needs to dramatically lower the corporate tax rate if he's serious about re-invigorating the American economy.  And he drops this little nugget: "Eliminating every loophole in the taxation of domestic corporate profits identified by the administration's own Office of Management and Budget would raise less than $60 billion of extra revenue in 2011, enough to lower the combined federal-state corporate rate to 35%. The U.S rate would still be higher than in every other country but Japan, and a full 10 percentage points higher than the average in other industrial OECD countries."  

• This is hilarious.  (In humor lies truth.)

Happy V-Day, everyone.

Becker, Posner Give Unions a Much-Deserved Beatdown

In their latest blog series, U. Chicago's Gary Becker and Richard Posner explain the effect of American labor unions on the US economy, and boy is it ugly.  Be sure to read the both entries in full - they're well worth your time.  But here are a few of my favorite excerpts.  First up is Becker:

Are the Democratic-controlled Congress and President Obama very much pro union? Unquestionably. Do the economic effects of unions on the welfare of workers as a whole justify that union bias? No. Has their pro-union orientation seriously retarded the recovery from the recession? Probably. ...

An important example this past week offers another illustration of the pro union orientation. For the first time the US has cited for labor violations a country, Guatemala, that is a free trade partner with the US. That the American government has the presumption to interfere in the labor policies of another country is disturbing in itself. All commentators agree, however, that it was done at the urging of American unions. This was likely an attempt to reduce the competition of goods and services from Guatemala and especially from other free trade partners-such as Mexico-for goods made by unionized American companies....

Economists distinguish competitive from monopoly unions. A competitive union system, like Japan’s, has unions at companies when the employees of these companies prefer to bargain collectively. However, competitive unionism does not allow a single union to control the majority of companies in the same industry, which is monopoly unionism. The US typically has monopoly unions, such as the steelworkers union, autoworkers union, or service workers union, but a long time ago the Clayton Act of 1914 explicitly exempted unions from anti-trust laws under most circumstances.

Monopoly unions do tend to raise the earnings and fringe benefits of workers in the industries where they exist. This is seen from the ridiculously high fringe benefits that the United Auto Workers unions squeezed out of American auto companies during the days when they were profitable but not well managed. Higher union earnings come partly at the expense of the profits of the industries unionized, but also at the expense of lower employment than would have occurred with more competitive wages and other benefits. The prospective employees priced out of jobs in unionized sectors seek employment in other sectors, which lowers the earnings of workers in these latter sectors. The net effect is a misallocation of labor compared to an efficient allocation, and possibly even a reduction in the income received by workers as a whole, including workers in the non-union sectors.

Now Posner:

Unions are weak in the private sector; only about 7 percent of private workers are unionized. But unions are powerful in the public sector—about 30 percent of public employees are unionized—and have contributed to the high wages of such employees. By swelling the labor costs of cities and states, these high wages have forced them to raise taxes and cut benefits in the midst of the most severe economic downturn since the Great Depression.

Even in the private sector, though unions are weak, employers are concerned that the pro-union policies of the Obama Administration will result in greater unionization and hence higher labor costs. This concern is a source of uncertainty, which slows economic activity. Under uncertainty consumers increase their savings (much of which may not get invested productively, at least without a considerable lag) and producers increase their cash balances....

The Administration has... under union pressure dragged on signing free-trade agreements that have been negotiated with South Korea and other countries. This would not retard our economic recovery if the net effect were to increase our exports relative to our imports, for exports increase domestic production and hence employment and imports tend to reduce it. But because of retaliation by foreign countries that want to increase their own exports and reduce imports, the effect of the Administration’s foot dragging is simply to reduce the efficiency of the U.S. economy. Also allegedly under union pressure, the Administration delayed suspending (as it is empowered to do in an emergency) the Jones Act, which protects the U.S. maritime industry from foreign competition, to enable foreign vessels to assist in combating the oil leak in the Gulf of Mexico.

