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trade Archive

Tuesday

29

May 2012

0

COMMENTS

When Special Interests Collide

Written by , Posted in Economics & the Economy, Energy and the Environment

The President has made promotion of “green energy” a central part of his agenda. His efforts have thus far been littered with waste, fraud and abuse, but nevertheless it remains a key plank of the President’s platform.

So why then is his administration slapping tariffs on solar panel imports?

The United States on Thursday announced the imposition of antidumping tariffs of more than 31 percent on solar panels from China.

…The antidumping decision is among the biggest in American history, covering one of the largest and fastest-growing categories of imports from China, the world’s largest exporter.

…Many solar panel installers in the United States have opposed tariffs on Chinese panels, contending that inexpensive imports have helped spur many homeowners and businesses to put solar panels on their rooftops. The new tariffs are likely to mean a substantial increase in the price of solar panels here.

…Chinese officials have been indignant at American criticism of their solar power industry, pointing out that the United States has urged China for years to embrace renewable energy as a way to reduce air pollution, combat climate change and limit the need for oil imports from politically volatile countries in the Mideast.

Chinese confusion is understandable given the rhetoric of this administration.  But there’s more than one special interest in Obama’s coalition, and while environmentalists like the proliferation of solar panels no matter their source, unions and other domestic manufacturing fetishists would rather limit their availability and harm consumers by raising prices in an effort to insulate domestic producers from competition.

“Anti-dumping” rules in general, because they are designed by and cater to these very same special interests, are a counter productive and unnecessary burden on the economy, and often work at cross-purposes with other policy actions, as explained by this video from the Cato Institute:

Sunday

19

December 2010

3

COMMENTS

Do Not Fear the Chinese Economy

Written by , Posted in Economics & the Economy, Free Markets

Hand-wringing over Chinese economic growth is both common and bipartisan. Commentators and politicians from the left and right alike find something fearsome in the rise of China as an economic force to be reckoned with. From Paul Krugman to Pat Buchanan, we are told to be concerned. Be very concerned. But these concerns are almost entirely based on faulty economics, and are therefore misplaced.

Before I get into some of the specific arguments, I want to make a simple point that few seem to truly accept: the economic success of another is not your failure. There is no set, fixed pie of wealth.  We are not “falling behind” just because the Chinese economy is growing faster (and why shouldn’t it be when they have so much farther to climb?). The left can be somewhat excused for not seeing how this applies to China since they don’t even see how it applies among Americans, but the right does get it domestically, by and large. This is why I get frustrated to see Chinese economic scaremonger from the right as well as the left.  The rhetoric surrounding the rise of China mirrors closely the fearmongering over Japanese growth that was so common throughout the 80’s. Needless to say, the fear proved ill-founded, as the Japanese economy collapsed in 1989, and subsequent dabbling in Keynesian stimulus policies condemned the nation to a “Lost Decade” of stagnation.

Now the next great Asian threat is China. And the primary cause of this threat is their so-called “currency manipulation.” China, we are told, is unfairly devaluing its currency and thus boosting exports. This costs America jobs and harms the US economy. Sounds plausible enough, right? In fact, it was this reasoning that led to  bipartisan support for recent legislation granting President Obama  “expanded authority to impose tariffs on virtually all Chinese imports to the United States.” I doubt any supporters of the legislation stopped to consider how well it turned out the last time tariffs were imposed in the midst of an economic slump.

The currency-manipulation argument sounds plausible enough, but it’s not actually valid.  It is a common protectionist misconception that exports are benefits and imports are the price we pay to export goods and create jobs. This view is entirely backwards. In fact, exports are the price we must pay in order to get the goods we desire. When you go into a store, your goal is invariably to minimize what you must export (pay) for what you wish to import (buy). The more you can get for less, the better. It is no different on a national scale. There is no more reason to complain about cheap goods offered from China than there is to complain about bargains from Best Buy or Barnes and Noble.

