Yup, Commerce Was Urging U.S. Firms to Export Ventilators, Masks Etc. to China as Our Imports of Such Goods Were Drying Up

Learn more about this Public Citizen research in the recent Washington Post piece, “U.S. sent millions of face masks to China early this year, ignoring pandemic warning signs.”

The current regime of hyperglobalization is undermining U.S. resilience against the COVID-19 crisis. The U.S. cannot make or get critical goods people need.

Why? In the 25-plus years since the start of the World Trade Organization and North American Free Trade Agreement, more than 60,000 U.S. manufacturing facilities have been lost.

This includes many in the pharmaceutical and medical goods industries. Among the individual companies officially certified by the U.S. government as outsourcing or otherwise killing the largest number of medical goods production jobs to trade are Siemens, Medtronic, Bayer, 3M, Johnson & Johnson, GE Health, Abbott Labs and Boston Scientific.

More than 34,500 jobs in the sector have been certified as lost to trade under just the narrow Trade Adjustment Assistance (TAA) program, which includes only a subset of workers who lose jobs to trade and does not provide a comprehensive list of facilities or jobs that have been offshored or lost to import competition.

The mass outsourcing of U.S. industrial capacity that now leaves us without basic goods needed to combat this pandemic was not an act of God.

Rather, the hundreds of corporate representatives who serve as official U.S. trade advisors helped hatch corporate-rigged U.S. trade policies intended to do just that, while the same interests’ lobbyists rigged tax policy. The result was a slew of trade and tax policies that literally reward relocating production overseas where U.S. corporations could pay workers less and avoid environmental protection costs. (Trump made this exponentially worse with his 2017 ‘tax deform’ that imposed two times the corporate tax rate on firms that produce here versus those that outsourced.)

These U.S. polices have made us much less resilient in facing this crisis.

Having the world’s largest trade deficit year after year means the U.S. is extremely reliant on other countries, especially China, to provide essential goods.

China’s decision to limit exports of personal protective equipment, such as masks, would have caused shortages under any circumstances. But then, as part of the total failure of the Trump administration to plan a response to the COVID-19 threat, as late as March U.S. Department of Commerce officials were urging U.S. firms to expand exports to China of the limited domestic production of key medical goods instead of considering U.S. residents’ needs. According to the Washington Post, “U.S. manufacturers shipped millions of dollars’ worth of face masks and other protective medical equipment to China in January and February with encouragement from the federal government.”

Check out our infographics that show how that worked out… No doubt there is not a mask to be found for love or money.

With many critical goods now mainly made in one or two countries, when workers there fall ill or those governments foreseeably prioritize their own people’s needs before exporting goods, a worldwide shortage of masks, gloves, medicine and more can quickly develop.

And it’s difficult to quickly increase production elsewhere. Long, thin globalized supply chains mean U.S. firms that seek to ramp up production cannot find inputs, parts and components. And monopoly patent protections in many trade agreements expose countries to trade sanctions if they produce medicine, ventilators and more without approval by and payment to pharmaceutical and other firms.

With policymakers and the public distracted, corporate lobbyists are pushing for more of the same trade policies that hatched the unreliable supply chains now failing us all. Instead, we must fundamentally Rethink Trade. The goals should be healthy, resilient communities and economic well-being for more people – not the current priority of maximizing corporate profits.

Public Citizen’s Global Trade Watch released a new series of trade data infographics related to the U.S. response to the COVID-19 crisis. The new data features show:

• From what countries imports into the U.S. of critical COVID-19 response goods are sourced;

• How U.S. exports to Chinaof such goods jumped in the first months of 2020 as the Trump administration failed to prepare for a health crisis at home even as China shut down exports of such products as demand in China grew; and

• How the sources of medical goods imported into the United States have shifted over time.

*DATA NOTES: The U.S. Department of Labor certifies trade-impacted workplaces under its TAA program. This program provides a list of trade-related job losses and job retraining and extended unemployment benefits to workers who lose jobs to trade. The TAA is a narrow program, covering only a subset of workers who lose jobs to trade. It does not provide a comprehensive list of facilities or jobs that have been offshored or lost to import competition. Although the TAA data represent a significant undercount of trade-related job losses, the TAA is the only government program that provides information about job losses officially certified by the U.S. government to be trade-related. Public Citizen provides an easily searchable version of the TAA database. Please review our guide on how to interpret the data here and the technical documentation here.

Corporate Power and the Disappearing Face Mask

By Sarah Grace Spurgin

I feel good about the amount of rice and beans I have in the pantry, toilet paper in the closet, and disinfectants in the cabinet. 

But the mask… Sure, I can use a homemade one when I inevitably need a tire changed, fresh vegetables or just some basic human interaction. But how is it possible our nurses, doctors, and other frontline responders are left without the real thing?

My friend works at a clinic for homeless men in Washington, D.C. He spent every hour of every day for the past two weeks searching for the now-fabled N95 masks that protect their wearer from breathing in airborne coronavirus. He gave up, and the clinic’s staff are not protected while treating the city’s most vulnerable. Why can’t anybody find the basic necessities – masks, sanitizer, disinfectants much less the supply of ventilators needed to handle this crisis? 

In answering that, I’m going to try to avoid the phrase “supply chain” as much as possible, because even when spiced up with accurate terms like too-extended, brittle and sole-source, it sounds so dull.

Really, the answer breaks down to a multisyllabic mouthful conundrum:  hyperglobalization.

I like to use the word hyperglobalization, which Harvard economist Dani Rodrick coined, to explain how I understand the modern economy. It perfectly captures our overextended commercial interconnectedness: We rely too heavily on a corporate-rigged form of international trade to provide for many necessities of our everyday lives.

Interconnectedness can be a wonderful thing, but our current production and trade systems are made by and for transnational corporations who couldn’t care less about you or me. They fought for protections in trade pacts that make it cheaper and safer to outsource production to low-wage countries. And as part of that shift, in many sectors firms have exploited weak anti-trust policies to buy up their competitors and shut down “extra” production facilities.

So now worldwide production for many essential goods is concentrated in too few facilities in too few countries with little redundancy and no reserve supplies sitting in warehouses. That is a formula for disaster is any little thing goes wrong, much a very big thing like a global pandemic.

A lot of that production is in China, so when people there were hit with COVID-19 and plants closed, the impact was felt worldwide. And we felt it especially here thanks to the United States having a enormous trade deficit, which means we are extremely reliant on imports.

To put it in perspective, before the COVID crisis, the United States received one million packages shipped by air express every single day from China and only 25% of U.S. imports arrive by air. Much of that is finished products.

The 75% of U.S. imports that arrive by sea and land shipping include a lot of parts made elsewhere. When those parts are not available, it means production here also gets shut down.

When the pandemic hit, and these hyperglobalized supply chains broke, we from China or get the parts that allow us to increase production here.

We are finally being forced to reckon with the precarious position we’ve put ourselves in by turning a blind eye to the corporate-driven model.  

With the ever-expanding internet economy and globalized production, you might think we would have a better safety net, since we theoretically have more options. Instead, we’ve actually cornered ourselves and are facing the grim reality that the benefits of the current system of globalization are outweighed by the costs.

Don’t get me wrong, I love that I can get a new jigsaw puzzle to pass the time in quarantine. And new paint brushes and paints. And anything else my heart could desire. Except what we all really need: masks, hand sanitizers and for our hospitals personal protective equipment and ventilators. Medicine could be next on the MIA list.

The key part of medicines are active pharmaceutical ingredients, or APIs. In 2018, 88% of the manufacturing sites making APIs were located overseas. More and more of our APIs come from China, and any disruption of the manufacturing of these ingredients can (and does) lead to global shortages. For example, in 2017 an explosion at an API factory in China led to a global shortage of the antibiotic piperacillin/tazobactam, used to treat severe infections.

But that experience did not lead to new policies. Trade can be a great thing, and we should keep doing it! But as everyone is now realizing, having only one or a few sources of critical goods is a pretty bad strategy.

The FDA has already reported COVID-19 drug shortages related to API imports from China. The supply chain was disrupted because workers in the manufacturing plants and those transporting products were out and/or facilities closed.

Now, what about those pesky N95 masks? Well, China made half the world’s masks before the outbreak. However, much of the world’s protective-medical equipment is made in Hubai, the Chinese province where the coronavirus was first reported last year. As China shuttered factories to combat the spread of COVID-19, and the need worldwide for N95 masks spiked, the demand far surpassed the global supply.  Even now as China has expanded mask production nearly 12-fold, it is not exporting few of those masks, which are needed in China. While Donald Trump has certainly botched the federal government's response to this pandemic, he is not the only person to blame for these shortages. Decades of neoliberal trade policy are responsible for the mass outsourcing of U.S. manufacturing capacity – with the loss of 60,000 plants and five million U.S. manufacturing jobs since the mid-1990s start of the North American Free Trade Agreement and the World Trade Organization and then China’s 2001 entry into the WTO.

However, the cause of these shortages isn’t about us versus China. This is about us against the corporations that have spent millions to get the trade policies that help them exploit the cheapest labor and lowest standards possible.

Too many policymakers and too many Americans not themselves engaged in manufacturing closed their eyes to the corporate-rigging of our trade policies. As a country, we not only let corporations ship U.S. production lines offshore but enacted trade policies that encouraged it. The companies made huge profits because it was cheaper to pay workers less per day than U.S. workers earn per hour and then ship our masks, medicines and more in from China.

Now we are all paying for this folly. Will we learn the lesson this time?

Will domestic production eventually (hopefully) ramp up and we will have more masks and medicines than we can count? Until then, it is a life-or-death situation for the millions of Americans on the frontlines battling this crisis, and the millions more unaware of how to effectively protect themselves and the ones they love.

International trade, as it turns out, is deeply personal. It’s not just Big Supply Chain Economics or wonky men in stuffy suits making back-room deals (although that is a lot of it). Trade policy affects our everyday life, more so now than ever. This situation was precarious to begin with, and we are now teetering on the edge of redefining global economics.

This redefining will go one of two ways: further entrenching corporate power as Naomi Klein warns, using unconditional bailouts that lead to government budget crises that lead to cuts in Social Security and other basic government service and safeguards, or a major restructuring to finally put people and the planet over profits.

I, for one, hope it’s the latter.

China Is the Top Source of U.S. Pharmaceutical Imports, With India and Mexico Also Major Sources

(No, Ireland is not the main U.S. imported medicine source …)

Over the past decade, China has been the largest source of medicine imported into the United States, with India and Mexico vying for second- and third-largest depending on the year. This infographic shows the volume of medicine imported by the United States from its top 10 import sources over the past decade. The volume data set reflects the amount of actual product that is shipped to the United States.

We also provide the import data for the same period measured on the basis of value of imported medicine to show how some sources have misreported that Ireland is the top U.S. source of imported medicine.  

By volume, the top three pharmaceutical import sources in 2019 are China, India and Mexico, with Canada, Germany, Italy, the United Kingdom, Israel, Spain and, finally, Ireland rounding out the rest of the top 10, respectively.

However, by value, the top three pharmaceutical import sources in 2019 are Ireland, Germany and Switzerland, with Italy, India, Belgium, Denmark, Canada, the United Kingdom and Japan rounding out the top rest of the top 10.

While the volume data set represents the amount of medicine that is sent to the United States, the value data set reflects the high prices of some medicines protected by monopoly patents as well as pharmaceutical corporations’ tax-avoidance strategies. This includes some firms’ corporate “inversions,” which are created when firms relocate their legal “home” to countries with low tax rates and then charge their legal entities in their old base countries’ large patent-licensing fees, which then can be deducted from taxes as a business expense.

The actual sources of most imported medicines and the gap between volume and value data are demonstrated in the infographic.

Trump SOTU Trade Message: An Advance Fact-Check

Donald Trump is likely to misrepresent the facts and inflate his record on trade as he hits the midpoint of his presidential term and delivers his second State of the Union address. We offer this handy guide to help sort fiction from fact. While the administration’s trade reform effort includes some key steps in the right direction, it remains a work in progress with uncertain outcomes.

 

