Two human things are measured in quadrillions. One is energy — about 640 quadrillion annually burnt “BTUs” heat the world’s homes, propel its ships and planes, run its server banks, and water its gardens. The other is money. The Bank of International Settlements’ most recent Triennial Survey (out last December) says that governments, businesses, banks, tourists, and computerized trading programs exchanged $7.5 trillion in currency daily, or $2.739 quadrillion over the year. With all the zeroes, this is “$2,739,000,000,000,000.” Some particulars:
Scale and rate of growth: Annual currency turnover was a modest $6 trillion exchanged mostly for purposes of tourism, debt repayments, and import/export trade (as had been standard practice since the invention of money in the Lydia kingdom in present-day Turkey) just before the abandonment of the gold-based “Bretton Woods” system in 1971. The contemporary ‘floating exchange’ which replaced Bretton Woods, after an interval of some confusion, launched precisely fifty years ago, on March 1, 1973, and has since become the largest market of any sort in human history. Annual currency trading reached $500 trillion in the early 2000s; hit the $1 quadrillion mark in 2008, and reached $2 quadrillion — mainly for hedging and futures markets rather than more traditional purposes — in 2017 or 2018. Assuming no gigantic upheaval in global finance, current trends suggest $4 quadrillion by 2030.
Currencies: U.S. dollars figured in 88.6% of all world currency exchanges in 2022. This is a bit less than the 89.9% rate of 2001, but more than the 84.9% of 2010. The dollar’s use in currency exchange has been pretty stable over the past 20 years, as has that of the euro and yen. (Euro: 32% of transactions in 2001, 30% in 2022; yen: 15% and 17%). Speculation about the Chinese yuan’s rising role remains, well, speculative: Used in 0.5% of exchanges in 2007, the yuan now appears in 1.6% of transactions in 2022 — rising, but about equal to use of the Mexican peso and well below the Aussie dollar.
Trading sites: Having lost its role as reserve-currency issuer in the 1930s, the U.K. found a new one as the central forex trading site and holds it still. City of London banks and firms handle 38% of world currency trades, or about $1 quadrillion worth each year. New York ranks second with 19%; Singapore, Hong Kong, Tokyo, and Switzerland follow at about 9%, 7%, 4%, and 3% respectively. BiS speculates that Brexit may have slightly reduced the British share of currency trade, with some shift to the United States and Singapore.
To put this in context, blithely ignoring differences between exchanges, value-added output, asset wealth, and so on: $2.7 quadrillion per year is (a) 6 times the estimated $450 trillion value of total world privately held wealth in the forms of real estate, stocks, money, physical possessions, and other assets; (b) 26 times the $104 trillion world GDP of 2022; (c) 100 times the $25 trillion in 2022 goods and services exports, and (c) 400 times the $7 trillion in actually existing physical coins and bills. As to whether this gigantic roar of hedging and futures-trading very significantly raises real-world growth rates or improves global economic efficiency: research appears insufficient.
In practical terms, over the last six years the currency markets have worked to raise the value of the dollar vis-à-vis other currencies. Some IMF staff thoughts on the implications
A comparative table: Forex vs. wealth, vs. stocks, vs. GDP, vs. trade, etc.* All figures are for 2022:
Annual currency trading: $2.739 quadrillion
Total privately held world wealth: $464 trillion
Global public & private debt: $235 trillion
World GDP: $104 trillion
Total world stock market capitalization $93 trillion
Total world stock trading $61 trillion
Total world goods/services exports: $28 trillion
U.S. GDP $25 trillion
NYSE market capitalization: $22 trillion
U.S. “M1”** $20 trillion
All world tax revenue for governments $14 trillion
World currency reserves $13 trillion
All the money (physical coins & bills) in the world ~$7 trillion
U.S. currency printed annually $0.3 trillion
* BIS for currency trading; Credit Suisse for world wealth; IMF for world GDP, world debt, and world currency reserves; Federal Reserve for currency in circulation and U.S. annual currency printing; World Bank for world stock trading and tax revenue, NYSE for market cap.
** M1 includes all U.S. currency, money held in bank accounts and CDs, etc. See here.
How much is “all the money in the world”?
Private wealth: Credit Suisse estimates world household wealth in the form of homes, stock portfolios, condos, bank accounts, land, and so on — at $464 trillion for 2022. This is a bit more than double the $221 trillion of 2012, in nominal terms. No estimates are available for government assets (navies, buildings, national parks, etc.), but “all the money in the world” by this definition might be near $1,000,000,000,000,000.
Government reserves: Governments’ “wealth” may be unknown, but in terms of actual ‘money’ they now hold about $12.8 trillion in reserves. As with currency trading (but not quite as much, and not quite so certainly) most of their holdings are, metaphorically, a big pile of dollars. Dollars make up $6.44 trillion of the $10.77 trillion the IMF identifies by currency type — 60% of the total, slightly below 62% for 2012 and noticeably less than the 71% in 2000. Euros account for 20%, and the yen and sterling 5% each. The IMF’s financial reserve data.
Circulating money:The Federal Reserve reports that about $2.3 trillion in actual U.S. paper and metal coins is currently in wallets, bank vaults, cash registers, safes, mason jars, and so on.
And the Treasury Department monitors dollar exchange rates.
And some history:
Currency was the invention of an anonymous fellow early in the 7th century B.C., most likely in the Kingdom of Lydia in modern-day Turkey, home to semi-legendary King Croesus — and quickly copied by neighboring Greece and Persia. A look at the first coins, with a mini-bio of Croesus and some lumpy-looking early Lydian efforts (made of electrum, a mix of gold and silver) stamped with pictures of lions.
The “money-changers” of the Gospels were a consequence of these innovations six centuries later. For a small fee, they swapped Roman, Greek, and Persian coins carried by out-of-town pilgrims for half-shekel coins minted in Jerusalem and Tyre, with exchange rates depending on the quantities of precious metal contained in the coins, enabling pilgrims to pay the modest tax needed to finance Temple operations, and pay for food, shelter, and shopping during their stay. The account in Matthew.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
Anybody who has ever filed taxes in the United States knows it is complicated, and that the level of complexity is getting worse. The Inflation Reduction Act (IRA) enacted last year directs the Internal Revenue Service (IRS) to study how to implement a direct e-File program. Under such a system, the IRS would pre-populate tax returns with any third-party information the agency has from employers and other entities, and information that the IRS believes is relevant from the prior years’ tax return.
The goal, according to Ariel Jurow Kleiman — an associate professor of law at Loyola Law School who will be one of the authors of the upcoming IRS report — is to “eliminate all tax compliance activities” related to filing taxes, because doing so “will be disproportionately more valuable to taxpayers than reforms that merely shave an hour or two off their total tax preparation time.”
Choi and Kleiman’s research is informative and well-researched. The authors are correct that tax reform should focus on simplification and ease of filing, eliminating as many compliance activities as possible, and dramatically reducing the risk of taxpayer error, which their study shows is most important to taxpayers.
The problem lies with some of their conclusions. Their argument that direct e-File and Free-File programs are answers to the problems noted above is not supported by facts.
In their paper, Choi and Kleinman cite exact withholding type systems in the United Kingdom and German as models for the U.S. But as tax codes around the world have become more complex, many countries that are currently using such systems are increasingly finding it necessary to re-engage taxpayers in order to ensure accuracy. A 2017 report by the UK’s All-Party Parliamentary Taxation Group on Pay-As-You-Earn (PAYE), found that as a result of a number of economic changes since the creation of PAYE, roughly one-third of British taxpayers were effectively filing their own taxes via a process known as Self-Assessment — negating much of the “will save the taxpayer time” rationale for direct e-file and free-file systems. The number of taxpayers who will need to file Self-Assessments is only expected to increase with the rise in two-earner households, self-employed workers, labor mobility, and targeted tax incentives that make the code more and more complex.
Furthermore, the report noted that error rates had been rising significantly in the United Kingdom, costing the government and taxpayers billions over the years. Asking the already overburdened IRS to take on e-File would siphon away resources from enforcement and create more opportunities for wealthy tax evaders like Donald Trump to reduce their tax liability.
Reducing the burden of tax compliance and error rates should be a top priority of any national government. However, gimmicks like direct e-file, the FAIR Tax, and various versions of the Flat Tax, are more gimmicks than good policy. All three are “quick fixes” intended to do away with the inconvenience of tax filing, while ignoring the need for a well-designed income tax. Policymakers should instead turn their attention to the hard work of reducing the growing number of tax expenditures that litter the code and simplifying important incentives such as the Earned Income Tax Credit.
When President Joe Biden touched down in Kyiv on February 20, it was more than another secret presidential trip like the visits Presidents George W. Bush and Barack Obama made to Afghanistan and Iraq. There was no stealthy meeting with American troops, no photo op on a base in an American theatre of operations. Biden’s goal was to demonstrate American support for a democratic ally fighting the most devastating war in Europe since 1945. Not even Franklin Roosevelt did this. He never visited London during the Blitz, choosing to meet Winston Churchill on safer ground in Washington, Casablanca, Tehran, and Yalta. That Biden’s visit came on the anniversary of Russia’s invasion of Ukraine made it all the more significant as a show of determination to halt Vladimir Putin’s push to crush a democratic neighbor. “I thought it was critical that there not be any doubt, none whatsoever, about U.S. support for Ukraine,” Mr. Biden said.
