Thinking Inside the Box on Trade

Former Minnesota Governor and GOP Presidential hopeful Tim Pawlenty delivered a rousing speech today on his economic vision for America.  The full text of the speech is here, and it's unsurprisingly receiving praise and sneers from the chattering classes (sometimes both in the same commentary).  His calls for a serious reduction in the corporate tax rate from 35% to 15%, the elimination of tax loopholes and a flattening of individual tax rates will certainly help improve American companies' global competitiveness (and attract foreign investment).  And his repeated call for reform of ethanol subsidies is, as I've already noted, not bad considering a lot of his current GOP primary competition.

But Pawlenty's stance on free trade was, well, utterly pedestrian::

Just as the federal government must break down barriers within our domestic markets. We must break down barriers in international markets.

Congress should ratify completed free trade agreements with South Korea — and Colombia. And complete the agreement with Panama. We should start new bilateral talks with our trading partners. To promote our exports.

President Obama set a goal of doubling exports. Yet his policies have prevented this. Mine will achieve it.

Ahh, yes, the political siren-song of mercantilism.  Grrreat.  Of course, this exports-good-imports-not-so-much position is in line with Pawlenty's previous statements on trade, as noted in the Club for Growth's handy primer on the candidate:

In an interview during a trade mission to China in 2010, Pawlenty said that “we all agree from an American perspective that the Chinese manipulation of their currency and pegging of it to the dollar is inappropriate and unfair.” In later comments, Governor Pawlenty did not rule out imposing tariffs on China.

Also, Pawlenty fought against lower trade barriers on sugar when CAFTA was being considered by Congress, and he was in favor of retaining the temporary steel tariffs imposed by President Bush.

While we understand the political considerations Pawlenty had in trying to protect his home state sugar beet industry, his support of trade barriers is equivalent to support of higher costs for consumers – both in Minnesota and across the country.

A 2011 MinnPost article described Pawlenty’s attitude towards trade policy this way: “Pass pending free trade deals with Colombia, Panama and South Korea while looking for more. And don’t be afraid to call out trading partners – China by name – when they don’t live up to their end of the bargain. ‘I’m for free trade, but I’m not for being a chump,’ he said to the approval of the crowd.”

Pawlenty's mercantilist message is, as the Club rightly notes, problematic from an economic perspective, and, of course, it contradicts the strong support for cutting most other types of taxes that the candidate outlined in his pro-growth speech today.  Furthermore, as Dan Ikenson and I noted in a recent paper, Pawlenty's exports-only trade message is also both unnecessary and counter-productive from a political standpoint.  In short, it's just the same old pablum.

Fairly or not, Pawlenty's been routinely characterized as an uninspiring "second-tier" candidate.  On some issues, his speech today might help the Governor shake that reputation, but his unoriginal stance on trade - one that fails to recognize the benefits of imports and the realities of a today's globalized economy, and that contradicts the rest of his pro-growth, low-tax message - sure won't.

Trade Remedies and US Competitiveness

Today Cato's Dan Ikenson published a new paper on the US antidumping law and American competitiveness.  Here's the paper's setup in Ikenson's Forbes op-ed on the same subject:

During the decade from January 2000 through December 2009, the U.S. government imposed 164 antidumping measures on a variety of products from dozens of countries. A total of 130 of those 164 measures restricted (and in most cases, still restrict) imports of intermediate goods and raw materials used by downstream U.S. producers in the production of their final products. Those restrictions raise the costs of production for the downstream firms, weakening their capacity to compete with foreign producers in the United States and abroad.

In all of those cases, trade-restricting antidumping measures were imposed without any of the downstream companies first having been afforded opportunities to demonstrate the likely adverse impact on their own business operations. This is by design. The antidumping statute forbids the administering authorities from considering the impact of prospective duties on consuming industries—or on the economy more broadly—when weighing whether or not to impose duties.

That asymmetry has always been insane, but given the emergence and proliferation of transnational production and supply chains and cross-border investment (i.e., globalization)—evidenced by the fact that 55% of all U.S. import value consists of raw materials, intermediate goods, and capital equipment (the purchases of U.S. producers)—it is now nothing short of self-flagellation.

Here's my favorite part:

If you need more evidence that the antidumping status quo is weighted heavily against import-consuming U.S. industries, consider this gem: three of the nine mineral raw materials that are the subject of the U.S. case against China in the WTO (magnesium, silicon metal, and coke) are simultaneously subject to U.S antidumping restrictions. That’s right! With our own import restricitons firmly in place, the United States is suing China to remove its export restrictions on the same products. That sounds like an excellent use of resources.

And here's the paper's basic conclusions:

The NEI should include a serious commitment to antidumping reform. At a minimum, consuming industries should be given legal standing to participate fully in antidumping proceedings, antidumping measures should be rejected if the projected costs of those restrictions on those firms and on the broader economy exceed some reasonable threshold, and any duties applied should not exceed the level found necessary to remedy injury to the petitioning domestic industry.

Be sure to read the whole thing here.

Friday Quick Hits (UPDATED)

Here's some light beach reading for your hopefully-sunny Memorial Day weekend:

• Friday Night News Dump, Holiday Weekend Edition: Treasury once again declines to cite China as a "currency manipulator."  Key line from the new report: "Because inflation in China is higher than it is in the United States, the RMB has been appreciating more rapidly against the dollar on a real, inflation adjusted basis, at a rate of around 9 percent per year."

• Cato's Sallie James explains perhaps the biggest reason why free traders should loudly object to the Obama administration's new demand that the price for its submission of pending FTAs with Korea, Colombia and Panama is expanded Trade Adjustment Assistance.  Key line: "What we have here is a reversal of the grand bargain on trade liberalization, that gave extra welfare to workers who lost their job because of freer trade in exchange for support for trade agreements that lowered trade barriers. That ‘grand bargain’ has been tenuous for years now, of course — witness the complete lack of movement on the trade agreements even after the 2009 enhancement of TAA, at least until recent months.  But now, rather than using TAA to buy votes for trade liberalization, the administration and their allies appear to using pretty-much-assured votes for trade liberalization to buy TAA.  As a Wall Street Journal editorial said on Friday, it’s extortion."  I have a little more on this issue in my comments to this post (and, yes, I stole "grand bargain" from Sallie).

• Frank Stephenson notices that "Peter Morici, Lou Dobbs's favorite China bashing economist and an advocate of taxing China to 'bring back US jobs,' has become a pitchman for Kyocera copiers.  And guess where Kyocera copiers are made?  The company has one plant in China and two in Japan."  Am I the only one who's totally unsurprised by this?

• Microsoft's Steve Ballmer denounces "rampant" Chinese software piracy... IN CHINA.  The Middle Kingdom's IPR enforcement problems certainly aren't new, but I can't recall a major CEO so openly discussing them on Chinese soil, can you?  Interesting stuff.

• Although I tend to focus on import benefits here, this great new IBD editorial reminds that exports are pretty great too, and our FTAs certainly help increase them.

