ITC: Eliminating Import Barriers = $2.6B in GDP and $9B in New Exports

Last night I alluded to a new ITC study on import barriers and global supply chains, but I didn't mention the report's headline finding.  The study, which is an update of a periodic report that I last discussed in 2009, found that the simple, unilateral elimination of existing US trade barriers would benefit the US economy to the tune of billions of dollars:

The U.S. International Trade Commission (Commission) estimates that U.S. economic welfare, as defined by total public and private consumption, would increase by about $2.6 billion annually by 2015 if the United States unilaterally ended (“liberalized”) all significant restraints quantified in this report. Exports would expand by $9.0 billion and imports by $11.5 billion. These changes would result from removing import barriers in the following sectors: sugar, ethanol, canned tuna, dairy products, tobacco, textiles and apparel, and other high-tariff manufacturing sectors.

Now, a few billion dollars here and there is certainly not going to save the $15 trillion US economy, but it still isn't chump change and, unlike other government "stimulus" unilateral liberalization involves no new government spending (and thus no new Solyndras!).  Moreover, there is simply no justification for the artificially high prices on basic manufacturing inputs and consumer necessities (especially food, clothing and footwear) that American businesses and families must pay in order to subsidize the well-connected American industries that produce these artificially expensive products.  None.

And let's not forget about that sweet, sweet $9 billion in new exports.  As we all know, the Obama administration is desperately trying to push export expansion as part of its US economic recovery plan.  For example, just yesterday on ABC's "This Week" Austan Goolsbee, the former chair of Obama's Council of Economic Advisers, said that the United States needs to "refocus" its economic strategy by looking to exports and investment.  So, considering the ITC's repeated findings, I guess the White House is busily readying legislation to eliminate existing US import taxes on sugar, ethanol, canned tuna, dairy products, tobacco, textiles and apparel, ball bearings and other manufacturing sectors, right?

Unfortunately, no.  In fact, they've repeatedly pursued the exact opposite approach, erecting, rather than eliminating, US obstacles to imports.  Off the top of my head, they've raised tariffs on things like tires and chicken; they've proposed new trade remedies rules (twice) that would almost invariably lead to increased duties on a wide range of imports; they still haven't allowed Mexican trucks on US roads; they've repeatedly embraced "Buy American" procurement policies; and they've even negotiated higher tariffs on cars and trucks as part of the US-Korea FTA.  So the next time you hear an administration official talk about increasing US exports, be sure to remember that $9 billion worth of exports (and the American jobs that go with them) voluntarily sitting on the sidelines.

And then tell that official to call the ITC asap.

Greasing America's Competitiveness Slide

Last week the World Economic Forum announced some distressing, but not unexpected, news about the struggling US economy:

The U.S. extended its slide in competitiveness for a third year by slipping to fifth in the World Economic Forum’s rankings, which Switzerland topped. 

The U.S. fell one place, two years after losing the No. 1 position for the first time since the Geneva-based organization began its current index in 2004. Concern about public debt and deteriorating confidence in policy makers hurt the efficiency of the world’s largest economy even as faith in its financial industry rebounded, the forum said in its study of 142 nations.In the U.S., “urgent efforts need to be made in terms of macroeconomic stabilization and mapping out an exit strategy from debt,” said Jennifer Blanke, the forum’s lead economist who contributed to the annual study.... 

Switzerland, home to companies including drugmaker Novartis AG (NOVN) and food company Nestle SA (NESN), was credited for its innovation and technological skills. Singapore and Sweden trailed, with Finland leapfrogging the U.S. into fourth place. Germany, the Netherlands and Denmark followed with Japan sliding three places to ninth. The U.K., ranked 12th last year, swapped places with Canada to take 10th.... 

China climbed one level to 26th and Brazil rose to 53rd from 58th while India fell five slots to 56th and Russia dropped to 66th from 63rd.... 

The U.S. ranked 89th for macroeconomic stability amid a record budget deficit, while running 50th for trust in its politicians, the forum said. The survey suggested its government wastes resources and regulation has become more burdensome. A gauge of financial-market development indicated improvement, with the U.S. rising to 22nd from 31st last year. It was ninth in 2008.... 

The report -- published each year by the organizers of the annual conference of business leaders, politicians and entertainers in Davos, Switzerland -- is based on measures of competitiveness and an opinion poll of more than 14,000 business leaders.

The full WEF report is available here, and, while it's always a little tricky to talk about "national competitiveness" (rather than companies' competitiveness), the survey is still a valuable way to measure which governments are implementing the best policies to make their domestic companies more globally competitive.  And speaking of such policies, Cato's Dan Ikenson took to the pages of the WSJ over the weekend to explain a simple policy that could instantly improve American companies' ability to compete in the global economy:

If the president is genuinely committed to spurring economic growth and job creation, he will take the lead on reducing or eliminating duties that U.S. producers pay on imported raw materials and components they need for manufacturing. This would instantly boost the competitiveness of U.S. products at home and abroad. 

The same demographics that have created growing foreign markets also mean there are more foreign suppliers of raw materials, industrial inputs, and other intermediate goods used by U.S. producers in their own production processes. Last year, U.S. Customs and Border Patrol collected $30 billion in duties on $2 trillion of imports, 55% of which were ingredients for U.S. production—such as chemicals, minerals and machine parts. Purchases of imported inputs accounted for more than $1 trillion of U.S. production costs, a price tag that was roughly $15 billion higher than it might have been without U.S. import duties. 

