Minor Thoughts from me to you

The next round in the U.S.-China trade war could be the costliest one yet for American consumers.

The U.S. is said to be preparing to announce tariffs on all remaining Chinese imports by early December, and the impact at the checkout counter may be as much as 10 times higher than earlier rounds of levies, according to a report from Citigroup economists.

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The new penalties, which could take effect in early February, would encompass Chinese-made consumer goods like Apple iPhones and Nike shoes that the Trump administration has so far left untouched. The impact of a 10 percent tariff on the $267 billion of imports could be 10 times larger than the first $50 billion round and double that of the $200 billion tariffs in the second round, the analysts wrote.

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"Trade wars are good and easy to win."

BelGioioso Cheese Inc., a second-generation family company in Wisconsin, has seen sales to Mexico drop since officials there implemented tariffs of up to 15% in early June on most U.S. cheese. The levies were a response to tariffs the U.S. placed on Mexican steel and aluminum.

On Thursday, Mexico was slated to raise its levy on most U.S. cheese to as much as 25%, while China on Friday is implementing tariffs on $34 billion of U.S. goods, including cheese and whey, a dairy byproduct often fed to livestock.

"It’s a nightmare," said BelGioioso President Errico Auricchio.

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The Mexican tariffs affect as much as $578 million in U.S. dairy goods, while China’s duties could hit $408 million of cheese, whey and other products, according to U.S. Chamber of Commerce data.

July milk futures have dropped 12% since Mexico announced May 31 that it would strike back with tariffs. The price for a barrel, or 500 pounds, of white cheddar last week hit its lowest level since 2009. More cheese is in cold storage in the U.S. than any time since the U.S. Department of Agriculture began keeping track in 1917.

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U.S. dairy farmers have been caught up in a trade dispute with Mexico before. In 2009, Mexico imposed tariffs in response to a trucking disagreement that included levies as high as 25% on U.S. cheeses. U.S. shipments of cheese to Mexico fell by 26% during the 14-month dispute, according to the INTL FCStone Financial, a trading firm.

Since then, U.S. dairy exports have grown to account for about 12% of Mexican consumption last year, according to Rabobank.

More than 60 cheese and dairy producers wrote to the Trump administration last month, saying the trade war could cost them that foothold. "Our share of the Mexican market is in grave jeopardy," they wrote.

René Fonseca, general director of Mexico’s National Milk Industries’ Chamber, said Mexican processors are pushing U.S. producers to lower their prices to make up for the tariff.

Mexican dairies are also ramping up production and processors are looking for alternative suppliers for cheeses such as gouda in the European Union, Mr. Fonseca said. He said Mexican companies that find a new supplier likely won’t revert to their old U.S. trade partner if tariffs are removed.

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A state law that makes it illegal to sell a popular Irish butter in Wisconsin is unconstitutional and deprives consumers of their rights, according to a lawsuit filed Thursday in Ozaukee County court.

The public advocacy group Wisconsin Institute for Law and Liberty brought the suit against the state on behalf of five clients, four of them consumers and one a Grafton food store.

Good. Very good. And why was this necessary?

"Wisconsin’s current protectionist law requires butter that is bought and sold to be labeled by the government. This archaic labeling regime prevents very popular butter such as Kerrygold from being enjoyed by Wisconsin residents," the group said in a news release.

A state law with roots in the 1953 margarine scare requires all butter sold in Wisconsin to be tested and graded by state-approved experts.

As a butter made and packaged in Ireland, Kerrygold is not inspected in the United States, making it illegal to sell under the state law.

Lest you think this is a worthwhile regulation, Wisconsin is the only state in the nation with a law like this. It's a purely protectionist measure, to make the Wisconsin dairy industry happy.

