Archive for the ‘Protectionism’ Category

On the NYT’s “Building Trade Walls”

8 March 2017

The Trump administration has certainly increased public discussion of trade policy. Yesterday, the New York Times ran a series of graphics accompanied by a thousand words on “Building Trade Walls” in its online business section. I found the piece frustrating. At a number of points, the article presents valid information in a way that muddles meanings or implies misleading conclusions.

Are sales taxes akin to import tariffs?

Consider these two consecutive paragraphs:

But many countries have additional taxes. For example, China and other countries, but not the United States, also charge a steep value-added tax, which is a kind of national sales tax on imports and home-produced goods alike. Exports are exempt from value-added taxes.

Once value-added taxes and sales taxes are included in an international comparison, America’s taxes on imports are much lower than those of almost every other country.

Why would you make an international comparison that counted VATs or sales taxes as taxes on imports? Since VATs and sales taxes apply to both “imports and home-produced goods alike”, they aren’t protectionist. An import tariff applies to imports and not to domestic-produced goods. The discriminatory nature of the import tariff is why it protects domestic firms from foreign competitors.

Back in September, Paul Krugman lambasted Donald Trump for accusing Mexico’s VAT of being a trade barrier. Now, his NYT colleagues have produced a good-looking map that relies on this premise. A quick mashup of the two makes the contrast clear:

In short, the NYT‘s first paragraph noting the non-discriminatory nature of VATs and sales taxes means that the international comparison offered in the second paragraph is nonsensical.

Is China a developing country?

In another troublesome part of the article, a series of facts about China’s GDP and GDP per capita are somehow combined to say that China might be a developed economy:

Today, China’s designation as a developing country is more debatable. China is the world’s second-largest economy and the biggest producer of steel and cars.

Still, China trails most developed nations by some measures, and Chinese officials argue that it is still developing and does not yet qualify as industrialized.

China’s economy is still roughly two-thirds the size of the American economy, even though China has four times as many people. Average incomes in China are still one-fifth to one-quarter of levels in the United States, and much of China’s interior is still underdeveloped.

Based on the first paragraph, I have to ask: is Iceland a developing economy? It’s quite small, with a GDP of maybe $15 billion. But of course it’s developed, as it has a GDP per capita in the neighborhood of $50,000. Development is about income levels (and accompanying socioeconomic changes), not population size. I have never before seen GDP (as opposed to GDP per capita) used to inform the “developing country” designation.

The NYT article raises the (novel) question of whether China is developed or developing in the context of its trade-policy obligations:

The World Trade Organization, the global trade adjudicator, has allowed developing countries to impose far higher tariffs than industrialized countries, while they build up industries at home. China has been counted as a developing country.

This is unhelpful in a few important respects. First, the WTO does not designate countries as developing or developed. In the narrow areas where developing countries are given special and differential treatment, member nations identify themselves as developing. Second, the “global trade adjudicator” language is potentially confusing. Countries’ MFN tariff schedules are negotiated among member nations at the WTO. There’s no separate WTO entity announcing tariff rates for developing (or developed) countries. Past rounds of negotiations among members have resulted in the tariff schedules of China and other economies. Third, China has lower tariff bindings than a typical developing country, partly because it acceded to the WTO later than most developing countries. Branstetter and Lardy say that “China agreed to a set of conditions that were far more stringent than the terms under which other developing countries had acceded”. Compare China’s 10% average bound tariff to Brazil’s 31% or India’s 49%.  Fourth, there is not much evidence that “far higher tariffs” have allowed countries to “build up industries at home”. China’s export growth, in particular, has involved integration into global value chains and assembly processing, not import-substitution industrialization behind a tariff wall.

A few other concerns

  • It would be more helpful to plot the trade deficit as a percent of GDP than in nominal dollars.
  • A focus on the bilateral deficit with China is unhelpful.
  • A discussion of border adjustments that does not mention exchange rates omits a first-order feature, according to the policy’s proponents.
  • The NYT reporters say: “When China joined the W.T.O. in 2001, the expectation was that its tariffs would later be adjusted lower during global trade talks, known as the Doha Round. But those talks fell apart for a variety of reasons.” China’s bilateral negotiations with the US wrapped up in 1999. The protests in Seattle that year accompanied a failed round of WTO negotiations. I don’t think expectations of the Doha Round – which started two years later in a post-9/11 context – were clear when China’s accession protocol was being determined.

Tracking Trump’s trade policy

23 January 2017

The start of the Trump administration means that trade policy is in the headlines far more than it has been for at least a decade. While the trade-policy blogosphere remains pretty quiet (partly because I haven’t updated my blogroll in a few years), there’s a flurry of activity on trade-policy Twitter. You can follow me @TradeDiversion.

