January 07, 2004
Why Oh Why Can't We Have a Better Senior Democratic Senator from New York?

The New Republic's talented Noam Scheiber bangs his head against the wall, killing millions of brain cells, as he contemplates an anti-free trade op-ed by Chuck Schumer and by Paul Craig ("slaves were happy! really! really happy!") Roberts: &c: ...the fact that we could one day find ourselves in a situation where our comparative advantage lies in a low-value good like T-shirts rather than a high-value good like software isn't exactly comforting. Still, as long as we enjoy a comparative advantage in enough high-value goods--which will be the case as long as our workforce remains incredibly well-educated and high-skilled relative to India's and China's, which should be our top policy priority and which, even if it wasn't, is going to be the case for decades (when was the last time you checked the literacy rate of India?)--then all the doom and gloom you hear from people like Schumer and Roberts is way overstated. There are real globalization-related issues we need to address--most importantly, the dislocation caused when whole industries cease to be efficient, and the speed with which we allow that to happen. But the theoretical foundation of the case for free trade isn't one of them......

Posted by DeLong at 04:16 PM

December 28, 2003
Annals of Commerce

Trader Joe's country-style tomato soup, sold at Trader Joe's, Lafayette, California, is a product of Lichtenstein. That is all....

Posted by DeLong at 02:10 PM

December 27, 2003
Making Losers

The Angry Bear writes that protection of American sugar manufacturers has devastated American candy-cane manufacturers. The preservation of the profits of the sugar barons of Louisiana and Florida has come at the price of the jobs of confectionary makers in greater Chicago. Of course, those who argue for protection have rarely thought through the full equilibrium consequences....

Posted by DeLong at 03:40 PM

December 26, 2003
Outsourcing Once Again

Matthew Yglesias reads Bob Herbert on "outsourcing": Matthew Yglesias: High Tech Offshoring: Bob Herbert writes on the subject of high tech offshoring. It's easy to see why this bothers many Americans -- it means that some Americans who otherwise would have had high paying jobs either have no jobs, or else lower paying jobs. All else being equal, it would be better for more Americans to have higher paying jobs. What I don't quite see, however, is why the alternatives are supposed to be so much better. Say we changed things around and more Americans made more money, more Indians made less money, and all people everywhere had to pay somewhat more for their software. How is that really better? Because it's better for Americans? What if we sent the Marines into Bombay to rob a few banks and help close the budget deficit -- would that be better? I would say not. Now it's not the same as restricting the offshoring of jobs, but it's not totally different either, the Indian software engineers are people too, and their interests count. Come to think of it, American software consumers have interests that count as well. So do the shareholders in...

Posted by DeLong at 01:21 PM

December 11, 2003
The Economist on Service-Sector Offshoring

The Economist writes about service-sector offshoring: Economist.com | Offshoring: ...Although there have been no federal legislative proposals in America against offshoring per se, there has been a tightening up on the granting of visas that allow foreign workers to enter America for training and temporary employment. The annual quota for so-called H-1B visas used by itinerant Indian software programmers fell in October to 65,000 from 195,000 a year ago. The idea is to prevent foreigners from taking Americans' jobs. In fact, the effect may be the reverse. Craig Barrett, the chief executive of Intel, a chipmaker and a big employer of Indian engineers, says that America's main problem is a lack of suitably educated engineering graduates. The impact of fewer visas may thus be to encourage American firms to shift more work to India, where well-qualified computer engineers are plentiful. But the vast majority of the service jobs that are now going offshore do not require highly qualified engineers. Multinationals may in future do original R&D in low-cost places, but for the moment most of the jobs on the move are the paper-based back-office ones that can be digitalised and telecommunicated anywhere around the world, plus more routine telephone inquiries...

Posted by DeLong at 03:38 PM

December 07, 2003
Declare Victory and Go Home

The Economist summarizes the story of the Bush administration steel tariffs: Economist.com | America's steel tariffs: ...On Thursday December 4th, however, the president's fight came to an end with the announcement that the [steel] tariffs were being dismantled, 16 months earlier than originally planned. But this was no defeat, you understand. On the contrary, Mr Bush has, in effect, declared victory and gone home. What kind of victory can he claim? In the 20 months since the tariffs were imposed, the steel industry has consolidated.... The industry's largest union, the United Steel Workers of America, has agreed to more flexible work practices, profit-sharing and even some redundancies.... All of this has happened since the tariffs were introduced, but did any of it happen because they were introduced? Gary Clyde Hufbauer of the Institute for International Economics (IIE), a Washington think-tank, warns against the post hoc ergo propter hoc fallacy. That won't bother Mr Bush, who is not known for his command of Latin.... [T]he tariffs simply delayed the inevitable. By artificially raising the price of steel, they added to the profits of ailing firms, making them more expensive to acquire.... The trade barriers Mr Bush repealed on Thursday were a...

Posted by DeLong at 07:59 AM

December 04, 2003
Why Can't the Bush Administration Ever Tell the Truth?

Here United States Trade Representative Robert Zoellick lies through his teeth: Reuters: U.S. Trade Representative Robert Zoellick said on Thursday that the decision to end steel tariffs was based on studies showing the tariffs were no longer needed rather than out of fear of retaliation. Speaking to reporters at the White House after the Bush administration announced it was scrapping steel import tariffs 16 months earlier than scheduled, Zoellick said the decision stemmed from the administration's analysis that they were no longer needed rather than on a World Trade Organization ruling that they were illegal. "What I'm saying is this process was independent," Zoellick said. "In other words, the decision that the president made was (based) on an independent analysis." Other nations had threatened to impose tariffs on billions of dollars worth of U.S. imports to their countries unless the United States ended the steel tariffs. The European Union was set to slap duties on $2.2 billion of politically sensitive U.S. exports if the tariffs were not lifted. Japan had also threatened to hike duties on $458 million of U.S. goods. I mean, why bother?...

