Im-Politic: Can Biden Really Solve the “Root Causes” Behind His Border Crisis?

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Biden, Border Crisis, border security, CAFTA, Central America, Central America Free Trade Agreement, Colbert I. King, Cold War, Donald Trump, El Salvador, foreign aid, George W. Bush, globalism, Guatemala, Honduras, Im-Politic, immigrants, Immigration, Jorge Castaneda, Kamala Harris, Lawence E. Harrison, migrants, Northern Triangle, race to the bottom, Trade, Washington Post

One of the time-honored practices – and myths – behind globalist U.S. foreign policies has been its faith that turmoil in various parts of the world that allegedly threatens American interests can be either eliminated or reduced to manageable levels with enough foreign aid. The idea is that such assistance will address the social and economic problems thought to be mainly to blame for the instability. So it’s no surprise that the globalist Biden administration has decided that aid programs are the keys to bringing immigration from Central America under control – though not of course right away.

As stated by Vice President Kamala Harris upon being tasked by President Biden to oversee U.S. effort to turn the counties of the region’s “Northern Triangle” into places whose populations won’t be determined to leave, the United States “must address the root causes that cause people to make the trek” northward.

That’s why I sure hope she reads Colbert I. King’s column in Tuesday’s Washington Post before she rolls up her sleeves too far. For as the author notes, the Biden administration plan to turn the Northern Triangle countries (El Salvador, Guatemala, and Honduras) from clearly failed states into (reasonable) success stories isn’t exactly new in its essentials.

And especially in recent years, when conditions in the region ostensibly worsened dramatically, and therefore fueled especially big migrants flows, there’s been no shortage of U.S. aid, especially considering the tiny size of the three economies.

As King details,

“Congress appropriated more than $3.6 billion to fund a Strategy for Engagement in Central America program between 2016 and 2021. The money was supposed to strengthen rule of law, improve the administration of justice, promote economic prosperity, prevent violence and combat gangs, and empower youth and women.

“>In fiscal 2021 alone, U.S. funding amounted to $505.9 million.

“>Between 2013 and 2018, The U.S. Agriculture Department allocated $407 million to Central America to provide school meals, nutritional programs for women, infants and children, and to train and provide technical assistance to improve agricultural productivity.

“>The Obama administration asked for money to help the region in fiscal 2016, and Congress appropriated $750 million, requiring the countries to improve border security, combat corruption and address human rights concerns.”

Then the author – properly – proceeds to ask “What happened to it all?” And what can the Biden administration do to make sure that the $4 billion it plans to spend in the region will work any better if Congress approves this sum?

Moreover, the case against more Central America aid as a Border Crisis game changer is actually stronger than King describes. Because Washington has not only been pouring money into the region for decades. It’s also granted these three Central American countries (and their regional neighbors) tariff cuts and other trade-related assistance aimed at enabling them to export their way to prosperity.

Indeed, as then President George W. Bush declared while lobbying for passage of the Central America Free Trade Agreement (CAFTA) – which was eventually expanded to include the Dominican Republic,

“People have got to understand that by promoting policy that will help generate wealth in Central America, we’re promoting policy that will mean someone is less–more likely to stay at home to find a job. If you’re concerned about immigration to this country, then you must understand that CAFTA and the benefits of CAFTA will help create new opportunity in Central American countries, which will mean someone will be able to find good work at home, somebody will be able to provide for their family at home, as opposed to having to make the long trip to the United States. CAFTA is good immigration policy as well as good trade policy.”

Critics can reasonably argue that these U.S. programs failed to achieve their immigration aims because they were poorly designed. On the aid front, it’s true that too much of the assistance provided by the United States during the Cold War was military or other security assistance that largely helped corrupt governments repress their own people – and fight rebels labeled as tools of the Soviet Union and Cuba.

When it comes to trade, globalist U.S. Presidents did Central America no favors, either. For CAFTA simply plunged the region into a frantic race to the bottom in wages and worker safety that had been sparked by the decision to free up trade indiscriminately with all the very low-income countries (including China, India, and Bangladesh) that also produced the apparel products that have represented Central America’s best hope for prospering via globalization.

