Saturday, April 28, 2007

Tariffs: the Regressive "Gender Tax"?

. Saturday, April 28, 2007

We too often think about the broad consumer surplus loss tariffs impose without thinking much about how these losses are distributed among consumers. That tariffs are regressive (i.e., weigh more heavily on low-income households than high-income households) is commonly known. Less commonly recognized is that, at least in apparel, tariffs also discriminate on the basis of gender.

What I find most amusing about the NYT story is the apparent bewilderment: "But after years of poring over dusty tariff lists, international trade court records and Congressional testimony, lawyers have found nothing that explains why, say, the tariff on an imported wool suit is 8.5 percent for a woman and zero for a man. “It’s irrational,” said Peter Bragdon, the general counsel at Columbia Sportswear, one of the companies suing the government."

No, it's not irrational, it's politics. Resolving this puzzle by showing how these inequities arose would be an interesting paper (or honors thesis). Are these accidental, or do they reflect something systematic about tariff politics?

Thursday, April 26, 2007

"Rethinking" Globalization

. Thursday, April 26, 2007

William Greider muses on "exciting new thinking" about how globalization affects American incomes in the current issue of The Nation.

"The church of global free trade, which rules American politics with infallible pretensions, may have finally met its Martin Luther. An unlikely dissenter has come forward with a revised understanding of globalization that argues for thorough reformation...His ideas contain an explosive message: that what established authorities teach Americans about global trade is simply wrong--disastrously wrong for the United States."

I find the article utterly unconvincing and deeply confusing, but Greider apparently does not understand enough economics to present the argument upon which this supposed reformation is based. He writes, "The Gomory-Baumol book explains the dynamics with charts and equations for economists to study. For the rest of us, it is easier to follow Gomory's personal explanation of changing fortunes among trading nations." Right, why bother with math (math is hard) or even logic (math without math is just as hard) when simplistic anecdotes and insipid metaphors provided by a retired IBM executive are so much easier.

The key metaphor is the following: "What made America much wealthier than the Asian nations in the first place?" Gomory (i.e., the new Luther) asks. "We invested alongside our workers. Our workers dug ditches with backhoes. The workers in underdeveloped countries dug ditches with shovels. We had great big plants with a few people in them, which is the same thing. We knew how, through technology and investment, to make our workers highly productive. "The situation today is that the companies have discovered that using modern technology they can do all that overseas and pay less for labor and then import product and services back into the United States. So what we're doing now is competing shovel to shovel." (Competition is apparently a bad thing).

Pardon my language, but what the ...? The US becomes poorer because workers in developing countries acquired backhoes, or are Americans now using shovels to dig ditches? If this is right, then the key to continued American prosperity is continued poverty in the developing world? Sounds suspiciously like middle-age mercantilism (a contemporary of the real Luther, in fact) rather than "new thinking." Moreover, the underlying assumption that the world's income is a fixed pie and "countries" fight over shares of this pie is so just so, well, stupid.

Since I am willing to assume that a modern Luther can't be this stupid, I must assume that Greider fails to convey the argument. Hence, I need to read the book. Check back later for my critique.

The more worrying thing is that the central message holds appeal for certain members of Congress as well as certain candidates in the 08 election.

Monday, April 23, 2007

Sachs on Foreign Aid and the MDGs

. Monday, April 23, 2007

Jeffrey Sachs appears surprised by the G-8 governments' failure to live up to their promise to expand foreign aid programs. My personal favorite non sequitor: "To salvage its credibility, the G-8 needs to make crystal clear — once again — that it will honour its commitment to increase aid to Africa by $25 billion per year by 2010." To salvage its credibility with whom, exactly?

Easterly on Wolfowitz


William Easterly wrote an extended article on Paul Wolfowitz's troubles at the World Bank. He does a nice job placing the current "scandal" in the broader framework of Wolfie's tenure at the Bank. "Wolfowitz came to the bank determined to fight corruption and perhaps redeem himself after Iraq by offering a compassionate, conservative brand of help for the world's poor. But Wolfowitz's program never really took wing. Trying to fight the corruption that all too often saps foreign aid was noble, of course. But bank staffers bristled because some corrupt regimes seemed to bother Wolfowitz more than others. Worse, his main objective -- transforming bad governments into good governments -- was simply unworkable."

