A Wall Street Journal headline writer likely sensed something amiss with calls by U.S. steel producers for more protectionism. The August 12, 2015 WSJ print edition article by John W. Miller was titled: “Steelmakers Lodge New Trade Gripe.” The online version, dated August 11, drops the “Gripe” for a less skeptical headline: “U.S. Steelmakers Again Ask for Tariffs on Imports” (as usual Google full title to find article ungated).
The article notes this was the third trade complaint of summer 2015 by U.S. steel producers, claiming foreign firms were “dumping” steel below costs:
The request targeted imports of hot-rolled coil—used in making cars—from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K. China wasn’t named in the petition because the U.S. already has tariffs on imports of that kind of steel from China. The petition was filed with the U.S. Commerce Department and the U.S. International Trade Commission.
This Wall Street Journal article doesn’t mention “dumping” by name, but a July 15, 2015 Duluth News Tribune article does: “Trade commission agrees foreign steel was ‘dumped’ in U.S.“
The U.S. International Trade Commission on Friday announced a preliminary determination that imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan injured the U.S. steel industry.
The companies claim that the increased below-cost imports of steel have reduced demand, in some cases forcing mill closures that have led to layoffs at Minnesota operations. …
“We are pleased the ITC has confirmed that the flood of unfairly traded imports of corrosion-resistant sheet steel has materially impacted our shipments, pricing and profitability,” said Mark D. Millett, chief executive office of Steel Dynamics. “SDI believes in fair trade, but the U.S. has become a dumping ground for world excess steel capacity.”
However, the WSJ mentions the actual price of the hot-rolled coil steel used by U.S. carmakers and other manufacturers is actually higher than in Europe and Asia:
The problem for U.S. steelmakers is sluggish prices, which are held down by inexpensive imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen more than 20% this year to $468 per ton.
That is still about $100 higher than the price in Europe and $200 above that in Asia, according to steel buyers, making the U.S. a tempting market.
Wait… what? This hot-rolled coil steel–key for U.S. automakers–is 20% less expensive in Europe and 40% less expensive in Asia? Doesn’t that give a significant cost advantage to European and Asian automakers and other foreign manufacturers with access to significantly less-expensive steel?
If steelmakers in “Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K.” are dumping steel in the U.S., they must be ultra-dumping steel in Europe and Asia. Either that or shipping costs are extraordinary low to U.S. buyers.
Imports of hot-rolled steel have increased according to steel industry executives, with the implication that foreign firms are dumping excess capacity onto U.S. markets:
Imports of hot-rolled steel from the seven countries named in the latest petition increased by about 73% from 2012 to 2014, rising from 1.9 million tons to 3.3 million tons, AK Steel said.
Wow, 73% is a big increase! But also between 2012 and 2014 was a huge increase in U.S. demand, with booming rail and oil and gas infrastructure as well as auto manufacturing expanding, rising 19% in 2012, 7% in 2013, and 5.4% in 2014.
A May, 7, 2015 WSJ article, “U.S. Steel CEO Says Tariffs Could Be Needed On Chinese Imports” quotes Mr. Longhi, the new head of U.S. Steel, who has been cutting costs, laying off workers and boosting stock prices (and his pay). In addition to streamlining steel production, Mr. Longhi is trying to raise tariffs on imported steel, particularly steel from China:
Mr. Longhi blames the bulk of his latest woes on imports, especially from China. The U.S. imported 615,171 tons of steel from China during that time, up 25% from the same period a year before. Mr. Longhi said a failure to impose more tariffs on Chinese imports was an American political “weakness.”
In this article, steel tube is the focus, where demand has been hit hard and unexpectedly this year, after oil prices dropped by half last fall, and demand for steel pipe by shale drillers dropped soon after. The article blames imports:
Imports have been especially hurtful to the company’s business of making steel pipe and tubs for the oil and gas industries.
Consider though that for U.S. manufacturers and U.S. consumers, lower prices for steel is a good thing. Only for the U.S. steel industry is lower-cost imported steel a problem.
Students researching U.S. trade policy with China can research these ongoing debates over steel imports and tariffs.
Tim Worstall in Forbes puts the question of steel tariffs this way in a June 4, 2015 column:
There’s two ways that we can describe the attempt by the US steel industry to gain anti-dumping tariffs against China and other countries. The first is that it is an attempt by that US business sector to protect themselves from that foreign competition. The other is that it’s an insistence that all Americans should become poorer in order that those profits and those jobs should be protected. Both of these descriptions are true: and the second follows logically from the first.
