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.

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.

Weekend Quick Hits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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!

Monday Quick Hits

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

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

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

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

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

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

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

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

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

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

Monday Quick Hits

Lots to clear off here, so let's get right to it:

• New Peterson Institute study: imports don't put downward pressure on wages.  The authors conclusions: " This analysis suggests that the fears of rising US wage inequality from developing-country imports in recent years are unwarranted. While conventional trade theory makes such expectations plausible our investigation reveals they are far off the mark.... US industries competing with developing country imports are not particularly intensive in unskilled labor. Moreover, the relative effective prices of the US industries that are unskilled labor–intensive have actually increased rather than decreased since the early 1990s.  Changes in effective US prices from whatever cause have not mandated changes in relative wages. Neither have changes that can be ascribed to import prices mandated increases in wage inequality.... The goods exported by developing countries are highly imperfect substitutes for those produced by developed countries. This means that for the most part, unskilled US workers are not competing head to head with their counterparts in developing countries. It also suggests that methodological approaches to the question of trade and wages that measure the net factor content of trade or that assume that imports and domestic products and/or tasks are close substitutes rest on extremely shaky grounds." (h/t Alec Van Gelder)

• US manufacturers: Obama's National Export Initiative is "misguided" because it's economically illiterate.  Money passage:
  

  David Speer, chief executive of Illinois Tool Works, a large diversified manufacturer widely seen as a bellwether for the sector, noted that most big industrial companies have spread their manufacturing operations around the world, making the focus on exports a poor reflection of the health of the sector.
  
  The export drive “is very misdirected”, Mr Speer said in an interview with the Financial Times. “You often hear the politicians say: ‘those are US jobs that went overseas, they should be here.’ Well, most of the jobs go overseas for rational reasons – that’s where the growing market is.”
  
  “We’re not going to be any better off by saying: ‘we’re going to ship our product to China from the US’,” Mr Speer said.
  
  “We can’t do it. It won’t work. We won’t be able to compete – for lots of reasons, the smallest of which is the wage rates. It’s logistics, it’s the duties, it’s the closeness to the customer end-market that you can’t service remotely.”
  
  The ITW chief’s comments reflect a view expressed in private by many industrial companies that the export drive is unfeasible and gives the false impression that lost manufacturing jobs in the US will be replaced.

  Gee, now where have we heard that before?
  

• WSJ (subscription): Changes in China's currency won't change trade surplus because bigger, systemic changes are needed.  Cato's Dan Ikenson adds more here.  (And, yes, all of this also sounds vaguely familiar.) 

• WTO releases its Annual Report.  The new publication has lots of good info on the WTO's history and recent activities.

• AEI's Claude Barfield: Here's the real "big news" about the President's big weekend announcement re: the US-Korea FTA.  "Finally, for Washington inside baseballers, it is interesting that the planning and announcement of this decision was carried out by the National Security Council (NSC). This will undoubtedly feed the speculation that the White House staff really directs key U.S. trade policy decisions and that Michael Froman, the NSC Deputy Director for International Economics, is really the “go-to” guy, rather than U.S. Trade Representative Ron Kirk."

• Mark Perry: Colombia's economy is dominating because of its commitment to free markets and free trade.  Too bad the President didn't make an FTA announcement about them last weekend too, huh? 

• Sen. Jim DeMint (R-SC): The current system for requesting miscellaneous tariff suspensions is awful; my legislation will fix it.  Me: it also would end an ongoing spat between some US manufacturers and anti-earmark Republicans in Congress. 

• The UK: here's a simple reminder of why Americans should fight tooth-and-nail against a VAT.  (And, yes, that's twenty - two-zero - percent tax on top of everything else.) 
  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Well, folks, think again:

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

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

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

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

Odd that they wouldn't mention that, huh?

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

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

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

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

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

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

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

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

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

Thursday Quick Hits

I'm still tired from my birthday dinner last night, so you're only getting headlines tonight.  But as my mom would say, somehow I think you'll live:

• Cato's Dan Ikenson is on blog-fire today.  First, he's deflating the China-as-economic-model myth.  Then, he's all up in the President's grill about how our trade remedy laws undermine Obama's big National Export Initiative.  And he still had time to buy me lunch.  Very, very efficient, that guy.

• Germany's ridiculous new law restricting "naked" short-selling not only is economically illiterate, but also could violate global trade rules.  Unglaublich!