Andrey Dubenko is the co-owner of a small shopping mall on the river between Bucha and Irpin, two of the Kyiv suburbs that saw the worst fighting in the weeks after Russia’s invasion last February. The boundary between the two towns—one was occupied through the next month, the other remained in Ukrainian hands—became the front line. Air strikes, artillery fire, and hand-to-hand combat in the parking lot gutted Dubenko’s mall. Now the 54-year-old investor and developer, a man old enough to have served in the Soviet army in the 1980s, is rebuilding and optimistic. But he is also unflinchingly clear-eyed about who will determine what happens in Ukraine. “When will the war end?” he asks rhetorically. “That will be decided by Americans. The war will end when the U.S. wants it to end – when they stop sending weapons and ammunition.”
This essay was published as part of Opportunity America’s report: Unlocking the Future – Toward a new reform agenda for K-12 education. The full collection of essays can be found here.
Introduction
For decades, US education reformers have struggled to narrow stubborn achievement gaps among White, Black and Hispanic students. With China driving hard to overtake America as the world’s largest and most dynamic economy, our country’s leaders should show a greater sense of urgency in closing another kind of achievement gap: the underwhelming performance of US students compared to their peers abroad.
As President Joe Biden often observes, the United States is locked in a “strategic competition” with China for economic and technological leadership in the 21st century. The United States won’t win this contest by continuing to tolerate mediocre public schools for the middle class and low-performing schools for low-income Americans.
China sees itself as the rising power in the world and the United States as a decadent and spent historical force. Under its ultranationalistic president, Xi Jinping, China is keen to demonstrate to developing countries the supposed superiority of its state-directed model for economic growth over the “chaos” of Western capitalism. Beijing also draws invidious comparisons between the “social harmony” enforced in increasingly totalitarian fashion by the ruling Chinese Communist Party (CCP) and an America riven by internal political and racial strife.
In short, the rivalry between the United States and China isn’t simply commercial; it’s a contest of political beliefs and governing systems—liberal democracy versus Beijing’s new hybrid of markets and autocracy. At issue isn’t only which country will achieve the highest living standards and per capita wealth but also which will set global standards on trade, economic competition, climate change and human rights.
On the innovation front, the CCP has made no secret of its determination to mobilize state resources to help Chinese companies dominate the high-tech industries of the future—5G, supercomputing, AI, biotech, electric cars and batteries and more. China already leads the United States in electric car production, while US automakers are hobbled by a shortage of semiconductor chips, most of which are manufactured in Taiwan, China and South Korea.
Our national security also is at stake. China has been rapidly translating its economic clout into military power, with an eye toward a shotgun wedding with a democratic Taiwan; establishing hegemony over the surrounding seas; and pushing the United States out of East Asia.
To be sure, China’s rise isn’t inexorable. Hit hard by weakening global demand and a stern policy of “zero Covid” lockdowns at home, its economic growth rate recently has fallen by about half. Having been awarded an unprecedented third term by a compliant CCP in October, Xi continues to consolidate power in what looks like a return to a Mao-style dictatorship.
Xi has reined in China’s high-flying tech giants and is steadily extinguishing Hong Kong’s once-vibrant democracy. He has matched harsh repression at home with an aggressive “wolf warrior” diplomacy aimed at intimidating Taiwan and China’s neighbors and silencing international criticism of Beijing’s predatory trade practices, ethnic cleansing of Muslim Uyghurs and status as the world’s biggest carbon emitter.
These self-isolating policies have bred security fears across East Asia and triggered a strong political backlash in the United States and Europe. Nonetheless, it would be a mistake to assume that China can’t change course. Its stunning national development over the past four decades shows that the United States can no longer take for granted our century-old status as the world’s biggest and most advanced economy.
Americans are faced with a clear choice: we can resign ourselves to being surpassed eventually by a Chinese economic and military superpower, or we can raise our game.
The Global Achievement Gap
For America’s public schools, that means a new resolve to narrow the global achievement gap. International comparisons of student performance indicate that our students have fallen well behind their counterparts in China and the Asia-Pacific.
For example, the Organisation for Economic Co-operation and Development’s (OECD) Program for International Student Assessment (PISA) is a worldwide study that periodically compares the performance of 15-year-olds in 78 nations on mathematics, science and reading.
The latest PISA results show that in 2018, the United States ranked an underwhelming 25th in the world in average math, science and reading scores. Breaking the scores down, the US ranked 37th in math, 18th in science and 13th in reading. Chinese students were number one in each subject.
But perhaps the most dismal headline from the PISA tests is this: the performance of US teenagers in reading and math has been stagnant since 2000, despite federal efforts to raise academic standards and create financial incentives for school improvement.
Andreas Schleicher, director for education and skills at the OECD, is one of the chief architects of the test. Comparing scores, he found that about a fifth of American 15-year-olds hadn’t achieved the reading levels expected of 10-year-olds and consequently face “pretty grim prospects” in the labor market.
Also illuminating are the results of the Trends in International Mathematics and Science Study (TIMSS). These tests measure math and science achievement in fourth and fifth grade every four years.
According to the latest TIMSS results, US fourth graders ranked 15th among 64 participating education systems in math and eighth in science. Singapore and China were ranked first and second. US eighth graders ranked 11th of 46 in science and 11th in math.
Crucially, the TIMSS tests illuminate wide performance gaps between America’s top- and bottom-performing eighth graders. On math, for example, the US gap is larger than the gap in 31 of the 45 other participating systems.
Although many US students perform at high levels, these international tests show that, on average, US students significantly underperform their peers in China and other Asian countries on math, reading and science. The tests also highlight yawning performance gaps that reflect America’s deeply entrenched social and racial inequities.
These achievement gaps will not be closed overnight. So it’s all the more important that our political and education leaders start now by benchmarking US students’ academic progress against the high levels of proficiency in reading, math and science achieved by students in China and other Asian competitors.
A Call for National Leadership
It’s a formidable challenge—and President Biden ought to take it up. In fact, it’s hard to think of an American institution more ripe for “building back better” than our public schools. They are both formative to American citizenship at a time when democratic norms are under political attack at home and essential to our capacity to innovate and grow at a time when America’s long run of economic primacy faces a determined challenge from China.
Although public education in the United States always has been a primarily local responsibility, there is a Cold War precedent for invoking national interests and security to rally public support for a dramatic upgrade of school quality. In the late 1950s, the Soviet Union launched Sputnik, the world’s first satellite. This shocked a complacent America, prompting Congress to pass the landmark National Defense Education Act in 1958.
The law explicitly made improving public schools a national security imperative, galvanizing federal investments in science, technology and math education. In fact, it marked the beginning of Washington’s large-scale involvement in elementary and secondary schools, preceding the equity-oriented federal interventions of the 1960s.
Today, our political leaders should again forge a broad public consensus for harnessing public education as a national strategy for promoting science, frontier technologies and high-tech entrepreneurship. Equally as important, we need dramatic improvements in school quality to ensure that our students acquire skills comparable to those of our toughest competitors.
Hackneyed calls for new “moonshots” and Marshall Plans to solve this problem or that litter US political discourse. Nonetheless, only presidents have the standing to set urgent national goals. In the spirit of JFK’s race to the moon, Biden should challenge state and local school authorities to make our schools second to none in the world—and for all our students. In this way, the president could tap into both Americans’ patriotism and their love of competition.
Reaching for world-class standards of performance doesn’t mean making America’s schools more like China’s. The highly regimented way students learn in authoritarian countries with a collectivist ethos will not work in a liberal country like ours that values individual liberty and initiative.
China places a heavy emphasis on rote memorization and rigorous drilling for tests. The American path to educational excellence will be different, putting greater emphasis on creativity, inquiry-based approaches, diverse curricula and personalized learning. Nonetheless, US students will have to do a better job of mastering the fundamentals of reading, math and science, and here the international tests like PISA and TIMMS can help us mark progress toward closing the gap.
Complicating this challenge are the steep learning losses American students experienced when schools shut down during the Covid pandemic. The latest report from the National Assessment of Education Progress shows sharp declines in math and reading proficiency among students of all backgrounds in most states.
Only 36 percent of US fourth graders and 26 percent of eighth graders scored proficient or above on math tests. For reading proficiency, the scores were 33 percent for fourth graders and 31 percent for eighth graders.
These domestic test results, of course, augur ill for how America’s kids are likely to score in the next round of international assessments. US public school leaders need to go all out to make up for pandemic learning losses, which also will help prepare US students to chip away at the international achievement gap on math, reading and science.
