The federal government owns 640 million acres of land—mainly in the West—which is 28 percent of land in the United States. For more than a century after the nation’s founding, the federal government aimed to sell or give away western lands to individuals, businesses, and state governments. But by the turn of the 20th century, federal policy came under the sway of progressives, who favored increased federal control.

Progressives had a misguided notion that federal ownership would be efficient and environmentally sound. Broadly speaking, they were wrong. Experience has shown that federal agencies mismanage land from both economic and environmental perspectives, as discussed here and here. The solution is to devolve ownership of most federal land to the states and private sector.

The Bureau of Land Management (BLM) owns about 250 million acres of land, of which about 160 million acres are used for livestock grazing. Cato scholar Steve Hanke championed BLM land privatization as an economist for President Ronald Reagan. He proposed that ranchers be allowed to buy the grazing land that they currently rent from the BLM.

Privatization would create benefits by securing property rights. Currently, ranchers are uncertain about their future access to the federal grazing lands they use, so they have incentives to overstock the lands and disincentives to make capital improvements. Privatization would allow ranchers to plan for the best economic and environmental rangeland management over the long term.

In a new Forbes article, Hanke discusses the privatization proposal he designed in the 1980s, a proposal that Reagan approved of. Hanke’s reform would be fair and efficient for both ranchers and the government. Here are some excerpts:

On Jan. 8, Judge Gloria M. Navarro of the Federal District Court in Las Vegas dismissed charges against Cliven Bundy and his sons Ammon and Ryan, as well as a supporter Ryan W. Payne. The case stemmed from a 2014 armed standoff at the Bundy ranch in Bunkerville, Nevada. The standoff arose over a dispute about government grazing fees, pitting the Bundys against federal officials.

The dispute would not have occurred if the proposal I developed for President Reagan when I served as Senior Economist on his Council of Economic Advisers had been implemented. The proposal was contained in the President’s Budget Message for 1983 fiscal year.

…Until the passage of the Taylor Grazing Act in 1934, the public domain was operated as a large commons. Since the Act, a more orderly method of utilization has been in effect. For the right to use public grazing lands, which cover approximately 155 million acres, ranchers must acquire grazing permits. To obtain these permits, ranchers must pay annual rents to the U.S. Government. By custom, the grazing permits, which number approximately 24,500, are attached to specific parcels of private land.

The linkage between public permits and private land has had a profound impact on the market for private land. The annual public grazing fees have been set below market-clearing levels. As a result, the grazing permit market has been cleared—supply has been equated with demand—not through the public grazing permit market itself, but through the market for the private lands that are linked to the public permits. So, the difference between the public grazing fees that are charged and those that would clear the market for grazing permits has been capitalized into the value of the private lands that permits are attached to.

The linkage, through the capitalization process, between the market for public permits and that for private land has important implications. With the exception of those who obtained the original permits, all ranchers have had to pay two prices for their public permits—a public price, in the form of an annual grazing fee, and a private price, in the form of a premium for their private land.

…To privatize public grazing lands and transfer public grazing permits (surface rights) to private ranchers on an equitable basis, a lump-sum amount should be charged to ranchers. This charge should be set so that it is equivalent, in present value terms, to the amount that the U.S. government would receive in grazing fees over time if the government retained title to the lands and continued to charge an annual grazing fee or rent. In effect, the government would be put in a position in which it is indifferent between receiving a lump-sum payment today or a stream of annual rents over time. Moreover, ranchers would be charged for only that portion of the permits’ value that had not already been paid for through premiums for private land.

…[W]hat would be the benefits associated with this privatization proposal?

First, the productivity of federal grazing lands would increase.

Second, federal revenues would be generated. Instead of receiving annual grazing fees, the federal government would receive an equivalent lump-sum payment.

Third, the annual federal costs…exceed the annual revenues generated from federal grazing lands. Therefore, privatization would eliminate negative cash flows for the federal government. This would obviously benefit all U.S. taxpayers, who must now pay taxes to support the federal government’s retention of public grazing lands.

Lastly, a state and local property tax base would be created. Western dependence on Washington, D.C. would be reduced and federalism would be enhanced.

As the trade paparazzi speculate about whether and when Trump will impose trade sanctions on China and what those sanctions will be, a trade war is already widening right under their noses. For more than a decade, the United States and China have been quietly waging a trade war in the shadows of public policy.