Posted by DeLong at 11:34 AM

Why Oh Why Can't We Have a Better Press Corps? Part CCCCLXXVIII

The New York Times's Richard Stevenson writes about the Bush administration's imminent abandonment of its steel tariffs: Bush Set to Lift Tariffs on Steel: The Bush administration plans to announce on Thursday that it will rescind tariffs it imposed last year on imported steel, saying the temporary trade protection allowed American steel makers to get themselves in shape to survive against intense global competition, administration and industry officials said on Wednesday. Details of the announcement were still being worked out on Wednesday evening, and one administration official said the timing could still change. President Bush will not make a formal public appearance to announce the decision, officials said, though he may answer questions from reporters about it during the day. Instead, he will send members of his cabinet, including Commerce Secretary Donald L. Evans, to confirm the shift in policy, which the White House has been signaling is likely to come this week. Although the decision to drop the tariffs represents a rare turnabout in policy by the Bush White House, and could give the president's re-election campaign trouble in crucial states like Ohio, West Virginia and Pennsylvania, the administration plans to make a case that the tariffs are being...

Posted by DeLong at 12:53 AM

November 29, 2003
Bush Wastes an Opportunity

Jeffrey Schott on what we have to lose from the Bush administration's disgraceful trade policy: Article: Unlocking the Benefits of World Trade: The collapse of the ministerial meeting of the World Trade Organisation (WTO) in September has impeded global trade talks and made their conclusion increasingly difficult and uncertain. Even without the breakdown in Cancun, Mexico, the complexity of the agenda and American and European calendars for rewriting their farm policies led many analysts to expect protracted negotiations. Some ministers left Cancun hoping that the delay was not significant, and that talks would pick up within a year or two. Such complacency is a mistake. Launched in the Qatari capital, Doha, in November 2001, it will require extensive political effort to put the talks back on the rails. Trade ministers probably will have to engage in a new round of "mini-ministerials". Whether America's trade representative, Robert Zoellick, and the European Commissioner responsible for trade, Pascal Lamy, are willing to devote time to such a task is at best uncertain. The window for reviving the Doha round of negotiations is small. By spring 2004, the major trading powers will be busy with pressing domestic matters. The 2004 presidential election in America...

Posted by DeLong at 01:38 PM

November 26, 2003
Economic Growth Lunch: December 3, 2003

Trade and Growth Can we believe the large effects of trade on economic growth found by Sachs-Warner (1995), Frankel-Romer (1999), Dollar (1992), Edwards (1992), and others--those that say that a one percentage point increase in import and export shares is associated with a two percentage point increase in real GDP? Readings: Jeffrey Sachs and Andrew Warner (1995), "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity 1995:1, pp. 1-118. Jeffrey Frankel and David Romer (1999), "Does Trade Cause Growth?" American Economic Review 89:3 (June), pp. 379-399. David Dollar (1992), "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-85," Economic Development and Cultural Change, pp. 523-544. Sebastian Edwards (1992), "Trade Orientation, Distortions, and Growth in Developing Countries," Journal of Development Economics 39:1 (July), pp. 31-57. Dani Rodrik (1999), "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence" (Cambridge: NBER Working Paper 7081, April). Paul Krugman (1995), "Dutch Tulips and Emerging Markets," Foreign Affairs 74:4 (July/August), pp. 28-44. From Krugman (1995): ...Mexico's crisis is neither a temporary setback nor a purely Mexican affair. Something like that crisis was an accident waiting to happen because the stunning initial success of the Washington...

Posted by DeLong at 12:00 PM

November 25, 2003
China Bashing Is a Bad Idea

The Wall Street Journal's Bob Davis says China-bashing is a bad idea: WSJ.com - Sanctions on China Aren't the Answer: Over the coming year, the White House will have dozens of opportunities to impose trade restrictions on China as clever lobbyists exploit election-year politics and rising anger over China. Trade fights can spook markets, hurt import-sensitive industries and raise prices for consumers. But President Bush and his Democratic opponents are having a hard time finding any voter-pleasing alternatives. The problem is trade sanctions are ham-fisted instruments to reshape the Chinese economy. Think of the differences between battling China and battling Japan, the last big trade foe that outraged Americans. (No congresswoman has yet taken a sledgehammer to a Chinese-made TV as one once did to a Toshiba radio.) The Japanese economy is dominated by large companies that make brand-name goods that compete directly with U.S. alternatives. Limiting imports of Toyotas and Nissans, as the U.S. did during the 1980s, was supposed to give a breather to Ford and GM to retool their product lines so they could compete better. (That was the theory, anyway; they often used import restrictions to boost short-term profits instead.) The Japanese also were able to...

Posted by DeLong at 02:38 PM

November 24, 2003
The High Water Mark of Free Trade?