• Breaking down the conventional wisdom about the VAT and exports.  (Something to keep in mind next year when the President uses export-expansion as one of his reasons for cramming a VAT down our throats.)

• Everybody loves FTAs except America.  Further proof: Canada-Panama, EU-MERCOSUR, EU-Canada. Good for them.  Bad for us.

• KPMG Report: Mexico is the most tax-competitive country in the world.  The United States now ranks sixth (out of ten), down one spot since last year (grrreat).  And the highest-tax country in the world?  France.  Shocking, I know.

• Speaking of higher American taxes, here's a shock:  it is literally impossible to tax your way out of a fiscal hole.  There's a law and everything (plus one of the coolest charts I've seen in a while).  Oh, there's a good comment on this issue here by Cato's Dan Mitchell.

• China's back to being the #1 holder of US debt.  Cue ominous music and dumb politician statements about "America's banker." 

• The United States Supreme Court decides (kinda) that free speech and free trade don't mix.

• And finally tonight, economists and policymakers often like to sell free trade by explaining how well it works for the American states and how stupid interstate protectionism would be.  This smart move plays to people's inherent understanding and reason and is often successful in converting trade skeptics.  These guys, however, did NOT get that memo:
  
   

It's Official: US Trade Policy is an Embarrassment (But That Could Actually be a Good Thing)

Late Friday night, when you were home nestled all snug in your bed (or out at some bar), the White House issued a Presidential Proclamation that May 16-22, 2010 - yes, the week starting 30 hours after the notice was issued - would be World Trade Week:

NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by virtue of the authority vested in me by the Constitution and the laws of the United States, do hereby proclaim May 16 through May 22, 2010, as World Trade Week. I encourage all Americans to observe this week with events, trade shows, and educational programs that celebrate the benefits of trade to our Nation, American workers, and the global economy.

I don't know about you, but I have been scrambling ever since the big announcement to put together my event/trade show/educational program - my "celebration!" - of the benefits of "trade" (not "free trade") to our nation.  (The Evite is in the mail!)  Cato's Dan Ikenson has done his part with a stirring blog entry/call-to-arms on US trade policy and the President's obvious love therefor:

Mr. President, I applaud your efforts and recognize that decision must not have come easily. There were probably late-night discussions with your staff, contemplative 2am walks through the Rose Garden, and perhaps some sleepless nights. To even imply that trade may be beneficial to Americans—this close to November, no less—was an act of profound political courage.

Indeed.  Ok, ok.  I think that by now you understand that Dan and I are - shocking, I know! - being rather sarcastic about the President's big announcement.  But can you blame us?  Not only was the White House's press release and proclamation more neutered than Bob Barker's dog, but it also was issued a mere 1.5 days before the exciting week was to officially begin.  Thus, only those of us who are really in-the-know were aware enough to RSVP for such riveting USTR World Trade Week Events like USTR Ron Kirk's closed-to-the-press meeting with South Korean Trade Minister Kim Jong-hoon, or the environmental roundtable focusing on trade and illegal logging, or the USTR/Labor Dept. meeting of the Sub-Committee on Labor Affairs created under the United States-Morocco FTA.

World Trade Week Fever, baby!  Catch it!

Of course, the other important fact of the Presidential Proclamation's timing was that it was issued as part of the White House's traditional "Friday Night News Dump."  For those of you who don't know, the Obama administration (like its predecessor) has a long history of releasing bad or embarrassing news on Friday night after the evening news cycle so that the announcements' first TV mention won't be until Saturday morning when most normal people are enjoying their weekends and not watching FOX or CNN.  Indeed, the only other time that the Obama White House has released a Friday night international trade announcement was the President's controversial decision to impose prohibitive tariffs against Chinese tires pursuant to "Section 421" of US trade law - a move that's still biting the President (and American exporters) where the sun don't shine.

So why did the White House release the proclamation on Friday night?  Well, I see two possibilities.  First, they're afraid of stirring up controversy with the trade-hating part of their political base, so this was an easy way to keep it under the radar.  But as Ikenson notes above, the World Trade Week announcement didn't have a single controversial word to it.  Consider this riveting excerpt:

To ensure American companies have free and fair access to global markets, we are enforcing existing trade agreements, addressing issues in pending agreements, and forging new ones that protect our businesses, workers, consumers, and environment. We are also opening new markets and encouraging development with trade preference programs. These steps will bring us closer to accomplishing the ambitious goal I set in this year's State of the Union address to double our Nation's exports over the next five years.

