Planet Money: Why Did The Cow Cross The Border?

Lately, we’ve been nerding out about cattle. Specifically, about this one particular set of facts. Every year, the United States exports 500 million tons of beef to Mexico. But every year, the United States imports 500 million tons of beef from Mexico.

We heard this, and thought: How is that possible? Why are we trotting all these cows back and forth across the border? We sent a reporter to the border to find out. The answers to those questions explain a lot about how trade works.

Trump’s North American Trade Charade

US President Donald Trump’s goals in renegotiating the North American Free Trade Agreement were to reduce the current-account deficit and restore US manufacturing jobs. But the new United States-Mexico-Canada Agreement fails on both counts and will reduce US employment and weaken American producers’ position in international markets.

.. Meanwhile, US tariffs on imported steel and aluminum from Mexico and Canada remain in place.
.. Among other things, the USMCA will limit the number of vehicles that can be imported into the US, which effectively opens the door to managed trade. It is not yet clear how import quotas will be allocated; but almost any quota-allocation system will stifle competition and innovation by favoring incumbents over new market entrants.
.. Trump’s stated goals in renegotiating NAFTA – if “renegotiation” is the right word for when a bully attacks his smaller neighbors until they accede to his demands – were to reduce the bilateral US trade deficits with Canada and Mexico and “bring good jobs back home.” By those criteria, the new agreement is a spectacular failure. As any economist knows, a deficit in goods and services is a macroeconomic phenomenon reflecting a country’s domestic expenditures and savings. For the US to shrink its overall deficit, it must either reduce expenditures or increase savings. Nothing in the USMCA does that.

.. Moreover, the deal will probably destroy more US jobs than it creates. The new rules-of-origin (ROO) benchmark requiring that 75% of an imported vehicle be produced in North America (up from 62.5% under NAFTA) is likely to reduce employment by raising the costs of production.
.. In fact, automakers in Asia and Europe are probably ecstatic at the prospect of increased sales. They have gained an edge over North American producers in third countries, and perhaps even in the US market itself.
.. As for foreign-owned automakers operating in the US, they will almost certainly offshore any facilities that are producing inputs destined for foreign markets. This diversion, combined with the higher price of cars in the US, will further reduce overall US auto production, and thus auto-sector employment.
.. even if US parts producers were to expand production, they would be inclined to automate as much of it as possible, rather than hire more workers.

.. One of NAFTA’s major benefits was that it allowed for integrated supply chains across North America. US automakers gained access to labor-intensive parts at lower cost from Mexico, and Mexican producers gained access to less expensive capital-intensive parts from the US. As a result, the North American auto industry improved its competitive position internationally. The USMCA will not destroy NAFTA’s efficient supply chains, but it will raise their costs, thus undercutting that advantage.

.. in the long run, it will likely

  • reduce US employment,
  • shrink North America’s share of the global auto market, and
  • undermine America’s credibility on international trade issues –

all while failing to reduce the US current-account deficit.

.. other governments will now have to ask themselves why they should negotiate with a country that tears up settled agreements at will.

.. Even if forcing friends and allies to the negotiating table actually benefited US trade, it still would not be worth the loss of US soft power.

 

Europe’s Trade Victory in Washington

US President Donald Trump holds himself out as a brilliant negotiator, and his supporters regard his trade policy as a perfect example of his success. But in his recent trade talks with the Europeans, Trump was clearly out of his depth.

.. The two sides agreed “to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” It seemed like a remarkable U-turn for Trump, who, until recently, was threatening the European Union with higher tariffs – and extolling the value of trade tariffs (which are essentially taxes on imported goods) more generally. He even called the EU a “foe” as recently as June.
Substantive follow-through on the joint US-EU statement would represent a major policy shift for the Trump administration. But this is no triumph for Trump; rather, he seems to have been outmaneuvered by adroit European diplomats.
.. what Trump and Juncker announced was essentially a pledge to work toward exactly the kind of trade agreement that the Obama administration was negotiating with the Europeans from 2013 through the end of 2016. Work on that earlier version, known as the Transatlantic Trade and Investment Partnership (TTIP), was suspended following Trump’s inauguration.
.. Restarting the TTIP negotiation is a big win for Juncker
.. It is also remarkable that Juncker managed to get Trump to emphasize working with the World Trade Organization to resolve issues regarding 
.. What did Trump get from the Europeans, other than a return to a trade negotiation straight out of the Obama era? Trump claimed, at the press conference and subsequently, that he won a pledge from Juncker to buy more natural gas and “a lot of soybeans.” Some media coverage even suggested that the Europeans had made concessions. But that interpretation does not fit the facts.
.. Regarding potential US exports of liquefied natural gas (LNG) to Europe, the Europeans have long been keen to increase this trade. The hold-up is US restrictions on energy exports.
.. If there is any concession promised by the joint statement, it is from the Trump administration on this issue. This was made explicit in the fact sheetthat the White House subsequently issued: “the United States will make it easier for the EU to purchase liquefied natural gas.”
At the same time, Juncker does not buy soybeans – the European Commission has no such budget, and any such imports would ultimately be a private-sector decision.
.. . The price of US soybeans has fallen significantly more than has the price of Brazilian soybeans, as Brazil is not subject to the new Chinese tariff. Given this, it makes sense that the European private sector will buy more US soybeans, regardless of what Juncker says or does.
.. there was no European concession at the White House on this issue – just a clever restatement of market realities.
.. The soybean pledge has some superficial political appeal, as growers have found themselves caught in the crossfire of Trump’s trade war with China. The cost is real, and the Trump administration recently promised up to $12 billion to help affected agribusinesses.