Here are some highlights from around the web, most of which I discovered via trade twitter:

  • The Peterson Institute (@PIIE) has been providing fantastic coverage across the board. Gary Hufbauer provided an authoritative brief on the presidential powers that would allow Trump to take protectionist actions without much congressional oversight, and Chad Bown outlined the implications of denying China “market economy” status.  I expect PIIE’s February 1 event on border tax adjustments to be highly informative.
  • The International Economic Law and Policy Blog (@WorldTradeLaw) hasn’t slowed down and remains an essential source of news and analysis.
  • Twitter is the fastest way to see the text of the TPP withdrawal order Trump signed today, learn that Sen. Mike Lee wants to limit Trump’s power to raise tariffs, or ask  the experts what withdrawing from NAFTA without repealing the NAFTA Implementation Act might entail. Shawn Donnan of the FT (@sdonnan) is highly engaged on Twitter. And Brad Setser (@Brad_Setser) recently returned from a long blogging hiatus.
  • One of my MBA students recently pointed me to a story noting that Apple wants to build a US data center in a “foreign-trade zone” exempt from import tariffs. Those foreign-trade zones are the subject of Matthew Grant’s job-market paper. I’m sure Trump will have to something to say about them once he learns they exist.

Quick links

10 May 2012

My blogging has taken a back seat to my research recently. Here are some quick links that I wish I had more time to discuss:

Rose: Protectionism is acyclical

26 April 2012

Andrew Rose:

Almost everyone agrees that protectionism is countercyclical; tariffs, quotas, and the like grow during recessions. The abstract of Bagwell and Staiger (2003) begins “Empirical studies have repeatedly documented the countercyclical nature of trade barriers”; for support, they provide citations of eight papers which “all conclude that the average level of protection tends to rise in recessions and fall in booms.” Meanwhile, Costinot (2009) states: “One very robust finding of the empirical literature on trade protection is the positive impact of unemployment on the level of trade barriers. The same pattern can be observed across industries, among countries, and over time.” …

The sample is split into two in the scatter-plots to the right. Above, the data show a positive relationship between 1906 and 1942; high unemployment in the 1930s tends to coincide with high tariffs. This relationship is strikingly reversed in the graph below, which scatters tariffs against unemployment for the period between 1946 and 1982. Since World War Two, high American unemployment seems to coincide with low American tariffs; protectionism seems to be, if anything, cyclical…

The goal of my recent work has been to show that, at least since World War II, protectionism has not been countercyclic. While this runs counter to conventional wisdom, the evidence is reasonably strong; no obvious measure of protectionism seems to be consistently or strongly countercyclic.

An interesting question occurs: why is protectionism no longer countercyclic? Before World War I (and in contrast to more recent times), tariffs contributed greatly to the national treasury, there was no GATT, and the Gold Standard ruled. But it turns out that protectionist policies of countries with large and small budget deficits seem to react similarly to business cycles, as do those of countries inside and outside the GATT/WTO, those with fixed and floating exchange rates, small and large countries, and open and closed countries. If there has been a shift in the cyclicality of protectionism since WWII, it’s hard to be sure why.

Perhaps, just perhaps, the switch in the cyclicality of protectionism – if there has indeed been one – is a triumph of modern economics. After all, there is considerable and strong consensus among economists that protectionism is generally bad for welfare. And there is no doubt that economists are aware and actively involved in combating countercyclic protectionism; this was especially visible during the Great Recession, which saw the successful launch of Global Trade Alert in June 2009. If – and it’s a big if – the efforts of the economic profession are part of the reason that protectionism is no longer countercyclic, then the profession deserves a collective pat on the back. But in that case the profession should also consider setting its sights higher. If economists have helped reduce the cyclicality of protectionism, then perhaps they should focus on actually reducing protectionism.

The structure of US trade barriers in two numbers

17 April 2012

US apparel and footwear imports as a percentage of total US imports: 5%

US apparel and footwear import duties as a percentage of total US import duties: 40%

From the American Apparel and Footwear Association, who chose to present those two numbers using two pie charts.

US abandons zeroing (for now?)

7 February 2012

I’m seeing a lot of news about the US federal government dropping its practice of zeroing in calculating antidumping duties. The WTO news item is uninformative. I don’t have time this week to follow the latest developments, so I’ll just drop links:


The US has reached deals with the European Union and Japan to drop a contentious practice in its anti-dumping calculations known as “zeroing”, ending a longstanding international trade dispute in order to prevent retaliation against American products. The agreements, signed in Geneva, will close the books on a fight that began in 2003 when the EU first filed a case against the US at the World Trade Organisation.

USTR press release:

After the WTO found that the United States had not brought its antidumping methodologies into compliance, the EU and Japan requested authorization to impose hundreds of millions of dollars of trade retaliation. Had these agreements not been reached today, substantial volumes of U.S. exports could have been closed out of markets in the EU and Japan, resulting in job loss for U.S. workers and financial loss for U.S. farms and businesses…

Under the agreements signed today, the United States will complete the process – which began in December 2010 – of ending the zeroing practices found in these disputes to be inconsistent with WTO rules. In return, the EU and Japan will drop their claims for trade retaliation.

