May 07, 2008
Sugar!
WSJ:
A proposal to sweeten government support for American sugar producers is emerging as a major sticking point between Congress and the White House in final negotiations on the farm bill.The initiative is a priority for House Agriculture Committee Chairman Collin Peterson, a Democrat whose rural Minnesota district is among the nation's top producers of sugar beets.
Rep. Peterson is pushing a package of proposals that would bolster the industry, including a plan to commit imported sugar to ethanol production, rather than having it sold into the consumer market, where it would compete with U.S. producers.
Posted by Dingel at 08:42 AM | Comments (0) | TrackBack
April 30, 2008
Boston Tea Party: Protectionist sabotage
The Townshend Act forbade the [East India] Company frrom selling its goods directly to the colonists. Instead, the EIC had to auction merchandise to middlemen, who then shipped the caragoes to American wholeslaers, who finally sold to local shop owners. In May 1773, Parliament, at the request of the EIC, passed the Tea Act. It imposed no new taxes, but rather allowed the Company, for the first time, to import tea directly from Asia into America. The act cut the price of tea in half and was therefore a boon to colonial consumers.The middlemen cut out by the act, local smugglers and tea merchants, were not as happy... In November 1773, the East Indiamen Dartmouth, Beaver, and Eleanor entered Boston Harbor with the fisrt loads of the EIC's tea. The conspirators, probably led by Samuel Adams, were well prepared and highly disciplined: they cleaned the decks when they were finished and took no tea for personal use or later sale.
-- William Bernstein, A Splendid Exchange: How Trade Shaped the World
HT: EconTalk
Posted by Dingel at 11:10 AM | Comments (0)
April 25, 2008
Shamelessness
Suddenly, Japan wants the WTO to liberalize the rice market.
Posted by Dingel at 08:15 PM | Comments (0)
Uncollected anti-dumping duties
U.S. Customs and Border Protection (CBP) has been unable to collect hundreds of millions of dollars in antidumping (AD) and countervailing (CV) duties. The Department of Commerce imposes these duties to remedy injurious unfair foreign trade practices (unfairly low prices or subsidies). The noncollection of AD/CV duties means that the U.S. government has not fully remedied the unfair trade practices and bears a substantial loss of revenue...While over $600 million in AD/CV duties dating back to 2001 remain uncollected, they are highly concentrated among a few products, countries of origin, and importers... [A] relatively small number of importers owe the vast majority of these uncollected duties... According to CBP officials, prospects for collecting a sizeable portion of these bills are slim, because many of the importers have disappeared, have no assets, or have declared bankruptcy...
Four key factors contribute to uncollected AD/CV duties... First, because the U.S. AD/CV duty system involves the retrospective assessment of duties, the final amount of AD/CV duties an importer owes can significantly exceed the initial amount paid when the goods entered the country. Second, companies that did not previously export products subject to AD/CV duties, i.e., "new shippers," pose two types of risks for collections. For example, new shippers can be assigned an AD/CV duty rate based on as few as one shipment, which can significantly underestimate the final duty rate... Third, all importers must provide a general bond to secure the payment of all types of duties, but CBP's standard practice for setting the amount of this bond inadequately protects AD/CV duty revenue... Fourth, CBP collects minimal information regarding importers and does not conduct background or financial checks, which creates challenges to locating importers and collecting AD/CV duties.
What should we be paying more for? "Approximately 84 percent of the total amount of uncollected AD/CV duties is associated with four products, all from China: crawfish tail meat, garlic, honey, and mushrooms."
I can't say I'm too upset.
[HT: H&R]
Posted by Dingel at 09:38 AM
April 21, 2008
Antidumping in the Supreme Court
Did you know that you can't dump a service?
The Supreme Court said Monday it will rule on a case that could make it harder for U.S. companies to obtain protective tariffs on low-priced foreign goods.The dispute centers on whether uranium that U.S. utilities send to France for enrichment and then import for use in nuclear power plants qualifies as a 'good' or 'service.' The question is critical because only manufactured goods, not services, are subject to U.S. laws that can add punitive tariffs to cheap imports.
Posted by Dingel at 05:03 PM | Comments (0)
March 29, 2008
Protection for sale?
New evidence isn't friendly to Grossman & Helpman's "Protection for Sale" (AER, 1994):
Unlike existing methods in the literature, our approach does not require any data on political organizations. We formally show that the PFS model predicts that the quantile regression of the protection measure on the inverse import penetration ratio divided by the import demand elasticity, should yield a positive coefficient for quantiles close to one. We test this prediction using the data from Gawande and Bandyopadhyay (2000). The results do not provide any evidence favoring the PFS model.
That's Susumu Imai, Hajime Katayama, and Kala Krishna in NBER WP 13900. They argue that the past literature testing PFS doesn't cut it:
In sum, we argue that if we are to structurally estimate the PFS model using the data used by Goldberg and Maggi (1999) and Gawande and Bandyopadhyay (2000), we should not use an arbitrary classification scheme along with the campaign contributions to generate political organization dummies. The structural estimation and testing of the PFS model would require treatment of the political organization dummies to be fully consistent with the prediction of the PFS model. To our knowledge, this has not been done in the literature.
Of course, the old literature on testing the PFS model of trade protection produced the (puzzling) result that governments cared much more about consumer welfare than contributions. But this attack on the relationship between protection, demand elasticity, and import penetration is even more fundamental.
Posted by Dingel at 03:10 PM | Comments (0)
March 15, 2008
Two letters on Lighthizer
Robert Lighthizer's protectionist NYT oped was so bad that I don't mind piling on a week later. Here are two letters from professors of economics.
First, Dartmouth's Doug Irwin writes:
Robert Lighthizer's "Grand Old Protectionists" (March 6) is riddled with distortions and errors that one hopes is not representative of all trade lawyers who represent special interests seeking protection. Let's just take two claims: first, that "free traders . . . . allow no room for practicality, nuance or flexibility. . . even when it means bowing to the whims of anti-American bureaucrats at the World Trade Organization." The WTO agreements were largely written by the United States, are riddled with exceptions and escape clauses, and there is no evidence that the dispute settlement system is biased. The United States wins just about every case it brings before the body, just as other countries tend to win cases brought against the United States - simply because countries only bother to bring strong cases to the WTO. Second, Lighthizer argues that temporary import protection during the Reagan administration, such as that granted to Harley-Davidson, "worked." In fact, Japanese firms already produced heavyweight motorcycles like Harley's in the United States. And the import quota on 700cc and above motorcycles was completely evaded by Japanese exporters when they started producing a 699cc version that was not affected by the trade restriction. The recovery from the 1981-82 recession, not trade protection, allowed Harley to rebound.Douglas Irwin
Hanover, NH
George Mason's Don Boudreaux writes:
Among Robert Lighthizer's objections to principled free-traders is their opposition to protectionism "no matter how many jobs are lost" ("Grand Old Protectionists," March 6).If Mr. Lighthizer is referring to overall employment, his facts are wrong. Free trade does not reduce net employment. But perhaps he's talking about specific jobs, such as those lost in Carolina textile mills when Americans buy more textiles from abroad. The argument seems to be that practical statecraft often justifies protecting such jobs even if doing so prevents the creation of other jobs in their place. If this is Mr. Lighthizer's point, he's too modest when calling for trade policies that allow for "practicality, nuance or flexibility." Because technology destroys far more jobs than does trade, Mr. Lighthizer should endorse also a "pragmatic" approach to innovation - empowering government with the flexibly and nuance to block firms' introduction of efficiency-enhancing production techniques that displace workers. Surely, according to Mr. Lighthizer's practical logic, we must reject the "dogma" that tolerates "unbridled" improvements in firms' operating efficiencies.
Sincerely,
Donald J. Boudreaux
For more criticisms see here and here. The only person I could find applauding the op-ed was "The National Conservative."
(This post is the first in a week because I am on holiday. Posting will continue to be light for the next two weeks.)
Posted by Dingel at 09:17 AM | Comments (0)
March 06, 2008
Grand Old Protectionists
Today's NYT op-ed column calling for a revival of conservative protectionism is frustrating for numerous reasons.
Free trade has long been popular with liberals, and it remains so with liberal elites today. The editorial pages of major newspapers consistently support free trade. Ted Kennedy supported the advance of free trade.