Worse, the Administration has required that all projects funded by the $787 (now $862) billion stimulus enacted in February 2009 comply with the Davis-Bacon Act, which requires payment of union wages. Recently the President signed an executive order requesting all federal agencies to consider requiring all federal construction contractors to sign labor agreements. And he has said silly things like “labor is not part of the problem. Labor is part of the solution.” These are just words, but they worry business by creating the impression that the President is hostile to it, and they increase the uncertainty of an already uncertain business environment. The pro-union policies of the Roosevelt Administration, notably the National Labor Relations Act (the Wagner Act), are generally believed to have made the Great Depression worse than it would have been without those policies. The Obama Administration’s pro-union policies will in all likelihood worsen our current economic situation.

I'd only add that, when discussing union influence on the Stimulus*, Posner also should have mentioned the union-backed "Buy American" provisions, which prohibit the use of (most) imported materials for Stimulus*-funded projects.  Buy American, of course, has been a debacle for a load of previously-discussed reasons, but here I'd just add that, like the Davis-Bacon rules, Buy American has raised project costs by limiting (or eliminating) competition among materials suppliers (thus leading to higher steel, lumber, fiber optic, etc. prices).  In short, the American taxpayer gets less bang (e.g., bridges, roads, rail lines, etc.) for his taxpayer buck.  Of course, I'd prefer that our government not subsidize any of this stuff, but if we're going to do it, we might as well do it as efficiently and cost-effectively as possible.

(I know, I know, stop laughing.)

Protectionist Campaigning for Dummies, ctd. (and a Quick Note re: My Comments Policy)

Before I get to the substance of today's entry, please indulge a quick introductory remark about my "comments policy" for this blog. (I promise that this entry is worth reading in full, so just bear with me.)  I manually publish or reject all comments and have a general rule that I'll publish any comment that is (a) complimentary/supportive of the blog in general or the entry in particular; (b) contradictory yet honest and worth my response; and/or (c) otherwise harmless.  On the other hand, I won't publish a comment that is (a) spam/profane/incendiary; (b) laden with factual errors that I don't have to the time to refute (especially when I've already refuted them elsewhere on the blog); and/or (c) appears to be sent by someone who has an obvious personal or professional bias against what I'm saying.  On that last point, it's typically pretty easy for me to determine "bias" when I look at my blog's visitor log and check out a commenter's IP address, location and/or place of business (behold, technology!).  For example, if I write about sugar subsidies and then see that someone from the sugar industry logged on and tried to paste some counterfactual propaganda in a comment, I'll reject the comment.  Pretty simple.

This longwinded-but-necessary introduction leads me to my blog post from Friday, in which I opined on the possible political motivations behind new protectionist legislation from Congressman Gene Taylor (D-MS) that would force the United States to withdraw from NAFTA.  One of my main conclusions was that Taylor's legislation, which (i) was based on a classic protectionist myth about free trade and US manufacturing job losses and (ii) would never, ever become law, was probably little more than a cynical way for the Congressman to grub some free campaign advertising, even though the protectionist myths propagated by the legislation could, if followed, actually end up harming many of his trade-dependent constituents (Taylor represents a district in Mississippi with three international ports).

On Sunday, I received a rather detailed and disgruntled comment from the anonymously-named "Researcher" that appeared to meet both "reject criteria" (b) and (c) mentioned above.  On the former criterion, the comment itself was a longwinded defense of Congressman Taylor's protectionism that relied on several of the myths that I've repeatedly debunked on this site.  (And yes, I was just heartbroken that Researcher wasn't familiar with my work!) On the latter criterion, a quick glance at my visitor log indicated that "Researcher" lived in Washington, DC and was Googling "'gene-taylor' NAFTA" on a Sunday afternoon - thus setting off my spidey-senses that perhaps "Researcher" had a personal stake in this debate (or was just really, really bored).  For these reasons, I chose not to publish Researcher's comment, and figured that was the end of the story.

I was incorrect.