Politics-oriented coverage from The Hill includes this detail: “the Obama administration said it will try to negotiate a future deal at the WTO to permit the practice.” Here’s Scott Lincicome on the news.

Pakistan grants India MFN status

8 November 2011

Pakistan has granted MFN status to India (with a list of excepted products). This accelerates liberalization between the two countries that had made some progress with the South Asian FTA (SAFTA). India granted Pakistan MFN status back in 1995. Here’s a State Bank of Pakistan research bulletin arguing for granting India MFN. Here’s a World Bank book on The Challenges and Potential of Pakistan-India Trade, which includes this paragraph:

In fact, the evidence on informal trade indicates that Pakistan has already granted something close to de facto MFN status to India. Traders exploit market arbitrage and the poor enforcement of antismuggling measures to import banned Indian products into Pakistan, hence with the change in the trade regime there could be additional revenues for the government for items that are likely to switch from the informal trade to formal trade.

How did Pakistan not grant India MFN status while being a WTO member since its inception in 1995? While MFN status has been relegated to “least favored nation” status in many circumstances, it seems that it still means something in this part of the world.

Creative protectionism: Argentina requires firm-level balanced trade

14 October 2011

The Economist describes some very unusual trade policies implemented by Argentina:

Argentine manufacturers have been booming ever since the 2001 crash. Over most of that period, a cheap peso has ensured their competitiveness. But since 2005 inflation has been in double digits. As the trade surplus has dwindled, Cristina Fernández, the president, has beefed up her industrial policy. According to Global Trade Alert, a database of restrictions on international commerce, Argentina now imposes more trade limitations deemed “harmful” than any country save Russia…

On the import side, Argentina cannot raise tariffs on its own because it belongs to the Mercosur customs union. So it is resorting to informal tools. Its main method is “non-automatic licensing”, a tactic recognised by the World Trade Organisation that lets countries delay imports for 60 days.

Argentina has made no pretence of honouring that time period. In January it expanded the list of products requiring licences from 400 to 600. It was a limit on phone imports that led Research in Motion to hire Brightstar to make BlackBerrys in Argentina (tax incentives then led the firm to Tierra del Fuego). Other affected goods include toys, pharmaceutical ingredients, tyres, fabrics, leather and farm machinery. On September 15th Argentina blocked imports of books, and over 1m piled up at the borders. Imports of Harley-Davidson motorcycles are frozen until 2012.

For firms that refuse to (or cannot) move production to Argentina, the government offers another option: deals to export goods worth at least as much as a company’s imports. In January customs officials stopped letting Nordenwagen import Porsches. Its cars languished in port for three months before the firm succumbed to a deal. Since its owners also possess Pulenta Estate, a vineyard, they agreed to launch a new line of mass-market wines for export, erasing the family’s trade deficit. They are also considering canning fruits. “It’s not the same margins as fine wines, but it takes time and investment. We’re trying to make it profitable,” says Eduardo Pulenta, the company’s export manager. “We’ll keep working to import cars. That’s what we know how to do.”


The policy was adopted in March. Here’s the Global Trade Alert entry from July, which relies on Spanish-language news stories. Here’s an English-language story from April. Thanks to Bernardo Astarloa, who passed along this Spanish-language story in Argentina’s La Nación. It details the products being exported by various car manufacturers in exchange for importing autos into Argentina:

  • Porsche: wine and olive oil
  • Hyundai: peanuts and soy biofuels
  • BMW: rice and leather upholstery
  • Alfa Romero: biofuel
  • Kia: auto parts, plastics, refrigerators
  • Mitsubishi: mineral water, pet food, peanuts
  • Nissan: biofuels and soy

An Argentinian commenter at the Economist post argues that these policies don’t add up to much, but their novelty is certainly notable!

Most protectionist post-war action?

12 August 2011

Fred Bergsten says:

“China has intervened massively in the foreign exchange markets for at least five years, buying at least $1 billion every day to keep the dollar strong and its own renminbi weak… This is by far the largest protectionist measure adopted by any country since the Second World War — and probably in all of history.”

All of history? What about periods of autarky?

What’s the effective rate of protection?

5 August 2011

Tariffs on intermediate inputs vs final goods:

Today I received some tax saving wisdom from a taxi driver in Ukraine. He told me that people who import cars to Ukraine sometimes cut the car in two separate pieces and carry it through the customs this way. By doing this, they save a fortune on import tax. A car carried in two pieces is seen as spare parts and therefore is taxed at a much lower rate than a normal car.



When in Ukraine, the car is welded back into one piece. After that, it’s usually sold locally at a good price. I looked through forums and apparently this is a common practise in developing countries, particularly in post-Soviet states such as Ukraine.

Via MR.