Just as Predicted: EU Announces Anti-Subsidy Investigation of US Ethanol Exports

Things just got a little more interesting on the ethanol - and "green" subsidies - front:

The association which represents European ethanol producers is requesting that the European Commission take action “against unfair imports of fuel ethanol from the United States.”

ePure claims that U.S. ethanol policy has encouraged production to the point that it can be sold at much lower prices on the world market. “Massive and sudden imports of US ethanol, combined with unfairly low prices over the last few years, have seriously damaged the economic situation of European producers” said ePure Secretary-General Rob Vierhout. “The unfair competition of US imports is simply depriving the EU industry from the benefit of this positive evolution on its own domestic market.”

According to the Renewable Fuels Association, ePure is specifically alleging that international ethanol traders were exporting E90 (90 percent ethanol blends) to Europe to take advantage of the European Union’s (EU) lower tariff on such blends as well as the $0.45 per gallon tax credit (VEETC) for ethanol blending in the U.S...

RFA says U.S. ethanol “remains the lowest cost, most cost effective ethanol in the market today. This fact has led to a surge in U.S. ethanol exports to Brazil, Europe, Asia, and the Middle East.”

The U.S. has become a net exporter of ethanol since the beginning of 2009 and exports continue to increase at a rapid pace. The latest reported figures for August from the Energy Information Administration showed 456,000 gallons of imports versus export demand of 52.3 million gallons. Through August, net exports are running at about 15.2 million barrels and are on pace to be double last year.

The whole ePure press release is available here, and the EU today acknowledged that it had received and will investigate ePure's allegations.  And for those of you who are surprised by this development, here's what your humble correspondent predicted almost a year ago when Congress announced a one-year extension of a whole host of "green" subsidies:

Although I'm certainly not a fan of any of these measures, not all of them raise red flags on the trade front. However, several of them do. First, there's the biodiesel "blenders" tax credit, which had expired in 2009 and will be extended through 2011 (with retroactive application through all of 2010). As you'll recall, this bit of green pork has already resulted in the EU's imposition of countervailing duties (CVDs) on US biodiesel exports and a pending copycat investigation in Australia. And according to the WSJ, the EU is investigating allegations by its domestic biodiesel industry that US exporters are trying to circumvent the CVD order by trans-shipping their products through third countries. When the tax credit expired, the CVD order was thought to also be on the outs, but now, well, we get more tariffs and trade frictions with the EU, the likely imposition of Australian tariffs, and the potential for other countries to copy the European case, as all that subsidized US biodiesel is inevitably overproduced and diverted to other foreign markets. Nice.

Speaking of overproduction and foreign market saturation, next up is probably the rottenest piece of green pork in the tax deal: ethanol subsidies and tariffs. Over the last few weeks, many folks - including Al Gore himself! - have explained just how awful America's ethanol policies are. They cost a fortune, distort energy markets, increase food prices, encourage cronyism, and actually harm the environment. (Great video on all of these unintended consequences here.) Unmentioned in those analyses, however, is the serious risk that the United States' ethanol measures will result in new trade disputes. First, the ethanol "blender" tax credit is pretty much identical to the biodiesel subsidies that have attracted EU and Australian tariffs, so they're almost certainly eligible for similar CVDs. According to recent stats, the EU is experiencing record imports of US ethanol, and, as the FT helpfully points out, European producers are getting angry...

Ok, let's see. Subsidized product with a history of trade friction: check! Glut in the domestic market and surging exports: check check! Aggrieved domestic industry with experience using domestic trade laws: check! For those of you keeping score at home, that's the ol' trade dispute superfecta.

So you can't say that you weren't warned.  Indeed, a few weeks after I made this kinda-obvious prediction,  China announced its own investigation into a by-product of (allegedly) subsidized US ethanol.  (Have I mentioned how trade remedies cases tend to reproduce in other jurisdictions?)

So now we have further proof of just how rotten our federal ethanol policies are: not only do they "cost a fortune, distort energy markets, increase food prices, encourage cronyism, and actually harm the environment," but they also cause serious trade frictions in major overseas markets.

But other than that....

More Green Failures to Come?

In just how much trouble are highly-subsidized US green energy firms these days?  Well, if recent news and a new report by the Congressional Research Service are any indication, a whole heckuva lot.  Yesterday we learned that another DOE subsidy recipient, Beacon Power, has joined the much-maligned Solyndra in bankruptcy court:

A Massachusetts energy-storage company that received a $43 million Department of Energy loan guarantee has become the second green tech company backed by U.S. government financing to file for bankruptcy court protection in two months.

Beacon Power's filing for Chapter 11 late Sunday comes in the shadow of the collapse of Solyndra, a $535 million DOE loan guarantee winner that left the Obama administration's clean-energy policy vulnerable to Republican criticism. GOP lawmakers have pointed to Solyndra's bankruptcy and dissolution as evidence that the Obama administration's $35.9 billion program to boost investment in green technology was misguided.

News of Beacon, which makes flywheels that manage energy moving through a power grid, follows the White House announcement last week that it was enlisting Herbert Allison, a former Treasury Department official who has worked in Democratic and Republican administrations, to audit the entire loan program.

National Review's Drew Thornley also directs us to a Politico story, noting that another subsidized green company could be next:

An advanced battery manufacturer that was awarded millions in federal stimulus dollars is now in financial hot water and is being closely monitored by the Energy Department.

New York-based Ener1 received a $118.5 million grant to expand its manufacturing operations in Indianapolis, Ind., run by a subsidiary EnerDel, which received a visit from Vice President Joe Biden earlier this year.

But NASDAQ pulled the firm from trading Friday for failing to file its most recent quarterly report on time. Ener1 also let go of its chairman, Charles Gassenheimer, late last month.

Now DOE says it’s watching the company.

“The department is closely monitoring the status of the company,” DOE spokesman Damien LaVera said in an email Monday.

If we're to believe DOE and the Obama administration, all of these awful developments are shockingly unexpected.  Yet according to a new CRS report on solar projects and the DOE Section 1705 loan guarantees program, a more failures could be ahead because, quite simply, solar manufacturing and generation is really risky business (shocking, I know).  Here's BNA (no link, sorry) with a good summary of the report:

Solar panel manufacturers that have received loan guarantees from the Department of Energy will have to contend with the same market risks that contributed to the bankruptcy of California solar panel maker Solyndra LLC, according to an Oct. 25 Congressional Research Service report.

Those risks include declining solar module prices, competition from new and established solar panel manufacturers, and reductions in subsidies and incentives in European and other international markets, the report said.

“The success or failure of each respective project will likely be determined by the ability of each solar manufacturing project to differentiate its product in the solar marketplace, deliver expected cost and performance objectives, and convince buyers to accept some degree of new technology risk,” the report said.

The Department of Energy has awarded loan guarantees totaling $1.28 billion to solar panel manufacturers under a renewable energy loan guarantee program known as the Section 1705 program, according to Solar Projects: DOE Section 1705 Loan Guarantees.

Eighty-two percent of the approximately $16.15 billion in loans guaranteed under the 1705 program have been for solar projects, including nearly$12 billion for solar generation projects, the report said....

According to the report, solar manufacturing projects might be considered more risky than solar generation projects because the latter often include contractual mechanisms, such as power purchase agreements and service agreements, that allow these projects to weather financial risks.

Only one solar power manufacturing project, SoloPower, which received a $197 million loan guarantee, “might” be considered similar to Solyndra, because it uses the same material—copper indium gallium selenide, a semiconductor composed of copper, indium, gallium, and selenium—in its solar panel manufacturing process.

The report ominously concludes, "Whether or not Section 1705 solar projects will succeed is beyond the scope of this report.  However, each Section 1705 solar manufacturing project will have to address the same market dynamics that may have contributed to Solyndra’s bankruptcy."