However, this entire potential cost is due to the Trump administration’s disruptive policies and represents a scandalous waste of taxpayer money – an amount equal to about one-third of the entire annual budget of the US National Institutes of Health.

.. Trump holds himself out as a brilliant negotiator, and his supporters regard his trade policy as a perfect example of his success. But in his recent talks with the Europeans, Trump was clearly out of his depth.

Who Cares about Truth Anymore, Anyway?

For Plato/Socrates, the philosopher is the guy who breaks free of the cave’s shackles and sees the reality behind the shadows.

.. Consider the articles of impeachment filed against Rod Rosenstein this week. I am not disputing that there are serious people with serious complaints about Rosenstein. But this was not the work of serious people. I would think that reasonable people could agree that impeaching any government official is a serious thing. Impeaching this official in particular, given the stakes and the controversies associated with him, is a particularly serious affair.

.. Impeachment, moreover, is not an appropriate remedy for Rosenstein’s alleged transgression of insufficient transparency. He, after all, works for the president, who is ultimately responsible for the information the Justice Department gives to Congress and who can order Rosenstein to disclose more on threat of removal. Congress is overstepping its authority in micromanaging the executive branch by seeking to impeach an official for refusing to turn over information that the president has not ordered him to turn over. Congress appears to have only once used the impeachment tool against an executive-branch official other than the president — in 1876, when it impeached Secretary of War William Belknap after he resigned for accepting bribes and kickbacks in office.

If the impeachers were seriously outraged — truly, seriously, outraged — by the executive branch’s behavior, they might be moving to impeach the executive.

.. Or, at the very least, they would be imploring the president to order Rosenstein to hand over these materials or to fire Rosenstein for refusing to do so.

They’re not doing that. Why? Because they’re putting on a show. This impeachment effort is a prop in the passion play, a talking point for Hannity’s opening monologues and the president’s Twitter feed.

.. for Trump, when we buy things from abroad — and by we, I mean individual citizens and firms in a free country — we are literally being “robbed.” Jacob Sullum on the president’s Iowa speech yesterday:

“Our trade deficit ballooned to $817 billion,” Donald Trump said during a speech to steelworkers in Granite City, Illinois, yesterday. “Think of that. We lost $817 billion a year over the last number of years in trade. In other words, if we didn’t trade, we’d save a hell of a lot of money.”

According to the U.S. Census Bureau, the president exaggerated the size of the 2017 trade deficit by 48 percent. But that’s a mere quibble compared to his fundamental misunderstanding of what that number means, which in turn reflects a zero-sum view of economic exchange that does not bode well for the outcome of a tariff war supposedly aimed at promoting free trade.

.. Trump’s trade defenders offer a verbal Escher drawing in defense of Trump’s trade policies. “Tariffs are great!” they say. “But Trump doesn’t really believe in tariffs, he wants “free trade,’” they add as well.Well if tariffs are great, why favor free trade? Why favor free trade if tariffs would save us a hell of a lot of money?

.. And the economists who say “that’s not how any of this works”are reduced to the nitpickers who complain that the most implausible thing about the TV series 24 is that the traffic in L.A. would make the whole story impossible. The nitpickers are right — it’s just that no one wants to hear it.

.. charismatic personalities have replaced — or are replacing — traditional institutions as sources of information, morality, and politics. There’s no better example in the moment than Alexandria Ocasio-Cortez, who strikes me as a kind of lame reimagining of a young Barack Obama with a woman in the lead. Cortez doesn’t know a lot about economics, beyond some handy buzz-phrases and shibboleths. She likes to brag about how she knows what the Gini coefficient is but thinks unemployment is low because people are working two jobs.