June 13, 2007
Shoe Tariffs = Regressive Taxation
NPR has the story:
Hardly anyone, outside of a high school civics class, spends time thinking about import tariffs, the tax the government puts on most things imported into the country. But tariffs are part of the real cost of many of the things we buy, and some of the biggest tariffs in the U.S. are on shoes.
Oddly, the cheaper the shoes, the higher the tariff. A pair of $3 canvas sneakers has the single highest tariff in the United States: 67 percent. But $12 sneakers are assessed 37 percent, and for $300 Italian leather imports, there's no tariff at all. Why are tariffs higher on the shoes that poorer people buy?
Now there's an effort in Congress to get rid of the shoe tariffs, but it might not succeed.
May 23, 2007
Not looking for the union label
While many like to blame the loss of U.S. manufacturing jobs on inexpensive competition from China, this article shows there are other factors at play. Namely, young workers don’t want the jobs.
From the AP:
Family Ties to Labor Become Loosened
MIDDLETOWN, Ohio (AP) -- Marvin Bailey remembers his father being tired and stressed out from work in the mill and as a union official. It was enough to propel him away from becoming a third-generation steel mill worker.
"When I woke up in the morning to go to school, my father had already gone," Bailey said. "When I came home from basketball practice, or whatever, he was already in bed, just from being worn out from the day's work.
"That was probably what helped me with my decision," said Bailey, 27, who is studying commercial art design at the Cincinnati Art Academy.
That attitude was typical of the 26-to-42 age group that turned away from steel, auto and other struggling domestic industries, cutting family ties to their unions along the way.
"Unionism and generational dynamics are a pretty strong mixture," said Chuck Underwood, founder of The Generational Imperative Inc., a Cincinnati-based consulting firm.
While baby boomers (ages 43 to 61) tended to be pro-union, their children were more likely to see unions as wanting too much and protecting nonproductive workers.
"They came of age reading bumper stickers that said, 'He who dies with the most toys wins.' They tended to be self-sufficient and self-reliant, and less sympathetic to a union's protection and support," Underwood said.
April 2, 2007
Shrimp Protectionism Revisited
Today the WSJ had an excellent article on how U.S. shrimpers are essentially extorting money from foreign competitors they are unable to compete with on price. Not only are tariffs being levied on shrimp imports, but additionally, foreign competitors are making direct cash payments to the Southern Shrimp Alliance to avoid further lawsuits. Talk about a racket.
What’s interesting is the justification.
John Williams, head of the Southern Shrimp Alliance, explained that when imports from places like Thailand and Vietnam suppressed prices he “had trouble making debt payments, especially on his boats,” he had to “cancel his medical insurance,” and was forced to return “his wife’s Chevy Suburban to the dealer.” To this day he still has tens of thousands in credit card debt, which is offered as justification for a further increase in tariffs his organization applied for in February.
Not mentioned is the flip side of this coin. As I reported last year from Vietnam, these tariffs mean people like Hien Le are being thrown out of work. Like John Williams, Hien faces economic insecurity as well. He had hoped to buy, not a Suburban, but materials to build a simple brick home for his family with potential earnings from a small shrimp farm. That dream ended when U.S. tariffs put him out of a job and made hjs small plot of land worthless. His wife and two daughters are pictured below.
Hien Le doesn’t want tariffs on American shrimp, nor is he extorting additional cash payments from American shrimpers. He just wants to be able to sell his shrimp to willing American buyers. Should we deny him that right simply because he was born in Vietnam instead of Florida?
November 30, 2006
Casualties of Protectionism
From the Wasthington Post:
Latin Americans Wonder If Democrats Are Traders
MEDELLIN, Colombia -- At the CI Jeans factory, where 3,900 people make their livings turning bolts of denim into trousers bound for the United States, the American market -- land of the customer -- appears to be slipping away...
