The Washington Post reported this morning that the U.S. government is “charging members of the Chinese military with conducting economic cyber-espionage against American companies.” According to the story, Attorney General Eric Holder will “announce a criminal indictment in a national security case,” naming members of the People’s Liberation Army.

If you will recall, cyber-security, cyber-espionage, and cyber-theft of trade secrets and other intellectual property belonging to American businesses started becoming prominent sources of friction in the U.S.-China relationship about 18 months ago before suddenly dropping off the front pages 11 months ago to make way for revelations of domestic spying by the U.S. National Security Agency. Somehow, the notion that Chinese government-sponsored cyber-theft broached a red line lost some of its luster after Americans learned what Edward Snowden had to share about their own government.

But today the issue of Chinese cyber-transgression is back on the front pages. Never before – according to the Washington Post – has the U.S. government leveled such criminal charges against a foreign government. The U.S. rhetoric has been heated and, just this afternoon, the Chinese government responded by characterizing the claims as “ungrounded,” “absurd,” “a pure fabrication,” and “hypocritical.”

While the U.S. allegations may be true, given well-publicized U.S. cyber-intrusions, it isn’t too difficult to agree with the “hypocritical” characterization either. Perhaps that’s why the U.S. government is attempting to distinguish between cyber-espionage, which is conducted by states to discern the intentions of other governments – and is, from the U.S. perspective, fair play – from “economic” cyber-espionage, which is perpetrated by states or other actors against private businesses and is, from the U.S. perspective, completely unacceptable. It’s not too difficult to understand why the United States has adopted that bifurcated position. The Washington Post quotes a U.S. government estimate of annual losses due to economic cyber espionage at $24-$120 billion.

That is an enormous amount of loss. But the figure is impossible to verify since just about all the information from which it derives is classified. Even if it were verifiable, who is to blame for such loss? The Chinese government may be complicit and, if so, should be asked to make amends. Chinese companies or individuals may be guilty and, if so, should be prosecuted for violating specific laws. But let’s not let the victims off the hook so easily. Under the doctrine of “fool me once shame on you, fool me twice shame on me,” how is it possible for profit-maximizing U.S. companies to be so reckless and cavalier about protecting their assets, especially when these alleged losses accrued over a period of time? Theft – including intellectual property theft – is a fact of life, and it is the responsibility of property owners to do their parts to reduce the incidence of theft. If that means incurring greater private costs to make illegal downloading or duplication more difficult, so be it. If it means investing in extra cybersecurity measures to protect trade secrets, do it. If it means taking executive communications off the main server and onto a dedicated, impenetrable network without access to the internet, c’est la vie.

The primary beneficiaries of intellectual property are its owners. Companies owning patents, copyrights, and trade secrets – not the taxpaying public – benefit financially from the use of that intellectual property. Why, then, should the taxpaying public – instead of the direct beneficiaries of intellectual property – be called upon to flip the bill when it comes to enforcing intellectual property rights? Perhaps, you may think, I’m getting ahead of myself. How has the taxpaying public been asked to flip the bill, you wonder?

Well, before these bilateral cyber-tensions were defused temporarily by the NSA revelations, it looked like cyber-espionage would become the single most important issue in the U.S.-China trade and economic relationship for the foreseeable future. U.S. congressional committees and executive agencies were effectively blacklisting Chinese telecom companies, and legislation was passed into law forbidding U.S. agencies from purchasing Chinese information technology systems.

Those actions might have merited a Chinese challenge at the World Trade Organization on the grounds that the United States was violating its market access commitments. However, WTO members are permitted under Article XXI of the General Agreement on Tariffs and Trade to act in accordance with their own national security interests, even if that means suspending tariffs and other market access concessions. To demonstrate that banning Chinese IT products was a matter of national security – which the United States might be compelled to do if there were a WTO case – the United States might want to point to other efforts it has made to dissuade Chinese actions that threaten U.S. national security. So that brings us to the criminal case brought today by the Justice Department.