China’s pursuit of technological know-how has included objectionable tactics, such as the implementation of discriminatory innovation policies, intellectual property theft, forced technology transfer, and cyber-espionage. The U.S. government’s response has included the informal decision to put the U.S. market off limits to China’s most successful technology companies and to make U.S. technology more difficult for Chinese companies to acquire. What that means is that globally successful information and communication technology (ICT) companies, such as Huawei Technologies, have been informally blacklisted from selling network gear to America’s telecommunications companies, and selling computers, smartphones, and other electronic devices to U.S. consumers. 

It also means that the Committee on Foreign Investment in the United States (CFIUS), through imminent legislative and regulatory changes, will soon complete its metamorphosis from a body that reviews proposed foreign acquisitions and helps the parties mitigate potential security risks associated with those deals into an insurmountable obstacle to any significant acquisitions of U.S. technology by Chinese companies.

I wrote about this metastasizing trade war and its adverse repercussions in Forbes the other day, but wanted to provide an update on the rapidly changing landscape.

On January 9, Rep. Mike Conaway (R, TX, 11^th) introduced legislation that not only forbids U.S. government agencies from purchasing ICT equipment produced by Huawei, ZTE (another Chinese ICT company), or their subsidiaries and affiliates, but also forbids those agencies from doing business with any entity that uses equipment produced by those companies.

Should HR 4747, the “Defending U.S. Government Communications Act,” become law, it’s difficult to imagine that Beijing would remain welcoming of U.S. technology companies and products in China for much longer.

In my estimation, this is going to be the most explosive trade issue of 2018 and beyond.

In an op-ed published today on The Hill, trade policy analyst Colin Grabow shows that President Trump has not, in fact, raised a single tariff in his first year in office. Although Trump took the momentously disruptive steps of withdrawing the U.S. from the Trans-Pacific Partnership and has threatened to withdraw the U.S. from the North American Free Trade Agreement, “U.S. trade policy … is largely in the same place it was when President Obama left office.” 

Have saner voices inside the White House prevailed, or is this just the calm before the storm? The answer should be apparent in the coming months, and possibly even weeks, as a series of trade-related deadlines will force the president to show his hand.

Grabow discusses the inflection points in 2018 that may give Trump an opportunity to reverse course and start imposing tariffs, including ongoing investigations into the national security implications of steel and aluminum imports; an investigation into alleged trade violations committed by China related to technology transfer, intellectual property and its innovation policies; and the U.S. International Trade Commission’s recommendations for tariffs on imported solar cell and washing machine. Finally, NAFTA renegotiations and the recent kickoff of renegotiations for the Korea‑U.S. Free Trade Agreement may also shed light on Trump’s intentions for trade policy in 2018.

He concludes:

The trade story could very well still end in tears, with plenty of opportunities in the New Year for Trump to choose a protectionist path.

But a more optimistic scenario exists: Amid record stock market highs and an unemployment rate trending toward 4 percent, Trump could be swayed by arguments senior administration officials are reportedly making. 

Namely, that tariff increases would amount to throwing a monkey wrench into an economic machine that is nicely humming along. For the sake of the country, let’s hope they prevail. 

You can read the full op-ed (“Tariffs would throw a monkey wrench into humming economy”) here, and click here to see more of Colin Grabow’s writing, along with other scholars from Cato’s Herbert A. Stiefel Center for Trade Policy Studies. 

It is not surprising that so many Americans believe President Trump has spent the past year erecting tariff walls around the United States. From Trump’s bombastic, anti-trade rhetoric to media’s and social media’s conflation of that rhetoric with real protectionist actions, hardly a day has passed without publication of an analysis or editorial about how especially protectionist this administration has been. The facts are quite different.

Despite promising 45 percent duties on imports from China, 35 percent duties on re-imports from Mexico, tighter restrictions to limit access to U.S. government procurement markets to U.S. firms and workers, requirements that oil pipeline builders use only American-made steel, and more, the Trump administration has not undertaken any of those actions. There has been no discretionary protectionism imposed by President Trump. None. Not yet anyway.