Tuesday, April 3, 2007

The Euro, the ECB, and French Elections

. Tuesday, April 3, 2007

The European Central Bank is one of the most politically independent central banks in the world. In designing this institution, governments sought to insulate it from political pressure. Yet, the ECB has become an issue in the French presidential election.

French presidential candidate Nicolas Sarkozy said "he wants a ``real conversation'' with the European Central Bank on monetary policy, seeking a weaker euro currency to increase competitiveness. ``If we have created the euro, it's to use it,'' Sarkozy told reporters today at a briefing today. ``I will act within the eurogroup to give us an economic policy and to avoid economic shocks, get rid of the legal confusion regarding the exchange rate policy, and organize a real conversation between the eurogroup and the ECB.''

This should resonate with those of you who have read the last section of chapter 13 of my textbook (Independent Central Banks and Exchange Rates): "Because monetary and exchange-rate policies are two sides of the same coin, government control of exchange-rate policy can be used to force the central bank to pursue the monetary policies that the government and its supporters desire." This seems to be what Sarkozy is up to--using exchange rate policy to press the ECB into a looser monetary policy.

Segolene Royal has also criticized the ECB. "While Royal has criticized ECB President Jean-Claude Trichet -- pushed by French President Jacques Chirac for the post -- Socialists focused their attacks today on Sarkozy. `I will not defend Mr. Trichet here and I will not defend the ECB,'' said Socialist Party leader Francois Hollande today. ``But who appointed Mr. Trichet? We should find the person responsible for that.''

Such political dynamics is precisely why governments created an independent central bank at the center of euroland.

Monday, April 2, 2007

US-South Korea Free Trade Agreement

. Monday, April 2, 2007

I am kind of surprised by the lack of chatter about the US-South Korea Free Trade Agreement. Without question this is the most important FTA the U.S. has signed since NAFTA. As the International Herald Tribune summarizes, "The United States has reached its biggest free trade agreement since NAFTA, clinching a last-minute deal with close security ally South Korea that it hopes will bolster bilateral ties and provide added spark to global trade talks.

"The free trade a historic accomplishment," Deputy U.S. Trade Representative Karan Bhatia told reporters on Monday after eight days of talks. "It is an agreement for the 21st century."

Prominent American legislators are already criticizing the agreement; Max Baucus, D-Mont. is unhappy about Korea's treatment of American beef (do you think Montana is a large beef producer?) while Sander Levin, D-Mich. is unhappy about Korea's apparent reluctance to buy American cars (do they still produce cars in Michigan?). The big auto companies are none too pleased either.

"Levin, who chairs the House Ways and Means Trade Subcommittee, said the deal faces certain defeat in Congress. "The U.S. did not get what was needed - an agreement that assures that the U.S. automotive industry will no longer face the barriers to their products, that trade will be truly a two-way street," Levin said, noting that South Korean companies export 700,000 vehicles to the U.S. annually while the U.S. sells less than 5,000 in South Korea. Earlier this month, Levin had proposed that USTR offer South Korea a tariff-rate quota that would grant a zero tariff for a number of autos that would grow only as U.S. auto exports to South Korea increased in the future. "

Seeing how a lot of Americans prefer Hyundais to Hummers these days, I am not sure why our ability to buy small, reliable, and fuel-efficient cars should be dependent upon Koreans' willingness to buy gas guzzling SUVs. But that's just me--I drive an import.

The agreement seems to go a long way toward accommodating American auto producers' concerns. According to the USTR, the agreement "will eliminate discrimination in engine displacement-based taxes, long a significant impediment to market access in Korea. The agreement contains strong commitments to addresses the specific standards-related concerns raised by U.S. auto manufacturers and to create a working group to review auto-related regulations being developed as an early warning mechanism to prevent new problems from arising and to promote good regulatory practice in Korea. The agreement also contains a special enhanced dispute settlement mechanism for auto-related measures, with strong remedies to deter actions on autos that are inconsistent with the agreement."

The vote should give an early indication of the prospects for getting a WTO agreement through Congress. Initial signs are not encouraging...

International Political Economy at the University of North Carolina: April 2007




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