Invest in National Change, Not the Status Quo
Another good reason to act now is that schools are awash with money. Since March 2020, Congress has passed a slew of pandemic relief bills that have included $200 billion for K–12 education. President Biden’s March 2021 American Rescue Plan alone includes $125 billion, the largest-ever federal investment in public schools. In July 2021, Congress passed President Biden’s CHIPS and Science Act, which included $13 billion to bolster STEM in K–12, postsecondary schools and job-training programs.
Public schools can use this extraordinary federal bounty in a wide variety of ways. These include helping tackle pandemic learning losses with extended school years, after-school programs, summer school and tutoring. Schools can also spend federal dollars to upgrade facilities for healthy learning environments, equip students with wraparound social supports and stabilize and diversify the school workforce.
These are all important goals. But simply pouring money into our legacy education system, which wasn’t yielding the results we need pre-pandemic, is hardly the way to construct the more nimble, resilient and responsive public schools Americans have a right to expect post-pandemic.
The Covid shutdowns thrust America’s parents deep into the world of their children’s schools and the adults who run them. For many, the experience has been anything but confidence-inspiring. In addition to being fed up with school closures and steep learning losses, many parents are frustrated because they think school officials don’t listen to them. Popular pressure for change in how schools operate is building, and a crucial question is whether it will merely inflame our country’s tribal divides or give fresh impetus to modernizing an outdated public education system.
In the first scenario, public schools become the new front in America’s culture wars. In 2021, Republican Glenn Youngkin won an upset victory in Virginia’s gubernatorial contest by exploiting parents’ anger over a wide array of school-related grievances, from broadly shared concerns about shutdowns and unresponsive district bureaucracies to such right-wing bugaboos as mask and vaccine mandates and critical race theory.
This mix of fact and myth became the template for Republican candidates in the 2022 midterm elections. Although education was eclipsed by voters’ concerns over inflation, abortion and threats to democracy, it’s worth noting that one of the midterm’s biggest winners was Florida Gov. Ron DeSantis, an ardent GOP proponent of “parent power.”
In the second scenario, public consternation over how the pandemic has magnified all the pathologies of our legacy K–12 system—stubborn class and racial inequities, bureaucratic rigidity and inertia, antiquated labor relations and standardized, one-size-fits-all instruction yielding mediocre results—feeds cross-partisan demands for systemic change.
Americans who believe in equal educational opportunity and inclusive prosperity should be rooting for the second scenario. There’s a huge opportunity here for President Biden to speak to the public’s post-pandemic hunger for sweeping changes in their K–12 schools.
As the Progressive Policy Institute (PPI) has documented, a new, 21st-century model for public education is incubating in such pioneering cities as New Orleans, Denver, Indianapolis, San Antonio, Newark and Washington, DC. The emerging model is built on parental choice of public schools, a shift in decision-making power from central bureaucracies to school leaders, diverse curricula, personalized learning and rigorously enforced performance contracts.
These and other hubs of innovation are producing new kinds of schools that go by a variety of names: innovation schools, renaissance schools, partnership schools and contract schools. Where these reinvention efforts have reached critical mass, gains in student attainment have been dramatically positive. As the PPI has documented, over the past 15 years, urban school districts that embrace the 21st-century model—offering families a choice of public schools, shifting decisions from central bureaucrats to autonomous public charter schools and holding these schools strictly accountable for performance—have produced the fastest academic gains among disadvantaged urban students.
In sifting through the PISA results, PPI analysts David Osborne and Tressa Pankovits report that OECD has detected positive effects for school autonomy, a key feature of the 21st-century model: “OECD found that the greater the number of schools with the responsibility to define and elaborate their curricula and assessments, the better the performance of a country’s school system, even after accounting for national income.”
In addition to more parental choice and school autonomy, a modernized K–12 system should be charged with creating more seamless transitions from school to work, especially for the 60 percent of young Americans who do not get college degrees. They deserve better than a binary choice between high-cost college degrees they may not need and low-quality public training programs. And whether college-bound or not, US students should learn about how job markets work and have opportunities for apprenticeships and other work-learning opportunities with local employers before they graduate from high school.
President Biden should use his bully pulpit to make closing the international achievement gap a national priority. He could take as his model the 1989 Education Summit in Charlottesville, Virginia. Cohosted by President George H. W. Bush and Bill Clinton, then governor of Arkansas and chair of the National Governors Association, the summit convened 49 governors to focus exclusively on raising education standards.
Such a display of bipartisanship may seem inconceivable amid today’s red-blue culture wars. But Biden was elected in part to rise above today’s virulently negative partisanship, and Republican governors presumably are as eager as their Democratic counterparts to see America prevail in the intensifying contest with China for economic preeminence.
The Charlottesville summit was inspired by the landmark 1983 report A Nation at Risk, which warned that the lackluster performance of US schools and students was imperiling America’s economic security. Biden could use a successor summit to challenge governors to use unspent federal education dollars to align state standards and tests with those in countries that dominate the international proficiency rankings.
Governors have their own discretionary Covid recovery funds (the Governor’s Emergency Education Relief Fund), which should be dedicated to closing an international achievement gap exacerbated by the pandemic learning losses and our slow reopening of schools. They could also tap into a large pool of unspent money in the states’ Higher Education Emergency Relief Fund to invest in dual enrollment programs that allow high school students to enter college early and earn credits. Biden could also promise federal money to extend such gap-closing efforts past the 2024 deadline for spending American Rescue Plan funds.
Reinventing America’s public schools will require challenging stale dogmas on both ends of the political spectrum: the right’s insistence that the supposedly sacrosanct principle of “local control” trumps our national interest in a modern education system that supports US global competitiveness and the left’s defense of yesterday’s bureaucratic and highly centralized K–12 school model as the one true way to deliver public education for all times.
The United States is trying to prepare its young to compete in the knowledge economy with a factory-style school system designed for the industrial era of more than a century ago.
Amid populist attacks and rising public frustration with that system, it’s time to acknowledge that new school models aren’t a threat to the public education ideal, but the way to save it.
By Markose Butler, Director of Community Outreach and Training
In the years since Barack Obama left office, there have been two seemingly contradictory developments in Democratic Party politics. On one track is the Democratic Party’s leftward lurch into broader social justice advocacy in which anti-racism, dismantling white supremacy and other cultural issues commonly summed up by its detractors as “wokeness.” On the other is the recent drop in support for Democrats among African Americans, and especially Black men.
It’s clear that the Democratic Party has become an anti-racism party. Spend any time in progressive spaces and you’ll see that notions of equity and racial/social justice have permeated through the party.
It’s a great development for the party that was once the home of segregationist politicians. The problem is that this hasn’t worked well in bringing Black voters back to the party.
Part of the Communications Decency Act of 1996, Section 230 has become a widely debated and frequently misunderstood staple in the conversation about the regulation of tech companies. With calls for reform coming from both sides of the political aisle, on its face it seems as though there is a certain level of consensus around this issue when it comes to the moderation of online content. However, diving just below the surface reveals that could not be more untrue. With Democrats and Republicans coming at the issue from entirely opposite sides and the impacts of Section 230 being commonly misrepresented, it’s critical that any efforts at reform take a measured approach which considers the true positive impact this law has had on the dramatic expansion of the internet.
What does Section 230 say?
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
No provider or user of an interactive computer service shall be held liable on account of — any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.
What does this mean for the internet today?
Section 230 applies to “interactive computer services,” which refer to any online platform or service which hosts third-party content. This means social media sites, but also product reviews on e-commerce sites, independent seller listings which utilize websites like Etsy or eBay, or any other case of an online service hosting the content of third-party individuals. The internet as we know it today is largely built around the model of this third-party content, with many online platforms and services relying on their users to provide information, services and products, and many small businesses relying on the infrastructure of other websites to reach audiences they couldn’t on their own.
To break it down from the beginning, Section 230 says that the website is not the publisher of third-party content, shifting responsibility away from the platform and onto the individual, who is liable for their own speech. If you were to post something defamatory on anything from a social media account to a WordPress blog, it would be you that is responsible for your comment, rather than the company you used to post it.
Section 230 is also the mechanism that allows online platforms to moderate content on their sites, allowing them to remove any content that they find objectionable, without being treated as the publisher. This may be because the website serves an intended purpose, such is the case with Reddit communities where posts unrelated to the forum are taken down, or because the platform does not want to host speech that they find dangerous or harmful to their users, such as misinformation or hate speech.
Who wants to change Section 230?
Efforts to change Section 230 have come from several different directions. Proposals from congressional Democrats have included efforts to make platforms liable for health misinformation, or in cases where online activity has led to real world violence. The Biden Administration has also called for its repeal. While potentially well-intentioned, platform liability for this type of content will make it functionally impossible for websites to host third-party content, while shifting responsibility away from the root of the problem — those who are spreading misinformation and violent rhetoric. If a company is responsible for the speech of all their users, they will need to review and approve every piece of content posted to ensure they do not get sued. In the current model, the amount that is posted online everyday makes it so that despite moderation efforts and algorithmic flagging, companies don’t know exactly what is posted on their sites immediately and at all times. This would require a sort of cable model for the internet, where only pre-approved content is shown online, putting a stop to the flow of information we enjoy today and taking away the ability for individuals to have a voice in the public discourse.