What is the point of negotiating a 5% reduction in a foreign tariff on behalf of certain U.S. exporters while ignoring the fact that, to produce those exports as domestic manufacturers, they are required to pay a 50% import tax on the most crucial raw materials? Reducing import barriers has the same effect on profit as does improving market access abroad, but with the added benefit of increasing U.S. competitiveness. And it can be achieved without waiting for consent from abroad....

Now the president should push Congress to reduce or eliminate, on a permanent basis, all tariffs on industrial inputs so that U.S. producers are more competitive in the global economy and so that America is a more appealing destination for foreign direct investment. That approach has produced good results in Canada, where the government has been reducing tariffs on manufacturing inputs for the past few years. 

Meanwhile, some import duties can be eliminated with a stroke of the president's pen. First should be antidumping duties, imposed on inputs needed by U.S. producers. The antidumping law is purported to penalize foreign producers accused of injuring U.S. firms by selling in the United States at lower prices than they charge at home. Some U.S. industries lobby vigorously for such duties simply because they hobble the foreign competition. 

Yet more than 80% of the nearly 300 U.S. antidumping measures in force today restrict imports of raw materials and intermediate goods, thus penalizing U.S. producers. Antidumping duties on magnesium or polyvinyl chloride or hot-rolled steel may allow domestic producers of those inputs to raise prices and reap greater profits. But they hurt many more downstream U.S. producers of auto parts, paint and appliances, who consume those inputs in their own manufacturing processes and who are more likely to export and create new jobs than are the firms that seek trade restrictions.

Unfortunately, Ikenson notes in a separate blog post last week that the Obama administration is actually pondering the implementation of policies that would lead to higher, not lower, tariffs on US imports:

As the president was pitching his jobs plan last night, his current policies were hard at work discouraging job creation and incentivizing layoffs.

One of innumerable such policies concerns the treatment of imported raw materials and other intermediate goods that are subject to antidumping or countervailing duty measures, but needed by U.S. producers to make their final products. It almost defies comprehension that, in a modern, interdependent economy characterized by transnational supply chains and cross-border investment, over 80 percent of all U.S. antidumping and countervailing duty measures are imposed on these ingredients of U.S. production. This policy drives up the cost of production for downstream U.S. industries, making it more difficult for them to compete in the United States and abroad, curtailing profits, investment, and hiring.

However, under the U.S. Foreign Trade Zones program, some of the costs inflicted on downstream, import-consuming firms can be mitigated. (Of course, the program wouldn’t be necessary if U.S. duties were recognized as just another cost of production and set, optimally, at zero.) Among the aims of the FTZ program is to encourage manufacturing activity in the United States (and to discourage manufacturers from shuttering domestic operations and moving offshore as a result of the burden of paying U.S. customs duties).

FTZs are usually manufacturing plants or facilities physically located within the United States, but considered outside U.S. territory for the purpose of customs duty payment. Goods that enter FTZs are not subject to customs duties (including antidumping or countervailing duties) until they leave the zone and are formally entered into the commerce of the United States. If those goods are used as inputs to a further manufacturing process, the rate of duty applicable to the final product is assessed. If the goods are exported from a FTZ, with or without further processing, no duties are imposed because the product never officially “entered” the United States.

With respect to products made from materials and components subject to AD or CVD duties, the standing regulations require FTZ operators to get advance approval from the Foreign Trade Zones Board if the intention is to sell those final products in the United States. That requirement does not apply when the final product is going to be exported from the FTZ, which provides some incentive to downstream U.S. firms to keep production in the United States by operating as a FTZ.

But now the Obama administration—at the behest of the antidumping petitioners’ bar and organized labor, and despite its own exhortations to U.S. companies to double exports, invest in America, and put Americans back to work—is proposing to seal off that channel of sanity and compromise. New regulations would require advance approval even if the final product was going to be exported.

The requirement of advance approval from the FTZ Board, which is administered within the Import Administration—the same agency at the Commerce Department that simultaneously assists protection-seekers in crafting their AD/CVD petitions, while gleefully implementing and administratively adjudicating the antidumping and countervailing duty laws—will tip the balance in favor of outsourcing production for many firms in many industries. Any benefits of continuing to produce in the United States will be diminish next to the rising costs and uncertainty of doing so.

Thus, companies like Dow Corning, which uses silicon metal to produce silicone components for solar panels, will have that much more incentive to shutter operations in Kentucky and set up shop in Canada or elsewhere, where silicon metal is available at lower world market prices, so that it can compete in foreign solar panel markets with Chinese, Japanese, Canadian, and European rivals.

According to the WEF, the United States is currently the fourth-most competitive economy in the world.  I guess the Obama administration's really gunning for Number 5 in 2012.

Is Tim Pawlenty Gunning to Be the GOP's Protectionist Candidate in 2012?

Last week, I lamented that GOP Presidential hopeful Tim Pawlenty's mercantilist statements on free trade were somewhat contradictory and really mundane.  His latest statements on trade, however, are more troubling and have him increasingly looking like the GOP's protectionist for 2012 (there's always at least one).