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Sheldon Richman, writing at Reason.com, shares some wisdom about trade.

think about the saving of labor. Normally we see this as a good thing. We buy electric toothbrushes, power lawnmowers, dishwashers, clothes washers and dryers, and self-cleaning ovens, among many other things, precisely to save labor. Why? Obviously because labor is work—exertion. Most of what we think of as work we would not do if we could have the expected fruits without it. (Of course we sometimes are paid to do things we'd do anyway, but then it is something more than mere work.) Saving labor through technology not only relieves us of particular exertion; it also frees us to obtain other things we want but would otherwise have to do without—including leisure. Thus labor-saving enables us to have more stuff for less exertion. Time and energy are scarce, but our ends are infinite. That's why no one in private life fails to see labor-saving as good.

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Trade is a labor-saving "device." We each have two legitimate ways to acquire any good: produce it ourselves or acquire it through trade (after producing something else). For most goods, trade will be the lower cost method. (See why "comparative advantage" is "The Most Elusive Proposition.") The day is simply too short to make everything we want. Thus trade makes us wealthy. When government interferes with trade, it makes us poorer.

Bastiat believed that people found the destruction of cross-border trade ("protectionism") attractive "because, as free trade enables them to attain the same result with less labor, this apparent diminution of labor terrifies them." (Read about the bias against saving labor in Bryan Caplan's The Myth of the Rational Voter.) Why do people who try to save labor every day believe this? Because they think a society's principles of well-being are different from those of an individual's. As long as they do, political candidates will feed the bias.

Donald Trump and Hillary Clinton may or may not know that trade unfettered at political boundaries makes people wealthier. We need not waste time (which of course could be put to better use) wondering if they are demagogues or just ignoramuses. Rather, we should devote our scarce energy to showing people that what is good for them individually—saving labor—is just as good when observed from a bird's-eye view.

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I did not know this.

With the debate over U.S. policy toward Cuba raging, I came across this information from my friend Steven Hill this morning. He makes a few important points:

Keep in mind that the broad commercial embargo is codified in law and would require a Congressional enactment to undo. At the same time it’s interesting to note–and many people do not realize this–the US is actually one of the largest importers into Cuba, mostly agricultural, pharmaceutical, and medical devices that can be exported via carve-outs that Congress created in 2000. That’s probably why there has been no great commercial lobbying pressure to do away with the embargo.

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The Munchkin Wrangler had a great rant recently.

You know what I can’t stand to hear about anymore? That we Americans are addicted to oil. It’s a smarmy term that tries to couch an economic and environmental argument in pathological terms.

I’m not addicted to oil. I’m addicted to being able to drive into town on my own schedule. I’m addicted to being able to haul home a week’s worth of groceries with two little kids in tow without having to wait for the fucking bus with eighty pounds of filled plastic bags in my hands. (That’s disregarding the fact that I live out in the sticks, and the nearest bus stop is four miles away, which is one hell of a hike with the aforementioned two little kids and week’s worth of groceries.)

...

Until then, shut the fuck up about my addiction to oil. It does nobody any good to try and debate economic and logistical necessities while using terminology to imply people who disagree with your view are mentally ill.

On a related note, I get frustrated whenever I hear someone say that buying oil is bad for the U.S. economy. For instance:

That’s money taken out of our economy and sent to foreign nations, and it will continue to drain the life from our economy for as long as we fail to stop the bleeding.

Really? That money is just taken out of our economy? And we get nothing from it? And it "drains the life from our economy"? Foreign oil is the vampire that's sucking our economy dry? Really?

I get quite a lot out of foreign oil. For instance, the ability to drive to work every day. I don't know about you, but that does quite a lot for my personal economy. I get to have plastics that keep my food fresh and uncontaminated—keeping me healthy. I get to have UPS delivery trucks that bring me products—saving me multiple trips to the store each week.

I’ll tell you what: I get far more benefits from foreign oil than I pay in costs. The cost of foreign oil is dirt cheap. Far from draining the life from our economy, oil pumps life into our economy each and every day.

It's popular among the Christian left to talk up the "Old Testament" values of social justice: caring for the poor, paying fair wages, not perverting justice, etc. They're fond of the Old Testament prophets and the prophets jeremiads against wealth and privilege.