As we pursue measures to safeguard our future prosperity, we must remember that we still have the most innovative and productive workers in the world. We have the most dynamic and competitive economy, and we remain the top exporter of goods and services. As other nations and markets grow, our leadership will not be guaranteed. Yet, our success has never been guaranteed. It has been forged through decades of hard work, ingenuity, optimism, and common purpose.

This week, let us renew the enduring principles that have driven our Nation to the forefront of human progress. With our ships, trucks, trains, planes, and fiber optic lines, we will send our goods and services to every corner of the globe. Together, we will make this new century an American century yet again, and secure a bright future for generations to come.

Ok, so is it really plausible that empty words like these were issued as part of a Friday Night News Dump to avoid scrutiny from unions and other anti-traders?  I mean, even with a few important 2010 primaries tomorrow, it seems like a real stretch to think that the AFL-CIO is going to issue an all-points electoral bulletin against the White House's support for America's "innovative and productive workers" or its "ships, trucks, planes and fiber optic lines." 

I guess it's possible, but I'm skeptical that this is another example of White House free trade cowardice - even this White House.  Instead, I think the more likely reason for the President's Friday night announcement is that his administration is truly embarrassed that it has absolutely nothing to announce.  Pending US FTAs with Panama, Colombia and Korea aren't going anywhere this year, and meanwhile it seems like every other country on the planet is implementing their own trade agreements (without the US) at a breakneck pace.  The WTO's Doha Round is absolutely dead, and the United States' inaction is one of the main reasons why.  The Obama administration still hasn't announced a formal trade policy (and might never do so), and USTR's 2010 "trade agenda" has almost no mention of half of the "trade" equation - imports.  Indeed, the administration's top "free trade" moves - the National Export Initiative and the Trans-Pacific Partnership - are so harmless that not even the staunchest of protectionists have found reason to complain (yet).  As I said a while back, calling the NEI and TPP "free trade" is like calling onanism "free love," and that bad joke still applies today.

Now, I've blogged often about the administration's inaction on trade, but over the past several months I've been joined by many other commentators, mainstream news outlets, American business leaders, and US trading partners.  Even political leaders in the President's own party are beginning to complain about our trade non-policy, so for Obama to loudly and publicly announce the beginning of World Trade Week would call even more attention to what's quickly becoming quite the black eye for the White House.  And I can't really blame them for wanting to avoid more scrutiny on this embarrassing issue.

But hey, there's actually a small silver lining to my dark-clouded theory: if I'm correct and the World Trade Week proclamation was issued late Friday out of embarrassment instead of political cowardice, there might still be hope for this administration on free trade.  It shows that they actually comprehend just how bad their trade non-policy is, instead of thinking that they have over the last 16 months crafted a decent free trade policy that needs to be shielded from anti-trader scrutiny during the 2010 election season.  Because if this is really the President's best shot on trade, we're in deep, deep trouble for the next 2+ years.

They say that admitting you have a problem is the first step to overcoming that problem.  Maybe the White House's World Trade Week embarrassment is a sign that the President and his advisers have taken, or are almost ready to take, that step.  And if so, maybe there's a little hope for American trade policy after the November mid-term elections.

Maybe.

New Op-Ed: On Trade, It's Put Up Or Shut Up

I have a new op-ed in The Daily Caller today.  I hope you like it; as always, your feedback is welcome.

On trade, it’s put up or shut up

With his signature health care legislation now law, President Obama has a little under three months to prove that he actually supports free trade. After that, all bets are off.

By almost any metric, the Obama administration’s trade policy has been a disappointment. Inaction pervades, and our trading partners have gone from mildly annoyed to downright hostile. But the American trade agenda didn’t always look to be headed this way. In Spring 2009, the White House dramatically reversed the protectionist campaign rhetoric of then-Senator Obama. U.S. Trade Representative Ron Kirk launched an aggressive campaign advocating free trade and denouncing protectionism. The White House’s first Trade Policy Agenda called for ratification of the pending U.S.-Panama Free Trade Agreement “relatively quickly,” and sought to advance other completed FTAs with Colombia and South Korea. The Agenda also unequivocally supported the World Trade Organization and NAFTA, and anticipated congressional renewal of the President’s “fast track” trade negotiating authority.

Then political reality set in.

