Category Archives: Publications

Agenda for the 116th Congress: Trade

The Competitive Enterprise Institute’s new agenda for Congress, “Free to Prosper,” is out. It has an entire chapter devoted to trade, which will be a busy issue for years to come. To cut to the chase, here are our specific recommendations:

  • Repeal Section 232 of the Trade Expansion Act of 1962.
  • Repeal Sections 201 and 301 of the Trade Act of 1974.
  • Refuse to pass legislation enacting retaliatory trade barriers.
  • Institute a rule explicitly forbidding the president from enacting retaliatory trade barriers.
  • Pursue a bilateral trade agreement with the United Kingdom.
  • Pursue a bilateral trade agreement with the European Union.
  • Pursue either a bilateral or a multilateral trade agreement with China.
  • Oppose industries who want to burden future trade agreements with trade-unrelated provisions on labor, environment, intellectual property, and regulatory “harmonization.”

President Trump’s doubling of tariffs has already cost the economy almost 1.8 percentage points of growth. That means 2018’s 3.4 percent third quarter growth could have been 5.2 percent instead. If the economy veers into recession in the near future, President Trump’s trade policies will likely have played a major role. Congress needs to act as soon as possible to prevent further damage.

Our trade policy recommendations follow four general themes that have bipartisan appeal—important in a newly divided Congress.

The first theme is that the executive branch has grown too powerful. Only Congress has the rightful authority to tax. The president has abused the tariff-making authority Congress delegated back in the 1960s and 1970s with Sections 232, 201, and 301. The time has come for Congress to take back that power so no president cannot further abuse it.

The second theme is to move on from the “reciprocity” model for tariffs—the idea that America will only lower its tariffs if other countries also lower theirs. American tariffs hurt American consumers and producers regardless of what other countries do. To paraphrase the renowned Cambridge economist Joan Robinson, when other countries dump rocks into their own harbors, the solution is not to dump rocks into our own harbors.

Not only have America’s higher tariffs failed to convince other countries to lower their trade barriers, our trading partners have raised their in retaliation. American consumers and producers are being hit twice as hard—once by our own tariffs, and again by other countries’ retaliations. That’s more rocks and less harbor. Congress needs to do some dredging, and quickly.

Third, Congress should work with the executive branch on liberalizing trade with other countries. New agreements with the United Kingdom and European Union should emphasize not just lower tariffs, but the concept of regulatory equivalence. Basically, this means that if a product is deemed safe for people in the UK to use, then the U.S. government should automatically deem it safe as well. Such a policy would reduce compliance costs for each country’s domestic producers, reduce frictions to international commerce, and serve as a positive foreign policy gesture to boot. Note that this is different from regulatory harmonization, in which countries agree to have identical regulatory policies. Instead of harmonization’s uniformity, equivalence has an ethos of “if it’s good enough for you, it’s good enough for me,” while allowing countries to continue to experiment with new policies that might be more effective.

China is more complicated. President Trump pulled the U.S. out of the Trans-Pacific Partnership (TPP), which still has 11 member countries, with more likely to join. The binding agreement commits China to make many of the reforms the Trump administration has unsuccessfully been pressuring China to make via higher tariffs. It is not too late for the U.S. to rejoin the TPP.

The fourth theme is that future trade agreements should stick to trade issues wherever possible. This policy horse left the barn long ago, but it is important to remember for when unintended consequences come to pass in the future. In the short term, it can be expedient to add trade-unrelated labor provisions to buy union support, or environmental provisions to buy support from green energy companies and activists. It is a legitimate question whether the agreements could pass without the support such provisions can purchase. But it is just as easy to add poison pill-style trade-unrelated provisions that could torpedo an agreement. If the long-run goal is to create more wealth for more people—and it should be—trade agreements should stick to trade issues, and separate issues should be treated separately.

For more, read CEI’s “Free to Prosper: A Pro-Growth Agenda for the 116th Congress.” Previous posts in the Agenda for Congress series:

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What’s on Tap for Trade in 2019

At noon today, the 116th Congress convened. Over at Fox Business, Iain Murray and I look at what the coming year has in store for the new Congress on trade. The two biggest items are the NAFTA/USMCA vote, which isn’t a big deal, and China, which is:

For Congress, the most important 2019 trade priority is reclaiming the tariff-making authority it delegated away in the 1960s and 1970s. Under the Constitution, only Congress has taxing power. Tariff delegation has long since served its purpose, and should have come back to Congress long ago.

The trade damage done in 2018 will take years to undo. The new NAFTA doesn’t matter much either way, but abandoning a failed tariff strategy is crucial.

The executive branch should rejoin the Trans-Pacific Partnership and engage the World Trade Organization’s dispute resolution process to encourage reform in China. But Congress has plenty to do, too. The time to start is now.

Read the whole thing here.

An Executive Order to Shine Light on Dark Matter

Over at The Hill, Wayne Crews and I make the case for an executive order that would limit executive power. It’s more plausible than it sounds:

There is precedent for such executive action. Ronald Reagan, Bill Clinton, and Barack Obama all issued executive orders to increase transparency and ensure that federal agencies follow better rulemaking procedures…

An executive order can set a positive precedent that Congress can later expand upon and codify. Such an executive order should strengthen disclosure requirements for guidance documents, which are not always made public. They should be made available in a single location and a standardized easily searchable format. After all, people cannot comply with regulations they do not know about.

Read the whole piece here. Wayne develops the idea more fully in his recent study “A Partial Eclipse of the Administrative State.”

GM Layoffs, Tariffs, and Subsidies

Over at Fox Business, I explore three lessons policy makers should learn from General Motors’ announcement of 14,700 layoffs and five plant closures:

One, GM is being too shy about the reasons for the layoffs. President Trump’s tariffs have already cost the company a billion dollars. GM is skirting the topic, possibly to avoid political blowback—a strategy that is already not working.

Two, President Trump is right to want to end GM’s government subsidies, but for the wrong reasons.

Three, contrary to popular belief, U.S. manufacturing is healthy, despite GM’s bad news.

On that third point, real value-added manufacturing output recently set an all-time record, eclipsing the old mark set in 2007. As is often the case, popular fears are unfounded. Read the whole thing here.

Tariffs Won’t Achieve America’s Goals

Over at Morning Consult, Iain Murray and I have an op-ed explaining why tariffs are ill-suited to achieving the Trump administration’s economic and foreign policy goals:

We often talk about trade between nations as if it is done through the medium of government. But “Mexico” does not trade with “America.” The actual trade going on is between individuals, to the tune of billions of transactions a year. That trade is by definition win-win. Individuals only give something up if they expect something better in return.

That means the term “trade deficit” is incredibly misleading. When Americans buy $592 billion worth of goods from the European Union, and the EU buys $500 billion worth of goods from the United States, both sides are better off. Americans have gotten $592 billion worth of value from trade with the EU, while sending only $500 billion of goods across the Atlantic. The “deficit” is actually a surplus of value. Both sides win.

When policymakers think of aggregates instead of individuals, confusion reigns. In this case, President Trump thinks hurting the economy will help it. As economist Joan Robinson famously said, if another country dumps rocks into its harbors, the proper response is not to dump rocks in your own harbors.

There are better ways. Taking the remaining rocks out of America’s harbors will only help the U.S. economy, and give it more resources to achieve its other policy goals.

Read the whole thing here.

Common Myths and Facts about Trade

There are a lot of confusions on both sides of the trade debate. A short CEI WebMemo, published today, seeks to clear up three of them. Here’s the gist:

Trade barriers cause short-term job losses but have little long-term employment impact. Higher trade barriers do not improve other countries’ behavior. Finally, lowering trade barriers benefits a country’s economy, regardless of what other countries do.

Free traders have the better arguments in this policy debate, and it is not a close contest. But on employment, some free trade advocates overstate or misstate trade’s benefits. Some foreign policy analysts with little economics background believe a tough stance on trade will improve other countries’ bad behavior. We are finding out, especially with China, that this is not at all the case. Reform is possible, but tariffs actively harm such efforts. Finally, instead of negotiating for trade concessions, we might as well stop harming our own economy with trade barriers, even if other countries continue to harm their own. Trade is win-win cooperation; viewing it as adversarial is a lose-lose mistake.

Read the whole WebMemo here; it’s a quick two-page read. For a more detailed analysis of trade policy, see Iain Murray’s and my “Traders of the Lost Ark” paper.

New Paper: Traders of the Lost Ark

With the sudden reversion to mercantilist trade policies over the last year and a half or so, my colleagues and I decided some economic archaeology was in order. So Iain Murray and I, with contributions from Fred Smith, Marc Scribner, Daniel Press, and Ryan Khuranaco-wrote a a new “principles of” paper, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade,” which you can read online for free here. Daniel Hannan was kind enough to wrote a foreword.

Iain wrote a short blog post explaining our goal for the paper here.

Press release here.

The American Spectator’s Johnny Kampis did a nice writeup here.

As did World Trade Online, though it’s behind a paywall.

The paper was also mentioned in Politico’s Morning Money and Morning Trade newsletters.

The full paper is here.