• Cato's Dan Ikenson takes the Washington Post's Andrew Higgins to the woodshed for missing the real story behind the US antidumping order on wooden bedroom furniture from China.  Money quote: "At the time this case was initiated, the same U.S. furniture producers who were petitioning for relief from imports from China were investing in furniture operations in other countries. There’s nothing illegal or objectionable about investing in foreign production, but the assertions of the petitioning U.S. producers that their aim was to restore U.S. production and U.S. jobs were clearly false. It is testament to the laughably modest standards for finding a domestic industry injured by reason of dumped imports that duties were ever imposed in the furniture case."

• GOP Presidential Candidate Tim Pawlenty signals a willingness to support reform of America's awful ethanol policies... IN IOWA.  Given the location, this does qualify as somewhat brave.  But, as Brian McGraw explains, let's not go giving Pawlenty the Congressional Medal of Honor just yet. [UPDATE: Meanwhile, Mitt Romney loooooves him some cornfuel.]

• The Kauffman Institute surveys top economics bloggers about US federal government policies, and guess what got the most support?  (Shocking, I know)

Have a great, long weekend, and remember: apply sunscreen 30 minutes before laying out.  It needs time to soak in!

Weekend Quick Hits

Apologies for the light blogging this week - it's been a brutally long one for your humble correspondent.  But here's a treasure-trove of headlines to make up for my absence:

• Alternate headline: Former USTR Portman Joins Gaggle of Protectionist Senators to Ask Current USTR Kirk to Pursue Silly Protectionist Policy that USTR Can't Actually Achieve. (Silly letter available here.)

• Must-read WSJ analysis: Blather in Washington won't affect the US-China exchange rate; Chinese inflation will.  (Yes, this should sound very familiar.)

• In case you missed it, AEI's Claud Barfield ably responds to my blog post on the United States' sordid history of "FTA bullying."  His future analysis on this issue promises to be great.

• Forbes analysis: US corporations pay a LOT of taxes, especially those dastardly oil companies!

• Shocker: "Both the European and global carbon markets could significantly increase costs for EU steelmakers, while at the same time reducing the potential for offsetting those costs, speakers at Steel Business Briefing’s Green Steel Strategies conference in Brussels argued.  European Union Allowance (EUA) prices are expected to rise to around €40/tonne by 2020, according to forecasts presented by Carine Hemery of carbon market analysts Orbeo. Moreover, the amount by which steelmakers can cut their costs by offsetting with UN carbon credits, called Certified Emissions Reductions (CERs), could fall from around €3-4/t currently to just €1-2/t in 2013-2020, she adds."  Me: Is lobbying for carbon tariffs soon to follow?

• Vladimir Putin puts on a clinic on "How Not to Improve Your Country's Chances of Getting Into the WTO Anytime Soon."

• According to a new report by sympathetic environmentalists, governments and industries are lying to us about the efficacy of wind power generation.  I'm shocked!

• Cato's Dan Griswold deflates the silly White House rhetoric that we're "on track" to double US exports in the next 5 years.

• WorldTradeLaw.net's Simon Lester has an insightful blog post about the "dangers of talking about competitiveness" in the context of international trade rules (and disputes).  I agree.

• China's commerce ministry (MOFCOM) announced preliminary anti-dumping and countervailing duty rates for sedans and SUVs from the United States.  As you'll recall, this case started back in 2009 as a not-so-subtle response by the Chinese government to the President's decision to impose safeguards duties on Chinese tires under Section 421 of US trade law.  Final rates in the China AD/CVD case will be out in a few months.

• US-China business Council released state-by-state data on US exports to China between 2000 and 2010.  The results are pretty staggering.  For example, exports to China from my home state of North Carolina - a place that's unfortunately (and irrationally) represented by many a protectionist politician - increased over 500% since 2000 and now stand at over $2.2 billion. 

• Arnold Kling discusses a new paper on trade and US employment trends that's (rightfully) getting a lot of buzz.  Tyler Cowen has more praise and discussion here.

• The 2011 Name of the Year bracket is out, and it is as awesome as ever.

• Finally, ReasonTV follows my lead but enlists the far-more-persuasive Sallie James to implode Bernie Sanders' insane war on the imported trinkets that are were sold at the Smithsonian giftshops:

Well, That Didn't Take Long

On Sunday, your humble correspondent heaped a little praise on USTR for its rhetorical refocusing of the US Trade Policy Agenda from ridiculously-export-oriented in 2010 to only mostly-export-oriented in 2011.  In particular, the new Agenda actually had several passages which made clear and coherent references to the benefits of imports for US businesses and consumers - a welcome change for those of us who have been constantly complaining about the administration's absurd mercantilist positions over the last two-plus years.

Sadly, it appears that USTR's trade epiphany was rather short-lived.

Reviewing USTR Ron Kirk's prepared remarks before the Senate Finance Committee today, Steve Lamar points out over email:

Number of times Ambassador Kirk talks about exports – 7

Number of times Ambassador Kirk talks about imports – 1*

*Use of the word “imports” is in this context: “In December, the WTO upheld our right to take action to stop a harmful surge of Chinese tire imports...”

Aaaaannnnd we're right back to 2010.  I guess all it took was a little public/political scrutiny to put the new "free trader" version of USTR right back in the ol' mercantilist closet.  (Shocking, I know.)

On the bright side, I guess balance has been restored in the trade universe (or something).

US Trade Policy Agenda 2011: Could We Actually Be Getting Through to Them?

Last week, USTR released the President's annual Trade Policy Agenda, and nobody paying attention would be surprised to see that the document spends a disproportionate amount of ink extolling the virtues of American exports (and USTR's efforts to expand them, of course).  But this year's report was somewhat surprising in one respect: it actually acknowledged the benefits of imports too - a message that has been, as I and others have often lamented, almost totally absent from previous Obama administration speeches and documents.  Indeed, as you may recall, last year's US Trade Agenda was so totally lacking in discussion of the benefits of imports for American families and businesses that I concluded at the time, "[i]t's as if the folks at USTR waved a magic mercantilist wand and made imports virtually disappear."  (To get the full effect, go check out the word-count stats in that blog post.  It's pretty unreal.)

This year, however, things are different.  Imports have made a bit of a comeback.

Now, look, it's not as if USTR was suddenly conquered by free market economists, so the report certainly continues to overemphasize exports and praise the administrations' new "enforcement" (read: import-limiting) initiatives.  But, still, check out these statements (emphasis mine):

• Pages 1-2: "Two-way trade is essential to American economic growth and success. Ninety-five percent of consumers reside beyond our borders, and the International Monetary Fund forecasts that nearly 83 percent of world growth over the next five years will take place outside of the United States. To reach our full potential for employment and economic growth, America must engage globally to sell more goods and services abroad.... Imports can also play a positive role, serving as inputs to value-added U.S. production and supporting well-paying jobs here in the United States. Imports also offer U.S. consumers variety and affordability as they look to get the most out of their household budgets."