Immediately following the shift in White House trade rhetoric, congressional protectionists, almost all within Obama’s own Party, launched a stifling counter-offensive. Senator Sherrod Brown (D-OH), for example, expressed disappointment with USTR’s pro-NAFTA rhetoric and pledged to make it clear to President Obama that “our trade policy is not working and that it needs fixing.” Such comments proved effective. The White House abandoned overt free trade actions and speeches in order to secure needed health care votes from anti-trade Democrats – a move that Rep. Henry Cuellar (D-TX) apologetically confirmed at June 2009 Cato Institute event.

As the health care debate stagnated, so did US trade policy, and it remains that way today. Signed FTAs remain shelved, despite the fact that the EU, China and others have negotiated preferential deals with the same FTA partners, each to the competitive disadvantage of American companies. The WTO’s Doha Round negotiations are comatose, even though an ambitious Doha deal would provide billions in benefits to US economy. And US exporters endure superfluous pains because the White House has failed to resolve several bilateral trade disputes, including $2.4 billion in Mexican tariffs resulting from the United States’ NAFTA-illegal ban on Mexican trucking, and the threat of almost $900 million in Brazilian sanctions based on US non-compliance with WTO rulings against American cotton subsidies.

Despite these problems, some might argue that the National Export Initiative and the Trans-Pacific Partnership negotiations are concrete evidence that the Obama administration is dedicated to free trade. But real free trade policies – like the pending FTAs – involve immediate market liberalization at home and abroad. The NEI, by contrast, is a one-sided, non-controversial program which seeks to expand US exports through a timid combination of margin-tweaks that most economists believe will have little effect on US trade flows. Thus, calling the NEI “free trade” is like calling onanism “free love.”

The TPP Agreement, on the other hand, could yield significant trade gains, but would take years complete. Indeed, USTR Kirk lauded the TPP negotiations precisely because they won’t be completed for years. Of course, this is the same USTR whose 2010 Trade Agenda mentioned the word “import” only five times, and never once in terms of domestic market access. So Kirk’s statements about the TPP and the administration’s advancement of the NEI are hardly surprising. They’re just par for the cowardly course.

Throughout all of this, administration officials and the few free trade Democrats in Congress have quietly reassured the US business community that America’s free trade legacy will re-emerge once the contentious health care debate is over. In September 2009, Transportation Department officials told a concerned group of affected exporters that the White House would not resolve the Mexican trucking dispute because the President needed Teamster support for ObamaCare. And at an October 2009 event, Reps. Cuellar and John Tanner (D-TN) assured their audience that the FTAs would progress once the health care debate ended.

Well, folks, health care’s over. Time to put up or shut up.

Most of the United States’ current trade irritants are within the White House’s control to fix, as long as the President willing to expend an iota of political will to get things done. Signed U.S. FTAs have already been ratified by the partners countries and now only require the President to send their respective implementing legislation to Congress for ratification. While many congressional Democrats will resist such legislation, Obama can expect significant support from Republicans, many of whom, like House Trade Subcommittee Ranking Member Kevin Brady (R-TX), have routinely called on the President to submit the trade deals. Other issues show similar potential for bi-partisan resolution. All they require is an end to the White House’s politically-motivated ambivalence.

In late June, Washington will turn its attention to the November mid-term elections, and controversial legislation will become untouchable. If President Obama and his free trade supporters really mean what they’ve said over the past year about the President’s commitment to free trade, the White House will move on one or more of the unresolved trade issues before this “silly season” begins.

If, on the other hand, June comes and goes, and these issues are still unsettled because of the administration’s political calculations, then the die will have been cast. And no amount of excuses will be able to convince American businesses and consumers that this President really cares about free trade.

*     *     *

Bloomberg's Al Hunt strikes a similar note in his op-ed today.  I highly recommend giving it a look.

The VATMan Cometh?, ctd.

Charles Krauthammer today:

That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).

It’s the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

Obama set out to be a consequential president, one on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes; then, ultimately, you have to reduce government spending.

Obama’s strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.

And the VAT is the only trough in creation large enough.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.

Ultimately, even that won’t be enough. As the population ages and health care becomes increasingly expensive, the only way to avoid fiscal ruin (as Britain, for example, has discovered) is health-care rationing.

It will take a while to break the American populace to that idea. In the meantime, get ready for the VAT. Or start fighting it.

