September 24, 2012

Contain China, Kill Capitalism?

New America's Barry Lynn argues that the Obama administration's China strategy makes no sense:

The Obama administration, over the last year, has chosen to pursue both of these extreme -- and opposed -- options. On the one hand, it has begun to devote real energy to a new generation of trade agreements, like the Trans-Pacific Partnership, which aim to tie the U.S. and Chinese economies together even more closely. On the other, it has begun to meet force with force. As Beijing blusters in the South China Sea and builds up military power, Washington has dispatched Marines to Australia, promised a new missile shield to Japan, and proposed to station a second carrier group in the region.

This is absurd. To tighten the gears of the international production system and, simultaneously, to position more heavy weapons right on the factory floor is a recipe only for catastrophe. Any conflict of any size would almost instantly break many of our most vital systems of supply. Instead, the United States should use its power to force corporations to distribute production capacity more widely. Such a move would reduce China's growing leverage over America -- and it would help stabilize the international system, economically and politically.

Lynn goes on to make the case that diversification of industrial production is what will ultimately guarantee U.S. security:

The only real option is to embrace the logic of industrial interdependence, hence to recognize that the only way for the United States to achieve its most vital national aims -- indeed, to be taken seriously by China -- is no longer to reposition its aircraft carriers, but to force its industrial and trading corporations to reposition the machines on which it depends. The United States does not need to bring all or even any of these systems of production home. But it can no longer continue to live in a world in which many activities remain in one location, under the control of one state, especially a strategic rival.

It's interesting that one of the consequences of shifting China into the "strategic competitor" basket is that it may force the U.S. to sideline free market orthodoxies.

January 30, 2012

France Readies Pirate-Busting Ship

Even in an atmosphere of austerity, French defense planners appear to be awake to the threat of piracy:

Blind them with light, drench them with water cannons or deafen them with sound blasts: these are some of the on-board anti-pirate features that figure in a project being developed in France....

A series of traps and non-lethal defenses are set to be installed on board the Partisan, a French military training vessel, in a 12-million-euro project piloted by the French Environment and Energy Management Agency (ADEME)....

The anti-pirate measures on the Partisan begin with radar systems and infrared cameras that detect the danger as early as possible, allowing the crew to alert the authorities in the hope of being rescued by a warship.

If the pirates move closer to their target on board their skiffs, they can be hit with "long range acoustic devices" that blast them with pain-inducing sounds. They might then be hit with beams of blinding light.

If they are still not dissuaded, powerful remote-controlled water cannons can continue to blast them while the crew takes refuge in a "citadel", or safe room hidden in the boat.

From there the crew can use cameras to monitor the pirates and continue to sail their ship.

If despite all that the pirates manage to get on board, they will be met with tear gas canisters. The ship's corridors are plunged into darkness and flooded with smoke to disorientate the pirates.

April 21, 2011

Putin Calls Out Bernanke

Monetary policy gets testy:

“Look at their trade balance, their debt, and budget. They turn on the printing press and flood the entire dollar zone — in other words, the whole world — with government bonds. There is no way we will act this way anytime soon. We don’t have the luxury of such hooliganism,” he said.

Even as Putin blamed the U.S. for printing money — something for which Russia was criticized during periods of hyperinflation in the 1990s — other Russian officials said there is no alternative to the U.S. dollar and declined to discuss cutting the country’s dollar holdings.

Kindred Winecoff pushes back:

This isn't hooliganism. This is using monetary policy in textbook ways. As it happens, U.S. monetary policy has a great effect on external economies, which is why Putin calls the whole world the "dollar zone", but let's be clear: those countries want the U.S. to pursue less expansionary monetary policy so they can free-ride on it. It's fine for them to have that preference, and as I've argued before, I think the U.S. should allow some free-riding. But the U.S. government has citizens to satisfy as well, so those countries can't very well expect the U.S. to pursue a contractionary policies while the economy is so weak.

April 15, 2011

Sea Piracy at Record Levels

According to a new report, piracy has ticked up sharply:

Nearly 70 per cent or 97 of the attacks occurred off the coast of Somalia, up sharply from 35 in the same period last year, the International Maritime Bureau's piracy reporting centre in Kuala Lumpur said in a statement.

Attackers seized 18 vessels worldwide, including three big tankers, in the January-March period and captured 344 crew members, it said. Pirates also murdered seven crew members and injured 34 during the quarter.

“Figures for piracy and armed robbery at sea in the past three months are higher than we've ever recorded in the first quarter of any past year,” said the bureau's director Pottengal Mukundan.

February 17, 2011

Tracking Gas Prices Globally

Via the Economist, an interactive chart which lets you track gas price movements over time.

December 29, 2010

The Scramble for Rare Earth Minerals

China announced yesterday that it would cut its rare earth mineral export quota in 2011, following steep reductions in 2010. While the move is sure to deliver some short-term pain to industries in Asia, Europe and the U.S., it has been a boon for Australia:

Australia's emerging rare earths producers and explorers are enjoying a year-end surge in value thanks to China's latest move to limit supplies from its dominant industry to the rest of the world....

According to the US Geological Survey, rare earths are relatively common within Earth's crust but, because of their geochemical properties, are not often found in economically exploitable concentrations. It said new mines in Australia, the resumption of a big mine in the US, and the possible development of other deposits there and in Canada ''could help meet increasing demand''.

As Ian MacKinnon reports, the international scramble to shore up new sources of supply is creating some uncomfortable bedfellows - such as a tie-up between South Korea and Burma.

November 16, 2010

U.S. Views on Trade

According to Pew Research, Americans are taking a dimmer view of free trade:

Most Americans say that increased trade with Canada, Japan and European Union countries -- as well as India, Brazil and Mexico -- would be good for the United States. But reactions are mixed to increased trade with South Korea and China.

More generally, there is increased skepticism about the impact of trade agreements such as NAFTA and the policies of the World Trade Organization. Roughly a third (35%) say that free trade agreements have been good for the United States, while 44% say they have been bad for the U.S.

Support for free trade agreements is now at one of its lowest points in 13 years of Pew Research Center surveys.

July 6, 2010

Where Is Smart Power?

Thomas Barnett makes the case for globalization:

First, we can remember that we sought this outcome -- a world of numerous great powers rising peacefully in their growing prosperity. This is why we created an international liberal trade order following World War II and defended it throughout the Cold War. No superpower before us had ever shaped and sustained a world order capable of such integration, and we should be proud of the vast peace dividend we've generated for the planet. Globalization may cause great frictions between civilizations, but it has begotten unprecedented peace among nation-states.

This is where the Obama administration and its so-called "Smart Power" diplomacy seem curiously deficient. China has just inked a major trade deal with Taiwan and Russia has concluded a customs union with Belarus and Kazakhstan. The net result of those moves will be to peacefully extend the influence of both great powers.

Meanwhile, the Obama administration has moved slowly. President Obama has only now promised to send the Korean Free Trade Agreement to Congress after the November elections, but hasn't spent much time defending it. During her swing through Latin America, Secretary Clinton promised to put her support behind the Colombia Free Trade Agreement - but both deals have been languishing for years now.

June 21, 2010

China's Currency Move & the G-20

Arvind Subramanian hails the decision by China's leaders to allow a gradual rise in the renminbi as a victory for the G-20:

But it is the fact of the G-20 that allowed Secretary Geithner to convert the China currency issue from a bilateral US-China matter (on which little progress had been made for many years) to one in which a broader set of countries had a stake. The public pronouncements by Brazil and India earlier this year re-inforced this “multilateralization” of China’s currency undervaluation. This multilateralization had two positive effects. It forced China to take more seriously the international consequences of its currency policy. And it also made the politics of changing policy easier because China is seen not as caving to bilateral pressure but as responding to the wider international community. Regardless of what happens at the G-20 Summit in Toronto over this week-end, the G-20 can already count the change in China’s currency policy as its victory.

The second implication is this: with China having made its contribution to global re-balancing, it is time to demand the same of Germany, which is the other large surplus country in the world economy, and which has just received a steroidal boost of competitiveness with the decline of the euro.

April 29, 2010

The "Father of Supply-Side Economics" on U.S.-China Currency and the Economic Crisis

The Heritage Foundation recently hosted an interesting event on "The Dollar, The Euro, and the International Monetary Order" with, among others, Nobel Prize-winning economist Prof. Robert Mundell (described by Heritage as "the academic founder of supply side economics").  NRO's Sean Rushton gives a nice rundown of Mundell's quite impressive bio here:

Continue reading "The "Father of Supply-Side Economics" on U.S.-China Currency and the Economic Crisis" »

April 17, 2010

India Debunks the Currency Hawks

Perhaps the most common refrain from the folks in Congress and the punditocracy who are demanding a drastic appreciation in China's currency (the RMB) is that the revaluation is absolutely necessary to reduce the "dangerous" US-China trade deficit.  These currency hawks' underlying reasoning is simple: China's allegedly undervalued currency makes Chinese imports to the US cheaper and American exports to China more expensive, thus creating a woefully-distorted bilateral trade imbalance as compared to a situation in which both the RMB and USD "floated" based on market conditions.  (See here and here for examples of this rhetoric.)

Assuming for a moment that the RMB is significantly undervalued, and that the bilateral trade deficit (or any trade deficit) is a problem for the US economy, there remains a very serious question of whether any sort of RMB appreciation, based on market factors or otherwise, will actually affect the US-China trade balance.  The currency hawks certainly think so (it's their raison d'etre), but many scholars (and your humble correspondent) disagree, pointing to the recent history of the RMB and the US trade deficit, the past experiences of Japan's currency appreciation versus the dollar, and, of course, lots of economic analysis and modeling of structural factors in both the US and China - all of which strongly argue against the theory that RMB appreciation is some sort of "silver bullet" for the bilateral trade deficit.  Indeed, a very interesting new study released by the Centre for Economic Policy Research provides even more such evidence (and a lot of other good stuff).

Unsurprisingly, currency hawks like Paul Krugman have brushed these sound criticisms aside, arguing that they fail to capture current market realities (or something).  A story in Thursday's Wall Street Journal, however, provides very strong support for the currency skeptics' arguments about the disconnect between nations' currency policies and their bilateral trade balances - this time from what is arguably China's largest competitor, India. 

Continue reading "India Debunks the Currency Hawks" »

April 6, 2010

Peak Everything


Writing in the Oil Drum, Chris Clugston makes the case that our supply of "non-renewable natural resources" (NNR) are increasingly scarce, posing a huge risk to the 1-billion plus people around the world living high on the industrial lifestyle. It sounds intuitive enough: there is only so much Earth and only so many extractable resources. The situation in the U.S. looks particularly grim:

A US NNR Scarcity Analysis was conducted to assess the incidence of NNR scarcity associated with fifty eight (58) NNRs in the United States.17 The salient findings:

* Annual US production levels associated with 50 of the 58 analyzed NNRs have reached their geological US peak production levels;
* Twenty five (25) of the 58 analyzed NNRs are no longer being produced in the US at all;
* The US currently imports some quantity of 46 of the 58 analyzed NNRs; and
* For 18 of the 58 analyzed NNRs, the US imports 100% of its current annual utilization level.

