US Border Patrol Agent Elizier Vasquez:
We’re fortunate enough to live in a country where there are lots of opportunities. And most of the people who we run into out here want to make that dream happen. Unfortunately, it’s our job to stop that dream. That’s what we do on an everyday basis.
Read Malia Politzer’s Reason piece on the US-Mexico border experience.
Dominick Salvatore – “Economic Effects of NAFTA on Mexico”
[M]easuring the economic effects of NAFTA on Mexico based on the net number of jobs created or destroyed or by comparing Mexican growth before and after NAFTA is not appropriate… The correct way to measure the effects of a FTA on member nations, instead, is by counterfactual simulation of its effect on intra-FTA trade and growth. That is, by how much intra-FTA trade and growth is higher with the FTA as compared with the situation without the FTA. Performing valid counterfactual simulations are fraught with difficulties, however…
I will begin, however, with a more down-to-earth and less elegant but still legitimate method of estimating the economic effects of NAFTA on Mexico by comparing (1) the growth of intra-Mexico-US trade, on the one hand, to the growth of total Mexican trade, on the other, during the past dozen years of NAFTA’s operation and (2) by comparing the flow foreign direct investment (FDI) from the United States to Mexico to total FDI to Mexico. I will then present the results of a counterfactual simulation of the effect of NAFTA on trade, FDI, growth, inflation, and other economic and financial variables…
[T]he benefits flowing to Mexico seem to have resulted more from the general liberalization of trade and investments than directly from NAFTA, as such. That is, the general liberalization of trade and investments that accompanied NAFTA led to a general increase in Mexican exports and inflows of FDI, which increased specialization, competition, productivity and efficiency in Mexico. But the increase in total Mexican exports and FDI inflows from the rest of the world was as large or larger than that from the United States. Furthermore, most of the (indirect) benefits that Mexico received from NAFTA occurred in the years immediately preceding the creation of NAFTA rather than in the years soon after its creation.
This paper assesses the likely gains in market access for LDCs and developing countries
following proposals for tariff cuts under the Doha Round. This was analyzed by simulating changes in import demand by the United States and the European Union, following cuts in the MFN tariff rates of around 40 percent. In contrast to other studies, our model incorporates preference utilization rates rather than assuming that preferences are fully utilized. Since preference utilization rates are as low as 50 percent for some countries, this is an important contribution in order to avoid over-estimating losses from preference erosion. We take into account all available tariff, trade, and utilization information for all products.The results show that a cut in MFN tariffs by the United States and the European Union leads
to improved access to their markets for many developing countries that more than offsets losses due to preference erosion. The small numbers of developing countries that are likely to lose market access as a result of multilateral tariff cuts are the ones that receive very large benefits under existing preference schemes. This result can be explained by noting that currently many developing countries actually have inferior market access to developed countries: average tariffs on non-African LDCs’ exports to the United States are higher than those on developed countries (13.1 percent compared with 1.2 percent).
A pair of CGD papers on aid and institutions recently caught my eye:
In “Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa,” Nancy Birdsall argues that Africa is better characterized as being in an institutional trap than a poverty trap, and that aid donors need to consider their impact upon recipients’ aid dependency, fiscal management, and government hiring of skilled personnel.
In “An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa,” Todd Moss, Gunilla Pettersson, and Nicolas van de Walle summarize literature describing the negative impact of foreign assistance upon long-term institutional development and recommend that donors avoid directly funding poor governments so as to preserve their incentives to build more effective public institutions. Development assistance could instead fund the eradication of endemic diseases, peacekeeping activities, and global public goods.
Gerard Greenfield, Core Labor Standards in the WTO, Working USA, Summer 2001:
The U.S. government has signed only one of the five core labor standards proposed under the social clause. It signed the Abolition of Forced Labor Convention in 1991 (thirty-four years after the convention was introduced) and has still not signed the ILO conventions on freedom of association, the right to organize and bargain collectively, equal pay for equal work, and minimum wages.
Even this core ILO convention on forced labor is constantly violated in the United States. The U.S. prison system has been privatized and commercialized so that prisoners are a cheap source of labor, making products for the consumer market, and a growing source of corporate profit. But since these prison-made goods are not exported, this practice will never be challenged by a social clause in the WTO. The clause is concerned only with goods that are traded internationally.
Since core labor standards haven’t been incorporated into the WTO and are unlikely to be any time soon, why does this matter? Democrats’ demands in renewing trade promotion authority raise the same thorny issues, write Gary Hufbauer and Theodore Moran in the FT:
An inconvenient truth poses a huge obstacle to the proposed “bargain”: US labour laws are either openly inconsistent with core ILO standards, or they could be challenged by lawyers if ILO standards trumped established statutes and long-standing interpretations. A trade agreement that enthroned ILO standards would not only alter federal labour law, it would also override state laws – triggering a constitutional howl from Sacramento to Albany. The practical effect would be to stop US trade negotiations. Few legislators would want to subordinate huge swaths of labour law to broad principles enunciated in trade agreements.
Joel Trachtman seems to agree, while Henry Farrell isn’t impressed.
Voice on America posted excerpts from an interview with CGD fellow Todd Moss yesterday:
“Single solutions (to poverty in Africa) are tempting: more aid, more democracy, eradicate corruption, get prices right, get better leadership. But inevitably, these single answers leave true believers disheartened. In the book I call Africa ‘the graveyard of silver bullets’,” quips Todd Moss, a respected international economist and author of the recently-released book, ‘African Development: Making Sense of the Issues and Actors’…
“The saintly reputation in some circles of NGO’s is sometimes underserved. Many NGO’s loudly demand to be heard and claim to speak for the people, but are themselves often accountable to nobody.”…
Moss labels the aid industry in Africa a “mess of confused ideas” and “dysfunctional agencies” that is in itself part of Africa’s problem.
