Congratulations to the Free Traders of the 112th Congress

Written by K. William Watson, trade policy analyst with the Cato Institute’s Herbert A Stiefel Center for Trade Policy Studies. Posted with permission from Cato @ Liberty.

Do you remember the 112th Congress—the one that repeatedly almost shut down the government while still managing to raise taxes and spending? It turns out they did some interesting things with trade policy. The votes recorded in Cato’s congressional trade votes database have been counted, tabulated, and analyzed, and the results are mixed. The predictable legislative outcome was that with a Republican House and Democratic Senate, the 112th Congress furthered the bipartisan establishment trade policy of reciprocal tariff reduction and unilateral subsidy expansion.

The more interesting revelations come from looking at the voting records of individual members. Rather than simply noting whether a policy would promote or diminish free trade or would increase or decrease America’s engagement in the global economy, Cato’s Free Trade, Free Markets methodology distinguishes between barriers (like tariffs and quotas) and subsidies (like loan guarantees, tax credits, and price supports). This distinction enables us to place members within a two-dimensional matrix.

Protectionist Tries Redefining Free Trade

Knowing there is no legitimate case for protectionism, its proponents are now attempting to define free trade as something that it is not. Writing for Salon, David Sirota says:

Trade policy, as I’ve previously noted, often has nothing to do with what we conventionally define as “trade” — that is, it has nothing to do with the exchange of goods and services, and everything to do with using state power to solidify corporations’ supremacy over individual citizens. In that sense, the modern era’s ongoing debates over “free trade” are a corporate public relations coup — by tricking the public and the media into believing we’re debating one thing (commerce) when we’re debating something entirely different (power), the “free trade” brand casts those who raise questions about these pacts as know-nothing Luddites (who could be against commerce, right?).

Oddly, Sirota offers no further support for his claim that free trade uses “state power to slidify coporations’ suppremacy over individual citizens” nor does he even clarify precisely what it is he means. It appears as though he is content to level that charge and move on to a different subject:

…In creating direct unprotected competition between Americans and foreign workers who have no labor, wage or human rights protections, the most celebrated trade pacts of the last two decades have — quite predictably — resulted in widespread layoffs and the hollowing out of America’s middle class job base.

Video: Meet the “Kronies”

The Kronies

In vain of 1980s and early 1990s superhero action figures, a recently released video takes aim at the collusion between government and K Street corporations to crush competition from smaller competitors.

The Kronies shows five powerful lobbyist superheroes — Kaptain Korn, Big G, Parts & Labor, Ariel Stryker, and Bankor — who use their political influence to get protectionist tariffs, bailouts, and other deals for their rent-seeking industries. Or, as the video puts it, “Mandating, Tarrify-ing, Inflating, and Boondoggling their way to profits powered by their special konnection to the G-Force.”

Though it’s unclear who is behind the video, it sums up perfectly the cronyism in Washington. Rep. Justin Amash (R-MI), for example,” wrote on his Facebook page, “Here’s how government ‘works’ in one short video.”

Sugar protectionism pushing American candymakers overseas

sugar cane

American-owned candymakers have gotten tired of the protectionism that driving up the cost of sugar, according to the Wall Street Journal, and they’re responding to the market-distorting policy by taking their operations overseas:

The squeeze explains why Atkinson Candy Co. has moved 80% of its peppermint-candy production to a factory in Guatemala that opened in 2010. That means it can sell bite-size Mint Twists to retailers for 10% to 20% less.

“It wasn’t like we did it for profit reasons. We did it for survival reasons,” said Eric Atkinson, president of the family-owned candy maker, based in Lufkin, Texas. “These are 60 jobs down there…that could be in the U.S.,” he added. “It’s a damn shame.”

Jelly Belly Candy Co. is finishing its second expansion of a factory in Thailand that was opened by the Fairfield, Calif., company in 2007. The sixth-generation family-owned firm sells about 20% of its jelly beans, made in flavors from buttered popcorn to very cherry, outside the U.S.