"We watch the news and we're nervous about what might happen with what we send to the United States," said Janeth Palacio Ramirez, 35, who supports her 15-year-old daughter and her elderly parents by punching zipper stops onto 7,000 pairs of jeans a day, earning about $200 a month. "Everything we make here goes there, so if there are problems with exports, we'll all lose our jobs."
June 16, 2005
There was a great op-ed in Monday's San Francisco Examiner. Head on over and give it a read:
China. Why has that word for so long struck fear in the hearts of many Americans? During the Cold War people harbored terrible fantasies about hordes of Chinese swarming over them and imposing a virulent Oriental communism. Now the Cold War is over, and although China still has a communist-inspired authoritarian government, this is not your father's Red nemesis. Much has changed in the world's most populous country.
Yet many Americans remain in fear. But now it is an economic fear: China will buy up all the beef. China will buy up all the wheat. China will make all the textiles and clothing and take our jobs. China's trade surplus with the United States will put us hopelessly in debt.
Nonsense. It's about time we kept our heads and applied some basic economics to what's going on.
Hat Tip: Thanks to Cafe Hayek for the link.
May 14, 2005
Free Trade... but only when and where they want it
In case you missed it, the Bush administration caved yesterday to the textile lobby in Washington. Someone needs to hold these guys accountable and point out their rhetoric on free trade too often doesn't match their actions. You would think with a vote on CAFTA fast approaching, consitancy on the benefits of free trade would be a good thing. Here is the report from the AP:
U.S. Textile Makers Praise Chinese Quotas
WASHINGTON - U.S. textile and clothing manufacturers are praising the Bush administration for re-imposing quotas on Chinese-made cotton trousers, cotton knit shirts and underwear, saying the quick action was needed to save thousands of American jobs.
But retailers are complaining that the new limits on Chinese imports and more that are expected to be imposed on other clothing categories will simply mean higher prices for American consumers.
The administration announced late Friday that it was re-imposing quotas in the three clothing categories, where it had launched its own investigations in early April.
Maybe the administration should consider reading it's own website. They could start with this page "The Benefits of Trade".
May 9, 2005
Need Some Votes? Blame a Foreigner
Tom Palmer beat me to this story but I'll post on it anyway. Foreign private equity firms, specifically those from the U.S., are under attack by politicians seeking votes in Germany. As a recent Business Week article reported:
Few places have been hit harder by the decline of the German steel industry than Gelsenkirchen, a city of 271,000 in the Ruhr Valley where unemployment, at 26%, is among the worst in the nation. So when Franz Müntefering, chairman of the governing Social Democrats, likened foreign buyout artists to "swarms of locusts sucking the substance" from German companies, that was just what Alfred Schleu was yearning to hear. "It's about time someone told it like it is," says Schleu, local chief of IG Metall, the union that represents 2.4 million workers in industries such as steel and autos...
Schröder & Co. are desperate. Polls show the state will fall to the opposition Christian Democrats in May 22 elections, possibly bringing the end of Schröder's coalition government with the Green Party. "[The attacks] are coming from someone who has his back to the wall," says Peter Hammermann, Munich-based managing director of Barclays Private Equity Co. in Germany. In fact, Müntefering's critique of foreign capital doesn't go far enough for some on the hard left, who pelted him with eggs at a May 1 rally in Duisburg.
Head over and read the whole article for more details, but the subject of the piece got me wondering about another topic. Is it simply a fact of life that politicians can score easy political points by bashing foreigners?
The problem is clearly not confined to Germany. Turn on C-Span and it won't be long before you'll hear Republicans from Sen. Lindsey Graham and Treasury Secretary John Snow to Democrats like Sen. John Kerry and Chuck Schumer blaming U.S. job losses on "Chinese currency manipulation" and "Asian bankers."
The insincerity of their attacks can be demonstrated by asking them a few simple questions.
First off, if China is "manipulating" it's currency by targeting the dollar, what do you propose they target in its place? As the late Bob Bartley pointed out, floating currencies do not represent free-markets. They need to target something in order to control inflation, which China has indeed tamed since they began the dollar policy. So why exactly do they need a new target and what exactly should it be? I doubt any have an answer.