Yesterday, the same "Dummies" blog post received another, more confrontational comment from Researcher that said, in what I imagined to be his/her best Jack Nicholson voice, "Why did you delete my comment? Can't handle the truth?"  The gauntlet, as they say, had been thrown.  Normally, I'd still ignore such puerile taunting, but because there are a few things in Researcher's original comment that I really haven't covered before, and because the comment itself provides some very valuable and relevant insights, I think that a response would actually provide everyone with a great "teachable moment," as the kids like to say.  So I've decided to take Researcher's bait and to respond in full to his/her original comment... in (what I hope to be) excruciatingly embarrassing detail.

I've now posted each of the comments at issue in the comments section of the original blog post, but for ease of reference, here's the first comment in full:

Taylor is senior Member of the House Armed Services Committee and has seen all the evidence that you deny of the economic inefficiency and the threat to national security from the rapid decline of our manufacturing workforce and industrial base. It took years to build MRAPs to save the lives of soldiers and Marines from roadside bombs in Iraq because we no longer have the industrial capacity to respond quickly to a surge in demand. The cost to taxpayers was very high because we did not have the domestic capacity for the parts and supplies for efficient manufacture of thousands of new vehicles. The United States is losing the ability to be self sufficient when necessary and that is a significant loss.

The jobs data is very clear. Since we went all-in for free trade, whenever we have a recession (2000-01, 2008-09) we lose millions of jobs in the U.S. and most of the manufacturing jobs do not come back after the economy improves. Companies do not invest in new plants or substantial expansion of existing plants except in industries where buy-American policies require it, such as defense production, or where we have informal protectionist agreements, such as the voluntary deal with Japan automakers that encourages them to make their cheaper cars in the U.S.

So there you go.  Readers of this blog will immediately recognize that Researcher's comments rely on several classic "protectionist myths."  I'll dismantle each of these one-by-one (not in order), and then I'll hit on a few specific points that are unique to the comment above.  Finally, I'll discuss some very interesting and ironic things I've discovered about Researcher and his/her comment.

Myth #1: The US manufacturing sector ("our industrial base") is "rapidly declining."  As I've noted many, many times, tall tales about the demise of US manufacturing are probably the most prevalent, and misguided protectionist myth out there.  First, until the onset of the latest recession, the US manufacturing sector was setting all kinds of performance records.  As noted in my Cato Institute paper last year: "According to nearly every financial statistic that is relevant to evaluating the health of the manufacturing sector, it was unequivocally thriving until the onset of the recent US financial crisis and recession.  In 2006, US manufacturing achieved record highs for output, revenues, profits, investment returns, exports, and imports.... [I]n 2007 new records were set for output, revenues, value added, and exports in the manufacturing sector." (See paper for footnotes, but don't bother: it's all government data.)  During this same period ('06-'07), do you know what else was setting records?  Yep: imports.  Of course, the strong, positive relationship between imports and US manufacturing success makes total sense when you consider that almost 60% of all imports into the United States are capital goods and equipment - things that American manufacturers rely on to produce their globally competitive products (in record amounts).

Oh, and just so we're totally clear, the US manufacturing sector was, and remains, the world's largest: according to the United Nations Industrial Development Organization, US factories are the world’s most productive, accounting for 25 percent of global manufacturing value-added.  By comparison, Chinese factories account for only 10.6 percent. (But don't just take my, or the UN's, word for it: the White House's 2009 "Manufacturing Framework" also made America's manufacturing dominance crystal clear.)

Second, while the current recession certainly put a damper on the US manufacturing sector (and every other sector), our "rapidly declining industrial base" is actually leading the economy into recovery: just yesterday the Institute for Supply Management released its monthly "factory index," a widely accepted metric of manufacturing health, which showed that US manufacturers had increased production and employment in February - the seventh straight month of expansion - thus "signaling [that] factories are leading the nation out of recession as the new year begins."  So not only are Researcher's claims about the demise of the US manufacturing sector without merit, but so are his/her additional claims that recessions somehow accelerate American deindustrialization and discourage manufacturing investment.

