“With no taxes or tithes there to devour up your wages/When you’re on the green fields of America.” A classic emigration song for St. Patrick’s Day, sung here by Kevin Conneff of the Chieftains, and from the repertoire of the great Paddy Tunney.
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Trade Policy
March 13, 2014 12:33PM
Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?
Jobs are good. Exports create jobs. We create exports. Renew our charter.
Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September. Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.
The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.
From the U.S. Export-Import Bank’s 2013 Annual Report:
The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.
The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities. Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S‑taxpayer financed foreign companies.
The Bank does more harm than good. It assists some – mostly large, politically savvy, deep-pocketed – U.S. companies at the expense of others. When U.S. taxpayers provide the financing for foreign companies’ purchases from U.S. companies, they are subsidizing the foreign competitors of downstream U.S. companies. This is analogous to the tariff-rate quotas of the U.S. sugar program, to give one example, which benefit cane and beet producers and refiners, but put U.S. sugar-using firms in the food processing, bakery, and confectionary industries at disadvantages vis-à-vis their foreign competitors, who have access to cheaper sugar. It is an exercise in picking winners and losers with the winners being those firms and industries with the most effective K Street operations.
Delta Airlines objected and even went to court on the grounds that Ex-Im’s financing of Air India’s purchase of 30 Boeing aircraft subsidized its foreign competition. Likewise, Cliffs Natural Resources, a mining company that operates three iron ore mines in Minnesota and one in Michigan, continues to object to Ex-Im’s $694 million financing of an Australian iron mine’s purchases of U.S.-made bulldozers and trucks from Caterpillar, locomotives from General Electric and drilling rigs from Copco. According to the Duluth News Tribune, “[t]he Roy Hill project in Australia’s outback is so big and so remote that entire new cities, ocean ports, roads, an airport and a 220-mile railroad are being built for a single mine that annually will produce 55 million tons — more iron ore than all U.S. mines combined. The project is owned by billionaire Gina Rinehart, the richest person in Australia.”
Leaving the question of why U.S. taxpayers should be subsidizing purchases of Australia’s richest person aside, iron ore extracted from Australian mines competes with U.S. iron ore for customers in the steel industry. In that regard, the Roy Hill project financing benefits some U.S. equipment manufacturers at the expense of U.S. mining interests and U.S. steel producers, whose Asian competitors get cheaper raw materials. This imbalance, this picking of winners and losers, this battle in the political arena that should be occurring in the marketplace will persist as long as the Ex-Im Bank is open for business.
The validity of these and many other objections notwithstanding, after several months of debate and deliberation in 2012, Republican leadership in Congress not only caved to establishment pressure to reauthorize the Bank’s charter, but also upped its annual allowance by 40 percent to $140 billion. One “rebellious” Republican who voted against reauthorization in 2012 is Jeb Hensarling, who now chairs the House Financial Services Committee, which will consider the reauthorization bill this session. The Ex-Im reauthorization debate and vote will provide Hensarling and other Republicans the opportunity to distinguish free-market capitalism from the crony variety that has given capitalism a bad name.
In this Washington Examiner column from last week, Tim Carney suggests that by opposing reauthorization of the Ex-Im bank, the GOP can make the 2014 elections a referendum on corporate welfare. Let’s hope he’s right.
As this issue is likely to become topical in the weeks and months ahead, following is a list of papers, op-eds, and blog posts written by Cato scholars (mostly by Sallie James, who has moved on to new endeavors) over the years.
http://www.downsizinggovernment.org/export-import-bank (10/12)
https://object.cato.org/sites/cato.org/files/serials/files/regulation/2012/8/v35n2‑7.pdf#page=4 (8/21/12)
http://www.downsizinggovernment.org/when-bipartisanship-dirty-word (5/16/12)
https://www.cato.org/blog/washington-post-pulls-its-punch (4/9/12)
https://www.cato.org/blog/ex-im-shenanigans-contd (3/15/12)
https://www.cato.org/blog/ex-im-bank-crony-capitalism (3/5/12)
https://www.cato.org/blog/end-ex-im-bank (2/14/12)
https://www.cato.org/blog/more-ex-im-bank (8/30/11)
http://www.downsizinggovernment.org/boeings-government-bank (11/9/9)
March 13, 2014 10:03AM
Trade Negotiations Can Be Painful to Watch
In an ideal world, governments would recognize the benefits of trade liberalization, and eliminate domestic tariffs on their own. In the real world, though, much of the tariff reduction process comes through international agreements between countries, which go something like this: We will agree to lower our tariffs if you agree to lower yours. Most people recognize that this is a silly way to do things, but in the end it leads to lower tariffs and it’s the only way to do so within existing political constraints, so we go along with it.