• Page 18: "U.S. trade preference programs also benefit the American economy. While GSP is designed to promote economic growth across the developing world, U.S. businesses and consumers benefit through cost savings on imports, through access to more goods and services, and through import-supported jobs from docks to manufacturing plants to retail stores. Americans benefit in similar ways from AGOA, ATPA, and other programs. The ATPA also has a positive effect on drug-crop eradication and crop substitution in the Andean region where the raw material for cocaine is grown, as well as job growth in export oriented industries there.... Failure to renew and extend these programs will undermine the economic development efforts of many poor countries and negatively affect U.S. businesses and consumers. The Administration will work with Congress in 2011 to secure long-term reauthorization of these two essential trade programs."

• Page 18 (again): "The link between increased trade and better jobs, as well as trade’s consumer benefits, is well established and on display in American society every day. Yet many Americans still feel strongly that trade’s costs outweigh its benefits."

Not bad, USTR.  Not bad at all.  It's almost as if someone in the Obama administration is actually listening to our criticism of their mercantilist rhetoric and has amended the official US trade agenda accordingly.

Of course, this is nothing but a rhetorical shift - the Obama administration's actual policy priorities are still unfortunately focused on exports and "enforcement," and, except for those relatively tiny trade preference programs, not a single one aims to liberalize our own, still highly protected, market (and to explain to the American people the moral and economic case for that liberalization).  And even rhetorically, the imbalance is still pretty stark - as I mentioned above, the vast majority of the trade agenda's rhetoric is export- and enforcement-centric.  (Case in point, the conclusion: "In order to accelerate a job-rich, robust recovery here in America and balanced economic growth around the world, U.S. trade policy must be bold, with an appropriate focus on exports and a strong commitment to enforcing America’s rights.")

But, hey, it's a start.  And who knows, maybe next year the administration will actually deliver some of those sweet, sweet import benefits that they've finally started talking about.

(Then again, 2012 is an election year, so I'll believe it when I see it.)

With (Trade) Friends Like These...

I've frequently lamented the attempts of many advocates of trade liberalization and FTAs to champion free trade policies through an exports-only, essentially mercantilist, approach.  Tonight's State of the Union Address - and protectionists' responses to it - perfectly demonstrate why my angst is well-deserved and why free trade proponents in Congress, the White House and the US business community need to ditch the mercantilism and adopt a new sales pitch.

Beyond the simple fact that there are myriad moral and economic arguments for open markets that are equal to or better than an export-centric approach, one of the biggest problems with a "free trade" message based only on exports is that it's completely self-defeating.  As I said last year when commenting on the President's post-State of the Union statements on trade to a group of GOP congressmen:

Obama states that "the suspicion about trade agreements is that they're all one way." Ok, that's true, but what's feeding that suspicion is not the FTAs themselves, or most Americans' real-world experiences with imports and free trade, but rather political demagoguery and media misreporting on imports, the trade deficit and the state of US manufacturing.... Until these myths are corrected - until the American people understand that imports are good for US businesses and consumers, that US manufacturing output is still the world's largest, and that the US trade balance is not some "free trade scorecard" - any attempt to sell free trade through an exports-only focus will actually enhance Americans' suspicions, rather than alleviate them. Americans simply will look at the trade deficit (which the US has held since the 1960s, so it's not like it's going away anytime soon) and think that we're "losing" at trade, and that our supposedly "reciprocal" FTAs stink. Why? Because the President told them that exports are the only thing that matter, and that the only reason that American companies aren't exporting more is because our trading partners are cheating by illegally denying US companies access to their markets....

Protectionists, of course, are more than happy to exploit this glaring vulnerability and, as I've noted many times here, they've tailored their trade-skeptical (and myth-filled) messages to prey on the public's misconceptions about trade - many of which are fueled by free trade advocates' shoddy trade salesmanship.

Case in point: President Obama's State of the Union sales pitch on the US-Korea FTA:

To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.

The message here is clear: FTA = exports = jobs.  And while exports are certainly a fine and laudable goal, the immediate protectionist response to this argument is exactly as predicted:

• Whether trade creates U.S. jobs depends on net export gains and reducing the trade deficit, which our past policies have not done.
• U.S. export growth under past Free Trade Agreements (FTAs) has been less than half that to countries with which we do not have FTAs.
• The U.S. International Trade Commission's (USITC) official study of the Korea FTA that Obama will emphasize concluded that the deal would increase the U.S. trade deficit.
• Korea FTA's chief U.S. negotiator admitted it would not be a boon for U.S. exports.
• Beware of administration claim that the Korea FTA will "support" 70,000 jobs; the core question is what net effect the Korea FTA will have on U.S. employment.
• The Economic Policy Institute projects American job losses from the Korea FTA at 159,000.
• The December 2010 Obama supplemental Korea trade deal does not alter the increased trade deficit, job loss findings.
• The USITC study identified nine losing U.S. economic sectors that include many high-wage industries, including auto and electronics manufacturing.
• Beware of the administration claim that the Korea FTA could reduce the U.S. trade deficit.
• The auto manufacturing industry may lose a significant number of workers due to the Korea FTA.
• Lack of currency manipulation disciplines in the Korea FTA mean agriculture could also lose out.

Every single one of these arguments is based on the same old protectionist myths about imports, the US trade deficit, and the state of US manufacturing.  And, despite the fact that these myths (and bogus "stats" like those from the union-backed Economic Policy Institute) have been routinely debunked here and elsewhere, they unfortunately sound almost-plausible when cast against the backdrop of the President's mercantilist SOTU statements on exports and the US-Korea FTA (and, of course, other, similar statements from pro-trade members of Congress and the US business community).

Just as troubling is the fact that the anti-trade "response" above actually came out yesterday!  In short, the "pro-trade" message coming from the White House and Congress has become so stale and predictable that anti-traders don't even have to wait until after the message has been delivered before they respond with their tired, mythtastic talking points.  (It must be nice to get paid for repeatedly cutting and pasting the same old arguments over and over again, huh?)

Could you imagine if the President and other trade advocates ever changed their mercantilist tune and spoke about the benefits of both exports and imports?  Or if they defended each American's freedom to engage in voluntary, mutually beneficial transactions with whomever he or she pleases, regardless of the political boundaries involved?  Or if they denounced protectionism as a pernicious, regressive tax on American consumers designed to line the pockets of a few well-connected producers?  Or if they simply explained that the American manufacturing sector has resumed its decades-long rise and remains the world's largest, or that an expanding US trade deficit is closely associated with economic growth, or that 55% of all imports are capitol goods and equipment that American businesses use to remain globally competitive?

For starters, anti-traders' responses couldn't be mailed-in anymore; and they'd actually have to come after the President's remarks, not before them.  Maybe they'd come up with new arguments, but seeing the dreck that they currently peddle, I'm not so sure that they could.  And considering that they've been relying on the same tired playbook for the last twenty-odd years, it would definitely be fun watching them scurry to come up with new dreck for a change.

Crazy thoughts, I know.