At the same time, significant U.S. assistance for Central America continued after the Cold War’s end, and more was targeted at economic development. And the Biden administration has said nothing about U.S. trade policy reforms that actually would give the Northern Triangle – or the rest of Central America for that matter, or Mexico – major legs up on non-Western Hemisphere competitors.

All of which could support the conclusion that no amount of aid or trade breaks can make Central America successful. A globalist administration will be particularly loathe to accept this admittedly depressing proposition, but there’s abundant evidence in its favor. The work of development economist Lawrence E. Harrison, to cite one leading example, has compellingly argued that some counties – and entire regions – simply don’t have what it takes to achieve economic success because of the cultures they’ve evolved.

At the same time, as my friend – and noted political scientist and former Mexican Foreign Minister Jorge Castaneda – has argued, the Central American economies are so small that enough smartly spent U.S. money might be able to overcome even these deep-rooted obstacles.

I can’t say that I know the answer. But the analyses of King, Harrison, and Castaneda all point to the overarching conclusion that the kind of business-as-usual version of the address-the-root-causes of Central America’s failings being contemplated by the Biden administration can’t possibly stem the migrant flow. Moreover, until genuinely promising plans are developed, there will be no substitute for re-securing the border by reinstating the type of Trump-ian controls that minimize the strength of the U.S. magnets that influence migrant flows as surely as the problems of sending countries.

 

(What’s Left of) Our Economy: Why Biden’s Trade Policies are Looking Trump-ier Than Ever

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America First, arbitrage, Biden, China, economic nationalism, environmental standards, global minimum tax, globalism, globalization, infrastructure, Jake Sullivan, Janet Yellen, labor rights, race to the bottom, subsidies, tariffs, tax policy, taxes, Trade, trade Deals, trade wars, {What's Left of) Our Economy

As the author of a book titled The Race to the Bottom, you can imagine how excited I was to learn that the main rationale of Treasury Secretary Janet Yellen’s new proposal for a global minimum tax on corporations is to prevent, or bring to an end, a…race to the bottom.

But this idea also raises a question with profound implications for U.S. trade and broader globalization policies: Why stop at tax policy? And it’s made all the more intriguing because (a) the Biden administration for which Yellen surprisingly seems aware that there’s no good reason to do so even though (b) the trade policy approach that could consequently emerge looks awfully Trump-y.

After all, the minimum tax idea reflects a determination to prevent companies from engaging in what’s known as arbitrage in this area. It’s like arbitrage in any situation – pitting providers and producers that boast little leverage into competition with one another to sell their goods and services at the lowest possible price, and usually triggering a series of ever more cut-rate offers.

These kinds of interactions differ from ordinary price competition because, as mentioned above, the buyer usually holds much more power than the seller. So the results are too often determined by considerations of raw power, not the kinds of overall value considerations that explain why market forces have been so successful throughout history.

When the arbitrage concerns policy, the results can be much more disturbing. It’s true that the ability of large corporations to seek the most favorable operating environments available can incentivize countries to substitute smart policies for dumb in fields such as regulation and of course taxation. But it’s also true, as my book and so many other studies have documented, that policy arbitrage can force countries to seek business with promises and proposals that can turn out to be harmful by any reasonable definition.

Some of the most obvious examples are regulations so meaningless that they permit inhumane working conditions to flourish and pollution to mount, and encourage tax rates to fall below levels needed to pay for public services responsibly. Not coincidentally, Yellen made clear that the latter is a major concern of hers. And the Biden administration says it will intensify enforcement of provisions in recent U.S. trade deals aimed at protecting workers and the environment – and make sure that any new agreements contain the same. I’ve been skeptical that many of these provisions can be enforced adequately (see, e.g., here), but that’s a separate issue. For now, the important point is that such arbitrage, and the lopsided trade flows and huge deficits they’ve generated, harm U.S.-based producers and their employees, too.

But as my book and many other studies have also documented, safety and environmental arbitrage aren’t the only instances of such corporate practices by a long shot. Businesses also hop around the world seeking currency arbitrage (in order to move jobs and production to countries that keep the value of their currencies artificially low, thereby giving goods and services turned out in these countries equally artificial, non-market-related advantages over the competition). Ditto for government subsidies – which also influence location decisions for reasons having nothing to do with free markets, let alone free trade. The victims of these versions of policy arbitrage, moreover, have been overwhelmingly American.