I dunno about you, but that makes me feel all warm and fuzzy about the future of these companies and the mountains of taxpayer money lavished upon them.

Sigh.

Game On: Highly Subsidized US Solar Panel Industry Preps Anti-Subsidy Case Against China

I wish I could say that this development is in any way surprising, but, well, that's just not true (emphasis mine):

Solar manufacturers including the U.S. unit of SolarWorld AG (SWV) are preparing a trade complaint against imports from China, as they seek help from President Barack Obama to counter subsidies to their competitors, according to people familiar with the matter.

The case, which would be filed at the Department of Commerce and the U.S. International Trade Commission in Washington, would be one of the largest targeting China, with political implications as both nations race to develop clean- energy technologies.

The companies argue that China’s subsidies to solar companies violate global trade rules and provide those manufacturers with an unfair advantage, according to the people, who spoke on condition of anonymity because no complaint has yet been filed....

In the first seven months of this year, China shipped $1.4 billion of solar panels to the U.S., more than the $1.2 billion of panels it sent in all of 2010, according to U.S. International Trade Commission data. Imports from South Korea, the Philippines and India also jumped.

The collapse this month of Solyndra LLC, a California maker of solar panels that had $535 million in U.S. loan guarantees, has renewed demands from lawmakers and union leaders that the Obama administration pursue unfair-trade complaints against China for out-sized subsidies to its clean-energy companies.

“The American solar industry is facing unparalleled challenges, and without the leadership of your administration this industry may disappear,” Senator Ron Wyden, an Oregon Democrat, said in a Sept. 8 letter urging Obama to initiate a countervailing duty case against imports from China or to file a case at the World Trade Organization.

China provided $30 billion in credit to its biggest solar manufacturers last year, about 20 times the U.S. effort, Jonathan Silver, executive director of the Energy Department’s loan program, told a congressional panel Sept. 14...

There are two obvious reasons why this news is anything but shocking for anyone who reads this blog:

• First, because many world governments, including the US and China, have spent tons of taxpayer money"invested" heavily in green technology manufacturers and banked on exports as part of their economic recovery strategies, I've long predicted  - and subsequently reported on - an inevitable spike of domestic and multilateral (WTO) trade disputes over illegal subsidies to "green energy" companies.

• Second, a trade dispute was particularly inevitable in the case of solar panels because of (i) the very public struggles of not just the scandal-plagued Solyndra, but also several other domestic solar technology manufacturers and (ii) the very public blame for these failures that domestic unions, manufacturers and the Obama administration have placed on China.  Heck, I (incorrectly) predicted such a dispute just last week.  (Guess I was just a little too psychic... or something.)

That said, the (possible) case is still pretty astonishing for one reason: its blatant chutzpah.  As alluded to above, the US solar industry, including the aforementioned Solyndra, has received BILLIONS of their own subsidies from the US government.  Under the Department of Energy Loan Program alone (which has dispersed a total of $38.6 billion and counting in subsidies), the following solar companies have received buckets of taxpayer money:

• 1366 Technologies, Inc. - Solar Manufacturing - $150 million
• Abengoa Solar, Inc. (Mojave Solar) - Solar Generation - $1.2 billion 
• Abengoa Solar, Inc. (Solana) Solar Generation $1.446 billion
• Abound Solar - Solar Manufacturing - $400 million 
• Agua Caliente - Solar Generation - $967 million 
• BrightSource Energy, Inc. - Solar Generation - $1.6 billion
• Cogentrix of Alamosa, LLC  - Solar Generation - $90.6 million 
• First Solar, Inc. (Antelope)- Solar Generation - $680 million 
• First Solar, Inc. (Desert Sunlight) - Solar Generation - partial guarantee of $1.88 billion 
• First Solar, Inc. (Topaz) - Solar Generation - partial guarantee of $1.93 billion
• Fotowatio Renewable Ventures, Inc. - Solar Generation - partial guarantee of $45.6 million
• Mesquite Solar 1, LLC (Sempra Mesquite) - Solar Generation - $337 million
• NextEra Energy Resources, LLC (Genesis Solar) - Solar Generation - partial guarantee of $852 million
• Prologis (Project Amp) - Solar Generation - partial guarantee of $1.4 billion
• SolarCity Corporation (SolarStrong) - Solar Generation - partial guarantee of $344 million 
• SolarReserve, LLC (Crescent Dunes) - Solar Generation - $737 million 
• SoloPower - Solar Manufacturing - $197 million 
• Solyndra Inc. - Solar Manufacturing - $535 million 
• SunPower Corporation, Systems (California Valley Solar Ranch) - Solar Generation - $1.187 billion

By my (admittedly lawyer-esque) math, that's about $16 billion in total or partial loan guarantees (read: subsidies) to the solar industry as part of the DOE loan program alone.  I'm not sure where Mr. Silver's getting his numbers, but they definitely seem low (shocking, I know).  And those DOE loans are definitely not the only subsidies out there: according to the United Steelworkers Union's 2010 "Section 301" petition requesting a WTO complaint against China's solar industry subsidies, the United States government had doled out more than $100 billion in subsidies to the US solar industry.  And that was back in 2010, so the number's certainly even higher now.

So, for the direct and indirect recipients of all of this sweet, sweet government cash to turn around and complain about their competitors receiving - yep - sweet, sweet government cash is pretty much the height of hypocrisy.  Or, as I stated back in 2010 regarding the USW complaint:

Obvious translation [of the union complaint]: Sure American manufacturers received $100 billion worth of green subsidies in order to crush their foreign competitors, but China's producers received lots more, and theirs have been far more effective! No fair! In essence, the USW is openly complaining that the Chinese are better cheaters than we are, and the union thus wants the US government to call in the WTO's referees in order to stop China's cheating.  Talk about chutzpah.  

Exit question: if USTR ends up filing a WTO dispute on the USW's grounds, does that mean we'll have our first ever official case of "subsidy envy"?

The answer to that cheesy question was clearly "yes," and the solar industry's, ahem, green envy obviously  hasn't subsided since then (nor has my cheesy sense of humor).  And, as the DOE's recent statements make clear, the industry's Blame China strategy appears to have very vocal and eager supporters in certain parts of the Obama administration.  Perfect.

Furthermore, and as if this all weren't sketchy enough, the Bloomberg article points other things that should cause us all to question the solar industry's little ol' Blame China plan.  Most importantly, the article shows that solar imports from other countries are also on the rise, so even if the US industry's new anti-subsidy petition against Chinese is successful, the most likely result - along with, obviously, higher solar panel prices for US consumers - isn't the resurgence of US solar manufacturers but instead the very common "trade diversion" (i.e., a simple shift in imports from China to these other low-cost suppliers).  So we'll all pay more, and no new net jobs will be created.  Sweet.

In a similar vein, the fact that a German-owned company with plants all over the world (and which has just cut 200 jobs in California) is leading the US anti-subsidy charge against only Chinese imports should definitely give us pause.  As Cato's Dan Ikenson has explained repeatedly, US-based companies with major foreign operations have often used US trade remedies actions to cripple their foreign competition and bolster their own import sources, rather than to increase domestic output and employment.  I have no idea if that's what SolarWorld or any other members of the US industry are up to, but it's definitely something to keep in mind.

So to recap: the highly-subsidized and seriously-struggling US solar panel industry - led by a German-owned manufacturer with global sourcing operations - is targeting highly-subsidized Chinese solar panel imports which, along with imports from several other non-targeted countries, have surged in the last few years.

Welcome to the Green Subsidy Game, folks.  Be sure to grab a good seat; the show's just getting started.

Blame China, ctd? (UPDATED)

Reuters reports that USTR circulated a very interesting pre-announcement this afternoon:

U.S. trade officials will announce a major trade enforcement action against China on Tuesday, according to an advisory from the U.S. Trade Representative's office.