Past Trump Mischaracterization	Reality
UNFAIR TRADE: President Trump says he has “turned the page on decades of unfair trade deals.” (a claim made in last year’s address)	Transformation of U.S. trade policy remains a work in progress, with uncertain outcomes. The signing of the North American Free Trade Agreement (NAFTA) 2.0 text on November 30 was the first step in a long process, and further improvements are necessary for a final package to pass Congress much less for revisions to stop NAFTA’s ongoing damage to workers and the environment. Only very limited revisions were made to the U.S.-Korea Free Trade Agreement. There is still a danger that the ongoing trade battle with China could end in one-time purchases of U.S. exports that would do nothing to address China’s underlying unfair trade practices and deliver the necessary structural changes to alter long-term trends. Contrary to his promises to do something about trade imbalances, the trade deficit is up 13 percent under Trump. By the time Trump announced he would formally shelve the Trans-Pacific Partnership (TPP) agreement, it was a moldering corpse that could never muster a majority in Congress, meaning his role was in the pact’s burial, not in authoring its demise.
TRADE DEFICIT: Trump says that U.S. trade relationships are more “balanced” and “reciprocal,” but he has yet to fulfill his campaign promise to bring down the trade deficit: “We have a massive trade deficit with China, a deficit we have to find a way quickly, and I mean quickly, to balance.”	On the one clear measure that Trump set for himself as a benchmark for success – bringing down the U.S. trade deficit – he is failing – with the largest China deficit ever recorded and a 13 percent increase in the U.S. trade deficit with the world during the Trump administration. As our Trump trade deficit tracker shows, the U.S. trade deficit has grown significantly under Trump. The latest quarterly government data (released in November – the 2018 annual data is a shutdown victim and a new release date has not been announced) reveals the highest U.S. goods trade deficit in a decade for the first three-quarters of 2018, up 13 percent since the start of the Trump administration. During Trump’s presidency, the U.S. trade deficit with China has risen (also 13 percent) to the highest ever recorded, while the deficits with the world and with NAFTA nations specifically have steadily grown.
USMCA V. NAFTA: Despite an effort to rebrand NAFTA with a new name, Trump’s renegotiation has not fixed the problems of original NAFTA.	Trump’s claim to have created a totally different kind of agreement is a deceitful sales pitch, similar to those used for decades by US presidents to hawk previous trade deals. After a year of renegotiations, the NAFTA 2.0 text signed on November 30 revealed improvements for which progressives have long campaigned, the addition of damaging terms that we oppose, and critical unfinished business. Unless the administration works with congressional Democrats on critical changes to the signed agreement, the pact is unlikely to be passed. One way in which NAFTA 2.0 is dramatically worse than the original is the addition of a slew of new monopoly rights for pharmaceutical companies that would help them avoid competition from generic products and keep medicine prices high. While the NAFTA 2.0 labor provisions are an improvement over previous U.S. trade agreements, unless strong labor and environmental standards are subject to swift and certain enforcement—which is not the case with the NAFTA 2.0 text—U.S. firms will continue to outsource jobs, pay Mexican workers poverty wages, and dump toxins in Mexico.
JOB OUTSOURCING: Trump says he has slowed outsourcing and is succeeding on “Buy America, Hire American,” but the data do not support this claim.	Outsourcing of American jobs has continued and not only the high-profile GM and Carrier mass job losses while Trump’s corporate tax policies create incentives for more outsourcing and his promised Buy American reforms lag. GM’s factory closures at the end of 2018 spotlights the ongoing loss of American manufacturing jobs. One of the first companies that Trump met with once taking office, GM closed five plants affecting thousands of workers after expanding production in Mexico. Because of the outsourcing incentives in trade agreements like NAFTA as well as the pro-outsourcing tax bill signed by President Trump, firms will continue to outsource jobs. Even tax dollars that could be used to boost U.S. production continue to be offshored. A government-wide assessment on procurement spending President Trump requested never saw the light of day. Various new “Buy American” executive orders include recommendations but not requirements to expand the policy, making Trump’s “Buy American, Hire American” promises mainly rhetoric without policy action. Case in point: the NAFTA 2.0 text maintains the old NAFTA rules that require the waiver of Buy American procurement preferences with respect to Mexico.
CHINA TRADE: Trump may tout his actions to try to address China’s unfair trade practices, but whether he stays on track, adds the missing elements of a China trade plan and delivers remains to be seen.	Six months after the first set of U.S. tariffs on China, bilateral discussions have yielded little concrete progress. Meanwhile, Trump has failed to take action against trade advantages gained through misaligned currency values nor limit investment by Chinese-government-related entities in the United States. Though one of Trump’s campaign promises was to declare China a currency manipulator on Day One, four semi-annual reports by Trump’s Treasury Department have failed to name any country a currency manipulator. Trump has chosen to rely on criteria created by the previous administration that ensure no action is taken.
USMCA PAYS FOR BORDER WALL - NOT: Though Trump may claim the opposite, NAFTA 2.0 will NOT pay for the border wall between the United States and Mexico.	There are no provisions in NAFTA 2.0 that would directly or indirectly fund the border by putting money into the U.S. Treasury from the Mexican government. When trade generates money for a government’s treasury, it is via payment of border taxes, called tariffs. But even if NAFTA 2.0 raised tariffs, which it does not, that money would not go into a Trump-wall-fund. So, the same issue that caused the showdown would remain: Congress must allocate general revenue to the wall. But there is no such tariff revenue to be had. U.S.-Mexico trade has been duty-free under NAFTA for more than a decade. When NAFTA went into effect in 1994, Mexico agreed to duty-free treatment of everything with a 15-year phase-in. The revised deal does not add new tariffs. Moreover, perhaps the strongest evidence that nothing in NAFTA 2.0 forces Mexico to pay for Trump’s border wall is that Mexico, which has made clear it will not pay, signed the deal.
NAFTA 2.0 FATE IN CONGRESS: Trump says that NAFTA 2.0 can pass easily, but that is not what the vote count suggests.	Thanks to the midterm elections, only a revised NAFTA deal that can win significant Democratic support will get through Congress. Democrats in Congress are insisting that NAFTA 2.0’s  giveaways to Big Pharma are eliminated. And also that tougher labor and environmental standards are added, because the deal Trump signed  won’t stop corporations from outsourcing American jobs. Trump’s deal is not the transformational replacement of corporate-rigged NAFTA that Americans need. But if the administration works with congressional Democrats on needed improvements, there is a path to passing the revised NAFTA with a broad bipartisan vote.
NAFTA WITHDRAWAL: Trump says he could just withdraw from NAFTA if Congress doesn’t act on the renegotiated deal.	While Trump has the authority to withdraw, neither withdrawing from NAFTA nor maintaining NAFTA 1.0 will raise wages in Mexico (where average annual Mexican wages are down 2 percent with Mexican manufacturing wages now 40 percent lower than in China) that will stop the offshoring that transforms middle-class jobs into sweatshop jobs, or reverse NAFTA’s destruction of nearly a million American middle class jobs.
MEXICO V. U.S. IN NAFTA: Trump says the United States was a victim of the original NAFTA.	Trump’s notion of NAFTA as a plot by Mexico to hurt U.S. workers is absurd. NAFTA was the brainchild of U.S. presidents, was negotiated with input from hundreds of U.S. corporate trade advisors, and has been devastating to working people in both Mexico and the United States alike. Since NAFTA was signed, U.S. real wages are flat and real wages have actually declined in Mexico.

Third-Quarter Data Shows Record U.S. Trade Deficits During Trump Presidency

Contrary to Trump’s Campaign Pledges to Speedily Reduce the Deficit, Nine-Month Data Show Largest Deficit Ever Recorded With China and Largest With NAFTA Nations in a Decade

Government data released today reveals the highest U.S. goods trade deficit in a decade for the first three-quarters of 2018, contradicting President Donald Trump’s midterm campaign trail triumphalism on trade. During Trump’s presidency, the U.S. trade deficit with China has risen to the highest ever recorded, while the deficits with the world and with North American Free Trade Agreement (NAFTA) nations have steadily grown, reaching nine-month levels in 2018 higher than any year since before the 2008-2009 financial crisis.

“Instead of the speedy reduction in the trade deficit that Trump promised as a focal point of his campaign, during his presidency, the U.S. trade deficit with the world, China and NAFTA countries has steadily grown,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “This alarming data spotlights that the Trump administration has chosen not to employ all of the tools at its disposal to bring down the trade deficit.”

Today’s U.S. Census Bureau release of the nine-month 2018 trade data reveals a global deficit and a China deficit that is higher than the nine-month level of Trump’s first year, which was higher than the nine months of President Barack Obama’s last year (all figures adjusted for inflation). The U.S. also is on track to end 2018 with the highest goods trade deficit with NAFTA partners since 2008. This is being driven by increasing imports from Canada and Mexico since 2016, but especially from Mexico this year.

As our Trump trade deficit tracker shows, the nine-month 2018 data indicate:

• The U.S. trade deficit with China sets another all-time record. The goods trade deficit with China over the first nine months of 2018 was the highest deficit ever recorded for the first three quarters of a year – a 13 percent increase over 2016. Comparing the first nine months of Trump’s first year to his second year, the China goods deficit increased 8 percent, from $280 billion in 2017 to $301 billion in 2018. This compares to $268 billion for the first three quarters of 2016, Obama’s last year in office.

• After increasing steadily during the Trump presidency, with a total increase of 23 percent over 2016, the U.S. goods trade deficit with NAFTA partners during the first three quarters of 2018 was the highest in a decade. The U.S. trade deficit with NAFTA partners during the first nine months of the year increased 11 percent, from $144 billion in 2017 to $160 billion in 2018 after falling to $130 billion in 2016, the last year of Obama’s term. The 2008 nine-month deficit, before the effect of the crisis was felt, reached a record $188 billion before falling to $101 billion in 2009 over the same nine-month period.

• The overall U.S. goods trade deficit with the world over the first nine months of 2018 was the highest in the decade since before the financial crisis and up 13 percent over 2016. The U.S. trade deficit with the world over the first nine months of 2018 increased 7 percent, from $599 billion in 2017 to $643 billion in 2018, up from $570 billion in 2016, the last year of Obama’s term. The 2008 nine-month deficit, before the effect of the financial crisis was felt, had reached a record $744 billion before falling to $420 billion over the same period in 2009.

The growth of the NAFTA trade deficit has been overshadowed by focus on U.S.-China trade conflicts. But it is notable that the growth of the U.S.-Mexico deficit is accelerating, with 11 percent growth from the first nine months of 2017 to the same period in 2018 compared to 6 percent growth over that period from 2016 to 2017. The U.S. deficit with Canada is still growing, but the rate has not accelerated.

This data likely will color the debate next year as a renegotiated NAFTA heads toward congressional consideration. Public Citizen’s analysis of the NAFTA 2.0 text revealed some improvements progressives have long demanded, damaging terms long opposed and important unfinished business. The analysis showed that fixing NAFTA’s trade-deficit-raising terms that incentivize U.S. firms to outsource jobs to Mexico to pay workers poverty wages, dump toxins and bring their products back here for sale remains a work-in-progress.

The latest trade data spotlights actions the Trump administration has chosen not to take to bring down the U.S. trade deficit.

The data arrives on the heels of Trump’s Treasury Department failing to label any country a currency manipulator. An analysis released recently by Public Citizen shows how the Treasury Department’s decision to rely on reporting criteria created by the previous administration has ensured no action on the issue, despite then-candidate Trump pledging to crack down on countries that gain trade advantages by distorting currency values.

As well, Trump has not exercised the authority he has to reverse waivers of “Buy America” procurement policies that outsource U.S. tax revenues to purchase imports for government use. He also has not followed through on his campaign pledges to penalize imports from firms that consistently outsource jobs or limit government contracts to firms that outsource jobs.

U.S. Trade Deficit for First Half of 2018 Likely to Be Largest Recorded in Years, With China Deficit on Track to Be Highest First-Half Ever Recorded

January-June 2018 Data Out This Friday Likely to Show a Trump Trade Deficit Higher Than First Halves of 2017 or 2016

Contrary to Donald Trump’s claim last week that he has reduced the trade deficit by $52 billion, the United States is on track to post a record high goods trade deficit for the first half of 2018. When the U.S. Census Bureau releases the six-month data this Friday, the global deficit and China deficit are likely to be higher than in the first half of Trump’s first year in office, which was higher than the first half of President Barack Obama’s last year. The six-month 2018 North American Free Trade Agreement (NAFTA) deficit also is likely to be higher than the first half of Obama’s last year.

U.S. Trade Deficit with Selected Partners, Sum of First Five Months (Source: U.S. Census Bureau)

Trump’s $52 billion trade deficit reduction claim seems to be premised on a misleading comparison between an annualized change in the goods and services trade balance between the first quarter of 2018 (a $902 billion deficit) and the second quarter of 2018 (a $850 billion deficit.) But the U.S. goods trade deficit in the first quarter of 2018 was the largest first-quarter deficit since before the financial crisis, meaning a decline from that in the next quarter says very little about the overall trend. This comparison, like changes in month-to-month deficit figures that often are reported in the press, obscure actual trends. The monthly data are volatile, especially now, as U.S. exporters race to beat retaliatory tariffs on U.S. goods. Reviewing the same five-month goods trade balances shows that U.S. deficits with the world and with China were higher over the first five months of 2018 compared to the first five months of 2017, which in turn were higher than the first five months of 2016, even after adjusting for inflation.  (All figures in this memo are inflation-adjusted, so they represent the actual growth in the deficit expressed in constant dollars.)

What to Look for When Census Releases the Six-Month 2018 Trade Data on Friday

• The goods trade deficit with China over the first half of 2018 is on track to be the highest first-half ever recorded. Comparing the first five months of Trump’s first year in office to his second, the China goods trade deficit increased 8 percent from $141 billion in 2017 to $152 billion in 2018. This compares to $136 billion for the first five months of 2016, Obama’s last year. As was widely reported, U.S. exports were inflated during the first half of 2018 by shipments racing to get ahead of the imposition of tariffs, but imports also grew substantially.

• The goods trade deficit with the world over the first half of 2018 is likely to reach a level closer to the record deficits before the 2008-09 financial crisis. The U.S. trade deficit with the world over the first five months increased 5 percent from $320 billion in 2017 to $336 billion in 2018 after already hitting $296 billion in 2016, the last year of Obama’s term. The 2008 first five-month deficit, before the effect of the crisis was felt, reached a record $385 billion before falling to $206 billion in 2009 for the same period. 
  
  
• The six-month 2018 NAFTA goods trade deficit may also increase in Trump’s second year, as it did in his first relative to Obama’s last year in office. The NAFTA deficit for the first five months of 2018 increased from $70 billion in 2016 to $82 billion in 2017 to $84 billion in 2018. Because re-exports now represent 20 percent of U.S. goods exports to NAFTA nations, for the NAFTA figures we use domestic export data. This excludes goods not actually produced in the exporting country. In 2016, 44 percent or nearly $100 billion of U.S. re-exports went to NAFTA partners – $53.5 billion to Mexico and $45.7 billion to Canada. No other country received more than 6 percent of U.S. re-exports. Not removing re-export artificially inflate export

Why Month-to-Month Trends Miss the Main Story

Many trade watchers focus on the change in month-to-month numbers, especially now as they study whether newly imposed tariffs are altering trade flows. But monthly trade figures are volatile, and the “seasonal adjustment” done by Census does not control for factors such as U.S. exporters trying to beat the imposition of various countervailing tariffs. Thus, the main storyline when the May trade figures were released was that the monthly deficit with the world was the lowest since October 2016. But missing in this assessment was that U.S. trade deficits with the world and with China were higher during the first five months of 2018 compared to the same period in 2017, which were in turn higher than the first five months of 2016, even after adjusting for inflation. A more complete picture of U.S. trade balance trends is achieved by comparing the year-to-date totals through the same point of previous years. This removes the need for seasonal adjustment, given the data cover the same months each year. (We focus on goods balances rather than total goods and services in this memo because services data broken down by trading partner lags the goods data by months. The services data by partner for the first half of 2018 will not be available until September 2018.)

NAFTA Balances and the Skew from Re-Exports: Yes, We Have A Deficit With Canada

Accurately accounting for NAFTA trade balances is complicated. Since NAFTA went into effect, the share of U.S. exports to Mexico and Canada that are re-exports of goods made in other countries has jumped from 5 percent in 1993 pre-NAFTA to 20 percent in 2017. (Re-exports are goods imported, for instance, from China into the United States and then exported to Canada without change. In 2016, one-third of U.S. re-exports to Canada were produced in China.) Counting re-export of foreign-made goods in U.S. export data inaccurately inflate export numbers. But to get an accurate balance, the import side of the equation also must be considered. The United Nations’ trade database, called Comtrade, provides official government data on domestic exports (i.e., not including re-exports). Consider the controversial question of whether the United States has a trade deficit with Canada. The Comtrade data show $221 billion in U.S. domestic exports to Canada and $266 billion in Canadian domestic exports to the United States in 2016, the most recent year that can be compared to available services data. That yields a $45 billion U.S. goods trade deficit with Canada. After subtracting the $24 billion U.S. services trade surplus with Canada documented by the U.S. Bureau of Economic Analysis, the United States still had a $21 billion goods and services trade deficit with Canada in 2016. When this issue came to the forefront earlier this year, analysts who did not subtract re-exports instead calculated a $7 billion U.S. surplus with Canada for 2016.

A Deeper Dig into the Data: About Those Soy Exports

Several deeper cuts of the data are worth considering. The first relates to what the United States is exporting, which to the world in 2017 was $138 billion of agricultural goods and $1.1 trillion of manufactured goods. There has been breathless coverage of how China’s retaliatory tariffs have impacted U.S. soybean exports, which are noted to be the second largest U.S. export to China after civilian aircraft, engines and parts. What this reveals is the lack of U.S. value-added exports to China after that nation’s accession to the World Trade Organization (WTO). After soybeans, the top 15 U.S. export products to China include commodities like crude oil (No. 4), copper scrap ( No. 7), propane (No. 8), aluminum scrap (No. 11), wood pulp (No. 12), cotton (No. 14) and paper waste (No. 15). The giant trade deficit with China is the result of exporting only $120 billion worth of goods in total. However, a large portion are low value-added commodities. Of the top 15 U.S. export products to China, $24 billion represent such goods, and only $31 billion, or 56 percent, represent high value-added product categories like cars and electronics. Meanwhile, 84 percent of Chinese imports into the United States are in these high- value categories. The United States runs over a $100 billion deficit with China in electrical machinery alone.

