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Archive for the ‘Free Trade’ Category

House Nixes Obama’s Trade Bill

Posted by Steve Markowitz on June 14, 2015

The Wall Street Journal reported on the stunning defeat for President Obama with the US House of Representatives rejecting his request for fast tracking a trade deal.  This deal had the strong backing of the President, as well the Republican leadership in the House.  Obama expended significant capital on getting a positive vote, including a visit to the House Democratic Caucus the morning of the vote, but to no avail.  The final tally for a procedural vote required for passage of the bill showed only 126 in favor and 302 voting against it, including many Democrats.  Even his old buddy Nancy Pelosi voted against the bill.

The fact that President Obama and House Speaker John Boehner on trade bill might seem odd at first glance.  However, there are significant special-interest groups in favor of the bill, including large business interests.  These special interests have done quite well over the years, irrespective of whether the Democrats or Republicans control the White House.  This is further evidence that Beltway special-interests have no political affiliation.

Free trade in its most basic form is a good for economies, including America’s.  However, the positive effects only occur if all parties to the agreement play by the same rules.  That is not the case with the free trade recent decades.  The current bill backed by Obama and Boehner involves Asian countries including developing one’s such as Vietnam.  While most often disparities between countries focus on currency manipulations and wages, there are more significant impediments to real free trade, including differing regulatory environments.

The United States and many Western countries have added thousands of regulations on businesses and other parts of their societies that significantly increase their relative costs of exports.  Examples of the regulations include those related to climate change, worker safety, health issues, etc.  While in a vacuum it can be argued that these individual regulations are well intended, their affect is to significantly increase production costs in the developed world, including the United States.

Absent an equalization of the regulatory environment, free trade cannot exist without substantially penalizing those that are forced to operate in the overregulated environments.  The large business Interest that currently back the proposed free trade agreement in Asia understand this and use it to their advantage.  Large corporations are typically multinational in structure and can move their production to the least expensive regulatory environments.  Smaller and medium businesses typically do not have the resources required to make this type of move.  As a result, free trade agreements offer advantage to larger corporations and increase their competitiveness compared to smaller firms.  This lessens the chance of competition from startups.  As a result, jobs will move to the lowest cost labor environments, a reality that has been proven in the past 20 years.

So, why are Obama and Boehner so staunchly in favor of a free trade agreement with Asia?  As is often said, follow the money, and in this case the lobbyists.

Posted in Free Trade | Tagged: , , , , , | Leave a Comment »

Kyle Bass Claims Obama Administration Plans to “Kill the Dollar”

Posted by Steve Markowitz on January 23, 2013

Kyle Bass is claims in the video below that a senior Obama Administration official told him directly that “We are going to kill the dollar.”  Yikes!

There are many pundits who make all sorts of outrageous claims that should be ignored.  Kyle Bass is not one of them.  This is a serious gentleman who foresaw the housing bubble and mortgage crisis before there were any public hints of problems.  His investment arm made a bundle selling those markets short.

If Kyle Bass’s claim is accurate and should the Obama Administration proceed with a plan to “kill the dollar”, significant inflation will follow.  Also, such a policy would drive up interest rates as foreigners will refuse to buy America’s depreciating bonds.  Finally, that policy would start trade wars between countries that also want to export their deficits.  Already, Japan is deflating its Yen that has dropped by more than 10% in recent weeks

Posted in Free Trade, Inflation | Tagged: , , | Leave a Comment »

FREE TRADE, the WTO AND SUBSIDIES

Posted by Steve Markowitz on May 22, 2010

Carl has written a response to an article posted on this Blog in September, 2009, Watch out for Protectionism.  It includes very good points so it is posted in full below.  Thanks Carl.

FREE TRADE, the WTO AND SUBSIDIES. This story reminds one of Ronald Reagan’s favorite descriptions of what happens when the Federal Government gets involved with a once profitable and productive industry: they tax it, they regulate it and end up subsidizing it!

WSJ: The Madness of Cotton (May 2010)

The Feds Want U.S. Taxpayers to Subsidize Brazilian Farmers….

