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Friday afternoon, US Secretary of Commerce Wilbur Ross announced a new White House Executive Order to study “violations and abuses” of US trade agreements. The EO itself is hardly remarkable – President Trump’s first 100 Days have featured numerous executive demands for studies, investigations and reports on various international trade issues (without any actual anti-trade actions, so far) – but what was remarkable was the substance of Ross’ speech itself, which appeared to be unaware of certain basic facts about US trade agreements. In this regard, Ross’ statements raise questions about not only the White House’s basic research competence, but also what they’ll eventually produce in their final “trade agreement abuses” report.

A full accounting of the errors and omissions in Ross’ press briefing is beyond the scope of this short blog post, but the four most basic are below. (My Cato colleague Simon Lester handles some of Ross’ confusion surrounding basic World Trade Organization rules and procedures in a separate blog post, so be sure to check that out too.)

ROSS: And as far as I can tell there has never been a systematic evaluation of what has been the impact of the WTO agreements on the country as an integrated whole.

Actually, the US government has produced dozens of studies on the impact of US trade agreements, including the WTO Agreements, over the last decade or so.  Indeed, just last year both the US International Trade Commission and Congressional Budget Office produced comprehensive reviews of how our trade agreements have affected the US economy as a whole, each finding that our trade agreements have produced small but significant net benefits for the US economy in terms of GDP, employment, wages and so forth.  Furthermore, the Government Accountability Office has repeatedly examined the specific issue of US trade agreement enforcement – see, for example: here, here and here – finding limited concerns, while the USDA has often examined the benefits of US trade agreements for the American farm sector.  I could go on, but I think you get the idea.

ROSS: But there are those problems that I mentioned, then there’s also the structural problem of the [WTO] dispute resolution mechanism.  Takes a very long time, and given the composition of the WTO panels, often we’re defeated when people come and appeal it.  Because if the people on the panel are mostly people who are doing the same thing as what you’re complaining about, it’s a little bit hard to get them to vote for you.

WTO dispute settlement does, indeed, suffer from delays – a problem brought about by high use and a staffing crunch – but it’s beyond a stretch to imply, as Ross does here, that it harbors some sort of institutional bias against the United States.  In fact, the United States is very successful in WTO dispute settlement –more so than most other Members.  As my colleague Dan Ikenson noted recently–

The “WTO” doesn’t file complaints at the WTO. WTO members do. And they do so when they are aggrieved and when they are as close as possible to 100% certain that they will prevail if the matter goes all the way through dispute settlement. As a result, complainants prevail almost all of the time – on 90% of adjudicated issues. When the United States has been a complainant (as it has in 114 of 522 WTO disputes over 22 years – more than any other WTO member) it has prevailed on 91% of adjudicated issues. When the United States is a respondent (as it has been in 129 cases – more than any other WTO member), it has lost on 89% of adjudicated issues.

Just as importantly, the United States’ win/loss records in dispute settlement are also good in comparison to other WTO Members.  According to a recent Bloomberg analysis, the United States actually wins more often than average and loses less often than average and has a far better “loss rate” (i.e., we successfully defend more often) than the EU, Japan and China.  Furthermore, the United States itself has a less-than-stellar record of non-compliance with the WTO Agreements and adverse WTO dispute settlement decisions.  How these hard numbers can possibly reflect, as Ross asserts, a “structural problem” with the WTO is beyond me.

ROSS: And I think that points out one of the issues with our current relationship with the World Trade, namely Mexico and others have had very big external tariffs on many, many goods.  U.S. is the least protectionist country.  Many goods come in totally free, and others have little, tiny tariffs, like 2.5 percent.  Countries like Mexico frequently have 15, 20 percent, even more than 20 percent tariffs.

By no conceivable measure is the United States “the least protectionist country” in the world. As I noted last fall, for example, “according to a recent analysis by Credit Suisse, when you add up all forms of trade barriers imposed between 1990 and 2013, the biggest protectionist in the world isn’t China or Mexico but none other than… the United States.”  This includes the 370+ protective duties – often over 100%! – through our trade remedy (antidumping and countervailing duty) laws and our “Buy American” rules for federal procurement – measures that the Trump administration has expressly targeted for expansion.  Even the United States’ basic tariff rates aren’t the world’s lowest – not even close, actually.  As Ramesh Ponnuru recently noted, “[t]he World Bank reports that we have higher average tariff rates than Canada, Israel, the European Union, Japan, and many other countries. Our average tariff level is just slightly below the developed-world average.”  (Using a different tariff metric, the WTO also finds that the United States is not the best.) We also are about average when it comes to restrictions on trade in services.