And one final point here, I find it hilarious that someone would cite "Buy American" provisions as the gold standard of manufacturing efficiency and productivity.  As I've already noted, the Stimulus* Bill's Buy American provisions have been an abject disaster - harming many US companies and literally causing the destruction of perfectly good raw materials out of fears that they didn't comply with a unnavigable labyrinth of bureaucratic regulations.  And the GAO recently found that these same Buy American rules were creating massive inefficiencies in construction and manufacturing projects across the country.  Awful.

Myth #2: Imports destroy US manufacturing jobs.  Researcher is undoubtedly correct about one thing: the number of manufacturing jobs is decreasing in the United States.  However, this has absolutely nothing to do with imports or free trade (or, as shown above, the state of the US manufacturing sector).  Indeed, as noted in the aforementioned Cato Institute paper, total US manufacturing jobs peaked in 1979 "and started to decline well before trade accounted for even a fraction of GDP."  And NAFTA certainly had nothing to do with it: "Between 1979 and 2007 the number of US manufacturing jobs declined from 19.4 million to 13.9 million, or by 196,429 per year.  In the 14 years between 1979 and the launch of NAFTA, the U.S. manufacturing sector shed 2.7 million jobs. In the 14 years between the launch of NAFTA and 2007, the sector shed an almost identical 2.8 million jobs."  So much for that nefarious job-destroyer that is NAFTA, huh?

The truth is that developed countries around the world have been steadily losing manufacturing jobs since the 1950s, and this trend is due to rapidly increasing productivity, technology gains and changing consumer tastes, not free trade. According to the CIA's World Factbook, Germany, the United States, Japan, Italy, France, the Netherlands and the UK are all among the world's top ten merchandise exporters; according to the OECD, some are net importers, and others are net exporters.  Yet the long-term industrial employment trend for each country is decidedly downward (but for a few random upticks).  So neither a country's total exports output nor its trade balance is a magical recipe for retaining manufacturing jobs.

Heck, even those awful, currency-manipulating Chinese (/sarcasm) are losing manufacturing jobs: According to a recent op-ed by GMU's Walter Williams, China has lost over 4.5 million manufacturing jobs since 2000 - a lot more, by the way, than the United States (about 3.3 million, according to the BLS).  Williams helpfully adds, "In fact, nine of the top 10 manufacturing countries, which produce 75 percent of the world's manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada, and Mexico), have lost manufacturing jobs but their manufacturing output has risen."

So, Researcher, if you just have to blame something for American manufacturing job losses, blame the robots, not NAFTA or free trade.  (Cafe Hayek's Don Boudreaux has even more on NAFTA, trade and job losses here, if you're interested.)

One final note for anyone still not convinced: recent government statistics show that 2009 witnessed a very significant contraction in US imports, total US trade (exports and imports), and the US trade deficit.  And do you know what else characterized 2009?  Cripplingly high unemployment!  Enough said.

Myth #3: Imports and "free trade" threaten national security.  Protectionists love to scare the bejeebus out of people by claiming that without widespread protectionism, America's manufacturing sector - and thus its national security - is gravely at risk.  I've already detailed above how manufacturing fearmongering is routinely, ahem, manufactured, but national security fearmongering, while despicable, is also par for the protectionists' course.  Here's Cato's Dan Ikenson refuting (unsurprisingly) the United Steelworkers union back in 2001:

U.S. military accounted for less than 0.1 percent of industry deliveries in 2000. During the Vietnam War, steel deliveries to the military accounted for 1.9 percent of the total market. This confirms that U.S. steel capacity and production so exceed military demand that even massive production cutbacks have no security implications. There are no legitimate shortage concerns--only hypocrisy.  The industry warns of shortages while seeking to curtail supply.

Sounds familiar, does it not?  And, let's keep in mind that the stats above are from 2000 - back when the now-vibrant US Steel Industry was a complete mess.

