GOP the Loser in Primary Fight over Immigration

Over at National Review Online this morning, I ask how the Ronald Reagan of 1980 would have fared in today’s Iowa caucuses given his views on how to tackle illegal immigration (“GOP Candidates Betray the Spirit of Reagan on Immigration”). My conclusion, based on the current mood of many Republicans, is that Reagan would have been the target of a barrage of attack ads:

In April 1980, when Ronald Reagan was competing in the presidential primaries, he rejected the building of a wall between the United States and Mexico: “Rather than talking about putting up a fence, why don’t we work out some recognition of our mutual problems? Make it possible for them to come here legally with a work permit — and then while they’re working and earning here, they pay taxes here. And when they want to go back, they can go back. And open the border both ways by understanding their problems.”

If a Republican presidential candidate said such a thing today, he or she would suffer withering criticism for being soft on illegal immigration. Instead, we hear Reagan’s successors talk about implementing national ID cards, imposing intrusive regulations on the labor market, raiding farms, factories, and restaurants, and harassing small-business owners trying to survive in this tough economy, all in the name of chasing away hard-working immigrants.

The unhealthy competition among the current Republican candidates to sound tough on immigration also risks alienating millions of Hispanic voters who could otherwise be persuaded to support the party. If conservatives want to rediscover the more optimistic, inclusive, reform-minded spirit of Reagan, they should be talking about real immigration reform, not about spending more money and enacting more sweeping regulations to enforce a fundamentally flawed system.

Our Freedom to Trade Expanded in 2011

The news right now is full of retrospective stories about 2011. Not to be left out, here are a few observations on the real if modest progress made in 2011 to expand the freedom of Americans to trade in the global economy. [I’ll add links along the way to related Cato work.]

After four years of stalemate, this fall Congress passed and President Obama signed legislation implementing three pending free-trade agreements, with South Korea, Colombia, and Panama. When fully implemented, these FTAs will eliminate just about all barriers to trade with three key allies. The U.S. International Trade Commission estimates the three agreements will boost U.S. exports and output by more than $12 billion.

Just as importantly, their passage signals that the two major parties can still work together to promote trade liberalization. Republicans voted overwhelmingly for the agreements, including freshman members connected to the Tea Party movement, and enough Democrats joined in to pass them all by comfortable margins. President Obama, to his credit, found a political path to support the agreements despite the opposition of his labor-union base.

With the passage of the agreements with Panama and Colombia, the Pacific Coast of the Americas has been effectively transformed into a free-trade area. (Ecuador is the lone hold-out.) When combined with NAFTA, CAFTA-DR, and FTAs with Peru and Chile, the United States now has free-trade agreements with neighbors that account for 87 percent of our two-way trade in the Western Hemisphere. The vision of a free trade area of the Americas from the Yukon to Tierra del Fuego has been effectively realized.

2011 also witnessed the United States and Mexico sort out the dispute over cross-border trucking—the last piece of unfinished business from the 1994 North American Free Trade Agreement. Under a pilot program put forward by the Obama administration, safety-certified Mexican trucks can now deliver goods within the United States, and U.S. trucks can do the same in Mexico. Now that the U.S. government is finally complying with its commitments, Mexico lifted sanctions on $2.4 billion of U.S. exports. This is real progress for economic freedom, the rule of law, and showing respect for our 100 million Mexican neighbors.

The United States and eight other Pacific Rim nations made substantial progress in negotiating the Trans-Pacific Partnership, a regional agreement that could bear fruit in 2012 or 2013. Japan, Canada, and Mexico have expressed interest in joining the talks.

Even the hapless World Trade Organization managed a bit of forward progress this year. While the Doha round of talks remains comatose, its 153 members agreed at its ministerial meeting this month in Geneva to admit Russia as a member next year. And a critical mass of its members, including the United States, agreed at the same meeting to open their government procurement to more international competition.

Free trade made progress this year in practice as well as in policy. Through the first three quarters of 2011, American exports of goods and services were up 16 percent compared to the same period in 2010; imports were up 15 percent. Compared to gross domestic product, U.S. exports have reached a record high of 18.8 percent. The ratio of imports to GDP has yet to return to its pre-recession peak, but it is also expanding once again. As government barriers continue to recede, American are choosing everyday to trade more and more in the global marketplace.

Our freedom to trade remains less than it should be. The U.S. government continues to impose an array of barriers on trade and investment, including quotas on imported sugar, regressive tariffs on shoes and clothing, unfair and economically damaging anti-dumping duties, and restrictions on foreign investment in media, inter-coastal shipping, and air travel (all of which I describe in Chapter 9 of my 2009 book Mad about Trade). But those can all be resolutions for 2012.

For now, let all of us who favor economic liberty and limited government take due satisfaction in the welcome expansion of our freedom to engage in commerce with our fellow human beings.

U.S. Falling Behind in Global Competition for Human Capital

A powerful trend in today’s more globalized world is the growing competition among nations to attract and keep human capital—people with the skills and education necessary to make a modern, open, market economy hum.

Nobody has done a better job of describing this phenomenon than British journalist Robert Guest in his new book, Borderless Economics: Chinese Sea Turtles, Indian Fridges, and the New Fruits of Global Capitalism, just out from Palgrave Macmillan.

Guest is the business editor of the Economist magazine. He’s traveled widely in the United States and across the world. He has a keen understanding of the market forces shaping the global economy today, as well as a reporter’s eye for interesting people, places, and companies that tell the story.