If you were (sane) like me, you didn't spend last night glued to CNN to watch the GOP Presidential Debate in New Hampshire.  But a quick search of the debate transcript (yes, I know, I need to rescind my previous allegation of sanity) reveals that the only comments on trade came from Pawlenty in response to a question on how the candidates "plan on returning manufacturing jobs to the United States":

PAWLENTY: There's a number of things we need to do. Restore manufacturing in this country. And I grew up if in a meat packing town. I grew up in a manufacturing town. I was in a union for six or seven years.

I understand what it's like to see the blue-collar communities and the struggles that they've had when manufacturing leaves. So I've seen that firsthand. But number one, we've got to have fair trade, and what's going on right now is not fair.


I'm for a fair and open trade but I'm not for being stupid and I'm not for being a chump. And we have individuals and organizations and countries around this world who are not following the rules when it comes to fair trade. We need a stronger president and somebody who's going to take on those issues.

Sigh.  I've already dismantled the "fair trade" and "everybody cheats" myths several times on this blog, so I won't do so again here.  And, frankly, Pawlenty's statements here are almost identical to the tough-guy chest-thumping that he's done in the past about free trade (as I noted last week), so his statements last night, while underwhelming, aren't really that disturbing or noteworthy.

What is disturbing and noteworthy, however, is that Pawlenty, when asked about manufacturing job losses, immediately resorted to scapegoating free trade as the primary driver of those losses.  And, by the way, he was the only GOP hopeful to do so.  Ron Paul (unsurprisingly) targeted US monetary policy; Michele Bachmann (quite rightly) attacked onerous US tax and regulatory policies; Rick Santorum also took a swipe at tax policy.  None of them blamed trade policy for manufacturing job losses.

Except Governor Pawlenty.

Of course, this stance is utter poppycock:  not only are most American manufacturing job losses the result of things like technology gains and changing consumer tastes, but they also have been happening for decades and are in no way unique to the United States.  Moreover, a lot of American manufacturers depend on trade (imports and exports) in order to remain globally competitive and/or to find new customers abroad.  So, if anything, our politicians should cite free trade policy as a solution to, not cause of, US industrial job-losses.  Thus, it's quite troubling that, when asked about those job losses, Tim Pawlenty's first thought was to blame trade - a strategy, by the way, that's right out of the protectionist playbook.  The unions do it; pandering Democratic politicians do it; and the professional anti-traders do it.

So why is a GOP presidential candidate - especially one who just recently championed free market fiscal policies that directly contradict such an anti-trade stance - doing it too?

I honestly have no idea.

Fortunately for Pawlenty, his trade statements received big praise from one pundit.  Unfortunately, it was MSNBC's Ed Schultz (start at the 3:30 mark):

Visit msnbc.com for breaking news, world news, and news about the economy

Err, congrats Governor.

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.

New Study: More Trade = More Jobs

One of the big problems with the political debate over US trade policy is that politicians and much of the American public demand that trade policies be sold in terms of jobs, regardless of whether good data tying trade to employment actually exist.  Free traders typically refuse to speak of trade in terms of net-jobs-created because they know that basic economics teaches us that trade liberalization is really about better jobs, not necessarily more jobs.  Protectionists, on the other hand, rarely display such, ahem, economic limitations and are thus all too eager to cite bogus studies tying free trade policies to ridiculously specific numbers of lost American jobs.  (For a great example of this unfairly tilted political playing field, check out this classic column by AEI's Phil Levy on protectionists' absurd claims about supposed US job-losses caused by NAFTA.)

Thus, the typical exchange at a Congressional hearing (or your local watering hole) goes something like this:

Congressman/Bartender: Want to me to support this FTA?  Well, then tell me how many jobs it's going to bring to my district/town.

Naive free trader: Well, sir, free trade really isn't about creating more jobs, it's about productivity gains, creative destruction and better jobs, and, of course, it's about expanding the freedom of the American people to choose how and with whom they do business, rather than forcibly limiting that freedom in order to benefit a select group of well-connected producers and unions.

Angry Protectionist: The FTA will destroy 734.6 jobs.

Seriously, is it any wonder why the poll numbers on trade routinely stink?  Unfortunately, today's economic environment has exponentially increased the political pressure to tie trade (or any other) policies to specific job numbers, so the disadvantage that free traders face in the political arena is even more acute than ever.

That's why a new study in the European Economic Review called "Trade and Unemployment: What Do the Data Say?" could be a really great new resource for those seeking to advocate free trade policies using intellectually honest arguments.  According to the study's authors, there is strong empirical evidence that nations that trade more - through exports and imports - have lower long-term unemployment.  Here's the paper's abstract (emphasis mine):

This paper documents a robust empirical regularity: in the long-run, higher trade openness is associated with a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows us to control for unobserved heterogeneity, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we purge the data of business cycle effects, include a host of institutional and geographical variables, and control for within-country trade. Our main finding is robust to various definitions of unemployment rates and openness measures. Our benchmark specification suggests that a 10 percentage point increase in total trade openness reduces aggregate unemployment by about three quarters of one percentage point.

Did you get that?  Ok, me neither.  Fortunately, Reason Magazine's Ronald Bailey translates this nerdspeak into regular English for us regular folk:

[The study] forthrightly asks the question: Does exposure to international trade create or destroy jobs? Their answer strongly backs the observation made by Franklin more than 230 years ago. “A 10 percent increase in total trade openness reduces aggregate unemployment by about three quarters of one percentage point,” they conclude. To be a bit more precise, they find, “A 10 percentage point increase lowers the equilibrium rate of unemployment by about 0.76 percentage points.” Trade creates jobs.

