September 28, 1999

by Peter J.M. Orvetti

Gary Johnson Hits The Beltway
Of Disputes And Deficits
Last Chance For China WTO?

Gary Johnson Hits The Beltway

Gov. Gary Johnson (R-N.M.) hits the nation's capitol next week, and will begin his Washington trip by addressing his proposal for taxpayer-financed school vouchers during an appearance at the Heritage Foundation, AP reports. Johnson has been unsuccessful in getting the Democratic-led New Mexico legislature to adopt his voucher proposals. On Oct. 5, a day after his voucher speech, Johnson will speak at the Cato Institute's conference on drug policy. Johnson has won national attention with his recent drive for drug policy reform and decriminalization. (More on that event, Beyond Prohibition: An Adult Approach to Drug Policies in the 21st Century, is available.)

"On such issues as school vouchers and the right to bear arms, Johnson has shown two strong tendencies: a commitment to individual freedom and a willingness to take a hard look at the evidence. Looking at the facts, he concluded that crime is reduced when law-abiding citizens are allowed to carry guns and that kids would get a better education if their families had a choice of schools. Now Johnson has shown those same characteristics on another controversial issue. He's one of the first high-ranking elected officials to question the war on drugs," Cato Institute Executive Vice President David Boaz wrote in the recent commentary "Gary Johnson Is Right".

Boaz and R. Morris Barrett authored a 1996 Cato Briefing Paper, "What Would a School Voucher Buy? The Real Cost of Private Schools", on the voucher issue: "American schools are failing because they are organized according to a bureaucratic, monopolistic model. A school voucher of $3,000 per student per year would give more families the option of sending their children to non-government schools. However, many people believe that such a small amount could not possibly cover tuition at a private school; they may be thinking of such costly schools as Dalton, Andover, and Exeter and concluding that all private schools cost in excess of $10,000 a year. In fact, Education Department figures show that the average private elementary school tuition in America is less than $2,500. The average tuition for all private schools, elementary and secondary, is $3,116, or less than half of the cost per pupil in the average public school, $6,857. A survey of private schools in Indianapolis, Jersey City, San Francisco, and Atlanta shows that there are many options available to families with $3,000 to spend on a child's education. Even more options would no doubt appear if all parents were armed with $3,000 vouchers." Boaz edited the Cato book Liberating Schools: Education in the Inner City, which examines alternatives to the failed public school system.

Of Disputes And Deficits

Japanese Ambassador to the United States Shunji Yanai, who was appointed last month, said Monday that a surge in the U.S. trade deficit with Tokyo could trigger a fresh round of trade disputes between the world's two biggest economies, AP reports. "What we are concerned about now is an increase in the U.S. trade deficit with Japan while the U.S. economy is booming and Japan's in recession. We must keep in mind that depending on the course of developments the two economies take in the future, the issue could be rekindled," Yanai said. The U.S. trade deficit with Japan hit a record high of $6.78 billion in July, leading a growing faction of U.S. lawmakers to call for limits on shipments of Japanese steel to safeguard U.S. production and American jobs.

The Cato Institute's Daniel T. Griswold celebrates the trade deficit in the recent commentary "A Rising Trade Deficit Signals Good Times for U.S. Economy": "The trade deficit is not the cause of bad things, but the result of good things in our economy. It reflects an economy ripe with investment opportunities and flush with consumer confidence… By almost any measure, America's economy has performed better in years in which the trade deficit rose compared to years in which it shrank. During years of rising deficits, the growth of real gross domestic product averaged 3.2 percent per year, compared to 2.3 percent during years of shrinking deficits. If trade deficits really are a drag on growth, why does the economy grow so much faster when the trade deficit is getting bigger? … The biggest threat to our prosperity is not the trade deficit, but what politicians might do in a misguided mission to shrink it." Griswold has made this argument in testimony before the Trade Deficit Review Commission and testimony before the Senate Finance Committee as well.

Griswold detailed his argument in the 1998 Cato Trade Policy Analysis "America's Maligned and Misunderstood Trade Deficit": "Contrary to popular conception, the trade deficit is not caused by unfair trade practices abroad or declining industrial competitiveness at home. Trade deficits reflect the flow of capital across international borders, flows that are determined by national rates of savings and investment. This renders trade policy an ineffective tool for reducing a nation's trade deficit… There is no connection between trade deficits and industrial decline. From 1992 and 1997, the U.S. trade deficit almost tripled, while at the same time U.S. industrial production increased by 24 percent and manufacturing output by 27 percent. Trade deficits do not cost jobs. In fact rising trade deficits correlate with falling unemployment rates. Far from being a drag on economic growth, the U.S. economy has actually grown faster in years in which the trade deficit has been rising than in years in which the deficit has shrunk. Trade deficits may even be good news for the economy because they signal global investor confidence in the United States and rising purchasing power among domestic consumers. What matters to the economy is not the difference between imports and exports but the extent to which Americans are free to benefit from the efficiencies, opportunities and consumer choice created in an economy open to world trade."

Last Chance For China WTO?

Representatives of the United States and China met Monday for what Reuters termed "make-or-break talks" on China's bid to join the World Trade Organization. The Washington meeting between United States Trade Representative Charlene Barshefsky and Chinese Trade Minister Shi Guangsheng was widely seen as the last chance for an agreement on China WTO entry this year. The deadline for China's accession is seen as late November, when WTO ministers launch the next round of global trade talks in Seattle. Any delay could leave Beijing shut out of the global trading body for years, Reuters reports.

In a commentary published earlier this month, "The Right Way to Get China into the WTO", Mark Groombridge wrote, "Most agree that WTO membership for China is beneficial not just for China but for the world trading community at-large. Those who oppose China's membership in the WTO are mostly heads of state-run monopolies in China or heads of powerful labor unions in the United States. For China, WTO membership will help bolster the position of Premier Zhu Rongji, who faces the difficult task of keeping China on the reform path. For other countries, it will help integrate China more peacefully into the international community as well as open up China's market to increased foreign competition… One way for China to avoid this problem is to convince the West that the process by which trade is conducted in China is transparent and fair. This is why administrative reform in China is so crucial for it is the only way that the WTO will be able to evaluate and rule in a competent fashion should a dispute settlement case arise. Without such a commitment, it seems likely that the WTO will face enervating disruptions for years to come. It will be much easier for Western countries to win frivolous dispute settlement cases and impose unilateral protectionist measures. Such an outcome is in the interest of neither China nor the WTO, except for, of course, the heads of state-run monopolies and powerful labor unions."

Daniel T. Griswold wrote about China's WTO bid in an article, "Admit China To The WTO, But Don't Bend The Rules": "As the price of admission to the WTO, China should agree to abide by the full range of obligations that the charter requires. That includes further liberalization, transparent trade rules, national treatment of imported goods and investment, and the abolition of subsidies, quotas and import licensing. In return, the advanced countries should agree to treat China as a grown up in the WTO by forgoing any extraordinary powers to block Chinese imports through enhanced 'safeguard' provisions and abuse of anti-dumping laws. A liberalized China operating within the WTO's legal framework would boost global trade and production. As a byproduct, encouraging transparency and the rule of law in Chinese trade policy (not to mention free trade in information technology) can only be good for advancing human rights in China. This provides all the more incentive to extract the maximum liberalization from China's mercantilist leadership."

James Dorn has also addressed the subject, most recently in the commentary "Risky... or Worthy WTO Bid?". Tomorrow, September 29, the Cato Institute will host the daylong conference Whither China: The PRC at 50.