ROSS: What are some of the problems under WTO?  Its 160-some-odd countries are participants in the WTO, and the vast majority of those are countries that export to us, and in most cases, export more than they buy from us.

The Trump administration’s obsession with trade deficits and balanced trade is well-known at this point, so I won’t rehash all of that here.  Nevertheless, calling the US trade balance a “problem under the WTO” defies the most basic of economics.  In particular, I highly recommend this recent (very short!) explainer from the San Francisco Federal Reserve on what drives the US trade balance and whether trade deficits are really a “problem” per se.  (Spoiler: it’s not the WTO Agreements and no).

There are plenty of substantive questions surrounding the alleged “violation and abuse” of US trade agreements.  Of the top of my head: Are such violations and abuses really pervasive?  Do they actually harm the economy? Either way, what should we do about them? And, finally, is the United States really so innocent here? As such, an assessment of international trade agreement violations and abuses is, in theory, worthy of undertaking.  If the aforementioned errors are any indication, however, the result of the new US investigation won’t provide many good answers.

Congress passed the Fair Labor Standards Act (FLSA) in 1938 to regulate certain employment practices between employers and employees. In order to put the law into effect, Congress delegated authority to the Department of Labor (DOL) to enforce the statute’s provisions. It’s a fundamental legal principle, however, that an executive-branch agency may only regulate those provisions that Congress has actually put into its authorizing statute. Where Congress has not address a certain practice, the agency has no authority to regulate and the practice is presumptively legal.

Fast forward almost 80 years. E.I. Du Pont De Nemours and Co. (better known as DuPont), following standard industry practice, paid their employees for otherwise noncompensable meal breaks, using that compensation as credit towards the time employees spent performing certain work duties (especially “donning and duffing” special clothing and gear) before and after their shifts. The employees sued DuPont in federal court, arguing that the FLSA forbids this type of crediting and that they must be paid overtime pay for the donning/duffing time.

The district court disagreed, finding that the statute was silent about the practice and so DuPont had done nothing illegal under the FLSA. On appeal, the U.S. Court of Appeals for the Third Circuit invited DOL to file an amicus brief regarding whether DuPont had violated the law—essentially allowing it to regulate. DOL admitted in its brief that the FLSA was silent on the issue, but argue that the statute implicitly forbade the practice. The Third Circuit then adopted that view by granting DOL Skidmore deference (by which judges defer to agency interpretations according to their persuasiveness), and reversed the district court’s ruling.

Cato has now filed an amicus brief supporting DuPont’s petition for Supreme Court review. We argue that Third Circuit ignored the basic administrative-law and constitutional axiom that agencies can only exercise the powers delegated to them. Indeed, under Supreme Court separation-of-powers precedent, Congress must give executive agencies at least some “intelligible principle” to follow. The Third Circuit, however, would give any agency a virtually unlimited power to write any regulations it thinks a statute should cover, without any congressional authority.

Moreover, when the court accorded Skidmore deference to the DOL amicus brief, it violated DuPont’s due process rights for two reasons. First, this was the first time in the FLSA’s long history that DOL had ever interpreted the statute to forbid the practice at issue—and two other circuit courts had already ruled that the practice was legal—so DuPont was denied fair notice. Second, by inviting a nonparty government agency into the litigation and deferring to its view, the court decided the case with bias towards one of the parties before it.

The Supreme Court should take DuPont v. Smiley and explain that the Constitution’s separation of powers does not allow such judicial enabling of executive mischief. Administrative agencies simply cannot take it upon themselves to rewrite duly enacted legislation and then thrust their statutory revisions on private litigants for the first time in litigation.

Following Trump’s electoral success in rustbelt states, the spotlight has been on white, rural, post-industrial poverty. J.D. Vance, author of the now-famous memoir Hillbilly Elegy, discussed some possible explanations for rural poverty yesterday in a podcast. In the interview, he suggests that geographic (im)mobility is partly to blame for the erosion of areas like Appalachia: the poor simply aren’t migrating to jobs. 

Vance is right that Americans have limited interest in relocating, and are relocating less than before. According to calculations[1] using University of Chicago data, the proportion of individuals unwilling to relocate for work is high: 42% of Americans say they will not move within the United States for work, and 68% of Americans will not move outside the country for work. A full quarter (25%) of Americans would not consider traveling further for a job, even if the decision resulted in unemployment. Meanwhile, Census data suggests that relocation—whether inter-state, inter-county, or intra-county—is down (Figure 1). 2016 had the lowest relocation rate in seventy years (Figure 2).