Consider the impact of a devalued Chinese yuan (assuming it actually is devalued, which is debatable). Chinese workers are payed with a currency worth less than it otherwise would be, giving them less purchasing power and thus making them poorer. US consumers, on the other hand, get more Chinese goods for a cheaper price than they otherwise would. This is essentially a subsidy of American consumption by the Chinese worker. We are the winners and they are the losers in this arrangement.

“But wait,” I can hear the mercantilists saying, “what about the lost American jobs? What good are cheaper trinkets if we have no jobs and no income!”

Why, dear mercantilist, do you assume that we would have no jobs? Sure, there will inevitably be some particular jobs lost by any influx of cheap Chinese goods, but that’s true of all trade regardless of who it is with or the valuation of their currency. Even in the strongest economy, tens of millions of jobs are lost every year. Uncompetitive sectors close down and new ones rise up. Most people don’t see this, however, because economic statistics only report net job changes. Hiding behind these figures are a dynamic system of destruction and creation. Jobs producing goods which we can get cheaper elsewhere are lost, while jobs making new goods and providing new services are added. When the Chinese subsidize a product, allowing US consumers to buy it cheaper than American manufacturers can make it, it frees up labor to be utilized elsewhere.  We then benefit both from that labor and the cheap Chinese goods, which grows our economy.

There is no set number of products throughout the entire world that can be manufactured, for which all countries must then compete. Economic activity is not a race to grab a fixed pie, it’s a cooperative endeavor to grow the pie. New products and services are invented everyday, and the less it costs us to get existing products, measured in either dollars or labor, the more that is available for expansion elsewhere. The  industrial revolution was only possible after most agriculture jobs were “lost” to greater productivity.

Outside of the strictly economic arguments, there are some legitimate concerns about China. The share of American debt held by China, and its possible usage to strong-arm the US on matters of defense, is at least arguably problematic. I’m not staking a position on this point either way, but even if we assume the concerns to be legitimate, the problem is not the value of the Chinese currency, nor even the dynamics of trade between the US and China, but the size of the debt itself. They can only buy so much of our debt because we have so much debt in the first place, after all. Assuming Chinese ownership of American debt is problematic, the correct solution is not to hamstring our economy with protectionism, but to reduce government spending!

Furthermore, if you believe China will use its greater wealth to challenge US interests military, then that’s fine. I’m not attempting to address their political or military motivations here. What I am doing is challenging the notion that they are some how cheating us economically, or that trade with China is being manipulated against us. That couldn’t be further from the truth.

China is going to grow economically whether we like it or not. Their population is several times larger than ours, providing them that much more labor to tap. The reason we remain a wealthier country despite this disparity is our free economic system. One important characteristic of this system has been free trade. Let’s not start hacking away at the principles that have made us so prosperous in a futile effort to stop anyone else from becoming so. But if you’re still fearing the growth of China, then let me help you get a head start on the next big economic threat: India will surpass China in population by 2025.

Tuesday

19

October 2010

0

COMMENTS

China Calls Out Obama's Subsidy Hypocrisy

Written by , Posted in Energy and the Environment, Labor Unions

When Barack Obama promises green subsidies, it’s an energy plan that will create “green jobs” (it isn’t and it won’t, but that’s another story). When China does it, it’s time for an investigation!

China’s top energy official said the U.S. was playing electoral politics with an announcement that it will investigate a union complaint that the Chinese government gives unfair subsidies to its alternative energy industry.

“Does America want to get fair trade or a genuine dialogue, or get transparent information?” National Energy Administration Director Zhang Guobao asked at a Beijing press conference last night. “I think not — it seems America’s main reason is to get votes.”

The U.S. acted on a complaint from the United Steelworkers union that China’s aid to its clean-energy producers violates global trade rules. Accepting the petition may lead the U.S. to file a protest at the World Trade Organization. The complaint, called a Section 301 filing, is the first filed and accepted by President Barack Obama’s administration after his predecessor, George W. Bush, turned down trade complaints against China.