The high-water mark of free trade in the old days was reached in the first decade of the twentieth century: the years from 1905-1935 or so saw a steady retreat from free trade toward various forms of protection, with damaging effects on the world economy (although no one is really sure how damaging). Now Stephen Roach fears that we have reached the high-water mark of free trade for this cycle of globalization: Morgan Stanley: The first is a new and powerful global labor arbitrage that has led to accelerating transfer of high-wage jobs from the developed world to lower-wage workforces in the developing world. Enabled by the Internet and the maturation of vast offshore outsourcing platforms in goods and services alike, labor has become more "fungible"? than ever. In a world without pricing leverage, the unrelenting push for cost control gives a sudden urgency to this cross-border arbitrage. The outcome is a new and potentially lasting bias toward jobless recoveries in the high-wage developed world. That brings the second major force into play -- a political backlash against the trade liberalization that allows such cross-border job shifts to occur. It is the politics of this trend that disturb me the...

Posted by DeLong at 11:21 AM

November 21, 2003
Pushing the Stone in the Right Direction

I'm not sure that this distinction makes analytical sense in any model of the economy, but I'm glad to see Greg Mankiw out there and trying to push the stone in the right direction: Forbes.com: W.House's Mankiw-exports, not imports, hurt US jobs: White House economic aide Gregory Mankiw said on Friday U.S. jobs were taking more of a hit from declining U.S. exports than from competition from lower-priced foreign imports. "The decline in U.S. exports is where the jobs are lost rather than being lost to competition from imports," Mankiw, chairman of the White House Council of Economic Advisers, told the Greater Colorado Springs Economic Development Corp. Because of this, he said, "I'm more worried about slow growth in Japan than rapid growth in China."...

Posted by DeLong at 02:55 PM

November 20, 2003
Alan Greenspan Does Not Like Bush Trade Policy

Alan Greenspan does not like Bush trade policy. From the Wall Street Journal's Greg Ip: WSJ.com - Fed Chief Warns on 'Protectionism': ..."It is imperative that creeping protectionism be thwarted and reversed," Mr. Greenspan said. His remarks came two days after the Bush administration announced it would impose restrictions on certain textile and apparel imports from China. The administration also has been weighing whether to retain or scrap steel tariffs that have triggered threats of retaliation from the European Union. In September, global trade talks in Cancun, Mexico, collapsed over differences between rich and developing nations on farm subsidies and other issues. Protectionism is a rising concern inside the central bank, where it is seen as a potential spoiler on a landscape otherwise free of inflationary pressures......

Posted by DeLong at 09:13 PM

November 19, 2003
Trade Policy, Bush Style

Marcelo the Pygmy Chimpanzee writes: BONOBO LAND: Let's all try to look surprised about the U.S.'s decision to impose quotas on the growth of certain textile imports from China. All the obvious comments apply. No, this doesn't make any economic sense at all. Yes, the Bush administration is playing the "yellow peril" card for 2004. Yes, this might get uglier in the future, although, and five years ago I would have laughed at the idea, maybe we can count on the Chinese government having a tad more self-preservation and common sense than the American. So, with luck, we'll not get all caught in another trade war (first the EU, then China... who's next, Japan?). No, neither the WTO nor the IMF are amused. Yes, the dollar did go south on these news. No, this doesn't look good for the Miami talks in a couple of days either. And, yes, this is a headache-inducing piece of news. I very much hope that the Bush administration economists are thinking about where the line is after which resignation-on-principle is the best option......

Posted by DeLong at 07:55 AM

November 17, 2003
Treasury Secretary Snow Further Shreds His Own Reputation

Treasury Secretary Snow further shreds his own reputation. In general, it's not good to say things that leave everyone wondering whether you are a total liar or a complete fool: Forbes.com: U.S. Treasury's Snow says steel duties were useful: U.S. Treasury Secretary John Snow said on Monday that big tariffs on imported steel imposed in March 2002 had been useful, adding that the decision over whether to scrap or keep them lay with U.S. President George W. Bush. "I wasn't part of the administration when they were (imposed) but I think they served a useful purpose for that time and we await what the President's final decision will be in response to the WTO action," Snow said from London in an interview with the CNBC cable television network. The World Trade Organization again ruled the tariffs illegal last week... It is also not good to be so blatantly disloyal to your subordinates: it is not good to say that George W. Bush knows more about what good economic policy is than the staff in Treasury International Affairs who tried to block the steel tariff, and who now work for Snow....

Posted by DeLong at 09:48 AM

November 15, 2003
Living in the 21st Century

Marcello the Pygmy Chimpanzee muses: BONOBO LAND: I don't know what a XIXth (or XXth) century englishman would say, if we told him that English unions would one day protest against losing skilled jobs to India. And he concludes that this is yet more evidence that we are in fact living in the XXI Century....

Posted by DeLong at 06:49 PM

November 14, 2003
George W. Bush and the WTO

Of all the distinctly odd things this Bush administration has done in the field of economic policy, perhaps the oddest is the steel tariff. As George W. Bush's economic advisers told him two years ago, have told him many times since, and are telling him today, tariffs on steel imports provide every steel-using American industry's foreign competitors with a powerful cost advantage. The steel tariff has surely cost America more manufacturing jobs than it has saved. It's not only bad economics, it's bad mercantilism as well. Now the World Trade Organization has said the obvious--that this tariff was a violation of our treaty obligations. Thus the Bush administration has a chance to back down, and it has a chance to save face by blaming the World Trade Organization, and Bill Clinton who got us into this WTO business, for its failure to fulfill campaign promises made to America's steelworkers. But consider. Nobody is happy with this Bush administration's trade policy, especially not those who hoped to see moves toward freer trade that would strengthen the American economy. But isn't it very likely that Bush administration trade policy would have been even worse for America in the absence of the system...

