Archive | Trade

Protectionism and Beneficial Political Ignorance

As longtime VC readers know, one of my pet peeves is denouncing the harmful effects of widespread political ignorance and irrationality. As a general rule, the things voters don’t know often hurt them. On rare occasions, however, political ignorance can actually be beneficial. The issue of free trade and protectionism is one such example.

In this article, Chicago Tribune columnist Steve Chapman laments the two presidential candidates’ pandering to public ignorance about the benefits of free trade:

Both candidates indulge the superstition that while exports are good, imports and outsourcing are bad. In reality, it makes no sense to make something at home if we can buy it cheaper from elsewhere. The point of producing is to allow consumption. Raising the cost of consumer goods by shutting out imports makes us poorer, not richer.

Outsourcing is a competitive necessity in a global economy. If a U.S. firm can’t compete with companies producing in Mexico or China, it’s wiser to relocate its factories abroad than to go on losing money here.

The assumption promoted by Obama and Romney is that unless we act against the Chinese, our manufacturers will be unable to compete. In fact, the value of American manufactured goods, adjusted for inflation, has risen by 10 percent over the past decade.

That’s easy to forget because the number of jobs has shrunk—a consequence of rising productivity, which allows companies to do more with less. Another reason it’s easy to forget is that Chinese output has grown. But as of 2010, the World Bank says, the U.S. remains the world’s biggest manufacturer. And we are far better off with China exporting manufactures than exporting virtually nothing, as was the case a generation ago.

Economists across the political spectrum agree that free trade is better for the economy than [...]

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Is Fair-Trade Coffee All that Fair?

Purchasing certified fair-trade, organic coffee helps improve the living conditions of coffee farmers in developing nations, right? Not necessarily. As Lawrence Solomon reports, a new study published in Ecological Economics found that over a ten-year period certified organic and organic fair-trade producers became poorer relative to conventional producers. Solomon comments:

The fair-trade business is filled with contradictions.

For starters, it discriminates against the very poorest of the world’s coffee farmers, most of whom are African, by requiring them to pay high certification fees. These fees — one of the factors that the German study cites as contributing to the farmers’ impoverishment — are especially perverse, given that the majority of Third World farmers are not only too poor to pay the certification fees, they’re also too poor to pay for the fertilizers and the pesticides that would disqualify coffee as certified organic.

Their coffee is organic by default, but because the farmers can’t provide the fees that certification agencies demand to fly down and check on their operations, the farmers lose out on the premium prices that can be fetched by certified coffee.

To add to the perversity, it’s an open secret that the certification process is lax and almost impossible to police, making it little more than a high-priced honour system. Although the certification associations have done their best to tighten flaws in the system, farmers and middlemen who want to get around the system inevitably do, bagging unearned profits. Those who remain scrupulous and follow the onerous and costly regulations — another source of inefficiency the German study notes in its analysis — lose out.

Labeling coffee as “fair-trade” enables merchants to charge a premium, but it’s not clear those consumers who are willing to shell out extra money for “fair-trade” coffee are getting what they pay [...]

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The Compact Clause vs. the Multistate Tobacco Cartel

Over at Balkinization, guest blogger Michael Greve offers an excellent post explaining the Competitive Enterprise Institute’s pending cert. petition in a case challenging the tobacco cartel. In short, the 1998 Master Settlement Agreement for the lawsuits initiated by some state Attorneys General against the largest tobacco companies is a violation of the Compacts Clause. Article I, sect. 10, of the Constitution list some things that states may never do, and other things that states may only do with the consent of Congress.  The Compact Clause mandates: “No State shall, without the Consent of Congress…enter into any Agreement or Compact with another State…”

As Greve explains, the Supreme Court has not done much to enforce the Compact Clause for the last quarter century; but Greve points out that in 2009, the Roberts Court enforced another provision in section 10 (the Tonnage Clause) which had last been heard from in 1935. Even the Court’s most lax interpretations of the Compact Clause have not left the clause without meaning, and Greve persuasively argues that if the Compact Clause has any legal meaning, it must prohibit the MSA.

The CEI website has a page with links to various documents in the case, including an amicus brief in support of the cert. petition, signed by the impressively diverse and brilliant team of Kathleen Sullivan, Richard Epstein, and Alan Morrison.

As a practical matter, the MSA is a scheme by which a few tobacco giants, all of which were accused of decades of substantial misdeeds, including fraud, were allowed to create a system to cartelize the tobacco market, and to insulate their market shares against competition from smaller companies which had committed no wrong-doing. The VC’s Todd Zywicki participated in an antitrust professor amicus brief in favor of the cert. petition. That brief points out that [...]

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Labor Versus Clean Energy

Today the United Steelworkers filed a complaint alleging that China is unfairly (and illegally) subsidizing clean energy exports, such as wind turbines and solar panels.  China has become one of the world’s largest producers of such technologies, but the Steelworkers allege it has gained market share through unfair trade practices.  The Obama Administration has 45 days to respond to the complaint and determine whether it will take formal action.  The NYT reports on the story here.

This filing places the Obama Administration in an awkward position. On the one hand, the Administration would like to support its union allies.  On the other, the Administration has sought to promote the deployment of clean energy technologies, including solar and wind.  The legal merits of the steelworkers’ case aside, China’s actions have made the purchase and installation of wind and solar technologies less expensive in the United States.  Given that cost is the greatest barrier to the proliferation of wind and solar power, China’s allegedly unfair trade practices have been a blessing for clean energy development in the United States.

Bradford Plumer has more here. [...]

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Robert Fisk: Countries Holding Secret Meetings To Replace the Dollar

In the (UK) Independent, Robert Fisk, who has wide contacts in the Middle East, reports on “secret meetings . . . by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on” an Arab scheme that “will mean that oil will no longer be priced in dollars.”

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China‘s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. “Bilateral quarrels and clashes are unavoidable,” he told the Asia and Africa Review. “We cannot lower vigilance against hostility in the Middle East over energy

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