But it can be really painful to watch in action. Here’s an article in the FT about the U.S.-EU trade talks:
The US has accused the EU of abandoning a pledge to remove all tariffs applied to goods traded across the Atlantic, in the first substantive row to hit landmark trade negotiations between the two economies.
The EU and US last year launched a push to reach a Trans-Atlantic Trade and Investment Partnership billed as the world’s largest regional trade negotiation covering economies comprising almost half of the global economy.
Much of the focus of the discussions has been on bringing regulations in line to encourage more trade and on reducing other non-tariff barriers. But both sides had also pledged to seek to remove all tariffs on transatlantic trade, and in a sign of the difficult discussions to come the US has accused the EU of backing away from that goal.
In discussions this week in Brussels, EU officials have told their US counterparts that they plan to allow US beef, chicken and pork into the EU only under a quota system. The move amounts to a stick in the eye of US negotiators who face powerful agricultural lobbies at home and a Congress that is appearing ever more sceptical about the value of trade agreements.
It also follows a concerted effort by Karel De Gucht, the EU trade commissioner, to label the US’s original tariff offers tabled last month as less ambitious than the EU’s. The EU’s original offer would eliminate tariffs on 96 per cent of goods traded across the Atlantic while the US offer promised to wipe out tariffs on 88 per cent of goods.
US officials insist they plan to negotiate their offer upward and remain committed to the goal of eliminating all tariffs. However, EU officials, they say, have told their US counterparts that they will not eliminate tariffs on beef, chicken or pork and instead subject them to a sliding system of tariff-rate quotas.
At the end of all this, my hope is that most U.S. and EU tariffs will be eliminated. But watching everyone haggle about it, and demonstrate so much reluctance to do what is clearly in their interest, is not much fun.
March 10, 2014 3:08PM
Let’s Try Anti-Sanctions
As U.S. policymakers develop their response to the Russian incursion into Ukraine, it seems quite likely that some form of sanctions will be employed. But sanctions are always harmful to innocents and never particularly effective. It’s worth considering, then, whether there are policy options that would have a positive impact on the geopolitical situation in Ukraine while directly improving human lives and increasing liberty. We could call them “anti-sanctions.”
One possibility would be to liberalize U.S. exports of natural gas. John Boehner and others in Congress have argued that doing so would reduce Russia’s influence in the region by providing countries like Ukraine a non-Russian source of energy. Even if the geopolitical benefits are slow to materialize, allowing more oil and gas exports would have tremendous economic benefits for the United States.
A much simpler anti-sanction response would be to drop U.S. tariffs on imports from Ukraine. Normally, many products from Ukraine would be allowed to enter the United States duty free under the Generalized System of Preferences. But that program, meant to aid development in poor countries, expired last summer. Renewing GSP would reduce Ukraine’s economic dependence on Russia while directly helping Ukrainians and the Americans they do (or would do) business with.
Perhaps I am hopelessly naïve, but exploring avenues for peaceful interaction seems to me like a much friendlier and more constructive way to approach international problems. I suspect there are a great number of pro-liberty “anti-sanctions” that the U.S. government could employ as a response to the crisis in Ukraine that might actually make a positive difference in the lives of Ukrainian people.
February 28, 2014 2:28PM
A Closer Look at Congress’s Views on Trade
Cato’s congressional trade votes database now includes votes from last year on major trade bills and amendments in both houses of Congress. The purpose of the database is to educate the public about the trade policy preferences of individual members. We do that by recording their votes on major trade bills and amendments and using the data to map a broader ideological profile.
Whether a particular member qualifies as a free trader, an isolationist, an internationalist, or an interventionist based on our methodology depends on their support for (or opposition to) trade barriers and subsidies.
In previous years, the farm bill and its various amendments have provided a treasure trove of vote data to pin down members’ proclivities on specific commodities and willingness to use public money to distort the economy for the benefit of select cronies. This year was no different, except that votes taken in the House of Representatives on the full package bill have been excluded. Those votes hinged almost entirely on the issue of food stamps, and because the purpose of the database is to reveal members’ trade policy positions, including them in the database would be inappropriate.
That doesn’t mean, of course, that you shouldn’t be dismayed by Republicans who, after successfully removing food stamps from the bill so that productive debate could be had on reforming farm programs, nevertheless voted en masse to continue our Soviet-style agriculture policy with no significant change.