The second deep dive relates to the impact on wages from the composition of the goods we import and export. One way to view this is by checking the subset of the data on our manufacturing trade balance. Even the most orthodox economists admit that trade changes the composition of jobs – and thus the wages – available for U.S. workers. As the grandfather of modern trade economics, Nobel-Prize winning economist Paul Samuelson found in one of the last papers he published before his death, offshoring of higher-paid jobs to countries like China and India can cause U.S. workers to lose more in wages than they gain from access to cheaper imported goods. The downward pressure on wages is still the predominant feature of the U.S. labor market and trade is one of the significant factors fueling it and one of the only ones that can be altered via policy changes. The Center for Economic and Policy Research (CEPR) revealed that when comparing the lower prices of cheaper imported goods to the income American workers lost from low-wage competition under current trade policy, by 2001 the trade-related wage losses were larger than gains from access to cheaper goods for the majority of U.S. workers. CEPR found that those without college degrees (58 percent of the workforce) had likely lost an amount equal to 12.2 percent of their wages under NAFTA-style trade, even after accounting for the benefits of cheaper imports. That meant a net loss of more than $3,965 per year for the average worker. Despite this, defenders of the trade status quo dismiss the relevance of trade deficits, especially given strong economic growth figures in an economy running near full employment. Yet, while headline economic indicators are strong, damage that is occurring may remain invisible. When the tide goes out on a hot economy, the damage in lower wages and the disappearance of middle-class jobs for the majority of Americans without college degrees may be seen and felt acutely, just as it was after the 2008-09 financial crisis.

New Trade Deficit Tracker

Public Citizen’s Global Trade Watch launches new Trade Deficit Tracker. Contrary to candidate Donald Trump’s pledge to speedily reduce the U.S. trade deficit, in Trump’s first year in office the goods trade deficit is larger than any time since 2008 and up 5 percent overall even in inflation-controlled terms from last year, with a significant jump in the China trade deficit and a 8 percent increase in the North American Free Trade Agreement deficit. Trump has not exercised his available executive authority to fulfill campaign pledges to limit imports, including those from firms that outsource jobs; label China a currency manipulator; revoke trade agreement waivers on “Buy America” procurement policies that outsource U.S. tax dollars to purchase imports for government use; or limit government contracts to firms that outsource jobs.

The overall 2017 U.S. goods trade deficit in inflation-controlled terms was $796 billion in 2017, up 5.4 percent or $40.9 billion from 2016, which was led by a U.S.-China goods deficit of $375 billion in 2017, up 5.5 percent and $19.5 billion from 2016. The 2017 U.S-NAFTA goods trade deficit was up 7.8 percent or $13.8 billion from 2016.

To document the significant increase in U.S. trade deficits under the Trump administration, Public Citizen’s Global Trade Watch has launched a new tracker. The tracker visualizes and tracks significant developments related to U.S. trade deficits with NAFTA partners (Canada and Mexico), and China respectively. Click here or on the image below to visit the tracker.

www.citizen.org/our-work/globalization-and-trade/trumps-trade-deficit

With Trade Commission TPP Review Due Next Week, New Study Shows Past Pacts’ Actual Outcomes Were Opposite of Agency’s Rosy Projections

Administration Expected to Tout Imminent USITC Study in New Push for TPP Passage Despite Agency’s Systematic Failure to Accurately Assess NAFTA, China and Korea Pacts

WASHINGTON, D.C. – The reliability or usefulness of an imminent government assessment of the Trans-Pacific Partnership (TPP) was called into question by a study released today that shows that past U.S. International Trade Commission (USITC) projections of trade agreements’ benefits were systematically contradicted by the pacts’ actual outcomes.

The new study reviews USITC trade balance, job and economic sector projections in the statutorily required reports for the three most economically significant trade pacts prior to the TPP and finds the government study on each pact proved dramatically inaccurate – not only in degree, but in direction.

“Past government studies have systematically projected positive outcomes that were contradicted by the actual results, which is why members of Congress requested, without success, that the agency alter its approach to assessing the TPP,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

The USITC predicted improved trade balances, gains for specific sectors and more benefits from the 1993 North American Free Trade Agreement (NAFTA) and 2007 U.S.-Korea Free Trade Agreement (FTA) in reports on those pacts. The agency projected only a small deficit increase from China’s 1999 World Trade Organization (WTO) entry deal and the granting to China of Permanent Normal Trade Relations status.

Instead, the U.S. trade deficits with the trade partners increased dramatically and, as detailed in the text of the new study, manufacturing industries from autos to steel and farm sectors such as beef that were projected to “win” saw major losses. A government program to help Americans who lose jobs to trade certified 845,000 NAFTA jobs losses alone and econometric studies concluded that millions of jobs were lost from the China deal, in contrast to gains projected by the USITC reports.

The new report also reviews how the USITC’s use of a computable general equilibrium (CGE) model leads to projections entirely unrelated to actual outcomes by simply assuming away the very results that have often occurred under past pacts: long-term job loss, trade deficit increases and currency devaluations.

Under the model, the USITC collects information on current exports, imports, gross domestic product (GDP), tariff rates, investment flows and more. It creates equations to calculate how trade flows would change if a pact’s terms were fully implemented. The model looks to an endpoint, not the process of getting there. It does not consider whether there may be increases in trade deficits along the way, or whether other nations may not fully implement or enforce a pact’s terms. Rather it projects a final outcome assuming full implementation. Running this simulation generates data on potential changes in exports and imports. By design, it assumes the trade balance does not change and that employment levels remain consistent – that workers who lose jobs simply obtain new jobs in other sectors where wages are presumed to increase.

A growing body of academic criticism of the CGE model employed by the USITC has focused on the numerous assumptions researchers make, including what economic factors are included and excluded, and what included factors are assumed to remain constant. For instance, implicit in the assumption that the trade balance does not change is the assumption of flexible exchange rates. But in reality, currency manipulation is a significant problem among some of the TPP countries. The U.S. Department of Treasury just recently included TPP nation Japan on its new Monitoring List in its semi-annual report on “Foreign Exchange Policies of Major Trading Partners of the United States.”

The assumptions baked into the model can contribute to gaps between projections about import and export levels and actual outcomes. Also, given that the results of the trade flow simulations are then used to project broader outcomes (such as on U.S. economic growth), assumptions piled on assumption can cause results that are incorrect, not only in degree, but in direction.

Different assumptions can result in diametrically opposed outcomes, as demonstrated by the recent Peterson Institute for International Economics and Tufts University studies on the TPP. The Peterson Institute used a CGE model with assumptions similar to those employed by the USITC in past studies and found the TPP would result in a modest increase in U.S. GDP, but not impact overall U.S. employment. Using an economic model that allows for the possibility of less than full employment and rising income inequality, called the United Nations Global Policy Model, Tufts University economists concluded that the TPP would reduce U.S. growth rates and lead to 448,000 American jobs lost.

The Tufts findings spotlight just how drastically the assumptions baked into a model affect the outcomes; the Tufts economists actually employed the Peterson Institute trade flow simulation data. They plugged the Peterson findings on import and export levels at full TPP implementation derived from one set of unrealistic assumptions into a model that applies more realistic assumptions about how trade flow changes affect growth and employment – and got the opposite results on growth and jobs.

Finally, the output of any model also is greatly affected by the data put into it. Issues to watch for in this regard for the USITC’s TPP study include:

• How will the USITC TPP study treat “non-tariff barriers” (NTB)? What an international bank may consider an NTB may be what a policymaker or consumer considers an important safeguard to avoid costly financial crises. But recent trade pact projection studies have included guesstimates of gains resulting from the elimination of NTBs.

• Will the USITC TPP study consider how TPP investment rules could affect decisions about where to invest in production and whether the TPP will alter foreign direct investment trends?

• How will the USITC TPP study assess intellectual property provisions, given that longer monopolies may increase some U.S. firms’ profitability but also may cost governments and consumers more for medicines and access to information?

Under the Fast Track authority passed last year, the USITC is required to release a report projecting the economic effects of the TPP no later than May 18, 2016.

 

 

Seven Corporations that Could Sponsor Obama’s Controversial Trade Deal (If His Nike Endorsement Falls Flat)

President Obama apparently has a flair for irony. He selected the headquarters of offshoring pioneer Nike as the place to pitch the controversial Trans-Pacific Partnership (TPP) trade deal in a major speech on Friday. As Obama tries to sell a pact that many believe would lead to more U.S. job offshoring and lower wages, why would he honor a firm that has grown and profited not by creating U.S. jobs, but by producing in offshore sweatshops with rock bottom wages and terrible labor conditions?

Less than 1 percent of the 1 million workers who made the products that earned Nike $27.8 billion in revenue in 2014 were U.S. workers. Last year, one-third of Nike’s 13,922 U.S. production workers were cut. Most Nike goods, and all Nike shoes, are produced overseas, by more than 990,000 workers in low-wage countries whose abysmal conditions made Nike a global symbol of sweatshop abuses.

This includes more than 333,000 workers in Nike-supplying factories in TPP nation Vietnam, where the average minimum wage is less than 60 cents per hour and where workers have faced such abuses as supervisors gluing their hands together as a punishment. Instead of requiring Nike to pay its Vietnamese workers more or ending the abuse they endure, the TPP would allow Nike to make even higher profits by importing goods from low-wage Vietnam instead of hiring U.S. workers.

If using an offshoring pioneer to rally support for the beleaguered TPP does not succeed for some reason, here are seven other U.S. corporations that Obama might consider as equally fitting backup options: 

1.      Philip Morris

Sure, Philip Morris International – the world’s second-largest tobacco corporation – may not be the world’s most-loved corporation, but Obama would find an enthusiastic TPP corporate sponsor in the firm.  Philip Morris has explicitly lobbied for controversial TPP provisions that would empower multinational corporations to bypass domestic courts, go before extrajudicial tribunals of three private lawyers, and challenge domestic laws that millions of people rely on for a clean environment, a stable economy, and healthy communities. Indeed, Philip Morris is already using this parallel corporate legal system, known as “investor-state dispute settlement,” to attack landmark anti-smoking policies from Australia to Uruguay. The TPP would newly empower thousands of multinational corporations to launch “investor-state” attacks against countries’ health, environmental and financial protections. In one fell swoop, the deal would roughly double U.S. exposure to “investor-state” attacks against U.S. policies.

2.      Goldman Sachs  (and other Wall Street firms)

If Obama’s Nike promo falls flat, maybe he should turn to a Wall Street bank as the next TPP corporate cheerleader. It’s no surprise that Wall Street firms like Goldman Sachs love the TPP.  The deal includes
binding rules, written before the financial crisis under the advisement of the banks themselves, that would require domestic policies to conform to the now-rejected model of deregulation that led to financial ruin. And for the first time, the TPP would empower some of the world’s largest 20 banks to directly challenge new U.S. financial protections before extrajudicial tribunals on the basis that the regulations frustrated the banks' "expectations."

3.      Pfizer  (and other Big Pharma corporations)

Pharmaceutical corporations like Pfizer are likely candidates for further corporate TPP-peddling given that the pharmaceutical industry has lobbied for the TPP more than any other. Small wonder – the deal offers pharmaceutical corporations a buffet of handouts that would allow them to raise medicine prices while restricting consumers’ access to cheaper generic drugs. One TPP chapter would give pharmaceutical firms expanded monopoly protections that would curb access to essential medicines in TPP countries like Vietnam, where it is projected that 45,000 HIV patients would no longer be able to afford life-saving treatment. Another TPP chapter would establish new restrictions on government efforts to cut medicine costs for taxpayer-funded programs such as Medicare, Medicaid and veterans' health programs. A third TPP chapter would empower foreign pharmaceutical corporations to directly attack domestic patent and drug-pricing laws in extrajudicial tribunals.

4.      ExxonMobil  (and other fracking corporations)

Maybe Obama’s next TPP photo op should be in front of a natural gas fracking drill owned by TPP-supporting ExxonMobil, the world’s largest publicly traded natural gas corporation. Natural gas firms are hopeful about TPP provisions likely to spur a surge in natural gas exports. For the rest of us, that would mean an expansion of dirty fracking and an increase in electricity costs. Implementing the TPP would require the U.S. Department of Energy to automatically approve natural gas exports to TPP countries, waiving its prerogative to determine whether those exports, and the resulting incentive for more fracking, would be in the public interest. As states like New York ban fracking to protect against health and environmental dangers, the TPP would move in the opposite direction. Indeed, the TPP would open the door to more “investor-state” attacks on anti-fracking protections, like the one Lone Pine Resources has launched against a Canadian fracking moratorium that prevents the firm from fracking under the Saint Lawrence Seaway.

5.      Time Warner  (and other Hollywood corporations)

Hollywood corporations like Time Warner Inc. already have been partnering closely with the Obama administration in stumping for the TPP – recent leaks reveal that the Motion Picture Association of America literally has asked the administration to vet the corporate alliance’s pro-TPP statements. The corporations are pining for stringent TPP copyright protections that could threaten Internet freedom by pushing Internet service providers to police everyday content sharing, resulting in blocked or censored websites. Leaked proposals for the deal would even make the common, non-commercial sharing of copyrighted content (e.g. remixed songs, reposted video clips) a prosecutable crime. 

6.      Red Lobster  (and other corporations using imported fish and seafood)

U.S. chain restaurants and agribusinesses that profit from imports of fish and seafood, at the expense of U.S. independent fishers and shrimpers, could also serve as willing backers of Obama’s TPP pitch. The deal would likely reduce or eliminate U.S. tariffs on imports of more than 80 types of fish and seafood products, increasing further the already massive flow of fish and seafood imported into the United States. Even without the TPP, the U.S. Food and Drug Administration (FDA) only physically inspects less than 1 percent of imported fish and seafood for health risks, despite that the Centers for Disease Control and Prevention has found that imported fish are the number one cause of U.S. disease outbreaks from imported food. The TPP would exacerbate this public health threat by enabling more fish and seafood imports from major exporters like Malaysia and Vietnam, where widespread fish and seafood contamination has been documented. For example, the FDA has placed 193 Vietnamese fisheries on a “red list” due to risk of salmonella contamination.

