Anti-Dumping Laws in Practice: Commerce Reconsiders Tomato Trade Agreement

In recent weeks, we have come across several pro-free trade arguments that cite anti-dumping laws as protectionism in disguise. Today, NPR reports that the U.S. Department of Commerce is reconsidering a trade agreement with Mexico covering tomato imports. The story is a prime example of how trade policies are defined as much by politics as economic theory.

Central to this issue is the definition of fair competition. The agreement in question sets minimum prices for imported tomatoes, labeling all that do not meet this minimum as “lower than fair market value.” In considering ending the agreement, the Commerce Department is considering reopening an investigation into whether tomatoes imported from Mexico do, in fact, constitute “dumping.”

Interest group politics is integral to Commerce’s action. As the NPR article highlights, the state of Florida is home to many American tomato producers. Florida is a key swing state in the upcoming election. Thus, elected officials are likely to take note of its opinions.

In a more subtle way, Florida farmers might be the corollary to the Ohio manufacturing workers that our recent analysis of campaign ads highlighted. Florida farmers enjoy disproportionate political influence due to their fortuitous electoral location. Their trade battle against Mexican tomato producers will likely raise overall tomato prices in the United States; however, like Ohio manufacturing workers, the tomato producers are more likely to passionately advocate for eliminating the agreement than consumers are to actively support it. As a result, the political pressure that Florida growers exert on the Commerce Department could lead to stricter anti-dumping laws and restricted trade.

Unfortunately, scrapping this agreement is also likely to lead to heightened trade tensions with Mexico and increasing tomato prices. I am less inclined than most to accept benefits of increased trade prima facie; however, without a complete analysis of the effects of declining domestic tomato production industry on the region and nation, I would still gamble that the predicted costs of these proposed trade restrictions may outweigh their potential benefits.       

Chinese Steel: Good For American Jobs?

A recent Wall Street Journal article, “Chinese Slowdown Takes Toll on Appalachian Coal Mines” exposes an example of adjustment to trade with China that, at least temporarily, benefited blue-collar American workers. Over the past eight years, Chinese reliance on American coal in steel production has fueled the Appalachian economy. However, the decline of this demand signals that volatility may be a painful consequence for American workers recently exposed to international markets.

The Appalachian region remains rich in metallurgical coal, which is used to produce steel. Kris Maher’s article explains how Chinese demand for steel energized the Appalachian coal industry in recent years, leading to skyrocketing prices as well as well-paying middle-class jobs. From 2004 through 2011, Chinese industrialization fueled demand for American metallurgical coal, largely protecting the industry. This came at an important time for American coalminers, as demand for the product as a domestic energy source has recently fallen.

Many West Virginia workers benefited from this foreign demand for metallurgical coal. One miner cited in the article revealed bringing home a six-figure income in 2011, far more than he will make as he attempts to become a physical education teacher after returning to college. Today, Chinese demand for metallurgical coal seems to be on the decline after a 2012 peak. With declining demand for thermal coal (used as a domestic energy source), the author unsurprisingly predicts difficult economic times for the region moving forward.

In this case, both capital and labor experienced gains from trade. As Rogowski would predict, China’s willingness to buy coal was an easy sell to both coal companies and their employees. Chinese industrialization provided new demand for American coal, just as domestic demand for the product reached a new low. However, the representativeness of this scenario for the benefits of free trade should not be exaggerated. Many of those coalminers who benefited from Chinese demand for coal are now looking for jobs. New susceptibility to increases and decreases in international demand has made it more difficult to predict industry downturns.

America: Protecting Intellectual Property or Kicking Away the Ladder?

The recent Romney campaign ad that we viewed in class raises the issue of China’s assault on American intellectual property rights. The ad, which portrays blueprints for aircraft and computers being transferred between the countries, argues that American lost two million jobs as a result of this “cheating.” Undoubtedly, over the next several weeks, the two camps will continue to battle back and forth over who can be tougher on China; however, viewing American development from a broader historical perspective, we might just be, as Stiglitz suggests, kicking away the ladder that brought us to the top.

At the turn of the nineteenth century, America was a newborn nation. This was especially true with regard to its economic development. However, thanks to pioneering capitalists like Samuel Slater and Francis Cabot Lowell, the country would soon begin an industrial revolution. Slater, a British machinist, established textile mills in Rhode Island during the 1790s. Lowell, a merchant, brought similar technology to Massachusetts. More than simply establishing factories, these men laid the foundations of American industrialization.

These two American champions of progress, however, were considered traitors (in Slater’s case, at least, since he was a Brit) and thieves. Great Britain, recognizing its industrial monopoly, had prohibited the removal of any plans, models, blueprints, etc. from the country. This attempt to protect intellectual property failed because the two men mentioned in this post carried their acquired knowledge and skills of the British manufacturing system to the United States. They transferred intellectual property in its purest sense, and in so doing established the foundation of America’s early nineteenth century economic progress.  