U.S. steel producers have continued their call for higher tariffs on Chinese steel. “U.S. steel producers to file charges against Chinese competitors,” (Reuters, September 22, 2016) reports:
The U.S. Commerce Department last week set preliminary antidumping duties ranging from 63.86 percent to 76.64 percent on stainless steel sheet and strip imports from China after preliminary findings showed the imports were being dumped in the U.S. market at below fair value.
The petition alleges that Chinese producers diverted their steel shipments to Vietnam “immediately” after the duties were imposed.
According to the petition, Chinese steelmakers sent their shipments to Vietnam, where they were modified to make them corrosion-resistant, and then sent them to the United States by paying Vietnam’s U.S. tariff rate, which is lower than for China.
Economist Richard Ebeling posted on Facebook a quote from an 1830s economics textbook, to give people a sense of economic principles taught nearly two centuries ago:
Here is what economics books used to sound like, from Thomas Cooper’s “Lectures on the Elements of Political Economy” (1830), on the principles and policies of economic logic and understanding on the benefits of freedom of trade and enterprise:
“The true principles of Political Economy, teach us that a system of restrictions and prohibitions on commercial intercourse, cuts off the foreign market, diminishes the number of buyers, and the demand for our national produce; hence, the consumer is compelled to pay more to the home monopolist.
“Hence, the wealth of the nation is wasted; every consumer is abridged of comforts that he might otherwise procure, and his means of purchasing even home-commodities are diminished.
“They teach us also, that men should be permitted, without the interference of government, to produce whatever they find it their interest to produce; that they should not be prevented from producing some articles, or bribed to produce others.
“That they should be left unmolested to judge of and pursue their own interest; to exchange what they have produced when, where, with whom and in what manner they find most profitable and convenient; and not be compelled by theoretical statesmen to buy dear and sell cheap; or to give more, or get less, than they might do if left to themselves, without government interference or control.
“That no favored or privileged class should be fattened by monopolies or protections to which the rest of the community are forced to contribute.
“Such are the leading maxims by means of which Political Economy teaches how to obtain the greatest sum of useful commodities at the least expense of labor. These are indeed maxims directly opposed to the common practice of governments, who think they can never govern too much; and who seek to prey upon the vitals of the community.”
This remains wisdom for our own time.
Students debating U.S./China policy have an opportunity to learn the principles of international trade, and apply these principles to various reform proposals.
Nation-states can be more trouble than they’re worth. For the Middle East, federalism, soft-partition, enclaves, and charter cities offer non-state paths to peace and prosperity.
The March Public Forum topic: “Resolved: The United States should no longer pressure Israel to work toward a two-state solution.”
Consider the most economically-free place in the world, Hong Kong, is not a state and was long a colonial charter city before handed over (or back) to communist China in 1997.
The Fraser Institute’s Economic Freedom of the World: 2016 Annual Report: 2016 (September 16, 2016), is relevant for both the China policy topic and the Israel/Palestine two-state topic. The reports top-rated countries:
Hong Kong and Singapore, once again, occupy the top two positions. The other nations in the top 10 are New Zealand, Switzerland, Canada, Georgia, Ireland, Mauritius, the United Arab Emirates, and Australia and the United Kingdom, tied for 10th.
Small and independent formerly British colonial territories Hong Kong, Singapore, and United Arab Emirates (“Abu Dhabi, Ajman, Fujairah, Sharjah, Dubai, Ras al-Khaimah and Umm al-Qaiwain”), plus New Zealand, Canada, Australia make up the top ten. Also in the top ten is Switzerland, an association of mostly-independent and diverse cantons. (However, not all former British colonies are wealthy or economically free, and the success of many today should not be taken as a defense of British colonialism.)
What lessons for Israel, Palestine, and the U.S. can be found in these diverse economic success stories of charter cities, federal republics, and common law traditions?
The people of Hong Kong were poor in the 1950s, as were people living in Palestine. Through the 1950s, millions of impoverished refugees arrived in Hong Kong, escaping from communist China.
Across the Middle East as in Asia, World War II disrupted and impoverished millions. Hundreds of thousands fled or were expelled from Palestine in the 1948 Arab-Israeli war. Then hundreds of thousands in long-established Jewish communities in Arab countries fled or were expelled.
Over the decades since 1950, Hong Kong residents have prospered, as have residents of Israel, but the economy of the Palestinian territories and its residents have not prospered.