America has been able to supplement its continuously decreasing domestic NNR production levels—thereby forestalling fatal NNR supply shortfalls—by:

* Importing ever-increasing quantities of NNRs from foreign nations;
* Outsourcing US manufacturing operations to foreign offshore locations, thereby utilizing foreign NNRs; and
* Becoming a net importer of foreign goods and services, thereby utilizing foreign NNRs throughout the product/service production and provisioning processes.

Clugston also notes:

The salient findings associated with the assessment: 50 of the 57 analyzed NNRs (88%) experienced global scarcity during the 2000-2008 period; 23 of the 26 analyzed NNRs (88%) will likely experience permanent global supply shortfalls by the year 2030.

At the end of the day, we are not about to “run out” of any NNR; we are about to run “critically short” of many. This reality will have a devastating impact on our industrial lifestyle paradigm.

If that is indeed the case, it would also put huge strains on our foreign policy, particularly with the one nation that's been aggressively shoring up its access to raw materials. But that's not to say everything is peachy in China either. Elizabeth Economy notes that China is enduring a major drought right now:

While China often confronts serious seasonal droughts—last year northern China experienced the worst winter drought in 50 years, costing the region 50 percent of its agricultural output—this year’s drought has hit even the typically water-rich southern provinces. According to one report, 600 rivers in southern China have simply dried up.

(AP Photo)

March 31, 2010

The Emerging Markets Bubble

Simon Johnson sounds a warning:

Our Too Big To Fail banks stand today at the heart of global capital flows. People around the world – including from China – park their funds in the biggest US banks because everyone concerned believes these banks cannot fail; they were, after all, saved by the Bush administration and put completely – gently and unconditionally – back on their feet under President Obama. These same banks now spearhead lending to risky projects around the world.

What is the likely outcome?

We know that risk-management at the megabanks breaks down in the face of a boom (remember Chuck Prince of Citigroup in July 2007: “as long as the music is playing, you’ve got to get up and dance. We’re still dancing”). We know there is a growing boom in emerging markets – including through the overseas expansion of would-be multinationals from those countries. This is most notably true of state-backed firms from China, but there is also a more general pattern (think India, Brazil, Russia, and more).

The big global banks, US and European, are charging hard into this space – Citigroup is expanding fast in China and India (areas where they claim great expertise); and the CEO of HSBC has moved to Hong Kong. Many investment advisors are adamant that China will power global growth (never mind that it is less than 10 percent of the world economy), that renminbi appreciation is around the corner, and that the value of investments in or connected to that country can only go up.

March 17, 2010

Paul Krugman, Protectionist

New York Times columnist Paul Krugman published on Sunday his monthly column about China's dastardly currency policies.  The column repeats many of Krugman's earlier comments about global "imbalances" and market "distortions," as well as his not-so-subtle demand that the U.S. Treasury Department label China a currency manipulator in its semi-annual report on the subject (not coincidentally due next month).  Now, I've already expressed some serious doubts about Krugman's thoughts and intentions on the China currency issue, so I won't get into that again because, unlike PK, I can't get away with recycling my work.  Instead, I want to focus on Krugman's new and bellicose policy recommendation for solving the China currency "problem":

Some still argue that we must reason gently with China, not confront it. But we’ve been reasoning with China for years, as its surplus ballooned, and gotten nowhere: on Sunday Wen Jiabao, the Chinese prime minister, declared — absurdly — that his nation’s currency is not undervalued. (The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent.) And Mr. Wen accused other nations of doing what China actually does, seeking to weaken their currencies “just for the purposes of increasing their own exports.”

But if sweet reason won’t work, what’s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.

I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand.

Yes, you read that right.  Former free trade guru and Nobel laureate in trade economics Paul Krugman just strongly advocated the unilateral imposition of 25% tariffs on all Chinese imports if China doesn't respond to U.S. demands to appreciate its currency by 20%-40%.  Even I am shocked by this suggestion.  Not only does it mean that Krugman, who also recently advocated carbon tariffs as a way to force developing countries to impose development-killing climate change policies, finally needs to tear up his free trader card, but it also represents one of the more short-sighted and absurd lines of reasoning that he's ever produced.

Indeed, by my count, Krugman's arguments for this 25% tariff fail from a historical, practical and economic perspective.

(1) Krugman completely distorts (or, to be kind, misreads) history.  As Dan Drezner points out, that U.S.-Germany episode didn't quite unfold as Krugman claims:

It's certainly true that the dollar was overvalued back in 1971. What Krugman forgets to mention -- and see if this sounds familiar -- is that the Johnson and Nixon administrations contributed to this problem via a guns-and-butter fiscal policy. They pursued the Vietnam War, approved massive increases in social spending, and refused to raise taxes to pay for it. This macroeconomic policy created inflationary expectations and a "dollar glut." Foreign exchange markets to expect the dollar to depreciate over time. Other countries intervened to maintain the dollar's value -- not because they wanted to, but because they were complying with the Bretton Woods system of fixed exchange rates. Nixon only went off the dollar after the British Treasury came to the U.S. and wanted to convert all their dollar holdings into gold.

In other words, the United States was the rogue economic actor in 1971 -- not Japan or Germany.

So the U.S. in 1971 wasn't the U.S. of today - it was China.  Minor detail!  So much for that historical and theoretical justification for angry unilateralism, huh?

Continue reading "Paul Krugman, Protectionist" »

February 28, 2010

Health Care and American Power, Ctd.

Last week, Kevin began to debunk two recent articles - one by the Times' Anatole Kaletsky and the other an article on recent statements by Sec. Hillary Clinton - which boldly argue that the death of current U.S. health care legislation will mean the inevitable death of America's influence around the world.

Clinton's argument is that ObamaCare's failure will signal to the rest of the world that American government is broken, and that this perception will adversely affect foreign countries' views on whether America still has the capacity to "move forward" and lead on international issues.  Money quote: "Their view does color whether the United States — not just the president, but our country — is in a position going forward to demonstrate the kind of unity and strength and effectiveness that I think we have to in this very complex and dangerous world."

Kaletsky takes an even harsher line and argues that the demise of ObamaCare will dismantle the American economy, and by extension, America's influence in the world.  He writes:

If nothing is done to change the US healthcare system, it can be stated with mathematical certainty that the US Government and many leading US companies will be driven into bankruptcy, a fate that befell General Motors and Chrysler largely because of their inability to meet retired workers’ contractually guaranteed medical costs....

Gridlock over healthcare would imply similar stalemates on taxes, public spending, the budget, macroeconomic stimulus and financial reform.  As a result, an active response to any future financial crisis might become impossible.  Even worse, any important action to control US government borrowing could be ruled out.

Alrighty then.  Kevin did a great job dismantling these arguments from the foreign policy angle by providing some excellent historical perspective on the issue, so I'm just going to weigh in from the international trade and economics angle.

My conclusion in short: Clinton's and Kaletsky's arguments are nonsense.

Continue reading "Health Care and American Power, Ctd." »

February 26, 2010

Health Care and American Power

In response to my post from yesterday, our friends over at the sans-green Daily Dish send along this Times piece by Anatole Kaletsky. In it, Kaletsky argues that the future of the American economy - and thus, American leadership around the world - rests on the results of yesterday's health care summit in Washington:

If nothing is done to change the US healthcare system, it can be stated with mathematical certainty that the US Government and many leading US companies will be driven into bankruptcy, a fate that befell General Motors and Chrysler largely because of their inability to meet retired workers’ contractually guaranteed medical costs.

Today’s summit represents Mr Obama’s last chance to find a way forward, either by shaming some Republicans into supporting him or by embarrassing his own perennially divided Democratic Party into uniting around a single plan. If he is unable to do this, he will have almost no chance of passing any significant legislation on any other issue—– not on energy, budgetary responsibility, macroeconomic management or even on such seemingly popular issues as bank regulation and jobs.

In short, Mr Obama has staked his entire presidency on today’s summit.

I don't know that this passes political or economic muster. I am no economist, so all I'll add here is that, to my knowledge, the largest economy in continental Europe, Germany, has been dealing with an aging and entitled work force for years. While economic discontent at home can of course impact all forms of policy - including foreign - I don't know that it has had any effect at all on Germany's role in Europe and around the world, respectively. On the contrary, Angela Merkel seems to have become more globally assertive in the face of Western financial crisis.

As for the politics, I believe the general consensus is that yesterday's summit moved no one and only further entrenched actors and voters in their respective camps.

Kaletsky goes on:

Gridlock over healthcare would imply similar stalemates on taxes, public spending, the budget, macroeconomic stimulus and financial reform. As a result, an active response to any future financial crisis might become impossible. Even worse, any important action to control US government borrowing could be ruled out. If the financial markets seriously reached this conclusion, all the debates about government debt and public spending in Britain, Greece and other countries would be a waste of breath. A genuine loss of confidence in America’s fiscal outlook would create a financial crisis so horrific that actions by the British or European governments would be swept away like beach huts in a tsunami.


Did the United States not fight and win a world war in the face of economic depression and peril? Did economic ebb and flow affect the way in which the world perceived American leadership during the Cold War, or during the current War on Terrorism? Perhaps it did, which is why I open the floor up here to trade and economy wonks to fill in the gaps.

But I remain incredulous.

February 25, 2010

Japan Regains Title as "America's Top Banker"

The Wall Street Journal and other news outlets reported earlier that China, after selling off significant US Treasury holdings at the end of last year, is no longer the biggest holder of US debt:

China sold a record amount of its U.S. Treasury holdings in December, ceding its place as the world's biggest foreign holder of U.S. debt to Japan.

The move triggered concerns about China's continuing appetite to loan money to the U.S. amid a mounting budget deficit here and tensions between Washington and Beijing.

China pared its Treasury holdings by $34 billion to $755.4 billion in December, placing it second behind Japan, with $768.8 billion, according to U.S. Treasury estimates. For the first time since August 2008, Tokyo took over the top spot after steadily increasing its purchases of Treasury debt over the past several years....

Chinese officials have begun expressing "worries" over its significant holdings of U.S. government bonds and concern about the U.S. budget deficit, which is expected to hit $1.6 trillion....

However, China's sales of Treasurys don't necessarily translate into a loss of confidence in the U.S., many analysts said, noting that Beijing's moves in December could simply indicate steps toward diversification. Market observers said the Chinese may simply have moved their money into other dollar-denominated assets, such as corporate debt or private equity.

The increase for Japan appears to have come from private financial institutions shifting investments out of risky, high-yielding foreign financial products into safer assets such as U.S. Treasurys, analysts say....