The advisory, which was obtained from a business group, said U.S. Trade Representative Ron Kirk "will hold a press conference to announce a major trade enforcement action against China." It gave no other details.

I have no idea what this big "enforcement action" is about, but I have a few guesses and each relates to this recent analysis of what happens when massive government "investments" inevitably go sour:

At this point, we're clearly out of money and the House GOP isn't breaking out the credit card anytime soon, so DOE's implicit calls for more green energy subsidies are almost certainly going to go unheeded (thank goodness).  And with very-public failures like Solyndra putting a very-public spotlight on the Obama administration's green energy money pit, scapegoats are going to be needed.  On green technology, China has clearly become the President's first choice: indeed, the Energy Department has been left to implicitly deride Chinese subsidies instead of openly praising the significant proliferation in "cheap" solar power that's mentioned in its very own press release!  But one must wonder whether, if/when several other of President Obama's green poster children go belly up, will the "China blame game" be enough to salvage the President's political prospects? Or will protectionism - and an inevitable confrontation with one of America's largest trading partners - be the administration's next move?

I don't know the answer to these questions; nobody does. But last sentence of the DOE release [on Solyndra's bankruptcy] could be a warning as to which way the Obama administration is leaning: "While we are disappointed by this outcome, we continue to believe the clean energy jobs race is one that America can, must and will win."

Shudder to think how they'll try to rig the game to ensure that "victory."

Reuters has more speculation, most of it along the same lines as I laid out:

One possible action could target China's export restrictions on rare earths, which are crucial for global electronics production and the defense and renewable energy industries.

They are also used in a wide range of consumer products from iPhones to electric car motors. The United States, the European Union and Mexico recently won a case against China for similar restrictions on exports of raw materials used in steel and other industrial products. China appealed that decision and a final ruling is still months away.

In recent weeks, Democrats have raised alarm about Chinese solar panel subsidies that they said are driving U.S. producers out of business. They also hae pressed Kirk's office to investigate charges China is pressing GM to turn over technologies for its electric car, the Chevrolet Volt, in order for it to qualify for generous Chinese government subsidies to encourage consumers to buy it.

Many Democrats also have long complained about China's currency practices and have urged the U.S. Trade Representative's office to bring a case. Republican presidential candidate Mitt Romney recently criticized President Barack Obama for not doing more to push China to raise the value of its yuan against the dollar.

A currency case would be a major departure for the Obama administration after refusing to formally label China as a "currency manipulator" in a Treasury Department report.

So could the Obama administration's formal "Blame China" strategy be starting tomorrow morning?  (If it ends up being a currency case, all I can say is "Thanks, Mitt.")

Stay tuned.

UPDATE: They really needed a mysterious "pre-announcement" for this?  Really?

Sept. 20 (Bloomberg) -- The U.S. will file a complaint with the World Trade Organization today against anti-dumping duties imposed by China on chicken imports, according to a congressional aide and a second person familiar with the matter.

Now I feel silly for even mentioning it.  Sorry, folks.

The Circle of (Government) Life

This is... just perfect:

Ex-employees of the failed solar panel company Solyndra have applied for aid under the federal government’s Trade Adjustment Assistance program, the Labor Department has confirmed.

If approved, the employees of what was once touted as a leading exemplar of the White House’s green jobs program will be eligible for more federal funds to enable them to be retrained for other jobs.

It would be an ironic coda to the saga of Solyndra, which manufactured solar panels and received $527 million in loan guarantees from the Energy Department and praise from President Obama during visits to the firm’s California headquarters.

Now those green workers will be seeking the government’s help to find work again and not necessarily in the conservation jobs sector.A source at the department confirmed the request for assistance was received on Sept. 2, just two days after the company filed bankruptcy, placing all 1,100 employees out of work....

The company’s failure was based in part on competition from China, which has been able to produce the panels at a far lower cost than U.S. manufacturers.The request was made by a representative of the 1,100 ex-employees and covers all of them. The department estimates the aid will cost $13,000 per worker for the coming year.

The TAA program offers help to domestic workers who have lost their jobs due to the trade practices of foreign countries. The assistance includes job retraining, allowances for job searching, health benefits and up to 130 weeks of income support.

So to recap: massive government subsidies created 1,100 "green jobs" that never would've existed but for those massive government subsidies.  And when those fake jobs disappeared because the subsidized employer-company inevitably couldn't compete in the market, the dislocated workers blamed China (instead of what's easily one of the worst business plans ever drafted) in order to receive... wait for it... more government subsidies.

Behold, the Circle of Government Life.

(h/t Mark Perry)

The Rapid Descent from State Capitalism to Protectionism

Solyndra, the poster-child for President Obama's big plans to magically convert the American economy into a "green technology" powerhouse through massive government subsidies, declared bankruptcy today.  As I've noted repeatedly here, Solyndra received a $535 million federal loan guarantee from the Department of Energy but has faced serious financial problems for over a year, so its failure is hardly surprising (unless, of course, you think that Presidential pep-talks can save a struggling business).  What's also not surprising - at least for the 12 people who read this blog regularly - is the administration's highly troubling response to Solyndra's announcement, one which perfectly demonstrates how "state capitalism" breeds economic nationalism and, in many cases, protectionism (emphasis mine):

Since 2009, the Department of Energy’s Loan Program has supported a robust, diverse portfolio of more than 40 projects that are investing in pioneering companies as we work to regain American leadership in the global race for clean energy jobs. These projects include the world’s largest wind farm, several of the world’s largest solar generation facilities, one of the country’s first commercial-scale cellulosic ethanol plants, and the first new nuclear power plant in the U.S. in the last three decades. Collectively, the projects plan to employ more than 60,000 Americans, create tens of thousands of indirect jobs, provide clean electricity to power three million homes, and save more than 300 million gallons of gasoline a year.

Our loan program catalyzes American innovation and private sector investment behind promising companies -- so that American workers have a chance to compete against China and other countries that much more heavily subsidize clean energy companies. While each transaction undergoes months of extensive and careful expert review to minimize risk, there will always be an element of risk with investments in the most innovative companies. The alternative is simply walking off the field and letting the rest of the world pass us by.

Solar panel manufacturing is a growing international market, with increasingly intense competition from Chinese manufacturers who are supported in many cases by interest free government financing that is much more generous than what the U.S. provides. The price for solar cells has fallen 42 percent since the beginning of the year -- even as European countries, currently the largest market for solar panels, are facing economic turmoil and have greatly reduced subsidies for solar power. The changing economics have affected a number of solar manufacturers in recent months, including unfortunately, Solyndra, a once very promising company that has increased its sales revenue by 2000 percent in three years and sold more than 1000 installations in 20 countries. As a result, Solyndra now plans to suspend its manufacturing operations and file for bankruptcy protection.

Now, leaving aside the bizarre fact that the US Department of Energy has apparently now become an investment bank and jobs program, what the bolded passages above make clear is that the Obama administration is blaming China, not DOE's bad investment decisions or the clear inability of solar power to survive without federal assistance, for Solyndra's failure.  No, it's China and its "heavily subsidized" companies who receive "interest free government financing" that caused Solyndra to collapse, so angry American taxpayers should direct their ire at the Chinese and their subsidies, not the Obama administration (and, umm, its subsidies), for Solyndra's demise and the flushing of millions of taxpayer dollars down the collective (pun intended) toilet.  It's also that dastardly China who threatens "American leadership in the global race for clean energy jobs" and "projects [that] plan to employ more than 60,000 Americans... [and] create tens of thousands of indirect jobs."  (Yes, "other countries" were also noted, but none by name, so let's not be naive here; the target is clear.)