7.      Chinese Corporations in Vietnam

If Obama is willing to use Nike to promote the controversial TPP despite its reliance on low-wage labor in Vietnam, maybe he’d be willing to also solicit TPP endorsements from the Chinese corporations that are setting up shop in Vietnam in hopes of using the TPP to undercut U.S. businesses. The Chinese and Vietnamese press report that many Chinese textile and apparel firms are now building factories in Vietnam in hopes of taking advantage of the TPP’s planned phase-out of U.S. tariffs on apparel imported from Vietnam. This not only would place U.S. textile producers in direct competition with Chinese-owned firms using low-wage labor in Vietnam, but also would eliminate the jobs of workers in Mexico and Central America who now make the clothes that were made in the United States before the North American Free Trade Agreement and Central America Free Trade Agreement. In addition, the TPP’s gutting of Buy American policies would newly empower Chinese firms operating in Vietnam to undercut U.S. businesses to get contracts for goods bought by the U.S. government, paid for by U.S. taxpayers. For all firms operating in TPP countries like Vietnam, the United States would agree to waive "Buy American" procurement policies that require most federal government procurement contracts to go to U.S. firms, offshoring U.S. tax dollars to create jobs abroad. 

Forthcoming TPP Sales Pitch So Predictable, We Decided to Predict It

In the coming days, the U.S. Trade Representative (USTR) will release its annual report on the Obama administration’s trade policy agenda.  We know that you can’t wait to see what it will say. 

Good news.  You don’t have to.  Below we present the world’s first look at the report’s contents. 

How do we know in advance what the annual trade report will say?  No, we don’t have a mole at USTR (though if any of our USTR readers would like to volunteer…). 

We have a pretty good idea of the report’s contents, given that these reports tend to recycle the same old sales pitches that the administration has been disseminating ad nauseam (figuratively and, sometimes, literally). 

Since the status quo trade platitudes have become predictable, we thought we might as well predict them. 

So, you heard it here first – below are some of the administration's standard TPP-related talking points likely to be rehashed in USTR’s forthcoming report, followed by an explanation of why they do not bear repeating:

95 percent of the world’s consumers live outside our borders.

[But our trade pacts have not helped us reach them.]

Yes, this statistic shows a basic understanding of geography and population.  But it shows little else.  The official government trade data reveal that past trade deals have not been successful in helping U.S. firms reach consumers who live abroad.  In fact, U.S. goods exports to our “free trade” agreement (FTA) partners have grown 20 percent slower than U.S. exports to the rest of the world over the last decade.

The TPP would grant U.S. firms greater access to the world's fastest-growing region.

[But the relevant TPP countries have been growing one-fourth as fast as that region.]

The United States already has FTAs with six of the 11 TPP negotiating partners.  The combined GDP of the other five countries (the ones that could offer “greater access”) has been growing at a paltry 1 percent annually over the last decade – one fourth of the growth rate of the Asia-Pacific region overall.  Yes, the region has been growing quickly.  That just happens not to be relevant to the TPP. 

Exporters tend to pay their workers higher wages.

[But jobs displaced by imports pay even higher.]

What this talking point fails to mention is that jobs lost to imports under unfair trade deals tend to pay even higher wages than jobs in exporting industries, according to new data unveiled by the Economic Policy Institute (EPI).  If a manufacturing worker making $1,020 per week loses her job to imports under a raw trade deal and gets re-hired in an exporting firm where she gets paid less than $870 per week (the actual numbers from EPI’s analysis), it’s probably small consolation that she could be making even less in a non-traded sector like restaurants.  But that is the very argument – that exporting industries pay more than non-traded industries – that the administration has been using to push for the TPP’s expansion of the trade status quo.

Their pitch omits the fact that far more jobs have been lost in the higher-paying import-competing industries than have been gained in exporting sectors under existing trade deals, judging by the burgeoning U.S. trade deficit with FTA partners, which has grown 427 percent since the deals took effect. It also does not mention that most trade-displaced workers do not actually get rehired in exporting industries, but in non-traded sectors, spelling an even bigger pay cut than the example given above.

China wants to write the rules for commerce in Asia. Instead, we should write the rules.

[We didn’t write the TPP’s rules – multinational corporations did. The TPP would hurt our national interests while failing, like past FTAs, to affect China’s influence.]

Ah yes, the boogeyman tactic.  When the economic sales pitch for a controversial new FTA falters on the existing FTA record of lost jobs, lower wages and increased trade deficits, FTA proponents frequently resort to raising the specter that without the controversial pact, the influence of a foreign opponent will rise further.  But the notion that the establishment – or not – of any specific U.S. trade agreement would affect China’s rising influence is contradicted by the record.  Proponents of the North American Free Trade Agreement (NAFTA) and NAFTA expansion pacts similarly warned that those deals were necessary to prevent rising foreign influence in Latin America.  But in the first 20 years of NAFTA, the share of Mexico’s imported goods coming from China increased from 1 to 16 percent, while the U.S. share dropped from 69 percent to 49 percent.  And from 2000 to 2011, a period in which U.S. FTAs with eight Latin American countries took effect, the share of Latin America’s imported goods coming from China increased from 1 percent to 7 percent, while the U.S. share fell from 25 percent to 16 percent.  Why should we believe the recycled pitch that another FTA would keep China’s economic influence in check?  

And the attempt to paint the TPP as a battle between “our rules” and China’s rules is absurd.  “We” did not write these rules.  The draft TPP text was crafted in a closed-door process that granted privileged access to more than 500 official U.S. trade advisors, nine out of ten of them explicitly representing corporations.  It is little surprise then that leaked TPP terms include new monopoly patent rights for pharmaceutical companies that would increase healthcare costs, limits on efforts to reregulate Wall Street, a deregulation of U.S. gas exports that could increase domestic energy prices, maximalist copyright terms that could thwart innovation and restrict Internet freedom, and new investor protections that incentivize offshoring.  Good luck selling that as advancing U.S. interests. 

The TPP is a 21^st-century agreement with strong labor and environmental standards.

[Government reports show that those standards have proven ineffective.]

The vaunted inclusion in the TPP of labor and environmental provisions that were hatched in a May 10, 2007 deal is nothing new. These provisions have been included in existing FTAs, but have proven ineffective. The George W. Bush administration, for example, included "May 10" terms in the FTA with Colombia, where anti-union violence and repression remain rampant. Indeed, a U.S. Government Accountability Office report released in November 2014 found broad labor rights violations across five surveyed FTA partner countries, regardless of whether or not the FTA included the “May 10” labor provisions. As for environmental standards, the TPP would empower foreign corporations (e.g. oil/gas companies) to demand taxpayer compensation before extrajudicial tribunals for new environmental protections in TPP countries (e.g. rejection of a proposed controversial pipeline). 

And despite recent claims to the contrary, the evidence shows no correlation between an FTA’s inclusion of the “May 10” standards and its trade balance impact. Though the Korea FTA, the U.S. template for the TPP, included the “May 10” standards, the U.S. trade deficit with Korea has grown more than 70 percent in the three years since the deal’s passage. According to the administration’s trade-jobs ratio, that equates to the loss of more than 70,000 U.S. jobs – the same number of jobs that the administration promised would be gained under the deal. 

98 percent of U.S. exporters are small or medium-sized enterprises (SMEs).

[The few small businesses that export have endured slow and falling exports under FTAs.]

Only 3 percent of U.S. SMEs export any good to any country. In contrast, 38 percent of large U.S. firms are exporters. Even if FTAs actually succeeded in boosting exports, which government data show they do not, exporting is primarily the domain of large corporations, not small businesses.

The relatively few small businesses that do actually export have endured even more disappointing export performance under FTAs than large firms have experienced.  U.S. small businesses have watched their exports to Korea decline even more sharply than large firms under the Korea FTA (a 14 percent vs. 3 percent decrease).  And small firms’ exports to Mexico and Canada under NAFTA have grown less than half as much as large firms’ exports. Indeed, small firms’ exports to all non-NAFTA countries has exceeded by more than 50 percent the growth of their exports to NAFTA partners.

Proposed U.S.-China Treaty Would Expose U.S. Laws to Extrajudicial Attacks by Chinese Corporations, Incentivize More U.S. Job Offshoring

Chinese Acquisitions, Establishment of U.S. Subsidiaries Growing at 80 Percent Annual Rate with 820 Major Deals Totaling More Than $37 Billion Since 2000

At a time of rapid growth in Chinese acquisition of U.S. firms, establishing the U.S.-China Bilateral Investment Treaty (BIT) discussed during this week’s U.S.-China Strategic and Economic Dialogue is an especially terrible idea, said Public Citizen.

The treaty’s investor-state dispute settlement provisions (ISDS) would empower Chinese corporations invested here to directly challenge U.S. public interest safeguards before extra-judicial tribunals that could order payment of U.S. Treasury dollars to compensate the firms for U.S. laws that they claim violate their new treaty rights.

Over the past five years, there has been a surge in Chinese corporations acquiring or creating U.S.-based subsidiaries, with such deals growing at an annual rate of 80 percent. Since 2000, Chinese corporations have acquired or installed about 820 U.S.-based firms in deals totaling more than $37 billion. Nearly 90 percent of these deals, by value, were Chinese takeovers of existing U.S. companies. Not included in these numbers are many instances of Chinese firms purchasing controlling shares of U.S. companies’ stock.

“How could it be in our interest to empower the ever-greater number of Chinese firms operating here – many owned by the Chinese government – to circumvent U.S. courts and challenge our financial, environmental, health and other public interest policies before foreign tribunals empowered to order payment of our tax dollars to these Chinese firms?” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “A U.S.-China BIT would invite a wave of attacks on our domestic laws by Chinese corporations through a system of private foreign tribunals that are a threat to our sovereignty and solvency.”

By providing new special protections and rights for U.S. firms that relocate to China, the treaty would remove many of the costs and risks of relocating and incentivize another wave of American job offshoring to China.

Under a U.S.-China BIT’s investor state dispute settlement provisions, Chinese corporations with U.S.-based operations and firms with significant Chinese investment would be empowered to drag the U.S. government before extrajudicial tribunals and demand taxpayer compensation for a broad array of non-trade-related policies. These tribunals, composed of three private attorneys, would be authorized to order unlimited U.S. taxpayer compensation for alleged losses to the Chinese firms’ “expected future profits” on the basis of claims that U.S. policies violated the firms’ sweeping, BIT-granted foreign investor “rights” not available to U.S. firms.

For example, thanks to its purchase last year of Virginia-based Smithfield Foods, the largest pork producer in the world, the Chinese corporation Shuanghui International could take advantage of a U.S.-China BIT’s investor privileges to challenge new U.S. food safety standards before a foreign tribunal. And Sinopec, a Chinese corporation that acquired a 50 percent stake in 850,000 acres of oil and natural gas leases owned by Chesapeake Energy last year, could use a U.S.-China BIT to skirt U.S. domestic courts and directly challenge future climate or fracking regulations.

Corporations directly controlled by the Chinese government have been responsible for about half of the Chinese acquisitions and other investments in U.S.-based firms to date. Experts have testified before Congress that expanded Chinese control of U.S.-based companies is guided not only by market forces, but also by Chinese government strategy. Under a U.S.-China BIT, the Chinese government would be able to use state-owned enterprises doing business in the United States to directly challenge U.S. domestic laws on the basis of substantive investor “rights” that are even more expansive, and more threatening to domestic regulations, than those found at the World Trade Organization. 

Let’s Just Pretend We Didn’t Offshore Manufacturing

Is an iPhone made in China and exported to Europe a U.S. export?

Is an Apple executive a manufacturing worker?

Yes, and yes.  At least those could become the answers if a new proposal afoot among some in the administration is allowed to take effect.  Federal agencies grouped under the bland-sounding Economic Classification Policy Committee (ECPC) are proposing to radically redefine U.S. manufacturing and trade statistics. 

Under the proposal, U.S. firms that have offshored their production abroad – like Apple – would become “factoryless goods” manufacturers.  The foreign factories that actually manufacture the goods – like the notorious iPhone-producing Foxconn factories in China – would no longer be manufacturers, but “service” providers for the rebranded “manufacturing” firms like Apple.

It appears the administration has been reading Orwell. 

But the problem with this proposed redefinition is not merely that it offends common sense.  The “factoryless goods” proposal would deceptively deflate the size of reported, but not actual, U.S. manufacturing trade deficits, while artificially inflating the number of U.S. manufacturing jobs overnight.

While some details of the proposal remain open-ended, one thing is clear: this maneuver would obscure the erosion of U.S. manufacturing.  It would disguise the mass-offshoring of U.S. middle-class factory jobs incentivized by NAFTA-style trade deals.  It would undermine efforts to change the unfair trade and other policies that have led to such decline.  

To boost U.S. manufacturing jobs and production, we need to switch our policies, not our numbers.

The ECPC is accepting comments on their “factoryless goods” proposal until July 21.  If you’d care to offer your thoughts, click here.
  

The 3 Big Distortions of the "Factoryless Goods" Proposal
  

1.  The proposal would result in a fabricated reduction of the U.S. manufacturing trade deficit by rebranding imports of U.S. manufactured goods as “services” imports, according to recent explanations offered by officials of ECPC member agencies.  The redefinition would not affect all U.S. trade statistics, but it would distort some of the most widely-reported numbers (those calculated on a balance of payments basis), misleading the public and policymakers alike.

Take, for example, a scenario in which Apple ships iPhone parts to China to be assembled in a Foxconn factory and then sent back to the United States to be sold here.  Currently, the value of the imported iPhone minus the lesser value of the exported parts counts as a net U.S. import of a manufactured good.  This reflects the fact that Apple offshored its iPhone manufacturing to China.

But under the ECPC proposal, Foxconn, now called a “manufacturing services provider,” would not be described as having manufactured the iPhones but as having provided services to Apple.  As a result, the net U.S. import of manufactured goods resulting from Apple’s decision to offshore would be reduced. In its place would be an import of Foxconn’s factory “services.”
  

2.  The proposal would treat some goods exported by foreign factories as U.S. manufactured exports.  Take a scenario in which Apple ships iPhone parts to China that are assembled by Foxconn and then shipped to the European Union (EU).  Currently, Apple’s export of parts to China counts as the only U.S. export in this scenario. 

But the ECPC proposal, according to officials of ECPC member agencies, would instead count China’s export of the fully-assembled iPhones to the EU, less the cost of any imported parts, as a “U.S. manufactured goods export.”

The absurd logic of this rebranding is that while China manufactured and exported the iPhones, they count as U.S. manufactured exports because they were under the control of a U.S. brand.  This Orwellian proposal would spell an artificial increase in U.S. manufactured exports (on a balance of payments basis), further belying the real U.S. manufacturing trade deficit.
  

 3.  The proposal would spur a disingenuous, overnight increase in the number of U.S. “manufacturing” jobs as white-collar employees in firms like Apple – now rebranded as “factoryless goods producers” – would suddenly be counted as “manufacturing” workers. 

This change would also create a false increase in manufacturing wages, as many of the newly-counted “manufacturing” jobs would be designers, programmers and brand managers at “factoryless goods producers” like Apple. 

Reported U.S. manufacturing output would also abruptly and errantly jump, as revenues from firms like Apple would be lumped in with the output of actual manufacturers. 
  

This proposal defies common sense.  It would dramatically distort U.S. trade, labor and gross domestic product statistics.  Goods manufactured abroad and imported into the United States are not something other than manufactured goods imports.  Goods exported from foreign factories do not become “U.S. exports” when they are produced for U.S. brands.  And jobs in which workers spend zero time actually manufacturing anything are not “manufacturing jobs.”  