U.S. cotton farmers took in almost $2.3 billion dollars in government subsidies in 2009, and the top 10% of the recipients got 70% of the cash. Now Uncle Sam is getting ready to ask taxpayers to foot the bill for another $147.3 million a year for a new round of cotton payments, this time to Brazilian growers.

We realize that in today’s Washington this is a rounding error. But the reason for the new payments to foreign farmers deserves attention. If it becomes a habit, it is unlikely to end with cotton.

Here’s the problem: The World Trade Organization has ruled that subsidies to American cotton growers under the 2008 farm bill are a violation of U.S. trading commitments. The U.S. lost its final appeal in the case in August 2009 and the WTO gave Brazil the right to retaliate.

Brazil responded by drafting a retaliation list threatening tariffs on more than 100 U.S. exports, including autos, pharmaceuticals, medical equipment, electronics, textiles, wheat, fruits, nuts and cotton. The exports are valued at about $1 billion a year, and the tariffs would go as high as 100%. Brazil is also considering sanctions against U.S. intellectual property, including compulsory licensing in pharmaceuticals, music and software.

The Obama Administration appreciates the damage this retaliation would cause, so in April it sent Deputy U.S. Trade Representative Miriam Sapiro to negotiate. She came back with a promise from Brazil to postpone the sanctions for 60 days while it considers a U.S. offer to—get this—let American taxpayers subsidize Brazilian cotton growers.

That’s right. Rather than reduce the U.S. subsidies to American cotton farmers that are the cause of the trade fight, the Administration is proposing that U.S. taxpayers also compensate /Brazilian/ cotton farmers for the harm done by the U.S. subsidies. Thus the absurd U.S. cotton program would dip into the Commodity Credit Corporation to pay what is a bribe to Brazil so it won’t retaliate.

Talk about taxpayer double jeopardy. As Senator Richard Lugar (R., Ind.) said recently, the commodity credit program was established to assist U.S. agriculture, “not to pay restitution to foreign farmers who won a trade complaint against a U.S. farm subsidy program.”

Mr. Lugar wants the subsidies to U.S. farmers cut by the amount that will have to be sent to Brazil. He adds that a better option would be to take on the trade-distortions of the cotton program. “I am prepared to introduce legislation to achieve these immediate reforms,” he wrote in an April 30 letter to President Obama.

This is probably tilting at political windmills, since Mr. Obama has shown no appetite for trade promotion, much less confronting a cotton lobby supported by such Democrats as Arkansas Senator Blanche Lincoln. (CEH: she’s now in a runoff primary for her Senate seat)

But we’re glad to see that at least Mr. Lugar is willing to call out the absurdity of U.S. taxpayers subsidizing foreign farmers to satisfy the greed of a few American cotton growers.

Posted in Free Trade, Government Ineptness, Protectionism | Tagged: , , , , , , , , , , , | 5 Comments »

Watch Out for Protectionism

Posted by Steve Markowitz on September 15, 2009

globeWhen economic conditions are good, free trade is easy to sell to the public.  With increasing trade between countries, economies grow and more total jobs are created worldwide.  During more challenging economic times, free trade is a more difficult sell.  If people find it difficult to locate jobs, they often look for magic bullet solutions.  Politicians are eager to supply snake oil to satisfy their constituents.  Protectionism is one of the elixirs supplied.

The problem with the protectionist solution is that it does not lead to prosperity, but in fact hampers it.  An often cited example is the Smoot Hartley Act of 1931.  During the Depression the United States began penalizing imported products in an effort to save jobs and protect American businesses.  That set off a worldwide round of tariff increases as other countries retaliated making a bad economy even worse.  In war, once you fire the first shot it is difficult to predict the outcome.

This past weekend President Obama fired the first shot in a potentially new tariff war.  The United States imposed stiff tariffs on Chinese made tires.  The Chinese supplied about 17% of the tires sold the United States last year, most in the lower end of the market. Read the rest of this entry »

Posted in Free Trade, Protectionism | Tagged: , , , , , , , , , , , , | 2 Comments »