Obama and the Democratic-controlled Congress are under increasing pressure ahead of the Nov. 2 congressional elections to take measures to reduce China’s trade surplus. The trade gap widened to a record $28 billion in August, bolstering claims that a weak Chinese currency is hurting American jobs. Last week Montana Democrat Max Baucus, chairman of the Senate Finance Committee, said a bill targeting China’s yuan may pass the Senate later this year and be sent to Obama for his signature.

And here we go with the trade deficit nonsense again. The “trade gap” is just a fancy way of saying that we get more stuff from China than we have to give them in return. I run a similar deficit with BestBuy, and it’s certainly not a bad thing for me.

But the real point here is the absurdity of an administration that promotes subsidies and protectionism to shield unions from competition – which incidentally raises prices for consumers and reduces overall prosperity – even considering complaining to the WTO when other countries do the same. Obama’s consistent disgust at practicing free trade gives him zero moral authority on the matter.

Monday

14

September 2009

1

COMMENTS

China Strikes Back, New York Times In Shock

Written by , Posted in Free Markets, Media Bias

Following President Obama’s launching of (trade) war against China, the world’s most populous nation and our second biggest trading partner, they have predictably struck back.  Predictably, that is, unless you work at the New York Times:

China unexpectedly increased pressure Sunday on the United States in a widening trade dispute, taking the first steps toward imposing tariffs on American exports of automotive products and chicken meat in retaliation for President Obama’s decision late Friday to levy tariffs on tires from China.

How utterly unexpected of them. I mean, who could have possibly predicted that slapping tariffs on Chinese tires simply because Americans wanted to purchase, and thus were sold, a high number of them would be just the first shot in a new trade war?

The article also provides the usual misinformed scaremongering about the so-called trade deficit:

Mr. Obama’s decision to impose a tariff of up to 35 percent on Chinese tires is a signal that he plans to deliver on his promise to labor unions that he would more strictly enforce trade laws, especially against China, which has become the world’s factory while the United States has lost millions of manufacturing jobs. The trade deficit with China was a record $268 billion in 2008.

The implications couldn’t be clearer, nor more wrong. There’s little evidence that China’s increases in manufacturer have come out the expense of American jobs. While the American manufacturing sector has indeed lost jobs, it has been doing so at the same, steady pace for over 50 years – well before China was a player. America manufactures more today then ever before, but thanks to gains in productivity it also requires less labor to do so.

The bit about the trade deficit is clearly tacked on as an ominous indication of the Chinese economic threat, and thus a justification for “more strictly enforc[ing] trade laws.” Later the article notes, “the United States buys $4.46 worth of Chinese goods for every $1 worth of American goods sold to China.” Good for us that we get $4.46 worth of goods for every $1 worth we give up! Don Boudreax at Cafe Hayek recently explained by example the idea that exports are the costs, while imports are the benefits.

He also made the point that retaliation is self-defeating. Unfortunately, the tire tariff is likely to spur pressure from other domestic special interests who don’t want to compete in a free market, and the Chinese retaliation gives them further political cover.  Let’s hope President Obama comes to his senses soon and stops this cycle or we’re in for a world of hurt.

Sunday

13

September 2009

2

COMMENTS

Obama Launches Trade War

Written by , Posted in Free Markets, Labor Unions

The first shots in a trade war – guaranteed to produce heavy economic casualties right here at home – have been fired by Barack Obama.  In order to secure a Pyrrhic victory for narrow union interests, President Obama has sent unarmed and ill-prepared consumers to the front lines.

Obama has slapped Chinese tire imports with a three-year tariff – at rates of 35 percent the first year, 30 percent the second and 25 percent the third. The justification for this action is a law passed in 2000, as part of the negotiations to Chinese admittance into WTO, that says the U.S. can impose tariffs if “a surge in Chinese imports damages a U.S. industry.”

A surge? Are Chinese tires storming the beaches of Florida?