The offshoring of U.S. manufacturing under years of unfair trade policies cannot be undone with a data trick.  The hoped-for “renaissance” of U.S. manufacturing will come through new policymaking informed by accurate data, not politically convenient distortions.  

Election 2012: the Candidates on Trade

(Disclaimer: Public Citizen has no preference among candidates for office.)

With the budget and other scandals dominating political discourse, little space has remained for discussion of trade policy among possible presidential candidates.

To fill this void we decided to examine exactly where the politicians fall on key trade issues:

Bachmann
Although foreign policy hasn’t always been her strong suit, Rep. Michele Bachmann (R-Minn.) is pretty confident about her views on trade. Bachmann interrupted her presidential campaign and broke a streak of 88 absences to cast a vote in favor of the free trade deals with Korea, Colombia and Panama. In a press release she writes that these deals will “spur economic growth… without cost to taxpayers.” Notably, the representative voted against Trade Adjustment Assistance, which would provide support for workers displaced by the deals. Bachmann also voted against Fast Track cancellation in 2008 and in favor of the Peru trade deal in 2007.

In a blog post urging lawmakers to pass the Korea, Colombia and Panama trade deals, Bachmann writes that the “role of free trade as an expression of liberty….signifies the very principles our country was founded upon.” Unfortunately, these trade deals were negotiated under Fast Track, leaving Congress no authority to amend the agreements. (The constitution, or the document our country was actually founded upon, outlines a system of checks and balances granting Congress the power to “regulate commerce with foreign nations”).

Paul
A self-proclaimed proponent of free trade in its most pure form, Rep. Ron Paul (R-Tex.) opposes NAFTA-style trade deals because they erode U.S. sovereignty and are unconstitutional. He has voted against almost every trade deal that has surfaced during his tenure in office, including Peru, Oman, Bahrain, CAFTA, Australia, Singapore and Chile. Paul has also been an advocate of withdrawing from the World Trade Organization.

Sherrod Brown Tosses the Panama FTA

Well, not quite. But, man, that FTA text does look pretty heavy, and like it could put a hurtin' on some of the senators in the room that are against fair trade.

But here's a floor speech from fair trade champion Sen. Sherrod Brown (D-Ohio) on the night the Senate voted on the Panama, Korea and Colombia trade deals. It's about 30 minutes, and a very eloquent description of why these trade deals are no longer primarily about "trade," but about how we regulate our domestic economy. Brown's TRADE Act would go a long way to getting "trade" policy right.

FDA Foreign Food Inspections Under Threat

We have yet more bad news on the food safety front. Two weeks ago, news came that U.S. consumers would be barred from knowing if the tuna they're eating was caught using methods potentially fatal to dolphins. Last week we found out that the WTO would prevent country-of-origin labeling on beef from foreign countries sold in the U.S. Now comes word that the meager FDA inspections of foreign food facilities that have given U.S. consumers a modicum of protection against dangerous food will likely be rolled back.

Inside U.S. Trade reports today that proposed cuts to the FDA's 2012 budget could cripple the FDA's ability to conduct food safety inspections at foreign facilities that export food to the United States, according to a leaked FDA document.

FDA inspections of foreign facilities were set to be strengthened in the coming years. The Food Safety Modernization Act, enacted in January, requires the FDA to double the number of inspections of foreign facilities every year over 2012-2016 to protect U.S. consumers from contaminated foods.

The new proposal, contained in a bill approved by the House Appropriations Committee, would fund the FDA's food programs in 2012 at only 90 percent of their 2011 levels, and at only 79 percent of the level requested by the Obama administration to ensure full implementation of foreign food facilities inspections. The FDA is supposed to conduct at least 600 inspections of foreign facilities in 2011, but it will likely have to conduct much fewer next year if the proposed cuts become a reality.

This week, Food and Water Watch released a report examining the threat that uninspected Chinese food imports pose to U.S. consumers' safety. Since China entered the WTO in 2001, the volume of imports of Chinese food into the United States by tonnage has increased by almost 200%, and the share of Chinese imports as a proportion of food consumed in the U.S. has skyrocketed for some key products, reaching 70 percent for apple juice, 43 percent for processed mushrooms, and 78 percent of tilapia. During the same period, several food safety scandals erupted in China, sickening hundreds of thousands of people there and killing thousands of pets in the United States. Nevertheless, between June 2009 and June 2010 the FDA conducted only 13 food inspections in China.

The bill slashing the FDA’s foreign inspections budget is expected to be voted on in the House next week. Given the repeated food safety incidents in China and now news of the tragic deaths in the E. coli contamination case in Germany, the need to fully fund increased food inspections at foreign facilities has never been clearer.

Korea FTA Benefits China at the Expense of U.S. and South Korean Workers

We’re continuing our series of facts in response to the Korean Embassy’s misleading claims on the Korea Free Trade Agreement (FTA). Our full response can be viewed here. This is the final installment, focusing on the Korea FTA’s lax domestic content requirements for autos.

Lori Wallach’s Huffington Post piece: “The FTA allows its benefits to accrue to autos that contain only 35 percent U.S. or Korean content.”

Korean Embassy’s claim: “The KORUS FTA stipulates that 35% of the components used to manufacture products (under the build-up method/net cost method) or 55% of the components of the final product (using the build-down method) must originate in one of the two countries to be eligible for preferential treatment. A 45% maximum foreign content rule under the Korea-EU FTA corresponds with the minimum 55% domestic contents rule under the KORUS FTA (using the builddown method). Also, the EU’s standard foreign content rule was 40%, not 45%.” Elsewhere, the Embassy has gone further, stating that the build-up and build-down methods “are supposed to be equivalent to each other. The 20% difference between the methodologies reflects the operation cost in the final product processing stage and manufacturers’ dividends, etc.”[i]

Facts: These two methods are not equivalent. Multinational companies have pushed for rules that intentionally allow them the discretion to include as much as 65 percent content from outside the FTA countries, at the expense of workers in both the U.S. and South Korea.

As the United Autoworkers and others have repeatedly noted, Korean automakers have the option to use the “build-up” method to calculate the domestic value content under the US-Korea FTA, which requires that only 35 percent of the value of the motor vehicle be comprised of domestic parts to qualify for FTA benefits. This method allows – but does not require – that importers deduct certain “fringe” costs like transportation when calculating the maximum permissible share of content from non-FTA countries.[ii]

The EU-Korea FTA provides for only one way for automakers to calculate the domestic value content. Under the EU-Korea FTA, a Korean motor vehicle qualifies for FTA benefits only if its foreign content comprises 45 percent or less of the vehicle.[iii] Put differently, the minimum domestic value content for the EU-Korea FTA is 55 percent. Given that the EU-Korea FTA mandates that 55 percent of the value of a Korean auto must be of domestic components, while the “build up” method of the US-Korea FTA mandates that only 35 percent of the value of a Korean auto must be of domestic components, Korean automakers will be able to put a much greater portion of Chinese components into vehicles destined for the United States, undercutting auto production in the United States.

Members of Congress and fair trade groups have long raised concerns about the low percentage of originating content required for goods to qualify for duty-free FTA treatment. The Labor Advisory Committee for Trade Negotiations and Trade Policy has warned that the lax rules of origin in the Peru, Oman, and Korea FTAs would allow large quantities of goods from third countries such as China to enter the United States duty-free under the FTAs.[iv] Reports on previous FTAs have made similar points.[v] However, industry representatives have successfully pushed the U.S. Trade Representative to include lax rules of origin in FTAs.[vi]

---

[i] http://www.koreauspartnership.org/pdf/Other%20Issues.pdf

[ii] See Annex 6-A of the Korea FTA,  Available at: http://www.ustr.gov/sites/default/files/uploads/agreements/fta/korus/asset_upload_file680_12704.pdf. See also: International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW), “The Social and Economic Impact of the US-South Korea Free Trade Agreement (KORUS FTA),” September 14, 2010, Available at: http://www.imfmetal.org/files/10102608591310005/UAW_KORUS_FTA_ENGLISH.pdf

[iii] See Protocol 1 of the E.U.-Korea Free Trade Agreement, Available at: http://trade.ec.europa.eu/doclib/html/145192.htm

[iv] Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Oman Free Trade Agreement,” November 15, 2005, at 9, Available at: www.citizenstrade.org/pdf/omanLACreport_11152005.pdf

Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Peru Free Trade Agreement,” February 1, 2006, at 1, Available at: www.citizenstrade.org/pdf/peruLACreport_02012006.pdf

Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Korea Free Trade Agreement,” April 27, 2007, at 28, Available at: http://ustraderep.gov/assets/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/Reports/asset_upload_file698_12781.pdf

[v] See Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Singapore Free Trade Agreement,” February 28, 2003, at 14-15. Available at: http://ustraderep.gov/assets/Trade_Agreements/Bilateral/Singapore_FTA/Reports/asset_upload_file77_3220.pdf

[vi] For example, the Industry Sector Advisory Committee on Transportation, Construction, Mining, and Agricultural Equipment urged USTR to allow the build-down method to calculate the domestic content for autos in the Chile FTA after the initial draft agreement only included the build-up method. The final agreement allowed the both methods. See ISAC 16, “Report for the Chile Free Trade Agreement,” February 2003, at 6; USITC, “U.S.-Chile Free Trade Agreement: Potential Economywide and Selected Sectoral Effects,” June 2003, at 80; Chapter 4 of U.S.-Korea FTA.

With China’s Currency Policy a Tough Topic of Hu Visit, Obama Poised to Push Korean Trade Deal With No Mechanism to Counter, Stop Currency Manipulation

With the trade advantage gained by China’s currency manipulation a top focus of Obama’s meeting with Chinese President Hu Jintao on Wednesday, concerns will rise about entering into yet another trade agreement with no provisions that forbid or redress currency manipulation with another known currency manipulator: South Korea.

Read our press release here.

Candidates of color running and winning on fair trade

Anytime you force an ad-man to compress a difficult policy problem into a 30-second soundbyte, you're going to lose some complexity.

That's why I was surprised at the push back on politicians on so-called "China bashing." (See for instance, Reihan Salam here, and Matt Yglesias here.)

I watched about 800 political ads for the 2010 cycle, and most of the China-related ads I that I saw were not bashing Chinese people - they're bashing unfair trade deals and policies, voted on in Washington, that had the effect of offshoring jobs to other countries. In other words, the reason things aren't made in America is because of policies that were. You can see the full pantheon of ads and analysis in our new report here.)

For what it's worth, candidates of color (including a number of South Indian Americans and Asian Americans) in both parties have launched some of the strongest attacks on job offshoring this election cycle.

This includes Rep. David Wu (D-Ore.) in Portland, who bears the distinction not only of being an Asian-American campaigning for fair trade, but also a Democrat showing that you can campaign and win on fair trade in the Pacific Northwest, where the (incorrect) conventional wisdom is that this message doesn't play.

Democrats and Indian-Americans Manan Trivedi in Pennsylvania and Raj Goyle in Kansas also posted credible showings in GOP-leaning districts. Both campaigned extensively on fair trade themes. As an NPR column argued:

The trick for these candidates is to never let voters forget you are running to represent Sacramento, or Wichita - not Bangalore.

Raj Goyle does this by campaigning very hard on fighting outsourcing of Kansas jobs.  Ami Bera agrees, "we have to keep those jobs here because we have over 12 percent unemployment."

(Bera ran in against Dan Lungren in California.)

In Hawaii, Democratic candidate Colleen Hanabusa criticized job offshoring in paid television ads, and was successful in her effort to unseat GOP incumbent Charles Djou, who ran the campaign's only television ad in favor of the Korea FTA. Both candidates are Asian American.

Democrat and Congressional Hispanic Caucus member Loretta Sanchez fought back a challenge from Vietnamese-American GOP candidate Van Tran in this heavily Latino and Asian district. She campaigned against unfair trade with Vietnam, and against other anti-worker trade deals.

In Louisiana, African-American candidate Cedric Richmond beat Vietnamese-American GOP incumbent Anh Cao. Richmond ran paid television ads against unfair trade deals, while Cao attacked unfair trade with Vietnam (even though he had supported the Bush-initiated Trans-Pacific Partnership while in office).

In Georgia, Democratic incumbent and African-American Sanford Bishop won re-election in his majority White-American, deep South district, and ran paid television ads attacking NAFTA and China trade policy. (Bishop has had complicated trade policy history - voting for the WTO and China's entry into it, while voting against NAFTA and cosponsoring the fair trade TRADE Act.) Meanwhile, his fellow Democratic incumbent Jim Marshall did not campaign on his fair trade record, and lost to Austin Scott, a Republican that emphasized Buy America themes. (Both Marshall and Scott are white.)

Ryan Frazier, an African-American GOP candidate in Colorado, criticized the fact that the stimulus bill was not used to buy only U.S.-made goods. Allen West, an African-American GOP candidate in Florida, criticized the job offshoring impact of cap-and-trade. Their Democratic opponents approached these candidates in different ways: Ed Perlmutter in Colorado ran anti-offshoring ads of his own and won, while Ron Klein in Florida was mum on trade and lost.

And Latino voters in California and Nevada strongly backed Democratic Senate incumbents Barbara Boxer and Harry Reid, who both campaigned against policies that send jobs to Mexico and other countries.

Finally, 75 percent of the Congressional Black Caucus, nearly half of the Congressional Hispanic Caucus, and Asian-American members like Reps. Mazie Hirono (D-Hawaii) and Judy Chu (D-Calif.) have endorsed the TRADE Act, which simultaneously pushes for good jobs here at home, while prioritizing stronger environmental justice, workers rights and democratic protections for our trading partners. Not to mention a fellow named Barack Obama, who also campaigned and won on these themes - winning not only communities of color but making serious inroads into the white working class.

In sum, elected officials don't seem to have much difficulty reconciling justice for communities of color at home and abroad with a strong working class message of standing up for job creation in the United States. They know as well as anyone what my colleagues John Schmitt and Nicole Woo (and other CEPR folks) have found: that the quality of manufacturing and other jobs here at home is a major reason that families from Asian-Pacific, African-American and Latino-American communities have ascended to the middle class.

The Political Genius of Sarah Palin: How One Facebook Post Sparked a Mass GOP Fair Trade Wave

There is some conventional wisdom that the GOP is more united than Democrats in favor of unfair trade deals. See for instance this ridiculous aside from the White House in the New York Times Magazine this weekend:

Rouse and Messina see areas for possible bipartisan agreement, like reauthorizing the nation’s education laws to include reform measures favored by centrists and conservatives, passing long-pending trade pacts and possibly even producing scaled-back energy legislation.

This is silly. Polls show that GOP and independent voters are at least as opposed to these deals as the Democratic base. (See here and here.) And, nowhere in the "everything and the kitchen sink" 48 page GOP "Pledge to America" unity document do they talk about trade or offshoring - showing that there is not a heckuva lot of GOP unity in support of unfair trade.

GOP candidates are responding to the public support for fairer trade. This cycle, we're seeing a much higher number of GOP running on fair trade than in the last two cycles, including pledging to renegotiate trade deals and end tax loopholes for companies that offshore jobs. Some are even attacking their Democratic incumbents' votes against fair trade (a vote for China PNTR, for instance).