It’s tough to imagine that lodging today’s complaint will do much more than build a case record that the United States is taking measured steps to address a perceived problem, which would ultimately make the case for banning Chinese imports of telecom products more defensible from a WTO perspective. That’s where the cost of enforcement is socialized. In this atmosphere of distrust, where allegations based on classified or other unverifiable information have to suffice for the closest thing to the truth, only blanket solutions that curtail Americans’ economic freedoms, such as trade and investment restrictions, can prevail. That outcome subsidizes IP holders and benefits U.S. companies that will fare better in the absence of Chinese competition.

We need to find a more reasonable solution than this. It should start with our insistence that companies do a better job of protecting their own interests.

Government has so many ignoble tendencies, it’s often difficult to guess which ones are driving any particular policy choice. For example, how does the government decide which products are available for purchase using WIC benefits? As reported today in DC political newspaper, The Hill:

A new rider to the 2014 funding bill for the Agriculture Department forbids the agency from excluding “any variety of fresh, whole, or cut vegetables, except for vegetables with added sugars, fats, or oils, from being provided as supplemental foods” under the Women, Infants and Children nutrition program

Rep. Mike Simpson (R‑Idaho) is a lead sponsor of the language and can be expected to defend it from attacks during a full committee markup of the bill. 

The Agriculture Department excluded white potatoes from its list of approved items in 2009 because it argued they do not contain enough nutritional value and people shouldn’t be encouraged to buy them. Lawmakers fighting the exclusion are predominantly from the largest potato-growing areas such as Idaho and Maine.

I’m hopeful that Congress and the USDA will figure out just the right mix of paternalism and cronyism needed to ensure the effectiveness of federal food assistance programs.

Nothing brings out the well-tailored lobbyists in Washington quite like a threat to corporate welfare. With the Export-Import Bank’s legal authorization set to run out this year, the Chamber of Commerce recently led a Big Business march on Capitol Hill to protect what is known as Boeing’s Bank. 

Over the last eight decades ExIm has provided over a half trillion dollars in credit, mostly to corporate titans. Congress should close the Bank.

The agency was created in 1934 to underwrite trade with the Soviet Union. Unfortunately, ExIm is not free, as claimed. Recently made self-financing, the agency has returned $1.6 billion to the Treasury since 2008. 

However, economists Jason Delisle and Christopher Papagianis warned that the Bank’s “profits are almost surely an accounting illusion” because “the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im Bank.” In particular, the price of market risk is not included. Delisle and Papagianis figured ExIm’s real price to exceed $200 million annually. 

Economist John H. Boyd took another approach, explaining: “For an economic profit—that is, a real benefit to taxpayers—ExIm bank’s income must exceed its recorded expenses plus its owners’ opportunity cost, a payment to taxpayers for investing their funds in this agency rather than somewhere else.” He figured the Bank’s real cost at between $521 million and $653 million in 1980. The corresponding expense today likely is much higher.

The Bank claims to create jobs. No doubt, ExIm financing makes some deals work. But others die because ExIm diverts credit from firms without agency backing.

Economists Heywood Fleisig and Catharine Hill figured that channeling resources to exports reduces “domestic investment, consumption, or government expenditure.” Thus, they explained, while export subsidies will increase employment in export firms, they will do so “at the expense of employment elsewhere.”

ExIm also sells itself as necessary to promote trade. But exports should not an end in themselves irrespective of cost. Anyway, the Bank supports only about two percent worth of exports, barely a blip in a $17 trillion economy. 

The Bank contends that it corrects market failures when U.S. exporters can’t get credit. However, international financial markets are sophisticated.

Moreover, it’s impossible to know just how many of the deals currently financed by American taxpayers wouldn’t go through absent the subsidy. Everyone—borrower, banker, exporter, bureaucrat—has an incentive to claim ExIm played a vital role.

The agency says it supports all businesses, including small ones. However, candidate Barack Obama was right in 2008 when he described the Bank as “little more than a fund for corporate welfare.” 

The most money always goes to Big Business. Boeing alone typically accounts for more than 40 percent of the Bank’s credit activities. Veronique De Rugy of the Mercatus Center figured that the top ten recipients collect 75 percent of ExIm’s benefits.

Finally, ExIm’s warns that if the U.S. government doesn’t provide cheap credit, American companies will lose out to foreign firms subsidized by their governments. In this way the Bank claims “to help level the playing field.”