Increasingly, the Christian left is also fond of promoting Democrat candidates and talking about how Republican candidates only look out for the rich and powerful. The exact people that the Old Testament prophets inveighed against. Ergo, the Old Testament prophets hated Republican ideals and all good Christians will vote against Republican ideals.

If that's true, what should we make of the Democrats record on free trade? After all, the poor in America are far richer than the poor in the third world. By any just standard, the America's poor are rich. They're poor only if they're exclusively compared to other Americans. Free trade is the biggest and best "social justice" platform in existence. Free trade spreads the wealth around the entire world and gives opportunities to billions of people in the third world.

If we do as the Democrats demand -- if we restrict free trade -- we remove opportunities from billions of impoverished people. "Fair trade" would take jobs away from those that need them the most. "Fair trade" would raise prices for those that can least afford to pay them. "Fair trade" would benefit rich Americans (that is, all Americans) at the expense of the global poor.

Is that Christian? I don't think so. But don't take my word for it. India has good reason to fear a Democrat government.

So, pressures will mount for protectionist measures and beggar-thy-neighbour policies in the US, hurting countries like India. Apart from erecting import barriers and subsidising dumped exports, US politicians will seek to curb the outsourcing of services to India. Visa curbs will slow the movement of skilled workers and their dollar remittances back to India.

[Obama] has voted against trade barriers only 36% of the time. He supported export subsidies on the two occasions on which he voted, a 100% protectionist record in this regard.

In 2007, he voted to reduce visas issued to foreign workers (such as Indian software engineers), and to ban Mexican trucks on US roads. He sometimes voted for free trade - he supported the Oman Free Trade Act and a bill on miscellaneous tariff reductions and trade preference extensions. More often he voted for protectionist measures including 100% scanning of imported containers (which would make imports slower and costlier), and emergency farm spending.

In 2005 he voted to impose sanctions on China for currency manipulation, and against the Central American Free Trade Agreement (CAFTA). He voted for the Byrd amendment, a disgraceful bill (later struck down by the WTO) that gifted anti-dumping duties to US producers who complained, thus making complaining more profitable than competitive production.

Obama says the North American Free Trade agreement is a bad one, and must be renegotiated. He has opposed the US-Colombia Free Trade Agreement on the bogus ground that Colombia is not protecting its trade union leaders from the drug mafia. In fact, such assassinations have fallen steadily from 205 in 2001 to just 25 last year. Obama is cynically twisting facts to woo the most protectionist US trade unions. This cannot but worry India, which may also be subjected to bogus slander and trade disadvantages.

Unlike Obama, McCain voted against imposing trade sanctions on China for supposedly undervaluing its currency to keep exports booming and accumulate large forex reserves. India has followed a similar policy, though with less export success than China. But if indeed India achieves big success in the future, it could be similarly targeted by US legislators and, will need people like McCain to resist.

Obama favours extensive subsidies for US farmers, hitting Third World exporters like India. This has been one of the issues on which the Doha Round of WTO is gridlocked. McCain could open the gridlock, Obama will strengthen it.

Obama also favours subsidies for converting maize to ethanol. The massive diversion of maize from food to ethanol has sent global food and fertiliser prices skyrocketing, hitting countries like India. But McCain has always opposed subsidies for both US agriculture and ethanol. While campaigning, he had the courage to oppose such subsidies even in Iowa, an agricultural state he badly needs to win if he is to become president.

I want to help the poor. I want the poor to succeed and become rich. I don't want to protect the rich at the expense of the poor. That's why I support open borders, free trade, and no import / export tariffs. That's why I'm surprised that so many people who talk so much about helping the poor consistently support policies that will make the rich richer and the poor poorer.

I cheer globalization, even when American workers lose their jobs to non-Americans. Why? Because the world's poor are always made better off. To be blunt, I feel far, far more sympthathy for the poor of the world than I do for America's newly unemployed. One group of people gets to enjoy fresh food year round, air conditioning, heating, clean drinking water. The other group -- doesn't. So when the have-nots get an opportunity to become the haves, I cheer.