But the message that I have seen probably 100 GOP candidates run on in this cycle is attacking the incumbent Democrat for voting for a stimulus bill with Buy America provisions criticized as weak.

Long-time readers will recall that we covered this issue in detail back in early 2009:

• In one corner, we had Sen. John McCain (R-Ariz.) - who campaigned against Buy America, and then lost a major Senate vote to remove Buy America requirements entirely from the stimulus bill.
• In another corner, we have President Barack Obama, who campaigned in favor of Buy America, but whose adminsitration pushed back on the stronger versions of the requirement.
• In another corner, we have the fair traders and economic justice types - who wanted to pass a stimulus bill, and one with strong Buy America provisions. The price imposed by the trade point people on the Hill and the administration was to ensure that countries we've signed trade deals with would be treated as if they were "American" for the purposes of the legislation.
• Finally, we have the American people: eighty six percent of Americans say that the stimulus should "require that government-funded infrastructure and construction projects use American-made materials and products to the greatest extent possible", including 79 percent of Republicans. The Buy America portion of the stimulus bill was by far more popular than the underlying bill itself.

Enter Sarah Palin. Despite never having clarified her views on trade policy on the VP campaign trail (or in her previous run for governor of Alaska), Palin raised eyebrows earlier this year when she attacked the stimulus bill for not requiring that all money be spent here in America. Palin wrote on her Facebook wall about the stimulus bill:

“We were promised it would provide “green jobs” for Americans, but 80% of the $2 billion they spent on alternative energy went to purchase wind turbines built in China!”

At the time, I figured that this was just an accidental or not fully thought-through Facebook post. Little did I know that Sarah Palin was an absolute genius whose Facebook post would spark a mass GOP fair trade wave: virtually every GOP candidate across the country is today campaigning on this loophole in the stimulus bill.

So, what would be the solution to this problem? Well, for starters, we'd have to revisit the procurement commitments in the World Trade Organization (WTO) and other unfair trade deals in order to get even close to 100% true Buy America rules in government spending.

Even many free traders feel very strongly that there are moral, environmental and economic reasons to ensure that our tax dollars are used to support local jobs and production. But, as we've long argued, the WTO closes off this key, sovereign policy space. (See our book "States' Rights and International Trade" for more.) Luckily,

• there are a number of both Democrats and GOP that are specifically campaigning on this fair trade sub-theme of reforming procurement rules;
• a majority of House Democrats have already signed up to legislation (the TRADE Act) which would bring the procurement provisions of our trade deals up to a fair trade standard; and
• fair traders like Sen. Sherrod Brown (D-Ohio) and the U.S. Steelworkers are working diligently to monitor the stimulus bill and ensure that as much of it as possible is used to Buy American.

But Sarah Palin has pointed out the way forward: rather than falsely assume a bipartisan consensus in favor of Bush's trade deals with Korea and other countries, let's build on the true bipartisan consensus in favor of fair trade in government procurement and in other policy areas.

(Ed note: In the last two election cycles, Public Citizen has brought you detailed analysis of around 100 competitive and open seat congressional races. We found that the role of trade and offshoring increased in 2008 relative to 2006, and by all indications, 2010 will set a new record. Of about 170 races we are tracking, trade is playing in about 90 percent of them (150). That's right, we'll be releasing detailed candidate profiles of over 350 candidates - GOP, Democratic, and some third party.)

(Note: Public Citizen has no preference among the candidates.)

WSJ Got It Wrong: Tariff decision correlated with halt in tire sector job loss

UPDATED: 9/3/10

Yesterday, the Wall Street Journal wrote an editorial in which it blasted the 35 percent safeguard tariff against Chinese tires imposed by the United States in September of last year. The U.S. imposed the tariff due to a huge surge in tire imports from China that materially harmed domestic manufacturers. According to the Wall Street Journal:

The measure hasn't boosted employment. In the first five months of this year, the number of workers at U.S. tire factories fell about 10% compared to the same period last year, according to an analysis from the pro-trade U.S.-China Business Council.

Strictly speaking, the statistic that the U.S.-China Business Council claims is correct. However, this statistic cannot lead us to the conclusion that employment in the American tire manufacturing sector has continued to suffer with the tariff upon Chinese tires.  The graph below reveals how the comparison data seems to have been selected specially to support the desired negitive conclusion. First, the data referenced: According to the Bureau of Labor Statistics (BLS), there were 50,300 workers employed in the American tire manufacturing sector in June 2010, the most recent month with available data.  By contrast, only 49,100 workers had jobs in tire manufacturing in August 2009, the month before the tariff was imposed.  Since the BLS does not seasonally adjust data for small sectors of the economy, there may be some hidden seasonal effect here; 51,700 workers were employed in tire manufacturing in June 2009, though this is only slightly higher (1,400 jobs relative to 50,300) than tire employment in June 2010.

The graph makes clear that by the end of the summer of 2009, tire employment began to stabilize, which happened about the same time that the tariffs were imposed.  Correlation certainly doesn't indicate causation, but given the evidence it is quite possible that the tariffs played a role in the tire employment stabilization. The graph also makes it obvious why the U.S.-China Business Council found that "in the first five months of this year, the number of workers at U.S. tire factories fell about 10% compared to the same period last year."  It is simply because in the first half of 2009 - before the tariff was imposed - employment in the tire sector was steadily plummeting! So, when the first few months of 2009 are averaged in (with their comparatively high employment levels which were being eroded every month by the import surge), tire employment in early 2010 looks worse by comparison to that average.  However, again, the graph makes clear that in fact by the end of the summer of 2009, tire employment finally began to stabilize. This is the period when the tariffs went into place. 

But don't take my word for it. Go here and input “CEU3232621001” as the series ID to pull the tire manufacturing data.

Besides the cherry picking of stats, what is vexing about the way that the WSJ presents the issue is that it seems to believe that Obama came up with the idea of this safeguard out of the blue and that he had sole discretion in the decision. The WSJ refers to the tariff as "Mr. Obama's tire tax."  In fact, the U.S. International Trade Commission (USITC), and independent federal body, rigorously analyzed the numbers and issued a recommendation to Obama that a 55 percent tariff be imposed on Chinese tire imports. The 35 percent tariff that Obama chose to impose was actually lower than the tariff that the USITC recommended. Rep. Sander Levin's website has a great Q&A on the Chinese tire tariffs.

Seattle Employment Not Harmed by NAFTA? O RLY?

Last week U.S. Trade Representative Ron Kirk was in Seattle to meet with Association of Southeast Asian Nations (ASEAN) trade ministers and business executives.  In conversations with reporters, he seemed to imply that Washington workers haven’t experienced the devastating effects of the NAFTA trade policy model like workers in the Midwest have:

"When I'm east of the Mississippi, people think I'm a two-headed monster," he quipped. He said he loves coming here. "For every five trips to Michigan and Illinois I ought to earn one trip to Seattle."

Eh? Is it true that Seattle has escaped the fate that has befallen Michigan and Illinois?

No. The manufacturing base of Seattle has been crippled in the NAFTA/WTO trade policy era.  Since the implementation of NAFTA in 1994, the Seattle area has lost 29,600 manufacturing jobs, a decline of 16 percent, according to the Bureau of Labor Statistics.  Washington as a whole has lost 51,100 manufacturing jobs since NAFTA entered into force. These are prime high-paying jobs with good benefits to support families, and the NAFTA trade model was a contributing factor in their disappearance.  In fact, a study conducted by the Economic Policy Institute (EPI) found that the increase in the deficit with Canada and Mexico alone since NAFTA’s implementation has cost Washington 16,500 jobs.

The Trade Reform, Accountability, Development and Employment (TRADE) Act offers a way to fix the flawed NAFTA model through ensuring that U.S. trade agreements include strong labor, environmental, and consumer protections that would help grow jobs instead of destroy them.  If Seattle-area Representatives Jay Inslee, Jim McDermott, David Reichert, and Adam Smith were to join the 140 cosponsors of the TRADE Act, it would go a long way toward reversing the devastating effects of the NAFTA model on Washington workers.  EPI’s recent study on the effect of the rise in the trade deficit with China since it joined the WTO in 2001 upon jobs should give the members of Congress extra incentive to support the fair trade policy embodied by the TRADE Act.  Here are the EPI-estimated job losses from the China deficit in each of their districts:

1^st District (Rep. Jay Inslee): 6,800 jobs lost

7^th District (Rep. Jim McDermott): 5,600 jobs lost

8^th District (Rep. David Reichert): 7,100 jobs lost

9^th District (Rep. Adam Smith): 4,900 jobs lost

For more analysis about why the NAFTA model is bad for Washington workers, see The Real Pirates of the Caribbean: U.S. High Tech Industry’s False CAFTA Promises Disguise Bad Policy by the Washington Alliance of Technology Workers, The Society of Professional Engineering Employees in Aerospace, and The American Ingenuity Alliance (with some help from Global Trade Watch).

China Trade Deficit Toll: 2.4 Million Jobs

Robert Scott of the Economic Policy Institute (EPI) just came out with a terrific new study on the job losses that the U.S. economy has suffered because of the sky-high deficit with China.  It estimates that the rise in the deficit with China since it entered the WTO (2001) has displaced 2.4 million jobs.  

Between December 2007 (when the recession began) and February 2010, the U.S. economy lost 8.4 million jobs.  This means that if our deficit with China reverted back to its level in 2001 instead of being at its current level, the U.S. economy could generate about one-fourth of the jobs that it lost during the Great Recession.

What’s great about this study is that it estimates job losses in each congressional district.  Previous studies from EPI looked at deficit-induced job losses only down to the state level. With this study, Scott uses a different dataset that surveys millions of people per year, so there are enough respondents in each congressional district to get job loss estimates. Check out where your district ranks in job losses here (and here for an alphabetical listing).

Fortunately, there is a lot of movement in Congress to get China to allow its currency to appreciate against the U.S. dollar. Last Monday, 130 members of Congress, led by Representative Mike Michaud, sent a letter to Treasury Secretary Tim Geithner and Commerce Secretary Gary Locke urging them to officially designate China as a currency manipulator in its April 15^th report.  Yesterday, the House Ways and Means Committee held a hearing on China’s currency policy, its impact on the U.S. economy, and steps that the U.S. could take to press China to revalue it currency.  Most economists believe that China’s currency is undervalued by about 40 percent, making imports from China artificially cheap for the U.S. and U.S. goods more expensive in China.

USTR’s 2010 Trade Policy Agenda: The Good, The Bad, and the Bizarre

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch Division

Relative to last year’s March 1 report, the 2010 Trade Policy Agenda released today by the Office of the U.S. Trade Representative (USTR) excludes some troubling elements, such as the call for rapid action on the leftover Bush trade pact with Panama, the demand that climate policy conform to trade rules and the reference to renewed presidential trade authority. But at the same time, the report unfortunately fails to deliver the new fair trade agenda that President Barack Obama promised during the campaign and that is needed for our country’s economic recovery.

It also continues to mimic the misrepresentations that the Bush administration borrowed from the U.S. Chamber of Commerce with respect to only considering the role of exports on U.S job creation, as if the U.S. did not have a massive job-killing trade deficit. An example is the hilarious statement about 10 million U.S. jobs being supported by exports in 2008 – a year we had a $696 billion deficit – without any reference to the net U.S. jobs effect of the flood of imports underlying that deficit. The report also fails to mention that 5 million net U.S manufacturing jobs – one out of every four – have been lost since the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) went into effect, or the downward pressure our current trade policies are putting on wages across the economy.

China Rights Abuses on the Rise... Where's leverage when you need it?

See Andrew Jacobs in NYT:

Emboldened by China’s newfound economic prowess but insecure about its standing at home, the Chinese Communist Party has been tightening Internet censorship, cracking down on legal rights defenders and brushing aside foreign leaders who seek to influence the outcome of individual cases...

In the 31 years since the People’s Republic of China and the United States established diplomatic relations, Chinese officials have often resisted American intervention on human rights, calling the issue a domestic matter. But there has generally been some give and take, largely behind the scenes, especially in the years after the violent suppression of protests in Tiananmen Square, when China was eager to shed its pariah status abroad.

That leverage began dissipating in 2001 after China was admitted to the World Trade Organization, and Congress surrendered the right to review China’s human rights record before granting it favorable trade status.

I'm just sayin' is all I'm sayin'.

Road Trip!

It looks like U.S. Trade Representative Ron Kirk will be touring the country in a series of meetings this year.  He’ll tout the benefits of trade agreements generally, but he’ll focus on the Trans-Pacific Partnership (TPP) since its first negotiating session is slated for mid-March of this year. The potential TPP countries now include Vietnam, Australia, Peru, Chile, Singapore, Brunei, and New Zealand, though more countries might join the negotiations soon.

According to Inside U.S. Trade (subscription only), even big business is skeptical of the tour’s mission:

[T]wo business sources said they doubted a series of meetings across the country would do much to sway the public perception of trade.

The meetings should be a two-way street, however, if Kirk follows through on his promise to incorporate feedback from these meetings in the process of developing negotiating objectives for the TPP.  The Office of the USTR has said officially that they are still in the early stages of developing negotiating objectives, but the Bush administration’s trade model is still lurking under the surface:

Private-sector sources this week speculated that the negotiating objectives identified by the Bush administration in 2008 for the TPP Agreement may serve as a basis for the current administration, both because the objectives are so broad and because those original objectives were developed by career officials still in place at USTR.

These previously defined negotiating objectives include all the nasty provisions that we’ve seen in previous agreements like NAFTA and CAFTA such as intellectual property rules, financial services, foreign investor rights, and government procurement.  Right now the inclusion of these inappropriate issues in the TPP is a wide open question. Greater congressional involvement in the negotiating process could help ensure that we are negotiating for an agreement with higher standards.

(Thanks to Flickr user Focx for the image)

New Year’s Resolutions for the Obama Administration

With a number of important and high profile trade battles to be fought this year that will have far-reaching impacts on the U.S economy and domestic policy, we thought we’d suggest some New Year’s resolutions for president Obama to adopt on U.S. trade policy.

These resolutions are solutions that the administration needs to commit to in 2010, based on what's likely to move in the trade sphere this year. They hold President Obama to his campaign promise to deliver trade policy reform, and they’ll also help to fix the economy and keep good jobs in America.

The resolutions are:

1. Push to modify World Trade Organization (WTO) limitations on domestic financial services regulation, in light of the economic crisis. Go here for details.
2. Conduct a comprehensive review of trade agreement policy as promised during the campaign
3. Announce formal new trade agreement approach that brings trade pacts into congruence with the administration’s domestic priorities and goals
4. Pass climate legislation with meaningful border equality measures
5. Pass second major stimulus bill with robust Buy America provisions to create jobs
6. Pass food safety bill with serious import safety protections
7. Use the Trans-Pacific Partnership talks to devise a replacement for the NAFTA model; we either need a new way or no deal
8. Renegotiate remaining Bush trade agreements with South Korea, Colombia, & Panama to fix NAFTA model problems and bring them in line with the TRADE Act.
9. Give the WTO’s “Doha Round” agenda a much needed burial and develop a new agenda related today's challenges aimed at fixing WTO problems, from financial services deregulation to limits on climate crisis redress space
10. Fight for a China trade policy that supports jobs and also ensures product and food safety for both countries

Obama has already resolved to do a lot of these, but just as with most New Year’s resolutions, he’s somewhat fallen off the wagon.  We’re here to help him resolve anew and stick to it!