Posted by DeLong at 04:36 PM

November 10, 2003
Why Oh Why Are We Ruled by These Fools? Part CCCXXVII

The Wall Street Journal reports on the downward spiral that is the Bush administration's steel tariff: WSJ.com - WTO Appeals Panel Holds U.S. Steel Duties Are Illegal: ...U.S. duties on imported steel introduced last year are illegal under international trade rules, a World Trade Organization appeals panel ruled Monday. The panel upheld the major findings of a July ruling -- issued following a complaint from the European Union and seven other countries -- that said the duties break WTO rules. EU Trade Commissioner Pascal Lamy said in an interview that the EU will impose $2.2 billion in sanctions unless Washington withdraws its tariffs in 35 days. Other countries also could join in. When the U.S. introduced the three-year duties of up to 30% in March 2002, President Bush claimed they were justified to protect domestic steel producers during a period of restructuring. Monday's appellate ruling had been expected. The July report, which said that the U.S. failed to prove that its industry had been harmed by a sudden flood of cheap imports -- a precondition for imposing such duties under WTO rules. That report also said it was illegal for Washington to exclude imports from the countries with which it...

Posted by DeLong at 10:52 AM

November 08, 2003
Disappointing News on Free Trade

The Economist reviews the disturbing state-of-play on trade policy. As I've said before, one of the--few--good things a Republican administration does is push for free trade. But not this one: Economist.com | Trade: After the disastrous meeting of the World Trade Organisation (WTO) in Cancún in September, trade relations between the European Union and the United States, who had worked closely if tetchily together before the meeting, have deteriorated fast. Several long-simmering transatlantic disputes, over steel and export subsidies in particular, now threaten to boil over. Yet just when compromise is needed, a still largely jobless economic recovery in America has boosted protectionist leanings in Washington, threatening to make things worse. Mr Lamy's most pressing reason for visiting Washington was to see how far Congress had managed to get in eliminating the America's Extraterritorial Income (ETI) tax break.... The European Union (EU) says it will start slapping up to $4 billion in new tariffs on American products next March if legislation to repeal ETI is not in the president's hands by New Year's Eve.... Indeed, neither proposal eliminates ETI subsidies immediately: they would be phased out over several years. With election year looming, and job growth anaemic, congressmen are loth...

Posted by DeLong at 06:16 PM

November 04, 2003
China Bashing as Political Cowardice IV

James Sasser believes that Bush administration (and bipartisan congressional) China-bashing is being made by those who have no conception of what good long-run economic policy is and no regard for the long-run national security of the United States: FT.com Home US: ...China's progress toward reform has been slow, sometimes meandering, but ultimately steady and entirely real. China's commitment to free market reform has been consistent and remains a powerful force. Its efforts to comply with the terms of its WTO accession, while imperfect, have been favourably received by many US exporters. China has begun to dismantle its massive tariff regime and is opening its markets to a wide range of foreign goods and services. As a result, US exports to China increased by more than 15 per cent between 2001 and 2002. China has also worked with the US government on several post-September 11 2001 anti-terrorism initiatives, including a recent agreement allowing US customs officials access to the ports of Shanghai and Shenzhen in order monitor container traffic destined for the US. By western standards, China's record on human rights continues to be tragically inadequate; no one is suggesting that its pace of democratic reform is as rapid as we...

Posted by DeLong at 05:05 PM

October 30, 2003
China Bashing III

The Wall Street Journal covers the fine art of China-bashing: WSJ.com - The Fine Art of China-Bashing: Commerce Secretary Donald Evans said in Beijing Tuesday that U.S. patience is "running thin" with China's "unfair" trade practices and that Washington "will not tolerate a stacked deck." President Bush last week urged the Chinese to allow the yuan to move with the market, implying that China was keeping the currency artificially weak to gain a trade advantage. Both Mr. Snow and U.S. Trade Representative Robert Zoellick went to China recently to make the same case. The U.S. aim, administration officials say, is to get China to budge at least a little on the currency -- perhaps by revaluing the yuan if not letting it float -- and to push ahead on reforms to which Beijing committed itself when it joined the World Trade Organization nearly two years ago. High on the list of irritants are discriminatory regulations, rampant piracy of American software and movies, and barriers that keep U.S. banks and other service companies out of China.... But the administration's strategy carries plenty of risk. If the Chinese don't take dramatic steps -- and few expect they will -- Congress may feel...

Posted by DeLong at 09:33 PM

October 27, 2003
Why Oh Why Are We Ruled by These Fools? Part CCCXXIII

Complete bulls*** from the Commerce Secretary: FT.com Home US: Don Evans, the US commerce secretary, was on Tuesday to tell China it must accelerate efforts to reduce state control over its economy or face further trade disputes with the US that could result in punitive sanctions. In the strongest language yet used by a senior US official, Mr Evans said, in comments prepared in advance: "The advantages from trade only spread when countries open their economies. But when one economy is organised under principles inconsistent with that free-market model, friction and injury in the trading relationship are inevitable." To translate: "We in the Bush administration are really scared. We used the fact of the recession to ram through tax cuts that did very, very little to boost employment. And now that we've had some bad economic luck on the employment front and are facing the possibility of being the first administration since Herbert Hoover's to see employment decline, we're scared. We're really scared. "Let's try to blame it on the Chinese." If the White House political staff starts turning this particular burner on any higher, it's time for some resignations-on-principle from the Bush administration....