The Japanese government itself hasn't acquired Treasurys in recent years. However, it may soon ramp up purchases, as officials at the huge government-run postal-savings system have said they are looking to diversify assets away from Japanese government debt and into U.S. government debt.

"The U.S. is having difficulty due to a lack of funds," Shizuka Kamei, the cabinet minister overseeing Japan Post, told reporters recently. "It's only natural that we should support the U.S. when it is weak."...

The rest of the article is well worth reading, and I'll leave the serious monetary analysis to the experts.  But two rather noteworthy things struck a layman like me about this big news. 

Continue reading "Japan Regains Title as "America's Top Banker"" »

February 18, 2010

Would Doha's Demise Take the WTO With It?

India's Business Standard reports on something that most of us have known for months now - the WTO's Doha Round of multilateral trade negotiations isn't getting completed in 2010:

Indian trade negotiators are of the view that the failure to close gaps in trade talks, coupled with minimal participation from the US, has killed the prospects of meeting the 2010 deadline for closing the Doha round. Analysts and trade experts said the failure to meet the deadline would put a question mark on the relevance of the World Trade Organisation (WTO) as a global trade body....

According to trade analysts and think tanks, the 2010 deadline is not achievable mainly because the US has not been engaged and there is insufficient political will on trade issues. “The main argument advanced by the US is that it needs real new effective market access for its exporters in order to win the support of the Congress for the trade deal and this could be delivered only by the sectoral agreements. Developing countries have resisted the proposal on the ground that the understanding from the outset has been that, as in the past, members would have the option to join sectoral agreements on a voluntary basis,” said Anwarul Hoda of Indian Council for Research on International Economic Relations (ICRIER).

For readers of this blog and most other people paying attention to the Doha Round, the missed 2010 deadline is hardly news.  The Business Standard article also rightly demonstrates how, without serious changes from the US and other WTO Members (but especially the US), Doha's long-term prospects are equally bleak (something that I've been saying for a while now).

On the other hand, one must really question whether, as the unnamed "analysts and trade experts" say, the collapse of the Doha Round would really mean the end of the WTO.  In fact, there are several reasons to doubt this conventional wisdom. 

Continue reading "Would Doha's Demise Take the WTO With It?" »

January 23, 2010

Could the WTO Tear Down China's Great Firewall?

Reuters reports that the United States Trade Representative (USTR) is "mulling" (great word!) a challenge to China's internet restrictions - the humorously-named-but-not-actually-funny-at-all "Great Firewall of China":

U.S. trade officials have asked for more information as they weigh whether to pursue a case against Chinese Internet restrictions that impede Google and other companies, an attorney for a U.S. free speech group said on Friday.

"They've asked us for more detail about it. We are trying to put that together right now," said Gilbert Kaplan, a partner at King and Spalding, which represents the First Amendment Coalition, a nonprofit advocacy group...

The U.S. free speech group, known then as the California First Amendment Coalition, first approached the U.S. Trade Representative's office in late 2007 with the idea of challenging China's barriers to Internet access at the World Trade Organization.

It gave the trade office, run at the time by the Republican administration of former President George W. Bush, "a very extensive white paper, or memo, describing the WTO violations that the 'Great Firewall' caused, and that were actionable in our view under the WTO, and a request that USTR begin a WTO case against China regarding the Firewall," Kaplan said.

Although no case was filed, Kaplan said U.S. trade officials never ruled out that possibility.

"We're continuing to request that they start that case. That dialogue is continuing," Kaplan said.

A spokeswoman for the U.S. trade representative's office had no immediate comment.

A study by the Brussels-based think tank ECIPE in November called government censorship the biggest trade barrier that Internet companies face.

Many countries censor the Internet for political or moral reasons. China has developed one of the most pervasive methods. In Cuba, all unauthorized surfing is illegal, while many Western countries limit access to child porn sites.

A WTO case could help "clarify the circumstances in which different forms of censorship are WTO-consistent," ECIPE said....

China agreed as part of its commitments to join the WTO in 2001 that U.S. service companies would have the same access in China as their own companies.

"We believe that applies to the Internet and Internet companies," Kaplan said.

China's web restrictions in effect force U.S. Internet companies to "put servers and hardware in China, rather than doing what they do everywhere else in the world, which is use their U.S. base," Kaplan said.

"If we try to serve the Chinese market from the U.S. or anywhere outside the Great Firewall, our Internet access is so slow that no one will use our sites," he said.

WTO rules also require countries to follow transparent and understandable procedures, he said.

Instead, China "is very randomly stopping our Internet companies and our Internet access with no prior notice and no set of regulations," Kaplan said.

The free speech group's 2007 white paper is here, and they state that China's internet restrictions violate a whole host of WTO rules, including GATT Article III (national treatment), China's services commitments under the GATS and China's WTO Accession Protocol. 

Continue reading "Could the WTO Tear Down China's Great Firewall?" »

January 6, 2010

Fighting the Last War

On December 21, 2009, the Government of Australia officially recognized (PDF) Vietnam as a "market economy" for purposes of administering the Australian antidumping law. In doing so, Australia joined India, the ASEAN nations, New Zealand, and several others - 23 in all - that have graduated Vietnam from non-market economy (NME) status to market economy status in national trade remedies (antidumping and countervailing duty - AD/CVD) investigations.

I'll spare you and not get into the weeds here on the difference between market economy and NME status for countries whose imports are being investigated under national trade remedies laws.  (Cato's Dan Ikenson lays it all out here, if you're interested.)  But here's the basic gist: AD/CVD tariffs imposed on imports from an NME country will (almost always) be higher than tariffs on the very same imports if that country were designated a market economy.  Even simpler: inflated tariffs for the very same imports - just by changing the "market economy" designation.

NME designation is a vestige of the Soviet era as a way for market economies to value costs of imports from old school, command-and-control-style economies (think Romania), and only a few countries remain "NMEs," including most notably China and Vietnam (who agreed to the treatment in their WTO accession protocols).  But whether to "graduate" a country from an NME to a "market economy" is completely within the discretion of the investigating country.

As noted above, 23 countries have exercised this discretion and now chosen to designate Vietnam a "market economy."  Thus, they've noticed a significant change in Vietnam's economy that warrants the change, and/or they simply want to remove a significant potential market barrier to Vietnamese imports.  And they're using the leeway afforded to them under their national laws and WTO rules to make that happen.

One country, however, appears to be moving in the opposite direction with Vietnam - the United States (shocking, I know). 

Continue reading "Fighting the Last War" »

January 3, 2010

Drive-by Economics

Perhaps realizing that he hadn't filled his monthly quota for columns bemoaning Chinese monetary policy and mercantilism, Paul Krugman published yet another one on New Years Eve  - just under the December wire!  The details of Krugman's latest New York Times column need not be discussed in this blog post, as it's pretty much identical to its October and November brethren, and I've already said my peace on those.  But Krugman's December China currency column still warrants mention here because in it he reaches a new low when covering a subject over which his expertise should be unquestioned - international trade.  In the middle of his column, Krugman unleashes this doozy (emphasis mine):

Meanwhile, that [Chinese] trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.

Maybe because people ignored his October and November hysteria on China's currency policies, Krugman felt the need to amp it up a notch by putting a zany job-loss number in the middle of his monthly China regurgitation.  Maybe Americans just don't get too agitated by warnings of "global imbalances," and - let's face it - everybody knows that "jobs" are 2010's super-sexy-it-word.  I dunno.  But what I do know is that not a single word before of after the passage above explains how Krugman came to this eye-popping "back-of-the-envelope" statistic.  Indeed, we don't even know if he was using one of those small envelopes that come with grocery-store floral bouquets, or one of those huge envelopes that we lawyers use to serve confidential 500-page documents to our adversaries (hey, maybe it was the envelope in which his Nobel Prize Certificate was mailed).  Krugman never says.  Instead, he just spits out the stat and then keeps rambling on about China's mercantilism, the obvious wisdom of Keynesian economics, etc.

My only guess is that Krugman derived the "1.4 million" number using the flawed, completely debunked method - founded by the union-sponsored protectionists at the Economic Policy Institute - that mindlessly translates bilateral trade deficit figures into "lost job" numbers (down to the ridiculous decimal point!).  That would be a really bush-league move, even for Krugman, but who knows?  It's certainly simplistic enough for an envelope-doodle. But the fact that only Krugman knows how he came up with his new "statistic" exposes it as absolutely, completely worthless for public consumption or discussion.

Yet there it is, and I'm left wondering how many times I'm now going to have to hear (and rebut) this fake number - "1.4 million 'Merican jobs!" - over the next few months as politicians and career protectionists demagogue away on the evils of China's trade and currency policies.  Unfortunately, once these stats - especially those originating from a Nobel Laureate and liberal icon like Krugman - are irresponsibly strewn across the interwebs, they never, ever go away, regardless of their actual veracity.  (Indeed, those EPI numbers have been proven worthless for years now, and yet politicians still campaign on them.  Good ol' Public Choice Theory!) 

And considering how important and delicate the issue of US-China trade relations will be for 2010 and beyond, Krugman's nonchalant insertion of this fake statistic onto the pages of the New York Times and lord-only-knows-how-many other websites and blogs is the height of journalistic - and economic - malpractice.

December 17, 2009

Could Carbon Tariffs Kill Copenhagen?

Well, probably not, but as Bloomberg reports, developed and developing countries are still at loggerheads over the controversial issue:

China is demanding that a global agreement to reduce greenhouse gases prohibit nations from imposing trade sanctions, further pitting the world’s No. 1 emitter against U.S. lawmakers.

The draft accord from a meeting in Copenhagen to forge a climate treaty bars rich nations from adopting trade actions tied to global warming. China said such language will avert “trade wars.” The U.S. Chamber of Commerce sides with China.

“We will always oppose any practice of establishing trade barriers under the guise of protecting the global environment,” Yu Qingtai, China’s climate change ambassador, said in an interview....

[T]rade is emerging as a central issue dividing developed and developing countries at the United Nations gathering in the Danish capital....

In Copenhagen, the latest version of a proposed treaty includes language banning developed countries from ‘‘resorting’’ to climate-related trade measures is printed in brackets, meaning it lacks consensus agreement and must be dealt with by higher-level negotiators from 193 countries....

Yu said China and other emerging economies simply want outlined in a new treaty what he says already exists in the 1992 UN Framework Convention on Climate Change, the basic climate agreement governing the current talks.

As I noted on Friday, the trade section (paragraph 6) of the first draft Copenhagen text was blank, so it appears that the climate negotiators have made a little progress by at least inserting something there.  However, the brackets make clear that no one has agreed to anything just yet.  (I can't find the latest draft online, can you?) And clearly, the issue of carbon tariffs (aka "border adjustment measures") and eco-protectionism more broadly continue to be a serious roadblock to completing a Copenhagen climate agreement by this Friday.