Secondly, politicians are constantly scaring voters with predictions of jobs heading to Mexico, China, or India. But as Dan Griswold at the Cato Institute has pointed out in the past, U.S. companies directly invest more in the tiny Netherlands than the three aforementioned countries combined. Why no mention of the Dutch stealing our jobs? Could it be that a nation of wealthier, predominantly white Europeans doesn't get them the desired effect? You tell me.
As the world becomes more and more intertwined due to globalization you would think this nasty rhetoric would be ebbing, but as evidenced by the above that is far from the case. The sooner people wise up to this nasty political game the better. Instead of looking across the ocean for the source of thier countries' woes, politicians from Germany to the U.S. might finally come to the realization that the real problem lie no further than the mirror.
March 1, 2005
Are Beliefs in Free Trade Guided by Faith?
Don Boudreaux throws down the gauntlet. Do you think Thomas Franks will take him up on this challenge?
Tuesday, March 1, 2005
This was a letter to the editor of the New York Times Book Review.
Thomas Frank besmirches the case for free trade (“American Psyche,” Nov. 28th). First, he assumes that free trade is largely and only pro-business and, hence, that it is forced on us by “corporate power” and “industry lobbyists." Not so. Show me a tariff and I’ll show you corporations lobbying for it. Show me a tariff cut and I’ll show you corporations that fought the cut as well as consumers paying lower prices and workers in jobs that would have been otherwise impossible.
Second, he smears free traders as being devotees of a “false religion” guided by “faith.” So charged, this free trader challenges Frank to a public debate – face to face, or in writing – on the merits of free trade versus protectionism. I promise to use, not faith, but only reasoned arguments and abundant empirical evidence. Contrary to Frank’s assertion, the preachers of false religion are the protectionists who, lacking evidence and coherent arguments, faithfully proclaim that protecting domestic suppliers from foreign competition is key to economic salvation.
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
December 15, 2004
The surging price of oil has been in the headlines continuously during 2004. With producers such as Norway, Nigeria, Venezuela, and of course the Middle East facing output problems, combined with surging demand in India and China, the reasons behind the upswing in prices seemed to be largely explained.
But crude oil is not alone in its price ascent. Another commodity, cement, has also been dramatically increasing in price over the same time period. The reason why was a mystery to me until I read this article (sub. required) earlier this week. U.S. anti-dumping laws, along with Mexico based Cemex's use of regulations and the government to protect its profits, go a long way in explaining why the price of cement is where it is today.
The article follows the story of the ship Mary Nour, currently being held off the coast of Mexico. In a story of an unsuccessful battle to get the ship's cargo of 26,000 pounds of cement to shore we are shown just how uncompetitive this market has become.
TAMPICO, Mexico -- In the five months since Captain Steinar Dahl steered his 34,000-ton vessel, the Mary Nour, into Mexican waters, he has received a rude welcome. His ship was denied entry into one port only to have its load impounded at a second.
The ruddy Norwegian has endured five onboard inspections, a blood test and a police interrogation amid accusations he may be smuggling guns, drugs or illegal immigrants.
The former head of Mexico's powerful spy agency has even interceded. Jorge Tello, who is now a senior executive at the world's third-largest cement maker, Cemex SA, alternated between pleading and making what a port official called "veiled threats" to keep the ship out of the port during a May 25 meeting, according to the port official's written summary of the meeting. Cemex confirms a meeting took place, but calls the summary "an inaccurate and imprecise account by one person."
Now, the ship and its cargo sit in a restricted berth in the Gulf Coast port of Altamira, immobilized by Mexican customs. What's especially striking about Captain Dahl's continuing nightmare is the mundane nature of his cargo: 26,000 tons of cement.
Cement, however, is serious business in Mexico. Two giants, Cemex SA and Holcim Apasco, the local unit of Zurich-based Holcim Ltd., dominate the market, where a metric ton of bagged cement often sells for more than in the U.S., and twice the price in China. As the saga of the Mary Nour shows, Mexico doesn't exactly roll out the red carpet when a rival steps on the turf of one of its most powerful firms.