The author summarized Borderless Economics in a recent Wall Street Journal op-ed, and the book was favorably reviewed in the same newspaper this week. The reviewer, Katherine Mangu-Ward of Reason magazine, highlighted an immediate application of the book’s thesis to U.S. immigration policy:

Mr. Guest notes that the U.S. annually awards only 85,000 H-1B visas for highly skilled workers; more than that number have been known to apply on the first day that applications can be submitted. America is strong because it has long been the nation richest in the resource that matters most: talent. Yet the U.S. government every year turns away tens of thousands of the most talented, motivated people in the world.

The Cato Institute hosted a book forum for Robert Guest in November, with comments from Edward Alden of the Council on Foreign Relations. You can view the event here.

Treasury Exchange-Rate Report Hits, and Misses

The U.S. Treasury Department finally released its overdue semiannual “Report to Congress on International Economic and Exchange Rate Policies” yesterday. I’ve been reading through the informative report this morning so you won’t need to. Two quick comments:

First, the report declined, once again, to brand China a “currency manipulator,” and for good reason. The term is needlessly confrontational. As the report documents, while the Chinese currency is probably still undervalued, the Chinese government has been taking concrete steps toward a more flexible exchange-rate regime. Since it began its currency reforms in July 2005, the renminbi has appreciated 40 percent on a real (inflation-adjusted) basis against the U.S. dollar. And 40 percent just happens to be the upper range of the revaluation that was demanded by Sen. Chuck Schumer (D-NY) and other critics of China trade back then. They should declare victory and move on to more pressing economic problems, such as cutting federal spending and promoting private-sector growth.

Second, the report repeats the common but false assumption that a shrinking trade deficit is necessarily good for economic growth and a rising deficit bad. From p. 6 of the report, we read:

Trade was also a bright spot in the third quarter [of 2011], as exports once again grew faster than imports. The resulting decline in the net export deficit contributed 0.4 percentage point to real GDP growth.

This reflects the simplistic Keynesian assumption that rising imports are a drag on growth because they merely replace domestic production. The truth is almost exactly the opposite, as I documented in my Cato study earlier this year titled, “The Trade-Balance Creed: Debunking the Belief that Imports and Trade Deficits Are a ‘Drag on Growth’.”

The truth, in theory as well as practice, is that a rising level of imports typically reflects rising domestic demand by both consumers and industry. Imports fuel U.S. production by supplying more raw materials, intermediate supplies, and capital machinery at competitive prices. That is why the U.S. economy has typically grown much faster during periods of rising trade deficits compared to periods of shrinking deficits. True to form, the first three quarters of 2011 saw declining GDP growth even though, according to the Keynesian creed, the decline in the trade deficit was a supposed “bright spot.”

Russia’s WTO Membership Approved, But Will U.S. Companies Benefit?

At their ongoing ministerial meeting in Geneva, the World Trade Organization’s 153 members earlier today unanimously approved Russia’s accession as a member. The ball is now in the court of the U.S. Congress to effectively ratify this historic development or to forfeit significant benefits for the U.S. economy.

Russia will officially become a member 30 days after its legislative Duma gives its final approval, which is expected to occur in March, April, or May of next year. But U.S. companies will enjoy enhanced access to the Russian market only after Congress votes to repeal application of the 1974 Jackson-Vanik amendment. Continue reading

A Limping WTO Remains a Force for Good

Trade ministers from more than 150 countries are gathering today in Geneva, Switzerland, for a three-day ministerial meeting of the World Trade Organization. These meetings happen every two years or so. No great breakthroughs are expected at this one, but it does offer an opportunity to take stock of where the WTO and world trade stand a decade after China’s entry into the organization and the launch of the still ongoing Doha Development Round.

News from the first day is a reminder that the organization can still deliver real trade liberalization. Continue reading

Border Apprehensions Down. Will Our Politicians Notice?

Apprehensions along America’s southwest border have plunged in the past decade. Although there have been plenty of stories about it this week, our politicians have yet to grasp this important fact.

From a peak in 2000, the annual number of arrests along our 2,000 mile border with Mexico has plunged by more than 75 percent. Apprehensions are considered a good although imperfect proxy for attempted border crossings. By any measure, the number of people trying to enter the United States illegally between ports of entry has dropped to its lowest level since comparable records began 40 years ago. Continue reading

U.S. Export Growth on Track, Thanks to China

The biz media are predictably hailing the small decline in the U.S. trade deficit in October as good news for the economy, but this morning’s monthly trade report from the U.S. Commerce Department is yet one more sign that the U.S. and global economies are struggling. Continue reading

Will Congress Welcome Russia into the WTO?

Next week trade officials representing the more than 150 members of the World Trade Organization will gather in Geneva for a ministerial meeting. Most of the agenda will be a snoozer. The Doha Round is stuck in neutral, with no compromises in sight on agricultural protection, services trade liberalization, or anti-dumping reform. But one item of business will mark a major milestone: the admission of Russia into the club of trading nations. Continue reading

U.S. Still “On Track” to Double Exports by 2014

In his State of the Union address in January 2010, President Obama launched his National Export Initiative with the explicit goal of doubling U.S. exports by 2014. The Commerce Department’s monthly trade report released this morning confirms that U.S. exporters remain “on track” to meet that goal—to my pleasant surprise.

I went on record earlier this year with skepticism that the goal was realistic. And to my defense, we are still less than two years into the journey. Doubling exports in five years requires an annual growth rate of almost 15 percent, about double the average rate of export growth during the past 30 years. Continue reading