Trade Theory Textbook Goes in the Trash

Peter Morici, Chief Economist at the U.S. International Trade Commission from 1993 to 1995 (those dark days of NAFTA implementation), has a new op-ed out today, entitled “Why Free Trade is Failing America”. A lot has changed since his tenure at the USITC. He's now a professor at the University of Maryland and he recognizes that the assumptions underpinning arguments for trade liberalization sometimes never hold true:

No economic policy could better serve Americans than genuine free trade but open trade policies are failing Americans.

Free trade is a compelling idea. Let each nation do more of what it does best, and specialization will raise productivity and incomes.

Americans are not sharing in those benefits because President Barack Obama, like President George W. Bush, permits China and others to cheat on the rules, unchallenged, to the detriment of the U.S. interests he was elected to champion…

Unfortunately, U.S. imports exceed exports by another $400 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, in which productivity is at least 50% lower. This slashes gross domestic product by about $200 billion, overwhelming the gains from trade, and requires workers displaced by imports to accept lower wages.

Check Out Rep. Levin's Guide on the Chinese Tire Case

As the media continues to cover the Obama administration’s recent decision to impose tariffs on tire imports from China, Congressman Sandy Levin has released a very useful guide covering the primary issues and arguments involved in the dispute - it is especially helpful in terms of distinguishing fact from fiction in the case.

Melamine Scare Goes Adult

It's official. It's not just kids who are endangered by the China melamine scare, adults are now at risk too, in their most, uhm, adult activities.

According to Marie Claire magazine, Britain's novelty shop Ann Summers has had to pull some of its most popular edible sex toys off the shelf because they contain many times the allowable amount of melamine. The guilty culprit? A Chinese manufacturer named, wait for it, Le Bang. I think that is about as much juice as I can offer on a family-oriented blog like our own, so you'll have to go the original source if you want more details.

As we wrote last holiday season, one of the main reasons that corporations have offshored so much production to China in the WTO era is to avoid U.S.-style product liability laws. The NYT reports on how
this lack of product safety is affecting consumers within China:

The first sign of trouble was powder in the baby’s urine. Then there was blood. By the time the parents took their son to the hospital, he had no urine at all.

Kidney stones were the problem, doctors told the parents. The baby died on May 1 in the hospital, just two weeks after the first symptoms appeared. His name was Yi Kaixuan. He was 6 months old.

The parents filed a lawsuit on Monday in the arid northwest province of Gansu, where the family lives, asking for compensation from Sanlu Group, the maker of the powdered baby formula that Kaixuan had been drinking. It seemed like a clear-cut liability case; since last month, Sanlu has been at the center of China’s biggest contaminated food crisis in years. But as in two other courts dealing with related lawsuits, judges have so far declined to hear the case...

Chinese officials, under pressure to promote fast rates of economic growth and to enforce social stability, routinely favor producers over consumers. Product liability lawsuits remain difficult to file and harder still to win, especially if the company involved is state-owned or has close connections to the government...

“This is a product liability case that in a Western country would turn into a class-action lawsuit,” Professor Zhang said. In China, he said, “they don’t want to see so many people getting involved in one lawsuit. This might threaten social stability.”

VT Legislator Reacts to Interference on E-waste Bill

On July 3rd, we posted that two state bills in Maryland had seen interference from the People's Republic of China (PRC) before they had the opportunity to come to a vote, cited as "barriers to trade" in conflict with the U.S. commitments under the World Trade Organization (WTO). Since then, we have been updated on the developments of a similar case in Vermont and wanted to share.

State Senator Ginny Lyons (D-Chittenden County) recently issued a statement on August 12th responding to the correspondence she received from the PRC regarding her bill on electronic waste. This letter from the Chinese Government also referenced U.S. commitments under the WTO as reason for asking Lyons to "cancel" or "revise" her bill. To which Sen. Lyons responds:

"The People's Republic of China questions the authority of the Vermont legislature to enact legislation to protect human life and the environment. This attempted interference by the People's Republic of China in the democratic process in Vermont is alarming and threatens basic principles of our system of government. Common sense solutions to health issues at the state and local level should not be subject to international pressure."

She stresses that, "This is part of a disturbing trend toward undermining states's rights. It's simply not OK for other governments to feel that they have a right to intervene in our state legislative process in this way. It wouldn't matter whether the bill addressed by the Chinese government was about health care, workers' benefits, land use permitting, or in this case, electronic waste recycling, the underlying principle is the same: respect for democratic decision-making. And so, we have to let folks in Washington DC and in Beijing know that this is an unacceptable intrusion."

This statement follows the unanimous passage of Sen. Lyons' resolution on this issue by the National Conference of State Legislatures (NCSL) Labor and Economic Development Committee at their annual meeting in July. The resolution asks that, at minimum, USTR issue a statement to NCSL "affirming that states’ abilities to pass laws and regulations protecting human health and the environment should not be abridged, and that USTR will aggressively defend states’ regulatory powers as a matter of U.S. federalism."

The Forum on Democracy and Trade released a preliminary analysis of the allegations by the People's Republic of China claiming that Sen. Lyons' bill is inconsistent with the WTO Agreement on Technical Barriers to Trade (TBT). The analysis finds the following:

"The TBT Agreement, which states that "Members should ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade." Under this strict "necessity test," trade values arguably trump other public policy values unless there is no conceivable alternative policy that is less burdensome on trade."

And states in conclusion:

"As illustrated by this event, other countries could and are beginning to use the trade system to apply pressure to state legislatures and to impact the state legislative process. Since trade promotion authority has expired, states see an opportunity to evaluate the process for providing input on trade issues and to improve federal-state communication. A new system for improving communication between states, USTR, and Congress should be a strong priority for the next Congress and President to ensure that our democratic system of government is protected."

We wholeheartedly agree with the Forum's conclusion and hope that state legislators will act on this opportunity to improve their role in the process. (If you are a state legislator and would like to get involved in a working group devoted to these issues, please email: [email protected].)

No Gold Medal for U.S.-China Trade

Just in time for the Beijing Olympics, Rob Scott from the Economic Policy Institute put out a great paper that updates his numbers on how many jobs could have been supported with balanced China trade.

He figures that an additional 2.3 million jobs could have been supported, and he also looks at some of the wage effects of this trade imbalance: 

Because U.S. exports to China are much more commodity intensive (i.e., comprising products such as grains, steel scrap, and paper scrap) than Chinese imports (99% of which are manufactured products), average wages earned in jobs producing U.S. exports to China paid 4.4% less than the jobs displaced by imports from China. More than one-fourth of U.S. exports to China on a value basis were commodities.

His paper was released with the fine folks over at the Alliance for American Manufacturing.

Maryland v. The People's Republic of China

It began as an effort to protect the children of Maryland from unsafe toys. Now, thanks to a disgruntled Chinese government and WTO, Del. James Hubbard’s (D-Prince George's County) proposed legislation in the Maryland General Assembly on potentially harmful chemicals has entered the ranks of “barriers” to international trade.

As you may remember, last year saw a slew of recalled Chinese toys, which were found to contain dangerously high levels of lead. Hubbard, dissatisfied with the Bush administration’s response, proposed a bill that would allow Maryland to monitor its own toys. The bill, which will clear Maryland store shelves of dangerous toys, did more than raise international eyebrows. From a recent article in the Washington Post, here’s how it went down:

The Office of the U.S. Trade Representative alerted the Chinese government, which sent a letter from Beijing to protest the bill as a barrier to trade. Lawmakers in Annapolis were unfazed and passed the bill, which takes effect next month.

Then came a four-page missive from the World Trade Organization's Committee on Technical Barriers to Trade -- in English and Chinese -- opposing another of Hubbard's bills, to ban a chemical compound called bisphenol A that is central to the plastics industry. Manufacturers in the United States and China use the compound in baby bottles and other products. With testimony on both sides, the bill did not pass out of a House committee.

The Chinese said there is "no specific scientific evidence" proving that products containing bisphenol A are hazardous to children.

Hubbard said he believes both complaints were prompted by lobbyists for the chemical industry, here in Washington.

"I truly feel the [chemical] industry and the toy industry are running to China and saying, 'You ought to oppose these bills, and if you don't you'll lose out on product sales in America,'" he said.

The WTO’s signature 'trade until proven deadly' threat justification was successful, and the bill didn’t make it out of a House committee. In an interview on the Kojo Nnamdi Show on Monday, Hubbard expressed his consternation: "This was a public health issue, not a trade issue."

In the past, international trade rules have stretched an intervening hand into state legislatures on a number of important issues, including health-related environmental regulations. Yet the WTO, not to mention Chinese government's attempts to preemptively intervene in a state's legislative process is taking their vested interest to another level.

Concerned that similar legislation would receive such undesired attention in Maine, the state's Citizen Trade Policy Commission issued a letter to the USTR which received this response. Hardly reassuring, their explanation is that the WTO notification system which "normally calls for us to notify proposed agency regulations" had "inadvertly included certain state legislative proposals." They assure it will not happen again in the future.

As states increasingly feel the yoke of international trade agreements in which they have had virtually no say, legislators from around the country are seeking new ways to work together to improve the process of state-federal consultation when it comes to trade policy-making.

Special thanks to Isaac Raisner for his contribution to this post.

Linda Sanchez v. Bart Simpson

Fair trade champion Rep. Linda Sanchez (D-Calif.) is pushing a bill that would grant U.S. consumers and states greater power to serve legal papers on foreign manufacturers that sell defective products in the U.S. market. As we documented last year, foreign producers can rarely be held liable for damages they cause U.S. consumers, a reality not helped by WTO rules and that has promoted offshoring of U.S. jobs and importation of unsafe products. As Ed Mierzwinski from PIRG put it in his testimony for Sanchez's subcommittee (also on our behalf):

By making it easier to hold foreign wrongdoers accountable, your bill would help consumers gain access to justice and also help equalize pressure on U.S. firms that may bear unequal treatment under our laws.

Of course, your bill importantly does not eliminate any responsibility or liability for U.S. manufacturers, importers, distributors, or retailers. It simply makes it easier for consumers to obtain redress from foreign manufacturers. All wrongdoers should always be held accountable.

Last year, for example, Mattel used what I call the Bart Simpson defense (“I wasn’t there, I didn’t do it, and it’s not my fault”) when it initially blamed a third-party Chinese supplier for failing to follow its lead paint requirements on a toy that was later recalled.8 Mattel, of course, under the Consumer Product Safety Act and the Federal Hazardous Substances Act, violated U.S. law by entering the banned hazardous substance into U.S. commerce. It trusted, but failed to verify. Mattel would still face liability even if one of its third-party foreign suppliers also did under your act...

Unfortunately, globalization has provided too many firms in the global supply chain with the wrong incentives: they want to cut corners, they want the cheapest supplier, they don’t do third party testing and they use cheaper, dangerous chemicals instead of safe ones. This has placed consumers worldwide at risk. By strengthening U.S. product safety laws and strengthening the ability of U.S. consumers to seek redress from more wrongdoers, actions by U.S. policymakers can benefit all consumers worldwide, since it will ultimately be more efficient for manufacturers and retailers to supply everyone to meet U.S. levels of safety rather than face U.S. levels of liability.

Trade On the Trail Tuesday

Over the weekend, the Boston Globe reported "Democrats ply wider range of economic woes: Free-trade focus shifts to consumer struggles." As a consumer group that has worked on trade since the early 1990s, I guess we didn't get the memo that the two issues were separate. In fact, our partners in the labor and fair trade movements have organized a whole series of events in Pennsylvania spotlighting consumers' concerns about imported toy safety (See here and here).

As we show in a recent report, trade deals like the World Trade Organization (WTO) and North American Free Trade Agreement (NAFTA) have grave implications for consumer safety. The deals contain provisions that set limits on import safety standards and inspection rates. The report explains how WTO and NAFTA investor protection rules have eliminated the risks normally associated with relocating to a developing country while instituting a system where U.S. public interest policies can be and have been challenged in foreign tribunals as "barriers to trade," with U.S. public policies being ruled against at the WTO more than 80 percent of the time. Additionally, this consumer issue is also a jobs issue with 74 percent of U.S. toys being produced in China, while wages there are as low as 36 cents an hour – half that of other developing countries and 2.5 percent that of U.S. toy workers.

NAFTA and the WTO have become shorthand for a whole system of international economic governance that serves the corporate – rather than consumer – interest. Candidates should be questioned about what specific steps they will take to challenge the WTO, which not only offshores our jobs, but outsources our consumer protections.

We'll be back on Thursday with more Trade on the Trail!

Fair trader replaces Denny Hastert in special election

Yep, a big surprise over the weekend as former Speaker Dennis Hastert (R-Ill.) - an anti-fair trader in 20-out-of-20 votes over nearly as many years - was replaced in a special election by Democrat Bill Foster in a very GOP-leaning district west of Chicago.

Foster, like so many of the candidates that have run for office in the last few years, campaigned heavily on critique of the trade status quo, even running paid ads on trade, which you can see here.

Green jobs, soft bigotries, big opportunities

Once in a rare while, an idea actually takes the nation by storm. It may not necessarily be a new idea, but it is articulated in a new and exciting way that captures the political imagination. Such an idea is the "green jobs" agenda, which attempts to conceive of a move to a green economy in a way that actually increases jobs and income, rather than taxing us back to preindustrial times. My new buddy Susan Helper described this set of ideas fairly concisely in a new paper for the Economic Policy Institute. Among the arguments she presents and summarizes:

• A 2-3 degree Celsius increase in temperature could lead to mass species extinction and flooding; in order to avoid this and other consequences, carbon emissions (which lead to global warming) in developed countries must be reduced 80%. While this sounds very daunting, and indeed it is, there are relatively small investments that could be made in energy efficiency and renewable energy that can take us there. Thus the green jobs agenda.
• At the same time, U.S. workers are hurting. Less than 10% of the workforce is currently in manufacturing, and key industries like the tooling industry are nowhere near where they need to be to move to a green economy. Thus, greening could potentially lead to more offshoring - not the nail in the coffin that the American worker needs after a generation of wage stagnation.
• Despite that doom and gloom, manufacturing is still responsible for a majority of U.S. innovation, and U.S. manufacturing companies - especially when they empower their workers to self-manage - can have significant productivity advantages over more top-down competitors both domestic and international. They can also pay high wages.
• Then, very helpfully, Sue shows how the "high-road" policies people like her and Dan Luria have been talking about for a long-time can and should dovetail with the green jobs agenda.

Sue's proposals have many good counterparts, and virtually every candidate and many many union and environmental groups are coming up with their own proposals.