Basically, some union official decided that China was selling too many tires and came whining about it to the U.S. government. All of a sudden it’s protectionism time.

Unfortunately, protectionism doesn’t actually do any protecting.  It doesn’t protect consumers who will have fewer choices at higher prices.  It doesn’t protect tire importers who will also pay higher prices which, when they necessarily pass them on to consumers, will cost them business.

It doesn’t even help the particular domestic industry ostensibly being protected.  Without competitive pressures, industry will grow in an inefficient and wasteful manner.  Numerous countries, particular in Latin America, have tried to develop economically by protecting domestic industries.  It has never worked.  You can no more protect an industry through tariffs than you can protect a child by locking him in a closet for twenty years.

Update: Daniel Ikenson at freetrade.org offer a much more detailed analysis.

Friday

26

June 2009

0

COMMENTS

UN Stumbles Upon Some Truth

Written by , Posted in Energy and the Environment, Free Markets

Coming as a pleasant surprise, the UN reported today that open trade and economic growth helps, rather than hurts, the environment.

Contrary to conventional wisdom, further liberalization of international trade can help combat climate change and support a low carbon economy, said a joint United Nations Environment Programme (UNEP) and World Trade Organization (WTO) report launched today in Geneva.

The “Trade and Climate Change” report stressed that an increase and opening of trade could have a positive impact on greenhouse gases emissions by accelerating the spread of clean technology and providing opportunities for developing economies to adapt those technologies.

Many of us have always challenged the “conventional wisdom” on economic growth – that it was destructive to the environment.  The reality is quite the opposite, as new technology is almost always cleaner than the old; so the faster new technology is adopted, the better.  If Barack Obama and the Democrats are serious about their goal of thwarting global warming, they should dump trade protectionism and their economically destructive cap and trade bill.

Tuesday

14

April 2009

0

COMMENTS

Obama Eases Restrictions On Cuba

Written by , Posted in Foreign Affairs & Policy, Free Markets

President Obama announced, as inconspicuous as possible, that his administration is reversing several restrictive policies on Cuba, including restrictions on travel to visist family, limits on money and goods that can be sent to family, and prohibitions on high tech investment. I support these moves. Unfortunately, however, the move does not indicate a broad commitment to freedom by the Obama administration, which seeks to limit trade in most other ways.

Thursday

29

January 2009

0

COMMENTS

A Last Minute Attack On Free Trade

Written by , Posted in Free Markets

The Washington Post reports on some regulatory parting shots the Bush administration took on free trade.

In its final days, the Bush administration imposed a 300 percent duty on Roquefort, in effect closing off the U.S. market. Americans, it declared, will no longer get to taste the creamy concoction that, in its authentic, most glorious form, comes with an odor of wet sheep and veins of blue mold that go perfectly with rye bread and coarse red wine.

The measure, announced Jan. 13 by U.S. Trade Representative Susan C. Schwab as she headed out the door, was designed as retaliation for a European Union ban on imports of U.S. beef containing hormones. Tit for tat, and all perfectly legal under World Trade Organization rules, U.S. officials explained.
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Besides, they said, Roquefort is only one of dozens of European luxury products that were attacked with high tariffs. The list includes, among other things, French truffles, Irish oatmeal, Italian sparkling water and “fatty livers of ducks and geese,” which apparently is how Washington trade bureaucrats say foie gras.

While none of these particular barriers are going to have significant economic impact in America, this is simply bad policy.

Playing tit for tat with trade barriers may have emotional appeal, but it makes little sense practically, as we’re hurting ourselves almost as much as them when we do it.  Moreover, we’re just encouraging others when they play these games.  There’s little chance these tarrifs will get Europe to rethink their beef policy, and cutting off our nose to spite our face does not constitute good policy.

Sunday

17

August 2008

0

COMMENTS

Free Trade Defeats Terrorism?

Written by , Posted in Foreign Affairs & Policy, Free Markets

Given the current political climate, I suppose I should be happy to see an op-ed coauthored by two left-leaning individuals arguing for free trade. However, I must take issue with the central premise of their case.