Also in the article, a Cemex official tried to defend the tactics his company employs in order to limit competition:
Cement-industry officials say they are within their rights to use legal means to protect their industry from what they consider to be unlawful competitors. They deny using any means other than legal to protect their business.
"I have to use all the legal means available to defend our rights," Cemex Chief Executive Lorenzo Zambrano said in a telephone interview.
Ask yourself: How is it that this executive has the "right" to stop Captin Dahl from selling cement (of all things) to another voluntary party? Hopefully with more articles like this one in the WSJ we will begin to solve these types of problems.
November 24, 2004
More on Shrimp
Radley Balko links to a piece he wrote for A World Connected on the domestic shrimping industry. Not only does he review the recent tariffs placed on imported shrimp, but he ties in H2-B visas, soybeans, and other unintended consequences. It’s well worth the read.
November 3, 2004
Do Sanctions Really Work?
Despite decades of trade sanctions against the island of Cuba designed to punish the government, Fidel Castro still dines like a king each-and-every night.
Now comes word that Nobel Peace Prize winner Shirin Ebadi is unable to publish her memoirs in America due to the U.S. embargo against Iran. She has filed suit against the U.S. in an attempt to get the book published:
She has completed a draft of the book in Farsi but needs the help of an agent and editor in America to translate and re-write the book for international readers, she said.
But Office of Foreign Assets Control (OFAC) rules are blocking her from signing a contract with the Boston-based Strothman Agency, which wants to represent her and negotiate with publishers on her behalf.
Her book highlights, through first hand accounts, the brutality of the Iranian government. That makes this story all the more bizarre.
The embargo against Cuba has given Castro a scapegoat for the poverty he has wrought on the island, while the embargo against Iran is keeping a Nobel Peace Prize winner from exposing the governments gross violation of individual rights. Who's exactly supposed to be reviewing the efficacy of these laws?
October 25, 2004
Protecting Bubba Gump
Last Thursday, the WSJ ran a front-page article on Vietnam and it's thriving shrimp industry. The article is yet another example of how trade not only makes us all better off financially, but it also brings cultures closer together. In the case the U.S. and Vietnam this is happening despite the fact our two countries were at war just a few decades ago. Unfortunately, the U.S. may begin to reverse this trend by placing tariffs on Vietnamese shrimp in order to protect domestic producers.
NAM CAN, Vietnam -- As a Viet Cong guerrilla, Chung Thanh Tam once dodged American bullets here in the Mekong delta. More than a decade later, he began raising shrimp in ponds dug beside these same waterways, and came to appreciate Americans for their hearty appetites.
Now, the 54-year-old Mr. Tam again feels under attack. In July, the U.S. Commerce Department proposed socking Vietnamese shrimp exports to the U.S. with tariffs ranging from 12% to 93%. The U.S. also imposed tariffs on five other nations, agreeing with the allegation of U.S. shrimpers that foreign competitors were unfairly selling shrimp at below-market prices, a practice known as dumping.
"Thanks to shrimp, I could afford decent marriages for my children," says the father of seven, donning aviator sunglasses against a fierce midday sun. "Now the U.S. is trying to make our life hard again."
As mentioned above, the tariffs will be justified on the grounds that the Commerce Department says the Vientamese are selling shrimp below costs. But here is a question to ponder: if Mr. Tam losing money by selling his shrimp "below cost", how does this help him to better afford decent marriages for his children?
Further down the article there is a quote that gives some comfort to those who, like me, worry that a Kerry administration will take the U.S. down a protectionist road:
"Vietnam is a country trying to follow our advice and reward entrepreneurship," says Frances Zwenig, a former chief of staff for Sen. John Kerry who has worked for years on building U.S. diplomatic and commercial ties to Vietnam. "Then when they take that advice, we punish them: That is a really harmful lesson."
