It’s not surprising that Treasury Secretary Geithner’s recent G‑20 proposal that governments agree to keep their current-account balances (either surplus or deficit) within 4 percent of GDP has met with resistance. After all, it assumes governments can and should manage the buying, selling, and investment decisions of hundreds of millions of Americans and billions of people worldwide. But I marvel at how deeply Chinese Vice Foreign Minister Cui Tiankai’s tongue must have been planted in cheek when he uttered this rich rejection of Geithner’s idea: “The artificial setting of a numerical target cannot but remind us of the days of a planned economy.” If the shoe fits.…
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Trade Policy
The Seen and the Unseen
Quote of the day from outgoing Chairman (and soon-to-be Ranking Member) of the House Agriculture Committee, Collin Peterson (D., MN):
“I’ll be able to take care of sugar, that’s not even a question,” Peterson said. “We’ll keep the same program; it doesn’t cost anything. That won’t be hard.”
(Source: the North Dakota InForum, which has many more gems from the Chairman about why the election is not a problem for Big Ag)
Au contraire, Mr Peterson. The U.S. sugar program costs sugar consumers, including food manufacturers, billions of dollars a year, by the government’s own figures.
I just love the way that so many politicians (and bureaucrats) assume that if something doesn’t show up as a line item in the budget, then it is essentially free. Tens of thousands of pages added to the Federal Register every year, placing staggering regulatory burdens on business? Costless! The immense inconvenience to travellers and business people from debilitating lines at airports because of security measures? No need to consider those costs against any supposed security benefits; they’re paid for by the fairies. And the sugar program, which shifts the burden of supporting sugar prices onto consumers rather than taxpayers? Well, it simply “doesn’t cost anything.”
For more of Cato’s work on sugar policy, see here, here, and here.
Why Don’t Koreans Buy More Ford F‑150 Trucks?
Ford Motor Company ran a full-age ad this morning in The Washington Post urging Congress and President Obama to reject the pending free-trade agreement with South Korea unless its provisions on automobiles are changed to promote the sale of more U.S.-made vehicles in Korea.
To drive home the point, the ad shows 52 cars with Korean flags in the windshield dominating one car sporting an American flag. The ad claims that, “For every 52 cars Korea ships here, the U.S. can only export one there.”
As my colleague Dan Ikenson blogged earlier, Ford blames the disparity on Korean trade barriers that discourage auto imports. Ford demands that the Obama administration “fix” the agreement before it can be approved by Congress.
In a study we released last month analyzing the agreement, Cato senior fellow Doug Bandow offered a different explanation of why we import so many more cars from Korea than the Koreans import from the United States, and why the agreement would go a long way to addressing legitimate concerns about barriers to U.S. auto exports:
In terms of tariff reduction, the agreement would deliver the “level playing field” many members of Congress demand. Tariffs on imported passenger cars and parts and accessories are currently 8 percent in Korea and 2.5 percent in the United States. Most of those tariffs would be eliminated upon enactment of the agreement, and all by its full implementation.
Although the FTA reduces South Korean tariffs, American automakers complain that the accord does not address non-tariff restrictions. … In fact, social and cultural barriers may be more important than government policies. One problem is auto size, since American cars are larger than those typically preferred by apartment-dwelling South Koreans. Even if all tariff and non-tariff-barriers were removed, the average Korean would still be much less inclined to buy a Ford F‑150 pickup truck, a Chevy Suburban, or a Jeep Grand Cherokee than the average American would be inclined to buy a smaller, more fuel-efficient Korean-made vehicle such as a Hyundai Sonata. No free trade agreement can change fundamental consumer preferences.
Instead of complaining about all those Korean cars Americans want to buy, we should be glad for an agreement that opens both markets to greater competition.
Ford Motor’s Curious Policy Priorities
Though it has been relatively successful in the marketplace lately, the Ford Motor Company continues to confound in its public policy commitments.