In general, the higher a country’s volume of international trade, the higher is its degree of openness. Trade openness is generally measured by adding together the value of both exports and imports and dividing that sum by total gross domestic product (GDP). Crudely, let’s say an economy imports $10 billion annually and exports $10 billion annually and has a total GDP of $100 billion. That would yield a trade openness index figure of 20 percent. Another country with a GDP of $100 billion exports $15 billion and imports $15 billion, yielding a trade openness index of 30 percent.

Roughly speaking, U.S. GDP was $15 trillion in 2010, and exports and imports combined totaled just over $4 trillion, yielding a trade openness index figure of 27 percent. Without going into detail, the European economists derive a real trade openness index by taking differing price levels among countries into account.

The researchers then compare the relative trade openness of 20 developed countries in the Organization for Economic Cooperation and Development with their unemployment rates over time. They take into account other factors such as union membership, national employment protection policies, tax rates on wages, and the generosity of unemployment insurance....

The researchers go on to analyze the effect of freer trade on a selection of 62 developing countries. They take into account features like the size of the black market economy and whether a country is landlocked or not. Again, they find that openness to trade boosts employment, concluding that “the effect of a 10 percentage point increase in openness lowers unemployment by about 1 percentage point.”

So why does free trade create more jobs? The study suggests that freer trade boosts overall productivity, enabling companies to hire more workers. Trade enhances competition which weeds out inefficient firms and allows more productive ones to expand. As the average efficiency of firms in a country increases, they can earn more revenues by boosting production. And that leads to hiring additional workers.

In short, the study's authors have demonstrated through oodles of hard data that all the increased productivity and long-term economic growth caused by trade ends up eventually translating into not only better jobs, but also more jobs.  (And please note that trade deficits and surpluses don't matter - what does matter is total trade, regardless of the "balance.")

Pretty cool, huh?  Actually, it's more than cool - it's a very, very helpful little nugget for the upcoming congressional debate over pending US trade agreements with Korea, Colombia and Panama, which will doubtlessly increase total trade by eliminating barriers on goods and services traded between the countries involved.

Now, let's go back to our earlier hypothetical:

Congressman/Bartender: Want to me to support this FTA?  Well, then tell me how many jobs it's going to bring to my district/town.

Emboldened free trader: Well, sir, countries that trade more have significantly lower unemployment than those that don't, and this FTA will inevitably increase US trade with Korea/Colombia/Panama.  And, of course, free trade is also about expanding the freedom of the American people to choose how and with whom they do business, rather than forcibly limiting that freedom in order to benefit a select group of well-connected producers and unions.

Angry Protectionist: The FTA will, umm, destroy 734.6 jobs.  Hey, stop laughing at me.  Seriously, stop.  That's not cool.

Much, much better.

UPDATE: In a case of crazy coincidence, Cato's Dan Griswold just published a new blog post on the latest bogus "jobs" study.

Trump & China, ctd.

This doesn't really change anything in my earlier post on Mr. Trump, his anti-China rhetoric or some conservatives' embrace thereof.  But still, dude:

Donald Trump has emerged in recent years as the nation's foremost China basher, going after the Asian superpower for undervaluing its currency and for taking American manufacturing and jobs. So it's at least ironic -- and at most an example of gross hypocrisy -- that Trump's own line of men's wear, the Donald J. Trump Signature Collection, is manufactured in China.

I discovered this after walking from Salon's offices to the large Macy's in midtown Manhattan, where an entire section is devoted to the Donald J. Trump Signature Collection of suits and ties. This particular corner of the store is decorated with an oversize portrait of Trump; the line promises to provide "the pinnacle of style and sophistication" and "the necessities to be boardroom ready all of the time."

Here is the tag on one of the Trump shirts:

Yes, that says "MADE IN CHINA." (That pink dress shirt retails, by the way, for $69.50.) Other pieces were made in Mexico and in Bangladesh....

The phone number listed on Trump's website for the Signature Collection goes to the "licensing coordinator" at the Trump Organization, Amy Steinfeldt. She did not immediately return a call. But it appears that the shirts and ties are made by the Phillips-Van Heusen Corp., which owns a license on the Trump brand....

A spokesman for Trump did not immediately respond to a request for comment.

Sigh.

(h/t Mark Perry)

Tuesday Quick Hits

Work's been pretty rough these last few days, but here are some quick hits to get you through the slower blogtimes:

• "Zeroing" took yet another hit last week: this time by the Court of Appeals for the Federal Circuit, which ruled last Thursday that the Department of Commerce needs to revisit its use of the WTO-illegal methodology in antidumping annual reviews because (i) DOC had abandoned the practice in investigations; and (ii) the US government had failed to offer a good (well, any) reason for the different approach in reviews.  WorldTradeLaw.net's Simon Lester offers some good commentary on the CAFC decision, and the WSJ rightfully applauds it: "thanks to statistical sleight-of-hand, American consumers have paid billions of dollars more over the years in higher prices either because antidumping duties raised prices on imports or because those duties sheltered domestic companies from downward price competition. This was bad economics, and now it turns out it was bad law, too. The World Trade Organization has dinged Washington repeatedly for zeroing. Commerce and Congress have done their best to avoid complying, at considerable expense to American credibility abroad. Most recently, Commerce attempted to stop zeroing for new antidumping investigations while keeping the practice for existing duties, to placate both the WTO and domestic protectionists. Last week's appellate court ruling puts an end to that charade by finding that under existing U.S. law Commerce has to either zero in all cases or zero in none. Since the department has abandoned zeroing for new investigations, there's reason to hope the Obama Administration will disavow zeroing entirely instead of searching for some way around a carefully reasoned and forceful appellate ruling."  Indeed.  I'd only add that the US courts have been the last refuge of America's zeroing proponents (i.e., protectionists) and their buddies in Congress, so the CAFC's latest decision must have them squirming something fierce this week.  And that thought makes me smile.