Posted by DeLong at 09:12 PM

October 24, 2003
China-Bashing as Political Cowardice

The Economist condemns China-bashing: Economist.com | China and the world economy: WORRIED about the loss of manufacturing jobs? Anxious about America's huge trade deficit? Trying to explain the cause of deflation in Japan? In tough economic times, politicians need someone to blame. And today the rich world's scapegoat of choice is China. When George Bush met China's president, Hu Jintao, at the APEC summit in Bangkok this week, he was under intense pressure from manufacturers and congressmen back home to persuade China to revalue its currency, the yuan, currently pegged at 8.28 to the dollar. Bosses in industries from clothing and toys to furniture and consumer electronics are complaining about "unfair" Chinese competition. They claim that, by keeping the yuan artificially low, China is stealing jobs from America and causing a record trade deficit. Legislation has recently been proposed in Congress to levy big tariffs on imports from China. The relocation of manufacturing jobs to low-wage economies has been happening for years. But concerns are intensifying now that service-sector jobs, such as software programming and call centres, are shifting too, as firms take advantage of cheap telecommunications to use workers in India and, more recently, China. China-bashing is also popular...

Posted by DeLong at 11:54 AM

October 21, 2003
"Read Your Script!" Nightly Business Report (October 27, 2003)[TV]

These days it is difficult, to put it mildly, to make much progress toward freer trade when a Democrat is in the White House. Labor unions contribute an awesome share of resources--money and volunteers--to Democratic campaigns. And the fallout from the macroeconomic policy mistakes of the 1980s convinced America's labor unions that freer trade destroyed their jobs and is not their friend. By and large they are wrong, but that's not an argument any Democratic politician is or will soon be eager to take on. It is supposed to be much, much easier to make trade freer when Republicans are in the White House. The downsides of change brought about by trade--displaced workers and shuttered no-longer-competitive factories--aren't the Republicans' core concerns. Their core concerns are the foreign-funded factories and the booming high-tech and leading-edge exports that freer trade expands. They are supposed to focus on the creation of wealth: growing the pie. The Democrats are supposed to focus on the distribution of wealth: reslicing the pie to diminish the extremes of wealth and poverty, and to make sure that children don't grow up in dire poverty that robs them of real equality of opportunity later on. But these current Republicans...

Posted by DeLong at 02:44 PM

October 19, 2003
Collapse In Cancun

Doug Henwood--perhaps the last honest true leftist writing about the economy who knows how to count--wonders whether he is on the side of the angels: Collapse in Cancun: Collapse in Cancún | by DOUG HENWOOD [posted online on October 10, 2003] The mid-September failure of the World Trade Organization's ministerial conference in Cancún was widely cheered on the left. A Global Exchange (GX) press release described it as a "failure...for the giant transnational corporations that are manipulating the trade agenda to engineer a power grab that will dramatically reduce the strength of democratically elected government."... I love the movement behind those protests and consider myself part of it. I was in Seattle in December 1999 and contributed to this magazine's coverage. It was one of the most exhilarating weeks of my life.... But after the wreckage at Cancún, we need to think about a few things.... [T]he WTO was never really the institution its critics said it was. From the outset, it wasn't really dominated by big capital in the rich countries. It's a one-country, one-vote system, like the UN's General Assembly.... What might a weaker WTO mean? There was no sign of disappointment coming from the Bush Administration.... Zoellick...

Posted by DeLong at 08:51 PM

October 07, 2003
Patient Explanations

Martin Wolf patiently explains that the U.S. and China's common interests are what is important--not the possibility that China-bashing can be used by the Bush administration for short-run political advantage: FT.com Home US: In the late 19th and early 20th centuries, the failure to cope with the rise of Germany, Japan and the US led to two world wars and an economic calamity. After the second world war, the US confronted a communist superpower, the Soviet Union, and the rapid rise of its new ally, Japan. While the first conflict was much the more dangerous, some Americans worried as much about the second.... China seems suited to a future role as public enemy number one. It is a dictatorship... the world's largest population, growing military capacity... most dynamic economy.... Congress is responding to complaints about China's rising bilateral surplus and undervalued currency. Further ahead, geopolitical conflict could readily return.... we need to distinguish the two aspects. Economics is a positive-sum game: everybody can become richer together (unless resource constraints limit growth), something that is too often misunderstood. Political power is a zero-sum game, since only one country can be the most powerful. But outright conflict is almost always worse than...

Posted by DeLong at 02:09 PM

September 22, 2003
The International Trade Commission Should Be Ashamed

The International Trade Commission should be ashamed of itself for pulling its punches: WSJ.com - Steel Tariffs Pose Quandary for Bush: The steel-consuming industries were clearly disappointed that the ITC didn't back their claims that they suffered massive job losses due to the tariffs. The commission concluded that auto-parts makers and similar industries were hit with steep price increases last year.... The report noted that earnings among steel consumers diminished by more than $600 million in the past 18 months, but that more jobs were lost in steel-consuming industries [in the year] before tariffs were implemented than [in the year] after... From March 2001 to March 2002--the year before the tariffs--real GDP grew by 1.0% and the unemployment rate rose from 4.2% to 5.6%. From March 2002 to March 2003--the year after the tariffs--real GDP grew by 2.2% and the unemployment rate only crept up from 5.6% to 5.7%. Do you think that the unfavorable macroeconomic conditions--the "recession," it is called--in the year before the tariffs had something to do with steel-user job losses in that year? If so, you're a lot smarter (or at least a lot more honest) than the hacks who write reports for the International Trade...