Continue reading "Could Carbon Tariffs Kill Copenhagen?" »

December 11, 2009

View China Currency Dogma with Skepticism

The blogosphere has been rumbling over two recent op-eds in the Financial Times - a generally free market publication - arguing against China's currency policies and warning of these policies' economic harms.

The first, and more hysterical, op-ed came from University of Chicago(!) economist Robert Aliber who argues that drastic protectionism is needed to force China to appreciate its currency (the RMB) and thus correct the "unsustainable US-China trade imbalance." This is pretty startling coming from an economist from the free market U.Chicago. Fortunately, Cato's Dan Ikenson gives Aliber's op-ed a proper fisking, so all I need to do there is point you to Dan's great blogpost.

Martin Wolf's op-ed is more thoughtful, but no less alarming. He sees four serious problems with China's currency regime:

First, whatever the Chinese may feel, the degree of protectionism directed at their exports has been astonishingly small, given the depth of the recession. Second, the policy of keeping the exchange rate down is equivalent to an export subsidy and tariff, at a uniform rate – in other words, to protectionism. Third, having accumulated $2,273bn in foreign currency reserves by September, China has kept its exchange rate down, to a degree unmatched in world economic history. Finally, China has, as a result, distorted its own economy and that of the rest of the world. Its real exchange rate is, for example, no higher than in early 1998 and has depreciated by 12 per cent over the past seven months, even though China has the world’s fastest-growing economy and largest current account surplus.

Wolf is a smart, reasonable guy and expresses a view held by a lot of smart, reasonable guys: China's currency is very undervalued; it's distorting global trade balances; and something needs to be done to stop it (and thus end these imbalances). I've expressed skepticism about these views, as have other people far smarter than me (linked throughout my aforementioned posts).  But I thought that a direct response to Wolf - printed in today's FT - also warranted notice.  Here's Jim O'Neill, chief economist at Goldman Sachs:
Like many others, I often, all so easily, fall into the camp that the Chinese exchange MUST still be undervalued, and cite the reserves fact and its growth as evidence, but I am not so sure when I really analyse it. We have a model for estimating fair values for many currencies, our so called GSDEER, and it did used to suggest that the CNY was undervalued. However as a result of the approximate 20pct appreciation of the past 4 years, and higher prices than many other countries, our model suggests it is no longer so clear. Now FX models are FX models, and having spent so much of my career on them, I know only too well that it is subject to even more risks for somewhere like China. But when I see our own- objective -model saying things like this, observe surveys showing that Mexico is now back to being the no 1 place to produce heavy industrial goods, and China’s imports rising much more sharply than exports, I stop to question my underlying tendency. On top of this, and Martin, as many others, never seems to address this, China’s current account surplus this year is going to be close to about half what it was a year ago amidst lots of evidence that domestic demand, especially consumption, is roaring away. Yesterday, we got news that in November, Chinese auto sales rose by 92pt year on year. They are so strong, that they are now importing some directly from overseas. You see similar evidence when you look at LCD TV sales and almost anything else. As some Chinese policymakers point out, this is almost definitely more important than the exchange rate issue that so many are still rather perhaps excessively focused on.

O'Neil's response is reprinted here not to trumpet a big, silly "see, I told you so; look how smart I am" (really!).  Instead, I fully admit that I don't know whether China's currency is undervalued or overvalued, or whether a revaluation will affect bilateral trade flows between China and the US or other countries. (Although I do know that history argues against it, and I'd prefer letting the free market decide.)  But I hope that my posts, and O'Neil's very well-researched and modeled response, make clear that there's a lot of good debate among honest and smart people about China's currency policies and global trade.  There's also a lot of idiotic demagoguery, and we should be very, very suspicious of economists (*cough*PaulKrugman*cough*) and politicians who loudly proclaim with steadfast confidence that (i) China's currency is harming the US economy, and (ii) RMB appreciation will be a magic cure for "unsustainable" global trade imbalances.

It just ain't that easy.

Scott Lincicome is an international trade lawyer in Washington, DC. He blogs at

December 8, 2009

It's Time to Take Doha Out Back and Shoot It

The WTO's Doha Round once held the promise of increasing global welfare by hundreds of billions of dollars and lifting millions of the world's poor out of abject poverty. Today it's become little more than a travel subsidy program for international diplomats and a tired punchline for trade geeks like me. And it needs to finally be put out of its misery.

It pains me to say this. For the last few years, I've resisted my colleagues' time-of-death declarations, most recently pointing to the near-breakthrough at last year's "mini-ministerial" as evidence that the Doha Round, while imperfect, was salvageable.  But last week's Ministerial Meeting in Geneva has finally settled it for me: Doha is dead.

As a doornail.

Now, true believers will argue that WTO Members are still trying, and that the Geneva Ministerial meeting was never intended to include formal Doha Round negotiations, and they'd certainly be right on both counts.  But three things were made very clear during last week's meeting, and each alone provides a strong indication that the Doha Round is in trouble.  Combined, however, they make it clear that the negotiations are a lost cause, and it's time to pull the plug.

Continue reading "It's Time to Take Doha Out Back and Shoot It" »

The U.S. Senate vs. the Developing World

Developments over the last few days highlight what appears to be an expanding rift between the United States and the rest of the world (minus France) on the issue of "carbon tariffs." To keep everyone up to speed, carbon tariffs (aka "border measures" or "border adjustments" or "offset measures" or... you get the idea) are measures intended to offset the competitive disadvantages that climate change mitigation policies have on domestic manufacturers by imposing at the border a "charge" (or "tax" or "tariff" or "adjustment" or...) on imports of like products from countries that have chosen not to burden their manufacturers with such regulations.

As I've noted repeatedly, much of the developed and developing world has publicly opposed the unilateral use of carbon tariffs due to fears that such measures are utterly unmanageable, could easily devolve into "green protectionism" (i.e., a "green" excuse to keep imports out, regardless of the actual climate change facts), and/or spark a global trade war. And lots of studies support their views.  The Chinese have been one of the most vocal opponents and, as Reuters reports, just yesterday reiterated their stance against carbon tariffs and (again) issued a harsh warning to other nations contemplating their use:

China's official news agency has denounced proposals for "carbon tariffs" on goods from big greenhouse gas emitting countries, saying on Friday that the idea could trigger trade battles with poor countries....

China, the world's biggest emitter of greenhouse gases and an exporting giant, has denounced the idea before, and its Xinhua news agency pressed that opposition in a commentary issued before key climate change negotiations open in Copenhagen on Monday.

"The carbon tariffs proposed by some developed countries are quite likely to trigger a trade war and spark boycotts from developing countries," said the Xinhua commentary, adding that rich nations had failed to act on their own vows to cut emissions and give more help to poor countries to fight global warming.

"Some developed countries have made a wrong decision. They are practicing trade protectionism under a disguised pretext," said Pan Jiahua, a climate policy expert who has advised the Chinese government, according to the commentary....

The Xinhua commentary underscored China's fears that the United States, European Union and other rich economies could slow the flow of goods from it and other developing countries in the name of environmental protection....

The Xinhua commentary said such measures would violate World Trade Organization rules. Experts have said some border adjustment measures would be permissible under WTO rules.

"The true motive of developed countries' carbon tariffs proposal is to protect domestic industries, which have suffered during the global financial crisis," said Xinhua.

As the article mentions, China's stance is nothing new, and the timing of this latest warning is obviously intended to remove any doubt about the country's position on the controversial issue during next week's Copenhagen talks. And you can't really blame the Chinese - whose products are routinely hit by supposedly "remedial" tariffs under US trade laws that can approach 100%(!) - for worrying that remedial carbon tariffs would be dictated by domestic politics and in no way reflect the actual "remedy" (a leveling of cost-competitiveness) intended by any US climate change law.  Other countries have similar fears, and rightly so: the lobbying in the US and EU has already begun, and we don't even have a law yet!

Speaking of other countries, we also saw this week that India has again rejected a hard cap on carbon emissions. This isn't actually "news," as it's been India's position all along.  But I wonder if it will end up being important in the context of carbon tariffs. For example, would anyone be surprised to see certain protectionist elements use India's and other developing countries' refusal to cap their emissions as the perfect excuse to demand carbon tariffs, regardless of the countries' other commitments? I sure wouldn't.

Unfortunately, it seems that a growing bloc of the US Senate is unconcerned with what the "rest of the world" thinks. As BNA (subscription) reported yesterday:

Continue reading "The U.S. Senate vs. the Developing World" »

December 5, 2009

Zombie Protectionism

After being ruled illegal by the WTO in 2001, the highly controversial Continued Dumping and Subsidy Offset Act (aka "the Byrd Amendment") was officially repealed in 2006. The Act diverted duties collected under US antidumping and countervailing duty (CVD) laws from the US Treasury to the domestic firms that petitioned for the relief, and was secretly stashed in a 2000 appropriations bill during conference committee. From its inception, the CDSOA was highly controversial - seen by our trading partners as encouraging AD/CVD cases and unfairly benefiting domestic firms at the expense of their international competition (the ones paying the duties). This opposition led to the WTO complaint and the eventual repeal in 2006 after lots of WTO-sanctioned retaliation by US trading partners, but the act's provisions didn't die immediately. Instead, they applied to all imports that entered the US before October 1, 2007.

Amazingly, however, the Byrd Amendment still isn't dead. Its corpse roams the earth because duties on those pre-10/2007 imports - caught up in administrative litigation and so forth - are still being collected and then distributed to US companies. And we're not talking chump change here, either. For example, Furniture Today reports that "La-Z-Boy has received $3 million from the U.S. government in antidumping duties and will report the income on its fiscal third quarter statement, the company said in a filing with the Securities and Exchange Commission.... This year's payment is sharply lower than the $8.1 million La-Z-Boy reported receiving a year ago and the $7.1 million it got the year before that."

So that's over $18 million in "illegal" Byrd money since the law providing the loot was repealed! Who says protectionism doesn't pay?

Unfortunately, it's not just La-Z Boy swimming in that dirty Byrd cash. For this year alone, US Customs has authorized (PDF) the disbursement of around $100 million worth of collected AD/CVD duties on a wide range of imported products. That's down a lot from previous years, but I'm quite sure there will be many millions more next year, even though the CDSOA was "repealed" years ago. Meanwhile, the Japanese are still retaliating against US exports - authorized to do so by the WTO - to the tune of another several million dollars. Fantastic.

Fortunately, the Byrd Amendment will eventually die - related litigation will end, and the final Byrd monies will be collected and distributed. Unfortunately, we're obviously not there yet and won't be anytime soon.

Protectionism is one tough mother.....

November 25, 2009

US-China Trade Deficit: Krugman v. Krugman

Paul Krugman is really worried about the US-China trade deficit and global trade imbalances more generally. He has now devoted two near-identical NYT op-eds to the issue, each essentially complaining that it's all China's fault.  Here's the latter Krugman column on the subject:

Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge....

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.

That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.