Hong Kong’s charter with England protected international trade and investment, and taxes stayed low. Economic freedom and a great port enabled Hong Kong to grow rapidly prosperous. Could similar charter cities and economic freedom policies have enabled Palestinians and others in the Middle East to similarly prosper?
Turmoil and violence in Syria today turns on the Alawite minority’s long political and military control. Syrian could have been a much more prosperous place had the Alawites been able to keep their enclave independent from Syria. “Syria’s Ruling Alawite Sect” (New York Times, June 14, 2011). The article was written before the Syrian conflict erupted from Arab Spring protests, and as part of explaining Alawite history mentions:
During the French Mandate, there was even a short-lived Alawite “state” based in and around Latakia, created in 1922. As William L. Cleveland explained in his “History of the Modern Middle East,” the Alawite state was “administratively separate from Syria until 1942.”
Enclaves, charter cities, and other administrated territories have a long history across Europe as well. Just check out a map of Europe in 15th Century.
Political decentralization invites conflicts, but also open political competition where families and businesses can relocate to better governed territories. For an introduction to political decentralization, the Hanseatic League, and the potential of charter cities, see “The Politically Incorrect Guide to Ending Poverty,” (The Atlantic, July/August, 2010):
[Economist and entrepreneur] Paul Romer [is] trying to help the poorest countries grow rich—by convincing them to establish foreign-run “charter cities” within their borders. Romer’s idea is unconventional, even neo-colonial—the best analogy is Britain’s historic lease of Hong Kong. And against all odds, he just might make it happen.
Could the West Bank be a candidate for a charter city, perhaps administrated by an Arab country like Dubai or UAE?
In the Arab world, similar Hong Kong size countries have flourished without full statehood. Consider the colonial history of UAE, discussed in “The United Arab Emirates – A Product of British Imperialism?” (British Scholar Society, January 16, 2012)
Until 1971, the seven shaikhdoms that were to form the UAE had been known as Trucial States and been part of Great Britain’s informal empire in the Persian Gulf. British power in the area had been based on an interdependent system of military presence, formal treaty relations with the Trucial States, Bahrain and Qatar, as well as informal political influence on the local rulers.
According to the Economic Freedom of the Arab World: 2016 Annual Report (Fraser Institute, December 3, 2016), Bahrain, Jordan and the United Arab Emirates (UAE) are the most economically free nations in the Arab world. From the Introduction:
Economic Freedom of the Arab World aims to provide a reliable and objective metric of economic policy throughout the Arab World. It measures the extent to which citizens of the nations of the Arab League are able to make their own economic decisions without limitations imposed by the government or by crony elites. The report provides sound empirical measurement of economic policy that can distinguish between phony reform that leaves economic and political power in the hands of crony elites, and real reform that creates new prosperity, entrepreneurship, and jobs, by opening business and work opportunities for everyone no matter whom they know.
Arab and Islamic societies have a rich trading tradition, one that celebrates markets open even to the humblest members of society. Economic freedom is consistent with that proud history and provides a path to a more prosperous and freer tomorrow. Economic freedom is simply the ability of individuals and families to take charge of their fate and make their own economic decisions—to sell or buy in the marketplace without discrimination, to open or close a business, to work for whom they wish or hire whom they wish, to receive investment or invest in others. As discussed later in this report, economic freedom has a proven fact-based record of improving the lives of people, liberating them from dependence, and leading to other freedoms and democracy. Unfortunately, many in the Arab world believe their nations have already gone through a period of free-market reform and that it hasn’t worked. This misconception deprives many of an economic alternative and vision for the future.
For Public Forum debaters considering past U.S. government pressure for a “two-state solution,” a focus on economic freedom provides an reform opportunity. It is true that Israel’s military control restricts freedom of movement and trade throughout the Palestinian territories, and Israeli officials and supporters insist this is to reduce possible terrorist attacks. But there are also major restrictions on doing business enforced by regulations and corruption of Palestinian officials.
Again, criticizing Palestinian officials is not to defend Israeli restrictions on economic freedom. But consider “Terrorists & Kleptocrats: How Corruption is Eating the Palestinians Alive,” (The Tower, June, 2014). (The Tower is Israel-based.)
By myopically focusing on “yes,” the U.S. is ensuring the Palestinian Authority will remain corrupt and therefore illegitimate in the eyes of the Palestinian people. My experience confirms Schanzer’s argument. The PA is an incredibly corrupt organization. So is its dominant party, Fatah. Together they form a motley crew of elites seeking to maintain power and the attenuating trappings, willing to do whatever it takes to ensure their power and position are not lost.