Such a response is not only kinda pathetic (DOE also fingered the Bush administration and Congress), but also highly troubling because it could easily stoke nationalist and protectionist sentiment in government and the general public.  Indeed, by shifting the political blame to China, the press release seems intended to do just that (and, of course, to argue that future green "success" just requires bigger truckloads of borrowed taxpayer money).  But as disturbing as DOE's statement is, not a word of it should be surprising because economic nationalism and (sometimes) outright protectionism are the inevitable outcomes of state capitalism.  Indeed, I warned of this very thing just a few months ago when commenting on an op-ed by economist Art Carden on government "investment" and the President's call to "win the future":

Carden's explanation of the pernicious side effects of government "investment" deserves further discussion. He does a great job laying out how special interests inevitably distort government investment plans, but I think he glosses over perhaps the bigger problem with state meddling in the private sector: it breeds economic nationalism.

As Carden rightly notes, government "investors" (i.e., elected officials subsidizing commercial enterprises with your and my tax dollars) respond to political, rather than market, incentives and can easily throw more money (again, our tax dollars) at a project regardless of the economic return on that investment. In short, as long as the political returns - be they votes or campaign contributions - remain high, then the government investor has an incentive to keep on investing. It's this troubling dynamic that has given us more than three decades of government "investment" boondoggles in corn ethanol and other "green" technologies. (To see just how long we've sucked at "investing" in environmental technologies, Google "carter synfuels" some time.)

At some point, however, the money does run out, and that's where things can get really scary. As we've learned during the current state and federal budget crises, government funds aren't truly unlimited (thank goodness). But, even though the state/federal coffers are dry(er), the political incentives remain equally strong - government investors still have a serious political stake (read: re-election) in seeing their investments be successful. Without a limitless supply of money to throw at a politician's chosen company/industry, he will almost inevitably seek other means to ensure the political returns on his "investments." And, unlike private investors, he has at his fingertips the full force of the government to improve his investments' prospects should things go sour.

Of course, when it comes to government "investment," things almost always go sour (see above).
So not only do we get bajillions of tax dollars thrown down the toilet for government projects captured by special interest lobbying, but we also get a healthy dose of government coercion to tilt the playing field in those projects' favor. Sometimes, this coercion rears its head through top-down usage mandates like the gas/ethanol mix. More often, it appears in the form of economic nationalism - particularly trade protectionism - because in today's global economy eliminating foreign competition is one of the easiest ways to improve your investment's chances. (See, e.g., the current tariff on sugar ethanol.) Of course, when a government official can't do that, she can at least blame the foreigners for the failure of her blessed programs and convince the public that "free trade," not her programs, caused all of their economic ills.

And that brings us back to the troubling protectionist implications of the President's repeated calls for more government "investment" during the SOTU...

So if/when President Obama's "investments" in green technology and other industries fail (as they probably will), and when the federal budget (and House Republicans) simply can't tolerate even more money being thrown at these failed investments, where will he turn? Will he cut his losses and admit failure? Will he force Americans to buy/use these failed products regardless of their economic (and environmental) value? Or will he blame the country's "adversaries" (i.e., foreign competition) and attempt to erect trade barriers?

According to the [Michigan ex-Governor Jennifer] "Granholm model," it'll be the last option, and, really, we shouldn't be surprised if/when that happens. I mean, it's the natural result of an economic model based on national "competitiveness" and government "investment," now isn't it?

Sounds familiar, doesn't it?

At this point, we're clearly out of money and the House GOP isn't breaking out the credit card anytime soon, so DOE's implicit calls for more green energy subsidies are almost certainly going to go unheeded (thank goodness).   And with very-public failures like Solyndra putting a very-public spotlight on the Obama administration's green energy money pit, scapegoats are going to be needed.  On green technology, China has clearly become the President's first choice: indeed, the Energy Department has been left to implicitly deride Chinese subsidies instead of openly praising the significant proliferation in "cheap" solar power that's mentioned in its very own press release!  But one must wonder whether, if/when several other of President Obama's green poster children go belly up, will the "China blame game" be enough to salvage the President's political prospects?  Or will protectionism - and an inevitable confrontation with one of America's largest trading partners - be the administration's next move?

I don't know the answer to these questions; nobody does.  But last sentence of the DOE release could be a warning as to which way the Obama administration is leaning: "While we are disappointed by this outcome, we continue to believe the clean energy jobs race is one that America can, must and will win."

Shudder to think how they'll try to rig the game to ensure that "victory."

EU Joins the "Green Litigation" Party

In early 2010, your humble correspondent began warning of an inevitable rise in trade disputes over "green" subsidies.  Since that time, several cases have popped up, and yesterday the EU announced that it wanted in on the fun:

The European Union has decided to request WTO consultations with Canada regarding the renewable energy policy of one of its provinces, Ontario, which provides subsidies to producers of renewable energy provided they use domestic technology. This is in clear breach of the WTO rules that prohibit linking subsidies to the use of domestic products.

The European Union leads the world in the promotion and development of renewable energies, and welcomes the commitment of Ontario to encourage their use. However, the promotion of renewable energies must be done in a manner consistent with international trade rules. The EU believes that the Ontario Green Energy and Economy Act (OGEA) is inconsistent with Canada's WTO obligations. Under the WTO, it is illegal to condition access to a subsidy to the use of domestic products.

The Ontario Green Energy and Economy Act (OGEA) empowers the Ontario Power Authority (OPA) to develop programmes to encourage the use of renewable energy. Under this regime, the OPA has developed a feed-in-tariff (FIT) programme that allows it to buy renewable energy at an above market price. This is a subsidy. In order to benefit from this incentive programme, the OPA has set conditions that favour domestic products and services. As an example, for solar energy 40-50% of the initial costs to develop a project must be made of up products or services from Ontario, rising to 60% for projects developed after 2011; for wind energy these rates amount to 25% for the initial costs, rising to 50% for projects developed after 2012.

Exports from the EU into Canada in wind power and photovoltaic power generation equipment are significant, ranging from 300 to 600 million € in 2007-2009. These figures could be higher should the local content requirements be removed from the legislation in question. The EU is also increasingly concerned by such measures taken by other trading partners.  Japan has already initiated WTO dispute settlement in respect of Ontario's measures. The EU initially sought a negotiated solution with Canada, but it was not possible to reach such a solution with Canadian authorities.

The WTO announced this new case today.  I've mentioned the Japan-Canada dispute before, and its details are available here on the WTO website.

More to come, I'm sure.

Green Disputes on the WTO's Horizon

Over the last year or so , I've frequently expressed concern about the potential for increasing trade frictions over green protectionism, i.e., anti-trade measures couched in allegedly environmental terms.  ICTSD reports that the WTO will soon adjudicate two new green trade disputes which could have pretty significant ramifications (emphasis mine):

Environmental issues featured prominently in last week’s meeting of the WTO Dispute Settlement Body (DSB), as members deferred Japan’s first request for a panel on the Canadian province of Ontario’s green energy plan, while granting the Ukraine’s request for a panel to adjudicate its dispute with Moldova on discriminatory “environmental charges.”...

Ontario’s feed-in tariff (FIT) programme for renewable energy has been an area of contention between Ottawa and Tokyo since last autumn. Under the FIT programme, Ontario supports the generation of green energy by guaranteeing electricity purchase prices, grid access, and long-term contracts to renewable energy producers thus limiting their risks and supporting needed investments. Around 75 similar programmes are currently in place worldwide.

However, it was not the FIT programme itself but a local content provision within the programme that landed Canada at the WTO. To receive FIT support, renewable energy producers must ensure that a certain percentage of the goods and services used for setting up the facility comes from Ontario. This can be as high as 60 percent. Japan alleges that the measure violates the national treatment provisions of the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIMS).