• Politicians of both parties are lining up in support of the US-Colombia FTA - a strong signal that the Obama administration could finally send the Agreement to Congress sometime soon (everybody likes a winner!).  Dem Senators Baucus and Kerry gave the FTA a nice (albeit mercantilist) plug in a recent WSJ op-ed, and the (admittedly dwindling) New Democrat Coalition in the House fired off a letter to the President calling on him to submit all three pending FTAs asap.  Meanwhile the US business community is also upping the pressure, as this US Chamber blogpost and Caterpillar ad make clear.  Eternal optimist Monica Showalter of IBD has gleefully noticed all of this news and notes something important on Facebook: "With Obama and Santos scheduled to meet Thursday, and Santos refusing up until this point to meet Obama unless there's free trade - I think it is going to happen."  A very insightful point, and I hope she's right, but I'll believe it when I see it.  (Although this announcement re: the Canada-Colombia FTA certainly adds more pressure on the USA.) [Update: Monica has more in this new IBD editorial.]

• Speaking of that Kerry-Baucus op-ed, Cafe Hayek's Don Boudreaux gives it "two cheers," and withholds the third because of something that I've been arguing here for a long time: "A third cheer would be in order had not the senators relied upon a wholly mistaken reason to justify this particular move toward freer trade. In their essay, U.S. imports and American consumers are mentioned a total of zero times, while U.S. exports and American producers (such as farmers, firms, and workers) are mentioned 23 times.... The senators’ argument for freer trade in this particular case undermines the larger effort to persuade the public that free trade is to everyone’s long-term advantage – an advantage that is measured by increases in what we’re able to consume and not by increases in what we must sacrifice."  Exactly!!

• Cato's Ted Galen Carptenter explains why China's inevitable rise to superpower status isn't so inevitable, and why the United States has a lot to say about it.

• The Mercatus Center's Veronique de Rugy explains something I already know and have known for a few years now: the Alternative Minimum Tax sucks and should be eliminated asap.  Mind-blowing fact: "Congress created the AMT in 1969 to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes....  According to the Congressional Budget Office, last tax season 4.5 million taxpayers were affected by the alternative minimum tax, an increase of more than 4 million taxpayers since 1970."  Sonova...

• The WSJ Asia pens an excellent editorial on how the Japan tragedies have clearly revealed just how dependent American businesses and workers are on imports in this modern era of global supply chains.  The whole thing is worth reading, but here's my favorite passage: "Despite the fears of Japanese products a generation ago, in reality those imports have allowed America to keep its place as the world's largest economy by a country mile. We hope someone on President Obama's economic team is taking note. Trade opponents can always point to the jobs they claim trade has "cost" Americans, but it's rarer to see such an obvious example of how Americans are hurt when trade is suddenly interrupted. The point extends to imports from everywhere. American auto-industry fears over car imports from South Korea have so far helped block ratification of a Korea-U.S. free-trade agreement. That bit of politics hurts Americans who would export to Korea under the deal, but it also hurts the Americans who would benefit from Korean imports. Such as, say, small businesses that use pick-up trucks and currently face higher domestic prices and less competition thanks to a 25% tariff on imported trucks."  Amen.

• Last week USTR released its annual national trade estimate (NTE) report on foreign trade barriers.  It's never anything earth-shattering (and involves a lot of cut-and-pasting from previous years), but it's still a good place to find the next US WTO dispute or two.  (If you don't mind wading through the chaff.)

• Paul Ryan: Stud.

Now that should keep you busy until I come up for air...

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.

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.)

Valentines Quick Hits

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

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

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

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

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

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

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

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

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

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

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

Happy V-Day, everyone.

Sen. Sessions Supports Lowering Corporate Taxes, Except When They're Called "Tariffs"

NRO's Andrew Stiles reports that Sen. Jeff Sessions (R-AL) has decided to vocally champion the much-needed reform of America's embarrassing corporate tax system:

During a Senate Budget Committee hearing today titled “Tax Reform: A Necessary Component for Restoring Fiscal Responsibility,” ranking member Jeff Sessions (R., Ala.) made an impassioned case for why corporate-tax rates must be significantly reduced — in addition to any general reform measures designed to simplify the tax code — if the United States wants to remain an attractive place to do business. Simply doing that, he argued, would go a long way toward bringing down the unemployment rate....

"The problem is far more serious than that. We have, even in real rate terms, one of the highest, if not the highest corporate [tax] rate in the developed world. Corporations are making decisions every day: where to expand, where to hire workers…"

"This is not academic. This is going on every day. We have an unemployment rate that is unacceptable and to have the highest corporate tax rate virtually in the world — and other nations are seeing the light in reducing it — and we remain high?"