The 2016 Economic Freedom of the Arab World report rates the Palestinian Territories. Here is summary (page 23):
The Palestinian Territories overall score remained 7.3 and it stayed in 8th place. The Palestinian Territories maintained the same rank (5th) and score (7.7) in the size of government area. The territories’ score in rule of law declined to 5.7 from 6.2, coming in 13th, down from 10th last year. The Palestinian Territories had a score of 9.1 in sound money, up from 9.0, and ranked 11th, up from 12th. In the area of freedom to trade internationally, the Palestinian Territories scored 7.7, down from 7.8, with a rank of 8th, down from 6th. The rank in regulation remained the same as last year at 12th, with a score of 6.1, same as last year.
Comparing economic freedom in the PA to the freer and more prosperous UAE, Jordan, and Bahrain, the top three Arab countries, gives direction to reform proposals that the U.S. could encourage.
The report focuses on economic freedom’s role in increasing prosperity, creating jobs, and reducing poverty. …
“Hong Kong and Palestine; what makes a country?” (REB Research Blog), offers some history of colonial Hong Kong and Palestine and a discussion of international agreements on what makes a county.
Jeff Bezos and Elon Musk want to set up operations on the moon. “An exclusive look at Jeff Bezos’s plan to set up Amazon-like delivery for ‘future human settlement’ of the moon” (Washington Post, March 2, 2017) reports Bezo’s Blue Origin plans to to set up moon habitats by mid-2020. From separate story: “Jeff Bezos says NASA should return to the Moon, and he’s ready to help,” (Ars Technica, March 3, 2017):
Bezos explained the philosophy behind this idea. “We are hoping to partner with NASA on a program called Blue Moon where we would provide a cargo-delivery service to the surface of the Moon, with the intent over time of building a permanently inhabited human settlement on the Moon,”
The Washington Post also reported on Elon Musk’s plans for SpaceX moon flights in 2018: “Elon Musk’s SpaceX plans to fly two private citizens around the moon by late next year” (February 27, 2017).
The Diplomat asks “Are China and the US Set for a Showdown in Space?” (January 28, 2017). China’s interest is more economic than military, exploration, or for scientific research:
… Chinese views on space resources are particularly under-studied. Space resources deserve to be studied because of the potentially vast economic value and potential to cause inter-state conflict. … China conceptualizes space activity principally within the context of economic development, which has important implications for space resources and property.
Elon Musk and other private U.S. space companies also focus on economic opportunity, beginning with lucrative satellite launches, and preparing for space tourism for wealthy customers, and then looking at mining and other moon resource opportunities. Like high-definition televisions, the wealthy buy high-tech goods and services first. Their early high-dollar purchases help pay for further development and innovations that bring costs down for wider markets.
This Motley Fool article looks at SpaceX as a for-profit business: “How Does SpaceX Make Money?,” (June 25, 2016). This Space.com article, “Blue Origin’s Sweet Spot: An Untapped Suborbital Market for Private Spaceflight,” (August 12, 2016) reports:
A central objective of the company is creating a commercial suborbital space tourism vehicle for paying customers. But Blue Origin also plans to make money by taking science experiments into the final frontier.
Critics complain that much SpaceX income comes from federal funding (“Without NASA there would be no SpaceX and its brilliant boat landing,” (Ars Technica, April 11, 2016). But supporters of SpaceX, Blue Origin and other private space companies reply that NASA is fully federally funded and its launch and exploration costs are far, far higher (in part because they rely on traditional NASA/military contractors).
So, the debate over private vs. government space exploration tilts now toward private firms. This TEDx presentation by Jeff Greason, “Making Space Pay and Having Fun Doing It,” then of XCOR, outlines how commercial space development brings costs down.
The Chinese are heading to the moon as well, and Space.com reports on “China’s Lofty Space Ambitions Include 2018 Landing on Moon’s Far Side” (December 28, 2016):
China’s Information Office of the State Council on Tuesday (Dec. 27) released an expansive white paper on that country’s space activities in 2016. The document also projected a look at China’s space agenda over the coming years, a plan that includes a lunar sample-return mission and the first soft-landing on the far side of the moon in 2018.
And from 2015: “China unveils plan to land on mysterious far side of the moon” (Christian Science Monitor, July 21, 2015).