Tokyo also claims that the local content requirement makes the FIT a “prohibited subsidy,” under the terms of the WTO’s Subsidies and Countervailing Measures (SCM) Agreement....

The Japan Ministry of Economy, Trade and Industry, in a 1 June press release on the dispute, cited concern over the “possible proliferation of such protectionist measures all over the world” as their motivation for seeking the WTO’s assistance on this matter. They noted that their consultations with Canada in October did not provide them with the intended result, given that Canada “raised a local content requirement from 50 percent to 60 percent on 1 January 2011.”...

The DSB established a panel for a dispute between Moldova and Ukraine this Friday; Ukraine had issued its initial panel request on 24 May, which Moldova blocked (see Bridges Weekly, 1 June 2011).

The Ukraine case stems from a 1998 Moldovan law that allows Moldova to apply charges to imports whose use contaminates the environment, in addition to other duties or taxes. The fee ranges from 0.5 to 5 percent of the customs value of those products.

Like the Canada - Renewables case, national treatment also plays a significant role in the Moldova - Environmental Charges dispute. Ukraine alleges that Moldova’s actions are in violation of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994, by not charging the same fees to like domestic products.

Ukraine also claims that Moldova charges importers an environmental fee for plastic or “tetra-pack” packages containing imported goods, without applying the same charge to like domestic goods.

The Ukraine case could provide an indication as to how a WTO panel might resolve a dispute over highly controversial "carbon tariffs," which would in theory apply to imported products based on the carbon-intensity of their production process.  As you'll recall, both the US and EU have flirted with the idea of imposing carbon tariffs as part of their broader climate change mitigation policies, while developing countries like China and India have promised to immediately challenge such measures at the WTO.

Both cases will definitely be worth watching.

Crazy Thought: Maybe, Just Maybe, the Multilateral Trading System Works

One of the more fashionable claims out there right now is that the World Trade Organization (WTO), and the multilateral trading system more generally, is on its last leg.  Critics on the left and right claim that this inevitable demise is due in large part to (i) the embarrassing and economically harmful implosion of the Doha Round negotiations, and (ii) China's refusal to comply with global trade rules and WTO Members' inability to do anything about it.

Yesterday's USTR announcement regarding Chinese wind power subsidies, however, would seem to indicate otherwise.  On both counts.

I've rebutted each of these arguments in previous posts.  On the former, I've noted that, while the Doha Round is certainly a tragic victim of really boneheaded politics, the existing WTO/GATT rules are a great baseline, nations are still itching to join the WTO (for pretty obvious economic reasons), and the global trade body is and will continue to be a uniquely peaceful and (relatively) efficient system of settling global trade disputes.  On the latter complaint, I've pointed out China's recent success in dispute settlement and (relative) willingness to comply with adverse WTO decisions.

And that brings us back to the USTR announcement, which provides further support for my arguments.  Here's Bloomberg with the summary:

China agreed to end hundreds of millions of dollars of subsidies to wind-power manufacturers following a complaint the U.S. filed at the World Trade Organization, the U.S. Trade Representative’s Office said.

China’s Special Fund for Wind Power Manufacturing illegally required aid recipients to use Chinese-made parts, the U.S. said in a case filed in December at the WTO after getting a complaint from the United Steelworkers union. Individual grants were for as much as $22.5 million.

“Subsidies requiring the use of local content are particularly harmful and are expressly prohibited under WTO rules,” U.S. Trade Representative Ron Kirk said today in a statement. “We challenged these subsidies so that American manufacturers can produce wind turbine components here in the United States and sell them in China.”

As you may recall, the US WTO complaint originated from a petition by the US Steelworkers Union under Section 301 of US trade law.  As I noted last year, the USW petition was sure to have some merit given the Chinese government's rampant support for its "green" manufacturers, and the US WTO complaint smartly targeted "prohibited" import substitution subsidies - pretty low hanging fruit in the trade world.

So to recap: the USW filed a petition seeking USTR action (which, by law, had to go through the WTO) against Chinese "green manufacturing" subsidies; USTR reviewed the petition and then filed a WTO complaint against the most trade-distorting (and easily provable) Chinese subsidies targeted by the USW; and, after several weeks of WTO-required bilateral consultations, the Chinese government voluntarily agreed to eliminate the subsidies, to the tune of hundreds of millions of dollars.

Wow.  It's almost like the rules-based trading system works or something.  Weird.

Now, if only we could get USTR to challenge the United States' own trade-distorting green subsidies.  Sigh.

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:

Winning the Energy Future (If, By "Future," You Mean 1980)

This week, President Obama announced his big plan to Win America's Energy Future (seriously).  In his speech announcing the plan, the President explained why it was so necessary:

In an economy that relies so heavily on oil, rising prices at the pump affect everybody -– workers, farmers, truck drivers, restaurant owners, students who are lucky enough to have a car.  Businesses see rising prices at the pump hurt their bottom line. Families feel the pinch when they fill up their tank. And for Americans that are already struggling to get by, a hike in gas prices really makes their lives that much harder. It hurts.

So gas prices are the target, and the President's solution?  Attacking foreign oil:

The United States of America cannot afford to bet our long-term prosperity, our long-term security on a resource that will eventually run out, and even before it runs out will get more and more expensive to extract from the ground. We can’t afford it when the costs to our economy, our country, and our planet are so high. Not when your generation needs us to get this right. It’s time to do what we can to secure our energy future.

And today, I want to announce a new goal, one that is reasonable, one that is achievable, and one that is necessary. When I was elected to this office, America imported 11 million barrels of oil a day. By a little more than a decade from now, we will have cut that by one-third. That is something that we can achieve. (Applause.) We can cut our oil dependence -- we can cut our oil dependence by a third.

Ahh, yes, Energy Independence, the politician's holy grail, white whale and black unicorn all rolled into one smelly package.  As Obama admitted in his speech, pretty much every President since Nixon has futilely chased this mythical beast, but this time, my friends, it's different.  The President's got a Blueprint.  According to the White House blog, this planblueprint focuses on three things: (i) developing and securing America’s energy supplies; (ii) providing consumers with choices to reduce costs and save energy (e.g., mass transit and weatherization); and (iii) innovating our way to a clean energy future (i.e., green energy subsidies).


Now that, folks, is how you win the freakin' future!  (Suck it, China!)

Or not.

You see, upon closer review, the President's big plan is hardly a "winner."  First, there's the fundamental silliness of any domestic energy plan designed to provide American consumers with cheaper, more abundant fuel through "energy independence."  As William Teach over at the Pirate's Cove humorously put it, "With Oil Prices Rising, Obama Looks To….Reduce Imports!"  Exactly.  And Cato's Dan Griswold elaborates:

In a speech today at Georgetown University, President Obama called for a goal of cutting America’s oil imports by one-third within a decade. Like all efforts to wean Americans from big, bad imports, such a policy will mean we will all pay more than we need to for the energy that helps to power our economy....

We Americans benefit tremendously from our relatively free trade in petroleum products. Like all forms of trade, the importation of oil produced abroad allows us to acquire it at a price far lower than we would pay if we had to rely more heavily on domestic oil supplies.

The money we save buying oil more cheaply on global markets allows our whole economy to operate more efficiently. Oil is the ultimate upstream input that virtually all U.S. producers use to make their final products, either in the product itself or for shipping. If U.S. manufacturers and other sectors are forced to pay sharply higher prices for petroleum products because of import restrictions, their final goods will cost more and will be less competitive in global markets. If households are forced to pay more for gasoline and heating oil, consumer will have less to spend on domestic goods and services.

The president talked in the speech about the goal of not being “dependent” on foreign suppliers, but most of our oil imports come from countries that are either friendly or at least not in any way an adversary. According to the U.S. Department of Commerce, one third of our oil imports in 2010 came from our two closest neighbors and NAFTA partners, Canada and Mexico. Another third came from the problematic providers in the Arab Middle East and Venezuela (none from Iran, less than one-third of 1 percent from Libya.) The rest came from places such as Nigeria, Angola, Colombia, Brazil, Russia, Ecuador and Great Britain.