On the other side of the aisle, Congressional Republicans have taken their own stab at Section 230, with the motivating factor being the alleged “censorship” of conservative voices online. Similar sentiments have been echoed by those ranging from the Trump Administration to Supreme Court Justice Clarence Thomas. In the states, Republican governors in both Texas and Florida have signed laws banning content moderation that is targeted at certain viewpoints. Critics of these proposals cite the likelihood that it will force online users to be inundated with harmful but legal content, such as misinformation, conspiracies, hate speech and Nazi propaganda, harassment, etc.
The combination of these two efforts is paradoxical. In a world where no moderation is allowed, and companies are responsible for the speech of all their users — as would be the case if Section 230 was repealed entirely — websites are forced to host the same speech, which will open them up to countless lawsuits.
Why is this important?
Section 230 has made it so that third-party content online has essentially propelled the creation of a new economy, with entrepreneurs able to sell products, post video or written content, and promote their work to an established audience at little or no cost. Consumers are used to information and entertainment at their fingertips, much of which is also provided to them at little or no cost. In an important sense, the powerful job production associated with the tech boom, would not have been possible without Section 230.
While there is always room for improvement, online platforms need to moderate content in order to maintain their purpose. And while this is often spoken about in the context of larger tech entities, it will have the same devastating impact on Google and Amazon as it would to any small, independent interactive website. It’s not in the best interest of Instagram for their users to be bombarded with violent posts, but it’s also important that the independent food blogger posting recipes is able to remove harmful content from the comment section. Exposing these entities to liability for the actions of any one individual would be a fundamental change to the internet as we know it, significantly cutting down our access to information and making it more difficult for individuals to have a voice online. If Congress or the courts decide to alter this system through which the internet has been able to grow, they must be aware of the consequences to independent businesses, individuals, and the future of online speech.
Lauren Bealore of Prosperity Now joins Jeremiah Johnson of The Neoliberal Podcast to talk about inclusionary zoning. They Discuss the history of inequity in housing markets, whether or not inclusionary zoning can mend those problems, and what good policies might look like.
Learn more about the Progressive Policy Institute here.
Today, the Progressive Policy Institute’s Metro Federalism Caucus and Prosperity Now released a new report outlining steps federal and local policymakers — and other stakeholders in the small business ecosystem — can take to best target resources to business owners of color. The report also spotlights three organizations across America that have used pandemic relief funds from the federal government to support entrepreneurs of color in their communities. The report is titled “Inclusive Entrepreneurship Is Key to Unlocking Equal Opportunity,” and is authored by Myrto Karaflos of Prosperity Now.
This report examines the creative initiatives supporting inclusive entrepreneurship from Baltimore BASE (Business Assistance and Support for Equity) Network in Baltimore, Maryland; the Pierce County Business Accelerator in Tacoma, Washington; and West Side Grows Together in Wilmington, Delaware. All three organizations have used Coronavirus State and Local Fiscal Recovery Funds from the American Rescue Plan Act (ARPA) to support entrepreneurs of color, who were hit hardest by the pandemic.
“Given this timely opportunity of federal funding dedicated to recovery and growth post-pandemic, the time to act is now. With more targeted support from policymakers, financial institutions, and local leaders, entrepreneurs of color can have a chance to thrive, which will not only benefit themselves but also the economy and society as a whole,” writes Myrto Karaflos, Policy Manager of Prosperity Now, in the report.
“Local and Federal partnerships are essential to our local economies. Innovative support for small businesses, entrepreneurs, and communities of color is vital as we recover,” said Congresswoman Marilyn Strickland(WA-10), Former Mayor of Tacoma, WA and Co-Chair of PPI’s Metro Federalism Caucus. “The report highlights how federal funding can help communities in crisis, and that local leaders know where to strategically and equitably invest in sectors that need it most.”
“As a former Mayor, I know firsthand how critical federal resources are to our communities during — and long after — a crisis. The COVID-19 pandemic took a toll on small businesses in cities and towns across America, and continued support for entrepreneurs will be necessary to keep the lights on and the ‘open’ sign up on the front door,” said Sly James, Former Mayor of Kansas City, MO and Co-Chair of PPI’s Metro Federalism Caucus. “This report from the Progressive Policy Institute and Prosperity Now shows how important the American Rescue Plan Act funds are, and the organizations featured are a shining example of the work that should be done from coast to coast.”
Myrto Karaflos serves as Policy Manager at Prosperity Now. In this role, she works to identify and advance policies that help entrepreneurs of color launch and grow their small businesses. Myrto previously provided policy research and analysis for several racial economic justice issues, including tax and savings policy, and also supported the implementation of technical assistance projects. Before coming to Prosperity Now, Myrto worked at Galloway & Associates, a small law firm, where she undertook research projects and provided financial and administrative support. She holds a Bachelor of Arts in International Studies from American University. Myrto is a cohort member of PPI’s Mosaic Project.
The Progressive Policy Institute, in partnership with the Kauffman Foundation, has launched the Metro Federalism Caucus to advocate for a more direct and empowering relationship between national and local government leaders. The Caucus consists of former local officials who now serve in Congress, as well as accomplished mayors and former mayors from around the country, whose governing experience and insights can help U.S. policymakers reimagine the division of labor among national, state, and local governments. Its mission is to open a direct channel of communication that does not run through state governments, aimed at forging a stronger partnership between Washington and metro leaders. Organized and supported by PPI and Co-Chaired by Representative Marilyn Strickland (WA-10) and former Mayor of Kansas City Sly James, the Caucus will champion a new approach to federalism that channels resources and decision making directly to metro leaders. PPI calls this decentralizing dynamic “Metro Federalism.”
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on twitter.
Since 1979, Prosperity Now (formerly CFED) has been a persistent voice championing economic opportunity, innovating outside of and beyond existing systems to build power for all communities. We advance racial and ethnic economic justice by investing in bold new ideas, and we work deeply at both the grassroots and national level to impact the entire ecosystem. By setting goals for our economy and following through with targeted approaches based on need, we are equipped to drive forward and cement big structural solutions. Join Prosperity Now in creating a new, transformed economy that works for all of us. Visit us at www.prosperitynow.org.
America’s entrepreneurial ethos is widely touted as a cornerstone of our culture and one of the ways to achieve the “American Dream.” It is true that small businesses play a critical role in the economy, as they account for 99% of American employers. Business ownership can also be a source of wealth creation for many, with self employed individuals being wealthier, on average, than those who work for an employer.
However, the path towards becoming an entrepreneur and growing a successful business is fraught with obstacles for large segments of the population. Entrepreneurs of color, particularly Black and Latine, face many barriers that result in them having smaller, less profitable businesses when compared to those owned by White entrepreneurs.
In recent years, the COVID-19 pandemic put a strain on many small businesses. It forced many of them to close in the early months of the crisis. It has also contributed to lingering societal and economic forces, such as inflation and the pivot to doing business online, that have changed the way small businesses operate. Black- and Latine owned businesses were particularly hard- hit. As government leaders focus on lessons learned from the pandemic, rising prices, and ways to strengthen U.S. economic resilience, they should seize the opportunity to invest in small business development that works to level the playing field for entrepreneurs of color.
This report will describe the pandemic’s effects on businesses of color and the broader, structural inequities that have limited these businesses’ growth long before the pandemic began. It will also explore how organizations in three cities across the country have used pandemic relief funds from the federal government to support entrepreneurs of color in their communities. Finally, the report will offer recommendations for how federal and local policymakers, as well as other entities in the small business ecosystem, can best target assistance and resources to business owners of color.
Democrats and Republicans couldn’t be farther apart in political outlook. With distance comes fear and loathing: Each party views the other not just as misguided but as an alien menace to their idea of America.
Nonetheless, neither party is monolithic. Each has internal cleavages, varying shades of opinion reflecting differences in race, class, ethnicity, gender, religion and age. When it comes to deciding elections, the fault line that matters most is the diploma divide.
Since 2008, white voters with college degrees have gravitated steadily toward the Democrats. According to researcher Zach Goldberg, they outnumbered non-college white Democrats for the first time in 2020, and now probably also exceed the GOP share of college-educated whites.
Republicans already have a massive advantage among blue collar whites, and in recent elections cycles have made inroads among non-college Hispanics, Asians and (on the margins) Black men.
Today, the Progressive Policy Institute released a statement from Ben Ritz, Director of PPI’s Center for Funding America’s Future, in reaction to the Congressional Budget Office’s updated Budget and Economic Outlook:
“Today’s Budget and Economic Outlook from the Congressional Budget Office should be a wake-up call for every policymaker who cares about America’s financial stability in a post-Covid economy. Since the last baseline projection in May 2022, Congress has passed legislation that, in CBO’s estimation, added $1.5 trillion to deficits over the coming decade. Now, CBO projects that the national debt is on track to break its historical record as a share of economic output by 2028 – that’s three years sooner than under the previous projection. Meanwhile, CBO expects inflation to remain above the Federal Reserve’s 2% target until 2026 even after accounting for recent rate hikes. It’s long past time for Congress to adjust to the new reality that the window for deficit-financed stimulus is shut and a pivot to responsible and anti-inflationary deficit reduction is desperately needed.”