Monday Quick Hits

Here are some headlines to tide you over until tomorrow's big State of the Union address and its inevitably depressing depiction of "free trade" and "competitiveness" as "exports" and "subsidies," respectively:

• CHINA INFLATION ALERT!  Asia expert Lee Miller sends me tons of juicy news on China's (possibly) skyrocketing inflation.  Here are some highlights:  First, AmCham China's 2010-2011 China's Business Report finds that "Finding enough qualified staff is the No. 1 business challenge, and competition is picking up not only between U.S. and other foreign companies but between U.S. and Chinese companies -- both private and state-owned enterprises (SOEs)."  Second, Diana Choyleva writes a must-read op-ed in the WSJ Asia, concluding: "It's not just the prices of consumer goods and services. Asset price inflation, most famously in real estate, has been accelerating; as has wage inflation. All of this should make the thousands of investors looking to jump onto the China bandwagon skeptical of what they're being told. Regardless of Beijing's claims of prudent economic management, excess money is sloshing around and overheating China's economy, thanks to the huge monetary overhang from China's post-2008 stimulus. Beijing clearly panicked when the global financial crisis hit and stepped on the monetary accelerator. It halted the ascent of the yuan by re-pegging to the dollar in mid-2008 (so that exports could become cheaper), it stopped sterilizing the still-massive foreign exchange inflows (so these inflows directly entered the money supply) and ordered banks to lend historic amounts of credit. The increase in broad money was a massive 39% of GDP in 2009 and 30% in 2010, compared with a previous peak of 27% in 2003. The Chinese express alarm over Western quantitative easing efforts these days, but China's own monetary loosening beats all that."  Third, AFP reports that "China's main export region in the south will raise minimum wages by an average 18.6 percent, marking the second hike in less than a year as soaring food costs hit the country's millions of poor."  Finally, the Global Times reports that "The People's Bank of China (PBC) will print 1 trillion yuan ($151 billion) worth of new bank notes this year, but officials refuted claims that the announcement had anything to do with inflation, the Xinhua News Agency reported Wednesday." That last story might be nothing, but after reading the first three, are you willing to bet on it?

• David Harsanyi cites "Red Dawn" in his op-ed on the baselessness of the current Sino-phobic hysteria in the US.  Thus, he gets a shout-out from this Red Dawn-loving blogger.

• Joseph Sternberg provides in the WSJ a rather convincing argument as to why we shouldn't expect China to "re-balance" anytime soon.  Sternberg points out several aspects of China's banking sector that lead to a bias against domestic consumption in favor of export industries (especially state-owned ones).  His conclusion: "China's investment-driven growth has paid off so far but may already be witnessing declining marginal returns. McKinsey estimates that China now needs to invest $4.90 to produce each dollar of GDP growth, up from $3.30 in the early 1990s. Shifting to a new model will require changes at every level, right down to the bank branch. That's hard to do when you're preoccupied asserting economic might you may not have."

• Cato's Mark Calabria provides a really simple solution to White House complaints about China's preventing the appreciation of its currency by purchasing US government debt: stop borrowing money!  He states, "When China receives dollars for the many goods it sells us, instead of recycling those dollars into the purchase of US goods, it uses that money mostly to buy US Treasuries and Agencies (Fannie/Freddie securities).  These large Treasury/Agency purchases (foreign holdings of GSE debt are over $1 trillion) have the effect of increasing the demand for dollars and depressing that for yuan, resulting in an appreciation of the dollar relative to the yuan. This connection exposes the hypocrisy of President Obama’s complaints about China currency manipulation – without massive US budget deficits, China would not be able to manipulate its currency to the extent it does. If the US wants to end that manipulation, it can do so by simply reducing the outstanding supply of Treasuries and Agency debt."  Exactly.

• A new study on outsourcing from Duke University's business school shows that "American companies opting to hire offshore labor are doing so because of a domestic shortage of skilled workers, not a desire to save on labor costs."  Do you hear that hissing sound?  Yep, it's the deflation of yet another protectionist narrative.  (Oh snap.)

• AEI's Mark Perry provides our annual reminder that those preaching the "death of American manufacturing" are not just greatly exaggerating but also flat-wrong.  In so doing, Perry provides two charts-of-the-day (below) and smartly concludes: "America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer."  Amen.  I'd only add one thing: is it really good policy to rest the hopes of the US labor force on a sector (manufacturing) that has experienced awesome and steadily improving productivity (i.e., increasing output with a shrinking workforce) over the last few decades?  Hmmm...

That's all for tonight, folks.

Monday Quick Hits

There have been several interesting developments over the last few days, so let's get right to them:

• Eight weeks after the 2010 mid-term elections, the Obama administration, ahem, boldly announces that it has begun the process of looking into whether it will maybe start letting Mexican trucks onto US roads again.  The Transportation Department proposal is here.  The Teamsters are "deeply disappointed," and Mexico sounds pleased, so this is looking pretty good.  But let's be very clear here: nothing has changed yet.  Mexican trucks are still banned from US roads, and $2.4 billion worth of US exports will continue to face retaliatory Mexican tariffs - as they have since 2009 - until this agreement is finalized.  Today, USTR Ron Kirk and his Mexican counterpart Bruno Ferrari optimistically announced that it could be at least 4-6 months before the program begins (it apparently needs congressional approval), and Mexico will stop adding or removing products from its retaliation list.  Nevertheless, the tariffs will remain: "Once we have dates, time frames and the manner in which this Nafta mandate will be met, we'll present and discuss the process to lift the retaliatory tariffs," Ferrari said.

• Are things looking up for the US-Colombia FTA's prospects in the 112th Congress?  According to Inside US Trade, ranking member of the House Ways & Means Committee Sander Levin (D-MI) and Senate Finance Committee Chair Max Baucus (D-MT) separately have announced trips to Colombia over the next few weeks.  These visits will definitely give both top Democrats (and any others joining them in body or spirit) a new excuse to support the FTA, despite strong resistance from US labor unions and many, if not most, of their fellow Dems.  As you may recall, similar trips to Peru back in 2007 gave Levin and former Ways & Means chairman Rangel cover to support the US-Peru FTA.  On the other hand, supporters of the US-Colombia FTA shouldn't get too excited - the FTA remains organized labor's most-hated pending agreement; the White House still hasn't gotten behind the agreement (although the Daley Chief-of-Staff pick is a reason for optimism); and Levin and Baucus are some of the Democratic Party's more reasonable folks on trade, especially trade agreements that would boost automobile and beef exports.  Nevertheless, the Levin/Baucus trips are a good thing, and maybe, just maybe, they're a sign that the Democrats' absurd resistance to the Colombia FTA is fading.

• Martin Feldstein, former chair of Reagan's Council of Economic Advisors recently predicted that the US-China current account deficit should disappear in the next few years.  Today, China announced its 2010 trade balance, and its surplus is dramatically smaller than anyone was expecting.  "Chinese exports increased 31.3 percent last year as global demand recovered, but the extent of China's outperformance was underlined by a 38.7 percent jump in imports, fueled by its voracious appetite for oil, iron ore and other commodities." As a result, "China's full-year [2010] trade surplus was 38 percent lower than its pre-crisis peak of nearly $300 billion in 2008."  I've repeatedly cautioned that global supply chains now limit the predictive value of these trade stats.  Nevertheless, it appears - on the surface at least - that some changes are afoot.