The new votes on the site include the Senate farm bill, failed votes in both houses to reform the sugar program, an amendment to avoid protectionist regulations on imported olive oil, an extension of “Buy American” policies in government procurement, and a continuation of export marketing subsidies for wealthy agribusiness.
I encourage you to check out the site, read up on our unique methodology, and find out just how protectionist your favorite (or least favorite) member of Congress really is.
February 28, 2014 12:14PM
Krugman on the TPP
Paul Krugman weighed in yesterday on the Trans Pacific Partnership (TPP). I agree with one of his points; I disagree with another.
First, the disagreement: Krugman claims protectionism is mostly gone, and thus the TPP is not all that important:
The first thing you need to know about trade deals in general is that they aren’t what they used to be. The glory days of trade negotiations—the days of deals like the Kennedy Round of the 1960s, which sharply reduced tariffs around the world—are long behind us.
Why? Basically, old-fashioned trade deals are a victim of their own success: there just isn’t much more protectionism to eliminate. Average U.S. tariff rates have fallen by two-thirds since 1960. The most recent report on American import restraints by the International Trade Commission puts their total cost at less than 0.01 percent of G.D.P.
He said the same thing a while back, but it’s just as wrong now as it was then. Here’s what I said at the time:
Tariffs on certain goods are still quite high. A publication called World Tariff Profiles illustrates this nicely. If you look at p. 170 for U.S. statistics, you will see tariff duties for four general product categories of over 10%. You’ll also see maximum tariffs (i.e., the high tariff on particular products) of over 100%!
And if you look at the duty rates for other countries, they are generally much higher.
And none of that includes special “trade remedy” tariffs (anti-dumping, countervailing duties, safeguards), subsidies, discriminatory government procurement, or domestic laws and regulations that discriminate (such as local content requirements).
So, protectionism is alive and well.
Turning to the part where I agree with him, he says:
But the fact remains that, these days, “trade agreements” are mainly about other things. What they’re really about, in particular, is property rights—things like the ability to enforce patents on drugs and copyrights on movies. And so it is with T.P.P.
… Is this a good thing from a global point of view? Doubtful. The kind of property rights we’re talking about here can alternatively be described as legal monopolies. True, temporary monopolies are, in fact, how we reward new ideas; but arguing that we need even more monopolization is very dubious—and has nothing at all to do with classical arguments for free trade.
Now, the corporations benefiting from enhanced control over intellectual property would often be American. But this doesn’t mean that the T.P.P. is in our national interest. What’s good for Big Pharma is by no means always good for America.
I don’t have much to add to his points, which I think are pretty good ones. In my view, there’s a need for a real debate on how much intellectual property protection is appropriate (and, in fact, we will be discussing this here at Cato next week). Unfortunately, that’s not what we are getting either domestically or in the international trade context, where it seems that more is always better.
February 20, 2014 4:40PM
Dumbest Trade War Indeed
In an article titled “The World’s Dumbest Trade War,” Slate’s Will Oremus offers a thorough accounting of the ridiculous policy of imposing tariffs on cheap solar panels from China.
Remember, the U.S. government wants Americans to buy solar panels, and it subsidizes those purchases through rebates and incentives. The Chinese government wants Chinese companies to build solar panels, and it subsidizes their manufacture. And yet rather than celebrate this fortuitous arrangement, the world’s top economic powers find themselves on the brink of a trade war that could cripple a promising industry in both countries, kill jobs, and hurt the environment all at once. It’s a terrible trade-policy trifecta.
Trying to make solar panels more expensive to aid domestic manufacturers defeats the whole purpose of having domestic manufacturers in the first place. It aptly demonstrates the folly of green industrial policy—subsidies and tariffs to create and then maintain “green jobs”—as a rational environmental policy.
Fortunately, some countries have recognized the harmful impact of trade barriers and called for free trade in environmentally friendly products like solar panels and wind turbines. This initiative may be included in some form in the Trans-Pacific Partnership agreement. Last year, Simon Lester and I wrote a paper explaining that any such endeavor should not exclude antidumping and anti-subsidy duties like those being used here by the United States.
What’s more, as Oremus aptly points out, these duties not only reduce the viability of green energy, they harm domestic businesses that install solar energy equipment.
Unfortunately, this phenomenon is in no way unique to solar panels. The U.S. imposes a great number of antidumping and anti-subsidy duties on imports that U.S. manufacturers rely on as inputs. Check out this video to learn more about America’s economically irrational and destructive antidumping laws: