Tariffs Invite Corruption

Posted on September 7, 2018 | Comments Off on Tariffs Invite Corruption

The Commerce Department is offering exemptions to President Trump’s recent steel and aluminum tariffs. More than 2,000 companies have applied. That means that there are Commerce Department employees with the power to decide, in some cases, whether a company can continue to exist. Even if there is no existential threat to a company, a bureaucrat’s discretion could decide whether or not a company will be able to retain all of its workers, keep prices low, make a profit or a loss, or remain competitive at home and abroad.

Commerce Secretary Wilbur Ross is also refusing to disclose the process or criteria for granting the exemptions. Sens. Ron Johnson (R-WI) and Claire McCaskill (D-MO) have requested that Secretary Ross make these policies public; he has not responded. The senators are currently considering stronger measures to get Secretary Ross to follow basic transparency.

Secretary Ross’ reluctance is telling. What are the odds that newly-powerful Commerce Department employees will earn unreported income this year? The chances are well above zero. At the very least, Washington’s restaurant and entertainment industries will likely get  extra business.

Tariffs create opportunities for corruption. The U.S. does well by global standards at keeping corruption in check, ranking 16th out of 180 countries in Transparency International’s 2017 Corruption Perceptions Index. But each new tariff creates corruption opportunities where there were none before. Even while tariffs are merely being considered, lobbyists are making the case any way they can for why a new tariff would help or harm their clients. After they take effect, if the government offers exemptions, it creates still more temptations for affected companies, not to mention the government employees with the power to approve or deny the exemptions.

Even with all the new tariffs the Trump administration has so far enacted, they likely will not play a factor in any change in America’s rankings in future editions of Transparency International’s index. If anything, it might actually improve America’s relative ranking, even if the absolute amount of corruption increases. That isn’t necessarily good news. That is because, as everyone but Peter Navarro predicted, other countries reacted to each of President Trump’s new tariffs with retaliatory tariffs of roughly the same magnitude.

Retaliatory tariffs are creating new corruption opportunities abroad. And in countries with less rigorous cultural and institutional corruption safeguards, corruption increases could be much higher than here in the United States. This risks harming the quality of governance even in allied countries—hardly a positive foreign policy gesture at a time when the U.S. is seeking allies for its other foreign policy objectives.

For more on how tariffs create new opportunities for corruption, read the new CEI study “Traders of the Lost Ark” here.

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Posted in Economics, Trade

This Week in Ridiculous Regulations

Posted on September 4, 2018 | Comments Off on This Week in Ridiculous Regulations

August ended with a bang, leaving the 2018 Federal Register on the brink of the 45,000-page mark going into the Labor Day holiday. Agencies passed 89 new regulations last week, ranging from 71-pound packages to floating cabins.

On to the data:

  • Last week, 89 new final regulations were published in the Federal Register, after 65 the previous week.
  • That’s the equivalent of a new regulation every one hour and 53 minutes.
  • Federal agencies have issued 2,233 final regulations in 2018. At that pace, there will be 3,284 new final regulations. Last year’s total was 3,236 regulations.
  • Last week, 1,310 new pages were added to the Federal Register, after 1,482 pages the previous week.
  • The 2018 Federal Register totals 44,729 pages. It is on pace for 65,774 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Five such rules have been published this year, none in the last week.
  • The running compliance cost tally for 2018’s economically significant regulations is a net savings ranging from $348.9 million to $560.9 million.
  • Agencies have published 75 final rules meeting the broader definition of “significant” so far this year.
  • So far in 2018, 384 new rules affect small businesses; 20 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

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Posted in regulation, Uncategorized

Spontaneous Order in Roman History

Posted on September 2, 2018 | Comments Off on Spontaneous Order in Roman History

Edward Gibbon, describing a revival of sorts under Cola di Rienzo in 14th century Rome, on p. 2401, near the end of Decline and Fall, channels a bit of Adam Smith and F.A. Hayek:

“As soon as the life and property of the subject are secure, the labours and rewards of industry spontaneously revive: …”

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Posted in Books, Economics, History, Uncategorized

Legalized Plunder in 14th Century Venice

Posted on September 2, 2018 | Comments Off on Legalized Plunder in 14th Century Venice

Venice, as much as any other city, was founded on international trade and commerce. Even today, the outward-oriented and freewheeling worldview that commerce inspires is that lagoon city’s defining characteristic. From p. 287 of Roger Crowley’s City of Fortune: How Venice Ruled the Seas:

For Venice, piracy was the most detested crime, an affront to business and the rule of law. The Republic preferred its maritime violence organized at state level.

Crowley goes on to describe state-approved instances of piracy by and against Venetians, and other nations’ grievances about the same. If all this sounds familiar in the context of today’s trade debate, you’re not alone. History is alive, and this is a good reason to study it closely.

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Posted in Books, Economics, History, Trade, Uncategorized

Trade Is as Old as Humanity

Posted on August 31, 2018 | Comments Off on Trade Is as Old as Humanity

Archaeologists have uncovered evidence of long-distance trade going as far back as 200,000 years ago. The artifacts are mainly things such as obsidian tools that are relatively impervious to the ravages of time, found hundreds of miles away from where they naturally occur. In fact, such finds can determine economic health through history. After the fall of the Roman Empire, long-distance artifacts such as foreign coins, papyrus, and oil lamps suddenly disappear from Europe’s archaeological sites. We call this low-trade period the Dark Ages. These and other distant items reappear a few centuries later, both in the ground and in surviving literature. Not coincidentally, times were better.

Trade can also explain such basics of civilization as the birth of cities. Some people settled down in one place for the first time and specialized in agriculture, trading their surplus for goods and services. This led to a better life. As Iain Murray and I point out in our new paper. “Traders of the Lost Ark.”

Over time, people found they could achieve a more stable lifestyle by tending to domesticated crops and animals—at least compared to nomadic hunting and gathering—but this required specialization and trade. For example, some people specialized in farming and traded their surplus crops to others in exchange for tools or shelter. Others specialized in services, such as milling grain into flour or brewing it into beer. Without trade, such specialization would have been impossible.

Trade also made the first governments possible:

The late University of Maryland economist Mancur Olson theorized that the first governments were “stationary bandits,” who traded protection from other bandits—or themselves—for a fee in the form of taxation.

As governments became more established, they later decided to bite the hand that feeds them:

When governments get involved in trade, it is usually to erect barriers to it. While special interests have always benefited from the reduced competition trade restraints bring, historically, most traders have objected to such interventions. Important clauses of [the] Magna Carta enjoin the King of England from stopping traders from entering the country. The American Declaration of Independence, in its litany of offenses blamed on King George III, chides him for “cutting off our Trade with all parts of the world.”

This is why the first “international” trade system was actually a mechanism for restricting and redirecting trade to fit some government prerogative. The mercantilist system that governed trade during the colonial era was based on the “rights” of monarchs to maintain a “balance of trade” that would allegedly enrich them and their favored commercial partners. It accomplished this by imposing a series of tariffs, import quotas, and prohibitions to affect the balance of trade in favor of these interests. In effect, the mercantilist system was the first example of crony capitalism writ large.

This kind of big-picture historical sketch might seem academic. But when it comes to trade, it’s very practical. It is important to remember our roots. No trade, no civilization. The debate over tariffs and other trade barriers goes back much, much further than the last two years. We are the current participants in a debate as old as our species—and knowing exactly what we have been fighting over for so long gives context for exactly why it is important to fight, and fight hard, against every new trade restriction that politicians concoct.

For more on why the freedom to exchange is so important, read the full “Traders of the Lost Ark” study here.

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Posted in Economics, History, Trade, Uncategorized

Trade Restrictions Will Not Improve National Security

Posted on August 30, 2018 | Comments Off on Trade Restrictions Will Not Improve National Security

One of the most persuasive arguments trade protectionists use is the national security argument. It serves as a “get out of jail free” card with many conservatives, and progressives will also often let slide policies with national security implications. When it comes to trade, it turns out that not only do trade barriers fail to improve national security, they actually hurt it in the long run—as Iain Murray and I briefly spell out in our recent study, “Traders of the Lost Ark.”

When a country goes to war, one of its first actions is to blockade the opposing country’s trade. If protectionist logic held, this would stimulate the blockaded country’s domestic industry to new heights.

There is also the matter that an effective blockade is impossible in a global market:

As noted, trade helps industries diversify their supply chains. China might refuse to sell steel to the U.S., but some steel buyers would happily turn around and resell Chinese steel to American buyers for a profit. The OPEC oil cartel learned this lesson the hard way, when its own member countries undercut its attempts to fix the global price via restricted supply.

But suppose an effective blockade were in place. Without trade barriers to ensure a viable domestic industry, how would the military fare? Quite well, as it turns out. The U.S. military is the world’s largest. In fact, it is so large that it outspends the world’s next seven largest militaries—combined. Even at its current size, the military only accounts for about 3 percent of domestic steel consumption. Automobile production uses 26 percent, or almost 9 times as much. Construction uses 40 percent, or more than 13 times as much steel as the defense industry. Security hawks should be arguing against steel tariffs, not for them.

Finally, politicians often play the national security card frivolously. This hurts foreign relations, not just the economy. President Trump, for example, cited national security concerns in raising steel tariffs against Canada. When Canadian Prime Minister Justin Trudeau asked Trump during a phone call what national security threat Canada posed to the United States, Trump was reduced to mumbling something about the War of 1812. The phone call was an embarrassing and avoidable low point in relations with our closest neighbor and one of our staunchest allies in the world.

In sum, national security concerns do not justify trade barriers. By harming growth, they leave fewer resources available for defense. Blockades are impossible in a global market. And even if they were, the U.S. has more than ample infrastructure to meet any military needs domestically. And by sending negative foreign policy signals, trade barriers strain relations with needed allies and make war with enemies more likely, not less.

For more, read the full “Traders of the Lost Ark” study.

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Posted in Economics, International, Trade

Trump Trade Announcement with Mexico Belies Trump Trade Barriers

Posted on August 27, 2018 | Comments Off on Trump Trade Announcement with Mexico Belies Trump Trade Barriers

This is a statement released by CEI regarding today’s announcement on NAFTA renegotiations.

This morning, the White House announced a new “understanding” with Mexico, related to ongoing talks about the North American Free Trade Agreement (NAFTA).

Competitive Enterprise Institute Fellow Ryan Young expressed skepticism about today’s announcement.

“NAFTA is not perfect, but in this case it is better to leave well enough alone. There are some parts of NAFTA that could be improved through renegotiation, such as eliminating trade-unrelated provisions concerning energy policies and environmental and labor regulations. These non-trade issues should be treated separately. Unfortunately, the Trump administration instead seems interested in making cars more expensive for American consumers. The President seeks to raise trade barriers in an agreement intended to lower them, and Congress should block his efforts.

“The administration is clearly uninterested in free trade, and the time is likely too short on Mexico’s end to reach a reasonable deal before its own populist administration, under Andrés Manuel López Obrador, takes power December 1.​”

Related:

Traders of the Lost Ark

Protectionism Keeps People Poor

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Posted in Economics, Trade, Uncategorized

This Week in Ridiculous Regulations

Posted on August 27, 2018 | Comments Off on This Week in Ridiculous Regulations

Lawyers are having a field day in Washington, and not just in cases involving associates of a certain member of the executive branch. Over at regulatory agencies, new regulations from the last week range from military support for special events to the economic impact of duck hunting.

On to the data:

  • Last week, 65 new final regulations were published in the Federal Register, after 64 the previous week.
  • That’s the equivalent of a new regulation every two hours and 35 minutes.
  • Federal agencies have issued 2,144 final regulations in 2018. At that pace, there will be 3,249 new final regulations. Last year’s total was 3,236 regulations.
  • Last week, 1,482 new pages were added to the Federal Register, after 2,136 pages the previous week.
  • The 2018 Federal Register totals 43,419 pages. It is on pace for 65,787 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Five such rules have been published this year, one in the last week.
  • The running compliance cost tally for 2018’s economically significant regulations is a net savings ranging from $348.9 million to $560.9 million.
  • Agencies have published 75 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 363 new rules affect small businesses; 20 of them are classified as significant.

Highlights from selected final rules published last week:

  • Q&A with the Food and Drud Administration for food facility registration.
  • The Federal Communications Commission is updating its policies for phone number portability.
  • A correction on how to handle cranberries while in Massachusetts.
  • Designated habitat for three Hawaiian plant species. See a newly-released CEI paper for more on how the Endangered Species Act works in practice.
  • The Defense Department offers support for special events.
  • The Federal Communications Commission is reviewing its little-used Emergency Alert System.
  • A new rule from the Department of Unnecessary Abbreviations regarding BFT, otherwise known as bluefin tuna.
  • The Fish and Wildlife Service claims a new duck hunting regulation will provide $334 million to $440 million in economic benefits—the same amount, to the penny, as a different bird-hunting rule it issued a few weeks ago. Both estimates seem dubious, but I have counted them in my running compliance cost tally anyway. The two rules are the sole reason the tally shows a net reduction in compliance costs.
  • The International Prison Transfer Program.

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

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Posted in regulation, Uncategorized

Economics Is Everywhere – Richard Feynman Edition

Posted on August 26, 2018 | Comments Off on Economics Is Everywhere – Richard Feynman Edition
Economics is everywhere. Physicist Richard Feynman, while working at Los Alamos laboratory, re-discovered Adam Smith’s division of labor after some computer troubles and apparently didn’t even know it (he never mentions Adam Smith or the division of labor in this story):
In this particular case, we worked out all the numerical steps that the machines were supposed to do–multiply this, and then do this, and subtract that. Then we worked out the program, but we didn’t have any machine to test it on. So we set up this room with girls in it. Each one has a Marchant [old-timey calculator]: one was the multiplier, another was the adder. This one cubed–all she did was cube a number on anindex card and send it to the next girl.
 We went through our cycle this way until we got all the bugs out. It turned out that the speed at which we were able to do it was a hell of a lot faster than the other way, where every single person did all the steps. We got speed with this system that was the predicted speed for the IBM machine.
-Richard Feynman, Surely You’re Joking, Mr. Feynman!, p. 126.

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Posted in Books, Economics, Great Thinkers, Science, Uncategorized

Trade Made Renaissance Art Possible

Posted on August 24, 2018 | Comments Off on Trade Made Renaissance Art Possible

Trade and specialization make all kinds of life-enriching innovations possible. In fact, Italian Renaissance art was one of them, a gift that continues to inspire us five centuries later. Re-opening trade with the Middle and Far East is what allowed Europe to climb out of the Middle Ages and into the Renaissance. Venice, in particular, was a hub of trading activity, as Peter Frankopan points out at Kindle location 4260 of his 2016 book The Silk Roads: A New History of the World:

By the late fifteenth century, nearly 5 million pounds of spices were passing through Venice each year… It also seems to have been the main point of entry for pigments used in paintings. Often referred to collectively as “oltremare de venecia” (Venetian goods from overseas), these included verdigris (literally, green from Greece), vermilion, fenugreek, lead-tin yellow, bone black, and a gold substitute known as purpurinus or mosaic gold. The most famous and distinctive, however, was the rich blue that came from lapis lazuli, mined in Central Asia. The golden age of European art—of Fra Angelico and Piero della Francesca in the fifteenth century, and then of artists like Michelangelo, Leonardo da Vinci, Raphael, and Titian—owed much to their ability to use colours drawn from pigments that were part of the extension of contacts with Asia on the one hand nd rising levels of disposable wealth to pay for them on the other.

So the next time you look at The Birth of Venus or the Mona Lisa, remember that trade made them possible, and artificial trade barriers could have deprived the world of profound beauty.

In fact, the process continues today. Michelangelo and his contemporaries had to make their own paints. Long-distance traders brought them the materials, but the artists themselves had to mix the ingredients. And if they didn’t do it just right, it could be a very expensive mistake. Today, you or I could walk into an art supply store and trade money worth a few hours’ labor for oil paints, or watercolors, or any other kind of paint, in almost any color imaginable. Digital art and photography don’t even need paint. Just a computer, a camera, or even a smartphone.

Trade makes humankind’s highest cultural accomplishments possible. This is just one reason it is worth defending. For more reasons, see the new CEI study “Traders of the Lost Ark.”

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Posted in Books, Economics, History, Trade, Uncategorized