It's been popular with elite liberals. When was it popular with the liberal base? And are elite liberals not to be trusted by conservatives, regardless of the merits of the issue? When the elites disagree with the populist base, shouldn't that increase their credibility in the eyes of those conservatives who dislike the liberal populists?
And Kennedy?
* Voted NO on free trade agreement with Oman. (Jun 2006)
* Voted NO on implementing CAFTA for Central America free-trade. (Jul 2005)
* Voted NO on establishing free trade between US & Singapore. (Jul 2003)
* Voted NO on establishing free trade between the US and Chile. (Jul 2003)
* Voted NO on extending free trade to Andean nations. (May 2002)
* Voted YES on granting normal trade relations status to Vietnam. (Oct 2001)
* Voted YES on removing common goods from national security export rules. (Sep 2001)
* Voted YES on permanent normal trade relations with China. (Sep 2000)
* Voted NO on expanding trade to the third world. (May 2000)
* Voted NO on renewing 'fast track' presidential trade authority. (Nov 1997)
* Voted YES on imposing trade sanctions on Japan for closed market. (May 1995)
I doubt those 2001 - 2006 votes against PTAs were driven by a strong conviction that free trade must be non-discriminatory.
Back to Robert Lighthizer in the NYT:
President Reagan often broke with free-trade dogma. He arranged for voluntary restraint agreements to limit imports of automobiles and steel (an industry whose interests, by the way, I have represented). He provided temporary import relief for Harley-Davidson. He limited imports of sugar and textiles. His administration pushed for the “Plaza accord” of 1985, an agreement that made Japanese imports more expensive by raising the value of the yen.Each of these measures prompted vociferous criticism from free traders. But they worked. By the early 1990s, doubts about Americans’ ability to compete had been impressively reduced.
Yes, American sugar and textiles have been competitive ever since. That's why those import barriers were pragmatic temporary measures, as opposed to the "ivory tower" "utopian dreams of free traders." It's a down-to-earth conservative principle to hand out welfare to big corporations and influential lobbies for decades rather than letting competitive market pressures determine economic outcomes.
My only consolation is that I don't think Mr Lighthizer's views are representative of most Republicans'.
Addendum: Obviously the rest of the column is equally ridiculous, but I'm short on time, so let's divide up the labor burden by letting Dan Drezner tackle VERs and the Plaza accord.
Posted by Dingel at 09:45 AM | Comments (0)
February 25, 2008
Crook: "Are we even intended to take this seriously?"
Barack Obama's plan to give tax breaks to companies that don't decrease their American to foreign employment ratio is "remarkably stupid," says Clive Crook. Democratic economists tend to agree.
Posted by Dingel at 09:24 AM | Comments (0)
February 11, 2008
NAFTA will liberalize sugar
The sugar industry announced Friday it was abandoning efforts to insert a provision in the federal farm bill that would renew restrictions on the sugar trade between the United States and Mexico.The decision came in the face of staunch opposition from the Bush administration, the corn sweetener industry and industrial sugar users.
Posted by Dingel at 11:37 PM | Comments (0)
January 20, 2008
US tariffs on socks
Nothing surprising here, but it's worth keeping an eye on protectionism. Cato's Dan Griswold summarizes the Bush administration's latest protectionist indulgences:
Under a provision of the Central American Free Trade Agreement approved by Congress in 2005, the Bush administration is weighing whether to impose special duties on socks imported from Honduras. According to today’s Wall Street Journal, the move would placate a particular lawmaker in Alabama with several sock factories in his district and a few other, mostly southern lawmakers whose votes may be necessary for upcoming trade deals the administration wants.Has U.S. trade policy come to this? For the sake of a domestic sock industry that, by its own count, employs only 20,000 workers, the U.S. government would impose a temporary 13.5 percent tariff on the 8.3 percent of imported socks that come from the small neighboring democracy of Honduras—a country that entered into a free trade agreement with the United States only two years ago.
Posted by Dingel at 04:40 PM | Comments (0)
December 30, 2007
Will NAFTA liberalize sugar in 2008?
Promising lede from Bloomberg:
Mexico and the U.S. are about to eliminate the last tariffs on goods they trade, prompting opposition by lawmakers and farmers in both countries who anticipate a flood of cheap imports.In Mexico, farmers plan nationwide protests over what will be the final step in implementing the North American Free Trade Agreement on Jan. 1 and eliminating tariffs on American-grown beans and corn. The U.S. will drop tariffs on flip-flops, glassware and sugar, the most price-sensitive import.
``Back in 1993 when Nafta was negotiated, 15 years was a lifetime away,'' said Daniel Erikson, a senior associate at the non-partisan Inter-American Dialogue in Washington. ``But now this is really affecting the most sensitive products.''
Trade groups representing food makers and the Bush administration are among those who warn that unlimited sugar imports from Mexico could force the U.S. government to pay as much as $3 billion in loans over 10 years as prices fall.Still, the imports could be checked given that Mexican prices for sugar have stayed above those in the U.S. for much of the last seven years.
``This is not just a threat to American sugar producers,'' said Jack Roney, director of policy analysis with the Washington-based American Sugar Alliance. ``There's also an opportunity for us to actually export to Mexico.''
At the urging of Roney's group, Congress adopted a measure opposed by Bush to force the U.S. to buy any surplus sugar and use it to make ethanol.
If the United States government is committed to providing expensive bailouts, then reducing tariffs and quotas isn't much of an improvement.
Posted by Dingel at 03:45 AM | Comments (0)
December 29, 2007
Krugman on trade skepticism
Paul Krugman calls for a bit of respect:
I am arguing for an end to the finger-wagging, the accusation either of not understanding economics or of kowtowing to special interests that tends to be the editorial response to politicians who express skepticism about the benefits of free-trade agreements.It’s often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That’s still true of things like the import quota on sugar. But when it comes to manufactured goods, it’s at least arguable that the reverse is true. The highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose.
As I said, I’m not a protectionist. For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect.
Posted by Dingel at 04:37 AM | Comments (0)
December 25, 2007
Conventional wisdom on trade isn't that bad
I rarely defend the New York Times, but it's Christmas Day, so I'll give them the gift of defending their editorial on trade and prosperity from some of Dani Rodrik's criticisms.
In brief, the NYT writes:
It would be unfortunate for the United States if the winner of the 2008 election elevated skepticism toward trade from a red-meat sound bite on the campaign trail to a new wave of protectionist policy.Many Americans are experiencing economic anxiety. Wages for most workers are going nowhere. It is a sad fact that despite enormous gains in productivity over the past few decades, the wages of typical workers are only marginally higher than they were a quarter of a century ago. But throttling trade — say, by reconsidering existing agreements — would hurt a lot more people than it helped. There is scant evidence that trade has played a big role in holding down typical workers’ wages. There is abundant evidence that it has contributed substantially to America’s overall economic growth...
Trade, like technological change, can produce wrenching dislocations that hurt some workers. But trade barriers are not the proper tool to deal with these changes.
Professor Rodrik is dissatisfied. He writes:
[They claim] "There is abundant evidence that it has contributed substantially to America’s overall economic growth," ignoring what every student of trade learns, which is that large gains from trade are possible only of [sic] there are also large amounts of income redistribution.
If I understand him correctly, then this claim is too strong. While it may be true in the baseline Heckscher-Ohlin model that we frequently use to think about trade, it does not hold generally. Models with a single factor of production (Ricardo 1817, Krugman 1979, Melitz 2003) demonstrate sources of gains from trade (technological comparative advantage, economies of scale, productivity selection effects) that cannot depend on income redistribution, as there is only one factor. And Bernard, Redding & Schott's modern version of the 2x2x2 model shows that improvements in aggregate productivity triggered by liberalization can cause the scarce factor's real wage to rise. We need not confine ourselves to the results of one popular model.
Moreover, as Bhagwati & Srinivasan remind us (pdf),
But, even in that model, complete specialization will lead to the possibility that real wages improve even if the price of labour-intensive goods falls. This is a possibility that is in fact very real since many labour-intensive goods are no longer produced in the rich countries.
So the NYT's claim that globalization produces gains from trade without significantly depressing wages is more plausible than Professor Rodrik implies.