Well, that's certainly depressing.  But hey, you can't say I didn't warn you a few months ago (for some different, but mostly the same, reasons):

The White House and Congress are already pushing a huge tax on energy (through Cap and Trade) that would certainly decrease domestic consumption of energy-intensive products (especially if it includes carbon tariffs on imports of these goods).  But Cap and Trade appears dead in the Senate this year, and the White House has already hinted that the legislation might need to be shelved so the administration can focus on deficit-reduction and jobs policies in 2010.

On the other hand, several high level Democrats - including those inside the White House - are openly contemplating a Value-added Tax (VAT) on all domestic consumption.  The VAT not only would significantly temper American consumption, but also would raise massive amounts of new revenue for the cash-strapped US government to pay down its debt (also mentioned in Obama's "strategy" speech) and/or finance major new government programs like trillion-dollar health care "reform."  Finally, VATs are not collected on export sales, and any previous VAT paid on inputs used to make the exported product is typically refunded at the border.  So exports gain new preferential status in the US economy under a VAT system.  In sum, a VAT would be a classic three-fer for the Obama White House: discouraging US consumption, encouraging exports, and (sneakily) raising oodles of revenue for the federal government.  Of course, whether it's actually good for economic growth is a totally different matter (hint: it isn't).

In this light, Obama's odd "Asia strategy" makes a lot more sense: he's essentially giving notice to China and other Asian economies that rely - at least in part - on American consumption that such consumption is going to be dramatically tempered by a new VAT - a policy that also will encourage US exports and help quell fears about an exploding US deficit and an imploding US dollar.  Pillars #1 and #2 are just window dressing.

Of course, the President and his party could avoid all of this "rebalancing" nonsense and encourage strong US and Asian economic growth if they would just stop spending money that the United States doesn't have and lower taxes (particularly capital gains and payroll taxes), not raise them, to encourage savings, investment and hiring.  But that's not how they roll (as the $2 trillion ObamaCare debacle and the President's $3 trillion budget make abundantly clear).  Instead, they're scheming to find a new, secret way to confiscate lots of taxpayer money, discourage American consumption, and boost exports.  Cripes.

So open your wallets, everyone.  The VATman cometh.  Let the "rebalancing" begin.

Since I wrote that little piece of sunshine, the White House introduced its inevitably-ineffectual National Export Initiative, so any future VAT recommendation might be premised on "saving" both the federal budget and the fledgling NEI (with its silly goal to double exports in five years).  Maybe not, but as the debt piles up and US exports don't spike, a serious VAT proposal becomes an increasingly plausible scenario.

As Dr. K says, there's still time for the American people to fight this travesty and to prove us both wrong.  Please, please do so.

Reality Destroys Rhetoric, in Record Time

REMARKS OF THE PRESIDENT AT THE EXPORT-IMPORT BANK'S ANNUAL CONFERENCE,  MARCH 11, 11:30 AM EST:

We’ve got some of the most innovative companies in the world –- and we should be advocating on their behalf to boost local economies and create jobs here.

This is an effort I will personally lead as President. Next week, I’ll take my second trip to the Asia Pacific –- a region that will be fundamental to America’s ability to create jobs and to thrive in the 21st century. We can’t be on the sidelines -– we have to lead, and our engagement has to extend to governments and businesses and peoples across the Pacific. So while I’m there, I’ll visit Indonesia and Australia, two vibrant economies and democracies that will be critical partners for the United States. And in both countries, I’ll highlight the role that American businesses play there, and underscore how strong economic partnerships can create jobs on both sides of the Pacific while advancing both regional and global prosperity. Going forward, I will be a strong and steady advocate for our workers and our companies abroad.

THE WASHINGTON POST, MARCH 12, 2010, 9:04 AM EST:

President Obama will leave for Indonesia three days later than planned, departing March 21 rather than March 18, in an effort to move stalled health-care legislation through Congress, the White House said.

"The President will delay leaving for Indonesia and Australia - will now leave Sunday - the First Lady and the girls will not be on the trip," tweeted Press Secretary Robert Gibbs Friday morning.

The White House had set a March 18 deadline for the House to complete work on the health-care bill, so it could be finished by the time Obama left the country. But Democratic leaders in the House and Senate have refused to commit to that date.

DURATION OF COMPLETE RHETORICAL DISINTEGRATION: 21 HOURS, 34 MINUTES.

A new record!!

Expanding US Exports, One Frequent Flyer Mile at a Time

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

It was utterly uneventful.

