We’re another step closer to putting a shameful chapter of America’s trade policy behind us, with the good news that the House today approved (by a margin of 223–197, roll call here) an amendment offered by Rep. Ron Kind (D‑WI) and Rep. Jeff Flake (R‑AZ) to prohibit the use of funds in the appropriations bill to provide payment to the Brazil Cotton Institute: the administration signed a deal last year with Brazil to send $147 million a year of taxpayers money to Brazil so they would look the other way while the United States continued to subsidize our cotton farmers illegally. Mr Kind and Mr Flake rightly argued that was an egregious use of taxpayer money. Some lawmakers agitated against stopping the payments in case it sparked a trade war, but the answer to that, of course, is to bring U.S. cotton policy into compliance with WTO rules (and rulings). More background here.
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Trade Policy
IBM as a Metaphor for Economic Success
International Business Machines Inc. is celebrating its 100th anniversary as a company today. In this time of economic worry and uncertainty, it’s worth taking a moment to consider a few policy lessons we might glean from its longevity.
Unlike government agencies and programs, private-sector companies competing in a free market come and go. In an essay posted on the IBM web site, company officials noted:
Of the top 25 industrial corporations in the United States in 1900, only two remained on that list at the start of the 1960s. And of the top 25 companies on the Fortune 500 in 1961, only six remain there today.
How did IBM not only survive but thrive during a century that took us from horses and buggies to FaceBook and iPhones? In a word, adaptability. IBM’s management has been willing to change to meet the evolving demands of a competitive and open marketplace.
When I was researching a speech last year to retired IBM employees, I was struck by how the company has transformed itself. As I shared with the audience, IBM stands as a metaphor for the positive changes under way in our more high-tech and globalized economy:
As you all know, [IBM] has re-engineered itself from a hardware company to a provider of software and services. Today, nearly 60 percent of the company’s revenue comes from services compared to 38 percent a decade ago. Revenue from hardware has been cut in half, to 17 percent.
IBM’s gone global in a big way, too. Almost two-thirds of its revenue now comes from outside the United States. That compares to an S&P average of 47 percent. Emerging markets now account for 50 percent of its revenue growth. IBM is the biggest IT services company in India. For $100 million, it’s helping the northeast China city of Shenyang—one of its most polluted—clean up its air and reduce carbon emissions.
Politicians nostalgic for an America where the dominant companies were unionized, heavy-industry behemoths producing mostly for the domestic market should take note. As I argued at length in my 2009 book Mad about Trade (see chapters 3 and 4) and more concisely in an essay for Barron’s Weekly, America has become a globalized, middle-class service economy. As the success of IBM demonstrates, this is not something we should fear, or try to resist with trade barriers and industrial policy.
Antidumping and U.S. Competitiveness
Two excellent speakers, J. Michael Finger and Erik Autor, have been added to the stable of expert panelists, who will be discussing the imperative of antidumping reform at a Cato Institute conference on June 28. (The posted announcement will be updated soon.)
Finger is the former lead economist and chief of the World Bank’s Trade Policy Research Group, and an author of numerous studies and books about antidumping. Autor is vice president and international trade counsel at the National Retail Federation, and can attest to the ill effects of antidumping measures on downstream U.S. industries, including the retail sector.
Other Speakers include:
Gary Horlick, Esq., Law Offices of Gary N. Horlick, Former International Trade Counsel, U.S. Senate Finance Committee, and Former Head of Import Administration, U.S. Department of Commerce
Lewis Leibowitz, Esq., Hogan Lovells and Chairman, National Association of Foreign Trade Zones
Marguerite Trossevin, Esq., Jochum Shore & Trossevin, PC and Former Deputy Chief Counsel, Import Administration, U.S. Department of Commerce
Robert La Frankie, Esq., Hughes Hubbard & Reed LLP and Former Senior Attorney, Office of Chief Counsel, Import Administration. U.S. Department of Commerce
Matt Nicely, Esq., Thompson Hine LLP, Adjunct Professor, “The U.S. Trade Regime” American University, Washington College of Law
Peggy Clarke, Esq., Blank Rome LLP and Adjunct Professor, Trade Remedies Law, George Washington University Law School
Daniel Porter, Esq., Winston & Strawn LLP
Daniel Ikenson, Associate Director, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute.
Panel 1: An Ounce of Prevention: Limiting the Scope for Collateral Damage in the Early Stages of an Antidumping Investigation
Lax standards for initiating antidumping investigations conspire with an asymmetric injury analysis that ignores the consequences of duties on consuming industries and the economy at large to produce externalized costs. Panelists will discuss the imperative of adding rigor to case initiation standards; granting legal standing to firms in consuming industries; requiring the results of an analysis of the economic costs and benefits of any prospective antidumping measures to be considered; and more.
Panel 2: Just Because It’s Legal Doesn’t Mean It’s Right: Reining in Rough Justice at the Commerce Department
Import Administration at the Commerce Department employs calculation procedures and methods that unequivocally inflate dumping margins, hence the rates of duty imposed. Some of those procedures serve no legitimate analytical purpose. Others can be conducted in manners that are less likely to produce skewed results. Panelists will discuss some of the more egregious methodological quirks and offer some commonsense solutions.
Panel 3: Containing the Spill: Meta-Reforms to Mitigate the Externalized Costs of AD Measures
Recognizing that antidumping measures saddle other domestic interests with higher costs, stymie commerce by virtue of the uncertainty created about final duty liability, and make it more difficult for downstream U.S. producers to compete at home and abroad, this panel of experts will discuss various reforms that could reduce some of the purely punitive aspects of the current system.
I hope you can join us for this important and long-overdue discussion on June 28 from 3:00 to 6:30pm.