Rodrik also complains that the NYT's argument is wrong because
It automatically equates any desire to reconsider trade agreements and take a breather on new agreements as "protectionist."
I think it's fair to say that most voters attracted to Democratic promises of re-opening trade agreements to add minimum labor standards are interested in protection for labor's wages in the United States, not a step towards a well-coordinated global regulatory framework. And opposition to the Doha round based on income distribution concerns, rather than the fear that liberalizing too fast will produce a backlash that undermines free trade, is protectionist -- it identifies protection as desirable due to its income distribution effects. This is an economically valid argument, but the "protectionist" label is a dirty word because economists have spent centuries explaining that trade protection usually decreases aggregate income and is a crude redistributive mechanism -- so crude that we are surprised by its use (Rodrik 1995). There is at least some merit to this very conventional message.
Of course, the other criticisms raised by Rodrik are largely valid, and his caveats are worth mentioning. But I find it a bit harsh to say the "NYT doesn't get it on trade."
Along these lines, Dean Baker is more sympathetic to the NYT, though he wishes that they'd attack protectionism in professional services and patents rather than unskilled manufacturing.
Finally, read this interesting and well-researched article in Macleans for insights into the feasibility of reopening old trade agreements and the gap between Hillary Clinton's campaign rhetoric and policy proposals. It's the best take on Democrats and trade I've read recently.
Posted by Dingel at 05:10 PM | Comments (0)
November 21, 2007
Chinese glossy paper exports aren't damaging US industry
Back in April, I expressed skepticism at the US Commerce Department's imposition of countervailing duties on Chinese glossy paper exports, partly because there wasn't much evidence of material harm to domestic industry. Tuesday, the USITC voted 5-1 that US industry was not materially injured by low-priced glossy paper from China, South Korea and Indonesia.
The USITC ruling does not overturn the Commerce decision that China is a market economy and therefore subject to possible CVDs. Plenty of anti-subsidy investigations are already underway.
Posted by Dingel at 10:01 AM | Comments (0)
October 18, 2007
Deploy the anti-dumping troops!
Trade is not combat, and military metaphors rarely aid economic understanding. It's therefore frustrating to see Peter Mandelson, the EU's trade commissioner, argue for greater use of "trade defense instruments" against the "Chinese juggernaut."
Posted by Dingel at 01:43 PM | Comments (0)
August 21, 2007
This paper takes free trade seriously
A 2003 paper (pdf) from Dean Baker:
“Free trade” has generally been used to refer to the removal of trade barriers that protect less-skilled workers... The term has rarely been used in the context of efforts to extend protectionist barriers that benefit powerful industries... A consistent proponent of “free trade” would be opposed to all these barriers to the free exchange of goods and services...While both Democratic and Republican administrations have actively sought to lower some types of trade barriers, most notably on manufactured goods, U.S. trade negotiators have done little or nothing to lower other barriers... highly paid professionals continue to work in a well-protected labor market. This protection is one reason that wage growth for these professionals has consistently outpaced the rate of wage growth of most other workers in the United States over the last two decades...
Skilled labor is in fact a produced input... In the same way that developing countries can often produce steel or apparel at a lower cost than in the United States,developing countries will often be able to educate doctors, dentists, lawyers, or accountants -- to U.S. standards – at a far lower cost than in the United States...
U.S. trade policy toward highly paid professional services has largely gone in the opposite direction in recent years, increasing barriers to foreign professionals... a new test – which only applied to foreign trained doctors -- was put in place as part of the licensing requirements for foreign physicians. As a result of these restrictions, the inflow of foreign residents was cut almost in half...
[S]ince 1976, the Federal government has had a policy of refusing to hire foreign citizens, unless no qualified citizen can be found for a position. The analogous policy for goods would be a federal buying policy that required the government to purchase only U.S. made products, unless there were no domestic producers of a specific item. Such a policy would be a blatant violation of NAFTA, the WTO, and numerous other trade pacts....
The potential economic impact of freer trade in professional services is at least an order of magnitude higher than most of the items that currently dominate the trade agenda... [R]emoving barriers for four categories of highly paid professionals –doctors, dentists, lawyers, and accountants... [would produce] annual gains to consumers [that] could be between $160 billion and $270 billion, or between $2,200 and $3,700 a year for an average family of four.
Posted by Dingel at 05:29 PM | Comments (0)
July 28, 2007
Senate committee passes anti-China measure
Passed by a vote of 20-1, the Senate Finance Committee's measure would allow U.S. companies to seek anti-dumping duties on goods from any country that maintains a "fundamentally misaligned" exchange rate after being formally cited by the United States.
Via Mankiw.
Posted by Dingel at 02:59 PM | Comments (0)
July 24, 2007
Cultural trade and KORUS FTA
Since I've covered Korean cultural protectionism before, I should mention this great FT piece on the subject by Columbia's Eli Noam:
American media firms will not gain very much from the FTA with Korea (and Korean firms and culture will not lose much) that is (a) significant in practical terms, or (b) not happening anyway as part of broader trends. Whatever problems these trends create for Korean media can likely to be dealt with through direct support programs. This modest impact is not because the FTA is flawed. But media products and services are much less governed by FTA-style agreements which are economic tools for the industrial and agricultural economy, much less for the information economy.
Read the full piece to find out why.
Posted by Dingel at 06:44 PM | Comments (0)
July 09, 2007
India, whisky, and barriers to trade
India has announced that it will reduce its 550% tariff on Scottish whisky. The impetus? An Indian tycoon just bought Whyte & Mackay, one of the world's largest Scotch whisky producers.
Alex Singleton criticizes the soon-to-be-gone tariffs:
Scotch producers are delighted, believing that they could see exports to India increase by a factor of four. Needless to say, this is exactly the opposite of what development campaigners would like to see. After all, whisky is an infant industry for India, and therefore needs “targeted protection”.Back in the real world, targeted isolationism has had a dismal record over the past fifty years. Such isolationism breeds uncompetitive companies that fail to turn into profitable industries. It is much better for industries to be created that can actually compete in the here and now: they are the ones that really will grow into global players. Whisky is likely to be one such industry for India. Perhaps I haven’t been looking but I haven’t noticed Indian whisky on the supermarket shelves yet. I’m sure we’ll be seeing a lot more of it in the future.
Not so fast. You don't see Indian whisky in the UK, but the problem isn't Indian:
The term “western-style spirits” refers to products made in accordance with internationally accepted industry standards (e.g., EU, WTO etc), which specify raw materials, aging, level of alcohol by volume (abv), etc. Much of the whisky produced in India, for example, does not qualify as “whisky” under the EU industry standards. The EU definition specifies that whisky has to be made from cereals, at least 40% abv and aged for three years or more, whereas Indian whisky is derived from molasses. [International Center for Alcohol Policies pdf]
I very much doubt that protectionism has hurt the development of the Indian whisky industry, considering the massive domestic market - Indians drink 570 million litres per year, making them by far the largest consumers of whisky.
While the Indian protectionism certainly deserved criticism - poor Kunal Doshi can only afford Scotch when drinking on his parents' tab - the more relevant question now is whether the EU's technical barrier to trade is reasonable consumer protection or unjustified nativism.
Posted by Dingel at 07:33 PM | Comments (0)
May 13, 2007
Galbraith on progressive trade policy
Echoing his February piece in The Nation, James K. Galbraith writes in The American Prospect:
Senators Byron Dorgan and Sherrod Brown articulated a trade policy that typifies the consensus view of the party's labor-liberal wing. They criticize "free trade," call for strong labor and environmental standards in future trade agreements, and argue for aggressive policies to open foreign markets to American goods. Their critique reflects a genuine anger, and the concerns their piece embodies deserve to be met. Their program is populist, nationalist, muscular, and in tune with the mood of the Democratic base.But it is not reality-based.
Galbraith would like progressives to ditch the narrative that America needs to block manufactured imports (either through standards or tariffs) in order to protect jobs. Why?
Three of our five largest trading partners are Canada, Japan, and the European Union (Germany, France and the UK are all individually in the top ten)... The Dorgan-Brown critique doesn't apply to them...Of our five largest trading partners, only China qualifies as a place where manufacturing labor is readily available for "a few dollars a day" and whose status as our trading partner appears to depend on that fact. So it is at China -- perhaps alongside minor trading partners such as India and those in the Caribbean Basin -- that the Dorgan-Brown argument is basically aimed...