The Biden administration is unmistakably alert to currency and subsidy arbitrage. Indeed a major element of its infrastructure plan is providing massive support for the U.S. industry in general, and to specific sectors like semiconductors to lure jobs and production back home and keep it there. Revealingly, though, it’s decided for the time being to keep in place former President Trump’s steep, sweeping tariffs on China, and on steel and aluminum.

So it looks like the President has resolved to level these playing fields by cutting off corporate policy arbitrage opportunities of all types with a wide range of tools. And here’s where the outcome could start looking quintessentially Trump-y and America First-y. For it logically implies that the United States shouldn’t trade much – and even at all – with countries whose systems and policy priorities can’t promote results favorable to Americans.

Still skeptical? Mr. Biden and his leading advisers have also taken to talking about making sure that “Every action we take in our conduct abroad, we must take with American working families in mind.” More specifically, the President’s White House national security adviser, Jake Sullivan, wrote pointedly during the campaign that U.S. leaders

“must move beyond the received wisdom that every trade deal is a good trade deal and that more trade is always the answer. The details matter. Whatever one thinks of the TPP [the proposed Trans-Pacific Partnership trade deal], the national security community backed it unquestioningly without probing its actual contents. U.S. trade policy has suffered too many mistakes over the years to accept pro-deal arguments at face value.”

He even went so far as to note that “the idea that trade will necessarily make both parties better off so long as any losers could in principle be compensated is coming under well-deserved pressure within the field of economics.”

But no one should be confident that economic nationalism will ultimately triumph in Biden administration counsels. There’s no doubt that the U.S. allies that the President constantly touts as the keys to American foreign policy success find these views to be complete anathema. And since Yellen will surely turn out to be Mr. Biden’s most influential economic adviser, it’s crucial to mention that her recent speech several times repeated all the standard tropes mouthed for decades by globalization cheerleaders about U.S. prosperity depending totally on prosperity everywhere else in the world.

Whether she’s right or wrong (here I presented many reasons for concluding the latter), that’s clearly a recipe for returning trade policy back to its pre-Trump days – including the long-time willingness of Washington to accept what it described as short-term sacrifices (which of course fell most heavily on the nation’s working class) in order to build and maintain prosperity abroad that would benefit Americans eventually, but never seemed to pan out domestically.

Nor is Yellen the only potential powerful opponent of less doctrinaire, more populist Biden trade policies. Never, ever forget that Wall Street and Silicon Valley were major contributors to the President’s campaign coffers. Two greater American enthusiasts for pre-Trump trade policies you couldn’t possibly find.

And yet, here we are, more than two months into the Biden presidency, and key pieces of a Trump-y trade policy both in word and deed keep appearing.  No one’s more surprised than I am (see, e.g., here).  But as so often observed, it took a lifelong anti-communist hardliner like former President Richard M. Nixon to engineer America’s diplomatic opening to Mao-ist China. And it took super hard-line Zionist Menachem Begin, Israel’s former Prime Minister, to sign a piece treaty with long-time enemy Egypt. So maybe it’s not so outlandish to suppose that a died-in-the-wool globalist like Joe Biden will be the President establishing America First and economic nationalism as the nation’s new normals in trade and globalization policy.  

(What’s Left of) Our Economy: The Punditocracy’s Trade Coverage Races to the Bottom

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Charles Lane, China, fast track, Federal Reserve, imports, Japan, Jobs, pundits, race to the bottom, Simon Constable, TheStreet.com, third world, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, wages, Wall Street Journal, Washington Post, World Trade Organization, {What's Left of) Our Economy

Upon reading Charles Lane’s Washington Post column this morning about Congress’ fight over giving President Obama sweeping new trade authority, my first reaction was “And I thought the Wall Street Journal editorial board was ignorant!” But that’s unfair to Lane. Although he’s just treated readers to a breathtaking display of fakeonomics, his own know-nothing-ism on these issues is really no worse than the Journal‘s latest. All the same, since the Post is often considered on a different level than, say, the National Enquirer, Lane’s treatment of trade economics – and politics – merits spotlighting.

Lane’s looney-ism begins right away with his claim that, since President Obama and both Houses of Congress are record supporting fast track authority for the Executive Branch (the House’s vote Friday, to be sure, was purely symbolic), anyone in opposition is standing against a “democratic tide.” As if it’s unusual for special interests, especially Wall Street and the rest of Big Business, to control the Washington deployments of both major parties?