As Dan Drezner humorously points out, Krugman wrote the "exact same column" last month (that's nice work if you can get it).  In each case, he blames global macroeconomic imbalances on China's currency policy, and his recipe for reducing, or "re-balancing," the US-China trade deficit rests solely on the appreciation of China's currency against the dollar.  Such appreciation, so the theory goes, would make US goods relatively cheaper (especially as the Dollar declines against other currencies too) and Chinese goods relatively more expensive, and the trade deficit will magically shrink.  Presto!

For the time being, I'm going to put aside my doubts that the US-China trade deficit is the big problem right now.  I'm also not going to focus on the historical evidence (pointed out by me and a few others) that currency appreciation - including the RMB's - hasn't "cured" past trade imbalances.  Instead, let's just look at Krugman's theoretical argument that currency policy alone can "fix" the trade deficit.  Is that sound liberal economic theory?  Coming from a famous liberal columnist and Nobel Laureate in trade and economics, one would sure assume so.

Well, as my mom would say, you know what happens when we assume, now don't you?

Continue reading "US-China Trade Deficit: Krugman v. Krugman" »

November 24, 2009

Some Perspective on "Trade War" Reporting

Although I have no scientific data to back this up, I think it's safe to say that I take a backseat to very few people in my criticism of recent US trade policy. That said, I've grown quite concerned with a growing number of media reports that a recent spike in US trade remedies (i.e., antidumping and countervailing duty) cases is a scary signal of burgeoining US protectionism or an impending "trade war" with China.  For example, last week the AFP reported:

Tensions between the world's number-one and number-three economies intensified last week when the US slapped anti-dumping tariffs of up to 99 percent on imports of some Chinese steel products used in the oil industry.

Similar statements have appeared in lots of recent op-eds and wire service reports, each pointing to a 2009 increase in antidumping and CVD cases as hard evidence that a tit-for-tat trade war between the United States and China is brewing. (Insert ominous "dah-dah-duhhhh" here.)

Such "analysis," however, demonstrates a basic misunderstanding of how AD/CVD cases are initiated and decided in the United States, and it might actually do free traders a disservice.  Sure, China is complaining, but that's hardly anything new.  The fact is that the US government does not bring AD/CVD cases. They instead are the result of massive petitions filed under US law by private domestic companies (or coalitions of companies) and/or their unions purusant to their own economic interests.  Such petitions typically take months to produce, costing hundreds of thousands of dollars in lawyer and economist fees - hardly an efficient retaliatory weapon.  The US government (through the Department of Commerce) can, by law, have a small role in the crafting of an AD/CVD petition but only in a basic advisory capacity (e.g., to assist the petitioner with meeting the basic legal criteria for a proper petition) and little more.  And once filed, cases are essentially on "autopilot," with DOC's initiation of the case, as well as affirmative preliminary determinations by the DOC and the US International Trade Commission, all but certain (a common free trader complaint against the law, actually).  Meanwhile, the President himself has no formal role in the process.

This automaticity, and the lack of White House involvement, means that it's a real stretch to claim that the filing of an AD/CVD petition - or the subsequent initiation of case against China, the preliminary domestic injury determination by the ITC or the preliminary calculation of antidumping or CVD duties by DOC - is a sure sign of US protectionism. Indeed, even a final injury determination or the actual imposition of AD/CVD duties isn't a good indicator of surging American isolationism: according to a plethora of studies, the filing of an AD/CVD petition almost always results in the final imposition of remedial tariffs (unless respondents hire my firm, of course).

Yet even if one were to conclude that the simple initiation of an AD/CVD case amounts to US "protectionism," the number of AD/CVD cases in 2009 is well within recent historical norms. According to DOC statistics, the United States has initiated 22 AD or CVD cases against China on 12 products so far in 2009. That might sound like a lot, but consider that in 2008 there were 15 AD/CVD cases against China, and 19 such cases in 2007. (These elevated numbers actually have persisted ever since the "free trade" Bush Administration changed its decades-old policy in 2006 and started applying the CVD law to imports from China and other "non-market economies".)  Sure you can blame US trade law for producing such numerous and seemingly pre-ordained outcomes, but it was doing that long before President Obama took office.

By contrast, the President's decision to impose prohibitive tariffs on Chinese tires under Section 421 of US trade law was both completely discretionary and the first of its kind. As such, it warrants intense criticism and serious concern about increased White House protectionism and the future of US trade policy.

With the 421 decision, the White House's failure to engage at the WTO, its shelving of pending FTAs with Colombia, Panama and South Korea, its refusal to resolve te Buy American and Mexican Trucks disputes, and USTR's increased "enforcement efforts," free traders have plenty of bad moves to criticize, and journalists have plenty of troubling signs to report.   But when these well-meaning souls add AD/CVD initiations to the list, they risk undermining their message for those policymakers and readers who understand the difference between "typical" and "extraordinary" US trade policy.  Such a move, therefore, could actually end up hindering the important causes of trade liberalization and US accountability, rather than promoting them.

Scott Lincicome is an international trade attorney in Washington, DC. He blogs at

November 18, 2009

Are Manufacturing Exports the Key to Recovery?


In President Obama's speech in Japan over the weekend, he stressed the need to increase US manufacturing exports in order to create new, well-paying American jobs:

[T]his new strategy will mean saving more and spending less, reforming our financial system and reducing our long-term deficit. It will also mean a greater emphasis on exports that we can build, produce, and sell all over the world. For America, this is a jobs strategy. Right now, our exports support millions upon millions of well-paying American jobs. Increasing those exports by just a small amount has the potential to create millions more. These are jobs making everything from wind turbines and solar panels to the technology you use every day.

The Japan speech was not the first time that Obama mentioned exports as a key to future American job growth. Just two weeks ago at a meeting of his Economic Recovery Advisory Board, he spoke about "export-driven growth, manufacturing growth, growth that pays high wages and provides high living standards for a broad-based middle class."

Clearly, exports, and the manufacturing jobs they create, are an integral part of the administration's jobs strategy. But is that a wise approach? The facts seem to say "no."

Continue reading "Are Manufacturing Exports the Key to Recovery?" »

November 16, 2009

Exporting Skepticism

As I noted yesterday, President Obama announced over the weekend a new "Asia strategy" that will focus on "re-balancing" the U.S.-Asia trade relationship. According to Obama, increased U.S. exports--boosted by, among other things, expanded market access in Asia--will play a prominent roll in his plan. But just how serious is the administration about boosting exports through trade liberalization policies?

Based on a quick review of the facts, I'd say "not very."

First let's look at two of the key trade policies mentioned by Obama in his Japan speech, the Doha Round and the Trans-Pacific Partnership FTA.  On Doha, Obama claimed that an "integral part" of his strategy would be "working toward an ambitious and balanced Doha agreement."  But as I've noted repeatedly, U.S. trading partners have been complaining about U.S. non-involvement in the WTO's Doha Round since Obama took office in January. And the administration's abject refusal to own the 2008 U.S. commitments on farm subsidy cuts, while it openly demands that its trading partners improve market access, is a clear indication that the White House is not serious about concluding Doha anytime soon.

Continue reading "Exporting Skepticism" »

November 10, 2009

Why Do Developing Countries Want FTAs?

AEI's Phil Levy has written a very thoughtful and provocative new study on Peru's motivations behind entering into the US-Peru Trade Promotion Agreement (PTPA).  In it, Levy examines the evidence and interviews Peruvian business people and government officials to determine why they worked so hard to secure passage - at home and in the United States - and implementation of the PTPA when Peru was already enjoying duty-free access for more than 90% of its US-bound exports.  His findings will surprise most people:

Bilateral free trade agreements have generally been analyzed as instances of preferential reciprocal tariff liberalization. Viewed through this lens, such agreements raise concerns both about new competition and about trade diversion. The United States-Peru Trade Promotion Agreement, an example of a serious North-South accord, demonstrates that new market access was not a principal Peruvian goal in the trade negotiations. Instead, the agreement was intended to encourage investment by locking in Peru's economic reforms. This motivation has very different implications for the global trading system than a quest for preferential access.

Read the whole thing here (PDF). Given the limited scope of the the Peru case study, Levy's findings raise a lot of important questions that demand further research (as he fully admits). But if these conclusions hold, it could have significant implications for the future of US trade policy - for example, (i) how the US targets future developing country FTA partners; (ii) how free traders sell these FTAs to the general public once they're complete; and (iii) how bilateral FTAs fit into a multilateral free trade agenda (i.e., at the WTO).

Great food for thought.

November 9, 2009

Bhagwati: Doha Is Toast

Columbia professor and free trade guru Jagdish Bhagwati has a characteristically excellent op-ed in Today's Times of India. The entire thing is worth reading, but it's this final passage that deserves the most attention:

[T]he actual damage to trade is still within bounds, though we must remember that a tsunami starts with a slow surge of the waves. But why has protectionism been contained? I believe that the answer lies in the interdependence today in the world economy as production and world trade have become globalised. There are far too many firms today that depend on world markets. General Electric, Boeing, Caterpillar are among the hundreds of US firms that have actively lobbied to contain US protectionism: they fear that retaliation by other nations will hurt them.

But liberalising trade, i.e. moving forward, is a hard slog. Rarely have democratic nations successfully liberalised during recessions. But we now have an added problem: the virtuous statements on finally closing the Doha Round carry little salience when the biggest rottweiler on the block, the US, is paralysed on trade.

The Democrats in the US Congress, after the last election, are heavily indebted to the labour unions that fear trade. In turn, they straitjacket the president, an eloquent man whose silence on Doha is eloquent instead. Progress on Doha without the US playing a key role to close the deal is impossible. So, the news on Doha is bad.

By contrast, the last Indian election, by freeing the government from reliance on the communists who are generally hostile to liberal reforms - which are often described as "neoliberal" reforms by their critics as that sounds more sinister including trade liberalisation, has made India a potential leader in the fight for Doha. Will the prime minister take the lead and ask his host to join in that great task when he goes to Washington for his state visit later this month?

This, I think, is exactly right (of course, it echoes a lot of what I've been saying for months, so it's hardly surprising that I'd say that!). The globalization of supply chains and the modern rules-based international trading system have prevented any doomsday protectionist scenarios from engulfing the world. But real progress at the multilateral level--which still could reap billions upon billions of dollars in economic benefits, especially for developing countries--is dead in the water until the United States gets in the game.

When will it?

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

November 4, 2009

Developments in Colombia-Venezuela Trade Row?

What the heck is going on between Venezuela and Colombia?  According to unconfirmed reports, a Chavez-inspired trade war between the two nations has produced a WTO complaint:

An August directive by Venezuelan President Hugo Chavez to “reduce to zero” bi-national trade with neighbouring Colombia has begun to bite, with imports from the neighbouring country falling dramatically.

Chavez issued the directive in protest against a military agreement signed between Bogotá and Washington allowing US military troops access to Colombian bases.