Much of the data on which efforts at development in Africa are based is of “pretty bad quality”, says Moss.
“Even very basic information such as GDP, exports, number of children in school, or how much a particular country spends on hospitals, is little more than an educated guess. Sometimes formal surveys are done – through a census or other formal agencies – but these are a lot more infrequent than you would think,” he warns…
“As a whole there is still no clear way to turn Africa around. Even if its recognized that external efforts can only do so much, and that change must come from within, the development community still really does not know how to encourage that process. In short, we simply do not know how to make Chad more like South Korea.”
It’s not all bad news. Read more. Unfortunately, the audio link is broken at the moment.
Non-sequitars from the Minnesota Fair Trade Coalition:
The damage of the NAFTA-WTO model hits all of us, not workers whose job was sent to a low-wage nation: U.S. productivity jumped 80% and GDP rose over 160% since Fast Track was established, but U.S. workers’ wages rose less than 10%! The average worker’s hourly wage has only gone up a nickel from 1973 to 2006! Since 2001, the U.S. economy grew 15% and productivity 16%, while wages have only gone up one percent.
And trade explains all of those facts, huh?
Before Fast Track, the U.S. enjoyed balanced trade. In every year but one since we have had deficits. NAFTA and WTO boosters said the deals would fix the deficit. Instead NAFTA turned our trade surplus with Mexico into a massive deficit and a small deficit with Canada jumped. And everyone knows our China trade deficit exploded with that nation’s entry into WTO.
And everyone knows that the United States didn’t make many new trade concessions to China when it joined the WTO, so it’s strange to imply that the trade deficit is a function of China’s WTO membership rather than China’s economic growth and global integration.
If you are able to distinguish between correlation and causation, this press release falls apart quickly.
Fredrik Erixon asks: Why are trade and child labor tied together in the public mind?
The United States trade negotiators have been urging China to play a larger role in the Doha round, but I doubt this was what they were looking for:
The main stumbling block in the Doha Round of global trade talks is the failure of the United States and European Union to make substantial concessions on agriculture, China’s commerce minister said on Monday… ”The European Union and the United States, as the world’s two largest traders, have yet to make substantial concessions in terms of high import tariffs on agricultural products, export subsidies for agriculture and the huge domestic support for their agricultural products,” Mr Bo said.
Mr Bo, speaking on the sidelines of the annual session of the National People’s Congress, the largely ceremonial parliament, also urged Japan to do more to reduce its tariffs on farm goods, which he said were nearly three times higher than China’s.
China’s export profile is a fascinating topic – hence the frequent debate and discussion. The latest contribution is by the FT‘s Guy de Jonquieres:
Now China’s manufacturing miracle is entering a second phase, as producers start to drive aggressively up-market. Exports of aircraft parts, ships, microchips and cars all grew by about 70 per cent last year, more than four times faster than traditional exports such as shoes and clothing. At the same time, it is set on becoming more than a processing economy that just screws together components made elsewhere. With official backing, industries such as steel, vehicles and electronics are steadily raising the value added locally by performing more advanced processes and making more parts in China.
That description echoes the message the FT‘s Richard McGregor has pushed repeatedly, but how much does the growth rate of sophisticated exports tell us about China’s development? China exports a lot of labor-intensive manufactures, so we would be shocked if their growth rate was anywhere near 70 percent. Reporting the level as well as the growth rate would substantially aid our understanding of China’s move up the value-added chain.
Newspapers are unlikely to print stories proclaiming “China’s exports not as sophisticated as some claim,” so we have to turn to the academic literature for contrary assessments. In a working paper titled “Measuring the Technology Content of China’s Exports,” Bin Xu argues that China’s export profile has not been so remarkable:
First, we reexamine the finding of Rodrik (2006) that China is an outlier in terms of technology sophistication of exports. Without adjusting product quality in the measurement, our data confirms Rodrik’s finding: China is an outlier in every year from 1989 to 2000. However, using our quality-adjusted measure of TCE [technology content of exports], China disappeared to be an outlier after the mid 1990s. This result highlights the importance of considering the product quality dimension in evaluating the technology content of China’s exports. By ignoring the low quality nature of Chinese exports, Rodrik (2006) overestimated the technology sophistication of Chinese exports.
Second, we find that the product-level TCE of China is significantly lower than that of a country at the same development level in every year from 1991 to 2001. Moreover, the gap had been widening steadily during the period. Low TCE at the product level is driven by low product quality. This result is a mirror image of Schott’s (2006) finding of increasing price discounts of Chinese exports.
In the paper we identify several new features that help to explain the pattern and trend of the technology content of Chinese exports. First, at both the industry and product levels, we find a positive correlation between the growth rate of an industry/product’s export share (in China’s total exports) and its TCE level. On average, industries/products with higher TCE levels expanded more in exports.
Tragically, econometric analyses will always lag behind anecdotes – Xu’s work covers 1989-2001. So the recent FT reports may be right, but it’d be nice if their coverage were more informative — please describe not only the trend but also the current state of play! Similarly, Brad Setser casts his assessment in terms such as China “increasingly has the export and industrial production profile of a middle income country” and “China no longer just imports parts… for final assembly” rather than commenting on the levels.
When will China actually have the export profile of a middle-income country? When will less than X percent of China’s exports be labor-intensive low-quality manufactures? Obviously it is difficult to construct, measure, and obtain data needed to answer such questions. That’s one reason why the discussion often centers upon more easily accessed numbers, such as those used by the FT reporters. But we would learn a lot by contextualizing them with a few more pieces of information.
[Update: Emmanuel of IPE Zone points to this World Bank update. It also describes the increased importance of non-processing exports without reference to level.]
Trade Diversion 