Clearly, the broader protectionist claims about free trade undermining national security by accelerating American deindustrialization are completely false, but what about the discrete claims - about procurement problems during the US military's production of MRAPs (Mine Resistant Ambush Protected vehicles) - that Researcher brings up?  Well, they also appear to be flimsy.  According to 2009 Testimony by the GAO on Rapid Acquisition of MRAP Vehicles, "DOD use of a tailored acquisition approach to rapidly acquire and field MRAP vehicles was successful" (emphasis mine).  GAO also found that one of the reasons that the MRAP "rapid acquisition" program was so successful was because of expanded trade: "The Secretary of the Army waived a restriction on armor plate steel, which expanded the countries from which DOD could procure steel." In other words, eliminating restrictive procurement rules allowed the government to produce MRAPs even more quickly. Shocking, I know.

But let's ignore all of these facts and assume arguendo (lawyer word!) that the MRAP program demonstrates a weakness in the US industrial base which requires some form of discrete protectionism (admittedly, there is some vague reference to this issue on page 4 of the GAO Report).  Although my earlier points make clear that "free trade" didn't possibly cause US manufacturing weakness, such "national security protectionism" is perfectly in line with current free trade theory and practice.  Indeed, even Milton Friedman himself once wrote that "it cannot be denied that on occasion [national security] might justify the maintenance of otherwise uneconomical productive facilities."  Moreover, all US free trade agreements contain express exceptions for military procurement (e.g., NAFTA Article 1018) and for trade restrictions based on national security concerns (e.g., GATT Article XXI and NAFTA Article 2102).  So to claim that NAFTA or "free trade" theoretically or legally undermines US national security is just plain wrong.

More importantly, Researcher's (and Rep. Taylor's) grand solution - completely dissolving NAFTA to justify some form of extremely limited national security protectionism - is a classic case of "throwing the baby out with the bath water."  While the United States government might possibly have a direct and identifiable national security interest in protecting certain domestic MRAP suppliers, it has no such interests in also protecting domestic producers of tomatoes or t-shirts or footwear or lumber or televisions or automobiles (and so on).  Yet Taylor's anti-NAFTA legislation (and other broad protectionist strokes like it) would do just that - and thus destroy all of the awesome benefits (totally unrelated to MRAPs or any other discrete military procurement) that free trade provides American businesses and families (especially those with lower incomes), while also unnecessarily and unfairly restricting every American citizen's right to engage in voluntary, mutually beneficial transactions with whomever he or she so chooses.  As such, Researcher's and Taylor's protectionist dreams, if enacted, would impose an immoral, unnecessary and regressive tax on basic necessities, industrial inputs, consumer products and luxury items. 

In short: such proposals are as immoral as they are absurd.

With that, I think I've totally overdone itadequately disposed of Researcher's original comment about NAFTA, US manufacturing, national security and even MRAPs.  Of course, if Researcher had just spent 20 minutes poking around my blog, he/she would have known this already and could have saved us all some time.  I guess that makes Researcher's pseudonym rather ironic, huh? (Zing!)

And speaking of irony...

You might recall that I said at the beginning of this novella that it wasn't just the factual misrepresentations in Researcher's original comment (or his/her subsequent taunt) that warranted this blog entry, but also that the comment itself was actually quite noteworthy.  Well, that's because it turns out that "Researcher" appears to work in the U.S. House of Representatives and has a history of commenting on blog entries about Congressman Taylor or Mississippi politics more generally.  According to my visitor log (and yes, I have PDFs of all of these log entries), Researcher filed his/her Monday "taunt" from a computer with the IP Address 143.231.249.141 ("U.S. House of Representatives," Washington, D.C.) around 2:00p after (again) using Google to search the blogs for "'Gene Taylor NAFTA."  I think this makes it pretty clear where Researcher works and what Researcher was doing last Sunday, and therein lies the very thick irony.  As I mentioned above, the main point of my original post was that elected officials often use anti-trade legislation to do little more than get free press during an election cycle and further reinforce the widespread myths that justify their protectionist politics.  And here, in the case of "Researcher," we very likely have a congressional employee checking the internet for news and blog reports on a Congressman's new anti-trade legislation, and then taking to the web to further propagate the protectionist myths that justify the aforementioned Congressman's protectionist positions.  In other words, by trying to debunk my original blog post, Researcher pretty much proved it all to be true.