According to a report by Colombia’s National Department of Statistics, exports to Venezuela fell 49.5% in September. Trade between the two countries is expected to decline even further, after Venezuela imposed a blockade on Colombian agricultural products.

On October 14 Venezuela’s Ministry of Agriculture and Land decided to restrict the entry of Colombian agricultural products and the issuing of sanitary certificates on Colombian animal and vegetable products.

In response, Colombia filed a formal complaint with the World Trade Organisation’s Committee on Sanitary and Phytosanitary Measures last Friday.

Colombia argues that the measure, which impacts the sale of meat, eggs, chicken, coffee, cattle, fruits and vegetables, among other products, was not reported through official channels and the WTO was not notified.

Colombia’s Minister of Commerce, Industry and Tourism Luis Guillermo Plata, said the measures are a “flagrant violation” of WTO norms.

Despite the move, Venezuela continues to remain Colombia’s second biggest trading partner after the U.S., accounting for 14.7% of Colombia’s export market, followed closely by the European Union at $14.6%. In 2008 the two countries shared an estimated $7 billion in bilateral trade.

The measures will affect an equivalent of 17% of Colombia’s 2008 exports to Venezuela, valued at an estimated US $1.03 billion according to Colombia’s Ministry of Commerce, Industry and Tourism.

Under WTO regulations, Caracas is required submit justification to the WTO at its next meeting, scheduled for February 2010, if the restrictive measures are to continue.

The Venezuelan government, which aims to substitute Colombian agricultural imports with imports from Brazil and Argentina, has issued no formal statement on the WTO complaint. However, delegates from Venezuela indicated that they will review the case and hope to address the issue bilaterally....

I can't verify whether the Colombian complaint was actually filed at the WTO, although they certainly appear to have a case.  There's been only one other report of the filing, and that came from an equally dubious source - Venezuela's El Universal.  I've checked the WTO, the Colombian Government and a few other trade sites and see no mention of the complaint at the WTO SPS Committee or the WTO's Dispute Settlement Body (DSB).  So it's far from certain that Colombia has actually gone to the WTO.

That said, the bilateral trade conflict itself is undisputed.  According to Reuters, Chavez' embargo "is damaging their $7 billion a year in trade," and considering that several deaths have occurred at the countries' shared border in recent weeks, a WTO complaint is certainly a preferred means of dispute resolution.

But if only there were a way for Colombia (described by Reuters as a "staunch Washington ally") to gain some leverage over Chavez by securing economic ties with its other major trading partner, the United States. If only there were some sort of already-drafted-and-signed agreement or something that deepened and normalized free trade between the United States and Colombia and could be quickly ratified by Congress.  And considering the US-Colombia military agreement provided Chavez with his excuse to start the bilateral trade war in the first place, expediting implementation of such a mythical agreement would be the least that the US could do to calm Colombian nerves, right?

Alas, too bad nothing like that imaginary "free trade agreement" exists.  Because, boy, if it did, now would seem like a perfect time to whip it out.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

November 2, 2009

China's Timely Reminder on Carbon Tariffs

Reuters reports on a wholly unsurprising development out of China:

Proposals to impose "carbon tariffs" on countries that do not make efforts to reduce their CO2 emissions are unworkable and counterproductive, a Chinese trade representative said on Thursday.

Zhang Xiangchen, one of China's permanent representatives at the World Trade Organisation in Geneva, said "all countries should firmly oppose" the proposals, which have been raised by both the European Union and the United States.

"It is very difficult to have a unified standard for levying carbon tariffs and the starting point (for the proposals) is to restrict competition from China," he said on the sidelines of a conference.

"Frankly, if tariffs are being implemented unilaterally, they cannot be objective and cannot be non-discriminatory."...

The new U.S. climate bill now being deliberated by Congress includes a set of provisions that allow future administrations to impose "border adjustment measures" on imported goods, thereby restoring the competitive balance....

But China's Ministry of Commerce has already voiced its opposition to carbon tariffs, which it has described as "trade protectionism disguised as environmental protectionism".

"Up to now, whether it is the proposals in the U.S. climate bill or the comments by French President Sarkozy, the carbon tariffs are just a kind of deterrent used by developed countries to put pressure on developing countries, breaking the principle of 'common but differentiated responsibilities' and making them commit to their own emission cuts," Zhang told the conference.

He said retaliation would also be inevitable.

"The United States per capita emission rate is four times as big as China's. Does that mean we can impose 400 percent tax rates on all imported American goods? If so, the result is a global trade war that is good for no one and no use at all in the fight against climate change."

As the Reuters article indicates, Zhang's comments reiterate earlier statements from China that it opposes carbon tariffs in any form, and that the United States' unilateral imposition of such "border measures" would start a trade war.  But the statement remains noteworthy because of its timing: on the very same day that Zhang publicly repeated China's stance, the Senate's Environment and Public Works Committee was holding its second day of hearings on Cap and Trade legislation (aka "Boxer-Kerry") that includes a placeholder for the imposition of carbon tariffs.  And as CEI's Iain Murray points out, most of the hearing's participants were all too eager to embrace eco-protectionism as part of the Senate's final climate change legislation. 

So is it merely a coincidence that Zhang's strong reminder of China's opposition fell on the same day as the inaugural Senate hearings on Boxer-Kerry? 

I'm gonna go out on a limb here and say "no."

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

Bizarro Competitive Liberalization, Ctd.

According to Reuters, there's a twitch of life coming from the comatose US-Korea FTA:

U.S. Trade Representative Ron Kirk will outline the Obama administration's review of a long-delayed free trade agreement with South Korea in a speech next week, a U.S. business group said on Friday....

Kirk will give his speech on Thursday evening at the U.S. Chamber of Commerce, a leading business group that has criticized Obama for failing to move forward on the agreement with South Korea and others with Colombia and Panama.

The speech will come just weeks before Obama visits South Korea at the end of an Asian tour that will also take him to Singapore for the annual summit of the Asia Pacific Economic Cooperation forum and to Shanghai and Beijing.

Obama and South Korean President Lee Myung-bak issued a joint statement when they last met in June saying they "were committed to working together to chart a way forward" for the free trade agreement, which was signed in June 2007.

South Korea's ambassador to the United States, Han Duk-soo, said this month that Seoul hopes the upcoming summit will be a catalyst for action on the long-stalled agreement.

Just two weeks ago, the European Union signed its own free trade agreement with South Korea that is expected to take force by the middle of 2010.

White House deputy national security adviser Michael Froman said this week the Obama administration viewed the EU-South Korea deal with interest but declined to say whether it made it more urgent for the United States to approve its own pact.

Although most mainstream U.S. business and farm groups support the agreement, it faces strong opposition from labor groups and two of the big three U.S. automakers.

The United Auto Workers, Ford and Chrysler say the agreement fails to tear down non-tariff barriers that keep out American cars while eliminating the few remaining tariffs the United States still has on South Korean cars.

On September 15, 2009, USTR received about 300 solicited comments on the KORUS FTA, and about two weeks later, Assistant USTR Wendy Cutler stated in no uncertain terms that there was absolutely no timeframe for US consideration and passage of KORUS: ""All our efforts are really to understand concerns and figure out how the concerns can be timely addressed. There is no timeline assigned to this, but I can assure you that we are working intensively."  Now, about 6 weeks after those 300 comments were dumped on USTR's doorstep, and about a month after Cutler called "no timeline," USTR Kirk is prepared to announce the results of the administration's review of multi-billion dollar trade agreement.

So what's going on here?  Has the White House been pressured into accelerating KORUS due to increased pressure from business groups (and some public embarrassment) now that the EU-Korea is complete, or are they just buying time with another lukewarm and empty statement of support?  At this point, no one really knows for sure, but if Kirk announces next week that the administration will soon try to move KORUS through Congress - despite the vocal opposition of Ford, Chrysler and the UAW - it will certainly appear that "bizarro competitive liberalization" has indeed become a reality, and that America's trading partners will have dragged it, kicking and screaming, back into the free trade game.  The tables will have officially turned.

As I said yesterday, I highly doubt that this will be the case, and instead expect more stalling by the White House.  But if I'm wrong, it's good and bad news.  The good: any free trade movement in the U.S. is a good thing these days.  The bad: it's a depressing state of affairs that said movement will have arisen out of fear (of losing overseas market share) and embarrassment, rather than an earnest and public desire to liberalize trade and better the lives of a vast majority of American citizens.

Stay tuned.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

October 29, 2009

More Demands, No Solid Commitments, Fewer Concessions, And Mockery! - America's New Strategy At The WTO?

Contrary to popular belief, the United States actually has developed a formal negotiating strategy as part of the WTO's Doha Round of multilateral trade negotiations.  It has not, however, made this double-super-top-secret strategy public.  Instead, I've intensely analyzed almost 9 whole months of data and have employed my unparalleled* powers of deduction to systematically determine the Obama administration's grand WTO battleplan.  And I'm providing it today to you, my dear reader(s), free of charge.

So here you go:

Continue reading "More Demands, No Solid Commitments, Fewer Concessions, And Mockery! - America's New Strategy At The WTO?" »

October 21, 2009

Placating Protectionists Is A Fool's Errand

A quick question to the Section 421 apologists who swore up and down that the President's decision to impose prohibitive tariffs on Chinese tires was magically going to restore professional protectionists' faith in the overwhelming benefits of globalization:   

So how's that working out for ya?

Here's the latest from BNA (subscription):

Public Citizen, the Citizens Trade Campaign, and the United Steelworkers Union Oct. 19 launched a campaign to “turn around” the World Trade Organization, in an effort to change the administration's path on the WTO.

The Obama administration will be facing a political decision point on Doha Round negotiations, with a smaller negotiating meeting starting Nov. 28 and a full WTO ministerial in Geneva scheduled for Nov. 30-Dec. 2, Lori Wallach , director of Public Citizen's Global Trade Watch, said....

She said the current U.S. agenda on the Doha Round and WTO remained the Bush administration's agenda, and that multinational corporations were seeking to push an expansion of the WTO through the Doha Round to the detriment of the general public.

As part of the campaign, the coalition has an online petition, addressed to President Obama, that says: “Time is overdue to turnaround the WTO. We supported your campaign commitments to create a new trade policy that works for all of us, not just the special interests. That is why we are calling on you to replace Bush's more-of-the-same WTO expansion agenda. We're ready to fight for a WTO turnaround plan we hope you will lead.”...

Leo Gerard, president of United Steelworkers Union, endorsed the Trade, Reform, Accountability, Development, and Employment Act or TRADE Act (H.R. 3012) introduced by Rep. Mike Michaud (D-Maine), which would expand congressional oversight, replace trade promotion authority, and analyze existing trade deals to amend those deals to address who has benefitted and who has been left behind, and what it is that the WTO does and doesn't do.

Gerard said he was pleased that the Obama administration had enforced the rules in the Section 421 case imposing a safeguard on tire imports from China, but said the Steelworkers did not have other Section 421 safeguard cases to file at the moment.