Posted by DeLong at 07:57 PM

September 13, 2003
Why Oh Why Can't We Have a Better Press Corps? Part CCCXXVIII

Today it's the New York Times that makes me want to bang my head against the wall: As Factory Jobs Disappear, Workers Have Few Options: But in June, Mr. Greathouse, 55, lost his job at the Hoover vacuum cleaner factory here, and with so many other factories laying off people, he is at a loss about what to do. "What does it do when you take away all these jobs from people who support families, who raise families?" he asked. "Manufacturing has been the strength of this country. If we can't make anything here anymore, what does that do? The fabric of this society is falling apart." Mr. Greathouse has a lot of company. In three years, Ohio has lost more than 160,000 factory jobs, representing one-sixth of its total. That is but a small fraction of the 2.7 million manufacturing jobs lost nationwide in those three years, many of them because of imports. Some economists say that even with a boom all those jobs are not likely to return. Factory unemployment has snowballed into a huge social and political issue across the Midwest, after manufacturing in the region boomed in the 1990's. President Bush gave a speech about manufacturing...

Posted by DeLong at 11:01 PM

September 10, 2003
Enemies of the Future

Reason's Ronald Bailey bangs his head against the wall when he listens to "activists" like Vandana Shiva and Will Allen, and contemplates the policies of the EU and the Bush Administration: Reason: The EU is far from alone in deserving blame for this trade tragedy. When crop prices sank, the Bush Administration dumped the Freedom to Farm program that was eliminating most US agricultural subsidies. To satisfy the electorally important US farm lobby, Bush bumped up farm subsidies by $175 billion over the next ten years. The Washington, DC-based International Food Policy Research Institute recently concluded, "Protectionism and subsidies by industrialized nations cost developing countries about $24 billion annually in lost agricultural and agro-industrial income." To put this figure in perspective, WTO figures show that the world's 40 or so least developed countries exported a total of only $38 billion worth of all goods in 2002. This is a drop in the bucket; in 2002, total world merchandise exports were $6,240 billion (or $6.24 trillion in American English). The CNE report concludes that Africa in particular suffers from the developed countries' agricultural subsidies. Just how desperate the situation is in sub-Saharan Africa is made clear by British demographer Angus Maddison's...

Posted by DeLong at 07:01 AM

August 27, 2003
Why Don't Mexico's Urban Poor Count?

I was telling my class yesterday that one of the principal benefits of thinking like an economist is that the analytical framework forces you to think systematically. Here's an example of Oxfam not doing so: U.S. Corn Subsidies Said to Damage Mexico: The more than $10 billion that American taxpayers give corn farmers every year in agricultural subsidies has helped destroy the livelihoods of millions of small Mexican farmers, according to a report to be released on Wednesday. Prepared in advance of critical trade talks next month, the report by Oxfam International argues that the subsidies given American corn farmers allow them to sell their grain at prices far below what it costs to produce. That has led to cheap American corn flooding the Mexican market and pushing the poorest Mexican farmers out of business, the report said. "There is a direct link between government agricultural policies in the U.S. and rural misery in Mexico," according to the report entitled, "Dumping Without Borders: How U.S. agricultural policies are destroying the livelihoods of Mexican corn farmers."... Trade and development experts at the World Bank say that reducing or eliminating the agricultural subsidies and tariffs of wealthy nations would help developing nations...

Posted by DeLong at 07:05 AM

August 26, 2003
1100 Words on Service-Sector Outsourcing

We economists don't spend enough time pushing the political arguments for freeing-up trade and accelerating the development of poorer countries. We feel that the economic case alone is so strong that that should be sufficient. FT.com / Comment & analysis: ...On the political side, does anybody really want Indians and Chinese in 50 years' time - the 3bn educated citizens of what will then be industrialised economies and proud countries - to remember that western Europe and North America took whatever steps they could to slow Indian and Chinese economic growth in the first half of the 21st century? Democratic politics will produce strong pressures to compensate and assist those who work in industries that will be battered by foreign competition. But, please, let the compensation and assistance take the form of social insurance rather than trade protection....

Posted by DeLong at 09:18 PM

August 21, 2003
International Trade Statistics 2002

WTO | Trade Statistics - International Trade Statistics, 2002...

Posted by DeLong at 04:14 PM

No Free Traders in Import-Competing Industries

The Angry Bear reads my comments section and discovers that people who work in industries where they fear foreigners are about to become internationally competitive lose all their commitment to free trade: Angry Bear: There an interesting discussion going on on Brad DeLong's blog about outsourcing to foreign countries. DeLong discusses international trade in general in a nice way, and tries to convince people that trade is good for them. For the record, I generally agree with him about the benefits of international trade. What I find really interesting about the discussion, though, is that there are so many comments from blog readers who are up in arms about international trade -- now that it's hitting them for the first time. What I conclude is that outsourcing to India and China of IT services, programming, call-centers, etc. is actually affecting internet users, who I think have only benefited from trade up to now. All of a sudden they've started to worry about international trade, as they see their own jobs potentially moving overseas. It's a natural reaction, of course, and I don't at all blame anyone for feeling nervous about losing their job -- I would, too. But I would...

Posted by DeLong at 04:12 PM

August 19, 2003
Outsourcing Our Future?