• The Daily Caller reports that the United States is missing out on being a big exporter of, wait for it, horse meat.  But because of a 2007 USDA rule that effectively banned the slaughter of horses, the 1 billion global consumers of horse meat get their food elsewhere.  Oh, and here's a real shock: the "saved" American horses apparently suffer far worse fates than the slaughterhouse, and they're causing serious environmental problems in several Western states.  And the Law of Unintended Consequences wins again.

• Politico: "Leaders of 1,655 companies and associations sent letters this week to ever member of Congress pressing for passage of all three pending free trade agreements (Korea, Colombia, Panama). House letter: http://politi.co/gGKSkb Senate: http://politi.co/gsIam3."  Me: please note the letters' typical overemphasis on exports.  Sigh.

• New research shows that bank deregulation had a significant, beneficial effect on income inequality.  Says Cato's Mark Calabria: "[W]e need to examine banking regulation/deregulation as it actually occurs and is implemented, and not how we believe some all knowing, benevolent government would impose it. The odds seem to me that the more extensive is banking regulation, the more likely it is to be captured by economic elites and narrow interests."

That's all for now.  Happy reading.  (And Go Ducks.)

Wednesday Quick Hits

Lots of headlines since last week, so let's get right to it:

• Cato's Dan Ikenson provides some much-deserved criticism of USTR's jubilation over the WTO's totally-expected ruling that last year's Section 421 decision against Chinese tire imports was consistent with global trade rules.  (Others agree.)

• AEI's Claude Barfield rightly admonishes the Politico's John Maggs for his reallllly bad reporting on US FTAs' likely path through Congress.

• Cato's Dan Mitchell and Chris Edwards explain just how embarrassing it is that, with Japan's decision to lower its corporate tax rate, the United States now has the highest statutory corporate tax rate of all OECD nations.  Edwards provides a great chart: 

Me: The next time that a protectionist complains about imports, outsourcing and a lack of American competitiveness, feel free to share this chart with him/her. 

• Columnist David Harsanyi explains that Americans are just plain wrong about the state of American manufacturing. (Gee, I wonder where they could have gotten the wrong idea?)

• Revealing WSJ interactive charts on US debt levels.  Guess what? Everyday Americans have moderated their debt levels, but Uncle Sam's tab just keeps on growing and growing and growing.

• Paul Krugman, mercantilist.

• AEI's Phil Levy (at a very interesting forum on the National Export Initiative) explains, starting at about 1:37 the pitfalls of trying to sell free trade through mercantilism (i.e., free trade = exports = jobs) approach (h/t Bryan Riley):

• Chinese inflation is becoming a pretty serious issue.  More here.

• Festivus is real.  Bring on the airing of grievances and feats of strength!

• Finally, GMU's Don Boudreaux takes to xtranormal to create a nice little cartoon explaining the idiocy of protectionism (h/t Simon Lester):

 That should keep y'all busy for a while.  Enjoy!

McKinsey: Umm, Yeah, About China's "Dangerous" Imbalances

Many, if not all, critics of Chinese trade and monetary policy point to China's massive trade surplus as a clear sign that the Chinese economy is too dependent on export led growth and is preying on the rest of the world through rampant mercantilism, particularly its "artificially low" currency.   For example, here's former free trader Paul Krugman on the subject:

The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.

And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.

Krugman is certainly not alone in this line of thought - one that we can call the "It's the trade surplus, stupid" (or "ITTSS") school.  Indeed, one of the biggest reasons that much of the punditocracy (and our glorious Treasury Secretary) believes that a revaluation of China's currency is absolutely essential for future global prosperity is the widely-held belief that the RMB's artificially low value has created huge global trade and investment imbalances.  Most notable among these imbalances, say the critics, are the United States' huge trade deficit and China's massive trade surplus.

Now, look, I'd never argue that the Chinese aren't pursuing some mercantilist policies - they certainly are (see, e.g., their awful "indigenous innovation" plans that hurt foreign market access and infringe on intellectual property rights).  But what if China's dastardly trade surpluses weren't nearly as big-and-scary as the ITTSS crowd thinks?  What if, as some folks (hint hint) have argued for a while now, old school trade statistics do a horrible job of capturing what's really going on in today's global economy, mostly because they don't/can't account for modern global supply chains and specialization?  Wouldn't that really put a big dent in folks' breathless/certain claims about the dire need for a significant and rapid "global rebalancing" through, among other things, a significant and rapid appreciation of China's horribly undervalued currency?

I think (hope?) most sane, non-political folks would say that revelations about the overstated magnitude of China's trade surplus should slow the intelligencia's mad dash to force a global rebalancing and a large appreciation of the RMB.  Several recent studies have provided such revelations, and a new study from McKinsey provides even more of them (emphasis mine):

[W]e developed a new way of measuring the role of export growth in China’s overall economic expansion. We found that exports have been a major driver, but not one as dominant as commonly believed. Indeed, there are clear signs that a shift toward domestically driven economic growth is well under way. The picture that emerges of the Chinese economy has implications for the growth and supply chain strategies of businesses in China and elsewhere....

Arguments over the true nature of China’s economic reliance on exports have been rooted in the difficulty of appropriately measuring the export sector. The traditional measure governments and most analysts use is the growth of total exports as a share of GDP growth. This measure indicates that export growth has accounted, on average, for almost 40 percent of the total growth in real GDP since 1990—rising to almost 60 percent since 2000. 

Yet these numbers, portraying a dominant and growing role of exports, are at odds with the fact that China was one of the few countries that escaped the great 2008–09 global downturn without a major economic slowdown—suggesting that internal growth played an important role.... 

Using total exports neglects the fact that many of China’s export shipments include a fair number of imported goods that are reassembled, combined with domestic content, or otherwise modified before being exported. Failing to remove these imports from the total export figure overstates how much value exports contribute to GDP.... 

We calculated a measure we call domestic value-added exports (DVAE) to assess more accurately the role of exports in GDP growth.  DVAE is what you get after subtracting from total exports only those imports used in the production of goods and services that are subsequently exported. In automobiles, for example, finished imports are not subtracted from our measure of exports. But engine parts imported to manufacture motor bikes for export would be....

On average, our analysis suggests that imported goods accounted for 40 to 55 percent of the value of total exports from 2002 to 2008. Put another way, roughly half of China’s exports represent domestic value added. Concurrently, DVAE’s share of exports generally has risen over time, suggesting that China has become less of a pure assembler of imported goods—a publicly stated government policy goal.... 

We also applied our DVAE analysis to reassess the contribution of exports to GDP growth in the years for which we have overlapping data among our three metrics. We found that China’s export sector contributed 19 to 33 percent of total GDP growth between 2002 and 2008 (Exhibit 1). That’s only about half of the export contribution indicated by traditional total-exports measures.

In other words, DVAE analysis suggests that exports have been an important driver of China’s growth, but not the dominant one, and that most common wisdom overestimates the role of exports while underestimating the role of domestic consumption for China’s growth. Any Chinese or multinational company that currently manufactures goods in China and primarily exports them to other countries should ask itself whether it needs to scale up its domestic strategy to get a bigger piece of the pie. This involves developing a more granular understanding of the Chinese market, making products that appeal to the Chinese consumer, and finding ways to market and distribute them effectively—all while contending with increasingly formidable Chinese competitors....