But even an emergent discourse like green jobs can get hampered by inherited discourses, like that promoted by the boosters of our current NAFTA-WTO style trade policy. Former U.S. trade officials are arguing that we mustn't pursue any policies that are WTO-illegal, while even our good friends are feeling pressure to justify their policies in the lens of the WTO.

I don't know about you, but the first institution that pops in my head when I think of saving the planet is not the WORLD TRADE ORGANIZATION. I dunno, maybe it's because its judges have ruled against so many good environmental policies both here and abroad. By bending over backwards to claim WTO legality, I think we sell ourselves or the planet short on the discussion we need to be having about reinvigorating local democracy and economies.

Part of addressing the global warming crisis will involve immediate action to reduce some of the redundant trade that is taking place (where we ship the same heavy items back and forth across oceans), to correct global trade imbalances, and to empower policymakers and workers to take more control over their economic destiny. (This is what I think is what Sue is talking about in her proposals for everything from the shop floor to a national economic strategy.) I think the public is very ready to have this discussion, as can be seen from discussions of trade policy playing so prominently in the campaigns. I don't think we have to wait until 12 years to start addressing competitiveness issues either, as many of the proposals before Congress currently do. After all, much of the offshoring of U.S. production to Mexico and China happened in considerably shorter time periods.

In other words, we need to decide what is to be done, and then figure out how to overhaul the WTO to meet our targets, rather than starting from the unhelpful premise of ensuring WTO legality.

Import toy safety - where's Congress?

The Democrats rode back to power last November thanks to fairly unified opposition to more NAFTA style agreements. Then, this year, with the imported toy safety crisis, there's been increased calls for overhauling of our 1970s toy safety regulatory policy, premised on a reality when most toys where made domestically.

We already know how a slim minority of the House Dems and a frightening majority of the Senate Dems caved on the first issue, by helping pass Bush's NAFTA expansion to Peru. Of those running for president, only Kucinich and Paul managed to vote right, while everyone else - including Biden, Dodd, Clinton, Hunter, McCain, and Obama - didn't manage to even show up to vote. (Additionally, Tancredo voted wrong.)

Now, it seems they're poised to cave on the second as well. Last night, just a couple of minutes before close of business, the House passed 407-0 a Consumer Product Safety Commission bill that does practically nothing on import safety. (If you want to see what "something" looks like, and why the Wall Street Journal gave us some luv and called us " a hard-liner among consumer groups",  see the recommendations at the end of our latest report and after the jump.)

As far as I know, Rep. Jan Schakowsky (D-Ill) was the only member to even acknowledge the shortcoming:

"I hope we can make this bill even stronger. Even with added resources authorized from the bill, a major improvement from the levels requested by President Bush, we could do better, particularly when it comes to monitoring imports. I support measures to add mandatory premarketing testing and other important things."

Now, the bill goes on to the Senate, where there's slightly stronger but still inadequate bill that has been reported out of the Senate Commerce Committee. As The Hill reported,

Industry lobbyists favored the House version, which some consumer groups said didn’t go far enough to protect consumers...

According to a report released Wednesday by the consumer group Public Citizen, however, neither the House measure nor the tougher Senate version will address one of the main culprits in the wave of toy recalls this year: trade policies that have driven domestic toy manufacturers to move their operations overseas.

'Nuff said. Another case unfortunately of siding with industry over meaningful solutions to the problems facing middle class Americans. (see our full recommendations after the jump.)

Not everyone is as shortsighted, however. As Sen. Bob Casey (D-Pa.) said at today's Pa. news conference on our report,

Sen. Casey is backing a bill in the U.S. Senate that would reform the Consumer Product Safety Commission. However he admits that is only part of the problem. He says changes need to be made when it comes to America’s trade policies because from steel to chocolate, Pennsylvania has been hit hard by companies moving overseas.

 (Disclosure: Global Trade Watch has no preference among the candidates.)

Date-Rape Drug Found in Chinese Toys

We'll get back to our regularly scheduled Peru FTA liveblog in an hour or two according to Majority Leader Hoyer, but this Wall Street Journal find was too shocking to put off: (sorry, not linkable, although CNN is.)

More than four million Chinese-made toys sold in the U.S. as Aqua Dots are being recalled after reports surfaced that children swallowed beads containing a chemical found to mimic the effects of the so-called date-rape drug.

The Consumer Product Safety Commission said it has received two reports of children swallowing Aqua Dots and slipping into comas. Both children are now fine, the commission said. At least three children have been hospitalized in Australia, where the product is called Bindeez, after ingesting beads from the toy... Wal-Mart Stores Inc. listed the product as one of its "Top 12 Toys of Christmas."

Why don't we start targeting China for 50%+ inspection rates, you ask? A little something called the WTO, which has rules on so-called "national treatment" and other provisions that limit U.S. ability to target problem countries. The FTA with Peru, which has the world's largest food catch business after China and many health violations, further locks in these rules for Peru, and gives firms operating there the right to sue our government for our tax dollars if they don't like our food inspection regime, or other public interest policies.

Mattel haltingly tries to self-correct, as WTO-nourished outsourcing mania continues

The Times had this interesting story this morning, again raising questions of exactly where the buck stops for consumer protection in the global economy, and whether corporations can meaningfully self-correct in this rotten system they helped build:

Mattel makes its best-known toys, like Barbie dolls, in its own 12 factories. But even as it has increased the share of toys it makes itself to about half, it still relies on roughly 30 to 40 vendors to make the other half. Mattel now realizes it was not watching those companies closely enough, executives here said.

Mattel vetted the contractors, but it did not fully understand the extent to which some had in turn subcontracted to other companies — which in turn had subcontracted to even more. Mattel required its vendors to list subcontractors, so Mattel could visit them, but Mattel is investigating whether that procedure has been followed. A number of companies whose factories Mattel had never visited may have had a hand in making the toys that were shipped around the world...

Mattel executives in Hong Kong are trying to figure out how many subcontractors became part of its lineup...

“There aren’t many companies that own their own factories,” Mr. Eckert said in an interview in his office, “and there aren’t many companies that manufacture outside of China.”

Mattel closed its last American factory, originally part of the Fisher-Price division, in 2002. The bulk of its products have long been made in Asia.

Indeed, as this graph I put together below shows, since the worst boy band ever helped pass China PNTR, China (with all the accompanying safety/transparency problems common to authoritarian states) is rapidly overtaking all other countries (especially North American and Western European countries) in U.S. toy imports.

This comes on the same day as a report about rising Chinese wages, which American companies have tried to suppress.

The iPod supply chain, or why a China focus is insufficient

As we've noted before, there are plenty of problems with China trade. Some in the debate however choose to focus only on "their [currency] prices," as opposed to "our [currency] prices," or on China as opposed to the unfair WTO-style rules of the game.

Hal Varian's recent NYT column on the i-Pod's tangled supply chain pointed out a fact that should make it clear that we cannot eliminate the U.S. trade deficit or solve manufacturing problems just by cracking down on China:

Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.

This is because all the parts come from elsewhere in Asia, and only the final assembly is done in China. Granted, the super low Chinese wages account for part of the reason why such a low percentage of the end value "comes" from China - with higher wages, we should see a higher Chinese share (assuming Apple did not just simply seek out a lower cost locale, which of course they would.)

So, we could eliminate the Chinese trade deficit, only to have U.S. manufacturing still face the crippling effects of an overvalued dollar, and the trade deficit simply shift to other parts of Asia. Rather than playing whack-a-mole around the globe, couldn't we just get to the root causes of the problem (i.e. the flawed rules of the game; absence of forward-looking U.S. policy)?

Thanks to the folks at IELP for pointing this out.

Unsafe food in China show results of pressure to keep costs low

This week, the New York Times reported that China closed 180 plants in a food safety crackdown...

After weeks of insisting that food here is largely safe, regulators in China said Tuesday that they had recently closed 180 food plants and that inspectors had uncovered more than 23,000 food safety violations. The nationwide crackdown, which began in December, also found that many small food makers were using industrial chemicals, dyes and other illegal ingredients in making a range of food products, everything from candy to seafood. Regulators said 33,000 law enforcement officials combed the nation and turned up illegal food making dens, counterfeit bottled water, fake soy sauce, banned food additives and illegal meat processing plants. "These are not isolated cases," Han Yi, director of the administration's quality control and inspection department told the state-run media.

If this so-called "crackdown," which appears to be a thinly veiled PR stunt rather than a real effort to deal with the consequences of the enormous pressures to keep costs low - coming at the expense of our food safety - closed down so many shops, just imagine how many shut downs we would have with REAL and ENFORCEABLE food safety rules. It is important to note that this is NOT a "Chinese" problem, but a global problem manifesting itself today in China, and in many other countries where we simply hear less about it because the volume of imports in the U.S. is not as great.

China case illustrates food safety issues in a globalized economy

Right on the heels of the tainted Chinese pet food episode and rising fears of contaminated food imports from China, it now appears that China is playing the same cards against the United States, claiming that some U.S. health supplements and raisins failed to meet Chinese safety regulations.

Regardless of whether or not you think this move by China results from retaliatory political showmanship or genuine, rising concern about food safety in the wake of the corresponding furor among the U.S. public, this kind of quid-pro-quo blame game illustrates a point that fair trade activists have been making for years.  That is, replacing a locally controlled food supply with a globalized food market operating under the current rules of the game (under which tight food safety standards or bans are attacked as "barriers to trade") creates a downward pressure on food safety standards worldwide and takes away communities' rights to determine what is in the food they eat.  Of course, this is in addition to the economic and social effects of global trade rules that favor massively industrialized food producers, and the unintended economic side effects of a tightly interconnected global economy (like the effect of a Chinese pork shortage on inflation in the developed West).

You don't have to look far for examples, from Europe's ban on artificial beef hormones ruled WTO-illegal, to food imports in the United States not being subject to U.S. inspection standards yet receiving USDA stamped approval anyway, to Saudi Arabia's reluctance to enter the WTO because of concerns that they would not be able to prevent the importation of pork under WTO market access rules.

A helpful concept in this debate is the idea of subsidiarity: regarding food, the principle of subsidiarity would mandate that to whatever extent local farmers and producers can meet the needs of their community, the rules should encourage them to do so, instead of subsidizing massive levels of trade for trade's sake (or for the sake of profits for multinational industrialized food producers).  This idea is explained in greater detail by the International Forum on Globalization in their book Alternatives to Economic Globalization.

Cut-Throat Capitalism: A Pirate's Paradise

Today, the New York Times again called attention to the dangerous fake and falsified products that are being exported to the U.S. and around the world from China. The most imminent threats have been from products in people food and pet food, but everything from fake car parts, cosmetics, and Philips light bulbs to counterfeit electrical cables and phony Viagra have a history of production in the country.

The insightful question that adds an edge to this article, however, diverts from China-bashing and rather implores us to consider the larger framework in which countries operate in the global economy:

"This is cut-throat market capitalism," said Wenran Jiang, a specialist in China who teaches at the University of Alberta. "But the question has to be asked: is this uniquely Chinese or is there simply a lack of regulation in the market?"

"We have to bear in mind they probably don't think about the consequences at all," said Steve Tsang, a China specialist who teaches at Oxford University. "They're probably only thinking of making a fast buck."

What happens when deregulation runs rampant? This is just a preview. More to come on specific products to avoid that are readily available to the American consumer.

What If?! The U.S. Had Balanced Trade With China??

When I was growing up, one of my favorite comic books was Marvel Comics' "What If?!" series. The basic premise of the series was to explore what would have happened had certain comic books heroes died sooner (or lived longer) than they did in the comics' normal running narratives. "What If?!" also occasionally delved into non-comics history, exploring alternative histories if World War II had turned out differently, and the like. In short, it was a pretty fun (and pretty heady) Saturday night plan for a nerdy 10 year old.

Our friends over at the Economic Policy Institute have a long-running series of trade policy papers that are very much in the best of the "What If?!" vein, except they have the advantage of being not about guys running around in spandex but about REAL STUFF.

In his latest paper on U.S.-China trade, EPI's Rob Scott looks at how many more U.S. manufacturing jobs could have been supported had the U.S. had balanced trade with China over the 1997-2006 period, rather than the over $237 billion trade deficit we have currently. He puts the number at a whopping 2,166,000 jobs - the bulk of that for the years since Congress granted "permanent normal trade relations" to China at the end of the Clinton administration. California, Texas, New York, Illinois and Pennsylvania missed out on the most job opportunities, while New Hampshire, North Carolina, California, Massachusetts and Rhode Island lost out on the most job opportunities as a share of its total employment. Check out the paper to see how your state stacks up.

Rob's "What If?!" work is very valuable, because balanced trade should be the norm to which we compare the current economic nightmare. In the words of my old prof Ajit Singh,

an efficient manufacturing sector is one that “not only satisfies the demands of consumers at home at least cost, but is also able to sell enough of its products abroad to pay for nation’s import requirements.” He adds the qualification that these objectives should be met at “socially acceptable levels of output, employment and the exchange rate.” See Ajit Singh, “Manufacturing and deindustrialization,” in John Eatwell, et. al., The New Palgrave: A Dictionary of Economics, Volume 3, (London: Macmillan, 1987.)

Knowing that over 2 million more good U.S. manufacturing jobs could have been created in a world of balanced China trade, how could anyone say that our current trade policies are "socially acceptable"?? To say so would sound like some comic book bunk.

Rag-Tag Arguments over at the Forbes Business Bash

Journalists are an interesting bunch. We got a call from a reporter writing this piece for Forbes last week, who claimed to not really know the focus of the piece. Little did we know or she indicate that we would become the straw men in the standard claptrap argument about China's supposed "neo-liberal" success story.

But, hey, that's ok. While we don't speak up every time someone characterizes us as "business-bashing" or "rag-tag," this time it seemed important to correct a few matters for the record.

What to do about China?

Today, Global Labor Strategies posted an excellent consideration of Chinese labor rights and China's role in the global economy, and what a progressive outlook on the Chinese economy might look like. The concluding section is particularly cogent:

Workers, communities, and countries throughout the world are confronting the challenges posed by the emergence of China as a global economic powerhouse. About 25% of the global work force is now Chinese. Indeed, China has become the focal point for many Americans' feelings of insecurities in the global economy. [...]

Some in the labor movement and Congress have begun to recognize that simply criticizing the Chinese state fails to address the dominate role of global corporations in the global economy. Roughly 66% of the increase in Chinese exports in the past 12 years can be attributed to non-Chinese owned global companies and their joint ventures. Foreign owned global corporations account for 60% of Chinese exports to the US. Indeed, if the US retail giant Wal-Mart were a country it would be China’s 8th largest trading partner. The "Chinese threat" is less about trade with China than it is about trade with Wal-Mart and GE. Global corporations move to China to lower labor costs -- and they use those lower labor costs as a lever to drive down wages and working conditions for workers in other countries, and even within China itself.

Obviously, the China issue is only going to get bigger, and it would serve progressives well to start thinking about what a fair and just vision of the global economy might look like with regards to the world's biggest labor pool. Global Labor Strategies has taken the lead in following Chinese labor issues, so those interested should definitely keep an eye on their work.