Even if, by the force of government, we could reduce our imports by a third, there is no reason to expect that the reduction would be concentrated in the problematic providers. In fact, oil is generally cheaper to extract in the Middle East, so a blanket reduction would probably tilt our imports away from our friends and toward our real and potential adversaries.

Second, even assuming that energy independence is a worthy goal, the President's three-part plan is one part lip-service and two-parts boondoggle:

• Increased domestic production.  Few, if any, free marketers (and certainly not me) would oppose a US energy plan that sought to rapidly increase domestic oil and gas production.  And considering that a new CRS report shows that the United States is sitting on top of the largest fossil fuel reserves in the world, the easiest thing the US government could to to lower energy prices is to make it easier for private companies to exploit our natural comparative advantages.  Unfortunately, the administration doesn't appear very interested in approving existing requests for domestic oil and gas drilling permits, and it certainly isn't interested in streamlining the process to request and receive such permits.  And they're not even going to talk about drilling in ANWR, dude.  So just drop it.

• Energy efficiency.  Everybody likes conservation and efficiency, but unfortunately, when the federal government tries to mandate it, things rarely (if ever) go well.  Just consider the two cost-saving initiatives mentioned by the White House - mass transit and weatherization.  Each has repeatedly proven to be an absolute, money-burning debacle.  On the former, Cato's Randall O'Toole has ruthlessly documented the utter folly of federal mass transit programs, especially those for this administration's beloved high-speed rail.  Here's a sample of O'Toole's findings: "Since Congress began giving states and cities incentives to take over private transit systems in 1964, worker productivity — the number of transit riders carried per worker — has declined by more than 50 percent; the amount of energy required to carry one bus rider one mile has increased by more than 75 percent; the inflation- adjusted cost per transit trip has nearly tripled, even as fares per trip slightly declined; and, despite hundreds of billions of dollars of subsidies, the number of transit trips per urban resident declined from more than 60 trips per year in 1964 to 45 in 2008."  I don't know about you, but to me those stats just scream "yes, let's pour more borrowed money into federal mass transit programs!"  On weatherization, the Obama administration's previous efforts have proven equally awful.  Just consider Tennessee's very recent audit of its federally-funded weatherization program which found a "laundry list" of problems - involving half of all homes surveyed! - including "everything from work not being done or done incorrectly to work being done by people who were not authorized or properly trained. Auditors also found homes and homeowners who were not eligible for weatherization had work done."  Nice.  Of course, other federal energy efficiency initiatives - like those super-awesome CFL lightbulbs - have gone much, much better.  Oh, wait, nevermind.

• Green energy subsidies.  I've spent a lot of time here documenting the utter folly (and danger) of the federal government's attempts to pick winners and losers in the alternative energy market.  Of course, there's ethanol, the granddaddy of of alternative fuel messes, but it's certainly not alone.  Lots and lots of taxpayer-subsidized alternative energy projects - be they biofuels or wind or solar or geothermal or hyrdo or whatever - have failed over the last few decades (in the US and around the world).  And, of course, when the government's involved, fraud and corruption - or at least the appearance of such nastiness - almost always follow.  According to recent reports by ABC and the Center for Public Integrity, the White House has funneled hundreds of millions of dollars in green energy "loans" to failing US companies that just so happen to be run by big Obama campaign fundraisers.  Blech.

Finally, the President's big plan for winning the future isn't really futuristic at all.  In fact, it's rather boring and archaic.  Every US President since Nixon has pursued "energy independence," and, as I've documented above, the "big plans" in the White House's energy blueprint are as recycled as the paper on which it was undoubtedly printed.  But hey, don't take my word for it.  Just look at these two eerily similar videos - one from President Obama and one from President Carter - announcing their big energy independence plans (h/t Mises Institute):

President Carter's energy plans - which also relied on increased domestic production, conservation and alternative fuels - failed over thirty years ago.  Why should we expect anything different when President Obama tries them now?

Oh, right, we shouldn't.

Monday Quick Hits

The eastern seaboard is clearly under attack from global cooling.  Here are some interesting links to get you through these dark and cold "spring" days.

• Chevy Volt: the car from Atlas Shrugged Motors.

• Sore losers implore the US to take their ball and go home.  I like to call this the "Cartman strategy."

• New 2004 UCLA study: FDR's statist policies prolonged the Great Depression by seven(!) years.

• Sarah Palin advocates import liberalization in India, further solidifying her free trade bona fides: "[I]n the early 1990′s, due to clear, commonsense, pro free-market reforms, India’s economy took off! [It] abolished import licenses; cut import duties; removed investment caps & broke the union’s grip on industry."

• The United States has the most progressive tax system in the industrialized world.  Key graf: "[T]he top 10 percent of households in the U.S. pays 45.1 percent of all income taxes (both personal income and payroll taxes combined) in the country. Italy is the only other country in which the top 10 percent of households pays more than 40 percent of the income tax burden (42.2%). Meanwhile, the average tax burden for the top decile of households in OECD countries is 31.6 percent."

• A fascinating study (and a related WSJ op-ed) from the UK think tank Policy Exchange on the impact of global trade on the effectiveness (or, more accurately, the impotence) of the EU's climate change regulations has me wondering whether our policymakers will (i) learn the right lesson from the EU's experience - and the one advocated by Policy Exchange ("to accelerate the development of technologies that will be genuinely competitive with fossil fuels" rather than "browbeat[ing] developing countries into going green") or (ii) use the study to justify their calls for eco-protectionism.  I'm hoping the former but cynically expecting the latter.

• US steelmaking giant Nucor recently broke ground on a new iron making facility in Louisiana that would employ hundreds.  The same site is also permitted for another iron facility, and many are guessing that a steel mill will also show up down there in the next few years.  Oddly, ABC News isn't doing a week's worth of news stories on the Nucor plant(s) or any of the many other industrial expansion efforts across the country.

• Why won't Sen. Sherrod Brown (D-OH) debate GMU's Don Boudreaux on the merits of free trade?  (Yes, that's a rhetorical question.  *cluck cluck*)

• Cato's Dan Griswold points out that the easiest way to decrease American income inequality appears to be destroying the US economy.  (Obvious response: Shh, dude, don't give anyone any bright ideas.)

• So much for the silly myth of "McJobs" in the service industry.  According to this handy primer from the National Retail Federation, the import-dependent retail industry in 2009 employed 330,000 managers who earned an average annual salary of $91,650.  And there are another 300,000 or so well-paid folks in other positions.  (This isn't new, but it's worth mentioning here anyway.)

• Finally, Jonah Goldberg at AEI points us to an awesome video from Hans Rosling about the amazing improvements in global wealth and health over the last few decades.  All of it is cool and worth watching, but for our purposes, the most relevant point is around the 10:00 mark when Rosling unequivocally credits the dramatic, disproportionate (relative to other African nations) improvement of Mauritius on the country's embrace of free trade.

 Enjoy!

Tuesday Quick Hits

Here are several headlines that are well worth your time:

• So the US and Mexico have apparently resolved their cross-border trucking dispute.  By my math, it only took the President two years - and many millions of dollars worth of needless tariffs on US exports - to "end" (only half the tariffs were immediately lifted) the dispute, and his big "solution" actually appears to be worse (i.e., more trade-limiting) than the program his party unlawfully eliminated back in 2009.  In that way this new "fix" is just like the President's solution to the US-Korea FTA - long delays, tons of lost export opportunities, and a worse agreement than the one his predecessor negotiated many years prior.  (Hey, are we seeing the emergence of an "Obama doctrine" on trade?)