A comparison between DVAE’s contribution to growth and that of other major macroeconomic components shows that DVAE topped private consumption, but was less important than investment, over the 2002–07 period (Exhibit 2). In the downturn years, 2008 and 2009,5 exports contributed much less to growth than other factors did, which explains why the Chinese economy could not fully match its GDP growth rates in the earlier part of the decade. However, the shift to a greater role for private consumption, investment, and finished imports explains how China could weather the downturn well and indicates movement toward a domestically focused economy, even though exports will probably continue to play an important role when the global economy picks up....

In short, McKinsey's analysis demonstrates that China's economy is not nearly as export-dependent and "imbalanced" (and China's trade surpluses not nearly as significant) as Krugman and his fellow trade surplus disciples would have us believe.  It also demonstrates that, as Dan Ikenson has often noted, the evolution of global supply chains means that RMB appreciation could make Chinese manufacturers more competitive (through access to relatively cheaper imported inputs), not less so.  

So here's my question to Dr. Krugman, over 300 members of the US House of Representatives, Secretary Geithner, and the rest of the ITTSS folks out there:  is it really wise to pursue aggressive unilateral (or multilateral) action against China based on obviously sketchy trade data?

I dunno about you, but that seems a tad stupid to me.

Monday Quick Hits

Lots of interesting stuff over the last two weeks, so let's get right to it:

• FedGov economists: Increasing exports won't increase US manufacturing jobs.  Three economists from the US International Trade Commission write, "While export promotion is often seen as a strategy of increasing manufacturing employment, in the past decade US employment growth has all been in the services sectors. Even though manufacturing is important in itself, the promotion of US exports is likely to generate more indirect jobs in wholesaling, transport, and professional services than direct jobs in manufacturing."  Of course, you already knew this because you read my post on the issue last November(!).

• While loudly demagoguing manufacturers that ship jobs overseas, the administration is spending millions of taxpayer dollars to train foreign IT workers.  Holy policy disconnect, Batman!

• On the bright side, lousy US trade policy can't hold back global trade.  From The Economist: "Trade has not been devastated by the raft of protectionist actions taken during the downturn. According to the World Bank, the rise in tariffs and anti-dumping duties explains less than one-fiftieth of the collapse in world trade during the recession. For the most part, the fall in trade reflected a drop in demand." Even better, early evidence suggests that "re-balancing" is occurring: "There is even some evidence that activity has rebalanced from the lopsided trade pattern that existed just before the crisis. Then, the share of emerging-world imports that came from rich countries had been on a steadily declining path. But now demand from emerging economies is helping to prop up rich-world exports to a larger degree than is commonly realised. According to IMF figures, of nine emerging markets in the G20, seven got a higher share of their imports from rich countries in 2009 than they did a year earlier. Just 59% of China’s imports came from rich countries in 2008, but this rose sharply to 66% in 2009. India obtained 42% of its imports from rich countries in 2008, but last year this rose to 47%."  Gee, and we didn't even have to impose self-flagellating 35% tariffs on China to do it! (Paul Krugman was unavailable for comment.)

• Sen. Lincoln may be going down in flames, but she's gonna subsidize everything on her way out.  Behold, desperation efforts from Arkansas' queen of farm subsidies: "Large-scale farms would disproportionately benefit from a $1.5 billion disaster aid package for which Sen. Blanche Lincoln says she's secured funding, an advocacy group said in a report released Thursday. Lincoln, who is in a tough re-election fight in Arkansas, has said she's received assurances from the White House that the Agriculture Department would fund $1.5 billion administratively for farmers who lost crops in 2009. Democrats agreed to cut the aid from a small business lending bill last week. The Environmental Working Group on Thursday projected that the largest share of the aid — $210 million — could go to Lincoln's home state with 270 farms collecting more than $100,000 each in disaster subsidies."

• Shocker: BMW outpaces its European rivals by making cars that people actually want.  From the WSJ (subscription): "Making cars people want to buy is a better investment proposition than making cars governments have to bribe people to buy. Just look at BMW, the top-performing European auto stock this year even as rivals received a substantial boost from scrapping incentives. Through design and good fortune, an expectation-beating second quarter could be a harbinger of further outperformance by the German company."

• Something to remember the next time you hear your congressman/senator badmouthing China and/or pining for a trade war.  The US China Business Council recently released its annual report on US exports to China (helpfully broken down by congressional district).  Their overall conclusions: "'Even with a global recession, American businesses and American workers continue to benefit from expanding opportunities to sell high-value manufactured goods to the China market, the world’s fastest growing economy,' USCBC President John Frisbie said. 'A clear trend that began in 2000 continued in 2009: Exports to China continued to outpace export growth to other global markets,” Frisbie continued. “US exports to China have jumped 330 percent since 2000, compared to 29 percent to the rest of the world.'”

• The Obama administration celebrates CAFTA's 5th birthday by filing a labor complaint against Guatemala.... naturally.  My favorite quote: "In a statement released yesterday by the Guatemalan Ministry for Foreign Affairs, the Central American country expressed surprise at the complaint, and was even more taken aback by Washington’s decision to announce the dispute in such a public fashion. The Ministry’s statement also alluded to Guatemala’s concerns that the complaint could be politically motivated."  Playing politics with US trade policy?  This administration?  Never!

• Leaked: WTO sides with China in dispute over US barriers to chicken imports.  Per Reuters: "A World Trade Organization panel has ruled in favor of China in its dispute with the United States over an effective U.S. ban on imports of Chinese chicken, a Chinese source said on Tuesday. The WTO issued a ruling in the poultry dispute to the two parties on Monday, but it remains confidential until it is published in a couple of months time. There was no official comment from Chinese or U.S. authorities. Asked whether China had won the case, the source, who is familiar with the ruling, told Reuters: 'You could say that ... It went well.'"

• Video: Vietnam continues to take market share from China.  Bloomberg: "The communist nation drew 13.5 percent of the Association of Southeast Asian Nations' foreign direct investment pool in 2008, up from 4.4 percent two years earlier, according to the 10-member group."

Australia Investigates US Biofuels Exports: A Sign of Things to Come?

Because of the US-Brazil cotton dispute, the irrationality of American agriculture subsidies and their problems under global trade rules have been in the spotlight a good bit lately.  But now that the dispute has been "resolved" (for now), it seemed that - much to the pleasure of US agribusiness and their congressional patrons - things would be quieting down on the ag-subsidy/trade front.  Well, recent news out of Australia could thwart those plans and make for a rougher-than-expected summer, as Law360 explains:

The Australian government has decided to probe allegations that U.S. companies are dumping biodiesel in the country and benefiting from subsidies, a year after the European Union imposed anti-dumping duties on U.S. biodiesel producers including Archer Daniels Midland Co. and Cargill Inc.

The Australian Customs and Border Protection Service said in a report Monday that it was investigating a complaint by a domestic company, Biodiesel Producers Ltd., that biofuel from the U.S. had been exported to the country at dumped prices.

According to the report, Customs believes there are reasonable ground to support the claim that U.S. biodiesel is being dumped in Australia and that the U.S. industry is receiving countervailable subsidies.