"So even if we eliminate certain deductions and have a flat rate that appears lower, it seems to my simple mind that we’ve got no less real burden on the corporate community than we had before."

As readers of this blog know, I agree wholeheartedly with Sen. Sessions that we need to reduce taxes (and other government-induced burdens) on American companies to help them better compete and thrive in today's global economy.  However, Sen. Sessions' views on reducing corporate "burdens" would be a lot more believable if he weren't singlehandedly responsible for increasing taxes on American business to the tune of several hundred million dollars per year.

As I noted in December, Sen. Sessions alone blocked the 2011 extension of the Generalized System of Preferences (GSP) - a longstanding program that lowers or eliminates tariffs (which are taxes, of course) on developing country imports, including a lot of industrial inputs and equipment used by American businesses - because he couldn't get Congress and the administration to agree to increase tariffs (taxes) under the GSP on sleeping bags from Bangladesh in order to protect a small Alabama sleeping bag manufacturer from duty-free import competition.  So he pitched a fit, put a "hold" on the GSP legislation, and the program expired.  (And per the New York Times, it appears that he's still at it.)

Cato's Sallie James explains that the cause and effect of Sessions' actions are straightforward and significant:

The Generalized System of Preferences is a federal program that offers duty-free access to the U.S. market to certain goods from certain developing countries. Or, I should say, was a federal program, because it expired on December 31. My opinion of the program is ambivalent at best, but one cannot deny that the program brings real cost savings to American consumers and businesses -- to the tune of $580 million a year -- through lower import duties....

But those duty savings are, apparently, worthless in the face of special interest politics....

The GSP expired and millions of U.S. consumers and businesses (not to mention developing country exporters) are being penalized to save a hypothetical 20 (that's two-zero) jobs that don't even exist yet. The jobs being lost by businesses that depend on the GSP to keep them competitive are, apparently, not worth consideration. And as for consumers' buying power being eroded, well forget it.

By my math, that's about $29 million in increased taxes per hypothetical new job!  While that might beis probably a good deal by Washington standards, it's a pretty awful deal for the US business community, which is feeling real, not hypothetical, pain because of Sen. Sessions.  In fact, the Coalition for GSP has started a great new website chronicling the real American businesses that benefit - err, benefited - from the lower taxes on developing country imports made possible by GSP.  (It also provides a broader lesson about the benefits of free trade for US manufacturers and consumers, of course.)  Here's a taste:

Behr Dayton manufactures engine cooling and air conditioning technology for the automotive industry in a 1.1 million square foot facility in Dayton, Ohio. According to Heinz-J. Otto, President and CEO of Behr America, the 1,000 workers in Dayton “make engine-cooling and air-conditioning components and systems for cars built by GM, Ford and Chrysler, U.S.-built cars by BMW and Mercedes, and heavy trucks produced by Freightliner and International.”

In addition to being one of Dayton’s largest manufacturing employers, Behr is one of the most frequent importers of aluminum foil from Brazil. In the first 11 months of 2010, 99.98 percent of those imports entered the United States duty free under the GSP....

GSP saved manufacturers like Behr Dayton more than $2.5 million on imports from Brazil. Surprisingly, Brazil isn’t even the largest supplier of aluminum foil under GSP. That honor goes to tiny Armenia. About a quarter of the size of Ohio and with a population just over 3 million, Armenia exported more than $58 million worth of aluminum foil under GSP through November 2010 and saved American companies another $3 million.

Sen. Sessions selfish, nakedly-political actions have forced US manufacturers like Behr Dayton to face more than $5 million in new taxes in 2011.  Other manufacturers face similar pains, and even if (when?) GSP is eventually renewed and applied retroactively to January 2011, it's quite likely that many of these American companies will have already made other, more expensive sourcing plans (and that planning ain't exactly a costless exercise itself, you know).   And, naturally, with new taxes and more uncertainty come fewer jobs.

The junior Senator from Alabama talks a big game about eliminating taxes and other burdens on American businesses in order to improve the US economy and decrease unemployment.  And he's right: those burdens definitely need to be removed, and such reform could really help jumpstart our economy.  But if Sen. Sessions really believes all that great free market rhetoric, he can - and should - prove it.

Releasing his GSP hostages would be a great, and easy, place for the Senator to start.

UPDATE: The WSJ has more here.

Tuesday Quick Hits

A lot of very interesting things have come across my (virtual) desk over the last few days, and many of them support the things I've been discussing here over the last few months.  I highly recommend reading some, if not all, of these in full:

• Harvard's Edward Glaeser discusses why the "morality" of modern economics is rooted in human freedom (h/t Fred Smalkin).  In so doing, he underscores one of the big themes of Dan Ikenson's and my new paper on the broader case for free trade, its inherent morality: "Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices. When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice. Our opponents have every right to contend that economists are unwisely idolizing liberty, but they err by saying we sail without a moral North Star. Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another, or with Keynesianism and its emphasis on anticyclical public spending. Many regulations can even be seen as force for freedom, like financial rules that help give all investors the freedom to invest in stocks by trying to level the playing field.  The belief in freedom does, however, create a predilection for human interaction and trade.  As [Milton] Friedman wrote, 'The most important single central fact about a free market is that no exchange takes place unless both parties benefit.' For many economists, defending free trade isn’t just about gross domestic product; it’s fighting for core values of freedom and human interdependence.  As [Adam] Smith said, 'To give the monopoly of the home market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation.'  Economists are often wary of moral exhortation, as many see the harm so often wrought by arguments that are long on passion and short on sense. But don’t think that our discipline doesn’t have a moral spine beneath all the algebra. That spine is a fundamental belief in freedom."