Will the GOP Finally Cut Farm Subsidies?
With trillion dollar deficits and mounting federal debt, will Congress finally get serious about cutting farm subsidies? We’ve been disappointed before, but there are a few hopeful signs—like the front-page story in this morning’s Washington Post—that this Congress may be serious about cutting billions in payments to farmers. As the Post reports:
In their recent budget proposals, House Republicans and House Democrats targeted farm subsidies, a program long protected by members of both parties. The GOP plan includes a $30 billion cut to direct payments over 10 years, which would slash them by more than half. Those terms are being considered in the debt-reduction talks led by Vice President Biden, according to people familiar with the discussions.
The Post story profiles a freshman Republican from Kansas, Tim Huelskamp, a fifth-generation farmer himself, who has been traveling his sprawling district telling his farmer constituents that they can no longer be exempt from budget discipline. Many farmers in his district appear to agree.
It remains an open question whether the Republican freshman class will live up to Tea-Party principles of limited government when it comes to agricultural subsidies, as we have speculated ourselves (here, here, and here) at the trade center.
Farm subsidies have certainly been a weak spot of Republicans in the past. According to our online trade-vote feature, more than half of the GOP House caucus voted in May 2008 to override President Bush’s veto of the previous, subsidy laden farm bill. In July 2007, more than half the GOP caucus voted against any cuts in the sugar program, and more than two-thirds opposed any cuts in cotton subsidies. (Of course, Democrats were just as bad overall on farm subsidies.)
The next farm bill, due to be written by this Congress, will tell us a lot about whether the Republicans really believe what they’ve been saying about limiting government and reducing the debt.
President Obama and the Auto Industry
Back from vacation, I’m catching up on things I missed last week. Dan Ikenson did a fine job on President Obama’s boasting about how he saved the automobile industry. But a few days later Glenn Kessler, the Washington Post’s “Fact Checker,” was more brutal:
We take no view on whether the administration’s efforts on behalf of the automobile industry were a good or bad thing; that’s a matter for the editorial pages and eventually the historians. But we are interested in the facts the president cited to make his case.
What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.
Here’s a sample of the specific analyses:
“GM plans to hire back all of the workers they had to lay off during the recession.”
This is another impressive-sounding but misleading figure. In the five years since 2006, General Motors announced that it would reduce its workforce by nearly 68,000 hourly and salary workers, creating a much smaller company. Those are the figures that generated the headlines.
Obama is only talking about a sliver of workers — the 9,600 workers who were laid off in the fourth quarter of 2008.
And that’s why President Obama’s speech was awarded Three Pinocchios.
Trade Agreements Promote U.S. Manufacturing Exports
Do trade agreements promote trade? The answer appears to be yes. In a new Cato Free Trade Bulletin released today, I examine the record of trade agreements the United States has signed with 14 other nations during the past decade.
The impact of those agreements on U.S. trade is a timely subject because Congress may soon consider pending free-trade agreements (FTAs) with South Korea, Colombia, and Panama. Opponents of such deals often argue that they open the U.S. economy to unfair competition from low-wage countries, displacing U.S. manufacturing. Advocates argue the agreements do open the U.S. market further to imports, but they open markets abroad even wider for U.S. exports.
Based on actual post-agreement trade flows, I found that both total imports and exports with the 14 countries grew faster than overall U.S. trade since each agreement went into effect. For politicians obsessed with manufacturing exports, the study should be especially encouraging. Here is a key finding:
Politically sensitive manufacturing trade with the 14 FTA partners has expanded more rapidly than overall U.S. manufacturing trade, especially on the export side. U.S. manufacturing exports to the recent FTA partners were 10.5 percent higher in 2010 compared to our overall export growth since each agreement was signed. That represents an additional $8 billion in manufacturing exports.
I’ll be discussing the three pending trade agreements alongside William Lane of Caterpillar Inc. at a Cato Hill Briefing on Wednesday of this week. Along with the new study on the past FTAs, I’ll be talking about our recent studies on the Columbia and Korea agreements.
“Made in …” Where, Exactly?
Whenever you shop for clothes or furniture or any other consumer item, you can always find the “Made in Such a Place” label. It’s actually a requirement of U.S. law. Vital consumer information, of course. How can we make an intelligent choice on what suit or computer or grapes to buy if we don’t know where they were made or grown?
Quite easily, as a matter of fact. Consumers in the otherwise more regulated European Union do it all the time. Unlike the United States, the EU has no requirement that goods contain a label of where they were made. According to a story in today’s Wall Street Journal,
It is odd that the heavily regulated EU doesn’t already have country-of-origin labeling. Similar tags are mandated around the world, including in Japan and China, as a way to help domestic producers compete against foreign manufacturers. The U.S. has had origin labeling since the 1930s. Roughly a quarter of consumers make choices based on where a product was made, according to EU surveys.
The EU is currently reconsidering imposing such labels, prompted by domestic textile firms and other producers looking for an edge over their foreign rivals. Country of origin labels allow them to play on anti-import biases even though imported products, in the EU as in the United States, must meet all domestic safety and quality requirements.
Country of origin labeling raises costs to consumers—up to $3 per item, according to an EU study cited in the story. The Swedish furniture company IKEA must employ 70 people just to handle all international labeling requirements, a cost of doing business that can only drive up final prices for consumers.
Those requirements also raise perplexing questions of determining just where an item was actually made. As my Cato colleague Dan Ikenson has examined in a paper entitled, “Made on Earth,” the growing complexity of global supply chains means that a single imported product can in fact be “made” in lots of different countries.
If companies want to voluntarily tell consumers where their products are made, including all component parts, they are always free to do so, but the government should not force them to include information that is increasingly irrelevant in our more complex and interconnected world.