Thinking Inside the Box on Trade

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

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

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

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

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

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

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

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

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

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

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

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

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...

Well, That Didn't Take Long

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

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

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

Number of times Ambassador Kirk talks about exports – 7

Number of times Ambassador Kirk talks about imports – 1*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

With (Trade) Friends Like These...

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

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

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

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

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

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

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

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

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

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

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

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

Crazy thoughts, I know.

Monday Quick Hits

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

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

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

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

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

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

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

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

Selling Trade in the 21st Century

Frequent readers of this blog (all six of them!) know that one of my many pet peeves is the attempt by supporters of free trade to try to sell it to the general public using a mercantilist, exports-only approach.  As I've explained ad nauseam, not only is this approach unnecessary in a 21st century global economy, but it's also self-defeating:

This approach - championed by Republican and Democrat administrations alike - is one that focuses almost entirely on expanding US exports, while completely ignoring the proven benefits of imports and foreign investment for US businesses and consumers. And it is manifest in America's insistence on "reciprocal" trade negotiations with other countries - a decades-old system in which the United States only agrees to open its markets if our trading partners open theirs too. Of course, this outdated system (and the United States' blind commitment to it) reinforces the idea that exports are good, and imports are the bad things that we must reluctantly accept in order to gain new export markets.

The reality, of course, is that both exports AND imports are good, and there are mountains of empirical and anecdotal evidence supporting this central truth - especially in this modern era of global supply chains and multinational investment. But when our leaders' attempts to sell trade focus only on exports, and when "reciprocity" becomes the central tenet of national trade policy, the obvious, yet completely wrong, implication is that the trade balance (exports minus imports) is a "scorecard," and that a trade deficit (more imports than exports) means that we are "losing" at trade. And, sadly, this false implication is readily manipulated by protectionists seeking to restrict global trade (and, by extension, individuals' right to voluntarily engage in, and benefit from, it).

More discussion of this fact is here, here, here and here - did I mention this was a pet peeve?  Thus, you can imagine my consternation when the well-intentioned folks at the US Chamber of Commerce released their Top 10 Reasons Trade is Good for America, and it focused almost entirely on exports.

Here we go again.

Fortunately, Cato's Dan Ikenson saved me a lot of time and effort and provided a fantastic amended version of the Chamber's top 10 list.  Dan's edits are in bold:

1. The United States is the number one manufacturing nation in the world, and that success depends on exports. And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.

2. The United States is the world’s number one services exporter and has been since services trade data have been tracked. And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.

3. U.S. agricultural exports support nearly a million jobs in the United States. And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.

4. 95 percent of the world’s consumers lives outside the United States... as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.

5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.

6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.

7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales... and in manufacturing.

8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports. And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.

9. U.S. companies with overseas investments account for 45 percent of all U.S. exports. And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports, pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.

10. Trade supports 38 million jobs in the United States–more than one in five American jobs. And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

Great stuff, and certainly worth repeating at every possible opportunity.  But if you ask me, what's as great or greater is Dan's rock-solid reasoning for trumpeting his amended top-10 list (beyond the basic economics, of course):

Informing new members and reminding old of the benefits of exports to U.S. businesses and workers is clearly a worthwhile objective of the Chamber, the business community, and really anybody interested in economic growth. But in some respect there’s a preaching-to-the-choir element in that approach. You’re not going to find too many policymakers opposed to exports, and the administration has constructed a whole new bureaucracy devoted to the proposition that exports should double in five years.

Where the trade agenda has stalled (and where it always has problems) is on the rough terrain that—for lack of a better catchphrase—might be called “rationalizing” imports. That’s been the hard part of trade adovcacy over the years: “We had to cede some access to our markets, but look what we got in exchange!”

In pitching the very same bilateral trade agreements two and three years ago that the business community is pitching today, then-USTR Susan Schwab liked to remind Congress that the United States had an aggregate trade surplus with the countries with whom the Bush administration had concluded free trade agreements, as though that were the appropriate success metric. “We export more to them than we import from them; let’s call this a triumph!” But anyone inclined to accept that statistic as conclusive could simply visit the Commerce Department’s website and see that, at the time, our overall trade account was in deficit by about $800 billion. Thus, if “exports minus imports” is the measure by which we judge the benefits of trade, then America should shun trade entirely. That sales approach doesn’t seem to be in short- or long-run equilibrium. Mercantilist arguments only ensure that every step forward on trade requires a full-fledged battle. We need better—that is, more comprehensive—salesmanship of trade for the new Congress.