• Simon Lester absolutely dismantles the latest trade-skeptical piece from Princeton's Uwe Reinhardt, which bizarrely characterizes the free trader's view of the world as "a giant cattle farm to be managed in ways that maximize the collective weight of the cattle."   Lester also gets in a good shot on everyone's favorite protectionist punching bag, Ian Fletcher.

• Speaking of Fletcher, Cafe Hayek's Don Boudreaux pens yet another devastating-yet-simple criticism of Flether's latest protectionist screed (be sure to read Don's enlightening follow-ups in the comments section);  AEI's Mark Perry follows-up by pointing out the basic economic ignorance of protectionism.  (I'd also note the utter insanity of Fletcher's assertion that mainstream media journalists "are well-paid and 'lean right' on trade."  Umm, WHAT?)

• Cato's Sallie James heartily fisks Sen. Sessions' silly press release extolling his new legislative "fix" to the GSP program.  I'd only add that, according to the his presser, Sessions is apparently proud to be aligned with this guy on the GSP issue.  (Err, congrats, Senator.  Way to think that one through.)

• Mark Perry highlights a fascinating study on the changing dynamics of the American and Chinese manufacturing sectors, and the fact that "some manufacturing is being brought back to the U.S. from China, especially for smaller American firms, because of: a) rising labor costs in China, b) inconsistent quality, c) shipping costs that have doubled in the last year (see chart above), and d) the lack of safeguards on intellectual property."  Put another nail in the "outsourcing" coffin. (Note: as I've previously noted, these "in-sourcing" and "re-shoring" phenomena have been happening for a while and seem to gain steam when energy prices are high.)

• EconLog's David Henderson efficiently undermines the misguided notion that unionization promotes the "middle class."  (Of course, one need only notice the unions' uniform opposition to free trade to realize the absurdity of that notion, but still....)

• The Examiner's invaluable Tim Carney mercilessly details how all those super-neato green subsidies aren't "driven by tree-hugging activists, earnest liberal bloggers, or ecologically minded citizens" and instead flow "from the lobbyists and executives of well-connected multinational corporations and built-for-subsidy startups that see profit in the loan guarantees, handouts, mandates, and tax credits Congress creates in the name of saving the planet." Shocking, I know.
  
• I think I'll be passing on this, uh, interesting business opportunity, thanks.

Enjoy, everyone.

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.

Tuesday Quick Hits

Since I was traveling last week, you might be behind on your reading. Here are some headlines to catch you up:

• NC State University Report: North Carolina ports support more than 65,000 jobs across the state and provide an economic impact of $7.5 billion.

• Doing business in China can really stink for US companies; investor/buyer/seller beware.

• GMU's Russ Roberts absolutely dismantles Paul Krugman's (and others') latest nonsense about the omnipotence of America's "rich".

• Geithner: Chinese inflation is driving the real US-China exchange rate and altering companies' business decisions.  (Yes, this should all sound very familiar.)

• Hyundai and Kia are dominating in Alabama and Georgia, respectively, and bringing American manufacturing jobs with them.  (And Cafe Hayek's Don Boudreaux provides some great additional commentary.)

• In the Solyndra debacle comes further proof that the US government's record on "investing" in green manufacturing is abysmal, and that private (aka "real") investment and government (aka fake) "investment" are two very different things.

• EU-Korea FTA clears its final hurdle in Europe.

• US to China: invest in our debt, not our companies.

• Ikenson: Tony Soprano meets the US antidumping law.  And Simon Lester adds some helpful anonymous commentary. 

Enjoy.

Monday Quick Hits

Here are a few headlines to quell your Super Bowl / Reagan birthday hangovers:

• In a great new op-ed, the Boston Globe's Jeff Jacoby explains the current dominance of American manufacturing.  He concludes: "A vast amount of 'stuff' is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list? Maybe not. But that doesn’t change economic reality. They may have 'clos[ed] down the textile mill across the railroad tracks.' But America’s manufacturing glory is far from a thing of the past." Mark Perry has more here.

• Tim Carney reports on yet another highly-subsidized green energy bankruptcy.  As I've noted repeatedly, the United States is absolutely awesome at producing green energy debacles.  Carney reports: "To turn wood chips into ethanol fuel, George W. Bush's Department of Energy in February 2007 announced a $76 million grant to Range Fuels for a cutting-edge refinery.  A few months later, the refinery opened in the piney woods of Treutlen County, Ga., as the taxpayers of Georgia piled on another $6 million.  In 2008, the ethanol plant was the first beneficiary of the Biorefinery Assistance Program, pocketing a loan for $80 million guaranteed by the U.S. taxpayers.  Last month, the refinery closed down, having failed to squeeze even a drop of ethanol out of its pine chips.  The Soperton, Ga., ethanol plant is another blemish on ethanol's already tarnished image, but more broadly, it is cautionary tale about the elusive nature of 'green jobs' and the folly of the government's efforts at 'investing' -- as President Obama puts it -- in new technologies."

• WTO Director General Pascal Lamy continues to beat the trade statistics drum:  "Another significant change in the international trade landscape is the spread of globally-integrated production chains — in effect, global factories — as firms locate various stages of the production process in the most cost-efficient markets.... The sports equipment industry is another example that typifies the new global production network pattern. For instance, the blueprint of a sport shoe is designed and conceived in a research lab in the United States, but manufactured in factories located in China, Vietnam or Indonesia, using raw materials such as leather, rubber and plastic from neighbouring Asian countries. You locate the different stages of your activities from creation to production, marketing and distribution in order to maximise efficiencies and optimise your value addition chain."

• Behold, the depressing state of trade policy/politics in the Democratic Party. "The Democratic Leadership Council, the iconic centrist organization of the Clinton years, is out of money and could close its doors as soon as next week, a person familiar with the plans said Monday." As you may recall, the DLC has in recent years often been the lone Democratic voice in favor of trade liberalization.  So how many columns will be written about "epistemic closure" on the Left?  (Obvious answer: none.)

• Big free market think tanks oppose extension of Trade Adjustment Assistance (which Congress is mulling this week).  First, Heritage's David Mulhausen shows that "TAA is ineffective in raising the wages of participants" and thus should die.  His colleague James Skerk adds more, arguing that Congress should let the program expire because "very few workers lose their jobs because of foreign trade, and the Department of Labor’s Dislocated Workers Program already provides basic services to laid-off workers."  Finally, Cato's Sallie James provides three good reasons why TAA deserves the axe: (i) very few people lose their jobs due to import competition; (ii) it costs a fortune ($2.4 billion in 2011!); and (iii) as the trade stagnation/regression of 2006-2010 proves, TAA has done nothing to convince trade skeptics to support liberalization initiatives.  I'd only add - as Sallie's 2007 paper on TAA notes - one more big reason why TAA stinks: it reinforces the (false) idea that imports are bad, and that trade is zero sum. For more on that point, I highly recommend this classic NYT op-ed by economist Steven Landsburg on the subject.  He notes: "One way to think about [TAA] is to ask what your moral instincts tell you in analogous situations.  Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web.  Do you have an obligation to compensate your pharmacist?  If you move to a cheaper apartment, should you compensate your landlord?  When you eat at McDonald’s, should you compensate the owners of the diner next door?  Public policy should not be designed to advance moral instincts that we all reject every day of our lives."  Amen.

• Via the Kauffman Foundation's Tim Kane comes today's Chart of the Day on real GDP per capita.  Kane notes, "It shows international comparisons of real GDP per person which come from the Penn World Tables (mark 6.3, chain weighted), relative to the United States level. Notice how developing countries tend to converge toward the U.S. level, then crash back to the European norm of a 70-80 percent ratio.... I find that this chart is especially useful for keeping China fever in perspective.... To be fair, China is big, so it can have an immature economy and still throw a lot of weight around. But history says it, too, will have a very hard time making the transition to a mature economy, let alone an entrepreneurial one."