Sugar makes up about half of the ingredients and cost of a typical jelly bean, said Bob Simpson, Jelly Belly’s president and chief operating officer. Thailand is the world’s fourth-largest sugar producer and gives Jelly Belly access to cheaper sugar, labor and other raw materials than the candy maker has in the U.S.

US-EU Trade Talks: Don’t Forget about the Tariffs

Written by Simon Lester, Trade Policy Analyst for the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute.

In the context of the recently launced US-EU free trade talks (formally, the “Transatlantic Trade and Investment Partnership,” or TTIP), commentators have noted that tariffs between the US and EU are low, and thus the key part of the talks will deal with so-called regulatory barriers to trade.  An article in Inside U.S. Trade observes: “Overall, the U.S. average tariff rate is 3.5 percent, although the average tariff rate on goods that the EU actually shipped to the U.S. last year was even lower, at 1.2 percent, … .”

But these average figures mask some significant “tariff peaks.”  There are lots of individual tariff rates, so if many are low or zero, that makes the average figure fairly low; nonetheless, there are plenty of high tariffs still out there.  The same article points out some US and EU tariff rates that may come up during the negotiations.  Here is the US:

U.S. light trucks tariff of 25 percent; a tariff on wool sweaters of 16 percent; a tariff on sardines of 20 percent; a tariff on tuna of 35 percent; and a tariff on leather at 20 percent

Here is the EU:

applied tariffs on honey of 17.3 percent; carrots at 13.6 percent; potatoes at 14.4 percent; strawberries at 20.8 percent; lemons at 12.8 percent, beef at 12 percent; and lamb at 12 percent

And all of those tariffs add up:

R STREET: 3 Taxes We Should Kill

As the fiscal cliff looms ahead of us, the R Street Institute has just come out with a “A TAX HIT LIST FOR THE 113TH CONGRESS” (PDF) naming three taxes that we should kill. Namely, they’re looking at the Corporate Income Tax, the Estate Tax, and tariffs.

From the report, on corporate income taxes:


While the corporate income tax is politically popular and has strong populist appeal, many economists have called it into question. For example, conservatives such as American Enterprise Institute economist Kevin Hassett and liberals like former Obama advisor Austan Goolsbee have studied the deadweight losses and other distortions imposed by the tax. As a result, policy analysts from across the political spectrum believe that it simply shouldn’t exist. It generates an enormous amount of economic dislocation relative to the revenue it raises, while encouraging myriad behaviors that do little or nothing to promote economic growth in the name of legal tax avoidance. Meanwhile, the potential benefits of eliminating it are substantial.

Though obscured by their structure, corporate income taxes are just another form of individual taxation. Every dollar of corporate income tax is ultimately paid by one of three groups of people: employees, customers, or shareholders. Because corporations pass all costs on to these groups, corporate income taxes inevitably lead to some combination of lower wages, higher prices, and lower returns for investors.

A New Kind of Trade War

Written by Simon Lester, a trade policy analyst at the Cato Institute. Posted with permission from Cato @ Liberty.

In the past, a “trade war” was something to be avoided at all costs.  It meant a spiral of protectionist measures:  one country would adopt some form of protectionism, and its trading partners would respond in kind.  The impact on the global economy could be disastrous.

Today, by contrast, trade conflict often involves a tit-for-tat litigation process in which countries challenge each other’s trade barriers before the World Trade Organization.  The result can actually be beneficial, as successful complaints usually lead to the removal of trade restrictions.  As a result, the “trade wars” of today may lead to less protectionism rather than more.

Recent developments related to Argentina’s trade policy provide a good illustration.  Last year, Argentina decided to take a much more interventionist and protectionist approach to trade policy, with a goal of encouraging domestic production.  To take an example provide by The Economist, through the use of import licensing restrictions, Argentina effectively required foreign mobile phone makers to assemble and package phones in Argentina rather than exporting them for direct sale there.