Wages in urban China are indeed low, but living costs are incredibly low. Food, clothing, basic shelter, and utilities cost very little, with the result that people are largely housed, clothed, and fed. Children are mostly in school. Cars are still rare -- but they are also unnecessary for most people. Small luxuries, on the other hand, are common. (The country has over 400 million cell phones; what does that tell you?)...
The populist remedy for low-wage competition is to impose standards -- labor standards and environmental standards -- on the companies who employ them... So let's discuss how a wage standard, as a theoretical possibility, might work.
There are several options. First, suppose the standard were based on wages measured in dollars. That would certainly penalize China, where the dollar value of the money wage in manufacturing is low, but where nutrition, health, education, and living standards for urban workers are quite high. It would favor (say) Brazil, where the reverse is actually the case. In other words, it would cut against a country where workers do not, generally, live in slums, and in favor of a country where many of them do.
Well, what about a standard based on relative wages in manufacturing? As noted, wages in manufacturing in China are low, compared to other wages in China. Suppose we insisted that they be raised? ...
Export-sector manufacturing in China is a place of short-term jobs mainly for young women. It is a tedious, repetitive, low-skill, and low-wage compared to almost everything else (except farming) in China itself. What is relevant for Chinese living standards is not the real wage in manufacturing. It is, rather, the real wage in the society writ large...
So, let's consider a standard based on average real wages in the trading partner, perhaps measured by such quality-of-life indicators as life expectancy, infant mortality, and literacy. Such a standard would favor China over, say, India or most of sub-Saharan Africa. Should the United States therefore give preferential trade access, in general, to China?...
Should we penalize a country which has raised real wages by a factor of four or five over thirty years without independent unions? Should we favor countries (such as Brazil or Argentina) which have powerful independent unions -- and yet have seen falling real wages for two decades?...
So standards are disappointing. What about simply raising tariffs on Chinese exports?
First, blocking trade with China would not bring a single job back to the United States. It would only cause Japan, or Taiwan, or Korea, or American multinationals to shift their out-sourcing from China to some other low-wage country, such as Vietnam...Second, if blocking Chinese exports to the United States really did cut into our imports overall, that would raise prices and lower real wages here, especially for the lowest-wage Americans who rely most on cheap imports to meet their budgets...
Third, there would be retaliation...
This is a reality-based populism. Our goal should be shared prosperity through egalitarian growth, based on our own efforts and imagination. Let's therefore stop scapegoating the Mexicans and the Chinese, and accept that they must have their role, which they will largely determine by their own actions, in the world in which we all live. Let's also stop talking obsessively about trade agreements with tiny countries that don't really matter much.
Let's concentrate, instead, on getting things right for workers right here.
It's a very long piece, check out the full length article at TAP online (registration required).
[HT: Rodrik]
Posted by Dingel at 06:28 PM | Comments (0)
April 08, 2007
Bhagwati on American trade politics
In the FT, Jagdish Bhagwati writes:
Once the staunchest supporter of multilateral free trade, the US has turned into arguably its greatest foe. Both multilateralism and free trade are at risk...Even the free-traders, among them many Republicans, have undermined multilateralism by embracing preferential trade agreements. These PTAs masquerade as free trade but are plainly not...
Amid anxiety over wages and jobs, wrongly blamed on trade and globalisation, it makes no political sense to take one piffling PTA after another to Congress, as the Bush administration has done. Each time a congressman votes for it, he expends scarce political goodwill. This applies particularly to Democrats whose constituents include a high proportion of workers. Asking Congress members to go repeatedly to a poisoned well has reduced their willingness to do so...
That assessment concurs with Evenett & Meier's take on competitive liberalization's domestic impact.
The result? Disaster, Bhagwati argues:
[T]he new Democrats insist on inclusion in trade treaties of labour and (domestic) environmental standards as elements of “fair trade” in a tougher way than ever before... It is comforting: you need not feel guilty if you can deceive yourself into thinking you are flogging the foreigner in his own interest.It is a gift to protectionism that the Democrats can hardly wait to give to their lobbyists such as the AFL-CIO union federation.
Posted by Dingel at 11:15 PM | Comments (0)
April 02, 2007
Southern Shrimp Alliance enjoys rents
Shrimp protectionism extortion.
Posted by Dingel at 09:44 AM | Comments (0)
April 01, 2007
Passionate Protectionists
A South Korean man set himself afire on Sunday to dramatize his opposition to a proposed free trade agreement between his country and the United States, as negotiations were coming to a close, with an extended deadline only hours away.
Posted by Dingel at 04:42 PM | Comments (0)
March 30, 2007
China hit by US CVDs
The US Commerce Department has approved the application of countervailing duties to Chinese exports of coated paper, ending a 23-year policy of not applying CVDs to non-market economies. The FT says the move has weakened the dollar. Emmanuel thinks the US may be unleashing a trade war.
CVDs are the economically appropriate response to damaging subsidization (which may or may not be what's happening here) and authorized under WTO rules, so the US action is not a blatant act of protectionism.
Here's a helpful GAO backgrounder explaining some of the complications the move may involve:
Commerce could reclassify China as a market economy or individual Chinese industries as “market oriented” and apply CVDs against China as a market economy. Commerce has criteria for such determinations, but said that China is unlikely to satisfy them in the near term. It could also reverse its 1984 position and apply CVDs without any change in China’s NME status. However, absent a congressional grant of authority, such a decision could be challenged in court, with uncertain results. World Trade Organization (WTO) rules do not explicitly preclude either alternative.Commerce would face challenges, regardless of the alternative adopted. Chinese subsidies remain difficult to identify and measure. Employing third-country information or “facts available” may help, but would not eliminate these difficulties. Commerce lacks clear authority to fully implement China’s WTO commitment on use of third-country information in CVD cases.
What happens next?
China will have a window of seven days to decide whether it wants to negotiate a suspension agreement with the United States. We have a funny feeling you should be on the lookout for this, since a suspension agreement would let China avoid the technical decision of U.S. anti-subsidy duties, which it clearly wants to avoid.But a suspension agreement would come with a price - and that is likely to be a Chinese commitment to eliminate any of the subsides Commerce targets in its preliminary ruling, which could be tough.
The Department of Commerce press release is not very informative about the methodology used or particular subsidies identified, so I don't have a clear understanding of the issue at this stage. Developing...
UPDATE: FT: ”'The Chinese side strongly demands the US to reconsider this decision and make prompt changes'... Beijing’s commerce ministry hinted it might consider retaliatory action for the new US duties, or if it is subjected to additional penalties."
Posted by Dingel at 07:45 PM | Comments (1)
March 13, 2007
TPA: Responsible for America's troubles since 1974
Non-sequitars from the Minnesota Fair Trade Coalition:
The damage of the NAFTA-WTO model hits all of us, not workers whose job was sent to a low-wage nation: U.S. productivity jumped 80% and GDP rose over 160% since Fast Track was established, but U.S. workers’ wages rose less than 10%! The average worker’s hourly wage has only gone up a nickel from 1973 to 2006! Since 2001, the U.S. economy grew 15% and productivity 16%, while wages have only gone up one percent.
And trade explains all of those facts, huh?
Before Fast Track, the U.S. enjoyed balanced trade. In every year but one since we have had deficits. NAFTA and WTO boosters said the deals would fix the deficit. Instead NAFTA turned our trade surplus with Mexico into a massive deficit and a small deficit with Canada jumped. And everyone knows our China trade deficit exploded with that nation’s entry into WTO.
And everyone knows that the United States didn't make many new trade concessions to China when it joined the WTO, so it's strange to imply that the trade deficit is a function of China's WTO membership rather than China's economic growth and global integration.
If you are able to distinguish between correlation and causation, this press release falls apart quickly.
Posted by Dingel at 09:10 AM | Comments (0)
December 21, 2006
The coming end of sugar protectionism?
US sugar may finally face import competition in 2008:
NAFTA will allow Mexican sugar to enter the U.S. market without restrictions in 2008. Sugar producers have been trying - unsuccessfully - to amend or delay the expiration of the transitional mechanism. "In any case, the legislators who write the 2007 farm bill will not be able to craft a sugar title without taking post-2008 Mexican access into account," says the Sweetener Users' Randy Green.