Back to potential U.S./China conflicts in space, The Diplomat article above reports on controversial 2015 U.S. legislation:
While many analysts believe the topic of space resources is far removed, there are at least two companies in the United States working on mining asteroids: Deep Space Industries (DSI) and Planetary Resources International (PRI). In 2015, Congress passed the U.S. Commercial Space Launch Competitiveness Act, which established a “first come, first serve” principle for property ownership in regard to space mining, and the United States has granted a license for Moon Express to accomplish the first commercial landing on the moon.
The U.S. law has been controversial worldwide. Since China is a growing power in space and an active member in formulating international space policy, its attitudes are perhaps of greatest importance in normalizing activity related to space resource utilization.
Mining and other operations on the moon may be a legal challenge as well as a technical and economic one. “Mining the Moon? Space Property Rights Still Unclear, Experts Say,” (Space.com, July 25, 2014):
But it’s unclear at the moment who is allowed to extract and profit from the moon’s resources, leading to a growing debate within scientific, entrepreneurial and policy circles — a debate made more lively and complicated by the changing landscape of stakeholders in space.
Lunar exploration is no longer the domain of governmental agencies alone. With activities like the Google Lunar X Prize and private-public partnerships stimulating a “New Space” industry, commercial organizations have business plans and are attracting investment to develop low-cost, regular, reliable access to the moon within a decade…
See also, “Moon Mining Idea Digs Up Lunar Legal Issues,” (Space.com, January 13, 2011)
More on Google’s Lunar X Prize here: “Google Lunar X Prize: The Private Moon Race Teams (Images).”
Also opening possible paths to the moon is the nonprofit Waypaver Foundation:
WayPaver is a catalyst for possibility. Through our efforts to eliminate roadblocks to Lunar Settlement we generate momentum for sustainability on Earth, the moon, and progress in further space development.
Waypaver’s lunar settlement page is here.
The department will spend $154 billion in 2016, or $1,230 for every U.S. household. After adjusting for inflation, spending has increased 45 percent since 2000. The department operates about 268 subsidy programs and employs 90,100 workers in about 7,000 offices across the country.
These agricultural subsidies distort trade, which adversely affects poor farmers and environmental protection in developing countries. Subsidies also impose a fiscal burden on taxpayers. Conversely, reducing agricultural subsidies in the United States (and other developed countries) could help poor farmers in developing countries compete in the marketplace, reduce ecosystem degradation and help reduce federal spending
…the United States has been a major player in the global rice trade since the 1970s. The country may only produce around 2 percent of global output, but it is consistently among the top five exporters in the world. Arkansas rice is eaten around the world — from Japan to Mexico to Turkey — and roughly half of the rice grown in the state is sold in foreign markets.
The U.S. reached an agreement that would enable rice exports to China, according to a trade group, a development that would give U.S. rice farmers their first foothold in the world’s largest market for the grain.
USA Rice, which represents growers, millers and exporters, said late Friday that officials from the U.S. Department of Agriculture had informed it that Washington and Beijing agreed on a protocol to allow U.S. producers legal access to China, which has long barred American rice.
The article reports US rice production estimates for 2015-16 at 6.1 million tons, with over half, 3.1 billion tons, for export.
But federal rice subsidies distort rice production, encouraging marginal producers and artificially boosting rice supplies for export, foreign rice producers complain and lobby to restrict rice shipments from the US. Foreign governments also subsidize and protect domestic rice farmers, so trade negotiations often turn on “level of subsidy” claims.
“US files trade complaint over China’s ‘excessive’ ag subsidies“(CNBC, September 13, 2016) reports Obama Administration formal complaints to the World Trade Organization:
“China’s excessive market price support for rice, wheat, and corn inflates Chinese prices above market levels, creating artificial government incentives for Chinese farmers to increase production,” U.S. Trade Representative Michael Froman said in a release.
Froman noted that China exceeded its allowable subsidy limits on corn, rice, and wheat by $100 billion in 2015 alone. America’s rice, wheat, and corn industries typically average $20 billion per year in export activity, according to government figures.
The Congressional Budget Office estimates that under the previous farm bills, the U.S. government provided an average of $1.53 billion in annual support for rice between 2000 and 2004. Under the Agricultural Act of 2014, CBO projects the annual outlay for rice from 2014 to 2018 will average around $231 million.
Thailand’s government spent far more:
Thailand’s rice paddy pledging program is a textbook case of how not to run a farm subsidy program. What started as an effort to win farmer support during parliamentary elections in 2010-11 became an economic disaster that cost the government of Thailand $27.7 billion before it ended in 2014.