Figure 1. Type of Move, 1948–2016

Figure 2: Number of Movers and Mover Rate, 1948–2016

 

Why are people relocating less than ever? One explanation Vance misses is that government policy gets in the way. For example, research provides evidence that land use regulations put pressure on housing prices in high-opportunity areas, which in turn eliminates the fiscal rewards of relocation for the poor and unskilled. Tragically, this means low-income Americans are trapped in job deserts with little in the way of opportunities, amenities, or hope.

You can listen to more of Vance’s interview regarding the causes of white, rural, post-industrial poverty, here.

[1] Author’s own.

Donald Trump’s first 100 days in office have set U.S. foreign policy on a dangerous course. Trump’s actions and rhetoric have raised the profile of America’s military power while weakening other sources of U.S. influence. Such an approach is in line with the “peace through strength” formula Trump espouses. However, the deepening militarization of U.S. foreign policy carries a host of risks and costs that may cause more headaches than victories.

The growing role of the military in U.S. foreign policy is not a new phenomenon. Barack Obama’s presidency was hardly peaceful. This was especially true in the Middle East, where the “light footprint” approach reduced the on-the-ground U.S. military presence but made extensive use of air power to conduct foreign policy by precision strike. However, Obama also spearheaded multilateral initiatives that relied on other sources of American power and influence, such as the Iran nuclear deal and the Trans Pacific Partnership (TPP). Not all of these initiatives were successful, but they demonstrate a foreign policy approach that places value on non-military tools.

Thus far into his presidency, Trump does not seem to share Obama’s appreciation for the value of non-military tools for dealing with foreign policy problems. One of Trump’s first executive orders withdrew the United States from the TPP, a key component of American economic engagement in East Asia. The TPP and a growing American military presence were the two key pillars of the Obama administration’s “pivot to Asia,” with the TPP emblematic of the softer side of U.S. policy. Granted, the TPP was not yet in force when Trump withdrew from it, which mitigates the diplomatic downside of withdrawal. But the loss of economic and diplomatic influence associated with withdrawing from the TPP leaves military power as the primary means for the administration to implement U.S. policy in East Asia. 

Greater reliance on U.S. military power in East Asia is already evident in the Trump administration’s policy toward North Korea. The administration wants to apply “maximum pressure” to Pyongyang in order force them to negotiate on Washington’s terms. As former defense official Van Jackson points out, this theory of victory depends heavily on U.S. military signaling and is more aggressive than previous administrations. Jackson argues, “the Trump administration appears to be a much more permissive—even enabling—environment for such coercive beliefs” due to “the prominence of the Pentagon in President Trump’s national security policy to date.”

Staring down North Korea through displays of military might and rhetoric hinting at military action fits with “peace through strength,” but probably won’t stop North Korea from testing new missiles or accepting the maximal conditions the United States has placed on negotiations.

Relying heavily on U.S. military power in matters of foreign policy is by no means exclusive to East Asia. Trump’s cruise missile strike against Assadspecial forces raid in Yemen, and loosening of the rules of engagement for counterterrorism missions point to a growing role for the U.S. military in Middle East policy. Recently, Trump said that Iran was “not living up to the spirit” of the nuclear deal, despite the fact that the State Department confirmed that Iran is complying with the deal. What the administration will do with the Iran deal remains uncertain, but the deepening militarization of U.S. foreign policy in the Middle East combined with a general hatred of the deal by President Trump point to growing tensions.

Fortunately there are things that Trump can do to rein in the militarization of U.S. foreign policy, if he is so inclined. Filling vacancies at State and Defense with civilian experts would provide additional, non-military voices in the policymaking process. These appointees may not be able to match the influence of the retired and active generals in Trump’s administration, but the current absence of civilian appointees ensures that the generals will heavily influence Trump’s foreign policy.

Congress could also fight back against the militarization of U.S. foreign policy through its control of the budget. Trump’s planned cuts to agencies like USAID and the State Department would devastate two non-military tools of U.S. influence. After the proposed cuts were announced, several prominent Republican senators spoke out in opposition. Congress could also demand that Trump obtain new authorizations for the use of military force if he wants to get the United States more directly involved in Yemen or Somalia.

The deepening militarization of U.S. foreign policy is Trump’s most worrisome “achievement” of his first 100 days. Valuing military power so highly over diplomatic and economic tools limits policy options and can make military conflict more likely, as peaceful avenues for resolution are shut down. Hopefully Trump will recognize that there are other tools at his disposal for conducting U.S. foreign policy, and the warlike first 100 days prove to be a fluke—and not the trend. 

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