While the Tenaris profit information reflects predominantly OCTG sales, it represents neither production nor sales in the market under consideration. In addition, it is based on a research paper containing a disclaimer statement regarding its accuracy.

The Tenaris profit information is based on a research paper prepared by a student at the University of Iowa School of Management.

This report was created by a student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management and contains several disclaimers. The intent of the report is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers, or officially licensed financial professionals. The investment opinion contained in the report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts, and figures included in this report are from publicly available sources. The report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.

Anyone who thinks that Washington waste is something new should examine the history of the Bureau of Indian Affairs (BIA). This essay discusses the mismanagement, corruption, and failures of the BIA since it was created in 1824.

As early as 1828, Indian expert H. R. Schoolcraft concluded: “The derangements in the fiscal affairs of the Indian department are in the extreme. One would think that appropriations had been handled with a pitchfork … there is a screw loose in the public machinery somewhere.”

By the 1860s and 1870s, New York Times editorials were railing against the “dishonesty which pervades the whole Bureau,” and arguing that “the condition of the Indian service is simply shameful.”

In their recent book, Uncle Sam Can’t Count, Burton and Anita Folsom describe the failure of a major Indian policy even before 1824. Here is the basic story:

• Unhappy that British fur traders were out-competing American traders, Congress appropriated $50,000 in 1795 to create frontier posts stocked with American goods to trade with the Indians for furs.

• These government-run fur “factories” were supposed to earn a return, but they “were so poorly run that many Indians held them in contempt and refused to trade there.” Congress had to heavily subsidize the system to keep it operating.

• Rather than respond to the market demands of the Indians, as private traders did, the official running the government system, Thomas McKenney, tried to push products on the Indians that he thought they ought to have.

• The government set up its trading posts at substantial distances from Indians. By contrast, private fur trader John Jacob Astor had his agents build close relationships with Indians, and he made trading easy for the tribes.

• Astor instituted pay for performance, while the government paid its fur bureaucrats fixed salaries.

• Astor watched international fur markets closely and adjusted his operations and marketing accordingly. The government ignored markets, and simply dumped furs in Washington for auction.

• Thomas McKenney was embarrassed by the government’s falling market share and the huge success of Astor. So, in 1818, McKenney began lobbying Congress to ban private fur traders. When that attempt at monopolization failed, McKenney lobbied to impose large fees on private traders and to boost taxpayer subsidies for the government system.

• Despite a new fee on private traders in 1820, the government system was falling apart because of plunging sales. An official report exposed the huge inefficiencies of the government system, and Congress finally voted to end it in 1822.

Long before Solyndra and the Export-Import Bank, politicians should have learned some basic lessons about why Washington ought to stay out of business. Unfortunately, each new generation of politicians are tempted to believe that enlightened federal planners can run the economy better than businesspeople and markets. Rather than wasting hundreds of thousands of dollars as it did two centuries ago, Congress blows billions of dollars today on new versions of its fur-trading folly.

One of the points supporters of the Ex-Im Bank like to make is that other countries have their own versions of the bank to help finance purchases of those countries’ exports, and the United States should not “unilaterally disarm.” Here’s the NY Times:

[M]ost governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing.

It’s true that other countries provide similar export subsidies, but I see this as an opportunity, not a hurdle to getting rid of Ex-Im. Liberalization through international trade negotiations has been struggling in recent years. Getting rid of Ex-Im could give it a boost. If we could end Ex-Im, and then call on our trading partners to follow our lead, it could give trade talks an important and meaningful purpose. In these negotiations, governments often seem reluctant to give up any protectionism until others agree to do so as well. That has not served us well recently; not much liberalization has occurred. It may be time to try something new, and lead the way with a unilateral liberalization proposal, to show the world we actually believe in free trade (they have good reason to doubt this), and encourage others to move in that direction as well.

The increase of human smugglers transporting unauthorized immigrants to the United States is likely a consequence of more effective border enforcement. Although the Obama administration has de-emphasized internal immigration enforcement after 2011, his administration has ramped up enforcement along the border – focusing on increasing the legal and economic costs imposed on unlawful immigrants apprehended while trying to enter the United States. Since border and internal enforcement are substitutes, the shift in resources and increase in penalties for unlawful crossers does not represent a decrease in total enforcement. Matt Graham from the Bipartisan Policy Center wrote an excellent breakdown of the reprioritization of immigration enforcement, the increase in penalties, and how it has deterred unauthorized immigration.