The Economist‘s leader, “Hare-grained,” (November 14, 2015), outlines the mess that Japan, South Korea, China, and other Asian countries have made of the international rice trade:
Tariffs, quotas, floor prices, ceiling prices, producer subsidies, consumer subsidies, state monopolies—no measure is too meddlesome (see article). As a result, the market for rice is more distorted than that for any other staple. Rice growers pocketed at least $60 billion in subsidies last year, according to the OECD, twice as much as maize (corn) farmers, the second-most-coddled lot.
The full article, “Paddy-whacked,” explains the problem in its subtitle: “By meddling in the market for rice, Asian governments make their own citizens poorer.“
Rice policy matters a lot for Asia’s 4.4 billion people, about 60% of the world’s population, as Asians consume 90% of the world’s rice,
Asia consumes 90% of the world’s rice. It is used to make flour, noodles and puddings. Babies and the elderly survive on rice gruel. Steaming rice porridge is eaten for breakfast in skyscraping hotels in Hong Kong and rustic village kitchens in Hunan.
The U.S. government supports domestic rice production through tariffs on imported rice and direct taxpayer subsidies based on production, prices, and historical acreage. Those programs make rice one of the most heavily supported commodities in the United States, with ramifications for U.S. taxpayers and consumers and rice producers abroad.
Back in 2006, Dan Griswold’s Cato Institute Trade Policy Briefing looked at “Grain Drain: The Hidden Cost of U.S. Rice Subsidies.” Here is part of the paper’s Executive Summary:
Americans pay for the rice program three times over—as taxpayers, as consumers, and as workers. Direct taxpayer subsidies to the rice sector have averaged $1 billion a year since 1998 and are projected to average $700 million a year through 2015. Tariffs on imported rice drive up prices for consumers, and the rice program imposes a drag on the U.S. economy generally through a misallocation of resources. Rice payments tend to be concentrated among a small number of large producers.
Globally, U.S. policy drives down prices for rice by 4 to 6 percent. Those lower prices, in turn, perpetuate poverty and hardship for millions of rice farmers in developing countries, undermining our broader interests and our standing in the world. The U S. program also leaves the United States vulnerable to challenges in the World Trade Organization.
For our own national interest, the U.S. Congress and the president should work together to adopt a more market-oriented rice program in the upcoming 2007 farm bill, including repeal of tariffs and a rapid phaseout of subsidies.
Federal government rice subsidies have changed since 2006, but still involve significant taxpayer subsidies and price distortions internationally. The U.S. could be a leader in reforming damaging rice policies in China and across Asia.
Mercantilist policies still dominate across many industries, from steel to agriculture. Rice is no exception. Governments want to be self-sufficient in rice and where possible promote exports. Subsidies to domestic rice growers cost each country’s taxpayers millions, and tariffs on imported rice (and other grains) cost each country’s consumers millions more.
Public Choice theory explains how concentrated special interests (like rice growers, millers, and exporters) gain political leverage to enact legislation that benefits them while raising costs for consumers and taxpayers (benefits of rice subsidies are concentrated and larger per rice producers and lobbyist, while total costs, though higher, are spread out across tens of millions of consumers and taxpayers).
The same mercantilist thinking and public choice pressures distort rice production and trade in the U.S.. This July 12, 2015 Wall Street Journal article, “Should Washington End Agriculture Subsidies?” offers a debate on current agricultural policies, after 2014 reforms. Vincent Smith, arguing against farm subsidies, notes:
First, many people seem to believe that farmers, like the Joad family in John Steinbeck’s “The Grapes of Wrath,” are poor, when in fact the average farm household enjoys an income that is about 15% higher than that of the average nonfarm family. What’s more, the 10% to 15% of farm families that receive more than 85% of all farm subsidies—amounting to millions of dollars a year in a few cases—have annual household incomes many times as large as those of the average U.S. taxpayer. Some estimates suggest that the farmers who receive the bulk of all subsidies—many of whom mainly raise corn, cotton, rice, peanuts, soybeans and wheat—are worth somewhere between $6 million and $10 million on average.
Rice is one of the big grain crops still subsidized, and because rice is the major food of Asia, students could argue that it should be the first to be pulled out of the world of subsidies and left to market competition and international trade.