There also appear to be reasonable grounds to support the claim that the dumping and subsidies have injured the Australian market by causing lost sales and market share, price undercutting, and loss of employees, Customs said.

The report estimated the dumping margins for U.S. biodiesel at 38 percent in January 2009 and 26 percent in February 2010.

It also described tax credits available to U.S. biodiesel producers as countervailable subsidies, which amounted to 40 percent of the estimated export price.

Customs wrote to the U.S. government about the allegations on June 7, but did not get a response, according to the agency....

Customs will now conduct a formal investigation and decide whether to recommend that the Australian government impose anti-dumping and countervailing duties on the U.S. products. The minister for home affairs has the final authority to impose the duties.

In July, the EU imposed five-year anti-dumping and countervailing duties on imports of biodiesel from the U.S....

The tariffs counter an American subsidy of $1 per biodiesel-gallon to producers of blended biodiesels. U.S. exporters commonly export biodiesel in a B99 blend — 99 percent biodiesel and 1 percent petroleum diesel — in order to take full advantage of the subsidy, according to the EC.

These subsidies allow biodiesel companies to capture a 17.2 percent share in the European market, compared with 0.4 percent in 2005, at the expense of European producers, according to the commission.

ADM was hit with countervailing duties of €237 a ton and an anti-dumping duty of €68.60 a ton, while Cargill was given anti-dumping duties of €213.80 a ton and an anti-dumping levy of zero.

As the article makes clear, this is the second trade action against American biofuels exports, and if the EU case is any guide, an Aussie finding that the US illegally subsidizes biofuels exports appears pretty likely.  (They still have to prove injury or threat of injury before imposing remedial tariffs on those products, of course, but that's entirely case-specific so we can't really speculate about it.)  So with two trade investigations of American biofuels exports, you'd think that the Obama administration and Congress might begin to recalibrate US biofuel policies - particularly when those policies have come under intense scrutiny for a lot of other non-trade reasons (like the fact that corn ethanol is really inefficient and might actually harm the environment).

Well, folks, think again:

June 23, 2010 - Agriculture Secretary Tom Vilsack today released a report outlining both the current state of renewable transportation fuels efforts in America and a plan to develop regional strategies to increase the production, marketing and distribution of biofuels. The report provides information on current production and consumption capacities as well as projections to meet the Renwewable Fuels Standard (RFS2) mandate to use 36 billion gallons of biofuel per year in America's fuel supply by 2022.

"The Obama Administration has made domestic production of renewable energy a national priority because it will create jobs, combat global warming, reduce fossil fuel dependence and lay a strong foundation for a strong 21st Century rural economy, and I am confident that we can meet the threshold of producing 36 billion gallons of biofuel annually by 2022," Vilsack said. "The current ethanol industry provides a solid foundation to build upon and reach the 36 billion gallon goal. As we prepare to celebrate Independence Day, we must reaffirm our commitment to bring our country closer to complete energy independence and this report provides a roadmap to achieve that goal."...

The report provides data on the significant impact the ethanol industry will have on job creation. It is estimated that as many as 40 direct jobs and additional indirect jobs are created with each 100-million-gallon ethanol facility built. USDA plans to adopt regional strategies that allow the placement of biorefineries in areas of economic distress through the leveraging of regional resources for transportation, labor and feedstocks. The regional strategy provides greater potential for economic benefit.

Yes, you read that correctly.  Instead of reevaluating problematic US biofuels policies, the Obama administration is doubling-down.  And in case you're wondering, USDA's new report (available here) - while chock-full of discussion about the need for existing and planned "incentives" (read: subsidies) for corn ethanol and other biofuels - completely fails to mention the potential for trade infractions and the significant duties on US exports that they can produce.  Yep, nary a mention of those EU tariffs, the new Australian investigation, or other possible trade cases.  Such non-reporting is particularly, umm, interesting, considering the administration's single-minded obsession with expanding US exports as part of its National Export Initiative.

Odd that they wouldn't mention that, huh?

Now, the administration's selective memory aside, all of this news raises broader and more important questions - ones that I've raised in the past - about the future of US biofuels subsidies, as well as other "green energy" policies that could produce similar trade frictions, particularly now that the President is determined to double US exports by 2015 under NEI.  For example, consider this story from today's Wall Street Journal:

Through the Department of Energy, [the US government]'s guaranteeing loans to clean-energy companies. But the loan program's success depends on the viability of firms involved. And a closer look at two big recipients reveals some of the risks in store for taxpayers.

First, take Solyndra, which makes solar-energy panels for commercial rooftops, and has a $535 million government-guaranteed loan. Solyndra's chief selling point is its cylindrical panel-design, which is said to reduce installation costs for users. However, there is no shortage of solar-panel manufacturers, and the prices of flat polysilicon panels have already plunged, boosting their affordability.

There are doubts about Solyndra itself. Despite the cheap government loan, Solyndra last week withdrew plans to do a $300 million initial public offering. It decided instead to sell $175 million of debt to existing investors. The IPO cancellation wasn't unexpected. In its IPO registration, Solyndra's auditor said that the company's weak financial performance raised "substantial doubt about its ability to continue as a going concern."

What is more, Solyndra has applied for a second government-backed loan, of $469 million, to help expand its manufacturing capacity. The company said that, if it doesn't get the second loan, it intended to raise financing from other sources that included the now-cancelled IPO....

Next, consider electric car maker Tesla Motors, which has a $465 million government-backed loan and is expected to do an IPO at the end of this month. The company will stop producing the vehicle it became known for, the Roadster sports car, and focus instead on a premium sedan called the Model-S. This car's selling point is that, according to Tesla, it will be able to travel up to 300 miles per-charge-a far higher "range" than other manufacturers are claiming for their electric cars. Tesla says it hasn't actually based its range projections on a working Model-S prototype but on internal computer models. And, according to its IPO filing, potential new government testing standards could result in a 30% cut to Tesla vehicles' advertised ranges.

Leaving aside the absurdity of a flat-broke nation subsidizing sketchy firms with borrowed money, stories like this have "future trade problem" written all over them.  You see, cheap government loans to struggling domestic companies are a common example of an illegal (or "countervailable") subsidy under global trade rules.  And, if Solyndra and Tesla survive (a big "if" from the looks of it), their exports to other nations that produce similar solar panels/electric cars would be very vulnerable to national trade remedies cases, just like those EU and Aussie cases against US biofuels.   And if those cases result in new tariffs and copycat cases in other markets (a very common occurrence), these companies will lose precious foreign market share and, in some cases, could even go bankrupt entirely unless alternative markets quickly materialize. Big problem.

The US is simultaneously (i) throwing billions of tax dollars at companies like ADM, Cargill, Solyndra and Tesla through various agriculture and energy programs and (ii) pushing these companies' exports through the NEI.  As I mentioned months ago, such a combination is a recipe for trade frictions and maybe even a bunch of new investigations of - and eventual tariffs on - US agricultural and "green energy" exports.  So is the Australian biofuels case, and the EU one before it, a harbinger of bad things to come or just isolated instances caused by unique market conditions?