The price of smuggling is an indication of the effectiveness of immigration enforcement along the border. The first effect of increased enforcement is to decrease the supply of human smugglers. As the supply of human smugglers decreases, the price that remaining human smugglers can charge increases. Before border enforcement tightened in the early 1990s, migrants typically paid about $725 (2014 dollars). Currently, unauthorized migrants from Central America are paying around $7500. 

The kink in the human smuggling demand curve represents a hypothesized increase in inelasticity for certain consumers of human smuggling. The inelastic portion of the demand curve represents consumers who very much want to come to the United States and who will pay a very high price to do so. For that group, an increase in price does not much decrease their quantity demanded for human smuggling. For the relatively elastic portion of the demand curve, a small rise in price causes a large drop off in the quantity demanded for human smuggling. The increase in enforcement has shifted the supply curve to the left, pricing the immigrants with a relatively elastic demand for human smuggling out of the market while raising the price on the inelastic demanders. 

The immigrants most likely to have inelastic quantity demand for human smuggling are those fleeing violence or seeking to reunite with their families in the United States. An increase in smuggling price will not much decrease the quantity of smuggling demanded by parents seeking to reunite with their children and children fleeing the threat of death. Smugglers know that children reuniting with their families and those fleeing violence are the most likely to pay high prices, thus the smugglers have focused on recruiting those groups as customers – one large reason why so many unaccompanied children (UAC) are transported to the border by smugglers. 

Another result of more effective immigration border enforcement is that it increases immigrant reliance on human smugglers. Unauthorized immigrants who used to walk across the border when immigration enforcement was light now increasingly rely on human smugglers to avoid detection. The crackdown on unauthorized immigrants, especially after 1993, caused a big increase in the use of smugglers by unauthorized immigrants. In 1999, 3.2 percent of apprehended unlawful immigrants reported hiring a human smuggler. In 2008, 18 percent of apprehended unlawful immigrants reported hiring a human smuggler – an almost six-fold increase. The Department of Homeland Security (DHS) and private organizations have also noted an increase in the price of smuggling. 

From 1972 to 2003, a 10 percent increase in the number of border patrol enforcement hours increases the price that smugglers can charge by 2.5 to 3.8 percent. Line watch hours have grown by over 400 percent since the early 1990s. 

The economics of industrial organization can shed some light on why smugglers have shifted from mom and pop operations to large, organized, and violent criminal cartels who now seek children clients instead of adults. Mom and pop smugglers ran small and unsophisticated operations to smuggle immigrants over the border. As border patrol cracked down on them and put many out of business, more intensive smuggling operations that required more capital, planning, and violence to overcome enforcement were needed to satisfy the demand. As a result of the shrinking mom and pop smuggling operations, serious criminal organizations and drug gangs have become specialized in smuggling migrants because of the higher profits. The shift from mom and pop smugglers to sophisticated criminal smugglers that focus on smuggling those with an inelastic demand for smuggling is the result of larger and more effective border enforcement. 

Another consequence of higher smuggling prices is that migrants have to work for a longer period of time in the United States to justify the larger financial cost of immigrating. As a result, migrants do not return to their home countries as frequently and many end up making the United States their permanent home. This also incentivizes unlawful immigrants to send for their children after they arrive in the United States – further increasing the quantity demanded for smuggling. 

More intensive and expanded border enforcement can explain part of the increased reliance of UAC on human smuggling. And just because it is not obvious to some – the number of UAC in custody is a result of effective immigration enforcement along the border. The surge in UAC is portrayed by many immigration restrictionists as a failure of immigration enforcement. Those commentators should realize that the shift toward human smugglers is evidence that increased border enforcement is decreasing unauthorized immigration. Immigration restrictions are not immune from the law of unintended consequences.

There are many arguments against reauthorization of the Export-Import Bank, a government-run bank that helps finance export sales at below-market rates. Some of these arguments include that it hurts U.S. businesses, that it provides corporate welfare for politically connected companies, and that it distorts and politicizes the U.S. economy. But the New York Times editorial board thinks all those arguments are “ridiculous,” while also agreeing with them:

In one of their odder quests, some Tea Party members have decided that the United States must shut down the Export-Import Bank of the United States, an obscure but important federal agency that helps American businesses sell their goods abroad.