This May 15, 2015 Bloomberg View article, “Rice Gets a Bath Amid California’s Drought,” looks in depth at subsidized rice production in California: “much of it destined for sushi … shipped to customers, about half of them outside the U.S.”:
As you read this, farmers in the Sacramento Valley are flooding hundreds of thousands of laser-leveled acres under five inches of water as they prepare to plant the annual rice crop. After that comes my favorite part. From the California Rice Commission’s “How Rice Grows” tutorial:
Rice seed is then soaked and loaded into planes. Flying at 100 mph, planes plant the fields from the air. The heavy seeds sink into the furrows and begin to grow.
They will keep growing throughout the hot valley summer (temperatures regularly top 100 degrees Fahrenheit), in the midst of a historic drought. Harvest comes in September, after which the rice — mostly medium-grain, much of it destined for sushi — will be milled and then shipped to customers, about half of them outside the U.S.
The Los Angeles Times article, June 11, 2015, “California rice farmers find Japanese trade negotiators a bit starchy,” looks at other foolish rice policies, beginning with Japanese rice protectionism:
For years Charley Mathews Jr. has exported tons of his best Sacramento Valley-grown rice to Japan, but it grates on him that very little of that has ever ended up on the tables of sushi restaurants or Japanese households.
Instead, the Japanese government, which controls rice imports under a 2-decade-old quota system, has given away most of his and other foreign rice as food aid or sold it domestically as animal feed and an ingredient for rice crackers.
Again, however, U.S. rice farmers benefit from a range of water and price subsidies. Bloomberg View’s “Save California Farmers From Themselves,” April 27, 2015, looks at the water subsidy values for California rice farmers:
In a 2004 study, the Environmental Working Group estimated that the total subsidies for the Central Valley Project added up to roughly $600 million a year. While farmers dispute that figure, they don’t deny they have a very special deal. Why else would they fight efforts to make the pricing of water more market-based and defend their “rights” to it?
This competitive advantage has been worth tens of billions of dollars. All over the West, farmers served by federal projects have benefited from 50-year zero-interest loans, with generous repayment rates, plus low-cost power. And about 45 percent of the farmers who receive irrigation subsidies are growing commodity crops (such as rice and cotton) that qualify for price supports from the U.S. Department of Agriculture — a classic example of double dipping.
This giant international rice farming mess seems endlessly complicated. But at the least the U.S. could be a leader in saving hundreds of millions of taxpayer dollars by ending the rice subsidies that also encourage rice protectionism in Japan, South Korea, and other Asian countries.
A sponsored Quartz post from the Lee Kuan Yew School of Public Policy: “Asia will soon be the world’s economic center—if it isn’t already” looks at the rise of nationalism:
In the wake of Brexit, ascendant European nationalism, and the US elections, much has been written about populism’s threat to global trade growth and the international economic institutions established after the Second World War. There are a number of explanations for the turn inward. Many have blamed growing economic inequality within developed economies—some blame outsourcing or technological transition.
The post then notes falling income inequality may be a challenge for the U.S. and Europe:
Others posit that a decline in inequality may be a motivating factor. Danny Quah, Professor of Economics at Singapore’s Lee Kuan Yew School of Public Policy, and Kishore Mahbubani, the school’s Dean, blame populism’s rise on improved income equality across all nations. During the 1990s, a 70% income gap stood between emerging economies and the G7. That gap shrunk to under 14% in 2016 and will disappear by 2020.
For those born in the 1940s, experiences in the U.S. labor force in the 1960s and 1970s framed their worldview. The United States was the world’s powerhouse economy after World War II, especially as the world’s number 2 and 3 economies Germany and Japan had been bombed flat, as had France, England, and Italy. In 1950 the U.S. produced 80% of all automobiles in the world, by 1960s US auto manufacturing was about half world production, and by 2000 the US produced 4 million more cars a year than in 1980, but that was one-fifth of world production. By 2015 twice as many cars were manufactured in China than in the U.S. and some 90 million were produced worldwide (according to Wikipedia page).
If you look at 1950 in the Infogr.am chart at right from you can see how dominate the US (green line) economy was from the 1950s to 1980s.
It should be no surprise that everyday Americans along with politicians and military leaders growing up and living through those decades believed the U.S. to be the world’s major economy and society. Though the US economy continued to expand, faster economic growth in China led many to believe something had gone wrong with the U.S> economy, and many blamed “unfair” trade deals.
The chart seems to show the US economy declining after the 1950s, but that is an illusion. Instead, the US economy has expanded since the 1950s and 60s, with occasional recessions and slowdowns. From the 1960s on, Germany, Italy, and Japan grew rapidly, then later Taiwan, Hong Kong, South Korea, and the UK expanded (and Italy slowed down). The economies of China since 1980s reforms and India since 1990s reforms took off as well. International investment and trade were major drivers of rapid economic expansion.