Posted by Dingel at 11:05 AM | Comments (0)
December 18, 2006
Buy American... Because It Matters!
The backpage of my local newspaper's sports section had a half-page color advertisement titled:
GM vs. IMPORTS: 'BUY AMERICAN... BECAUSE IT MATTERS!'
*Why should you buy new American cars, particularly GM, versus the imports?
1. GM's quality is as good as or better than the imports
2. GM's gas mileage is better
3. GM's dependability is better
4. You will help lower our trade deficit
5. You will help keep more jobs in America
6. Profits from new American vehicles will help provide more services for American Citizens and help keep America strong.
7. To the best of our knowledge all of these statements are still factual and if not we apologize for any discrepancies.
8. Because it matters!
Buy a GM car or truck, today. Help support Americans.. BECAUSE IT MATTERS.
Is this type of advertising an indicator of (a) rising protectionist sentiments, (b) increasing desperation on the part of US manufacturers, or (c) my failure to notice it previously?
Posted by Dingel at 10:12 AM | Comments (2)
December 04, 2006
Public opinion on trade
An interesting divide in feelings about the level and rate of change of economic openness:
The survey, by the German Marshall Fund of the US, a transatlantic think-tank, shows that public opinion across a range of European countries and America has become more confident over the past year about economic growth and the positive effects of existing international trade. But there is much less support for more trade liberalisation, with 59 per cent of American respondents and 58 per cent of French thinking that freer trade will cost them more jobs than it creates. [FT]
Posted by Dingel at 06:14 PM | Comments (0)
November 29, 2006
"Trade Obstructionism"
Robert Samuelson voices concern over the risk of protectionist backsliding in the next Congress:
Just last week, Democratic congressional leaders signaled they might oppose new trade agreements with Colombia and Peru. Who, if anyone, would benefit is unclear...We are dealing with something new here. It transcends traditional protectionism, which tries to shield specific industries and workers from imports. It's trade obstructionism: a reflexive reaction against almost any trade agreement. The idea is that much trade is inherently "unfair.'' ...
Every three months, 7 million to 8 million U.S. jobs disappear, and roughly an equal or greater number are created. Trade is a relatively minor factor in job loss.
It is, however, an easy scapegoat. It enables critics to blame foreigners and suggest a solution -- restrict trade. Globalization becomes a convenient explanation for many economic discontents, from job insecurity to squeezed living standards.
Hence, trade obstructionism...
The next Congress must decide whether it embraces the symbolism or reality of trade. If it chooses symbolism, it will perversely harm many of the workers it's trying to help.
[HT: Mankiw]
Posted by Dingel at 06:43 PM | Comments (0)
November 25, 2006
Anti-trade bias
Recall the anti-trade bias puzzle, highlighted in Dani Rodrik's influential 1995 survey of the political economy of trade policy:
Current models treat trade policy as a redistributive tool, but do not explain why it emerges in political equilibrium in preference over more direct policy instruments. Further, existing models do not generate a bias against trade, implying that pro-trade interventions are as likely as trade-restricting interventions.
In a working paper (pdf) on the political economy of multilateral trade agreements, Wilfred Ethier of UPenn writes:
[T]he Anti-Trade-Bias Puzzle has been widely recognized. But it has not been successfully addressed. Papers typically either ignore the problem or eliminate it by arbitrarily constraining the ability of the government to adopt export-promotion policies.
Perhaps many authors "ignore the problem or eliminate it" by assumption, but there has been some interesting scholarship in the last few years that addresses the topic. I've seen at least five hypotheses spelled out at length which produce anti-trade bias effects:
(1) The government's objective function includes a desire to reduce inequality.
(2) Governments are revenue constrained.
(3) Individuals are loss averse.
(4) Prior entrants have sunk costs in a shrinking industry.
(5) General equilibrium models don't produce the bias.
Inequality (Nuno Limao & Arvind Panagariya):
In this paper, we show that if the government's objective reflects a concern for inequality then trade policy generally exhibits an anti-trade bias. Importantly, under neutral assumptions, the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors.
Revenue constraints (Paul Pecorino):
In this paper, the Grossman and Helpman (1994) “Protection for Sale” model is extended by adding exogenous government expenditure. This expenditure may be financed via a combination of tariff revenue and a distorting income tax. In addition to the exogenous expenditure, export subsidies need to be financed either via tariff revenue or a distorting wage tax. With this addition to the model, plausible values of the model’s parameters yield import protection bias.
Loss aversion (Patricia Tovar):
[W]e show that if individual preferences exhibit loss aversion and the coefficient of loss aversion is large enough, there will be an anti-trade bias in trade policy. We also show that, for a sufficiently high coefficient of loss aversion, more import-competing lobbies will form than under the current leading political economy model of trade protection due to Grossman and Helpman (1994), and import-competing sectors will be more likely to form a lobby than export sectors, reinforcing the anti-trade bias result. The predictions for protection that we obtain also imply that, everything else equal, higher protection will be given to those sectors in which profitability is declining. We use a nonlinear regression procedure to directly estimate the parameters of the model and test the empirical validity of its predictions. We find empirical support for the model and, very importantly, we obtain estimates of the parameters that are very close to those estimated by Kahneman and Tversky (1992) using experimental data.
Costs of entry (Richard Baldwin & Frederic Robert-Nicoud):
Governments frequently intervene to support domestic industries, but a surprising amount of this support goes to ailing sectors. We explain this with a lobbying model that allows for entry and sunk costs. Specifically, policy is influenced by pressure groups that incur lobbying expenses to create rents. In expanding industry, entry tends to erode such rents, but in declining industries, sunk costs rule out entry as long as the rents are not too high. This asymmetric appropriablity of rents means losers lobby harder. Thus it is not that government policy picks losers, it is that losers pick government policy.
General equilibrium (Nuno Limao & Arvind Panagariya):
We demonstrate that if we replace the almost partial equilibrium model with a general equilibrium model in the Grossman-Helpman political economy model, anti-trade bias may emerge even if we assume symmetric technologies, endowments and preferences across sectors provided that the elasticity of substitution in production exceeds unity. In addition, we show that ceteris paribus, in general equilibrium, increases in the imports-to-GDP ratio lower the endogenously chosen tariff and the production share of the import sector in GDP has an ambiguous effect.
Economists have produced a number of hypotheses to explain anti-trade policies. But I doubt that we will be able to easily test these competing explanations. Are there other hypotheses? Bryan Caplan might suggest public opinion.
Posted by Dingel at 10:54 AM | Comments (0)
November 22, 2006
"Protectionism"
Business leaders around the world fear protectionism is on the rise, with an increasing number seeing merger and acquisition deals blocked by local rules, DJ reported from London. A survey of 286 leading global executives carried out by the Economist Intelligence Unit and published yesterday, found just over 50% of those surveyed believe protectionism is rising "significantly or moderately" in developed markets, with just 16% seeing it as falling. One in 5 of those interviewed for the survey said they have seen a proposed investment deal blocked by local trade and investment rules in the past 3 years.
Interesting to see protectionism redefined to include FDI via M&A.
Posted by Dingel at 11:37 PM | Comments (0)
November 20, 2006
Are Democrats worried about trade diversion & stumbling blocks?
Dr. Menzie Chinn of Wisconsin-Madison hypothesizes that Democrats may have opposed FTAs not because they have protectionist sentiments, but because they prefer multilateralism:
In the wake of the midterm elections, and the failure to renew Vietnamese PNTR, there has been a lot of talk about how more protectionist Democratic lawmakers are...While the rhetoric from some quarters of the Democratic Party is more protectionist than from the Republican Party, I think the story is a little more complicated than initially appears to be the case, although I will not claim to have the answer to the question...[I]t's wrong to equate all FTAs with freer trade. Indeed, the proliferation of FTAs poses a number of well-known problems for the global economy...
So, just because American business interests favor these pacts, while labor often opposes, it's not clear free trade is enhanced by such initiatives; in other words, one should not confuse export-oriented mercantilism with support for free trade...