Intellectual property is difficult to design. At what point does a system lose the value of its originality and become simply a collection of parts and machinery that can be replicated? Or, as Wen stated in class on Tuesday, when is a computer simply a square with rounded edges? If America outlines intellectual property too broadly, it risks undermining the basis of its original economic progression. Perhaps, some will say, but what does that matter? History can’t be changed, but the future can. Establishing future standards that are incongruent with those to which we have held ourselves to in the past, however, is certainly an example of how we are kicking out the ladder once we have made it to the top.

Middle-Class Prosperity: The Special Interest of Unions

Today’s liberals view the decline of the American labor movement through a tragic lens. Although nostalgic for the Great Compression, a period of income convergence lasting from the 1940s through the 1970s (which coincided with high rates of unionization), these progressives accept globalization as an imminent death sentence for American unions. Even traditionally supportive Democrats stomach this impending elimination of collective bargaining out of a belief that industrialized nations no longer have a need for such organizations. This isn’t the Gilded Age, after all. But continued decline of unionization poses a dangerous scenario for both blue-collar union members and society as a whole.    

The recent strike at Illinois’ Caterpillar Inc. symbolizes a larger story of the decline of union power. Despite record profits, Caterpillar instituted a wage freeze. After a three-month-long strike, union workers ultimately agreed to almost all company-proposed concessions. For many, the showdown represented the broader decline of union influence. No longer did companies even require financial burdens to hold down wages – they simply needed to refer to the aim of future global competiveness. Union workers could either accept lower wages or cede their jobs to other countries. At least the workers could enjoy the cheaper goods that resulted from these changes. As Harold Meyerson of the progressive American Prospect frames this situation in the magazine’s September/October edition, “For many Americans, the death of labor would doubtless seem the natural order of things, the dinosaur finally shuffling off to the graveyard.” The story is not uncommon. In a May 2012 Foreign Affairs article, sociologists Bruce Western and Jake Rosenfeld similarly expressed that “the story of labor’s decline is often told with an air of inevitability; unions became outmoded as American capitalism became more dynamic.”

Fortunately for all Americans, the labor movement is not yet buried. Global labor competition has undoubtedly weakened the power of unions. In many cases, the most seriously weakened have been unions that were the pride of American labor in the first half of the century: those representing automobile workers, steelworkers, and other factory workers. But, as Meyerson argues, building on the Alan Blinder article that we read for class, while many jobs can now be outsourced, more than 100 million jobs cannot be shipped abroad (these include barbers, cooks, construction workers, bus drivers, etc.). A new union movement needs to focus on these geographically secure jobs.

A new union movement could also better serve the interests of workers by adopting a more European-style unionism. As Martin Wolf mentioned, Scandinavian unions speak on behalf of the community as a whole while American unions – comprising only a small segment of the private workforce – speak primarily on behalf of their members. Adopting this society-wide approach to unionization would not only take adjustments on the part of unions themselves, but would also require new legislation allowing industry-wide organization. If unions represented larger portions of the population, they could focus on broad issues like national competitiveness.

Unions serve as important institutional forces in restraining income inequality and promoting income growth in all quintiles. As Thomas Kochan wrote in a March issue of the Harvard Business Review, “The decline in unions accounts for about one-third of the increase in income inequality for about one-third of the increase in income inequality since the 1980s. Nothing else as filled the void in setting wages or disciplining employer practices.” Richard Freeman’s book America Works details this phenomenon: with the decline of unions, productivity has increased while wages have stagnated. Freeman calculates that the influence of organized labor in the overall economy in 1980 decreased GDP by 1/5 to 2/5 of one percent. I would agree with Freeman that this is a small price to pay for economic stability, a better-trained workforce, provision of fringe benefits to both union and non-union employees, and reduced income inequality.

Unions have been critical to the development of America’s economic structure, allowing a strong middle-class to develop in the twentieth century; however, the role of unions has not diminished, especially in a time of ever-increasing income inequality. Labor organizations do need to adjust to the changes brought by globalization, especially by focusing on representing employees in those service sectors not vulnerable to outsourcing. Finally, changes to labor law could allow more expansive forms of organization, such as those that many European nations have built. These unions can more effectively represent the interests of society as a whole.

Occupy's One Year Anniversary

One year ago today, protesters gathered in New York’s Zuccotti Park, marking the start of the ongoing Occupy Wall Street movement. In the weeks following this debut, they created what was a frequently dramatic news story. The protestors called attention to a deepening yet unaddressed phenomenon: the income gap between the wealthiest citizens and the “other 99%.” In the year since the start of OWS, however, this issue has yet to be solved.

As the New York Times reports, recent Census Bureau report shows that the income gap in the United States increased again during 2011. While incomes for households in the top quintile increased by 1.6%, incomes declined for middle-class Americans and stagnated for those in the bottom quintile. The article points to declining demand for American manufacturing to explain why middle-income earners were hardest hit in 2011.

Another explanation for this phenomenon might be the declining effect of taxes and transfers on market inequality. According to Congressional Budget Office data, taxes and transfers reduced market inequality by 23.4% in 1979, but only by 17.1% in 2007. Simultaneously, the share of income belonging to the wealthiest one percent of Americans increased from 7.7% in 1979 to 17.1% in 2007.

Since the start of Occupy Wall Street, the inequality crisis has received a lot of attention. Nonetheless, these recent data show that the issue is worsening rather than improving.