The Center will publish more analysis of the CBO report next week.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels and Berlin. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
FACT: The U.S. Generalized System of Preferences program has been expired for more than two years.
THE NUMBERS: Sample GSP imports from Pacific Island countries, 2020* –
1,835 tons of oilcake from Papua New Guinea
540 tons of Fijian ginger (candied and sushi-grade)
312 tons of Solomon Islands canned tuna
292 tons of Tonga yams
133 tons of Samoan taro root from Samoa
3 tons of Fijian incense
* Last year GSP benefits were in effect
WHAT THEY MEAN:
A case study in one approach to U.S. government policymaking: Here is PPI Vice President Ed Gresser, testifying on Pacific Islands policy yesterday at the U.S. International Trade Commission (ITC):
“A next-generation approach to GSP, or more broadly to trade preferences, could set goals including: help Pacific Island countries diversify their economies and attract investment in labor-intensive industries through more extensive or better use of preferences; support regional economic integration, intra-Pacific Island trade flows and joint trade policy development; encourage sustainable forestry, mining, and fisheries; work closely with U.S. allies such as Australia and New Zealand; and address logistical costs and marketing opportunities as well as tariff policy.”
By way of background: (1) The Biden administration’s “Pacific Strategy” document, released after the U.S.-Pacific Islands summit last September, notes that the U.S. devoted less than sufficient attention to this part of the world in recent decades and promises a battery of climate and sustainable fisheries programs, newly opened embassies in Tonga and the Solomon Islands, aid and technical support, and new trade and financial policy ideas. (2) Following up on this a week later, U.S. Trade Representative Ambassador Katherine Tai asked the ITC for an in-depth look at “potential impediments to and opportunities for increased trade flows between the United States and the Pacific Islands, with an emphasis on barriers Pacific Islands may face exporting to the United States,” and in particular, whether the 49-year-old Generalized System of Preferences (“GSP” for short) could provide more help or whether some other approach might be preferable. The ITC then (3) solicits comments and holds a public hearing, and will report back to her this fall.
Four months into this, PPI’s contribution to this focuses on GSP, a tariff waiver program Gresser oversaw as a government official from 2015 to 2021. Dating to 1974, GSP is the largest and oldest U.S. “trade preference” program, removing tariffs on about 3,500 of the U.S.’ 11,000 “tariff lines” for 119 eligible low- and middle-income countries and territories. These include 13 Pacific Island states, in the range from large and low-income Papua New Guinea through small and middle-class Fiji, to very small islands such as Tonga, Samoa, Cook Islands, and Tuvalu. The idea is that the tariff waivers can help such countries offset the scale and speed larger producers offer, and so encourage their economic and trade diversification and development. Participating countries need to meet 15 eligibility criteria, on cooperation against terrorism, labor standards, intellectual property, expropriation, reasonable access to markets for U.S. exporters, and other issues.
The largest GSP imports are things like jewelry, electrical equipment, luggage, and other mid-range manufactures from middle-income countries such as Lebanon, Georgia, Thailand, or the Philippines; the Pacific Island states, though, mainly use it for farm products and food. The normal tariff rate for ginger, for example, is 2.4%, and the American groceries and restaurants buying the stuff have six significant overseas suppliers: Thailand at the top, along with China, Australia, South Korea, and Indonesia. Despite a much smaller population and logistical disadvantages, Fiji ranked third in the world as a ginger supplier to the U.S. in 2020. Other examples include waivers of tariffs set at 2.3% and 6.4% for the Samoan and Tongan taro and yams, 0.45 cents/ kilo for the Papuan oilcake, and (in a special benefit available only to “least-developed” countries) 12.5% for the Solomon Islands canned tuna.
Ambassador Tai’s question is whether this system can serve the very small, and geographically distant, Pacific Island countries better than it now does. Gresser’s testimony offers five ideas, plus a sixth option of an alternative system (noted below). Ideas #2 to #5:
(2) Avoid adding too many new eligibility criteria to the system, but do add an environmental clause (must be done by Congress);
(3) Allow Pacific islands to ‘cumulate’ inputs to meet the “rules of origin” that define what it means to be ‘made in’ a GSP country (can be done by the USTR personally);
(4) More frequent visits and webinars from U.S. government personnel to explain the benefits island producers can use (an interagency option); and
(5) Provide complementary assistance, working with the existing Australia/New Zealand “PACER+” (“Pacific Agreement on Closer Economic Relations Plus”) programs to improve island logistics efficiency and reduce their high communications and financial transfer costs. (USTR, State Department, Treasury, USAID, MCC).
(6) Develop a regional preference program comparable to those created for sub-Saharan Africa in 2000 and the Caribbean Basin (in various stages) from 1983 through 2007. This is more challenging as it would require legislation, Congressional debates, and so on. On the other hand, it has the potential for more impact, as it could give Pacific Island states some tariff waivers currently unavailable in GSP (for example clothing and canned tuna), and also be a “convening” device for more regular top-tier meetings and events.
Recommendation #1 from Gresser, however, sticks out as extremely simple, more important than options #2 to #5, and frustratingly not yet done. This is that GSP is not now providing any benefits to the Pacific Islands (or other low- and middle-income countries) at all, since the law authorizing the tariff waivers lapsed at the end of 2020 and (despite a possibly overly-large set of ideas for improving and complicating it) has been out of commission for over two years. This leaves the U.S. alone among major economies in not having such a program, not only for the Pacific Island countries but also Pakistan, Lebanon, Ecuador, Armenia, Georgia, ASEAN members Thailand, the Philippines, Indonesia, Cambodia, and so on. During this lapse, for example, while Fiji has held its third-place position as a ginger supplier since 2020, its share of U.S. imports has fallen from 29% to 21% while those of Australia, Thailand, and China have bumped up; likewise, the Tongan and Samoan taro root exports appear to have fallen by about half. So: U.S. government development of new and more effective policies sometimes involves complex questions and requires detail work, but also sometimes involves quite simple and important first steps.
And a 2022 look at the GSP system — benefits and eligibility rules, successes and limits, next steps — with some concern about over-enthusiasm for adding new eligibility rules in the 2021/22 Congressional proposals for revisions and reforms.
The U.S. Trade Representative’s GSP Guidebook explains GSP program goals, product coverage, eligibility rules, and country participation.
The Obama administration (2016) evaluates U.S. trade preference programs (including GSP and also the African Growth and Opportunity Act and the Caribbean Basin Economic Recovery Act) and their records on poverty alleviation.
And some international comparisons:
Japan’s Ministry of Foreign Affairs on the Japanese GSP.
The European Union’s more complex program involving three tiers of beneficiaries, more expansive but less frequently invoked eligibility rules, and a somewhat different list of eligible products.
Australia’s “ASTP” (Australian System of Trade Preferences).
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
Today, the Progressive Policy Institute (PPI) released a new report as part of PPI’s Ed Gresser’s testimony to the International Trade Commission’s (ITC) hearing on United States-Pacific Trade. Mr. Gresser spoke in support of the U.S. Trade Representative Katherine Tai’s request letter to the ITC on the Pacific Islands.
“I strongly endorse the Biden administration’s effort to rethink and upgrade U.S. policy in this region,” writes Ed Gresser in the report. “The administration’s decision to rethink Pacific Islands policy and develop more ambitious goals for these relationships is appropriate and timely. The United States has very substantial economic, human, and political assets in this part of the world, and can use them more effectively than we have in the past several decades, in the interest of both the United States and the Pacific Island countries.”
Gresser asks Congress to consider a 5-step process:
Renew the Generalized System of Preferences system soon
Add an environmental eligibility criterion
Allow Pacific Island Forum member to “cumulate” one another’s inputs
Develop a program of regular visits to the region
Work closely with allies to upgrade the U.S. government’s capacity-building and technical assistance programs
He also suggests a more ambitious and difficult alternative which would require legislation, in the creation of a “regional” preference program for the Pacific Island countries similar to the Caribbean Basin Initiative and African Growth and Opportunity Act.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI. Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he rejoined USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
PPI Vice President Ed Gresser submitted this testimony to the International Trade Commission at its public hearing on “U.S.-Pacific Islands Trade and Investment: Opportunities and Impediments” on February 14, 2023. The ITC held this hearing as part of a “Section 332” investigation project requested by U.S. Trade Representative Ambassador Katherine Tai as part of the implementation of the Pacific Strategy released by the Biden Administration at the U.S.-Pacific Islands summit in September 2022.
Chairman Johanson and Commissioners:
Thank you very much for this opportunity to offer thoughts as the U.S. International Trade Commission considers America’s trade and investment relationship with the Pacific Island countries.