In this context, it's of interest to note a paper by Evenett and Meier; they document that many of the pro-bilateral trade agreement incumbents that lost their seats were replaced by skeptics of such agreements. However, interestingly, such skeptics were not similarly skeptical of multilateral trade agreements, such as the Doha Round.
So, the question comes down to [1. trade creation vs diversion 2. stumbling vs building blocs]...
It's not enough to promote the trade agreements in order to be pro-free trade. One has to implement measures that will sustain an interest-group coalition that will continue to support globalization into the future. Such coalitions must be more durable than the ephemeral political coalition constructed, say, by trading off (steel) protection for TPA; rather, it needs to be one where support for globalization is built upon a recognition of gains -- and a safety net that reduces the risk to labor of losses -- arising from increasing trade.
So do Democrats favor multilateral trade liberalization to FTAs because they've learned a lot from Jagdish Bhagwati? I doubt it.
First, Evenett and Meier use votes on PTAs as their measure of trade skepticism because there hasn't been a WTO pact on the table since 1994. Democrats haven't had a chance to vocally oppose multilateral negotiations. Who would waste energy attacking a trade round that isn't going to be completed for a number of years?
Second, the last time a Democrat attempted to bring up labor standards at the WTO, it basically ended the negotiations. Repeating that error would be silly. Democrats are able to include labor and environmental standards in PTAs because the United States has significantly more bargaining power in a bilateral setting. Bhagwati:
[T]he popularity of the PTAs in the United States... is largely due to the fact that all sorts of lobbies, whether intellectual-property rights or financial sector or labor groups or environmental groups, see the bilateral framework where the United States, a gigantic power, can face down a small power like Chile or Morocco as an ideal framework of trade negotiations where, in exchange for preferential entry into the big United States market, they extract all kinds trade-unrelated concessions desired by these lobbies. And nearly all of these concessions are harmful to the trading system and to the smaller countries!
Senator Chuck Grassley may understand and appreciate the negative impacts of bilateral PTAs upon the multilateral trading system, but I don't think that Professor Chinn's line of reasoning matches the motivations of the typical Democratic opponent of PTAs.
Posted by Dingel at 06:44 PM | Comments (0)
November 12, 2006
Milk Protectionism
Sallie James tabulates the costs of dairy protectionism in Cato's latest trade briefing paper.
Posted by Dingel at 12:41 PM | Comments (0)
October 30, 2006
Dissent from trade pessimism
Fretting about the failure of the WTO's Doha round of negotiations? Fallen off your trade liberalization bicycle? Fearful of rising protectionist sentiments? Relax, says Douglas Irwin:
The fashionable answer among many academic observers and prognosticators is to express concern (and perhaps even fret) about the current state of trade relations, to issue a warning about impending protectionism, and to suggest that the world trading system could collapse without renewed efforts on its behalf. In this paper, I offer a mild dissent. I do not think that there has been or will be a serious backlash against globalization. Indeed, I am surprised by the lack of ‘push back’ or resistance to greater economic integration in the United States and other industrial countries over the past 20 years, even as such integration has accelerated...Indeed, barring a global war or a major depression, globalization today is probably irreversible as the steady march of technology brings economies together. The technology behind increased international communications, from the telephone and internet to the Boeing 747 and Airbus A-380, cannot be undone. Even if trade policies were to be used in an attempt to offset this shrinkage of the world, they cannot put the globalization genie back into the bottle because the toothpaste is out of the tube (to mix metaphors). To use a historical analogy, when railroads ran deep into the Midwestern United States and Russia in the late nineteenth century, grain prices fell across Europe. Agricultural tariffs rose somewhat in response, but this policy response failed to offset the rapid decline in transport costs. In the end, grain markets were integrated to a much greater degree than before.
Furthermore, the momentum of global economic policy is toward the continued opening of markets, more through bilateral and regional arrangements than through the multilateral process, an issue to which I will return shortly. This makes it difficult to see a revival of protection on the horizon, but economists have not refrained from crying wolf on this score for many years...
The lack of progress in the Doha Round is lamentable, but not surprising. Multilateral trade liberalization has never, ever, been easy. We seem to think of the 1950s and 1960s as the halcyon days of trade liberalization, when there was consensus and political will, and everything was easy. This is a false reading of history. Each of the GATT negotiating rounds was an extremely difficult task. From about 1947 until the end of the Kennedy
Round in 1967, the GATT accomplished virtually nothing. History indicates that progress at the multilateral level should be measured in terms of decades, not years. Doha may be behind schedule; so what else is new? Most trade rounds take about a decade to conclude, and as this text is being written (2005) it has only been less than four years since the commencement of the Doha round...Let me conclude by saying that, despite the challenges ahead, we should view the pervasive pessimism about world trade negotiations with some degree of scepticism. At the risk of being accused of complaisance, I take comfort from the fact that policy efforts—however erratic—are being made largely in one direction: the opening of world markets. There is globalization fatigue, but not globalization backlash. And it simply takes time to recover from fatigue.
Read the full piece (pdf), which packs plenty of historical perspective into five pages.
Posted by Dingel at 10:28 PM | Comments (0)
What would a Democratic victory mean for trade?
Contrasting views.
Jonathan Martin in National Review:
At stake? The free-trade consensus in the Senate that has ensured easy passage of every measure liberalizing trade put forth by the past two administrations... Should seats currently held by free-traders in Ohio, Vermont, Pennsylvania, Virginia, Rhode Island, and Missouri go to “fair traders” — and should the sour environment for Republicans prevent them from gaining any seats from Democrats — the bipartisan commitment to free trade in the Senate would almost certainly end, torpedoing the prospects for any significant legislation in President Bush’s final two years and perhaps longer while fundamentally altering the character of the upper chamber.
Anatole Kaletsky in the Times:
What about global trade? The Democrats are ideologically more protectionist than the Republicans, but this is mitigated by the geographic concentration of the two parties’ support. The South and West of America, where Republicans attract most of their votes, is also the heartland of American protectionism. The Democrats tend to represent the East and West coasts, where voters are more liberal and cosmopolitan, so that a Democratic victory could actually increase the influence in Washington of the liberal economic establishment. In any case, President Bush’s “fast-track” authority to negotiate a global trade agreement expires next July and he has almost no chance of an extension. Thus, whatever happens next Tuesday, a global trade deal is not going to happen before the next president is in office in 2009.
Posted by Dingel at 08:04 PM | Comments (0)
October 27, 2006
If Georgia follows Estonia
Business Week asks: "Can Georgia Follow Estonia's Game Plan?"
The article is about Georgia's efforts "to navigate a path to closer EU relations and assert its sovereignty to a domineering Russia," but I can't resist thinking: does that mean having zero tariffs in 2008 and then raising them upon joining the EU?
Posted by Dingel at 08:53 PM | Comments (0)
October 25, 2006
Football protectionism
Dan Drezner notes that President Vladimir Putin has expressed concern about the number foreign players being imported by Russian football (soccer) clubs. Clubs in the Russian Premier League will not be allowed more than five foreign players by 2010, compared to the current limit of eight per club. Drezner's commenters point out that football protectionism isn't unique to Russia: many European leagues have quotas on the number of non-EU players. Over the weekend, Reading boss Steve Coppell called for a cap on the number of non-English EPL players. And last year, UEFA imposed a rule mandating a minimum number of "home-grown" players.
Kanika Datta defends a free market in football players:
The presence of so many foreign players in Europe provides a compelling counter argument against quotas in a free market economy. Europe is arguably the nerve centre of the vibrant global soccer industry. A good fifth of the players in its clubs are non-European in origin, if not by actual citizenship... Ironically, too many of these non-European participants play against huge odds, not least of which is the egregious and disturbing surge in racism. This is the response of white supremacists who perceive a loss of jobs for the boys because non-Europeans are muscling their way into European clubs. Not that this deters club owners one whit. As anyone who runs a business will tell you, there is no place for nationality or caste in the money-making stakes.
Visit Thierry Henry's "Stand Up, Speak Up" campaign against racism in football here.
Posted by Dingel at 06:05 PM | Comments (0)
October 08, 2006
EU's antidumping tariffs on shoes challenged
FT:
Both China and European companies yesterday said they might take legal action against what they described as the European Union's flawed and illegal decision to slap anti-dumping tariffs on Asian shoe imports.
