Category Archives: Trade

Introduction to the Pacific Trade Negotiation

The discussion about the closed process around a trans-Pacific Partership was mildly of concern, though not totally surprising.  In general though there isn’t much in the way of issues raised just:  There might be something bad here…

My cousin has been asking me if I’m up to speed on the dangers of the Trans-Pacific Partnership (TPP). I explained to him that Paul Krugman had just declared that the TPP was no big deal, so I assumed it must be awful, but no–I didn’t really know much about it. After reading some of the information he sent my way, I am glad he alerted me to this important issue; I can see why Dean Baker chastised Krugman for his nonchalance, though Baker and I are worried about (slightly) different aspects of it. In this post, I just want to “introduce” Free Advice readers to the TPP, to make sure you know why more and more people are warning about it.

Here’s Wikipedia’s opening description:

Since 2010, negotiations have been taking place[9] for the Trans-Pacific Partnership (TPP), a proposal for a significantly expanded version of TPSEP. The TPP is a proposed trade agreement under negotiation by (as of August 2013) Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.[10]

The TPP is intended to be a “high-standard” agreement aimed at emerging trade issues in the 21st century.[11] On November 13, 2013, a complete draft of the treaty’s Intellectual Property Rights chapter was published by WikiLeaks.[12][13] This and other leaks have drawn criticism and protest of the negotiations from global health experts, internet freedom activists, environmentalists, organized labor, advocacy groups and elected officials, in large part due to the secrecy of the negotiations, the expansive scope of the agreement, and controversial clauses in the drafts leaked to the public.

The website The New American has a lot of good coverage of the TPP, but this essay from August 2013 is the single best one that gets one up to speed on some of the essential concerns. Here are some key excerpts (bold is mine):

The USTR [U.S. Trade Representative] “Fact Sheet” cites as evidence of its transparency efforts the number of consultations it has held with its selected trade advisory committees and privileged “Civil Society stakeholders.” It states, for instance:

Over the course of the TPP negotiations, USTR has conducted more than 147 meetings with the trade advisory committees. Since June 11, 2010, USTR has posted 110 TPP documents to a website for cleared trade advisors to review and provide comments.

This transparency boast actually exposes a dangerous feature of the TPP process: The TPP documents are not available to the average American citizen, only to “cleared trade advisors.” And who are the “cleared trade advisors”? According to the USTR, these are “representatives from industry, agriculture, services, labor, state and local governments, and public interest groups.” But, apparently, that does not include elected representatives of the American people, since members of Congress have been forced to plead, and threaten in order to get a peep at the secret TPP texts.

For instance, Senator Ron Wyden (D-Ore.), the chairman of the Senate Finance Committee’s subcommittee on International Trade, Customs, and Global Competitiveness, requested copies of the TPP draft documents but was stonewalled by the USTR. When Senator Wyden threatened to propose a measure in the Senate that would force transparency on the proc­ess, the USTR agreed to grant the senator a peek at the documents, though his staff was not permitted to see them. This type of secretive process has no legitimate place in our system of government, and it obviously puts Congress at a distinct disadvantage in the TPP process, since the real work of examining the detailed legal texts normally falls to congressional staff members who are often experts in particular areas of domestic and foreign policy.

Wyden spokeswoman Jennifer Hoelzer…pointed out, “An advisor at Halliburton or the MPAA [Motion Picture Association of America] is given a password that allows him or her to go on the USTR website and view the TPP agreement anytime he or she wants.”

As just one example of the enormous dangers that are lurking in the hundreds (or thousands) of pages of still-secret texts, consider the leaked TPP draft text on intellectual property that would threaten Internet freedom — as well as American sovereignty — with new TPP surveillance requirements. As The New American reported last year, the leaked document would mandate that TPP member nations enact regulations that require Internet service providers (ISPs) to privately enforce copyright protection laws. “Current U.S. law,” noted The New American’s Joe Wolverton, “specifically the Digital Millennium Copyright Act (DMCA), would be supplanted by TPP Article 16.3. This provision in the TPP draft document paves the way for a new copyright enforcement scheme that extends far beyond the limits currently imposed by DMCA.”

The Electronic Frontier Foundation pointed out the TPP threat to Internet freedom:

Private ISP enforcement of copyright poses a serious threat to free speech on the Internet, because it makes offering open platforms for user-generated content economically untenable. For example, on an ad-supported site, the costs of reviewing each post will generally exceed the pennies of revenue one might get from ads. Even obvious fair uses could become too risky to host, leading to an Internet with only cautious and conservative content.

The net effect would be to squeeze out the smaller, independent ISPs, further cartelizing our communications and news media, and eventually wiping out the burgeoning alternative Internet-based news media.