Why do I bring it up? Well, I read a story in the New York Times that demonstrates, again, how things are improving in India: In India, Poverty Inspires Technology Workers to Altruism:

"Babajob seeks to bring the social-networking revolution popularized by Facebook and MySpace to people who do not even have computers -- the world's poor. And the start-up is just one example of an unanticipated byproduct of the outsourcing boom: many of the hundreds of multinationals and hundreds of thousands of technology workers who are working here are turning their talents to fighting the grinding poverty that surrounds them.

"In Redmond, you don't see 7-year-olds begging on the street," said Sean Blagsvedt, Babajob's founder, referring to Microsoft's headquarters in Washington State, where he once worked. "In India, you can't escape the feeling that you're really lucky. So you ask, What are you going to do about all the stuff around you? How are you going to use all these skills?"

The best-known networking sites in the industry connect computer-savvy elites to one another. Babajob, by contrast, connects India's elites to the poor at their doorsteps, people who need jobs but lack the connections to find them. Job seekers advertise skills, employers advertise jobs and matches are made through social networks.

For example, if Rajeev and Sanjay are friends, and Sanjay needs a chauffeur, he can view Rajeev's page, travel to the page of Rajeev's chauffeur and see which of the chauffeur's friends are looking for similar work.

Woohoo!

The Wall Street Journal recently reported that Republican voters are skeptical about the benefits of free trade.

By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president.

Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports. That represents a challenge for Republican candidates who generally echo Mr. Bush's calls for continued trade expansion, and reflects a substantial shift in sentiment from eight years ago.

Frank Newport, at USA Today, says that the poll is largely worthless.

This type of question, often used by the pollsters who conduct the Wall Street Journal/NBC News poll, is both complex and tricky to interpret.

In essence, the question format gives respondents a set of several reasons to support the subject of the question (in this instance foreign trade) and several reasons to oppose the subject of the question. The respondent is then asked to indicate which set of reasons is most convincing to them.

Thus, the pro and con arguments read as part of the question become very important. In other words, when the topic is something relatively arcane, many respondents listen to the cues presented as the interviewer reads the question and then give their answer based on what seems to resonate most "on the spot". Or - if the respondent is not listening carefully - responses are based on which fragments or phrases sound most appealing.

The Nation Association of Manufacturers does see some cause for concern.

What's happening? The Lou Dobbs effect? The media's incessant hyping of contaminated food and other imports? Just more of the anti-foreign bias as detailed by George Mason University economist Bryan Caplan* in his new book, "The Myth of the Rational Voter?" Or are the advocates of free-trade not working hard enough?

Yes.

We advocates simply have to work harder in making the case for trade in terms that the public can appreciate, connecting good-paying jobs to trade. And not let the anti-trade rhetoric stand unchallenged. Because protectionism makes us poor.

Meanwhile, if voters are potentially misunderstanding the issue, at least the candidates themselves are getting better advice. Here is Barack Obama's economic adviser on free trade.

"Globalization" means free trade and various deregulations that supposedly put downward pressure on American wages because of imports from low-wage countries. Goolsbee, however, says globalization is responsible for "a small fraction" of today's income disparities. He says "60 to 70 percent of the economy faces virtually no international competition." America's 18.5 million government employees have little to fear from free trade; neither do auto mechanics, dentists and many others.

Goolsbee's rough estimate is that technology -- meaning all that the phrase "information economy" denotes -- accounts for more than 80 percent of the increase in earnings disparities, whereas trade accounts for much less than 20 percent. This is something congressional Democrats need to hear from a Democratic economist as they resist trade agreements with South Korea and such minor economic powers as Peru, Panama and Colombia.

So -- stay in school, get an education, become rich. What's not to like? (Oh, and keep both goods and people flowing freely over the border.)