By way of introduction, I am Vice President of the Progressive Policy Institute (PPI), a 501(c)(3) nonprofit think tank, established in 1989 and publishing on a wide range of public policy topics. In this position, I oversee our research and publications on trade and global economy matters. I came to PPI in October 2021, after six years of service as Assistant U.S. Trade Representative for Trade Policy and Economics.
Among the Trade Policy and Economics Office’s responsibilities is administration of the Generalized System of Preferences. During my term at USTR, in October 2018, I made a GSP- focused visit to Papua New Guinea and Fiji to discuss the program with these two countries’ government, policy, and business communities, and also with representatives of the 18-member Pacific Islands Forum at the group’s headquarters in Suva. I believe I and Lauren Gamache, an ITC expert on detail to USTR at the time, were the first USTR officers to visit the region at least since the 1980s (with the exception of APEC-related travel to PNG), and perhaps much longer. My testimony will draw on this visit and subsequent research and discussions, focusing principally on the third topic Ambassador Katherine Tai raises in her request letter: Pacific Island beneficiary country use of GSP, and ways in which GSP might more effectively serve their development goals and U.S. policy.
INTRODUCTION
As a point of departure, I strongly endorse the Biden administration’s effort to rethink and upgrade U.S. policy in this region. The administration’s “Pacific Partnership Strategy,” released at the U.S.-Pacific Islands Country Summit meeting in September 2022, lays out goals, including:
“Partnering with the Pacific Islands to drive global action to combat climate change … maintaining free, open, and peaceful waterways in the Pacific in which the rights to the freedom of navigation and overflight are recognized and respected, people are prioritized, trade flows are unimpeded, and the environment is protected. … [and] ensuring that growing geopolitical competition does not undermine the sovereignty and security of the Pacific Islands, of the United States, or of our allies and partners.”
I believe these goals mesh well with those of Pacific Island governments. I was struck, for example, by how many of my interlocutors took the opportunity during conversations focused on trade and tariff issues to stress their concern about climate change and overfishing, the strong and emotional commitment many stated for liberal democratic political systems, and their close study of U.S. trends in these areas. And I feel that as the Biden administration and Congress consider future policies, the United States has many political and financial assets in these areas. For example:
Geographically, the Pacific Island countries may seem far away, but are near neighbors to Hawaii, American Samoa, Guam, and the Northern Marianas Islands, and U.S. policy can therefore have a disproportionate impact;
Economically, we are roughly at par with New Zealand and Australia as their largest export market and largest source of remittance flows; and
In people-to-people terms, 1.4 million Americans trace their families to Pacific islands and have accordingly significant economic and intellectual influence on many Pacific Island countries.
The Biden administration and Congress, through ideas like Representative Ed Case’s “BLUE Pacific Act,” is looking for ways to use these assets more effectively. I believe GSP, assuming Congress renews the program, can help with this task. First of all, more than half of all Pacific Island countries are GSP beneficiaries. Ambassador Katherine Tai’s September 29, 2022, request letter to the ITC on the Pacific Islands lists 22 countries and territories of concern. Thirteen of these are GSP beneficiary countries: the Cook Islands, Fiji, Kiribati, Niue, Papua New Guinea, Pitcairn, Samoa, the Solomon Islands, Tokelau, Tonga, Tuvalu, Vanuatu, and Wallis and Futuna. The Pacific Islands region thus includes over 10% of all 119 current GSP beneficiary countries, though since their sizes are small, GSP imports from this group are rather low, varying between $10 million and $20 million over the last decade. Thus, they typically make up about 2% to 5% of the roughly $500 million in U.S. imports from Pacific Island countries and 0.1% of the $20 billion in annual total GSP imports.
GSP can be more effective in supporting the Pacific Islands countries in trade and economic diversification than it has been to date. And given that the scale of U.S.-Pacific Island trade is extremely small, even a significant increase would have minimal impact on the U.S. economy or on other countries exporting to the United States. However, it should not be “oversold,” and should be part of a larger program that also includes support for trade facilitation and logistical efficiency, lower-cost financial flows, and digital linkages in the region and with the United States. This is because while a tariff preference program on its own can create useful pricing advantages for small-country producers, it also has limits, and these are especially clear in the Pacific Island region:
(a)A tariff preference is only useful for products where tariff rates are above zero. Most Pacific Island country exports are natural resources and fishery products, which are already mostly duty-free under MFN tariffs in the United States, and tropical agriculture goods where tariffs are low.
(b)A tariff preference is most effective in high-tariff products, and many high-tariff products (e.g. clothing and canned tuna) are excluded from the U.S. GSP system as import-sensitive.
(c)Experience with targeted preference programs such as the Caribbean Basin Initiative and African Growth and Opportunity Act show that tariff benefits have only limited ability to offset geographical disadvantages and high transport costs.
So GSP or an alternative regional preference program will be most effective if accompanied by support for improved logistics, training in marketing of products in areas of Pacific Island comparative advantage, reduction of U.S.-Pacific Island and intra-Pacific communications and financial costs, and other measures.
BACKGROUND: PACIFIC ISLANDS GEOGRAPHY AND TRADE
Geographically, the South Pacific’s roughly 3,000 islands spread over an expanse of water as large as Asia, Europe, and North America combined. They combine to form 14 independent countries, three French overseas territories, one U.S. state, three U.S. insular territories, and three autonomous territories associated with Australia and New Zealand. Together they are home to about 11.5 million people, including about 9 million in Papua New Guinea, one million in Hawaii, and 1.5 million in the other 15 countries and territories combined. Their populations are very small (apart from Papua New Guinea), in a range from 10,000 to 900,000. And with the exception of Fiji, their economies are simple ones resting on small-scale agriculture, fisheries, tourism, and, in a few cases, logging and mining.
To review their trade profiles briefly:
OVERALL TRADE SUMMARY
First, while the Pacific Island countries’ trade volumes are low in comparison to those of larger countries, the islands are relatively trade-dependent. The World Bank’s estimate of their “trade share of GDP” has ranged from 80% to 100% over the past decade, a figure about double the 50% for all developing countries and four times the U.S.’ 25% level. This reflects in part their need to import most (and in some cases all) of their fuel, machinery, and marine technologies, but Pacific Island country exports are also quite large, typically around 40% of GDP.
Second, their exports are concentrated (with the exception of Fiji’s) in fishery products and natural resource goods. Major exports include canned and fresh tuna, tropical timber, mining products such as gold and copper, coconut, and primary agricultural goods ranging from chocolate and vanilla to taro, sweet potatoes, and cassava.
Third, their trade costs are high and their “connectivity” is low. A recent UNCTAD/World Bank/Pacific Islands Forum report (2021) shows the region is less advanced than others in implementing WTO Trade Facilitation Agreement measures such as the early release of shipments, special treatment for perishable goods, and electronic payment of customs duties and fees.
With these overall points as the background status quo, the U.S. is a major market for most Pacific Island countries, purchasing about a quarter of their total exports. We are not, however, an overwhelmingly large market, as is the case for the Caribbean islands. Other significant Pacific Island country markets include Australia and New Zealand, Japan, China, several ASEAN countries (typically purchasing fresh fish for processing), and intra-island trade.
The Census Bureau reports about $400 to $500 million a year in imports from the Pacific Islands, as against a range of $550 million to $1.25 billion in U.S. exports to these countries over the past five years. The largest share of U.S. Pacific Island country imports is in fisheries and agriculture, with fisheries accounting for $100 million in 2021, and agriculture a slightly lower $93 million. Agricultural import trends reveal some clear comparative advantages for Pacific Island producers. For example, Fiji ranks 5th, Samoa 11th, and Tonga 15th as sources of taro; Fiji is 9th and Tonga 12th as sources of cassava; Samoa ranks 9th as a supplier of coconut oil; Papua New Guinea and French Polynesia are suppliers of natural vanilla and Papua New Guinea of high-quality coffee and cocoa beans. Drinking water from Fiji is also a large import, at $40 million. Manufactured goods are a relatively small share of Pacific Island imports, as only Fiji has a significant manufacturing sector.
An important point to note here, as Appendix 1 illustrates in statistical form, is that roughly 80% of America’s Pacific Island country imports are duty-free under MFN tariff rates. This includes most fresh and chilled fish, water, coffee, and other natural resources. Thus, GSP is not relevant to some important Pacific Island nation products, and a program intended to improve the islands’ overall export fortunes should consider ways to improve the competitiveness of MFN-zero goods, as well as look at preference options.
COUNTRY SUMMARIES
Economically and for trade policy purposes, it might be useful to divide the islands into three groups, each sharing some general characteristics:
Group 1: Fiji
Fiji is unique in the region as a middle-income, complex economy with a container port as well as air cargo capacity, light manufacturing in processed foods and garments, and a relatively large and diverse export economy. It is also a center of policymaking and intellectual debate, as the site of the Pacific Islands Forum and the main campus of the University of the South Pacific.