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

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

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

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

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

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

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

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

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

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

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

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


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

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.

Becker, Posner Diss the National Export Initiative

Posner: "Of all the 'job programs' undertaken or contemplated by our government, the President’s plan to double exports in five years seems to me the most fatuous."

Burn.

Becker: "Posner shows, among other things, the basic impossibility of doubling US exports during the next five years. I consider whether such a policy makes sense, even if it could be achieved. My short answer is that it does not."

Double-burn.

Be sure to read both posts in full.  There's lots of good, thought-provoking stuff in there on the NEI and other aspects of US trade and economic policy, as well as China's much-debated currency policy.

Chart of the Day: Import Truths

To understand just how valuable imports are to US businesses - especially manufacturers - one need only look at the following chart, courtesy of Economist Mark Perry.

Perry uses this chart to help explain why cheap Chinese imports actually strengthen US businesses and, by extension, increase American jobs: "As the chart above shows, almost 60% of imported goods are: a) industrial supplies (chemicals, commodities, raw materials, etc.) and b) capital goods (machinery, equipment, parts, tools, etc.) which are mostly purchased by AMERICAN COMPANIES as inputs for production in the United States.  Being able to purchase Chinese and other foreign inputs at the lowest possible price makes American companies MORE competitive, sell MORE of their products, and hire MORE American workers."  Indeed.

The chart also clearly demonstrates why improved access to imported goods (and services) must be a critical component of any national policies geared at increasing US exports.  As I recently wrote, "[A] strong, positive correlation exists between import growth and export growth—a statistic that makes perfect sense when one realizes that over half of all U.S. imports are capital goods and equipment used by American manufacturers to produce globally-competitive products. Such data are helpful signals of imports’ vital role in the U.S. economy, and they undermine a [mercantilist] U.S. export policy that ignores access to foreign goods." 

Unfortunately, our current export policies do just that.

UK to US: Your Mercantilist Trade Policy Is Bollocks

I stumbled across a recent blog entry by British Trade Policy Adviser Patrick Thomas that lauds recent US efforts to expand trade but, in typical British fashion, politely explains why the UK's new trade policies are far better (emphasis mine, silly UK spelling his):

[I]t is encouraging that here in Washington, policymakers are talking seriously about engaging with the world through trade. After a year in which trade policy did not feature prominently, President Obama used his State of the Union Address to announce an ambitious plan to double US exports in five years. His Commerce Secretary, Gary Locke, claims that the plan would also support two million jobs in the United States.

Expanding trade is a way to boost economic growth and create jobs, and one that I recommended in my last blog. And in fact, the UK has a comprehensive strategy called 'New Industries, New Jobs', which sees an important role for exports as a driver of growth. What's interesting about the strategy is that it emphasises that exports are only one piece of the puzzle. It recognises that the UK cannot efficiently produce everything by itself. What's key is preparing workers for the high-paying jobs in the industries of tomorrow. To pursue this agenda, it is necessary to recognise that both inward and outward trade flows figure in greater prosperity.

Indeed, modern trade theory tells us that imports are just as important as exports...

The UK has long embraced open trade as a policy, which has played a key role in making Britain a wealthier, more dynamic and more diverse society. So let's promote exports, but let's not forget the benefits of imports as well....

The loud *thud* sound you hear is me falling our of my chair.  Thomas even cited the iPod as an example of how nations benefit from, and thus should embrace, specialization and modern global supply chains.  Good for him.  And great for the UK for adopting a commonsense, 21st century trade policy and (again, politely) calling attention to the asininity of American mercantilism.

If only the White House were listening.

New Op-ed in The Daily Caller: "Exporting Nonsense"

For those of you who read this blog religiously (ha!), some of the stuff in my new op-ed ("Exporting Nonsense") in The Daily Caller will sound a bit familiar - it cobbles together several of my musings on the administration's new National Export Initiative.

For the rest of you, enjoy!

Given constraints on the op-ed's length, I had to omit some key data referenced in the piece.  All of that is available in various postings here, if you're interested.

(And for those of you who have yet to discover TDC, check it out.  It's a great new website for straight news, great conservative/libertarian commentary, and good ol' fashioned beltway gossip.)