If Kerry has surrounded himself with people like Zwenig in the past, it could be a sign he that Kerry's recent criticism of free trade is nothing more than pandering to his base during an election. And if in a little over a week we learn that he will be the 44th President of the United States, it is one sign of hope that he will return to his free trade roots.
October 13, 2004
Outsourcing, Chris Matthews, and the American Left
Last week Chris Matthews and Larry Kudlow where debating outsourcing on MSNBC. During their exchange Matthews made the following statement recounting how he recently had to call tech support for his AOL account:
Lawrence, the hardest argument in the world is to make--the other day, yesterday, I went to get my AOL fixed. I had a problem with it. It turned out to be my problem. I had something wrong. When I talked to the person, they had--there's nothing wrong with this if they‘re living here. But it was somebody with an Indian accent apparently around the world, the other side of the world, helping me figure out my AOL problem.
Heaven forbid we be able to associate and work with people living in India.
Almost on cue the next day was an op-ed by George Gilder entitled "America's New Jingoes". Gilder takes shots at everyone from Paul Krugman to Matthews' counterpart Lou Dobbs. Matthews himself is spared but he but he might as well been a target of the op-ed:
The American left once displayed a real concern for poor people, but today they exhibit merely a morbid envy of the rich. Once they supported American engagement in the world. Today, they retreat to a timorous parochialism. Now it is President Bush who shows compassion for the world's poor and confidence rather than timidity before the forces of global capitalism.
October 6, 2004
Donate That Car
There was another interesting article on the front page of The Wall Street Journal this past Monday entitled: "How Donated Cars Wind Up Helping Mexican Smugglers". The article touches on various topics from immigration to taxes to NAFTA... and of course how donated cars are involved in the whole process.
Listening to the radio here in San Diego you are bombarded with ads from various charities asking you to donate an old car to their organizations. I had always thought the same ads were being played across the country. After reading the article I have my doubts:
Nearly 50,000 former charity cars are sold at the border each year, and the majority end up in Mexico, local auction operators say. Thousands more come to Mexico from charity auctions elsewhere in Southern California.
This scenario has come about largely because one border state -- Baja California -- enjoys Mexico's most liberal rules on importing used U.S. cars. Virtually any car made before 1999 can enter Baja duty-free, a regulation that dates to the 1930s. Under rules governing the North American Free Trade Agreement, in 2008 the entire U.S.-Mexico border will be open to traffic in used, duty-free cars.
and one more quote...
Ms. Garcia buys five or six cars a week at the Otay Mesa auctions and considers Father Joe's lot a boon to poor Mexican consumers who can't afford to buy a car from a regular dealer in Tijuana or the U.S. She pays about $500 per vehicle and usually turns it over the same day to customers who request specific models. She deals only in cash, occasionally "financing" a sale by holding a car for up to six months while a buyer makes weekly payments.
It looks like charities are exploiting a pretty unique market in order to fund their organizations. It's interesting stuff and you should read the whole thing if you get a chance.
On a side note of the article, it's shocking to think about the fact that some immigrants are paying around $2000 to ride in the trunk of a car whose total value is $500.
Update: In response to an email I received regarding this post, I wanted to make clear when I say above: "It looks like charities are exploiting a pretty unique market..." I don't mean it in a negative sense. The charities are doing a good thing raising money for their organizations and doing nothing wrong in the process. Probably should have said "utilizing" instead of "exploiting" to clear up any confusion.
October 4, 2004
To Peg or Not to Peg
Today's WSJ has a brief article noting that China has pledged an eventual easing of its currency peg. Currently the peg is set at 8.28 yuan per dollar. As the article states:
Meeting with finance ministers and central bankers from the Group of Seven industrialized countries, China's top finance officials promised to push forward on financial reforms in order to adopt a more flexible exchange rate, but gave no hint when that might happen.
This reminded me of an excellent column by the late Robert L. Bartley, former editor of the Journal. In his article, "Exchange Rates: a Primer", Bartley addresses the following three myths superbly:
Myth #1: Floating currencies represent a "free market."