Dan Gillmor and others are worried that we are outsourcing our future. Let's begin by clearing away some underbrush. First of all, the number of jobs in the United States is not set by what happens on the sea lanes--on what exports and imports the container ships carry from port to port. The number of jobs is set in the Eccles Building, by the Federal Reserve, which tries to hit the sweet spot: high enough demand to produce effective full employment, without so much demand that vacancies become so abundant as to lead inflation to run away. Sometimes the Federal Reserve does a good job and is lucky, and we have full employment with price stability. Other times the Federal Reserve is unskillful or unlucky, and we have accelerating inflation or high unemployment. It is certainly true that what happens in international trade affects employment in America. But the Federal Reserve can and does offset and neutralize impacts of trade that push employment away from where the Federal Reserve thinks the sweet spot of full employment is. So what, then, is the impact on the American economy when Singapore educates its people to become competent network developers, or India educates...

Posted by DeLong at 06:25 PM

July 11, 2003
WTO Says U.S. Steel Tariffs Are Illegal

Surprise, surprise: WSJ.com - WTO Says U.S. Tariffs On Steel Are Illegal: GENEVA -- The World Trade Organization ruled Friday against heavy import duties on steel imposed by the Bush administration, saying they violate global trade rules. The European Union and seven other countries had complained that the duties -- supposed to protect the U.S. steel industry from cheap imports -- were unfairly hurting their own producers. "This is not just a partial victory, this is a full victory. We have been given satisfaction on all accounts," said EU spokeswoman Arancha Gonzalez. In a joint statement, the eight complainants called on the U.S. to remove the measures "without delay." The EU said it was ready to impose $2.2 billion in retaliatory duties on U.S. imports. Mr. Bush introduced the "safeguard" duties of as much as 30% on steel products in March of last year. The administration argued the tariffs met WTO provisions allowing temporary duties for as long as three years to protect a domestic industry from a flood of cheap imports and give it time to restructure. Mr. Bush, during his 2000 presidential campaign, had vowed to protect the domestic steel industry -- a pledge seen as pivotal to...

Posted by DeLong at 07:42 AM

June 05, 2003
Gains From International Trade and Investment

An Irish-Arizonian-Australian cross-disciplinary alliance of Kieran Healy and John Quiggin is thinking about Pierre-Olivier Gourinchas and Olivier Jeanne's brand-new "The Elusive Benefits of International Financial Integration"--the conclusion of which is that in standard neoclassical models freeing up capital flows across nations has the capability to boost economic welfare by an amount on the order of magnitude of one percent: John Quiggin: (Small) gains from trade: (Small) gains from trade: Kieran Healy links to a paper by Pierre-Olivier Gourinchas and the missing-from-the-web Olivier Jeanne in which a calibrated growth accounting model is used to show that the gains from unrestricted capital mobility are likely to be of the order of 1 per cent of GDP. Gains from risk sharing aren't mentioned but other papers are cited to say that these are of a similar magnitude. Those who listen to the general pronouncements of economists might be surprised by the modest size of the estimated gains. But for those who have looked at similar exercises in the past there is no surprise here. One of the better-kept secrets of economics is the fact that most studies suggest that the replacement of a typical high-tariff regime (say Australia's in the 1960s) will yield...

Posted by DeLong at 07:09 AM

June 03, 2003
Time to Bang My Head Against the Wall Once Again

Back when George W. Bush "won" the presidential election of 2000, I said that there was at least one bright spot: under the Clinton administration making progress on freeing up world trade had been a very hard slog. Republican administrations, I said, have a much easier job advancinge the free trade ball because of their different constellation of key domestic interest groups they must appease. I was, once again, an idiot. I had no grasp of how incompetent and how substance-free George W. Bush and the key members of his team were. I really don't understand why Bob Zoellick hasn't quit his job as Special Trade Representative yet: he could make more money, enhance rather than diminish his reputation, and do more to put pressure on George W. Bush and company to liberalize trade from outside the administration than it appears he can from inside. Today's Wall Street Journal has some details on the latest missed opportunity: WSJ.com - World Leaders End Summit; Farm Funds Stymie Progress: EVIAN, France -- While world leaders gathered here insisted consumers and firms should be more optimistic about the global economy, they failed to make headway on an issue that would make them feel...

Posted by DeLong at 11:52 AM

May 22, 2003
Parma-Style Ham

I can understand that one might want to decide that truth-in-labeling requires that prosciutto di Parma be cured near Parma, that champagne be fermented in Champagne, et cetera--that if you want to cure prosciutto outside of Parma, call it Parma-style ham. But slicing? By what weird train of thought is slicing a key part of the production process? Economist.com: ..."HAM-FISTED". That was the reaction of the British supermarket chain, Asda, on learning that it had lost its court battle to slice and package prosciutto di Parma anywhere outside the Italian region which gives the world-famous delicacy its name. The ruling from the European Court of Justice was a victory for the 200 or so producers of Parma ham. They had launched their legal action against Asda in 1997 and an initial opinion from the court?s advocate-general last year had found in favour of the retailer; so the final verdict came as a welcome surprise for the Italians. Their victory, though, will do nothing to convince the rest of the world that the European Union is serious about freeing trade and becoming more competitive. The case hinged on the court's interpretation of geographical indications--EU-protected trademarks that recognise the importance of products...