Irony Watch: Poster-child for Export-only US Trade Policy Depends on Imports

I've already done my fair share (stop laughing) of complaining about the Obama administration's new National Export Initiative, blathering about, among other things, its unrealistic and potentially counterproductive focus on expanding US exports without a concomitant focus on the critical importance of imports (and free access to them) for US exporters and the US economy more broadly.  I've laid out my theoretical, political and economic arguments at length (seriously stop laughing), but nothing sells my point as well as a very simple real-world example, provided yesterday by none other than the NEI's chief cheerleader, Commerce Secretary Gary Locke. 

In his speech unveiling the NEI, Locke praised the government's magical export-boosting powers through (as I've already covered) export promotion and increased trade enforcement, while never once mentioning imports or domestic market liberalization (or certain dust-covered FTAs, for that matter).  He then closed with the following:

We want to help write more export success stories like the one we saw from a company called Air Tractor in Wichita Falls, Texas.

Working with the Export-Import Bank and the Commerce Department’s Export Assistance Center in Fort Worth—Air Tractor relied on growing foreign sales to not only survive but thrive in the midst of last year's recession.

Over the last decade, the company has seen its exports grow from 10 to 45 percent of its business. And they’ve doubled their workforce from 100 to 200.

This small company in a rural area of Texas is now selling its crop-dusters and firefighting aircraft to countries like Spain, Brazil and Australia. And along the way, they’ve relied on the Export-Import Bank to provide financing for their customers that private sector banks would not. To date, Export-Import has assisted with the completion of some 70 deals.

Now if Air Tractor can do this, there's no reason that thousands of other companies across America can't do the same. They can grow their sales abroad, create new jobs here in America and get our economy moving.

And the message I want to send to all these companies that are struggling to find customers, or to hire new people, or to increase the hours of their workers is this:

Look abroad. There are opportunities there. And the National Export Initiative is a clear signal that the Obama administration is committed to helping you find it.

Locke draws a simple, black-and-white portrait of an American company exporting its products all over the world, all because of Uncle Sam's export promotion efforts.  But (leaving aside the blatant government self-glorification involved here) Locke's doodle reflects a basic ignorance, willful or otherwise, of how a 21st century economy actually works, and thus what a 21st century trade policy should look like.  See, if you look just a little more closely at Air Tractor and its commercial endeavors, you'll quickly see just how simplistic and archaic the administration's new trade policy really is:

• First, we find that perhaps the most important component in all of Air Tractor's planes is an aviation engine (the P&W PT6A) manufactured by Pratt & Whitney Canada and then imported into the United States duty-free (HS 8407.10).  P&W Canada is a sibling of American-owned aerospace manufacturer Pratt & Whitney, and both companies are subsidiaries of of United Technologies, one of the largest manufacturing conglomerates in the United States (with, of course, production and sourcing worldwide).

• Second, we discover that Air Tractor has itself become "multinational," with the opening of Air Tractor Europe, an affiliated sales division headquartered in Spain and handling sales of Air Tractor planes in Spain, France, Portugal, Greece, Italy, Croatia, Israel, Turkey, and North Africa.

So to recap: the poster-child for the President's new export initiative is a multinational company that relies on duty-free access to imported engines (and I'm sure other imported things like parts, equipment, materials and machinery) to produce its globally competitive product.  And this company uses an affiliated foreign sales office to sell its products overseas, the profits from which are either reinvested in the foreign operations or repatriated to the company and its 200 American employees (designers, marketers, salespeople, management and, of course, manufacturing and assembly workers).  And-oh-by-the-way, the aforementioned engines are made in Canada by a subsidiary of a US multinational with operations all over America and the rest of the world.

Seen in this light, the story of Air Tractor's commercial operations is a lot more complex than the coloring book Secretary Locke's trying to sell us - one about a mom-and-pop store that's just desperate for Uncle Sam's export promotion assistance - now isn't it?

Even more importantly, Air Tractor's business model completely undermines the White House's current approach to trade.  I mean, how on earth does this 21st century company fit into a "new" mercantilist US trade policy that ignores - and even denigrates - imports and their value to the future competitiveness of the US economy?  And how do Air Tractor and larger American companies like P&W and United Technologies, with their many US employees and overseas operations, fit into the President's oft-trumpeted plan to "end tax breaks for US companies that ship jobs overseas"?

The answer: they don't fit.  At all.

Until the White House realizes these facts - that today's globalized economy is simply incompatible with a simplistic, mercantilist trade policy - and until it develops policies that embrace import and investment liberalization just as much as export expansion, companies and investors looking for sound, 21st century free trade policies should heed Locke's closing advice:

Look abroad.