Certainly, President Trump’s instincts are protectionist. He’s already inflicted incalculable damage by withdrawing the United States from the Trans-Pacific Partnership, playing loose with his aggrandized sense of U.S. indispensability to the trading system, and deliberately throwing sand in the gears of the World Trade Organization’s Dispute Settlement Body. His view of trade as a zero-sum contest played between national monoliths (i.e., Team America vs. Team China), where winning means achieving a trade surplus by way of policies that maximize exports and minimize imports, certainly provides fertile ground for protectionism to take root and flourish. But when it comes to actually imposing tariffs or other trade restrictions, so far Trump has been remarkably circumspect. Why?

First of all, the president’s trade policy actions are constrained legally, politically, and practically. The U.S. Constitution gives Congress, not the president, authority to regulate foreign trade. However, at various points and for various reasons over the past century, Congress delegated—through legislation that became statute—some of its authority to the president. For example, the president can impose tariffs without need of congressional action or consent under several different laws.

Since Trump took office, his administration has initiated investigations under five different statutes: Section 201 of the Trade Act of 1974 (i.e., the “Safeguards” Law); Section 301 of the Trade Act of 1974; Section 232 of the Trade Expansion Act of 1962; the Antidumping Law; and the Countervailing Duty Law. Under each of those laws, certain conditions must be met before restrictions can be imposed. Determining whether those conditions are met normally involves an investigation subject to formal procedures and statutory or regulatory timetables. And, if and once imposed, those tariffs are generally time-limited and usually subject to judicial review. So, while the president has conditional authority to raise tariffs, he does not have carte blanche, which seems to be a popular misconception.

Second, tariffs may benefit the protected industry temporarily, but they usually impose financial burdens on domestic producers in downstream industries. There are inevitably trade-offs to consider, with economic and political implications. Thus, while the president can puff out his chest and direct the public’s attention to the tariffs he imposed to help steel producers or solar cell manufacturers, for example, those actions exact direct and indirect costs on companies and workers in steel-using industries and the solar panel producing and installing industries, respectively. In many of the pending trade cases, workers in the downstream industries that will bear the brunt make up Trump’s base of political support.

Third, while national governments are permitted to resort to temporary protectionist measures under certain circumstances without violating the rules of the global trading system, in other circumstances trade protection measures can lead to authorized retaliation against U.S. exporting interests. Trump may like to talk tough, but will he really want to impose measures that could hurt the economy?

Certainly, 2018 will offer more opportunities than previous years for protectionist measures. But so far, despite the media frenzy, Trump has been restrained.

Rumors abound that the Trump administration will soon pursue “significant” retaliatory actions in response to alleged Chinese intellectual property rights (IPR) violations, pursuant to “Section 301” of U.S. trade law. While Chinese government IPR policies are indeed cause for concern and while Section 301 does permit the U.S. executive branch to act unilaterally in response to certain foreign trade actions, there is a smart and a not-so-smart approach to these issues, with the latter likely to be unintended by Congress, inconsistent with U.S. trade agreement obligations, ineffective, harmful for U.S. consumers and exporters, and met with a legitimate rebuke from not only China but also other U.S. trading partners. The alternative, on the other hand, would present the President with a golden opportunity to pursue a smart U.S. trade policy response to a serious issue that could achieve the same objectives as the other option, but in a more strategic and effective manner.

If reports are to be believed, the President is unfortunately not inclined to take the smart approach.

Section 301 of the Trade Act of 1974 provides the U.S. executive branch with the authority to enforce U.S. rights under international trade agreements and to respond to certain foreign “unfair” practices not covered by trade agreements. Section 301 is the principal statutory mechanism under which the President may unilaterally (1) determine that a foreign country has violated existing trade agreements or has engaged in acts that are “unjustifiable” or “unreasonable” and burden U.S. commerce; and (2) take retaliatory action to enforce U.S. rights under a trade agreement or to obtain the elimination of the foreign country act in question. The United States Trade Representative (USTR) makes determinations, initiates and conducts investigations, and implements any retaliatory action under Section 301.

Prior to the advent of the World Trade Organization (WTO) dispute settlement system in 1995, USTR frequently invoked Section 301 to seek to eliminate “unfair” foreign government trade practices. The mechanism’s frequent use was in large part due to the fact that the WTO’s predecessor – the General Agreement on Tariffs and Trade (GATT) – provided for less coverage and less accountability than the new WTO system. With the WTO now online and with new WTO rules against Members’ unilateral retaliation (more on this below), Section 301 fell into disuse, with only a few actions since the late 1990s.