[HT: GI]
Posted by Dingel at 10:13 AM | Comments (0)
October 05, 2006
Optimism from Alan Beattie
But, as has always been the case over the past few years, the encircling wraiths of protectionism have yet to be made flesh. In a series of interviews over the past week with current and former administration officials, senators, congressmen, lobbyists and think-tank trade experts, there remains a surprising degree of confidence that free trade can still prevail...Susan Schwab, US trade representative (USTR), points out that despite all the threats from Congress about China and trade, Capitol Hill has continued to live up to its multilateral responsibilities, repealing cotton farming subsidies and corporate tax breaks found illegal by the WTO, and has backed USTR's position in multilateral talks. "In the same 12 months we haven't passed Schumer-Graham, the Congress has enacted pro-trade laws that eliminated WTO-inconsistent practices," she says...
It is hard at present to see how the mood in Washington will let any but a few bilateral trade deals advance at present. The WTO is, perhaps, about to see a test of the so-called "bicycle" -theory of trade negotiations - that the multilateral system will fall over unless it keeps moving forward with new deals struck and fresh market access gained. But though the bicycle has wavered at the signs of a rough road ahead, the rider has yet to lose balance.
Posted by Dingel at 06:49 PM | Comments (0)
September 21, 2006
Anti-Dumping update
Cato's Dan Ikenson celebrates the 2006 downturn in antidumping complaints and warns of a possible resurgence:
Although antidumping initiations have declined in recent years and structural changes in the world economy should curtail the conditions that traditionally have inspired antidumping cases, efforts are underway to make the law more accessible and more attractive to protection-seeking U.S. industries. If legislation like the Trade Law Reform Act of 2006 becomes law, it will change the analysis industries conduct when considering trade actions, weighing more heavily in favor of bringing more antidumping suits. And if settlements like those that prevailed in the shrimp case fly under the radar and fail to raise legal and ethical questions, antidumping will be marketable as a revenue-generating scheme and pitched with success to industries otherwise dis inclined to bring such actions.The shelving of the Doha Round is a serious setback for antidumping reform. Without significant changes to curtail the abuse of the antidumping law, sympathetic lawmakers and petitioners' lawyers are more likely to succeed at broadening the protectionist impact of the antidumping law.
Posted by Dingel at 03:30 PM | Comments (0)
September 20, 2006
WaPo: "Lower tariff rates reduce tariff revenue!"
Brad DeLong assailed the Washington Post twice today, yet refrained from attacking the front page investigative story centered on this premise:
Each legislative season, corporate executives and lobbyists quietly draft hundreds of bills to suspend tariffs. Over time, the changes cost taxpayers hundreds of millions of dollars in lost revenue, a Washington Post analysis of U.S. trade data found.
No economist is quoted in the story. Apparently the authors didn't put much effort into finding someone willing to suggest that lower input prices might be good for consumers (a.k.a. taxpayers) and the economy.
Tom Palmer pointed to the story and has more.
[I have some qualms about this form of liberalization, especially its temporary nature, but I don't buy the WaPo spin.]
Posted by Dingel at 11:19 PM | Comments (0)
September 16, 2006
Protectionist Sentiments
Daniel Drezner trots out some content from his new CFR book in a WaPo column. The most interesting part:
Why has U.S. trade policy ground to a halt? Shifts in domestic attitudes and world politics have combined to create one of the least hospitable environments for trade liberalization in recent memory. The most dramatic shift in opinion came from Americans making more than $100,000 a year. According to the Program on International Policy Attitudes (PIPA), support in that income group for promoting trade dropped to 28 percent in 2004 from 57 percent in 1999. A September 2005 German Marshall Fund (GMFUS) survey revealed that 57 percent believe that freer trade destroys more American jobs than it creates, and 58 percent of Americans would favor raising tariffs for imported goods if it meant protecting jobs -- a higher number than in Germany, France, or Great Britain. Healthy majorities believe that trade primarily benefits multinational corporations at the expense of small businesses.
While those surveyed are incorrect about the net impact on jobs, the intuition that trade benefits larger firms and drives out smaller (less productive) firms isn't far from the logic of the latest trade models. Economists, however, think that effect is good!
[HT: Mankiw]
Posted by Dingel at 08:43 AM | Comments (0)
September 15, 2006
Congressional stupidity on trade
The worst trade policy suggestion I have heard in a very long time:
Any company that wants to import goods into the United States would have to get a government certificate, under a plan to eliminate the nation's trade deficit proposed by two Democratic senators Thursday, The New York Times reported Friday."We're choking on trade debt and it is becoming a bigger and bigger danger to our country by the day," Senator Byron L. Dorgan of North Dakota was quoted as saying. "We need a new strategy, and that is what we are proposing today."...
Dorgan and Senator Russell D. Feingold of Wisconsin said the bill would create a market-based system to cut the trade deficit to zero within 10 years.
Under the measure, companies that export goods from the United States would be issued a certificate to import goods. The exporter could use the certificate or sell it to another company, the senators said.
The plan would be phased in over five years, with one dollar in exports earning 1.40 dollars in import certificates the first year, 1.30 dollars the second year, 1.20 dollars the third year and so on.
Wow. Wow. That's all I can say. I'm floored.
[Hat tip to Sallie James.]
Posted by Dingel at 11:32 PM | Comments (1)
September 09, 2006
Stiglitz's Trade Unilateralism
Joseph Stiglitz:
“Rich countries should simply open up their markets to poorer ones, without reciprocity.”
A man such as Dr. Stiglitz should know better to make such a comment. A basic concept of economics is that in order for a transaction to take place, it must benefit each party. While I am certainly an advocate of free markets and free trade, this statement ignores important political and social factors associated with doing so and is strikingly idealistic.
If Mr. Hendrickson is an advocate of free trade, then he ought to recognize unilateral trade liberalization when it is proposed. Lower US trade barriers would benefit each party. Stiglitz's proposal is idealistic because if the US was unwilling to make "concessions" at Doha, then it certainly won't reverse course and make them unilaterally. But Hendrickson ought to support Stiglitz's position if he believes in the classic case for free trade.
Posted by Dingel at 12:08 PM | Comments (0)
August 31, 2006
Sugar Protectionism
Since this post is the first google result for sugar protectionism, I'll post a collection of better resources:
Mark Groombridge, "America’s Bittersweet Sugar Policy," December 2001, PDF
Kim Elliott, "Big Sugar and the Political Economy of US Agricultural Policy," April 2005, PDF
Jose Alvarez and Leo C. Polopolus, "The History of U.S. Sugar Protection," June 2002, HTML
Omer Gokcekus, Justin Knowles and Edward Tower, "Sweetening the Pot: How American Sugar Buys Protection," 2003, PDF
Please submit more links in the comments.
Posted by Dingel at 05:25 PM | Comments (0)
August 21, 2006
Antidumping "Zeroing" Struck Down
Thanks to Dan Ikenson's latest Cato blog entry, I learned what "zeroing" is and why the WTO Appellate Body struck it down last week:
In determining margins of dumping (which dictate the prospective antidumping duties applied to affected imports), the Department of Commerce typically compares a foreign exporter’s U.S. and home market prices. There are usually dozens or hundreds (sometimes thousands) of comparisons made, each generating a margin of dumping, which can be positive, negative or zero.Before averaging the individual dumping margins to produce an overall antidumping duty rate, the DOC perpetrates some sleight of hand by setting all of the negative dumping margins to zero. This, of course, has the effect of seriously inflating the overall rate and dissuading subsequent importation.
Posted by Dingel at 05:19 PM | Comments (0)
July 22, 2006
Now that's an import barrier
In one decade in the eighteenth century, according to the Swedish economist and historian Eli Heckscher in his book of 1932, Mercantilism, the French government sent tens of thousands of souls to the galleys and executed 16,000 (that’s about 4.4 people a day over the ten years...) for the hideous crime of importing printed calico cloth. [McCloskey]
Posted by Dingel at 11:58 PM | Comments (0)
July 21, 2006
Irwin: "Historical Aspects of U.S. Trade Policy"
Douglas A. Irwin is an outstanding trade scholar who consistently pursues interesting research questions. This article summarizes what he's been doing lately.