However, less than half of ExIm credit is even directed in this way, let alone proven necessary. Moreover, as I point out in my new Forbes online column: “The fact that other governments are willing to hurt their peoples by channeling credit away from worthier firms in the marketplace in favor of politically well-connected exporters is no reason for America to do the same.”

A better way to help promote trade would be to strengthen the economy generally. Lower and rationalize business taxes. Cut and streamline regulation. Reduce tariffs, especially on widely used imports, such as steel. Discourage frivolous litigation. Stop subsidizing the defense of prosperous, populous trade competitors.

It’s time to kill the agency. Let exporters pay to generate their own profits.

If you don’t get inboxed with Cato Trade, the monthly newsletter of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, you can find the current installment here. In this month’s release, you can learn about Cato Trade on Campus; read about our efforts to dispel pervasive myths about trade; get the details of our upcoming half-day conference on the increasingly controversial investor-state dispute settlement rules; see what we’ve been thinking and writing about, and; get a sense of what may be in the pipeline.

Here are links to the current and previous releases:

• May 2014
• Apr 2014
• Mar 2014
• Feb 2014
• Jan 2014
• Dec 2013

Here is more information about Cato’s trade scholars and our areas of focus:

• Dan Ikenson
• Simon Lester
• Scott Lincicome
• Dan Pearson
• Bill Watson

If you’d like to receive our newsletter at the beginning of every month, please send your name and email to Inu Barbee at ibarbee@​cato.​org.

The 2009 Family Smoking Prevention and Tobacco Control Act banned the sale of all flavored cigarettes, except menthols, in the United States. Indonesia successfully challenged that part of the law at the World Trade Organization as disguised protectionism—the banned products were clove cigarettes from Indonesia and the exempted menthols are made in the United States. The U.S. government tried to claim that the distinction was justified because kids like smoking cloves more than menthols. They failed to convince the trade court, because that’s ridiculous. 

The time given the United States to bring its measure into compliance with WTO law has now elapsed. Instead of changing the law to allow cloves or to ban menthols, however, the United States has claimed that issuing a report and thinking about what to do about menthol cigarettes is enough to bring it into compliance. Indonesia understandably disagrees and is seeking permission to retaliate against U.S. imports.

To stave off retaliation, the U.S. government has now decided to defend the clove cigarette ban by arguing that it was completely ineffective. As reported by Inside U.S. Trade ($)(emphasis added):

The U.S. is … claiming that, even if it is found not to have complied with the ruling, Indonesia is not entitled to retaliation because the country’s exports have not been nullified or impaired by the U.S. ban on clove cigarettes.…

Specifically, the U.S. points out that the Indonesian industry has repackaged clove cigarettes into clove cigars, which unlike their counterparts are not banned. Therefore, the U.S. maintains, Indonesia’s clove exports have not suffered as a result of the ban.

International trade rules probably won’t slow the steady creeping of progressive lifestyle paternalism, but I truly enjoy these kinds of embarrassing revelations. The pesky thing about people is that they keep trying to do things they want to do even when governments tell them not to—coercive “nudges” notwithstanding.

Last year, Sallie James and I wrote a paper warning against the increasing prevalence of regulatory protectionism in the United States. We noted that, unlike most product regulations, tobacco control doesn’t lend itself to market solutions:

For some regulations that have nonpro­tectionist goals, there is no free market an­swer, because the “legitimate” goal is an illib­eral imposition on consumer choice. Again, the clove cigarette ban provides an excellent example. For tobacco control advocates, the goal is not to have better quality products or to prevent negative environmental impact—the goal of a cigarette ban is to control peo­ple for their own purported good.

Any cigarette ban, like other forms of pro­hibition, is incompatible with the ideals of a free society. The dangers of smoking are well-known, and its popularity has waned considerably in recent decades, but smoking tobacco tastes and feels as good as it always has, and many find the risks acceptable.

While the global tobacco control movement is fiercely opposed to the proliferation of global trade rules, the anti-tobacco forces are probably wasting their energy. Even if tobacco measures are exempted from all trade rules, the paternalists are going to lose because their agenda is ultimately hopeless. They’re fighting a losing battle against the indelible human spirit that pursues happiness without permission.

