The eye-for-an-eye approach to trade

On March 8, America’s populist-in-chief signed an executive order slapping a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports. President Trump said he did it to protect the nation’s economic and national security. It came a little over a month after Trump said he would impose tariffs and quotas on imported solar panels and washing machines.

The United States has had the world’s largest trade deficit ever since 1975. In 2017 imports were about $2.9 trillion and exports were just over $2.3 trillion, as Americans continue to consume more than we produce.

The steel and aluminum tariffs have aroused little enthusiasm and much criticism. Naysayers argue they will do nothing to strengthen America’s economy or national security, and spark a global trade war. They say the tariffs will result in higher prices as steel users pass costs onto consumers.

Supporters claim there already is a trade war underway and it is being waged by China. That country accounts for more than two-thirds of America’s current trade deficit. We import $506 billion – mainly consumer electronics, clothing, and machinery – from China, but export only about $131 billion in goods.

China has been blocking high-value exports from the United States. For example, it charges a 25 percent import duty on cars, 10 times the 2.5 percent levy the United States puts on imported vehicles.

China also imposes steep tariffs on imported automobile parts. As Elon Musk tweeted, “No US auto company is allowed to own even 50% of their own factory in China but there are five 100% China-owned EV auto companies in the US.” Obviously, engaging in tough trade talks with China is long overdue.

It will take years for the United States, China and the global trading system to work out imbalances on a wide range of goods. America’s prosperity depends on a robust approach to correct failed trade policies, with a focus on the industries of the future. It makes no sense for America to excel at innovation without securing the domestic and foreign markets for its products.

It merits mentioning that instances in which American companies ship raw materials to China for assembly at a lower cost, then sell the finished products count as imports. American multi-national companies are happy to hire foreign workers from emerging markets with lower standards of living to keep their labor costs low and profits high. They figured out that to make income redistribution work on a global scale: American workers have to be less welloff so their overseas counterparts can be less poor.

But the new tariff on steel imports will not impact China. The United States is the world’s biggest steel importer, buying 35.6 million tons in 2017. Nearly 17 percent come from Canada, 13.2 percent from Brazil, and 9.7 percent from South Korea. Unless the Chinese are routing their steel exports through American allies, the U.S only imports about 3 percent of its steel from China.

After pushback from Canada, wiser minds prevailed within the administration and tariff sanctions were suspended indefinitely pending renegotiation of the North American Free Trade Agreement.

The tariffs may trigger reprisals. The day after President Trump signed the tariff executive order, the European Union published a 10-page list of American products that would be targets for retaliation, including peanut butter, grains, and motorcycles.

While steel and aluminum account for only a small portion of trade, the President’s rhetoric indicates that this is just the opening salvo from the White House bunker after years of benign neglect. The primary target is China. Trump has already called its unfair trading practices “an assault on our country.”

As the head of the World Trade Organization, one of the guardians of the global trading system, noted after the tariffs were announced, “Once we start down this path it will be difficult to reverse direction. An eye for an eye will leave us all blind and the world in a deep recession.”


Originally Published: Mar 22, 2018

Time to reform the civil service

The American people are rightly fed up with an accelerating cascade of government failures. Just as one recedes from the headlines, another pops up

Most recently, Americans learned that law enforcement, including the FBI, failed to act on several detailed, credible tips about Nikolas Cruz, who went on a killing spree on February 14, killing 17 and wounding another 14 at a Parkland, Fla., high school. This was a perfect example of see something, do something, but government workers did nothing.

Their behavior validates the public’s opinion that too many government workers are just plain incompetent, and sometimes decide to ignore the public– the very people they are supposed to protect – knowing full well they will never be held accountable.

Surely it will not be long before these agencies are asking for more money and an expanded role.

The Parkland, Florida school shooting is just the latest in a series of high-profile institutional failures. They began with the September 11 attacks, when 2,977 people lost their lives because America’s intelligence and law enforcement agencies missed warning signs. Then came botched efforts to deal with the devastation of Hurricane Katrina, the inadequate financial regulation that contributed to the 2008 financial meltdown, the National Security Agency letting Edward Snowden walk away with its crown jewels, the IRS’ targeting of conservative political groups, Russian spies being allowed to meddle in U.S. elections in the midst of Cold War 2.0, and the beat goes on.

These notable public failures contribute to the unhealthy divide between citizens and their government. With evidence of failure all around, is it any wonder that the public has become disillusioned, angry, and frustrated with all levels of government?

The scandal-plagued Veterans Administration is a glaring example of how government hurts the very people it purports to help when agency employees, not the nation’s veterans, become its most important constituency.

The Veterans Health Administration, which is part of the VA, is charged with providing medical care to those who have served our country. In 2014 Americans learned VA hospitals were making military veterans wait far longer than the targeted 14-day period to receive services.

Some died while waiting for care, and some hospitals falsified records to make it look like they were meeting their targets. The Phoenix VA Hospital reported that the average waiting time for medical appointments was 24 days. According to the VA inspector general’s report, the actual time was 115 days.

Instead of being disciplined for mismanagement after the VA paid out over $200 million in wrongful death settlements over a decade, VA officials received generous bonuses.

In the most recent scandal, at the VA Medical Center in Bedford, Massachusetts, an employee allegedly steered several hundred thousand dollars in contracts for landscaping services and supplies to her brother’s landscaping business. The supplies never showed up and the work was never done. The employee was demoted one pay grade, but kept her job.

If the American public wants government to stop repeating stupid mistakes, it must recognize that civil servants act within a bureaucratic system that rewards the status quo. For decades, reforms have failed to fix a bureaucracy that is far too large to manage and adequately oversee.

Studies describe the sources of failure, including fragmentation of authority, misaligned political incentives, and the government’s size. What is often overlooked is that federal workers are almost never fired for poor performance or misconduct. They have strong civil service protections and firing processes are riddled with complex regulations and confusion over how to apply rules designed to preserve fairness and diversity.

It’s time to get real. Civil servants enjoy a level of job security that the ordinary private sector employee can’t begin to imagine. Nothing much will change until the civil service system is reformed and the notion of accountability accentuated.

To quote Plato: “What is honored in a country is cultivated there.”

Originally Published: Mar 10, 2018 at 12:16 PM