The bank provides loans and loan guarantees to foreign businesses to help them buy American products and services. In an ideal world, businesses would obtain such financing from privately owned banks. But most governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing. [emphasis added]

The New York Times recognizes that getting rid of the Ex-Im Bank would bring us closer to realizing an ideal world, but they nevertheless support the bank to prevent some U.S. firms from losing businesses to foreign competitors. It’s difficult to read this as anything but a defense of crony capitalism. Indeed, the Times’ Neil Irwin wrote a defense of Ex-Im depressingly titled “Why We’re All Crony Capitalists, Like It or Not.”

There will always be challenges for U.S. companies in a global economy. Small, targeted amounts of mercantilist industrial policy like Ex-Im subsidies will not create growth regardless of the character of those challenges. In other words, subsidies to counteract subsidies are not more beneficial to our economy than subsidies to counteract relative disadvantages in climate, terrain, or workforce productivity. 

The most compelling take down of the “Ex-Im is necessary for competitiveness” argument may have come from leftist economist Dean Baker, who thinks “free traders” who support the Ex-Im Bank are being awfully hypocritical. He notes the economic case against subsidies—“by diverting capital to the winners picked by the Ex-Im Bank, we are raising the price of capital for other firms”—and questions the motives of Ex-Im supporters who understand that consequence. Specifically in response to Irwin’s piece, Baker writes:

When Irwin tells us that we have to be crony capitalists “whether we like it or not,” why don’t we also have to be crony protectors of workers’ livelihoods? It seems that there is a very fundamental inconsistency here. When it comes to business interests we are prepared to throw the economics textbook theory in the garbage, but when the question is worker’s jobs, that textbook is the Bible.

I don’t think the generally pro-free trade New York Times wants to throw workers under the bus or help big business, but Baker is right that the argument of Ex-Im defenders that we need subsidies to counteract foreign competition could just as easily be used to justify tariffs or any other form of protection in countless other situations. Does every foreign government subsidy warrant a protectionist response? If not, why is the Ex-Im Bank the protectionist program so many “free traders” want to keep?

Two weeks ago I wrote about the efforts of big business to defeat libertarian-leaning legislators in states across the country. To confirm my point, on the same day the article appeared the Michigan Chamber of Commerce endorsed the opponent of Rep. Justin Amash, the one of whom I had written, “Most members of Congress vote for unconstitutional bills. Few of them make it an explicit campaign promise.”

Now a battle is brewing in Congress that pits libertarians and Tea Party supporters against the country’s biggest businesses. The Wall Street Journal headlines, “GOP’s Attack on Export-Import Bank Alarms Business Allies.” The “rise of tea-party-aligned lawmakers” is threatening this most visible example of corporate welfare, and David Brat’s attacks on “crony capitalism” in his surprise defeat of Eric Cantor have made some Republicans nervous. Amash told the Journal, “There are some large corporations that would like corporate welfare to continue.”

The biggest beneficiaries of Ex-Im’s billions are companies such as Boeing, General Electric and Caterpillar, according to Veronique de Rugy, a senior research fellow at the Mercatus Center. Cato scholars have made the same point, including Aaron Lukas and Ian Vasquez in 2002 and Sallie James in 2011.

Matthew Yglesias of Vox notes, “The Export-Import Bank is a great example of the kind of thing a libertarian populist might oppose. That’s because the bank is a pretty textbook example of the government stepping in to arbitrarily help certain business owners.” And he points out that supporters of the Bank include the U.S. Chamber of Commerce, the National Association of Manufacturers, the AFL-CIO, Haley Barbour, and Dick Gephardt. He could have added Tom Donnelly of the American Enterprise Institute.

Rep. Adam Kinzinger (R‑IL) said he worried about “a libertarian theology that’s really starting to creep in.” I hope he’s right.

On March 28, 2014, the U.S. sugar industry filed antidumping and countervailing duty (AD/CVD) petitions against imports of sugar from Mexico. From the time that NAFTA’s sugar provisions were fully implemented in 2008, Mexico has been the only country in the world with unfettered access to the U.S. sugar market. Sugar interests now are hoping to clamp the fetters back on. It is not at all clear whether that effort will succeed.