Yes, yes, yes and yes.  As Dan notes, and as I've said repeatedly here, a winning trade sales pitch includes the economic benefits of both exports and imports, as well the basic and obvious morality of free trade (and, by extension, the immorality of protectionism).  Indeed, in a modern political climate increasingly skeptical of Big Government and crony capitalism, the latter moral arguments are probably the most compelling of all.  Otherwise, we're just repeating the same old losing arguments which cede almost the entire playing field to the other side.

Until the well-intentioned folks in Congress, the US business community and elsewhere understand these very simple facts and begin to embrace a smarter trade marketing strategy, a majority of Americans will never buy what free traders are selling.  And after decades of trying - and failing - to market free trade through mercantilism, it's not like we could do any worse.

Wednesday Quick Hits

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

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

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

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

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

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

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

• Paul Krugman, mercantilist.

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

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

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

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

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

A Trade Agreement Even a Mercantilist Could Love

In all the hoopla surrounding the ongoing soap opera that is US-Korea FTA, many of us have lost sight of another completed-and-signed-yet-still-not-implemented-for-no-good-reason deal - the US-Colombia FTA.  Fortunately for us, the WSJ's Mary Anastasia O'Grady helpfully reminds us today about Colombia.  Her column is definitely worth reading in full, but here are my favorite parts:

Asked about the president's failure to get the amendments he wanted on the signed U.S-South Korea free trade agreement in Seoul, Mr. Locke asserted that the U.S. can't accept "a deal for the sake of a deal" and complained that as it stands now, it doesn't open Korea enough to U.S. producers.

This is mercantilism, a trade philosophy that promises national prosperity through exports. If you are not familiar with the term, it may be because it was last in vogue in the 18th century. It gradually went out of style when policy makers learned that by opening to foreign goods, they could increase the competitiveness of local producers and build wealth.

It is true that mercantilism—a form of economic nationalism—made a comeback in the 20th century under fascism in Europe and Latin America. But that too ended in tears. After World War II, countries relearned the lesson that when both consumers and producers are able to choose from the globe's output, they have the advantage over their counterparts in closed economies. Chile became an export powerhouse by unilaterally opening its markets to the world....

But let's assume the Obama administration is mentally stuck in 1930s Italy and thinking only of exports. It still can't justify its position on Colombia, the third largest market for agricultural imports in Latin America. American farmers now pay an average 16.5% tariff on exports to Colombia. As a result, according to Colombia's ministry of trade, "countries like Argentina [which is part of an FTA] are rapidly displacing U.S. producers. In 2008 American farmers had 46% of the Colombian market; today that share has diminished to 22%."

Next year, Ottawa's Colombia free trade agreement will enter into force, and Canadian producers will join the list of competitors who have an advantage over Americans in the Colombian market. The European Union and South Korea have also signed FTAs with Colombia and will have advantages on the industrial production front.

It's hard to understand what Mr. Obama is thinking about besides his loyalty to the AFL-CIO. But Colombia's plans are clear. It wants to trade with the U.S. But if it is rejected, it will simply buy and sell with the rest of the world.

Good stuff.  Be sure to read it all here.

So to recap: the White House won't move an economically-massive, two-sided agreement in the KORUS because it still doesn't fit their (widely-discredited) mercantilist framework.  Yet they also won't move a smaller, totally-lopsided agreement in the US-Colombia FTA, despite the fact that it's a mercantilist's dream.  Meanwhile, South Korea and Colombia are entering into FTAs with each other and the United States' biggest competitors.

(And as for the US-Panama FTA, well, it's apparently a figment of our collective imagination.)

This all makes perfect sense, wouldn't you say?

Monday Quick Hits

Lots of interesting links over the last few days, so let's get right to 'em:

• Lifelong Democrat laments his party's anti-innovation agenda.

• WSJ's Strassel: why the GOP needs to take on the government's misguided "green energy" movement.

• AEI's Nick Schulz on why a revised American immigration policy must be a central feature of its future competitiveness policy.

• Korean negotiators to their US counterparts: "Hey, if you guys want to re-open the KORUS FTA for autos and beef, then we'd like to re-visit some of your most important/untouchable issues."

• Not all Dems are against free trade and American competitiveness; unfortunately, this important Dem isn't, you know, an elected official anymore.

• Don Boudreaux quickly explains the illogic of mercantilism.

• Russ Roberts so wants to explain the problems with Ben Bernanke's recent China criticisms that he's willing to give away part of his new book for free.

Now, if you'll excuse me, I need to get back to my intense turkey-ingestion training regimen.