Japan and the United States have undertaken a series of high-level negotiations over the past several weeks in an effort to reach a bilateral agreement that could lead to completion of the 12-country Trans-Pacific Partnership (TPP). Japanese Minister of State for Economic and Fiscal Policy, Akira Amari, has met with U.S. Trade Representative Michael Froman both in Tokyo and Washington in an effort to resolve differences prior to President Obama’s visit to Japan this week. Reports indicate that the talks have made some progress. However, large gaps remain that are expected to preclude any breakthrough announcement when the president meets on April 24 with Japanese Prime Minister Shinzo Abe.

The stated obstacles to concluding the talks have been Japanese reluctance to eliminate tariffs on sensitive agricultural products – beef, dairy, pork, rice, sugar and wheat – and U.S. reluctance to eliminate the 2.5 percent tariff on automobile imports and the 25 percent tariff on light trucks. Each side is very much in the right to ask the other to change these protectionist policies. They have the effect of stifling comparative advantage. They reduce economic welfare by raising consumer costs while curtailing opportunities for efficient producers to make export sales. Ending these trade restrictions would not only help the country requesting the changes, but would also help the economy of the country making the change. What’s not to like about this deal?

Stepping back from the details of the requests and offers, the real problems facing each country are the underlying political realities. Japanese farmers strongly resist reductions in the level of support they receive from tariff protection, and have done so consistently for decades. Those farmers also have been consistent and dedicated supporters of Prime Minister Abe’s Liberal Democratic Party (LDP). If Japan’s agricultural community becomes sufficiently unhappy with the Abe administration, it is entirely possible that his government could fall. Nonetheless, Prime Minister Abe seems willing to push agricultural policy in the direction of reform. He knows that updating Japan’s agricultural policies is an essential condition for becoming a member of the TPP.

Political considerations in the United States are somewhat different. Yes, the automobile industry would give up tariff protection on imports from Japan. But the reality is that a 2.5 percent duty isn’t all that high in the first place, and the protective effect of the 25-percent duty on light trucks has been undermined significantly by Japanese firms’ investments in U.S. manufacturing facilities. A whole lot of “Japanese” vehicles already are built in the United States. Nonetheless, the U.S. auto industry and its workers are not enamored of tariff reductions, and the Obama administration no doubt keeps this in mind.

The real reason for the impasse is lack of fast-track negotiating authority (also known as Trade Promotion Authority, or TPA) that would allow the TPP agreement to be submitted to Congress for an up-or-down vote. Fast-track arrangements that prohibit amendments have been used for congressional consideration of trade agreements since the Trade Act of 1974. This process was developed in response to the failure of Congress in the 1960s to adopt key provisions of the Kennedy Round agreement dealing with customs valuation and antidumping procedures. The Kennedy Round’s tariff reductions were approved, but there had been no prior congressional commitments to limit amendments, so it wasn’t possible to find the votes needed to pass the controversial provisions. Any controversial parts of a TPP agreement that conceivably could be presented to Congress in the absence of fast track also would prove difficult (impossible?) to enact. Frankly, TPP may have a hard time being approved by the current Congress even if fast track already was in place.

What’s more, opposition to passage of fast-track authority is very broad and deep within the president’s Democratic Party. Anti-fast-track forces include not only organized labor and many left-leaning civil-society organizations, but also Senate Majority Leader Harry Reid, House Minority Leader Nancy Pelosi, and many fellow Democrats in Congress. Although the Obama administration supports the concept of fast track, it has not yet endorsed a specific legislative proposal. It is noteworthy that the administration chose not to support the bipartisan approach introduced in January this year by then-chairman of the Senate Finance Committee Max Baucus (D‑MT), Ranking Member of Senate Finance Orrin Hatch (R‑UT), and House Ways and Means Chairman Dave Camp (R‑MI). The new Finance Committee chairman, Sen. Ron Wyden (D‑OR), has indicated that he is considering how or whether to propose fast-track legislation, but appears to be on a timetable that would delay introduction of any bill until at least after the November 2014 election.