You cannot make this stuff up.

One final closing note: I must admit that I'm dismayed, although probably not surprised, to learn that federal employees appear to be surfing the web and anonymously commenting on blog entries in which they have a personal or professional interest - sometimes on the taxpayer's dime.  While I seriously doubt that such behavior is illegal or anything, I find it rather troubling that someone employed by the United States Congress is using anonymity and the internet to mask obvious and important biases and thus unduly influence public policy debates.  Such actions hardly seem to be a model for good government, and they certainly make me wonder just how prevalent anonymous government commenting practices are.

Indeed, just how many "Researchers" are out there?

The Perils of "Reciprocal" Trade Policy

A few days ago, I opined that the United States' use of "Buy American" protectionism as a negotiating crowbar to pry open Canada's own procurement market was a "very, very dangerous" move.  Little did I know that it was actually a precedent-setting event.  Here's Inside US Trade (subscription) with the depressing details:

Following a meeting with Mexican officials, U.S. Trade Representative Ron Kirk this week announced that he has offered Mexican officials to explore a reciprocal procurement deal by which Mexican firms would have access to U.S. government procurement contracts subject to Buy American provisions, provided that Mexico offers reciprocal access to U.S. firms.

This would be akin to an arrangement that the U.S. worked out with Canada last week, Kirk said in a Feb. 9 press conference following a two-day visit to Mexico with Deputy U.S. Trade Representative Miriam Sapiro.

He described the U.S.-Canada arrangement as reciprocal, giving U.S. businesses access to provincial procurement in exchange for Canadian firms bidding on procurement subject to Buy America provisions in the 37 states covered by the Government Procurement Agreement....

“We have committed to work with Mexico in a similar way [as Canada] if Mexico believes that is something that Mexican businesses are interested in pursuing,” Kirk said. “We would welcome the opportunity to have further dialogue and negotiations with the minister of economy to fashion the right program if Mexico so desires.”...

I've commented a few times about why "reciprocity" should not be the goal of free trade policies or trade negotiations, but it's mostly been in the context of "selling trade": the model reinforces the dangerous public misconception that imports are bad, because it - against all empirical evidence to the contrary - posits that our markets should be liberalized only if we get new export market access in return.

But the US-Canada and the US-Mexico negotiations also raise another serious problem with the "reciprocity model" - it implicitly justifies, and even advocates, protectionism.  In this case, we have the United States Trade Representative loudly trumpeting a blatantly protectionist measure - Buy American - because his team was able to use it to open Canada's procurement market, and now they're moving on to Mexico.  The logical extension of this policy is as simple as it is dead wrong: if this Buy American protectionism opened Canada's market, we should raise other barriers to foreign goods and services as a way to get other countries to give us market access!  Never mind that such barriers - as did Buy American - would punish US businesses and consumers and harm the US (and global) economy. And never mind that domestic liberalization benefits the economy regardless of what other countries do.  Nope.  We only open our markets when you open yours.  Ugh.

Of course, the absurdity of Kirk's "reciprocal protectionism" logic is easily exposed when one simply extends it to the Nth degree (Bastiat would be proud).  Just ask: Would the USTR ever advocate raising all US tariffs to their maximum allowable ("bound") rates under WTO rules as a way to then "negotiate" lower tariffs or other market access from our trading partners?  Just as with Buy American, the plan would be consistent with America's "international obligations."  And just like the US-Canada deal, those negotiations could result in "reciprocal arrangements."  But the new protectionist bargaining chips also would mean massive tax increases for American families, dramatic cost increases for American businesses, huge declines in foreign investment (as we commit economic suicide), and probable retaliation from our trading partners.  So USTR Kirk would never propose that.  He'd be laughed out of the room (unless that room was full of union leaders, of course).