If You Read Only Two Things Today, Read These Two Things

I'm sure I'll be found guilty of overselling these two articles, but alas.  First up is Kevin Williamson's hilarious, deadly-accurate critique of the administration's wrongheaded China currency scapegoating.  My favorite lines:

Obama and the Sinophobe wing of the Democratic party have seized upon what is for them a nearly perfect issue: the valuation of China’s currency, the renminbi. The issue is complicated enough to accommodate the intellectual vanity of the president and his coterie while consigning most voters to a state of rational ignorance, and the narrative is flexible enough to be used to explain away a great many varieties of bad economic news. It’s the all-purpose phlogiston of the self-consciously cerebral policy set. Massive trade deficits? Blame the renminbi. Investment in decline? Blame the renminbi. The fact that Obama’s reckless State of the Union promise to double American exports is starting to look like the sort of thing a luckless gambler says to himself before putting his Greyhound-ticket money on the craps table in Vegas? Blame the renminbi. Persistent levels of historically high unemployment? Chinamen are stealing our jobs and using their artificially devalued currency to do it....

The People’s Republic of China is a for-profit police state, and we should not be under any illusions about the chances of its reforming its ways and further liberalizing its economy and politics, or the possibility of its chauvinistic rulers’ acting with regard to anything other than the ruthless pursuit of their national interest, in whatever distorted way they define that. While Deng Xiaoping’s much-vaunted economic-liberalization program worked undeniable wonders, the thawing of the Chinese economy came to a halt years ago, and if there is any political progress in sight, it is not obvious. All of which really ought to be of interest only to full-on Sinologists, because, the Obama administration’s populist fist-shaking notwithstanding, China’s economic policy is not what ails America — any more than Japan’s economic policy was what ailed America during the Carter years, that awful interlude during which Honda and Toyota viciously conspired to dump affordable, reliable, fuel-efficient automobiles on unsuspecting Americans who really wanted to buy an AMC Gremlin but were duped into an upgrade by those inscrutable Orientals and their long-game industrial policies. China’s economic policy is what ails China. Fortunately, today as in the 1970s, most of what is troubling the U.S. economy is the result of decisions taken in the United States, not in faraway Asian capitals. The American problem is in Washington, not in Beijing....

How Japan went wrong is a big and complicated and contested story, and it is really beside the point: What most matters right now is what Beijing thinks happened to Japan. In the Chinese version, the United States forced Japan to allow the yen to appreciate, with Washington orchestrating the Japanese catastrophe with malice aforethought. So when Barack Obama comes around saying, in effect, “Pump up that renminbi — or else!” the guys in Beijing are pretty sure they’ve heard that story before, and they do not plan to be played for chumps the way they think the Japanese were. They drive tanks over people who don’t see the world the way they do, and they are not going to be bullied by Professor Obama....

So what should the United States “do” about China? Nothing. Nada. Sit on our national hands. Economists who have looked at the renminbi situation conclude that the currency is indeed undervalued, but that it could climb as much as 6 percent with basically no effect on the U.S.-China trade relationship. Even if the renminbi were allowed to climb the full 20 or 30 percent by which the most fearful China hawks believe it to be undervalued, it is extraordinarily unlikely that this would have the effect of causing manufacturing employment to shift from China to the United States. If that $5 plastic toy at Wal-Mart goes up to $6, is that suddenly going to make California, Ohio, or New Jersey more attractive to low-end manufacturers than China, India, or Bangladesh? Doubtful. In all likelihood, the result would simply be that the United States would pay more for its imports than it does today — meaning that our trade deficit would get worse, not better. Paying more money for the same amount of stuff would not make us any richer, nor would replacing Chinese imports with imports from Vietnam, Mexico, or Honduras.

As a matter of pure economic calculation, the costs of trying to force Beijing to act in accordance with Washington’s desires almost certainly are greater than the value we would derive from whatever marginal success we might have in the endeavor. For all the talk about our “competitiveness” vis-à-vis China, the complexities of the relationship, the differences in comparative advantage, and the fundamental unknowability of the future all make it difficult even to define “competitiveness” in this context, and more difficult to cultivate it intelligently — and much more difficult to cultivate it intelligently by pressuring Beijing to act in ways Beijing is not inclined to act.

Washington probably cannot get Beijing to change its ways, but Washington can change its own ways, which would be considerably more productive and a heck of a lot less likely to lead to a trade war — or a war war. We can start with acknowledging what has made our competitors stronger over the years: savings, investment, and innovation — the things that lead to productivity, the only economic measure that really matters, being as it is the factor that enables high levels of employment, high wages, and general prosperity. A recent report from the nonpartisan and excruciatingly sober-thinking Brookings Institution offered four main things the United States should do in response to the rise of China. Three of them were content-free: “Blah, blah, blah, be more assertive, elicit support of other emerging blah, blah, blah, high-level engagements.” But the first one was: “Get real on deficit reduction.”