In a presentation some years ago Michael Cox of Southern Methodist University asked teachers to imagine five people dropped in a jungle, and just one had a machete. The machete, a tool analogous to industrial revolution in the U.K. and U.S.–enables the lucky owner to cut a path through the jungle. But when the others pick up that trail, they can run faster and catch up. The complex technologies and factories developed in the UK, Western Europe, and the U.S. can and were duplicated for production in Mexico, South Korea, and China.
The blue line of China in the chart above soars from hundreds of millions of Chinese working long hours in “duplicate” Chinese factories, but also from new firms and factories developed by Asian entrepreneurs with new technologies and innovations (which then benefit consumers in China and around the world).
The Quartz article continues:
Whether US or Asian, industries that succeed will be those that don’t pit humans against machines but use the latter’s speed and precision to let humans perform better. Asia has learned that lesson—it’s the global hub for advanced manufacturing and sophisticated logistics.
What’s more, China is now the world’s largest consumer market for smartphones and other gadgets. And regardless of East or West, shrewd businesses will always look to capitalize on the opportunities available to them. Asia holds many.
The diffusion of manufacturing and agriculture technology have helped raise hundreds of millions out of extreme poverty over the last few decades. The people of Peru in South America have more recently found the trail and are advancing rapidly, exporting goods to the U.S., China and other Asian consumers. “Peru Leads Region in Putting New Faith in Global Trade” (Wall Street Journal, February 8, 2017), notes:
In Peru, which has emerged as South America’s strongest free trade proponent, thousands of workers are planting asparagus, mangos and peppers for export as part of a diversification effort to lessen reliance on mining. China is a key consumer. …
Increased trade and foreign investments have been central to Peru’s economic growth, allowing 9 million Peruvians, about a third of the population, to escape poverty since 2004. In recent years, Peru implemented free trade accords with the U.S., China and the EU. …
“Our big bet is on Asia,” said Luis Torres, the head of exports at government agency, PromPeru. “Blueberries are going to be the next star export, along with asparagus, avocados, citrus fruits and grapes.”
Juan José Gal’Lino, the executive director of Delaware-based Agro Vision Corp., said his workers at Olmos will ship the larger blueberries to China, where he says consumers pay a 30% premium for the bigger fruit. Smaller berries will continue to be exported to North America, where consumers don’t care so much about the size.
Peru is following the successful path opened by Chile since the 1990s. Chile was among the poorest country in South America after trying protectionist and socialist policies. A few decades after reducing trade barriers and welcoming foreign investment , Chile is South America’s wealthiest country, continues to expand agricultural exports (“Chile aims to double agricultural exports in a decade,” AgPro, November 5, 2015):
Chile, the world’s top exporter of fresh grapes and blueberries, posted record exports of food, including fruit, livestock, wine and salmon, of just over $16 billion last year. That was about three times what it shipped abroad 10 years ago.
According to Fred Landis (Investigative Reporter) on Quora: Chile has fallen from “one of the most egalitarian countries in Latin America to one of the most unequal.” He argues that President John F. Kennedy promoted egalitarian reforms which Chile’s socialist government expanded, but that President Nixon the villain, directing the CIA to help overthrow the Chilean government. But economic policies matter apart from political turmoil, Though income inequality is likely far higher in Chile now than it was in 1960, average income is far higher too. For everyday people in Chile, average income per person in 1960 was just $550 per year. Yet by 2013 people in Chile enjoyed average income of $16,000 per year, according the the World Bank. Inequality can be far higher in a market economy, but even the very poor in Chile have higher incomes than people did on average in 1960.
The story so far: reducing trade barriers and welcoming foreign investment helped Chile’s economy grow rapidly, raising average per-person income from $550 a year in 1960 to $2,400 in 1990, to near $13,000 a year in 2010. Earlier posts discussed similar rapid economic growth in China after the economy was opened to private enterprise, international trade and investment
Average income per person in China rose from $70/year in 1960 to $330/year in 1990, to $940 in 2000, to $4,340 in 2010, and to $7,930 by 2015. Income inequality in China increased a some grew wealthy far faster than average. But income inequality between Chinese and U.S. workers decreased, as productivity in China’s textile mills and factories rose thanks to access to modern technologies.
In Chile, Peru, and China before market reforms, incomes of everyday people were more equal but also far, far lower.