And yet he justifies, and even praises, a little Buy American horse-trading because it's "reciprocal" and is now looking for other "reciprocal negotiations" with Mexico?  That's just silly.

As I said last week, "Buy American has been a complete debacle. It has stymied economic growth here at home and encouraged tit-for-tat protectionism abroad. To applaud anything but its complete dissolution is absurd, and to applaud its use as a tool in trade negotiations is very, very dangerous."

Unfortunately, it looks like that "danger" is also very, very real.

US-Canada Resolution of "Buy American" Dispute Is No Reason to Celebrate

The United States Trade Representative announced yesterday that the US and Canada had resolved their dispute over the onerous "Buy American" rules attached to last year's Stimulus* bill:

United States Trade Representative Ron Kirk commented further today on a joint announcement by the United States and Canada of a tentative agreement that would give American exporters guaranteed access to a wide range of contracts across Canada. The agreement, which must be reviewed by domestic stakeholders in both countries before it can be signed, was negotiated both to settle long-standing U.S. requests for access to Canada's significant provincial procurement sector, which would open markets for U.S. exports of goods and services to Canada, and to address concerns expressed by Canada regarding "Buy American" provisions in the American Recovery and Reinvestment Act of 2009.

"This Administration made clear to Canada from the outset that any agreement to provide Canada with expanded access to U.S. procurement absolutely must provide guaranteed reciprocal access for U.S. exporters to supply goods and services to Canada through provincial and territorial procurement contracts. USTR has won that access for American firms, and I look forward to signing the agreement soon," said Ambassador Kirk. "For years, U.S. firms have sought market access to Canadian provincial procurement under the WTO Government Procurement Agreement (GPA), which Canada resisted. USTR took this opportunity to get Canada to open its provincial procurement markets, and also won new additional access for U.S. firms to provincial and municipal construction contracts across Canada. The value of new job-supporting contracts open to U.S. firms will be tens of billions of dollars."

As today's joint statement indicates, the United States has negotiated a deal that will provide permanent U.S. access to Canadian provincial and territorial procurement markets under the [WTO's Government Procurement Agreement]. In addition, the United States has secured access for American suppliers through September 2011 to construction contracts in a number of Canadian provincial and municipal entities not otherwise covered by the GPA. In exchange, the United States agreed to provide Canada with access to 37 states already covered by the GPA and access for suppliers to a limited number of programs funded by the Recovery Act. Both countries agreed to continue a dialogue on mutually beneficial procurement opportunities.

As you'll recall, Buy American essentially restricted all purchases using Stimulus* funding to goods made in the United States (and the other 12 signatories of the WTO's GPA).  It has been widely panned as not only protectionist, but also a practical nightmare to implement and enforce, and it has been the target of intense criticism by Canada and a lot of other US trading partners - even other GPA members.

So basically, the United States erected a massive trade barrier last year and now is patting itself on the back for: (i) exempting a single country from that barrier's obviously nasty provisions, while keeping the protectionism in place for more than 100 other trading partners; and (ii) using Buy American as a club to force Canada into opening its own procurement market, thus reinforcing the outdated and dangerous idea that reciprocity should be the goal of all trade negotiations.  And it only took them a year to do it!

Please pardon me if I don't applaud this exciting breakthrough.

Buy American has been a complete debacle.  It has stymied economic growth here at home and encouraged tit-for-tat protectionism abroad.  To applaud anything but its complete dissolution is absurd, and to applaud its use as a tool in trade negotiations is very, very dangerous.

(Particularly when another Buy American provision is destined for the next StimulusJobs Bill.)