Under Obama-Pelosi-Reid, we have been levying a heavy tax on the future to fund today’s spending. Republicans now have a chance to change that, and it is essential that they do, because everybody can do the math on this question: As the expatriate investor and Asia bull Jim Rogers put it in an interview with National Review earlier this year, “If you look at the huge creditor nations in the world, they’re all in Asia: China, Hong Kong, Singapore, India. Saudi Arabia, if you want to go that far west. This is where the money is — and you know where the debts are.” But taking the necessary steps would put President Obama at odds with his fellow Democrats and cause Professor Krugman and Robert Reich to keen like veiled women at a Levantine funeral procession. Obama would still rather be at odds with the Chinese, who don’t get to vote in 2012 and haven’t been big campaign donors since the Clinton administration.

Amen, Kevin. Amen.  There's a lot more juicy goodness in the article (it's long and worth it), so be sure to read the whole thing.

Next up is my sometimes-colleague* Dan Ikenson who, it appears, has finally given up on the faint hope that President Obama could be America's next great free trade president, and fires off a stinging criticism of the President's big NYT op-ed on India and his hopes for US-Asia trade.  His comments are similar to my my own on the op-ed, but he adds a lot of meat to the bones that I (lazily) threw out there:

At the beginning of the Obama administration, I had the audacity to hope that the new president would defy conventional wisdom and become a proponent of trade and a good spokesman for its benefits. Scott Lincicome and I even wrote a 20,000-plus word Cato analysis explaining why the economic, geopolitical, and domestic political environment offered the president a unique opportunity to steer his party back to its pro-trade roots....

Alas, our study, “Audaciously Hopeful: How President Obama Can Restore the Pro-Trade Consensus,” was just a little too. It fell on deaf ears. It was ignored. In fact, it’s almost as if the past two years of trade policy were conducted to spite the recommendations in that paper...
Despite all that, I remained audacious (or gullible) enough to hold a glimmer of hope that the president would finally see the wisdom in our advice—given the new political landscape. That glimmer was snuffed out with publication of an oped in the New York Times this past Saturday, in which President Obama betrays profound misunderstanding of trade and its purpose. The president portrays trade as an enterprise that is won or lost at the negotiating table, where only the most savvy or most committed negotiators can succeed in bringing home the spoils. The president promises to fight hard to get Americans their fair shake from this dog-eat-dog process, while actual producers, consumers, workers, and investors are relegated to tertiary roles.

The central dysfunction between Americans and trade is the assumption—reinforced in the president’s op-ed—that exports are good, imports are bad, the trade account is the scoreboard, and our trade deficit means that we are losing at trade. That dysfunction resides comfortably within a zero-sum worldview, which the president touts in a purposeful cadence throughout the oped....

By opining about trade without understanding that its real benefits are manifest in imports (here’s Don Boudreax’s elaboration of that process), the president is simply reinforcing myths that will continue to confuse and divide Americans. As long as politicians insist that our trade account is a scoreboard and that a surplus is a trade policy success metric, Americans will continue to be skeptical about trade.

As with Williamson's piece, be sure to read all of Ikenson's much-warranted diatribe here.  It's a fantastic example of (a) why mercantilist policies or rhetoric don't advance (and often retard) free trade, open markets and public support therefor; (b) how many of us - even sorta-partisans like me! - had genuine hopes that Obama would be pretty good on trade; and (c) based on Obama's two-years in office, just how silly we were to harbor those hopes.

Mercantilist in Chief

As most everyone knows, President Obama was in India over the weekend to discuss trade and foreign policy matters with the Indian government.  As part of his visit, the President published an op-ed with the New York Times laying out his trade and economic priorities with India and the rest of Asia, including other stops on his current Asian tour - Indonesia and Korea. Be sure to read the whole thing, but here's the big finish:

The great challenge of our time is to make sure that America is ready to compete for the jobs and industries of the future. It can be tempting, in times of economic difficulty, to turn inward, away from trade and commerce with other nations. But in our interconnected world, that is not a path to growth, and that is not a path to jobs. We cannot be shut out of these markets. Our government, together with American businesses and workers, must take steps to promote and sell our goods and services abroad — particularly in Asia. That’s how we’ll create jobs, prosperity and an economy that’s built on a stronger foundation.

Sigh.  As nice as it is to hear the President advocate trade and global economic integration (including passage of the long-stalled US-Korea FTA), it is utterly impossible for anyone who supports free markets and/or understands basic economics to be happy with the President's strategy - one that can unfortunately be summarized in a single word: mercantilism.