I’ll be returning to this topic in the future, but I wanted to at least make my readers aware of the controversy. The Obama Administration is seeking to restore “fast-track approval” powers on this, which would allow an up-or-down vote on the whole TPP without discussion of its individual components.

As a final point in this introductory post, let me say this: The problem with these “free trade” agreements is that some critics rely on centuries-old protectionist fallacies; they are afraid of “cheap imports.” Anyone familiar with Bastiat understands why such worries are misplaced.

However, those of us who believe in genuine free trade shouldn’t trust government officials when they title something a “free trade” agreement. It doesn’t take years of backroom negotiations to reduce tariff rates. No, something is really fishy with this TPP and other such deals.

Introduction to the TPP
Bob Murphy
Thu, 26 Dec 2013 22:38:01 GMT

Two foreign policy initiatives contrasted


Michael Giberson

Two foreign policy initiatives, both began in mid-March, one a year old and the other started ten years ago, have had dramatically different effects on the world. Eric Shierman celebrates the wiser of the two efforts:

I have considered writing about the Iraq War on the tenth anniversary of our collective, bi-partisan decision to make one of the greatest strategic mistakes in American military history, but it’s just too depressing to put words into sentences describing the cost in lives and treasure we paid….

Thus the most encouraging anniversary to reflect on is not our invasion of Iraq ten years ago this week, but the wise implementation of our free trade agreement with South Korea one year ago. … From that body of peer reviewed literature [on foreign relations] there has emerged little empirical evidence of a correlation between peace and the pursuit of ever greater military strength among states, but there is overwhelming evidence that the single most powerful pacific force in foreign policy is trade….

The empirical evidence is just overwhelming, … the more exposed people are to complex trading economies with a higher degree of specialization and division of labor, the more empathy they employ in their decision making and the more rational they are in seeking their own selfish ends through the voluntary cooperation of others. It’s not enough to know what you want; successful exchange requires a focus on what others’ want as well. This paradigm spills over into other aspects of our lives even when we are not aware of it.

Of course this is not the primary goal of free trade agreements, economic growth is. The pacifying effects of trade are merely a positive externality….

Worth reading the full thing.

Two foreign policy initiatives contrasted
Michael Giberson
Fri, 22 Mar 2013 13:41:06 GMT

The NYT is Upset that Wages in China Are Rising


Wow this is really getting incredible, yet another piece about how China is going to be suffering because it has a declining labor force. The big problem seems to be that we may not be able to count on cheap tee-shirts from China. The prescription is that Chinese people should have more kids so that we can have more cheap labor. The downside is that it will take 20 years before the kids born today will be able to join the labor force. 

That is only a slight caricature of the blogpost by the usually insightful Vikas Bajaj. The obsession with the declining labor force in China, and the nearly universal conviction that it is bad, displays a seriously confused view of economics.

Let’s say that China’s labor force declines at the rate of 1 percent annually for the next four decades. So what? This means that the price of labor will rise and the least productive jobs will go unfilled. This is what happened in the United States when people left the farms for better paying jobs in manufacturing. Farmers no doubt felt there was a labor shortage, but that is how market economies work. Less productive businesses go under, do Bajaj and his fellow China worriers want to stop technological progress?

In terms of being able to support a rising population of dependents, it is important to keep productivity growth in this picture. China’s economy had been growing at the rate of 10 percent a year. Even if this slow to 7 percent as many predict, it will allow workers to enjoy much higher after tax income even if an increasing portion of their wage is diverted to supporting China’s elderly population.

The arithmetic here is simply. If wages rise in step with productivity growth, then after 20 years wages will have risen by 287 percent. Even if the tax burden on workers increased by 20 percentage points over this period they would still have far more after-tax income than they had when the dependency rate was lower and the economy was less productive.

What is especially bizarre is that the obsession with the prospect of a declining population takes no notice of the horrible pollution problem that China faces in Beijing and other major cities and also the problem of global warming. A declining population will help to directly address both problems. The fact that China slowed its population growth was an enormous service to humanity. 

The NYT is Upset that Wages in China Are Rising
Sat, 19 Jan 2013 21:49:34 GMT

Free Trade Helps Governments Afford Progressive Policies–Does the Obama Administration get this?

Though I support the President, he does have too much interest in redistribution versus increasing economic opportunity.  I get where he wants to go:  more spread around wealth and income, and a rising tide raising all boats.  That said, I think he often wants to bring those at the top down, more than see those at the bottom do better.  His emphasis on new taxes focused narrowly on the wealthy instead of shared sacrifice to balance the budget for shared prosperity shows that I think.

We maybe seeing a similar blind spot in seeing what pays for progressive policy in the choice for World Bank President according to this.