Andy Gussert, director at the Citizens Trade Campaign, rejected any attempt by the Obama administration to move pending free trade agreements with Panama, Colombia, and Korea through Congress. He said there was no political will to do the FTAs, and that they needed to be renegotiated.

Gerard said that no “cosmetic” changes would render the agreements acceptable to the U.S. Steelworkers, Public Citizen, and the Citizens Trade Campaign. He said there was no way to solve the problems in the agreements, citing violence against labor unionists in Colombia, tax havens in Panama, and problems with autos trade in the South Korean FTA.

Gerard's statement re: not bringing any more 421 cases is interesting, and while I'm suspicious, I'd be quite happy to be proven wrong on that prediction.  But I digress.  The point of this post was to, once again, point out the awfully bad strategy that is placating professional protectionists like Public Citizen and the USW in order to advance a free trade agenda.  Now, about a month after the President's 421 decision, after his refusal to repeal or resolve the Buy American and Mexican trucking disputes, and after his shelving of pending FTAs and the the United States' negotiating mandate in the WTO's Doha Round, the anti-traders are demanding no less than the complete dissolution of modern US trade policy

So one more time (in bold!) for those of you who missed it: the "anti-trade crowd" is called the anti-trade crowd for a reason, and no amount of kowtowing is going to change that.  Ever.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

The Folly Of Bilateral Protectionism

One of the main reasons that I and many other free traders opposed the President's politically-motivated decision to impose tariffs on Chinese tires under Section 421 of US Trade law was the immense likelihood that stopping Chinese imports would just increase other countries' US market shares, rather than significantly improving domestic tire production.  As I noted at the time, tire producers in Mexico, South Korea, Indonesia and elsewhere "gotta be quietly dancing in their offices because China - their main competitor for US market share - is now hobbled."  In fact, shortly after the Section 421 decision, USTR Ron Kirk had a rare moment of candor in Brazil when he basically admitted the same thing: "In the short-term [the tire restriction] could mean that we buy a lot more tires from Brazil."  (So much for assisting US tire manufacturers and workers, huh?)

Anyway, from today's Economic Times (India) comes further proof of the inevitable trade diversion that occurs when you ban China's (or any single country's) imports:

The US government’s move to levy anti-dumping duty on Chinese steel pipes has provided Indian manufacturers an opportunity to increase exports to the US. India’s steel pipe makers such as Maharashtra Seamless, Jindal Saw and Indian Seamless Metal Tubes are all set to more than double their exports to the US.

The US recently imposed preliminary import duties ranging from 10.9% -30.7% on steel pipes, used to deliver oil and gas, from China in order to protect the domestic pipe making industry from low-priced imports. As per industry estimates, China exported 1.9 million tonnes of steel pipes to the US last year....

Maharashtra Seamless produces 2 lakh tonne of seamless and electric resistance welded (ERW) pipes annually. Its exports to the US stood at 20,000 last year, which is expected to go up to 70,000 tonnes this year. India’s seamless, spiral and ERW pipe making capacity is close to 5 million tonnes currently....

Jindal Saw has saw and seamless pipe manufacturing facilities in India with a total production capacity of 1.6 million tonne. The company also has double joint and coating facilities in North America. It exported 7-10% of the total produce to North America last year and is expected to increase exports to 15-20% in the coming months.

So there you go: imposing tariffs on Chinese pipe imports ends up increasing Indian imports of the same product.  It's like a big, global game of whack-a-mole!

As I've noted previously, such trade diversion is part of a larger phenomenon regarding China's role in the global economy - that its producers historically have taken market share away from other foreign (mostly Southeast Asian) exporters rather than American manufacturers.  As such, it's completely expected that Indian and other foreign producers should rejoice every time a domestic industry or union files a request for protection from Chinese imports alone.  Their exports increase.  Good for them.

The only problem, of course, is that the point of bilateral protectionism is not to improve other foreign producers' shipments to the US, and domestic prices inevitably rise due to the removal of a low-cost supplier from the market (and increased transaction costs as importers hunt for new overseas supply).

So American production doesn't increase, yet US prices do.  Awesome.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

October 19, 2009

World Moving on Free Trade Without America

By Scott Lincicome

The world is moving on without the United States. Our trading partners have decided that they can no longer wait for the White House to emerge from its self-induced ObamaCare coma. They are moving on, and both the United States and the global economy are worse off for it.

It's no longer a secret that, after charting an aggressive trade liberalization plan last spring, the Obama administration has since eliminated all tangible support for free trade in a wrongheaded attempt to ensure support for health care "reform" and climate change legislation. Indeed, administration officials have openly admitted that they've shelved the Mexican trucking dispute and pending FTAs until these domestic priorities are achieved. Other issues, such as a Doha negotiating mandate, Buy American and Section 421, have been similarly sacrificed on the mantle of domestic politics.

The effects of the White House's political strategy are being felt on both the multilateral and bilateral levels. On the multilateral front, I've already documented the blowback: first, the EU and Brazil have openly fretted about the United States' failure to establish firm negotiating positions in the WTO's Doha Round, and they implored us to get in the game or else they'd be forced to move the process along without American input; second, our trading partners essentially blew off very public US demands on "sectoral" tariff elimination agreements and services liberalization. As I said the other day, we're quickly becoming a "WTO backbencher."

On the bilateral front, our failure to ratify pending FTAs with Colombia, South Korea and Panama is producing equally distressing results. I freely admit that I'm not a huge fan of bilateral FTAs and strongly prefer unilateral or multilateral liberalization, but I also understand that politics and a comatose Doha round often make bilateral FTAs the only option for significant market opening. So the fact that our trading partners are completing such deals right and left while we sit on agreements that were signed years ago is a problem. Consider just a few examples:

* On October 15, South Korea completed a massive (~$28 billion) FTA with the EU that should enter into force in late 2010. The agreement, which will seriously disadvantage US businesses in the Korean and European markets vis a vis their European/Korean competitors, actually used the Korea-US FTA (KORUS) as a template to speed completion of the complex negotiations. Moreover, the EU showed real backbone by completing the agreement despite significant resistance from its domestic automakers - the exact same type of resistance that has stopped feckless American politicians from considering and passing KORUS. Indeed, KORUS is actually stronger on autos than the EU agreement, because it contains a "snapback" provision that would re-establish US tariffs on Korean automobiles in the case of a dispute over the agreement. The EU agreement has no such provision. So even though the United States completed KORUS more than two years (June 30, 2007) before the EU-Korea deal, it is very likely that the latter will enter into force long before the former. And American exporters will pay the price. Embarrassing.

* South Korea is also negotiating bilateral FTAs with Canada, Mexico, India, New Zealand, China, Colombia, Peru, the Gulf Cooperation Council, and Japan; and Seoul is exploring deals with Mercosur, Malaysia, Turkey, and possibly Israel. All the while, the completed KORUS agreement collects dust.

* Panama and Colombia are following in the Koreans' footsteps, albeit on a smaller scale. On August 11, 2009, Panama and Canada completed FTA negotiations, and Panama announced recently that it has begun bilateral negotiations with the EU and several Caribbean nations. (A Chile-Panama FTA is already in force.) Since the US-Colombia FTA was signed in November 2006, the Colombians have completed bilateral trade agreements with Canada, the European Free Trade Association (EFTA), and the "Northern Triangle countries" (El Salvador, Guatemala and Honduras).

These bilateral examples closely parallel the aforementioned multilateral problems and make clear that US trading partners are not sitting on their hands while the White House plays political footsie with their economic futures. Optimistic free traders like AEI's Claude Barfield hope that other nations' bilateral moves will push the United States to get its free trade act together in order to avoid harming our ability to compete in key markets. One can only hope, although I'm not so sure that anything will change until the domestic political dynamic shifts significantly - whether that's through the passage or failure of ObamaCare and cap-and-trade or a GOP rout in the 2010 elections.

However, if Barfield and others are right and the extracurricular activities of Korea, Colombia and Panama (most notably implementation of EU-Korea FTA) force the White House to advance the pending FTAs regardless of domestic politics, the irony will be as thick as it is depressing. The United States initiated these (and other) trade agreements pursuant to "competitive liberalization," under which we entered into bilateral/regional FTA negotiations with several countries in order to get them to compete for access to the US market and thus offer greater concessions at a faster pace. Supporters (like former USTR Robert Zoellick) also claimed that competitive liberalization would motivate WTO Members to complete the Doha Round, as the US FTAs would provide preferential access to only a select few nations. If the United States is forced to pass FTAs with Colombia, Korea and Panama in order to keep pace in their markets, America will have become the target of competitive liberalization, rather than its champion. Should this "bizarro competitive liberalization" come to pass, I think it would be safe at that point to officially conclude that that the United States no longer leads on free trade but instead is forced to pursue it as a last resort.

And that would be a shame.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

October 16, 2009

Credit Where Due

By Scott Lincicome

Kudos to the Obama Administration.

Yesterday, the US Treasury Department released its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, aka "the report wherein Treasury decides whether US trading partners are 'currency manipulators' under US law." As expected, and as it did back in April, the Department declined to label China a currency manipulator, and for that I commend the administration. Here's the money quote from the report (PDF):

The Omnibus Trade and Competitiveness Act of 1988 (the “Act”) requires the Secretary of the Treasury to provide biannual reports on the international economic and exchange rate policies of the major trading partners of the United States. Under Section 3004 of the Act, the report must consider whether any foreign economy manipulates its rate of exchange against the U.S. dollar to prevent effective balance of payments adjustments or to gain unfair competitive advantage in international trade. For the period covered in this Report, January 1, 2009 to June 30, 2009, Treasury has concluded that no major trading partner of the United States met the standards identified in Section 3004 of the Act.

The decision is the right one - China is not a "currency manipulator" under the statute; any attempt to label it as such would have resulted in a trade war with China that would make the Section 421 spat look like a third-grade tickle fight; and it would have completely obliterated any chance that either the end-October US-China Joint Commission on Commerce and Trade (JCCT) meetings or the Obama-Hu summit in November would achieve anything meaningful. And Obama had to (again) turn down a direct, public demand from a key constituent - the US labor unions. So kudos are in order.

I've yet to see a response from the unions or manufacturers that lobbied for the currency labeling, but trade-disinformant-extraordinaire Senator Sherrod Brown (D-OH) was quick to condemn the move. (Of course he was.) His statement was "classic Brown," and that's not a good thing - falsely blaming the US-China trade deficit on the loss of "4 million" manufacturing jobs (see pp. 20-21 here for the factcheck on that bogus stat) and falsely claiming that the "best estimates" show that China's currency undervaluation amounts to a "40 percent subsidy" (which could only be true if by "best" he means "worst" and if it's 2003 - before China's currency appreciated by about 15-20% against the dollar).

But I digress. I was supposed to be applauding the Treasury decision. So...