I've often discussed the myriad faults of an American economic growth strategy based on mercantilism - an approach that's been repeatedly debunked since the days of Adam Smith.  But hey, don't take my word for it; instead, here's the always-great Don Boudreaux dismantling the President's new op-ed:

I applaud Pres. Obama’s endeavor to further liberalize trade between America and Asia, but his explanation of his efforts reveals that he doesn’t know what he’s doing economically (if not politically) (“Exporting Our Way to Stability,” Nov. 6). Most worrying is this sentence: “We want to expand our trade relationships in the region, including through the Trans-Pacific Partnership, to make sure that we’re not ceding markets, exports and the jobs they support to other nations.”

When international trade expands, some home markets and jobs are necessarily “ceded” to “other nations.” It is in the very nature of expanding trade that foreign producers specialize in supplying to the home market some goods and services that previously were supplied by domestic producers, and vice-versa.

The mercantilist tone of Mr. Obama’s essay – its bear-like embrace of the fallacy that trade’s success is measured by how much the home country exports rather than by how much it imports – suggests that any trade agreements that he reaches with other governments will do far less to increase the prosperity of ordinary Americans than to enhance the monopolistic privileges and profits of politically influential U.S. corporations and unions.

Ouch.  Boudreaux's commentary makes clear that, when it comes to trade, the President either doesn't know what he's talking about, or simply refuses to pursue (or admit he's pursuing) truly open markets and free trade.  And unfortunately, neither of these options should provide us with much hope that the future of US trade policy is in good hands.

Just Who Exactly Pays When We Tax Chinese Imports?

One of this blog's frequent complaints about American protectionism or mercantilism is that, because almost 60 percent of all US imports capital goods and equipment, attacking imports actually ends up hurting a lot of US businesses that rely on those goods to remain globally competitive.  Continuing this theme comes some new information from the US-China Business Council (using FedGov data) about Chinese imports into the United States during the first half of 2010.  And as you can see, the Chinese ain't just selling us cheap t-shirts:

Category                                                          World   China

Food, Feeds, and Beverages                               4.9%     1.4%

Industrial Supplies & Materials                            32.7        8.6

Capital Goods, Excl. Auto                                  23.1      36.6

Auto Vehicles, Parts, and Engines                     11.9        2.9

Non-Food Consumer Goods, Excl. Auto              24.2      49.3

Imports, NES                                                     3.1        1.1

In short, so far in 2010 a little over 45% of all Chinese imports into the United States have been (i) industrial supplies and materials or (ii) non-automotive capital goods - i.e., inputs used by American companies.  So, when politicians like Sen. Chuck Schumer call for new tariffs on Chinese goods in order to "punish" China, it's critically important to remember that the pain will be felt by not only American families (through higher prices for food, clothing and other consumer goods), but also lots and lots of American businesses.  

And their many workers.

In fact, downstream US industries that consume these Chinese inputs typically employ a lot more Americans that the US raw material companies that would benefit from anti-China protectionism.  One of my favorite examples of this fact comes from an old Cato Institute study which showed that, at the time of publication, workers in steel-consuming industries outnumbered upstream steelworkers by a whopping 40-to-1.  (And that ratio has probably only gotten bigger as Big Steel has undergone a dramatic consolidation over the last decade.)  So when anyone talks about "saving American jobs" by taxing Chinese steel (or any other commodity), just remember that for every job those taxes might protect, more than 40 others are put at risk.  That's a bad deal in even the best of economic conditions, and it's highway robbery right now.

And just so we're totally clear here, the brutal costs of American tariffs on Chinese imports are not just limited to the prognostications of blathering free trade bloggers and their econo-geek stats.  They're very, very real, as made abundantly by this recent letter from an American printer who's trying to rally opposition to potential anti-dumping and countervailing duty tariffs on Chinese coated paper:

The U.S. International Trade Commission (ITC) will hold a hearing on Sept. 16 on the pending trade case involving coated free sheet (CFS) paper imports from China and Indonesia. If the ITC determines that U.S. paper manufacturers have been harmed by the practices of importers, it will apply additional duties to those imports.

I have been in the printing business for more than 25 years and I oppose duties in this case for many reasons. I believe the paper market has been competitive and domestic producers are not entitled to any special protections. Tariffs and duties are un-American and anti-competitive. As a printer, and as a customer, I want and need access to a wide range of products from many vendors to suit my customer’s needs and budget.

This is a critically important issue for the printing industry. It affects all of us because paper is our largest single input cost. If you agree additional tariffs in this case are unwarranted, your help is needed to verify facts about the competitive nature of the CFS paper market....