Jagdish Bhagwati provides an argument for more trade liberalization that should be embraced by progressives, and in doing so makes the case against Obama’s World Bank nominee:

In fact, it is the rapid acceleration of economic growth in the major emerging countries that has reduced poverty, not only directly, through jobs and higher incomes, but also by generating the revenues governments need to undertake the public-health, education, and other programs that sustain poverty reduction – and growth – in the long term….

The problem with Kim, and presumably with the Obama administration’s development experts, is that they do not understand that successful development requires big-payoff pro-reform, pro-growth policies, not just small-payoff micro-level policies….

Kim is hardly likely to understand this dynamic. A decade ago, he cheered on the tirades against “neoliberal” reforms that, in fact, were the harbingers of higher growth and lower poverty around the world. The World Bank presidency should not be an apprenticeship.

Bhagwati suggests Ngozi Okonjo-Iweala and Laura Tyson as better choices.

Filed under: Uncategorized

Free Trade Helps Governments Afford Progressive Policies
Adam Ozimek
Fri, 06 Apr 2012 02:43:59 GMT

Reilly and Dobbs to Obama: Be More Socialist

Can anyone tell me what contemporary “conservatives” have as guiding principles?  It doesn’t seem to be freedom in any real sense.  It seems to that belligerent nationalism the main focus and hence:  endless desire for weapons and war, hostility to immigrants, imports, economic nationalism like exhibited here.

(February 24, 2012 08:29 PM, by David Henderson) I’m sitting in my hotel room in Chiang Mai, Thailand watching The O’Reilly Factor. I might as well have been watching Amy Goodman’s Democracy Now! The content was almost indistinguishable. O’Reilly and Dobbs were saying that Obama should be taking… (9 COMMENTS)

O’Reilly and Dobbs to Obama: Be More Socialist
David Henderson
Sat, 25 Feb 2012 04:29:05 GMT

Looking at China’s Real Estate Boom Before it Busts

NoOneOfAnyImport shared this.

I’ll just post the video, which was fascinating. I’d heard of China’s real-estate bubble before, but the scope of a booming but overbuilt real-estate sector is amazing.  The video really made that starkly real.  It’s the result of a centralized economy.

A few observations:

1. Clearly allocation of productive workers and resources is still not so good in a communist countries.  Strong conservatives gleefully point this out.

2. If more of Chinese labor was occupied in manufacture for export the competition with US workers might be even more painful for us.  Hooray for communism after all?  Strong conservatives might be less gleefully about this.  Overall though and in the long-run better use of Chinese productive capacity would benefit produce more benefits than costs.  But workers in US manufacturing would be hurt.

3. This is a kind of stimulus on steroids.  Keynesianism can produce full employment of a sort.  People are employed, but not in making anything there’s any voluntary demand for, except for speculation.  A point that isn’t useful to any one ideology.

4. Note though that apparently private investors are buying these empty pieces of real estate.  In the end apparently, this may wipe out much of the new Chinese middle class.  What happens if that happens?

5. China is still remarkably poor.  At least partially a failure of socialism.

More on the subject here:

Marginal Revolution

via Nouriel Roubini on Austro-Chinese business cycle theory.

China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

Commercial and high-end residential investment has been excessive, automobile capacity has outstripped even the recent surge in sales, and overcapacity in steel, cement, and other manufacturing sectors is increasing further. In the short run, the investment boom will fuel inflation, owing to the highly resource-intensive character of growth. But overcapacity will lead inevitably to serious deflationary pressures, starting with the manufacturing and real-estate sectors.

Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990’s – have ended with a financial crisis and/or a long period of slow growth.

Gains and Losses from Trade with China

A new analysis of this is available.  It supports that many people are works are hurt by trade with China.   These impacts are not just reduced wages, also some people dropping out of the labor market due to reduced opportunities.

It’s important to note this looks at the effects on labor only.  Low cost imports can and do benefit consumers, increase profits and benefit some laborers.

It is easy to show trade if beneficial, but while gains exceed loses.  There are losers, and for trade with China labor appears to be a loser overall.  the policy issue is how mitigate those loses since society as a whole is better off.

From the conclusion to a provocative paper by David Autor, David Dorn, and Gordon Hanson, entitled The China Syndrome: Local Labor Market Effects of Import Competition in the United States:

our study suggests that the rapid increase in U.S. imports of Chinese goods during the past two decades has had a substantial impact on employment and household incomes, benefits program enrollments, and transfer payments in local labor markets exposed to increased import competition. These e¤ects extend far outside the manufacturing sector, and they imply substantial changes in worker and household welfare.

…. The relationship between employment and (instrumented) import exposure is illustrated in Panel B of Figure 3.

Figure from Autor, Dorn, and Gordon (2011).

While there are losses along several dimensions (employment, wages, deadweight losses associated with transfers), there are also gains. Putting these together, the authors conclude:


Gains and Losses from Trade with China
Menzie Chinn
Tue, 05 Apr 2011 05:22:34 GMT