First, the company remained silent for the better part of two years as its chief domestic rivals General Motors and Chrysler were nursed back to viability by a doting government dispensing $65 billion of taxpayer-funded nourishment. Not once (to my knowledge) did Ford publicly complain that the government bailout of its struggling competitors was an affront to its own prospects or that it would deny the company its rightful increase in sales and market share (the so-called spoils of competition).
But now Ford is trumpeting its opposition to the U.S.-Korea Free Trade Agreement. In a full page ad in today’s Washington Post, Ford implores Americans to reject the agreement as it currently stands, arguing that it would “allow Korea to remain one of the most closed automotive markets in the world.” So all of a sudden Ford is concerned about sales and market share?
Had GM and Chrysler been allowed to contract to a degree commensurate with their reckless decisions over the years, Ford might have hit the mother lode of sales and market share. But Ford didn’t even attempt to make that case. If Ford is so concerned about sales and market share, where is the outrage over the $45.4 billion in unconventional tax deferrals being granted GM as part of the ongoing bailout bonanza? Aren’t those deferrals just subsidies to help GM regain market share … at Ford’s expense?
Instead, Ford has chosen to target a trade agreement that promises enormous benefits to American businesses and consumers, a slew of new domestic employment opportunities, and annual increases in GDP of anywhere from $17 to $43 billion (bailout-type sums!) on the grounds that the agreement contains no guarantees of increased U.S. auto sales in Korea.
There are no guarantees in trade. But that’s what Ford and others in the U.S. auto industry and in Congress want: guaranteed sales figures, bilateral trade balance within the auto sector, managed outcomes. Is that what Ford means in the ad where it claims to support free trade?
Granted, the Korean auto market has been notoriously difficult to penetrate. Behind-the-border taxes levied on engine size and other non-tariff barriers have discouraged purchases of U.S. automobiles in Korea. But without the agreement, none of that will change. With the agreement, Korea reduces its tariff on passenger vehicles from 8% to 0 immediately, while the United States reduces its tariff on passenger vehicles from 2.5% to 0 immediately. So both are good reforms, but there is no question that U.S. auto exporters get a relatively bigger boost from the agreement. And though there are no guarantees of hard sales quotas, one can be pretty well assured that only the most inept producer/exporter would fail to capitalize on an 8 percent cost reduction granted with the stroke of a pen.
Ford should stop politicking and stay focused on the goal of making better automobiles.
How President Obama Can Make His India Trip Meaningful
To make his coming visit to India meaningful, President Obama needs to combat the impression that India fares better with Republican presidents than Democratic ones, because the latter are instinctively more protectionist. In his quest for economic recovery, he has bashed US corporations that outsource jobs to places like India, forbidden companies getting government rescue funds from outsourcing work, and has now enacted higher visa fees for visiting IT professionals which seem designed to hit Indian companies quite specifically. This may be designed to win votes in the Congressional elections, but will not win hearts and minds in India. President Obama needs to state categorically that he will not follow the Great Depression formula of trying to combat unemployment with protectionism.
A better way to create US jobs will be to relax labyrinthine export licensing rules for exports of dual-technology equipment and technology (which can be used for both civilian and defense purposes). India also needs to do its bit by shedding its reputation as world champion in anti-dumping actions (206 in the five years to 2009).
Post-Election Outlook: Agriculture Edition
My colleagues have done a thorough job of analyzing the policy implications of Tuesday’s federal election outcome as it affects trade policy, health care, immigration, education, and the scope and size of government generally (more here on federal spending). Most of them are cautiously optimistic that a Republican-controlled House is good news for liberty-minded folk. Let’s hope so.
Unfortunately, there are fewer obvious reasons for optimism that Tuesday’s result will mean big changes in agricultural policy, a depressingly bipartisan area of federal intervention. Even Rand Paul, the poster child for the Tea Party, expressed “moderate” views on farm subsidies during his campaign.