• The Economist: based on a rough (but very reasonable and scholarly) esitmate, trade with China has saved American consumers approximately $780 billion(!) between 2001 and 2010.  Chinese President Hu Jintao said it was around $600 billion, and the magazine's back-of-the-envelope confirmation of Hu's claim definitely calls for more research.  Nevertheless, WOW!

• Dallas Fed further confirms what we already knew: China's currency policy is not the primary driver of the US-China current account balance: "Normally, a fast-growing economy such as China would borrow money from the rest of the world instead of lending. An obvious suspect in China’s mounting current account surplus is the fixed exchange rate between its yuan and the dollar. An undervalued yuan makes Chinese products cheaper than those of competitors in international markets. As a result, China exports more than it imports. According to this explanation, yuan appreciation could rebalance the global economy. This argument has at least two flaws. First, the durability of the U.S.–China imbalance is difficult to explain. In order for the exchange rate to affect import prices, those prices can’t adjust.... Although in reality prices cannot change instantly, they do adjust over the long run; therefore, the exchange rate has only short-term effects on import prices and the current account. China has run a significant trade surplus against the U.S. for about 10 years (Chart 2). It is hard to imagine that prices have not fully adjusted to offset the exchange rate after such a long period. Second, an appreciating yuan may only minimally reduce the imbalance. Even in the short run, the exchange rate’s impact on import prices would be quite limited, studies have shown. Exporters usually pass on only a fraction of exchange rate movements when setting prices. About 20 percent of exchange rate changes were reflected in U.S. import prices during the past decade, Federal Reserve economists Mario Marazzi and Nathan Sheets found. Profit margins usually absorb some of exchange rate movement as exporters seek to maintain market share. Additionally, the currency under which import prices are invoiced also affects the exchange rate pass-through. Most U.S. imports from China are priced in dollars, and their prices are fixed in the short run. In this case, depreciation of the dollar against the yuan has no short-run effect on import prices from China."

• The FT's Clive Crook (rightly) dismantles Obama's State of the Union Address (h/t Phil Levy).  He hits on many of the problems with "competitiveness" and "investment" that I've discussed here at length.  My favorite lines: "The metaphor of growth as a race with winners and losers – all that stuff in the speech about Sputnik moments, falling behind, winning the 21st century – is nonsense. Over the long haul, if US productivity rises, so will US living standards. Why should growth in China or India hold back US productivity? No reason at all. Once conditioned to think “productivity” whenever a politician says “competitiveness”, you look at economic policy differently. Winning begins to seem overrated. What exactly do we win, you wonder? Being number one in worldwide production of solar panels would be nice, but how would that raise economy-wide productivity? The key to improving living standards lies not in winning the race to develop showcase technologies, but in accumulating capital, diffusing knowledge and accommodating the disruption that this entails."

• China is starting to experience some pretty significant trade diversion, but (unsurprisingly) very little of the sourcing is heading to the United States: "More than half of international buyers have tended to increase their sourcing from India and Vietnam due to continuous export price hikes from China, according to a recent survey by the Global Sources, a trade information provider.... Workers in Vietnam, however, are said to need twice as much time to finish one task, the Global Sources said. 30% of respondents said they plan to increase sourcing from Thailand. However, export price may not be the polled buyers' sole consideration, for 7% of them are considering increasing imports from countries that have higher production costs than China, including South Korea, Japan, the United States and the European Union."

• Meanwhile, the NYT notices (again) that Chinese inflation may shrink the US-China trade deficit.  Color me shockedtotally and utterly unsurprised.  Although most of this article just updates what we've already known for a while now, I think it's worthwhile to note this passage about the deleterious effects of higher Chinese import prices on US consumers: "The higher Chinese prices will tend to show up mainly in products like inexpensive clothing and other commodity goods in which labor and raw materials represent a bigger part of the final value — rather than in sophisticated electronics like Apple iPads, in which Chinese assembly is only a small fraction of the cost."  In short, the pain will mainly be felt by poorer American consumers and US manufacturers.  Wealthier Americans?  Not so much.  And yet it's the politicians who claim to "care" most about America's poor and the US manufacturing sector - and who demonize America's "rich" - that have for years now been demanding more expensive Chinese imports.  Maybe they're not telling us the whole story, huh?

• WTO Director General Pascal Lamy, channeling Cato's Dan Ikenson, explains in the FT why "Made in China’ tells us little about global trade": "As recently as 30 years ago, products were assembled in one country, using inputs from that same country. Measuring trade was thus easy. 2011 is very different. Manufacturing is driven by global supply chains, while most imports should be stamped “made globally”, not “made in China”, or similar. This is not an academic distinction. With trade imbalance causing friction between leading economies, the measures we use can gravely exacerbate geopolitical tensions at a time when co-operation is more vital than ever."  Good stuff from DG Lamy, but, yes, it should all sound very familiar.  However, I did find this stat to be new and interesting: "Measures we use also change the way trade affects jobs too. Research on Apple’s iPod shows that out of the 41,000 jobs its manufacture created in 2006, 14,000 were located in the US. Some 6,000 were professional posts. Yet since US workers are better paid, they earned $750m, while only $320m went to workers abroad. Indeed, the iPod may have never existed if Apple had not known that Asian companies could supply components, while both Asian workers and Asian consumers would manufacture and buy it. Statistics that measure value added can provide a more reliable way of seeing how trade affects employment."  And speaking of the WTO and trade statistics, the trade body is hosting a big seminar on the subject this week.