In August of last year, however, USTR initiated an investigation of China under Section 301, which sought “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.” USTR’s notice of initiation lists four types of conduct that were to be examined in the investigation (emphasis mine):

1. The Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies;
2. The Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China;
3. The Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in strategic industries; and
4. The investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information.

USTR’s findings are officially due by August 2018, but various media outlets report that the Trump administration’s USTR has already completed the Section 301 investigation and is now considering whether to impose steep tariffs on a large swath of Chinese imports. Inside U.S. Trade[$] says that “the 301 remedies against China would include what some called ‘significant’ tariffs covering retaliatory action in the trillion-dollar range,” with USTR arriving “at such a high number by calculating the cumulative damage the U.S. believes China’s IP and tech transfer policies have caused over the past 10 years.” Private groups are expecting tariffs because, as one source put it, “[Trump] seems to like tariffs, not because they’ll do much good.” Axios generally agrees, noting that it’s likely Trump in January will “put tariffs on Chinese consumer electronics as retaliation against the country's widespread theft of American companies' intellectual property.”

A massive unilateral tariff response by the United States would be a big mistake rife with legal and economic problems. This is unfortunate because there is widespread, bipartisan agreement in the United States that Chinese IPR practices are a problem – a concern shared by many U.S. trading partners – and because, as noted below, there’s a far smarter approach to this problem under Section 301.

This is from Marc Thiessen, writing in the Washington Post:

Trump inherited a regulatory state that had grown to unprecedented levels under President Barack Obama. One way to measure the growth in regulations is by counting the number of pages in the Federal Register, the book the government publishes containing all new regulations. Seven of the eight largest annual page totals in American history occurred under Obama. Before Obama, no president had ever exceeded 80,000 pages in the Federal Register. In 2016, Obama became the first president to break the 90,000-page mark—96,702, to be exact—and if you add his last 20 days in office, the total reaches 103,432.

Trump cut that number nearly in half. From Jan. 23 through Dec. 19 of this year, he has added just 53,550 pages to the Federal Register. And many of those pages were not new regulations but announcements of regulations being withdrawn. His efforts exceeded even those of President Ronald Reagan, who cut Federal Register pages by more than one-third during his time in office.

This sounds like good news, although perhaps it is partly due to the Trump administration taking a while to get its bearings during its first year. If it ever gets around to infrastructure, as Trump keeps threatening, we may see a lot more regulating. In addition, I thought it was worth pointing out that in trade policy, we are going in the opposite direction, as the Trump administration proudly proclaims the increase in regulatory actions it is taking. Here’s something from a recent press release from the Commerce Department:

Enforcement of U.S. trade law is a prime focus of the Trump administration. From January 20, 2017, through December 18, 2017, Commerce initiated 79 antidumping and countervailing duty investigations—a 52 percent increase from 52 initiations in the previous year. 

To clarify, there is an existing set of laws and regulations that allow companies and unions to petition the U.S. government to impose extra tariffs on their foreign competitors, in the form of antidumping and countervailing duties. There may be multiple reasons for the increase pointed out by the Commerce Department, and much of this would likely have happened even under a President Hillary Clinton. Nevertheless, when you hear people tout Trump’s push for lessening the burden of regulation, keep in mind that with trade policy, we are seeing a regulatory expansion, including the investigations noted above, as well as, potentially, other new measures under consideration.

As college students across the country begin their final exams, we are reminded of the unfortunate reality that much of what we learn in school or other parts of life will eventually be forgotten. Usually, this is more of a nuisance than a problem. A failure to recall the finer points of Shakespearean literature is unlikely to trouble most accountants, nor is a marketing specialist apt to lose sleep over the lost ability to define the Pythagorean Theorem. It’s a bigger problem, however, when the Secretary of Commerce forgets some basic lessons of international trade. Appearing at an Atlantic Council event earlier this week, Commerce Secretary Wilbur Ross argued that the Korea‑U.S. Free Trade Agreement (KORUS) should address the U.S. trade in goods deficit with South Korea. Despite the fact that economists generally agree that the trade deficit is not a good indicator of a country’s economic performance—or as our colleague Dan Ikenson argues, is not a problem to solve—Secretary Ross thinks otherwise. In the context of president Trump’s recent visit to Asia, he stated the following:

President Trump…underscored the need to rebalance the KORUS free trade agreement to reduce the substantial trade deficit that we have with Korea. That deficit has nearly tripled to $27.7 billion since KORUS went into effect. Among the most important reasons for the increased deficit has been the imbalance between automotive imports and exports. Our automotive imports from Korea are almost nine times our exports of autos to them. And remarkable as it may sound, we export to Korea more dollars’ worth of corn and beef combined, than we do cars—seems strange for an industrialized economy.