*golf clap*

(Your regularly scheduled criticism, I'm sure, will be back tomorrow.)

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

October 14, 2009

Bipartisan Consensus for Cap & Trade?

By Scott Lincicome

In my continuing effort to document global stances on carbon tariffs comes a new NYT op-ed by Senators Lindsey Graham (R-SC) and John Kerry (D-MA) proposing a bipartisan "roadmap" that they claim can lead to the eventual passage of climate change legislation in the US Senate. The Senators' suggestions merge the GOP's drilling/nuclear/clean-coal proposals and with the Democrats' emissions-caps/wind/solar proposals. The other thing that the two Senators can agree on? Carbon tariffs:

Fourth, we cannot sacrifice another job to competitors overseas. China and India are among the many countries investing heavily in clean-energy technologies that will produce millions of jobs. There is no reason we should surrender our marketplace to countries that do not accept environmental standards. For this reason, we should consider a border tax on items produced in countries that avoid these standards. This is consistent with our obligations under the World Trade Organization and creates strong incentives for other countries to adopt tough environmental protections.

WTO misstatements aside (it is far from clear that carbon tariffs are WTO-consistent), this passage clearly means that Senators Kerry and Graham join ten of their colleagues in supporting carbon tariffs in Senate climate change legislation. Their advocacy comes despite initial resistance from President Obama and the growing global revolt against the use of "border measures" as a complementary means of offsetting any competitive disadvantages that climate change initiatives would impose on US industries. So it's still far from clear that carbon tariffs will be included in any final Senate climate change bill (although the Kerry-Boxer bill provides a tepid placemarker for them). But as you'll recall, the ten Senators also in support of carbon tariffs are all Democrats, so does the Kerry-Graham op-ed signal new bi-partisan support for carbon tariffs in the US Senate and/or a shift in overall support for their use?

Well, not quite.

According to the Cato Institute's handy congressional free trade ratings, Senator Graham is not what you'd call a strong free trade advocate, having voted for trade barriers 13 out of 23 times in the Senate (since 2002) and a whopping 19 out of 24 times in the House (1994-2002). So we're not exactly talking about one of GOP's more principled free traders (i.e., someone who would refuse to consider carbon tariffs even if it meant securing a broader legislative goal). Moreover, Senator Graham might actually support carbon tariffs regardless of any bi-partisan energy "compromise" because his state is home to the notoriously protectionist US textiles lobby. According to a new study strongly supporting carbon tariffs, the Economic Policy Institute found that the US textiles industry is one of the nation's top ten carbon emitters, and that South Carolina has the second largest percentage of workers employed in these ten carbon-emitting industries. Also worth noting is that Senator Graham has received tens of thousands of dollars in campaign contributions from textile magnate (and noted protectionist) Roger Milliken and his company, Milliken & Co.

So Senator Graham is hardly the posterboy for anti-protectionist sentiment in the US Senate and might actually have strong political interests in supporting carbon tariffs outright. Thus, while the Kerry-Graham op-ed might indicate an increase in the overall chances that a Senate climate change bill will eventually pass, it cannot be said that the Senators' overt support for carbon tariffs is indicative of overall bipartisan support for the controversial measures.

So for now, we have only a minor update to the ol' carbon tariffs scorecard:

Pro carbon tariffs - Senators Lindsay Graham and John Kerry, ten protectionist Senators, the US House of Representatives (in Waxman-Markey), France, and Paul Krugman.

Anti carbon tariffs - the rest of the world.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

October 12, 2009

The Idiocy and Immorality of American Tariffs

By Scott Lincicome

From the United States International Trade Commission (ITC) comes further proof that US tariff policy is, as the the kids say, freakin' whack.

(Ed. note: the kids haven't said that in a decade, if ever.)

In a new report (PDF) released last week, the ITC estimated "changes in U.S. welfare, output, employment, and trade that would result from the unilateral elimination of significant import restraints, specifically U.S. tariffs and tariff-rate quotas on certain agricultural products, textiles and apparel, and other manufactured products." In non-nerdspeak: the ITC examined what would happen to the US economy if the government just woke up one day and decided to remove all major barriers to trade in goods. Their results are probably surprising to many people, particularly those lost souls who listen to their elected officials' demands for reciprocal, tit-for-tat, tariff reductions in global trade negotiations. Most broadly, the ITC projected that:

U.S. economic welfare, as defined by total public and private consumption, would increase by about $4.6 billion annually by 2013 if all significant restraints quantified in this report were unilaterally removed. Exports would expand by $5.5 billion and imports by $13.1 billion....

For most liberalized sectors, prices faced by households and domestic producers would both fall.

Put simply, by just removing trade barriers, the US Government could improve the lives of American families and businesses by $4.6 billion per year over the next four years. This "free stimulus" also could expand US exports by $5.5 billion over the same period. Crazy, huh?

Continue reading "The Idiocy and Immorality of American Tariffs" »

October 7, 2009

Is America Still the Free Trade Leader?

By Scott Lincicome

Well, it sure doesn't look like it. According to Reuters yesterday, some of the United States' biggest trading partners have grown tired of waiting for the Obama Administration to complete its much-delayed review of US trade policy, and publicly warned that any further delay could harm the global free trade agenda. Here's the unsurprising-yet-still-depressing news:

The European Union and Brazil will put pressure on the United States Tuesday to set out its demands to conclude the Doha round of world trade talks in 2010 to boost dwindling world trade, a draft document showed.

The draft communique prepared for an EU-Brazil summit on Tuesday and obtained by Reuters, said a commitment by the world's leading and developing economies to reach a deal next year "will be at risk" unless progress, such as the United States revealing its demands, is made soon.

"Brazil and the EU believe that closure of the Doha Round in 2010 should take place on the basis of progress already made, including with regards to modalities, and therefore call on WTO Members to set out any specific demands they may have," the draft said.

"The EU and Brazil underline that absent progress within this timeframe, the objective of closing the Round in 2010 will be at risk."

The EU and Brazil also called for trade ministers to meet to specifically discuss progress on Doha before a scheduled full WTO conference in Geneva in December.

Translation: "Dear United States, Please get your act together asap. Your senseless foot-dragging is jeopardizing the near-term completion of the Doha Round, and the billions of dollars of benefits that it could provide the ailing global economy. Seriously, man. Pick it up. Best regards, the EU and Brazil."

Me: Ugh.

In April, I opined that that the President's inaction on trade was putting "60 years of US leadership on free trade... in jeopardy." The administration remained silent.

In July, Dan Ikenson and I again cautioned about the harms caused by the administration's failure to enact a pro-trade agenda. Were were joined by a growing chorus of concerned citizens, newspapers and trading partners, and yet the administration's silence continued.

Now it's October, and still nothing. But America's trading partners are finally fed up with the stonewalling, and they're openly making plans to advance the Doha Round with or without the United States' input. Their patience, it appears, has worn out. So unless something changes quickly inside the White House, 60-plus years of American trade leadership will have abruptly come to an end, and the first year of American also-ran status will have quietly begun.

And no one in the administration can ever claim that he wasn't warned. Repeatedly.

In 2008, Scott Lincicome served as a senior trade policy adviser for Senator John McCain’s Presidential campaign. He blogs at

October 5, 2009

The China Currency Conundrum

By Scott Lincicome

On October 15th, the Treasury Department will issue its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, in which the US Government officially determines whether its trading partners are engaging in "currency manipulation," as defined under US Law (Sections 3004 and 3005 of the Omnibus Trade and Competitiveness Act of 1988). In April, Treasury declined to deem China to be a "currency manipulator" - a bold reversal of President Obama's protectionist campaign rhetoric on the issue and a move I've applauded as the lone "free trade" action of the President's short tenure.

Most economists agree that China's currency (the Renmibi or RMB), despite appreciating about 15% against the Dollar since 2005, remains undervalued by around 10-15%. US labor unions and some manufacturing groups steadfastly believe that that the RMB's undervaluation has given Chinese exports a competitive advantage in the US market and disadvantaged US exports in China, and thus is the key driver of the large US-China trade deficit. They therefore have intensely lobbied the US government to label China a "currency manipulator" in the Treasury Report, to challenge China's currency practices at the WTO, and/or to make "currency manipulation" a "prohibited export subsidy" under US anti-subsidy (or "countervailing duty") laws. The last of these demands would lower the standard for finding "currency manipulation" and essentially make every Chinese export to the United States subject to a countervailing duty equal to the amount of the currency undervaluation. (Nothing like a 15% tax on all Chinese imports - including shoes, clothing and industrial inputs - to really jumpstart the ailing US economy! Yikes.)

Continue reading "The China Currency Conundrum " »

October 2, 2009

Was it Worth it Mr. President?


By Scott Lincicome

BNA reports that President Obama held a super-secret, unscheduled meeting with the world's labor union leaders, including AFL-CIO big dog Richard Trumka, on the eve of last week's G20 meetings in Pittsburgh. According to the report, the President received very high marks from the unions; Sharan Burrow, president of the Brussels-based International Trade Union Confederation (ITUC), even went so far as to declare Obama a "champion of working Americans." How sweet. Anyway, it's all but certain that tops among the unionists' reasons for giving the First Worker a big, global thumbs-up was his recent decision to impose prohibitive tariffs on Chinese tire imports under Section 421 of US Trade Law. As I've noted ad nauseam, the United Steelworkers alone brought the tires case, and by imposing the stiff protection, President Obama decided to favor the USW's (and his own) interests over those of American tire producers, retailers and consumers.

Well, over the last week, we've seen three developments that call President Obama's Section 421 decision further into question, regardless of the pre-G20 union lovefest:

(1) Despite Congress' initial efforts last Friday to end the US ban on Chinese chicken imports that began as part of the Obama-signed 2009 Omnibus Appropriations Act, the Chinese Government announced on Sunday that it was formally initiating anti-dumping and anti-subsidy investigations of US imports of chicken parts. As you'll recall, the chicken case, along with one against US autos, was filed in China as an immediate response to the President's Section 421 decision. Now that the case has started, it's essentially on "autopilot" (just like American cases) until China announces a final decision about a year from now. At risk: an expanding foreign market that purchased $722 million in American chicken last year alone - tops in the world.

(2) The Wall Street Journal reported yesterday that tire tariffs' initial domestic effects are starting to be felt. And just as predicted, American tire dealers, retailers and consumers are getting hammered:

Many dealers fear a drop-off in demand. "People have been putting off the purchase of tires anyway," says Bill Trimarco, the CEO of Hercules Tire & Rubber, a private-label tire supply company in Findlay, Ohio. "When the price of tires goes up, [fewer] tires will be sold."

Still, after getting socked with a $325,000 bill per the new tariff earlier this week, Trimarco says the company was forced to raise prices 10% to 15% on Chinese tires. "This is an anti-small business policy. A company like Goodyear won't get hit, but a lot of small businesses will be hard hit," he says.

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