But the author’s economics are even sillier. According to this Post pundit, planned new trade deals like the Trans-Pacific Partnership (TPP) will only affect the small number of American workers who produce tradeable goods. Apparently he doesn’t know that for a quarter century at least, the job- and wage-killing effects of wrongheaded trade deals and related policies have rippled widely through the labor markets encompassing working class Americans of all skill levels.

And don’t take my word for it. As Simon Constable just wrote for TheStreet.com, there’s growing agreement in the mainstream economics community – including the Federal Reserve – that admitting China into the World Trade Organization in 2001 destroyed millions of American manufacturing jobs in just the half decade that followed. Does Lane really believe that these displaced workers haven’t been plunged into competition for remaining (often less remunerative) employment with their counterparts in “sectors outside the flow of global commerce,” putting powerful downward pressure on pay? And does he really think that the “cheap imports” facilitated by these and similar decisions healthily offset the effects of trade-related job and wage loss?

Equally bizarre is Lane’s stated view that the only possible trade threats to American worker’s well-being come from “low-wage competition” from third world countries like China. I guess he’s never heard of Japan, the world’s third largest national economy, which is known to have sent a subsidized export or two to the United States over the last few decades – and which of course is a member of the first group of prospective TPP countries.

And speaking of Japan, Lane’s claim that under the TPP, Tokyo will “open its markets to U.S. goods and pursue long-postponed structural reforms” is positively side-splitting. Just who on earth told him that? A White House press flack?

These Journal and Post missives over the last two days are far from the Mainstream Media’s worst analyses of U.S. trade policy. They’re just the two most recent examples of the kind of media mud- and hokum-slinging that’s always generated when Congress towards decisive trade votes. You might even call it another globalization-related race to the bottom.

(What’s Left of) Our Economy: Why Garment Trade Remains a Deadly Race to the Bottom

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Bangladesh, factories, garments, manufacturing, Multifibre Arrangement, race to the bottom, Trade, worker safety, {What's Left of) Our Economy

More than a year has passed since the Rana Plaza factory collapse killed 1,100 Bangladeshi textile workers in April, 2013, and it continues to amaze me how even avowed champions of safer third world workplaces have ignored the role new trade policies need to make in achieving genuine reform.

The good news on the worker safety front is that no other Rana-like calamities have befallen Bangladesh, although smaller-scale fatalities continue. (In fairness, no country is free of these.) In addition, the owner of the Rana factory complex has finally been charged with “gross” violations of local building codes (he’s been imprisoned since shortly after the tragedy). Also charged has been the local mayor allegedly in cahoots with him.

The Obama administration suspended the special tariff breaks America had been extending to Bangladesh exports. Foreign (mainly European) apparel companies have promised to support stepped up factory inspections and to even pay the cost of improvements. More than 200 unsafe factories reportedly have been closed. And nearly 200 new labor unions have been registered in the country.

At the same time, by most accounts, most Bangladesh factories remain tragedies waiting to happen. The European Union still grants the country trade preferences. Violence against labor organizers – conspicuously overlooked and sometimes rhetorically encouraged by the government – seems worse. The factory shutdowns reportedly have thrown 80,000 out of work. And deathtrap workplaces remain far too common throughout the developing world – notably, in neighboring India.

In other words, from all appearances, the world’s garment industry is still dominated by race-to-the-bottom dynamics, in which apparel companies and the retailers they supply pit the world’s poorest countries against each other in a tragic competition to offer the lowest wages and the most threadbare, or poorly enforced, regulations.

Shortly after the Rana collapse, I wrote that this race will ontinue unless the world’s trading powers reverse a major mistake made in a fit of free trade extremism. Specifically, they need to restore a system of garment trade quotas that guaranteed the smallest, poorest countries a steadily growing share of rich-country apparel markets – and thereby reduced the industry’s incentives and capacity to punish third world governments for allowing higher wages and better working conditions.

Unfortunately, reinstating this Multifibre Arrangement is nowhere to be found on the U.S. or international trade agenda – strongly indicating that, despite the best efforts of unions, other activists, and even consumers and companies with a conscience, the next Rana-like accident is only a matter of time.