According to the IMF’s “Direction of Trade Statistics” database, Fiji typically exports just under $1 billion per year, with the U.S. buying 20% to 25% of the total. The leading U.S. import is drinking water, widely sold under the “Fiji Water” brand. Australia and New Zealand are together a comparably large market for Fijian goods, as are the other Pacific islands.
Fiji is a successful GSP exporter in processed foods and some farm products, especially above-quota cane sugar (1.46 cents/kg), fresh and chilled taro (2.3% MFN tariff), candied and sushi-quality ginger (2.4% MFN tariff), bakery products (4.5% MFN tariff), and a canned fish product (6.0%). GSP imports typically are $10 million and $20 million per year, or about 5% to 10% of Fiji’s exports to the United States. The plant east of Suva which accounts for much of Fiji’s GSP ginger exports employs several hundred Fijians and at the time of my visit was using Oregon-distilled vinegar and Florida-made food manufacturing machinery to produce candied and sushi-quality ginger for American and Australian customers.
Fiji also has a large fisheries industry, including a fish processing plant. Several Fijian officials inquired as to whether canned tuna, for which U.S. MFN tariffs range as high as 35%, could be made GSP-eligible. It is already eligible for least-developed countries, but has traditionally been politically sensitive when proposed for eligibility for all beneficiary countries, given the importance of a tuna cannery to employment on American Samoa. It may also be that simply adding canned tuna to GSP without some attempt to reserve the benefits for Pacific Island countries might yield little, as larger producers such as Thailand and the Philippines would be eligible as well and might be lower-cost and preferred sources.
Group 2: Samoa, Tonga, Niue, Cook Islands, Tokelau, French Polynesia
These are small island archipelagoes, often heavily reliant on fishery and vulnerable to storms and overfishing by foreign fleets. The U.S. is a large export market for this group, whose $250 million in exports to the world in 2021 included $64 million to the United States. Other markets include Australia, New Zealand, and Japan. Several of these countries are successful GSP users. Tongan exports to the U.S. typically range between $1 million and $10 million, with up to 30% covered by GSP, led by taro (2.3% MFN tariff), yams (6.4%), frozen and chilled cassava (7.9% and 4.5%), and sweet potato (6.0%). GSP likewise applies to $2.9 million of Samoa’s $9.1 million in exports to the U.S., including fruit juice (0.5 cents/liter), taro (2.3%), and several processed foods under GSP.
French Polynesia is not a GSP beneficiary country.
Group 3: Papua New Guinea, Solomon Islands, New Caledonia, Vanuatu
These countries have extensive land area and undeveloped economies — the Solomon Islands are a Least Developed Country, and Vanuatu and Papua New Guinea are slightly above the LDC line — centered on large, generally foreign-owned mining and timber resource industries.
Papua New Guinea is unusual among Pacific Island countries for its large population, roughly 9 million. By World Bank estimates, PNG is the most “rural” country in the world, with 87% of the population living in villages, and has very limited internal road and air connectivity. Papuan exports total about $7 billion per year, concentrated in mining and timber for Asian markets (accounting for about 30% of Papuan GDP). The U.S. is a relatively small market for Papuan goods, with U.S. imports concentrated in MFN-zero products such as coffee, cocoa beans, vanilla, shrimp, and artwork. One product — oilcake, a coconut residue, with an MFN tariff of 0.45 cents/kg — frequently arrives in the U.S. under GSP, I believe for scientific purposes, with a value of about $0.3 million per year.
Vanuatu and the Solomon Islands have significant fishery industries, and the Solomon Islands have a large timber industry meant for Asian markets, accounting for about 25% of GDP. The Solomon Islands, as the region’s only Least-Developed Beneficiary Country, is the only Pacific Island state able to export duty-free canned tuna (in variety subject to a 12.5% MFN tariff) under the GSP program. Vanuatu has not exported under GSP in recent years, and New Caledonia is ineligible for GSP based on per capita income.
Group 4: Kiribati, Nauru, Tuvalu, Cook Islands, Niue, Tokelau
These are very small atoll states, with extremely low populations ranging from roughly 600 for Niue to about 40,000 for Kiribati. They have simple economies, often producing fish for local consumption and sometimes coconut products. Nauru is ineligible for GSP based on per capita income levels, and Tokelau is recorded as exporting a small quantity of miscellaneous goods under GSP. Their worldwide exports combined for $270 million in 2019, with the U.S. a very modest market at about $3.5 million.
Group 5: Marshall Islands, Palau, and the Federated States of Micronesia
These are “compact” states, assigned to the United States by the U.N. as Trust Territories after the Second World War and gaining their independence in the 1980s and 1990s. They are covered by a specially designed duty-free program, including duty-free privileges for canned tuna, and are not enrolled in GSP.
Final Point on Small-Scale Trade
Finally, though this is hard to measure, Pacific Island countries may be relatively more reliant on very small-scale trade flows than most countries.
Tongan writer Epeli Hau’ofa suggested this in a 1990s essay entitled Our Sea of Islands, in which he describes the large economic role emigrant workers in Australia, New Zealand, and the United States play in island economies:
“[A]t seaports and airports throughout the Central Pacific, consignments of goods from homes abroad are unloaded as those of the homelands are loaded. Construction materials, agricultural machinery, motor vehicles, other heavy goods, and a myriad other things are sent from relatives abroad, while handicrafts, tropical fruits and root crops, dried marine creatures, kava, and other delectables are dispatched from the homelands. Although this flow of goods is generally not included in official statistics, much of the welfare of ordinary people of Oceania depends on an informal movement along ancient routes drawn in bloodlines invisible to the enforcers of the laws of confinement and regulated mobility.”
TOWARD POLICY
How can U.S. policy generally, and GSP significantly, help the countries draw more economic and development benefit from trade? We should begin with some realism and avoid over-promising. The Pacific Island countries’ small population makes economic integration and diversification difficult, the large distances between them and the relatively high cost of transport and communications make economic integration and value-added exporting more challenging than is the case for (for example) the Caribbean, and most Pacific Island exports are already duty-free under MFN tariff rates.
However, trade preferences such as GSP can help in combination with capacity-building programs. The Biden administration has several options at different levels of ambition, ranging from more regular communication of GSP benefits to Pacific Island businesses and governments, to communication plus capacity-building in logistics, trade facilitation, and financial flows, to a regional program covering all Pacific Island country imports including those considered “import-sensitive.” Obviously, some of these are more ambitious and would require more political capital. But equally as obvious, the level of U.S. imports from the Pacific Islands is extremely low, and the real-world chance of any industrial disruption (or a significant import diversion away from other sources) emerging from even a large increase in Pacific Island imports would be minimal.
A next-generation approach to GSP or more broadly to trade preferences could set goals including:
Help Pacific Island countries diversify their economies and attract investment in labor-intensive industries through more extensive or better use of preferences;
Support regional economic integration, intra-Pacific Island trade flows and joint trade policy development;
Encourage sustainable forestry, mining, and fisheries;
Work closely with U.S. allies such as Australia and New Zealand;
Work on logistical costs and marketing opportunities as well as tariff policy.
With these goals in mind, I recommend five steps in the near-term, and the consideration of a sixth. The near-term options are (1) renew the GSP system soon; (2) add an environmental eligibility criterion during this renewal; (3) allow Pacific Island Forum members to “cumulate” one another’s inputs to qualify products for duty-free treatment under the GSP rule of origin; (4) develop a program of regular visits to the region to help local businesses and governments understand their potential GSP benefits; (5) work closely with Australia, New Zealand, Japan, and other allies in upgrading the U.S. government’s capacity-building and technical assistance programs in trade facilitation; sustainable fisheries, mining and forestry; financial exchanges including remittance costs. The more ambitious (6) would be to create a regional preference program drawing on experience from the Caribbean Basin initiative, which provides duty-free access for sensitive products including canned tuna and apparel, and the African Growth and Opportunity Act, which has similar broad benefits and also serves as a convening device through annual meetings with African Trade Ministers and other officials.
1. Renew GSP System
First, I hope Congress will renew the GSP system soon. In principle, some new approaches to policy can help make GSP more effective than it has been in the past. But GSP benefits expired as of January 1, 2021, and have not been reauthorized. In practice, therefore, GSP is offering no support for Pacific Island or other developing-country trade. The first step in any new approach to this region is the renewal of the program benefits.
2. Add an Environmental Criterion
Second, as part of this renewal, I would recommend adding an environmental criterion to GSP’s current list of 15 mandatory and discretionary eligibility criteria. I personally feel that the major GSP reauthorization bills in the last Congress proposed too many new criteria, and probably too strict revisions of some already in the GSP statute. This made me concerned that systematic and equitable enforcement of the criteria would become difficult, leading either to somewhat arbitrary openings of reviews, or even to an unintended wholesale expulsion of beneficiary countries from the system. I do, however, believe an environmental criterion, related to sustainable timber and mining, maritime environmental issues, and sustainable fisheries, would serve both a general good and Pacific Island nation policy goals.