The administration has given no indications that it is making progress in overcoming Democratic resistance to fast track; recent objections by members of Congress timed to coincide with the president’s Asian trip suggest that the administration may be losing ground. The April 21 op-ed in the Los Angeles Times by Reps. George Miller (D‑CA), Rosa DeLauro (D‑CT), and Louise Slaughter (D‑NY) amounts to a kick in the pants as the president sets off on his diplomatic mission. (It makes one wonder what these Democrats would be saying if the president was a Republican rather than a member of their own party.) There is no precedent from the administration’s first five years in office in which the White House pushed back effectively against such strong objections from key parts of its political base. It seems unlikely they will find a way to do so with fast track, especially since this could be seen as favoring Republicans over Democrats. That meaningful progress toward trade liberalization could be put on hold at least until a new administration takes office in 2017 is reason for concern.

Japanese officials no doubt have been paying close attention to U.S. trade politics. Prime Minister Abe can see that United States is not in a terribly strong position to push TPP to a completely trade-liberalizing conclusion. But President Obama is coming to Tokyo and it’s necessary to do something. Should Japan go ahead and commit to eliminate agricultural tariffs before the United States even has fast-track authority? Does the United States really want to conclude an agreement at this point when U.S. negotiators appear to have only limited credibility and leverage, or have the recent rounds of bilateral TPP talks just been for show? If Japan takes the plunge and agrees to painful cuts now, what happens if it becomes clear following the November election that their U.S. partners are not able to move forward? Will the future of the Abe government be at risk?

The net result is that Prime Minister Abe appears to have backed away from what may have been his intention to pursue a truly far-reaching reform of Japan’s agricultural policies. He can’t afford to put everything on the table when he can see that the U.S. side simply isn’t in a position to deliver.

It is unfortunate that a presidential trip to Japan – certain to raise expectations – has come at a time when the United States has relatively little negotiating leverage. Pressure to achieve a deal apparently has led U.S negotiators to agree that Japan would be allowed to maintain a significant degree of agricultural tariff protection. Even though the TPP talks might not be concluded for several years (if ever), important ground now has been lost. It will likely be impossible to reclaim a position of greater liberalization later in the course of the negotiations. It also is unclear whether the other 11 nations involved in TPP will be willing or able to keep the process going for several years in hopes that the United States eventually will get its act together. Perhaps soon it may be time to think about how to maintain the hope for a broad Pacific trade agreement that might be achieved at some point further in the future.

Debates about trade liberalization often focus on identifying the winners and losers of increased openness to foreign competition. Protectionists regale us with sad stories of closed factories, and free traders point to lower prices for consumers and the broad benefits of economic growth. But this whole exercise is completely backwards. We should instead be talking about the winners and losers of protectionism.

Free trade is not a trade policy. Trade policies—such as tariffs, quotas, restrictions on foreign service providers, and protectionist regulations—exist to divert the benefits of free exchange toward politically powerful special interests. Free trade is merely the absence of those policies. 

By demanding an explanation for increased openness, the trade debate implicitly legitimizes the protectionist status quo. As a consequence, the news media often accept the argument that opening the U.S. market to foreign competition should be accompanied by programs that alleviate the suffering of the losers of increased trade. But why is anyone entitled to the current arrangement? Perhaps the winners of protectionism owe reparations to those of us who had to suffer the consequences of their rent-seeking. 

Who wins and who loses from policies that increase the price of food? Who wins and who loses from regressive taxes on shoes and clothes? Who wins and who loses from shipping restrictions? Who wins and who loses from protectionist overregulation? I could go on.

Last Sunday’s New York Times included an editorial calling on the Obama administration to “Get Global Trade Right” by adding a handful of protectionists’ pet issues to the Trans-Pacific Partnership. Threatening our trade partners with sanctions if they don’t adopt specific labor, environment, or monetary policies is not going help the United States get trade right, but it will make us a bully and reduce our ability to make real progress tearing down genuine barriers. 

After (wrongly) blaming increased economic openness for the loss of millions of manufacturing jobs and growing income inequality, the Times—without a hint of irony—says that President Obama needs “to make a strong case for why these new agreements will be good for the American economy and workers.” Well, that is certainly true.

Let me offer some humble advice to the president then on how he might take on that task: Stop selling trade agreements as a way to grow export markets for goods produced in the United States, and start extolling the virtues of agreements as a way to fight cronyism and to tear down bad policies. Thinking about trade agreements this way will not only help you sell the agreement, it could actually make the agreements better.