On the positive side of the ledger, our friends at the Environmental Working Group make the excellent point that being a friend of Big Farming was not enough to shield many Democrats from defeat. Earl Pomeroy (D, ND) represents the congressional district that ranks Number One in farm subsidy receipts (now there’s a source of pride!) and even he got the boot. As did Senator Blanche Lincoln, chairperson of the Senate Agriculture Committee and shameless architect of a bailout package for farmers that was funded we-don’t-exactly-know-how. At least 15 (possibly 16 if Rep. Jim Costa (D., CA) loses his too-close-to-call race) Dem members of the House Agriculture Committee — friends of the farmer all — are now looking for work. In other words, support for Big Ag is not a sufficient shield.
On the other hand, it’s not clear that their replacements are an improvement as far as agriculture policy is concerned. With a new farm bill due to be written in 2012 (although soon-to-be-former House Agriculture Committee chairman Collin Peterson (D., MN) was trying to get that ball rolling earlier), it is not certain that the fiscal conservatism exhibited during most Republicans’ campaigns extends to farm policy. Indeed, probable new House Agriculture Committee chairman Frank Lucas (R., OK) has said he disagrees with getting rid of the fiscally offensive (but less trade-distorting) direct payments that flow to farmers regardless of what, or even whether, they farm. That was an area of reform that Collin Peterson was at least willing to look at. (More on the implications for direct payments here).
Chuck Abbott, agriculture reporter for Reuters, has more analysis on the outlook for farm policy. His is a more optimistic take, and I hope he’s correct. For my part, my skepticism is based on statements such as those by the CEO of the Renewable Fuels Association, speaking on a conference call yesterday:
[F]or the most part those that may have been defeated were replaced with equally strong advocates for value added agriculture and ethanol. Does anyone believe that Kristy Noem (R‑SD) will not be a strong voice for ethanol?
Exactly. The fight’s not over yet, folks.
What the 2010 Election Will Mean for Trade
One of the many implications of yesterday’s election is that the new Congress will likely be more friendly toward trade-expanding agreements and less inclined to raise trade barriers.
Trade was not a deciding factor in the election, despite efforts by a number of incumbent Democrats to make it so. Many House and Senate contests were peppered with ads accusing an opponent of favoring trade agreements that gave away U.S. jobs to China. It was a stock line in President Obama’s stump speeches that Republicans favored tax breaks for U.S. companies that ship jobs overseas (a charge I dismantled in an op-ed last week). Yet on Election Day the trade-skeptical rhetoric and ads did not save Democratic seats.
Republicans Pat Toomey, Rob Portman, and Mark Kirk all won Senate seats in the industrial heartland yesterday (Pennsylvania, Ohio, and Illinois, respectively) and all three voted in favor of major trade agreements during their time in the U.S. House. None of them ran away from their records on trade.
The key change for trade policy will be the switch of the House to Republican control in January. Democratic House leaders were generally hostile to trade agreements during their four-year tenure, refusing to allow a vote on the Colombia trade agreement in 2008 even after President Bush submitted it to Congress while allowing a vote this fall on a bill to raise tariffs against imports from China.
In contrast, the incoming GOP House leaders, presumptive Speaker John Boehner of Ohio, Majority Leader Eric Cantor of Virginia, and Ways and Means Committee Chair David Camp of Michigan, have all voted more than two-thirds of the time for lower trade barriers, according to Cato’s trade vote data base. The trade-hostile influence of organized labor, so prominent the past four years, will be greatly diminished.
The new Congress will be more likely to consider and pass pending trade agreements with South Korea, Colombia, and Panama. The Obama administration has endorsed all three in the abstract, but has done little to actually push Congress to approve them. These three agreements offer an opportunity for the White House to work with the new Congress in a bipartisan way to promote exports and deepen ties with friendly nations.
The news is not all positive on the trade front. A more Republican-weighted Congress will probably not be much different when it comes to rewriting the farm bill in 2012. Republicans have shown themselves to be similar to Democrats in supporting subsidies and trade barriers to benefit certain farm sectors such as sugar, rice, cotton, and corn. And Republicans are far more inclined that Democrats to support the failed, 50-year-old trade and travel embargo against Cuba.