Sincerely,

Robert Johannes
Co-owner and General Manager
Parris Printing
Nashville, Tenn.

Johannes' website has more stories like his own and puts a very real face on the Chinese import data I've provided above.  And the lesson from all of this is breathtakingly simple: when you attack Chinese imports, you hurt American workers.

Hopefully enough of our elected officials get the picture.

US Proposes "Early Harvest" on Environmental Goods and Services: Good News, Bad News

Bloomberg reports that the United States is seeking an "early harvest" agreement on free trade in green goods and technologies (emphasis mine):

The U.S. is talking with Canada, the European Union and Australia about eliminating tariffs on solar, wind and related energy technologies to spur their use, U.S. Trade Representative Ron Kirk said today.

Kirk said the U.S. is seeking an “early harvest” for an agreement on so-called green technologies, which means an environmental deal wouldn’t have to wait for completion of the Doha Round of World Trade Organization talks. Negotiations on environmental goods have taken place since 2008.

“We think it only makes sense to make the trade of those goods more open,” Kirk said at a Washington event on patent protections. “We think it is important enough” that it could move ahead on its own, he said.

The U.S. and EU in 2007 jointly proposed eliminating trade barriers for 43 products ranging from thermostats to universal joints for wind turbines to parts for boilers. The proposal also called for easing investment rules for environmental services and a longer-term, broader round of tariff cuts for other environmental goods.

Total trade in such products topped $600 billion in 2006, according to U.S. statistics.

Kirk didn’t say when he hopes to wrap up a deal on environmental goods. President Barack Obama has made doubling U.S. exports a top economic goal, and spurring trade in green technologies could help accomplish that, according to Kirk.

The USTR announcement provides free traders with a dash of good news - it's one of the only instances in which the Obama administration has publicly advocated further opening the US market to imports and has proposed a specific plan to quickly accomplish such import liberalization.  Indeed, the only other "true free trade" (i.e., encouraging exports and imports) action that we've seen from the United States in the last 15 months is the negotiations on the Trans-Pacific Partnership (TPP) agreement, but even those talks aren't that big a deal because (a) we have no idea what a final agreement will look like, and (b) it's going to take years to complete.  So USTR's environmental goods plan is a small step forward for a US administration that since its inception has shunned FTAs, the WTO's Doha Round negotiations and every other import liberalization endeavor, and instead has pursued an insanely mercantilist trade policy.

Unfortunately, it's precisely that mercantilism which brings us to the bad things about the US announcement: it completely perverts the original purpose of the proposals on green goods and, in the process, undermines what should be an important public lesson about the benefits of imports (and harms of protectionism) in any market economy.  As the article above indicates, the original proposals on liberalization of "green trade" were part of the 2001 WTO Doha Round mandate, which made clear that these negotiations' primary objectives were to eliminate tariff and non-tariff barriers to trade in environmental goods and services in order to lower costs of, and improve access to, these important green technologies.  Lower costs and improved access, you see, mean more use of environmental products and services, and more use is obviously good for the environment.  (Cheap windmills and solar panels for everyone!  Woo hoo!)

Indeed, former WTO Appellate Body chairman James Bacchus has an op-ed in today's Forbes hitting on this issue while explaining how the WTO can dramatically improve the environment.  He states, in part:

Global implementation of climate-friendly technologies is a key to the success of global efforts to confront climate change. Access to green technologies by developing countries is central to this task. In particular, it is vital to increase energy efficiency in developing countries, which are only one-third as energy efficient as developed countries.

Trade negotiators have been trying to address this need for some time in the prolonged Doha Round of global trade negotiations. On the WTO agenda in the trade round are efforts to reduce or eliminate tariff and nontariff barriers to trade in dozens of environmental goods and services, including everything from wind turbines to solar water heaters to the thermostats and the generators needed to operate renewable energy plants.

Eliminating the barriers to trade in green goods and services would help diffuse them worldwide at the lowest possible cost by reducing their prices. In addition, it would provide incentives and expertise needed to enable developing countries to expand their production, use and export of climate-friendly technologies.

Indeed.  Meanwhile, it would provide consumers across the world with a valuable lesson about the benefits of imports and free trade - increasing use, access and variety, while dramatically decreasing costs.  And all to help improve the environment.  In sum: a very worthwhile endeavor.

So what's my problem?