Island governments and the people they represent have a high concern for the protection of fisheries and marine resources, but with very small governments their ability to impose these policies is modest. Likewise, the large timber and mining exports of some countries, amounting to 25% of GDP or more, can lead to deforestation if not managed properly and can also create incentives for corruption. A criterion can help encourage governments to give these issues priority and provide some leverage in the event that we see problems. But we should also be aware that often their resources are very small, not only in terms of finances but in terms of the number of trained lawyers, scientists, police officials, and other policy implementers a country of 100,000 people can bring to any policy problem. Therefore, the aim of eligibility criteria in the environment (or other areas) should be to encourage governments to adopt good policies and make good-faith efforts to enforce them, rather than to require enforcement levels often beyond their reach. An environmental criterion should also be complemented by capacity-building programs for Coast Guard training, fisheries management, and sustainable timber and mining industries. The Millennium Challenge Corporation is in fact working on a Compact to support the Solomon Islands on this issue.
3. Regional Cumulation
Third, assuming GSP is renewed, I recommend that the U.S. Trade Representative authorize participants in
U.S.-Pacific Island Trade and Investment Framework Agreement meetings to “cumulate” the value of inputs bought from one another to meet GSP rules of origin. This would allow any Pacific Island GSP beneficiary country to use inputs from others and count the value of these inputs towards GSP’s 35% value-added rule of origin. For example, the Solomon Islands fish cannery could export tuna caught in Vanuatuan waters under GSP, and Fiji’s bakeries could use taro root grown in Tonga.
This would at least to a modest extent encourage regional integration, a major goal of the Pacific Islands forum. Cumulation is already in place for sub-Saharan African countries enrolled in the African Growth and Opportunity Act, and members of the Caribbean Community in CBTPA and CBERA. My understanding is that this can be done through an administrative action by the U.S. Trade Representative, and I strongly recommend that she take this action for Pacific Island countries.
4. Build Awareness of U.S. Market Opportunities
Fourth, increase the frequency of visits by U.S. government economic and trade officials to ensure that island government officials and businesses understand the opportunities GSP benefits can create. As noted earlier, my own visit to Fiji was the first to any Pacific Island country other than APEC member Papua New Guinea by a USTR official in at least 40 years and perhaps in the agency’s history. Presentations on GSP issues drew extensive interest and attendance in both Suva and Port Moresby from officials, scholars, businesses, and representatives of other island governments. Since then, USTR has concluded Trade and Investment Framework Agreements with Fiji and Papua New Guinea, which have created a forum for regular government-to-government discussions on a range of topics, including GSP but also issues related to fisheries management, bilateral trade issues, WTO cooperation on fishery subsidies and electronic commerce, and other issues. It may also be valuable to include training in marketing for Pacific Island country agricultural producers and businesses, both to help them reach overseas workers and other expatriates and to take more advantage of the apparent comparative advantage they have in taro, cassava, yams, and high-value chocolate and vanilla.
5. Trade Facilitation and Remittance Costs
Fifth, recognize that most GSP tariff margins are relatively modest, ranging in the Pacific Island cases from 2.3% to 7.9%. With Pacific Island logistics and communication costs high, these preferences provide only a limited advantage. Attention to tariff matters, therefore, while valuable, should be accompanied by technical assistance that can lower the cost of trade. Here major issues would be improving maritime and air transport capacity, reducing the cost of financial remittances and telecommunications, and other measures that can help ease the Pacific Islands’ cost disadvantages in general and perhaps especially for small-scale trade among family members conducted through packages, express delivery, and similar means. In the same way, the Administration spoke in the Pacific Strategy report of considering ways to lower the cost of remittances from overseas workers to families, which would raise purchasing power and make these links less costly.
In this area, the Administration should participate in and help to build upon the extensive work done by Australia and New Zealand in supporting regional integration and trade links. PACER-Plus, for example, includes significant Australian and New Zealand support for trade infrastructure, fisheries management, and other important policy questions, and it will be far better for the United States to provide support and complementary programs than to duplicate existing work.
6. Consider a Regional Preference Program
Finally, over the medium term, the administration and Congress should consider creating a regional trade preference program for the Pacific Islands. This would be a step comparable to the Caribbean Basin Initiative, which was launched in the mid-1980s as a development program for Central America and is now the centerpiece of U.S. trade relations with the Caribbean Island countries, or the African Growth and Opportunity Act in the case of sub-Saharan Africa, though it would affect a much lower level of imports than either of these programs. Such a program could include regular trade and economic discussions at the Trade Minister or Deputy Minister level, and authorize benefits for Pacific islands in products considered more sensitive such as canned tuna and apparel. This would obviously require Congressional legislation and some considerable political investment (including an investment in time and staff work by U.S. government officials), but could also bring a significantly greater return than an upgrade of GSP alone, both in terms of helping the Pacific Island countries succeed in trade and in developing a stronger basis for larger relationships.
CONCLUSION
In sum, I believe the administration’s decision to rethink Pacific Islands policy and develop more ambitious goals for these relationships is appropriate and timely. The United States has very substantial economic, human, and political assets in this part of the world, and can use them more effectively than we have in the past several decades, in the interest of both the United States and the Pacific Island countries.
Trade policy has a useful role to play in this, both through some redesign of U.S. trade preference programs, technical assistance and capacity-building, and more frequent and substantive contacts with Pacific Island governments and the Pacific Islands Forum as a group. I support Ambassador Tai’s interest in finding ways to achieve this, and hope my testimony provides useful material as the Commission considers the request.
The Biden administration has sensibly rejected attempts by some far-right Republicans to hold the full faith and credit of the U.S. hostage in exchange for spending cuts. The administration now must show it will be open to good-faith budget negotiations after the impasse over the federal debt limit is resolved.
Unfortunately, the White House made a bad call last week, when spokesman Andrew Bates referred to the idea of a bipartisan commission that would make recommendations to shore up the solvency of Social Security and Medicare as “a death panel.” This throwback to Sarah Palin’s 2009 attack on the Affordable Care Act is as wrong now as it was then. President Biden should reconsider his administration’s stance.
Social Security and Medicare are the foundation of American retirement security—and they are in jeopardy if Congress doesn’t act. Both programs spend more on benefits than they raise in dedicated revenue. When their trust funds are exhausted, current law requires that benefits automatically be reduced to the level that can be paid with incoming revenue. That day is coming: According to the Congressional Budget Office and the programs’ trustees, it could be as soon as 2028 for Medicare Part A Hospital Insurance and 2033 for Social Security.
PPI has long supported the expansion and reform of income-driven repayment programs that directly tie debt cancellation to a borrower’s ability to pay. Considering the high cost of a college education today, we believe policymakers ought to target relief to borrowers who are stuck with the debt of pursuing a degree without being able to reap the financial benefits of attaining one.
Accordingly, PPI was encouraged when the administration announced efforts to simplify and expand income-driven repayments. The current proposal should be commended for streamlining the array of repayment options, many of which have complicated terms and lengthy processes that deter enrollment by borrowers who would benefit, while also automatically enrolling eligible borrowers in an IDR plan. Additionally, the rule would offer new benefits for low-income borrowers with high loan balances. PPI supports efforts to make IDR more accessible, help distressed borrowers, and ensure affluent college graduates still pay their fair share for the benefits their degrees confer.
However, we are concerned that the proposed expansion is overly aggressive. Below is an analysis we submitted as part of the public comment period that shows the proposed rule will likely turn income-driven repayment from a safety net for vulnerable populations into a broad-based subsidy that Congress never intended. PPI estimates that a typical college-educated worker enrolled in the reformed program would only pay 2.5% of their income in student loan payments over 20 years, after which point the remaining balance would be forgiven. As a result, they would only end up paying three-fifths of the amount they initially borrowed, and not a dollar of interest.
With such generous terms for the average borrower, the new proposal is likely to become the new normal for most college students. Even families that can afford to save and pay for school with cash are likely to borrow money with such a generous subsidy for the vast majority of students. We are not alone in our findings: the Penn Wharton Budget Model and Adam Looney of the Brookings Institution both estimate that over 70% of college attendees would enroll in the revamped program. Whether it is through higher future taxes or inflation, workers who don’t have the opportunity to benefit from a college education will be stuck footing the bill for those who do.
By providing such a large and broad-based subsidy, the proposed changes would also encourage colleges and universities to avoid making the tough choices needed to contain costs, and would enable them to keep hiking tuition and fees faster than the growth in incomes and other prices. For these reasons, independent estimates have found that the cost increase associated with this proposal is likely to be between three and ten times as much as the $128 billion estimated by the Department of Education. It would also
Our comment urges the Department to delay implementation of this rule until it has conducted a more thorough estimate of the proposal’s cost to taxpayers and the impact it would have on the higher education financing system. It is our hope that the proposal is refined to be more carefully targeted toward those borrowers who leave college with low incomes and high debts. Insofar as higher education suffers from structural problems such as runaway tuition hikes, those are issues for Congress to address. Overly aggressive expansion of income-driven repayment is not a solution for structural financing problems, and as we have demonstrated, is likely to make them worse.