Posted by DeLong at 11:52 AM

April 17, 2003
Comparative Advantage Creeps Into the White-Collar Service-Sector World

Comparative Advantage Creeps Into the White-Collar Service-Sector World The invention of the iron-hulled steam-powered ocean-going freighter in the mid-nineteenth century transformed transoceanic international trade from an exchange of low-weight high-value manufactures and agricultural products with interesting flavor or neurological properties into an exchange of nearly all goods--even high-weight low-value ones. As the price of ocean transport dropped through the floor, even small differences in nation-specific prices could drive large amounts of trade. Today we are going through something similar, but this time it is the price of sending bits--information--around the world that is dropping through the floor. This means that tomorrow's international trade may well be about performing information-processing tasks in whatever country, far from the ultimate client, the task can be performed most cheaply. Here (sent to me via Dave Farber's IP mail list) Chidanand Rajghatta looks at India's growing potential comparative advantage in the preparation of U.S. IRS Forms 1040. Every industry facing foreign competition finds some reason that the presumption in favor of free trade does not apply to them, and international trade in tax preparation is no exception. Mr. Rajghatta finds Lloyd Caroll, who claims that the "very notion of transmitting confidential tax data... to any...

Posted by DeLong at 11:17 AM

March 18, 2003
Notes: Gordon Hanson on Mexico

More information on how NAFTA has been (primarily) a blessing and (secondarily) a curse to Mexico... What Has Happened to Wages in Mexico since NAFTA? | Gordon H. Hanson | NBER Working Paper No. w9563 | Issued in March 2003 Abstract: In this paper, I examine the impacts of trade and investment liberalization on the wage structure of Mexico. Part one of the paper surveys recent literature on the labor-market consequences of Mexico's economic reforms in the 1980s. Mexico's policy reforms appear to have raised the demand for skill in the country, reduced rents in industries that prior to reform paid their workers high wages, and raised the premium paid to workers in states along the U.S. border. These changes have resulted in an increase in wage dispersion in the country. Part two of the paper examines changes in Mexico's wage structure during the 1990's. In the last decade, Mexico has experienced rising returns to skill, which mirror closely wage movements in the United States. There is, however, little evidence of wage convergence between the two countries. Regional wage differentials in Mexico have widened and appear to be explained largely by variation in regional access to foreign trade and investment...

Posted by DeLong at 09:52 AM

February 18, 2003
Free Trade Simply Not a High Priority

The Economist writes about how free trade is simply not a priority for the governments of the industrial core--not for Japan, not for Europe, and certainly not for the Bush Administration. Given first-world attitudes, I cannot see how the Doha Round can end in anything but a very minor fig-leaf of an agreement. Economist.com: ...NEVER do today what can be put off till tomorrow. The trade ministers from 22 countries, whose three-day meeting in Tokyo ended on February 16th, managed to live down to their reputation for a reluctance to compromise?and enthusiasm for delay. Hardened trade negotiators are used to deadlines repeatedly missed, crisis talks at the eleventh hour, and second-best solutions. But the outcome of the Tokyo meeting was nevertheless disappointing for those hoping that the Doha round of trade negotiations, conducted under the auspices of the World Trade Organisation (WTO), were going to be different. For a time it looked as if they were. When the round was launched in the Qatari capital in November 2001, the atmosphere was one of rapprochement between the rich countries and their poorer neighbours, and between those rich countries that had been at loggerheads on trade issues. The aftermath of the attacks...

Posted by DeLong at 07:00 AM

February 11, 2003
Not Serious on Freeing-Up Trade

WASHINGTON, FEB 10--The Bush Administration's first act in its Free Trade Agreement of the Americas negotiations is to take all discussion of agricultural subsidies off the table. This is not good. To say you won't even discuss what is the major hoped-for objective of the other partners in the negotiation is a very bad negotiating strategy--or is a very bad negotiating strategy if you want an agreement. Bob Zoellick has got to know better. As the first stage in negotiations to expand free trade throughout the Western Hemisphere, the Bush administration is offering to lift all tariffs on textiles and apparel within five years. The proposal will be presented on Tuesday by Robert B. Zoellick, the United States trade representative, who prepared the offer to cover duties on everything from beef to lamps while making special concessions for the poorest nations, a senior trade official said. The goal, Mr. Zoellick said, is the eventual elimination of duties on goods and services from throughout North and South America. But the administration will refuse to discuss reducing America's multibillion-dollar agricultural subsidies in the negotiations because they are not tariffs, the senior official said....

Posted by DeLong at 04:32 PM

A Short Dialogue on International Trade in Agricultural and Fishery Products

"Okay. One of the things that we are going to eat for lunch has travelled 9000 miles--almost halfway around the world--to land on our table. What is it?" "Bananas!" "Very good guess. But no. Bananas come from the Caribbean and Central America, and travel only 3000 miles or so to get here. It's the smoked salmon, from Tasmania, island off of the southeastern tip of Australia." "I've heard that most animals native to Tasmania are endangered. Is that true?" "BA-NA-NAS!" "It's certainly true that large Tasmanian marsupials are under very heavy pressure from introduced Eurasian forms that fill the same niches..." "BA-NA-NAS HAVE NO THUMBS!" "But does anybody have an idea why I would buy smoked salmon from Tasmania--Royal Tasmanian brand?" "So that you can torture your children with another boring lecture about international trade, the international division of labor, and the importance of human pwogwess through the mutual weduction of twade bawwiews?" "Plausible, but not true in this case..." "BANANAS STAND UP STRAIGHT!" "Because they were cheap?" "Yes, exactly, why were they cheap--half the price of Alaskan smoked salmon?" "BANANAS HAVE NO THUMBS!" "Either because you got a bargain, or because you don't know something about the quality of...

Posted by DeLong at 03:05 PM