When trade flares up as a political issue — as it is likely to do in the presidential campaign this year — one aspect of the debate is almost always neglected. There is a fierce competition among foreign countries to sell their products here, in the United States, the largest commercial market in the world.

Moreover, by opening up our market to Muslim countries, we could not only help American consumers, but also serve a larger strategic goal: that of boosting the economies which now produce large pools of unemployed, embittered youth. We can make trade an effective weapon against terrorism.

Our tariff regime puts many nations in the Middle East, whose young people are susceptible to the sirens of Islamic fundamentalism, at an unintended disadvantage. This works against our efforts to stamp out jihadism. Fortunately, the problem is easy to fix.

First off, putting others at a disadvantage is exactly the intention of tariffs.  But that’s a minor quibble.  My real concern is with the flawed understanding of jihad exhibited in this argument.  The implication is that, if only they weren’t poor, there wouldn’t be so much terrorism.

There is little evidence to support this claim.  The few empirical studies on the matter have indicated no direct relationship between poverty and support for terrorism.  If anything, there’s a reverse correlation.  The 9/11 hijackers were not poverty stricken youths with no opportunity.

They were not born to be soldiers — none seems to have come from a military background — and there was little in their early lives to suggest that they would become what they did. The pilot of the first plane to hit the World Trade Center, Atta, came from “an ambitious, not overtly religious middle-class household in Egypt” and had led “a sheltered life” until he arrived in Hamburg, Germany, in 1992 to do graduate study in architecture. The pilot of the second plane, Marwan al-Shehhi, was an amiable, “laid-back” fellow from the United Arab Emirates who had joined the UAE army, “not the world’s most effective fighting force but one of its most generous, paying [its scholarship] students monthly stipends of about $2,000,” which may have been his primary reason for enlisting; this enabled him to go to Hamburg, though there is little evidence that he “had any serious scholarly ambitions.”

Hani Hanjour, the Saudi pilot who flew American Airlines flight 77 into the Pentagon, “had lived in the United States off and on throughout the 1990s, mostly in Arizona, intermittently taking flying lessons at several different flying schools.” He was, in the view of one of his flight instructors, “intelligent, friendly, and ‘very courteous, very formal,’ a nice enough fellow but a terrible pilot.” He finally got a commercial license from the FAA but was unable to find work here or in the Middle East. As for Ziad Jarrah, the pilot of the plane that crashed in Pennsylvania, he was “the handsome middle child and only son of an industrious, middle-class family in Beirut,” a “secular Muslim” family that “was easygoing — the men drank whiskey and the women wore short skirts about town and bikinis at the beach.” At university in Germany he met Aysel Sengün, “the daughter of conservative, working-class Turkish immigrants”; eventually they got married, but he disappeared for long periods, usually without explanation, leaving her frantic.

The benefits of free trade are myriad and, to anyone who bothers to observe the evidence, undeniable; but I see little evidence to suggest that defeating jihad is among them.

Friday

15

September 2006

0

COMMENTS

Brilliant “Market-Based” Solution Proposed For The “Trade Deficit”

Written by , Posted in Economics & the Economy

Cato-at-liberty reports.

Two Democratic senators, Byron Dorgan of North Dakota and Russ Feingold of Wisconsin, have proposed that any company wishing to import goods into America would need a government-issued certificate. The senators, according to this New York Times article (link requires subscription), view this as a “market-based system to cut the trade deficit to zero within 10 years.”

. . .Sherman Katz of the Carnegie Endowment for International Peace was quoted in the article as saying that “it looks on the face of it to represent an enormous intrusion of government activity into business totaling trillions of dollars each year.”

“Enormous” doesn’t seem to quite capture it though, does it? How about “insane?”

Can you imagine the type of federal oversight this would require? And how would our trade partners react to the U.S. market being restricted in this way?

I wonder, what does one call a “market-based” solution that relies entirely on government? Nuanced.