The solution he offered to this “problem” was for South Korea to agree to purchase more liquefied natural gas, petroleum, food products, machinery and industrial equipment from the United States instead of other countries. There are two basic things Secretary Ross gets wrong with this line of reasoning. First, he misunderstands the one true and nontrivial principle in the social sciences, which is Ricardo’s theory of comparative advantage. Second, by focusing only on goods—and cars in particular—he ignores the diversity of the U.S. economy, and some of its greatest strengths, such as the services industry. We address both in turn. David Ricardo clearly explained the theory of comparative advantage in On the Principles of Political Economy and Taxation 200 years ago. He stated:

If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity. The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal. England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth. To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth (para. 7.13–7.16).

This example highlights an important element of comparative advantage. First, even if one country is the best at everything (in other words, has an absolute advantage), it is still better served by focusing on what it produces best, and importing the remaining items. Why? Because an absolute advantage does not necessarily equal a comparative advantage, as the latter is based on the opportunity cost of making one thing over another. For instance, if planning a birthday party with a friend, and you’re better at both baking cakes and writing nice invitations but only slightly better at the invitations, it makes more sense for you to bake the cake and for your friend to send out the invites than for you to do both. It not only is more efficient, but it also spares up the time you would have spent writing those invitations to focus on making an even better cake. Essentially, comparative advantage allows for greater investment in the thing you are good at, and in turn, makes you better at it over time. This logic is easily applied to the bilateral trade relationship between the United States and South Korea. Blessed with vast amounts of land ideally suited both for cattle grazing and growing of corn, the United States enjoys a considerable comparative advantage in such products and is the world’s largest producer of both. Lacking such geographic advantages but possessing a highly-skilled workforce and some of the world’s leading manufacturing firms, South Koreans instead specialize in the production of cars. By focusing on what each country does best, and then engaging in trade, the citizens of both countries are made better off. Rather than building cars, Iowa corn farmers raise crops, harvest them, and then send them to foreign lands where in exchange they receive cars and other needed goods. To force South Korean autoworkers to grow their own corn or Iowa farmers to build their own cars would be to live in a less prosperous world. Also overlooked by Secretary Ross is that a country as vast and economically developed as the United States is able to enjoy comparative advantages across multiple sectors and industries. In addition to being an agricultural juggernaut, the United States is—perhaps contra the popular narrative—a manufacturing powerhouse with output near record highs. While the United States does indeed send large amounts of beef, corn, and other agricultural products to South Korea—$6.2 billion worth in 2016—these are dwarfed by its manufacturing exports. Indeed, one category of manufacturing exports alone, machinery, saw exports ($6.1 billion) nearly equal to agricultural products in their entirety. In addition, the United States exported another $5.3 billion worth of electrical machinery, $5.2 billion in aircraft, and $2.9 billion worth of optical and medical instruments, in addition to vehicle sales of $2.2 billion. Beyond its massive agricultural and manufacturing sectors, the United States—like most advanced economies—is also increasingly oriented towards the production of services where it possesses considerable expertise. Not mentioned by the Commerce Secretary is that the United States exported $21.6 billion in services to South Korea in 2016 and was left with a trade surplus in this sector of $10.7 billion. Unlike the goods trade deficit, Secretary Ross has made no indication that he believes this particular trade surplus to be a problem or that he intends to pressure Americans into purchasing additional South Korean services to achieve balance. Nor should he. Rather, the citizens of both the United States and South Korea should be left to their own devices to purchase the products and services they desire and trade as they see fit with minimal interference. Instead of bemoaning a goods trade deficit that is more statistical quirk than indicator of economic vitality, or puzzling over why the United States does not export more of a particular good, Ross would do better to spend his time removing the remaining barriers to trade between the United States and South Korea and allowing the miracle of comparative advantage to work its magic.