Myth #2: Floating exchange rates are a policy.
Myth #3: You can build prosperity by devaluing your currency.
In essence, central banks need to target something. Simply letting rates float is not a policy, but in fact is "the absence of a policy", as Bartley clearly states. If China's central bank were to stop targeting the dollar they would need to target something else (i.e. the inflation rate, a monetary aggregate, a commodity index, or back the currency with gold itself).
What U.S. exporters and some in the Bush administration seem to have been saying over the last few years is that it would be best for China to target it's trade balance with the United States. Such a target seems foolish as a trade deficit can be seen as reflecting the inclination of foreigners to invest in our country. I'll quote at length from a letter to the editor of the NYT by Don Boudreaux to clarify the point.
"[Reader Robert Lauer is] right to worry about the budget deficit, which reflects the administration’s and Congress’s recklessness. But the trade deficit is no cause for concern. It reflects foreigners’ preference to invest in American assets rather than to cash out all of their dollar holdings immediately for goods and services. This fact means not only that more investment than otherwise takes place in the U.S., but also that more foreigners have real reasons to wish the American economy well.
Your newspaper would help to end this needless fretting by referring not to the 'trade deficit' but to the 'capital-account surplus.' The two are the same thing, except that the former sounds oh so very ominous."
The job of the central bank is to control inflation, it is not to influence whether the Chinese prefer to invest in the U.S capital markets or buy U.S. goods. Additionally, it should be noted that China itself runs trade deficits with two of its major trading partners in the region:South Korea and Japan. As such, the notion that the policies of China's central bank are driven around boosting exports should be taken with a grain of salt.
September 30, 2004
The Reality of Cambodia
Here is an informative but depressing audio slide show by New York Times columnist Nicholas Kristof.
While Kristof does a great job at dispelling some of the myths regarding factory labor in poor nations, the next question that logically follows is why are such horrid factory jobs the best that are available?
Lack of democracy, property rights, the rule of law, and excessive government regulation all play a part. Two excellent books on the subject are Eat the Rich by P.J. O'Rourke and The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto.
September 25, 2004
“…I would hope that nations around the world, and leaders, would understand the logic behind saying that good foreign policy, good relations must be firm on our borders. I can't think of anything more logical and more common-sensical than to understand our hemisphere which can be and will be bound by freedom and free markets and free trade is in the interests of our people.”
-George W. Bush (February 16th, 2001)
“…we are committed to ensuring that American industry and American workers can compete on a level playing field. That is why, today, I am announcing my intent to launch an initiative to respond to the challenges facing the U.S. steel industry. This initiative will be designed to restore market forces to world steel markets and eliminate the practices that harm our steel industry and its workers.”
-George W. Bush (June 5th, 2001)
It was a huge disappointment when President Bush, who talked so passionately about free trade during the 2000 election, decided to place tariffs on foreign steel in order to protect the domestic steel industry. To his credit the President did remove the tariffs last December, as he apparently realized that not only were the tariffs economically a bad decision but a political one as well. Steel importers expressed their anger at the President while steel unions were still reluctant to endorse him. But unfortunately this article tells a slightly different story:
"...some steelworkers were happy with the relief they got, including Bob Hoover, of New Cumberland, W.Va. He donned a black and gold 'Steelworkers for Bush' T-shirt in August when he stood with about 20 others from West Virginia and Ohio at a rally in Wheeling.
'Mainly, it was to let him know that not all steelworkers believe he's not doing a good job,' Hoover said Friday. 'The 201 tariffs did help.' "
The article does not go into any votes that Bush possibly lost from political backlash but my guess is that it's not many. The administration knew full well that free traders would not likely support Kerry, who has recently turned towards protectionism to shore up union votes. This despite a strong free trade record in the Senate.
What this article does demonstrate is that politicians still find it possible to buy a vote from Peter using money from Paul. Truly a sad state of affairs.