Increasing Exports, ctd.

I promise that this will be the last post on export promotion, but a few things caught my eye today that deserve quick mention:

• The President spoke more on trade at today's (otherwise boring) meeting with Senate Democrats.  His response to a hilariously-trite question from Sen. Arlen "Need Every Union Vote I Can Get" Specter (RD-PA) was good and bad.  Good: he refused to confirm the protectionist myths that Specter was spewing (import-caused job losses in manufacturing, trade deficit demagoguery, China-bashing, trade cheating, etc. - Arlen pulled out the stops!).  Bad: Obama's big free trade solutions remain reciprocity, export promotion and increased enforcement, thus tacitly reinforcing Specter's protectionist nonsense and ensuring sub-par export results.  Oh, and no mention of FTAs or the WTO's Doha Round - not a good sign that the White House plans to confront anti-trade Democrats this year, now is it?  (More on that below.)

• Speaking of protectionist myths and the policies that promote them, professional anti-traders Public Citizen released the following response to Obama's new export plan: "Obama's export promise is a step in the right direction, given our overwhelming trade deficit, and a decline in exports of 19 percent last year.  However, by our calculations, a doubling of exports would imply a 15 percent annual export growth rate, sustained over the next five years. That's almost double the annual average from 2004-08. Moreover, if imports grow at their 2004-08, we would still be left with a trade deficit by 2014. That means that we need a trade policy... that commits to looking at both sides of our trade balance ledger." Gee, that sure sounds familiar, huh?  Ugh.

• The Peterson Institute's Fred Bergsten has a new Washington Post op-ed on "How Best to Boost US Exports."  Most of his solutions sound verrrry familiar: (i) passing trade agreements; (ii) reforming export controls; and (iii) lowering corporate taxes, including a possible switch to a domestic consumption tax.  Unfortunately, the influential Bergsten also believes that monetary policy should play a key part in export promotion and calls for aggressive action against China, in particular.  Obviously, I have serious doubts about this suggestion, not only because it's absurdly interventionist, but also because I think it'd be both dangerously provocative and ultimately ineffectual.  Speaking of which...

• Author and journalist Alexandra Harney has a great op-ed in today's WSJ Asia about how appreciation of China's currency will have little effect on Chinese exports or US manufacturing - something I've been saying for months now.  She concludes: "Proponents of a Chinese revaluation often claim it would contribute to a global rebalancing between high-consuming Americans and high-saving Chinese.  The reality is that China has strong competitive advantages in manufacturing that will exist for the foreseeable future, whatever the exchange rate."  I can't say I agree with everything Harney writes here, but on this point I think she's dead-on (and I'm certainly not alone in that thinking).

• On tax policy and trade, Matthew Slaughter has an excellent op-ed in today's 'Merican WSJ about the unmitigated disaster that would be President Obama's plan to "end tax breaks for companies that ship US jobs overseas."  Citing a boatload of awesome data, Slaughter finds that Obama's international tax plans would impose an additional $122.2 billion in taxes on US multinational companies, thereby destroying US jobs, exports and investment.  Slaughter rightly concludes that "[t]o climb out of the recession, we need to create millions of the kinds of jobs that U.S. multinationals tend to create. Economic policy on all fronts should be encouraging job growth by these firms.  The proposed international-tax reforms do precisely the opposite."  Instead of these reforms, Slaughter recommends - big shock! - passage of pending FTAs with Colombia, Panama and South Korea, as well as adopting pro-growth tax policies.

• Speaking of pending FTAs, it appears that Treasury Secretary Timmy Geithner got a little overheated today at a House Ways & Means Committee hearing and boldly proclaimed that 2010 passage of pending US FTAs with Colombia, Panama and South Korea was "absolutely" part of the administration's new export strategy.  Unfortunately, Treasury and USTR officials quickly called the cops on Geithner's FTA party by "clarifying" those unscripted remarks with the same nonsense that they've been peddling for 13 months now: "They said U.S. trade officials still had to resolve outstanding issues with the three countries before Obama would send the FTAs to Congress for a vote. 'Once these issues are resolved, the administration looks forward to working with Congress on the best time to move the agreements forward,' a Treasury spokeswoman said."  Feel the excitement!

Ok, ok, I'd say that's enough on exports for a while. (Unless something else comes up tomorrow, natch.)