[Hat tip: Ben Muse]
Posted by Dingel at 07:24 AM | Comments (0)
July 18, 2006
Cultural Protectionism: Korea's Screen Quota
I don't usually read the Huffington Post, but I stumbled across this post today while doing some research. In the midst of recommending appropriate caution about the US desire to include stringent intellectual property rules in upcoming preferential trade agreements with Malaysia, South Korea, and Thailand, James Love wrote this silly passage:
In the Korea negotiations one of the big demands by the US is to cut back the Korean "screen quotas," that mandated theaters to show Korean movies at least 40 percent of the time (146 days per year). The US wants this cut back, so that Koreans will watch more Hollywood films. The creative community in Korean is highly mobilized in opposition to this, which they fear will devastate the Korean film industry. If the USTR "wins" this negotiation, it will reduce global cultural diversity.
Technically, "global cultural diversity" will be reduced if one defines that phrase to mean the supply of Korean films being shown in theaters, regardless of consumption. But more films that consumers actually want to see will be shown, so there will be a global cultural welfare gain. Moreover, if a culture's existence depends upon governmental mandates impinging freedom of choice, why is it valuable?
Korean economist Kim Young-bong debunked the cultural protectionist argument a few years ago in the Joong Ang Daily. James Love ought to acquaint himself with the benefits of cultural hybridization through globalization rather than defending governmental discrimination.
Posted by Dingel at 07:55 PM | Comments (0)
June 22, 2006
US Abuse of Anti-Dumping Duties
Last week, the Financial Times opined:
Anti-dumping duties are designed to prevent predatory companies pricing goods lower abroad than at home. But rules defining dumping vary between countries and are hopelessly opaque.In the EU - as with most members of the World Trade Organisation except the US - anti-dumping actions are a politicised process, and investigators are allowed considerable leeway in deciding how comparisons between export and domestic prices should be made. Thus authorities are susceptible to lobbying, and inefficient businesses in shrinking sectors such as shoe-making spend too much time begging governments to protect them from cheap imports rather than figuring out how to make themselves competitive.
If I were to write the FT a letter, it would say:
Sir,Anti-dumping policy is a dangerous and frequently abused trade instrument. You were right to criticize the politicized processes that produce anti-dumping actions in most countries but erred in exempting the United States from your criticism (“Down in the dumps,” June 14). Anti-dumping policy in the US, as in other nations, is dominated by special interests and based on suspect calculations.
For a number of years, US law -- the Byrd amendment -- actively encouraged lobbyists to bring anti-dumping claims by awarding the tariff revenues to the companies that filed a complaint. It was the European Union, along with ten other nations, that brought a successful case against this measure at the WTO dispute settlement panel in 2002.
Despite that ruling, the Byrd amendment was not repealed by the US Congress until February 2006 and will remain in effect until September 2007. Anti-dumping actions are protectionist interventions, whether implemented by Asians, Europeans, or Americans. The United States should not be let off the hook.
Posted by Dingel at 07:11 PM | Comments (0)
February 07, 2006
Costs of Sugar Protectionism
Economists frequently describe protectionism as politically feasible due to its concentrated benefits and dispersed costs. Sugar protectionism, however, has concentrated costs:
Producers of hard candy, such as Primrose and Brach's, which closed its Chicago plant in 2004 to move its operations to Mexico, blame their shifting production strategies on one culprit: U.S. sugar subsidies that keep prices of domestic sugar much higher than prices on the world market. In addition, tight import quotas make it hard to import cheaper foreign-produced sugar."We haven't seen a hard-candy company expansion or new factory for many years," said Rob Hoffman, director of business development for World Business Chicago. [WaPo]
Update: See this post for more information about sugar protectionism.
Posted by Dingel at 08:15 AM | Comments (0)
January 04, 2006
Resisting Protectionist Urges
Occasionally President Bush acts like someone that appreciates free trade:
Beijing has welcomed a decision by US President George W Bush to reject a commission recommendation that called for anti-dumping quotas on imports of Chinese steel pipes... The US International Trade Commission found in October that Chinese producers were dumping imports of circular welded non-alloy steel pipe on the US market at unfairly cheap prices. ITC chairman Stephen Koplan recommended that Bush impose an annual quota of 160,000 tons on such steel imports for three years. Bush argued, however, that action to curb imports would encourage other countries to step into the market and would only serve to drive up costs for US steel consumers. The action was a rare respite from Washington's usually highly critical stance about the state of US-Sino trade relations as exports from the Asian giant have soared on the back of its surging economy. [The Standard]
Moreover, Ben Muse notes that it looks like the Byrd Amendment will be dead by late 2007.
Posted by Dingel at 09:36 AM | Comments (0)
November 22, 2005
Byrd Amendment may be repealed
The House of Representatives' version of the budget reconciliation bill contains a measure that repeals the Byrd Amendment, a protectionist statute passed in 2000 that encouraged rent-seeking by distributing anti-dumping revenues to companies that filed grievances. The Senate budget bill does not contain such a measure.
Over two dozen senators have signalled their intent to fight in support of the Byrd Amendment. Rep. Jim Ramstad, a Minnesota Republican, has called the program "the ultimate combination of protectionism, corporate welfare and government waste."
Posted by Dingel at 10:30 AM | Comments (0)
November 20, 2005
Infants who export aren't necessarily growing up
I just discovered another objection to the infant industry argument. In a 2002 paper, Donghyun Park and Jung Hur demonstrate that a protected firm's ability to export is not necessarily evidence that it is reaping the dynamic gains (economies of scale and learning-by-doing) touted by import substitution proponents.
In this note, we use simple graphical analysis to examine whether exports per se are evidence of the success of an IS trade policy regime. Our analysis indicates that it is possible for an IS industry to export even without the dynamic effects associated with the infant industry argument, according to which a domestic industry protected under IS eventually grows up to become internationally competitive.In our analysis, the IS monopolist becomes more efficient only in the very limited sense that it moves down a given average cost curve, which remains above the world price everywhere. However, there is no growing up in a more fundamental sense of the infant industry argument – i.e. the IS industry’s price becoming competitive with world price. Indeed, in our analysis, the IS industry faces little incentive to grow up.
Therefore, exports per se do not necessarily tell us about whether IS enabled an industry to achieve significant efficiency gains over time. In fact, we showed that protectionism and economies of scale can combine to render exporting profitable for an IS monopolist that inherently cannot compete in world markets. Our analysis provides some grounds for caution in viewing exports as evidence of successful IS.
Posted by Dingel at 07:30 PM | Comments (0)
November 08, 2005
Textile Quotas Return
After the conclusion of the Uruguay round, the year 2005 was supposed to herald the launch of the quota-free era of textile trade. The EU and US have now both completed agreements with China to impose quotas upon its textile exports . What are we to expect from the Doha round?
UPDATE: Peter Gallagher explains in detail why everyone loses.
Posted by Dingel at 08:48 AM | Comments (0)
August 23, 2005
EU & US in talks with China on textiles
European and American officials are reportedly headed to China to discuss relaxation of their respective barriers to Chinese textile exports.
Posted by Dingel at 09:44 AM | Comments (0)
August 01, 2005
WTO Membership Benefits
I thought that the world of textiles had entered "2005 and beyond: the Quota-Free Era," so I was confused when I read this article:
Fees applied to quotas on garment and textile exports to the United States have been abolished by the Vietnamese Ministry of Finance in a recent decision.Deputy Finance Minister Truong Chi Trung said the decision, dated July 25, was good news for about 800 US-bound garment and textile exporters in Vietnam.
The decision was made in the context that Vietnamese garment and textile exporters are facing fierce competition from their Chinese rivals, with the threat of decreasing exports.
Trung went on to say that the abolishment of quota fees will not cause a big impact on the country's tax revenues as fees collected from garment and textile exports are estimated at a mere VND50-55 billion a year....
To boost exports to the US, Vietnam plans to negotiate with the US to increase quotas for Vietnamese garment and textile exporters and simplify procedures on granting export permits, Trung said. [Yahoo]
I was aware of the calls for the imposition of "emergency" quotas upon Chinese textile exports, but how is the US getting away with plain old protectionism?
Here's the trick: Vietnam isn't a member of the WTO. Neither are Russia, the Ukraine, nor Belarus. The US maintains textile quotas against each of them.
Posted by Dingel at 11:44 AM | Comments (0)