Both the Commerce Department and the U.S. International Trade Commission (ITC) play important roles in this process. Commerce must determine the extent of any dumping margin (selling at “less than fair value” due to pricing practices of individual firms) and any countervailing duty margin (benefit received by Mexican exporters from subsidies provided by their government). The estimated dumping margins for the preliminary phase of the investigation range from 30 to 64 percent; they are likely to be adjusted based on additional information gained in the final phase of the investigation. Commerce has not yet had an opportunity to establish CVD margins. Given the degree of government involvement in Mexico’s sugar business, a CVD margin at some level seems likely.

The job of the ITC is to determine whether the domestic sugar industry has been “injured” by the imported sugar. In its preliminary determination, the commission voted unanimously in the affirmative, which means that the investigation will go forward into its final phase. This vote was not at all a surprise. The legal standard for a negative vote in a preliminary determination is quite high. To have voted in the negative, the ITC would have had to conclude that there was no “reasonable indication that a domestic industry is materially injured or threatened with material injury.” That is a very difficult standard to meet on the basis of the somewhat limited preliminary record – often with inconclusive evidence – that must be compiled not more than 45 days after the case has been filed. 

So Commerce can be expected to impose temporary AD/CVD duties this fall at a level equal to their preliminary margins. The ITC is likely to hold its hearing as part of the final-phase investigation sometime early in 2015, with the vote taking place about a month later. 

What issues will the commission deal with as it makes a final determination on injury? The statute requires that findings be made on three key issues: (1) Volume. Was the absolute volume of sugar imports from Mexico, or the increase in volume, significant? (2) Price. Have there been significant price effects – underselling of U.S. prices by imported sugar, or price depression or suppression in the U.S. market? (3) Impact. Has the U.S. sugar industry experienced negative impact, such as declines in output, sales, market share, profitability, employment, etc? 

The public (non-confidential) version of the ITC’s opinion (Investigation Nos. 701-TA-513 and 731-TA-1249 can be accessed for free on the ITC website by registering here) makes clear that the commissioners found evidence of volume and price effects, as well as some impact on the domestic industry. However, a similar outcome in the final investigation is far from preordained. One of the reasons is that the legal standard is different in the final. Instead of finding only a “reasonable indication” of material injury, the commission actually has to determine that the domestic industry has been materially injured, or is threatened with such injury. 

Another difference is that the three-year “period of investigation” (POI) will change. Instead of beginning Oct. 1, 2010, the POI in the final will begin a year later. In other words, marketplace trends are likely to be different. A three-year downtrend in world sugar prices appears to have bottomed out in December 2013, with prices higher since then. United States’ sugar prices also have been stronger. So, in its final determination, the ITC will be working with an updated record and a more rigorous legal standard.

Another important issue is the question of “causation.” Was any injury experienced by the domestic sugar industry actually caused by imports of sugar from Mexico? The record shows that the market share of U.S. producers rose 4.2 percentage points over the POI. Were U.S. producers injured by a smaller 2.4‑percentage-point increase in the share of imports from Mexico–especially when the big losers appear to have been producers in other countries, who lost 6.6 percentage points? 

There also are doubts as to whether any price effects were caused by imports from Mexico. The preliminary record shows underselling of U.S. sugar by Mexican imports in 65.8 percent of measured transactions. However, making those price comparisons no doubt was difficult because most of the imports from Mexico are of a grade called “estandar” (“standard,” in English), which has an intermediate purity range not produced in the United States. Comparing prices of products that are not identical can be tricky. Parties are actively contesting this issue. How it is resolved could have a big influence on the case. 

A final uncertainty is the possibility that the sugar industries on both sides of the Rio Grande could enter into a “suspension agreement,” which would suspend the AD/CVD investigation. In this scenario, Mexican and U.S. producers would consent to some form of managed trade in sugar, agreeing to restrictions on the volume of trade or the price at which imports could be sold. This approach would need to be blessed by Commerce, which tends to listen closely to the preferences of U.S. industries. There are a number of precedents for such an arrangement, including one regulating shipments of Mexican tomatoes into the United States. 

What to say about such a suspension agreement? Managed trade always will limit the gains that can be achieved by open and competitive markets, thus causing deadweight losses to consumers and the broader economy. However, an agreement that allows some imports from Mexico clearly is preferable to large AD/CVD levies that allow none. 

Those who support economic growth and opportunity should hope that no suspension agreement is reached, and that the ITC ends the threat of AD/CVD duties by concluding that Mexican sugar has not injured the U.S. sugar industry. The real injury in this marketplace is caused by the barrier between producers and consumers created by the U.S. sugar program. It’s time to end that injury by taking those fetters off.