Only time will tell, but if I had to bet on it, my money'd be on the former.

Chart of the Day: US Exports to China, Then and Now

From the Council on Foreign Relations comes this eye-opener:

There are a lot of things that can be inferred from these charts, but for now, I'll just throw one thing out there: it's probably rather difficult for a country whose manufacturing sector specializes in capital-intensive, high-tech goods (like aircraft, satellites, supercomputers, etc.) to really penetrate a certain foreign market when that country prohibits (rightly or wrongly) its exporters from selling many such goods there.

Wednesday Quick Hits

There's been a flurry of noteworthy activity over the last couple days, so let's get right to it:

• Spreading your and my wealth to the world's cotton farmers.  As I noted a week ago, the United States avoided about $830 million in Brazilian trade sanctions by giving Brazil's cotton farmers about $150 million in annual hush money"technical assistance," instead of just eliminating the WTO-illegal US cotton subsidy programs that caused the whole mess in the first place.  Well, apparently USTR wasn't content with bribingsubsidizing only Brazilian farmers because it announced today that this slush fund can also provide US taxpayer money to farmers in Africa, Haiti, and, well, everywhere else.  So instead of reforming our own bloated ($2.8 billion/year), trade-distorting and WTO-inconsistent farm subsidies, we've decided to just subsidize everyone on the planet.  Problem solved!  Final note: Inside US Trade reports that Brazilian retaliation levels will balloon to more than $1 billion later this year, based on 2009 US subsidy amounts and the standard WTO calculation methodology.  Oh, goody.

• And speaking of Brazil and awful American subsidies....  BNA reports (subscription) today that Sens. Chuck Grassley (R-IA) and Kent Conrad (D-ND) introduced new legislation (S. 3231) to extend through 2015 a whole host of ethanol subsidies (volumetric ethanol excise tax credit, or the blenders' credit; the small ethanol producers tax credit; the cellulosic producers tax credit) and the 54-cent-per-gallon tariff on imported ethanol.  NRO's Kevin Williamson sums up this awesome subsidy/tariff combo best: "Ethanol users are paying a tax penalty to provide a tax break to ethanol producers.  How does that make sense, if using ethanol is a good and worthwhile thing that we want to encourage?  It does not make sense.  Government logic: Ethanol is so important, so green, and so wonderfully job-creating, that we have to give it enormous tax subsidies to maximize the benefits of using it.  And it is so very important… that we have to use punitive import tariffs to keep Americans from maximizing the benefits of using it, if the profits are not captured by our political constituents."  Nice.  The only thing Kevin leaves out, however, is that Brazilian producers of low-cost, cleaner-burning sugar ethanol are howling mad at this development, and justifiably so.  First, as I mentioned a while ago, new US renewable energy standards had given sugar ethanol preferred status in the US biofuels market, something Brazilian producers were very excited about.  Second, Brazil earlier this month announced the elimination of its own tariff on imported ethanol as a good faith sign of support for free global trade in biofuels.  So in one fell swoop, the Grassley/Conrad tariff destroys the benefits of point 1 and spits in the face of point 2.  Classy.

• Senators Schumer and Graham were, unsurprisingly, unavailable for comment.  The US-China Business Council released today its annual report on US exports to China, broken down by state.  The USCBC press release notes that 19 states exported over a billion dollars in American products in 2009, and that "China is the third-largest US export market, after Canada and Mexico, with $69.6 billion in sales during 2009, down just 0.2 percent over 2008--by far the best record for a major US export market in 2009.  US exports to the rest of the world combined fell nearly 20 percent in 2009."  Cato's Dan Griswold adds, "The USCBC figures tend to undercut complaints that China’s currency policies have stymied U.S. exports to that country.  In fact... since 2005, U.S. exports to China have been growing three times faster than our exports to the rest of the world."  I'd only add that, according to the USCBC study, New York (home to Sen. Chuck Schumer) exported $2.44 billion to China in 2009, second highest ever, and South Carolina (home state of Sen. Lindsay Graham) exported $869 million in the same year, the most ever for that state.  No wonder these guys want to start a trade war with China!  Oh, wait....

• Great news!  US international labor negotiations will be run by long-time AFL-CIO director!  Wait, what?  The Hill reports (emphasis mine) that "Cathy Feingold has been named by the AFL-CIO as its new director of international affairs, beginning June 1.  She follows Barbara Shailor, who is headed to the State Department to serve as special representative for international labor affairs."  Some of Shailor's past work can be seen here and here.  As you can see, she'll be an unbiased American advocate for free trade, economic growth and global development.  Or not.  (More on the new American approach to trade and labor standards is available here.)

• And finally, a Cotton/Farm subsidy palette cleanser to make you feel a tiny bit better about America.   Just so you leave here tonight with the warm-fuzzy knowledge that not everyone on Capitol Hill is willing to disregard global trade rules because he/she's in the bag for American agribusiness, I give you this great video of Rep. Jeff Flake (R-AZ) (h/t Andy Roth):
  
  
  
  See?  They're not all bad... and Jeff Flake's definitely one of the good ones.

That's all for tonight, folks.

Expanding US Exports, One Frequent Flyer Mile at a Time

President Obama broke out his teleprompters today and delivered remarks before the Export-Import Bank on the administration's big National Export Initiative.

It was utterly uneventful.

The text of Obama's remarks is available here, and it's the same old NEI story:

• Trying to double exports in five short years through the impotent triumvirate of export promotion, Ex-Im Bank funding and increased enforcement actions (hooray more bureaucrats!);

• Trying to sell free trade through self-defeating mercantilism;

• Completely ignoring the importance of imports for US manufacturers and consumers (and, sigh, even denigrating them as mere "cheap televisions" and manufacturing-job-killers);

• Re-starting the private-sector "President's Export Council" and creating the public-sector "Export Promotion Cabinet" (hooray new decisionmaking layers!);

• Not promising to submit implementing legislation in 2010 on pending US FTAs with Colombia, South Korea and Panama; 

• Not promising to resolve outstanding bilateral (Mexican trucks, Buy American, etc.) and multilateral/WTO (Brazil - cotton subsidies, Zeroing, etc.) trade disputes, thus costing US exporters billions of dollars in extra tariffs and lost sales;  

• Not promising to advance the WTO's Doha Round by submitting an aggressive US agenda or, at a bare minimum, affirming the United States' 2008 negotiating offers (despite myriad pleas from our trading partners); and

• Not introducing any proven measures - like a cut in America's absurdly high corporate tax rate or the elimination of domestic tariffs on industrial machinery and inputs (see, e.g., the UK or Canada) - to enhance US companies' global competitiveness.

But hey, today's speech wasn't a total waste of time for those in attendance, as the President did announce one new thing:

We’re also announcing more than 40 trade and reverse trade missions that are scheduled for this year.  The Department of Commerce, for example, has sent a trade mission to India this week; Secretary Vilsack is off to Japan on April 15th.  So advocacy is going to be critical.

Vilsack!  Locke!  Trade missions!  We're saved*!!


*Ed. note: "saved" may or may not actually mean "screwed."

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.)