How Government "Investment" and National "Competitiveness" Quickly Turn Into Protectionism

My round-up of State of the Union commentary had a fairly consistent theme: that the President's push for national "competitiveness" and government "investment" was misguided and dangerous because it often lead to anti-market, anti-growth and anti-trade policies.  In a great Forbes op-ed, Art Carden discusses two big problems with these themes:

First, while a group of White House speechwriters apparently thought that “win the future” would have the same rhetorical resonance as “yes we can,” the Address conveyed an incorrect zero-sum worldview in which what others gain comes at our expense. As economics has shown over and over and over and over again, trade creates wealth. Voluntary exchange is a positive-sum game. If China gets richer, it doesn’t imperil our ability to get richer, too.

Second, I have always been struck by how politicians refer to spending programs that almost inevitably turn into special interest bonanzas as “investments.” President Obama exalted the teaching profession, but let’s not be naïve: teachers’ unions are some of the biggest spenders in politics, almost all of their money goes to Democrats, and they fight educational innovations like vouchers and charter schools at almost every turn.

More fundamentally, governments don’t get the kind of feedback on the success or failure of their “investments” that private firms get. Private firms can tell from their profits and losses whether they are creating value. A firm that earns a profit is using resources to produce something that people value more highly than anything else that could be done with those resources. A firm that earns a loss is using resources to produce something that people value less than at least one other thing that could be done with those resources.

Governments respond to political incentives rather than market incentives, and perhaps most importantly, they can’t go out of business. A government can acquire resources. A government can spend money. There is no way to know whether that spending really qualifies as “investment” or not.

Consider biofuels, high-speed rail, and other “green economy” initiatives. I was excited when the President mentioned getting rid of oil subsidies, but my excitement turned to disappointment when he said he wanted to spend more to subsidize things like biofuels and high-speed rail....

I’m extremely skeptical of the government’s ability to make these kinds of “investments” without turning them into massive giveaways to powerful special interests. As Steven Horwitz wrote recently on the prospect of a Libertarian-Progressive alliance, the tendency for government to serve powerful interests is a feature of politics rather than a bug. When we give people the power to rule others, we shouldn’t be surprised that people use that power to benefit themselves and their friends.

I've addressed the first problem that Carden identifies - how an adversarial approach to international economics is wrong and troublesome - many times, and the post-SOTU articles I listed the other day also make this point clear.  I've also briefly addressed the obvious differences between government "investment" and private investment.  So there's no need - for now at least - to elaborate on those points.  On the other hand, Carden's explanation of the pernicious side effects of government "investment" deserves further discussion.  He does a great job laying out how special interests inevitably distort government investment plans, but I think he glosses over perhaps the bigger problem with state meddling in the private sector: it breeds economic nationalism.

As Carden rightly notes, government "investors" (i.e., elected officials subsidizing commercial enterprises with your and my tax dollars) respond to political, rather than market, incentives and can easily throw more money (again, our tax dollars) at a project regardless of the economic return on that investment.  In short, as long as the political returns - be they votes or campaign contributions - remain high, then the government investor has an incentive to keep on investing.  It's this troubling dynamic that has given us more than three decades of government "investment" boondoggles in corn ethanol and other "green" technologies.  (To see just how long we've sucked at "investing" in environmental technologies, Google "carter synfuels" some time.)

At some point, however, the money does run out, and that's where things can get really scary.  As we've learned during the current state and federal budget crises, government funds aren't truly unlimited (thank goodness).  But, even though the state/federal coffers are dry(er), the political incentives remain equally strong - government investors still have a serious political stake (read: re-election) in seeing their investments be successful.  Without a limitless supply of money to throw at a politician's chosen company/industry, he will almost inevitably seek other means to ensure the political returns on his "investments."  And, unlike private investors, he has at his fingertips the full force of the government to improve his investments' prospects should things go sour.

Of course, when it comes to government "investment," things almost always go sour (see above).

So not only do we get bajillions of tax dollars thrown down the toilet for government projects captured by special interest lobbying, but we also get a healthy dose of government coercion to tilt the playing field in those projects' favor.  Sometimes, this coercion rears its head through top-down usage mandates like the gas/ethanol mix.  More often, it appears in the form of economic nationalism - particularly trade protectionism - because in today's global economy eliminating foreign competition is one of the easiest ways to improve your investment's chances.  (See, e.g., the current tariff on sugar ethanol.)  Of course, when a government official can't do that, she can at least blame the foreigners for the failure of her blessed programs and convince the public that "free trade," not her programs, caused all of their economic ills.

And that brings us back to the troubling protectionist implications of the President's repeated calls for more government "investment" during the SOTU.  Henry Payne over at NRO deftly pointed out that Obama's speech closely paralleled that of former Michigan governor Jennifer Granholm back in 2006:

Former Michigan governor Jennifer Granholm has yet to start teaching her new Cal-Berkeley course on green governing — but she already has a devoted student in the White House.

President Obama’s State of the Union speech Tuesday night was eerily similar to the failed economic vision that Granholm laid out in her State of the State address exactly five years ago: It even included her rhetorical ruse substituting “investments” for “spending.”

“If the states are the laboratories of democracy,” Granholm wrote in the Huffington Post last December, “Washington can take a lesson from what is happening in Michigan.” Sadly for the nation, Obama listened to his teacher.

“We need a moon shot,” said Granholm in the Huffington Post. “This is our Sputnik moment,” echoed the president on Tuesday. Granholm envisioned a transformation of Michigan from “Rust Belt to Green Belt” with massive, European-style public investments in infrastructure and alternative energy. “In five years, you’ll be blown away,” she predicted, in what would become her signature line.

It was, in fact, thousands of state jobs that were blown away, as Granholm’s vision diverted pols’ attention from much-needed reforms to the state’s budget and business climate. Since her speech in 2006, the state’s unemployment rate has exploded from 7.4 percent to 11.4.

Now Obama wants to take the Granholm model national. “The 21st Century Jobs Fund [is] the largest investment in diversifying our economy this state has ever seen,” said Granholm in her 2006 SOS. “It’ll create tens of thousands of new jobs. We’ll invest more than $2 billion in public and private funds to develop new sectors of our economy: Advanced manufacturing. Homeland security and defense. Life sciences. Alternative energy.”

“We’ll invest in biomedical research, information technology, and especially clean-energy technology — an investment that will strengthen our security, protect our planet, and create countless new jobs for our people,” mimicked Obama in this year’s SOTU.

Like Granholmnomics, Obamanomics is not only unsustainable — it diverts important investment dollars from the private sector. Welcome to Michigan, America.

What Payne doesn't point out, however, is that the failure of Granholmnomics' state-capitalist model caused her to become one of the loudest protectionists in the country.  As I noted last year, "Michigan Governor Jennifer Granholm went on CNN this morning to discuss President Obama's new trade initiative and to explain away her administration's dreadful, job-killing policies by - you guessed it - scapegoating free trade (start at about 1:00)":



So if/when President Obama's "investments" in green technology and other industries fail (as they probably will), and when the federal budget (and House Republicans) simply can't tolerate even more money being thrown at these failed investments, where will he turn?  Will he cut his losses and admit failure?  Will he force Americans to buy/use these failed products regardless of their economic (and environmental) value?  Or will he blame the country's "adversaries" (i.e., foreign competition) and attempt to erect trade barriers?

According to the "Granholm model," it'll be the last option, and, really, we shouldn't be surprised if/when that happens.  I mean, it's the natural result of an economic model based on national "competitiveness" and government "investment," now isn't it?

UPDATE: Looks like Michigan's new governor is going in a different - and far better - direction.  Good riddance.