Other countries took notice of Argentina’s measures, and a number of them spoke up at a WTO meeting in March of this year.  But no formal complaint was filed at that time.

More Unintended Consequences of Obama’s Auto Bailouts

The United States government has taken China to the World Trade Organization. They’re complaining about auto import tariffs China has imposed for a couple of years.

The United States launched a trade complaint Thursday against China at the World Trade Organization, accusing Beijing of unfairly imposing duties on more than $3 billion in exports of American-produced automobiles. The announcement came as President Barack Obama hit the campaign trail in the battleground state of Ohio, where automakers have been affected by the tariffs imposed in December. It underscored how America’s trade relations with rising economic power China could color the political debate ahead of the November presidential election. Under WTO rules, countries are allowed to impose punitive tariffs to offset damage from both subsidies and dumping — selling products at below market value — but the U.S. contends that in this and other cases, China has used those remedy measures in an unfair and retaliatory way to hurt American exporters.

Obviously this complaint being made public, while Obama is in a campaign trip throughout the Rust Belt, is pure coincidence I’m sure. Which auto manufacturers are the most harmed by these tariffs:

Tea Party efforts are wasted with Santorum

While some conservatives are glossing over Rick Santorum’s voting record in the Senate, others are beginning to express serious concern about his penchant for big government and economic statism. Over Against Crony Capitalism, Nick Sorrentino gets right to the point about Santorum:

What a mess the Republican Party is in that Rick Santorum is being looked at seriously. In a  time of deep economic challenge, where the Republican candidates should be polling in the double digits versus Obama, the GOP is seriously flirting with a man who has no intention of reducing the size of the state, in fact has a strong history of growing it, and also has a history of being thumped in elections.

Look at this list of Santorum’s votes.

This is not the voting record of a conservative. This is the voting record of a man who believes that government is the solution to many of society’s ills. This is not the direction we need to be heading as a country, especially right now.
Better get used to Obamacare guys, and wars, and economic meddling, and loss of privacy, and God only knows what else.

That list of votes includes support for Medicare Part D, tariffs (protectionism), the interests of labor union, crippling economic regulations, and sin taxes. And let’s not forget that in 2004, Santorum backed Arlen Specter over Pat Toomey in a heated Republican primary battle. Of course, Specter would go on to become a Democrat, lose his primary election to his opponent; and Toomey is now the junior Senator from Pennsylvania.

China warns of a trade war as Senate Democrats push protectionist legislation

“When goods don’t cross borders, soldiers will.” - Frédéric Bastiat

As the White House sends much needed free trade agreements with Colombia, Panama, and South Korea to the Congress, Senate Democrats are pushing a bill that China warns may very well spark a trade war:

An angry China warned Washington on Tuesday that passage of a bill aimed at forcing Beijing to let its currency rise could lead to a trade war between the world’s top two economies.

China’s central bank and the ministries of commerce and foreign affairs accused Washington of “politicising” currency issues and putting the global economy at risk after U.S. senators voted on Monday to start a week of debate on the bill.

The response suggested China sees a greater risk from the proposed bill than it has in the past when U.S. lawmakers attempted to put forward similar legislation to speed up the pace of appreciation in the yuan, or renminbi.
Tuesday’s coordinated salvo and the central bank’s warning of a trade war and a slowdown in China’s exchange rate reforms indicated Beijing was taking the latest currency bill more seriously.

“It is very rare for three different ministries of the country to refute something so quickly and strongly, showing how deeply the Chinese government is concerned about the yuan bill,” said Wang Zihong, a researcher at the China Academy of Social Sciences, a top government think tank.

“The strong responses made by the Chinese government may also suggest that the possibility would be quite high this time that the United States will pass the final bill in the end and that Beijing is worried about the possible negative impact on China’s exports resulting from the legislation,” he said.

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