• The Heritage Foundation's Anthony Kim explains just how far Colombia has come in terms of economic and political freedom.  Maybe it's time we implemented that FTA, huh?

• China expert Lee Miller explains why the conventional wisdom (and hope?) that China's banking sector will be more, ahem, reserved in 2011 may be misguided.  Bizarre stuff.

• America is silly rich and relatively equal.  Also from the NYT's Economix blog comes your chart of the day on global income inequality, which shows that (i) contrary to the breathless claims of certain lefty bloggers out there, the United States is absolutely nothing like Brazil (or other major developing countries) when it comes to income inequality;and (ii) the "bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants" and "about as rich as India's richest."  Check it out:

• The always-great Becker-Posner Blog has more on inequality here (and here).  It's nothing groundbreaking, but definitely worth a read.

• More of the same: US manufacturing sector expands for the 18th straight month. Yawn. BUT, there is this little nugget: "The ISM Employment Index increased in January to 61.7%, which is the 16th consecutive month of growth in manufacturing employment and the highest reading for the ISM manufacturing employment index since April of 1973."  Don Boudreaux has more insights, including a link to a neat new story from MSNBC on the state of US manufacturing, here.

That should keep you busy for a while.  Now get to reading!

Monday Quick Hits

Lots of interesting stuff went down while everyone was vacationing.  Here's a quick rundown:

• The Wall Street Journal's editorial board explains how a US antidumping order on magnesium has destroyed American manufacturing jobs in industries that rely on the metal to produce downstream inputs.  The money lines: "In 2005, at the behest of America's monopoly magnesium producer—U.S. Magnesium of Utah—the Commerce Department imposed antidumping duties on magnesium from Russia and magnesium alloy from Russia and China. Five years later magnesium alloy is in short supply in the U.S., leading to much higher prices than in the rest of the world and a crisis for die casters, alloy producers and recyclers.... In a December 6 letter to the ITC, Arkansas Congressman Mike Ross spelled out the problem: 'U.S. manufacturers pay $2.30 per pound on average for magnesium alloy while manufacturers in Mexico, Canada and Europe pay $1.50 per pound and Chinese manufacturers pay $1.36 per pound.' Die casters who have tried shifting to aluminum have lost orders to overseas producers."  Cato's Dan Ikenson piles on by citing the magnesium case as a prime example of US trade policy's cognitive dissonance.

• The Chinese are starting to really hammer home the fact that, as your humble correspondent keeps screaming aboutcalmly mentioning, global supply chains have rendered old school trade stats obsolete tools for measuring actual tradeflows and the efficacy of existing trade policies.  Most of the information cited here is old news for readers of this blog, but here's a new one: "Sheng Guangzu, head of China's General Administration of Customs, told Xinhua in an interview in April that much of China's trade surplus was 'transferred' from foreign-funded enterprises operating in China. In the first 11 months this year, exports of foreign-funded enterprises totaled 779.14 billion U.S. dollars, accounting for 54.7 percent of China's total exports, according to China's customs authorities.  The data also showed that, during the same period, foreign-funded firms generated 112.51 billion U.S. dollars of trade surplus, accounting for 66 percent of China's total surplus."

• In case you missed it, GMU's Walter Williams deftly explains that (a) trade is among individuals, not countries, and (b) free trade is by definition "fair trade."

• The WSJ's Liam Denning discusses why "national rivalry always lurks around an industry as dependent on government support as renewable energy."  His first example: the heavily subsidized United Steelworkers's "Section 301" petition against Chinese green subsidies.  Sounds familiar, eh?

• Heritage's Jim Roberts gives us a quick reminder that free trade is a prime contributor to the dramatic increase in all Americans' living standards over the last 50 years.

• Behold, the stunning incompetence of the federal government: "The U.S. Government Accountability Office said it could not render an opinion on the 2010 consolidated financial statements of the federal government, because of widespread material internal control weaknesses, significant uncertainties, and other limitations.... [Acting Comptroller General] Dodaro also cited material weaknesses involving an estimated $125.4 billion in improper payments, information security across government, and tax collection activities. He noted that three major agencies — the DOD, the Department of Homeland Security, and the Department of Labor — did not get clean opinions. Nineteen of 24 major agencies did get clean opinions on all their statements."

• Cato's Dan Griswold destroys the canard that US multi-nationals corporations' overseas hires are responsible for high domestic unemployment.  In short, companies follow economic growth, not lower wages; and the US still benefits when they do. I'd only add that we'd be even better off if the US adopted more pro-growth tax and regulatory policies.  (More on that point in a great IBD editorial here.)

• It's time for the US to stop futzing around and implement the US-Colombia FTA.  Seriously.

• The US manufacturing sector is cranking.  Fearmongering American politicians were shockingly unavailable for comment.

• A free trader's new year's resolution.

• This is absolutely hilarious (mild content warning).  So is this.

Enjoy.