Protectionism's Unreported Victims

Journalists love to write about the downtrodden victims of import competition, and who can blame them?  Such stories provide the type of fear-mongering, guilt-inducement and myth-reinforcement that American readers eat up!  (Or something.)  Well, regardless of the reasons, the interwebs are chock-full of stories of unemployed textile workers, closed paper mills, scared telemarketers and other general domestic mayhem caused by the omnipotent bogeyman that is "Globalization." The media just can't seem to get enough.

Cato's Dan Griswold does a fantastic job debunking the myth that imports cause a majority of American unemployment here and in his great new book Mad About Trade.  But what Dan doesn't mention in his blog entry is the other, totally unreported side of this coin: the very real victims of American protectionism.  About a month ago, I discussed how US tariffs regressively punished - through higher prices - American consumers of basic necessities like food, clothing and shelter.  Well, as the following examples from the last few weeks make clear, there are many other ways that protectionism can harm American businesses, workers and families:

• Reuters reports that the US operations of GPX International Tire have filed for Chapter 11 bankruptcy because of 44% antidumping duties on Chinnese imports of off-road tires.  The duties - different from those imposed by President Obama under Section 421 of US trade law - have jeopardized about 100 jobs at GPX's US facilities in Malden, Massachusetts.

• The AP reports that "Brazil has released a preliminary list of U.S. goods that could be hit with tariffs in response to a World Trade Organization ruling on illegal American cotton subsidies." According to the report, Brazil will hit American fruit farmers, juice producers and pharmaceutical companies with $295 million in annual sanctions as a result of the United States' failure to eliminate the protectionist subsidies to well-connected cotton growers.  The final list is expected to be submitted to the WTO by Nov. 30. Then the targeted American businesses will start paying $295 million in new taxes per year.
  

• Canada's Financial Post reports that the Stimulus* Bill's Buy American provisions are causing pipe fittings in California to be ripped from the ground for the second time in six months because they were stamped "Made in Canada."  The move has cost Cambridge Brass Inc., a Canadian brass fittings manufacturer, more than $1.5 million and has caused it to fire 63 workers since Buy American was introduced last spring.  Similar pain is being felt all over Canada, but for those of you who care only about American jobs, the Financial Post story highlights that US input manufacturers also are suffering from Buy American because many of the materials that the Canadian firms use to manufacture their products come from places like Texas.  Even Cambridge Brass is owned by AY-MacDonald, a US company with headquarters in Michigan.  And of course, the Canadians are threatening to retaliate against other US exporters, as rumors of a US-Canada settlement have faded.
  

• DelmarvaNow informs us that Chinese tariffs on US chicken exports - retaliation for the President's decision to impose prohibitive tariffs on Chinese tires at the request of the United Steelworkers - could seriously hurt small American chicken farmers in tiny towns like Delmar, Maryland that depend on chicken farming. In the piece, chicken grower Betty J. Hastings, a 25-year veteran of the business, describes the situation as "scary."

• MySanAntonio reports that Dallas-based Mary Kay cosmetics is paying $450,000 per month in Mexican tariffs imposed on US cosmetics exports (among others) as direct retaliation under NAFTA for a congressional ban on Mexican trucks from US roads.  (The ban - imposed under the 2009 Omnibus Appropriations Act - was a direct sop to the Teamsters union.)  MySanAntoinio also reports that the ban not only has resulted in tariffs on US exports ($2.4 billion total per year), but also has prevented Mexico's Estafeta - the "FedEx of Mexico” - from delivering letters and packages to US recipients. The result: Estafeta has refused to set up US operations (and hire US workers) until the spat is resolved, and US recipients of those letters/packages pay higher delivery prices.

So there you have it: layoffs, bankruptcies, hidden taxes, frightened old ladies, destroyed property, international intrigue, and congressional payoffs to crony interest groups - all the makings of high political drama!  Yet protectionism stories like these just don't seem to pique the interest of most "mainstream" media outlets, and instead, we readers are treated to trite, MadLib-esque reports of downtrodden mill-worker X and increased import Y from country Z.

No wonder the newspapers are going bankrupt.