Well, beyond the obvious fact that countries should recognize these import benefits and liberalize unilaterally instead of reciprocally, take a look at the passage that I bolded in the Bloomberg article above.  As you can see, USTR's sole justification for its green goods proposal is expanding US exports as part of the National Export Initiative (very similar to this new proposal from congressional Democrats).  There's no mention the cost/access/use reasoning of the original Doha Round mandate, and there's no discussion of the benefits of this green import liberalization for consumers in the US and abroad.  Instead, it's all about that same old mercantilist obsession with exports, and once again Americans are left to think that low-cost imports of these great, green products aren't actually good and desirable things.  Nope, we only care about exports in the United States, regardless of the fact that the, you know, environment could significantly improve through expanded American access to, and thus use of, imports of green goods and services.  Thus, USTR's public statements about this great import liberalization agreement actually end up reinforcing the misguided, economically-illiterate idea that import liberalization is bad - precisely the exact opposite point of the original environmental goods/services mandate!

How messed up is that?

So while the substance of the USTR announcement is generally good news, its delivery leaves a whole lot to be desired.  Baby steps, I guess.

Tuesday Quick Hits

Lots of hit-worthy stuff over the last few days:

• Well, that sure didn't last long.  Last week I expressed serious* concern about our beloved United States Trade Representative because he had uncharacteristically ditched his longstanding mercantilist rhetoric and was bizarrely evincing a rare moment of import-loving clarity.  Well, fear not, dear readers!  Ron Kirk was not - I repeat NOT - abducted by economically-literate aliens.  According to multiple news reports, after blurting a litany of scripted sanity, Amb. Kirk immediately slipped back into his import-hating fog, reflexively poo-pooing a bill that would unilaterally reduce tariffs on imported footwear: "Kirk told the [audience] that with respect to trade-related issues the administration’s focus is on increasing exports, not imports. 'It’s hard to look at our trade deficit and the openness of our economy and make a compelling argument to the American public that we don’t have enough imports'.... In addition, Kirk said, the administration believes that an effort to lower tariffs on imported footwear is more likely to be acceptable to Congress in the context of a multilateral agreement like the ongoing Doha round where the U.S. would get something in return. Given that the benefits of duty elimination would flow almost entirely to one country (which is undoubtedly China even though Kirk did not mention it by name), Kirk said, it would be politically difficult to persuade lawmakers to grant such a concession unilaterally."  Now that's more like it, Ambassador!  Of course, there's one tiny, technical problem with this statement: as even your basic college freshman knows, China would reap the second-most benefits from this bill.  The United States (particularly lower-income American families) would reap the biggest share of benefits (i.e., half of them) through lower prices for a basic necessity - shoes.  I guess Kirk wasn't kidding about not "focusing" on imports, huh?  (Clearly, the aliens have left the building.)

• Maybe, just maybe, American manufacturing isn't the pathetic loser that our politicians allege.  Courtesy of economist Mark Perry: "The Federal Reserve reported today that Industrial Production increased in February by 1.7% compared to the same month last year, the largest increase since the 2.2% gain in January 2008. The February gain followed a year-to-year increase in industrial production 0f 0.90% in January, marking the first time of two consecutive monthly gains since January-February of 2008, and reversing 21 months of negative annual growth from March 2003 to December 2009."  Well, whaddaya know.

• TPP, we shall see.  Cato's Sallie James has a great new paper out on the proposed Trans-Pacific Partnership agreement between the United States and Brunei, Chile, New Zealand, Singapore, Australia, Vietnam, and Peru.  Quick summary: "The first negotiating session of this group will meet this week, March 15–19, in Melbourne, Australia. While any positive move from the Obama administration on trade is welcome—especially in light of almost a year's worth of neglect at best and protectionism at worst—there were ominous caveats and concessions in the announcement for those who cared to look. Those murky details call into question the true value of this deal, especially when more valuable, signature-ready agreements are sitting in the hopper."  Sallie provides lots of good data/evidence to back up her claims (natch), so be sure to check out the whole thing.  And as I've already noted, I think she's probably being too kind. 

• The world and I share a common distaste for Paul Krugman's latest op-ed.  Apparently my humble criticism of Paul Krugman's latest journalistic malfeasance re: China's currency had some great company, e.g., here, here, here, here, here and here.  Heck, there's even a video-fisking!  Good to know.

• Obama might totally blow off Indonesia and Australia because of healthcare.  Rumors abound.  All I can say is, "Dude, seriously?" 

Canada Makes Its Southern Neighbor Look Like a Hoser

Reuters reports that the Canadian government will permanently and unilaterally eliminate import tariffs on a wide range of industrial inputs:

Canada's Conservative government pledged on Thursday to become the first G20 country to permanently eliminate all import tariffs on inputs for manufacturers by 2015, and most cuts will take effect immediately.

The tariff cuts on things like raw materials will save companies about C$300 million ($290 million) in a unilateral move that Ottawa sees as one of the boldest measures in its 2010 budget.

"Canada, as a nation whose prosperity is greatly dependent on trade, clearly understands the importance of open markets," the budget said....

The new measures will reduce the number of items subject to import duties ranging from 2 percent to 15.5 percent to 381 items from 1,541 items as of March 5, and that number will fall to zero by 2015.

At that time, the only imports subject to duties in Canada will be supply managed goods in the agricultural sector and consumer products.

The government said its pre-budget consultations showed that small and mid-sized businesses were enthusiastic about the tariff cuts, which will cut costs and paperwork.

Very cool.  With its big announcement, Canada joins several other countries -  including Mexico, India and the United Kingdom - who have recognized the critical importance of imports to their economies and thus implemented government policies reducing barriers to foreign goods, services and investment.  Good for them.

Now granted, the new Canadian trade policies aren't perfect - as Terence Corcoran of Canada's National Post points out, it's both incongruous and unfair for the Harper government to help Canadian businesses with tariff cuts but not to extend the tax savings to Canada's consumers by also eliminating tariffs on farm and downstream products.  Nevertheless, these tariff cuts should be loudly applauded for two big reasons.  First, news of a major developed economy embracing unilateral tariff liberalization to help its domestic manufacturers will provide a very public counterweight to the traditional protectionist myth that foreign imports somehow harm industrial producers and jobs - especially as those companies become more successful.  It also will allow everyday folks (who don't obsess about trade issues like me) to more easily see and understand how protectionism, not free trade, undermines domestic production and jobs.  And as that happens, other tariffs - like those remaining ones in Canada - will inevitably fall (especially with guys like Corcoran loudly calling for their elimination).

Second, Canada's permanent(!) unilateral liberalization (and that of other countries) will stand as a constant reminder of free market sanity - one that dramatically undermines the mercantilist pabulum coming out of many governments these days, including Canada's southern neighbor, the United States.  Just compare and contrast: 

• The Harper government is eliminating import tariffs and lowering the corporate tax rate for the express purpose of increasing its domestic companies' productivity and global competitiveness, while...

• The Obama government's new trade agenda refuses to acknowledge that imports even exist, no less benefit domestic manufacturers (despite the mountains of statistical and anecdotal evidence that such imports are critical to US businesses, and that US tariffs hurt American families).  Oh, and our corporate tax rate remains one of the highest in the world.

Embarrassing, eh?

Wednesday Quick Hits

A few interesting things worth noting before getting to spicier fare:

• Brazil delays... again.  According to BNA (subscription), Brazil announced Monday that it will delay a final list of US exports that will face retaliatory tariffs because of the United States refusal to reform its cotton subsidy programs in conformity with a long line of adverse WTO decisions.  This is the latest in a series of delays for the retaliation, and whether Brazil will ever finally impose the sanctions is uncertain.  The final list is now supposed to be released on March 8th.  We shall see.  For more information on the US-Brazil dispute and its implications, check out this recent piece that I co-authored with with Daniella Markheim of the Heritage Foundation.

• Protectionist rhetoric as email auto-reply. One of the constant themes of this blog is how attempts to "sell trade" through a mercantilist, exports-only trade policy will inevitably backfire because anti-trade groups will immediately respond by pointing out the US trade deficit (exports minus imports) as crystal clear evidence that America is "losing at trade."  Well, I noted Monday that the United States' 2010 Trade Policy Agenda took the mercantilist tack and then warned of "the deleterious effects on the American trade debate of an "exports-good-imports-bad" approach to trade policy."  And, like clockwork, the anti-trade group Global Trade Watch teed off on the White House's softball by - you guessed it - screaming about how the US trade agenda "continues to mimic the misrepresentations that the Bush administration borrowed from the U.S. Chamber of Commerce with respect to only considering the role of exports on U.S job creation, as if the U.S. did not have a massive job-killing trade deficit. An example is the hilarious statement about 10 million U.S. jobs being supported by exports in 2008 – a year we had a $696 billion deficit – without any reference to the net U.S. jobs effect of the flood of imports underlying that deficit."  How USTR Ron Kirk actually plans to "ensure broad support among the US public for new trade proposals" by using this misguided exports-only strategy is beyond me. 

• TPP under siege by the usual cast of characters.  Reuters reports that representatives of the US "dairy, sugar and textile sectors" are staking out their protectionist territory in advance of the first round of negotiations under the new Trans-Pacific Partnership framework.  I'm sure that you are just as shocked (shocked!) as I am at this development.