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.
A major question facing American energy and climate policymakers today is what role abundant U.S. natural gas should play in the global clean energy transition. Some environmental activists oppose all gas use. But a new report from the Progressive Policy Institute (PPI) finds that expanding U.S. liquefied natural gas exports can lower global greenhouse gas emissions significantly, especially if fugitive emissions of methane are deeply reduced.
The climate benefits of America’s shale gas revolution have been evident domestically for years. More than three-fifths of total U.S. carbon dioxide emissions reductions over the period 2005 to 2020 were due to coal-fired power plants being replaced by natural gas plants.
In the last year, since Russia’s invasion of Ukraine, the U.S. has also become the world’s largest liquefied natural gas (LNG) exporter, more than doubling deliveries to Europe. This has helped the EU’s economy withstand the cutoff of most Russian gas, with clear geopolitical and economic benefits. Less appreciated are the emissions reductions achieved, since American LNG has limited the growth in the EU’s coal and also reduced use of higher methane-leaking Russian gas.
Will Marshall is the president and founder of PPI, and he joins The Neoliberal Podcast this week to discuss immigration policy.
The Neoliberal Podcast discusses how we approach immigration from different angles, and try to find how sensible liberals can find common ground to make immigration reform happen.
This episode originally aired on The Neoliberal Podcast, which can be found here.
Learn more about the Progressive Policy Institute here.
* “Trade-weighted,” combining tariffs collected on all imports, including those under MFN tariff rates, Chinese products subject to “301” tariffs, and FTA/preference products exempted from tariffs.
WHAT THEY MEAN:
Worst Valentine’s Day surprise ever: The U.S. tariff system taxes women’s underwear more heavily than men’s. Facts follow:
1. Steel vs. Underwear: First, tariffs are fundamentally a form of taxation, and tariffs on underwear are high. A Google search this morning finds “about 144,000” uses of the phrase “steel tariffs” and “about three” (3) of the phrase “underwear tariffs.” But despite the domestic and international controversy over steel tariffs, clothing tariffs in general and underwear tariffs specifically are lots higher. In 2021, automakers, building contractors, and other metal buyers ferried 28 million tons of steel in from abroad for $44 billion, and paid the Customs Service $2.5 billion in tariffs. Thus the “average” tariff on steel came to about 5%. Buyers of clothing, meanwhile, bought 5.5 million tons of clothes for $109 billion and paid $16 billion on it, for an average of 14.5%. Underwear makes up about a tenth of clothing imports — 519,000 tons or 3.4 billion articles, at $10.1 billion last year — and brought in $1.54 billion in tariff revenue. The average underwear tariff, therefore, was 14.7%* or about three times the rate on steel.
2. Tariff Rates: Second, the U.S. tariff system taxes women’s underwear at higher rates than men’s. To dip briefly into Customs-and-trade-policy jargon, underwear tariffs are published in Chapter 61 of the Harmonized Tariff Schedule** (“Knitted or Crocheted”), headings 6107 and 6108, and in Chapter 62 (“Other than Knitted or Crocheted”) headings 6207, 6208, and 6212. Together these five sections spread out over 17 pages and include 68 separate tariff “lines,” from line “61071100,” for men’s cotton underpants and briefs, to line “62129000,” a catchall for unclassifiable and possibly exotic things. The rates in these 68 lines range from 0.9% to 23.5%, diverging mainly along lines of class and gender. Among the products with clearly comparable female and male items, (a) aristocratic silks are lightly taxed, at 2.1% for women’s panties and 0.9% for male boxers and briefs; (b) the analogous working-class polyesters are heavily taxed, at 14.9% for men and 16.0% for women; and (c) middle-class cottons are, well, in the middle, at 7.6% for women and 7.4% for men. The highest rates fall on women’s products in heading 6212 with no obvious masculine counterpart: brassieres in a range from 4.8% (silk) to 16.9% (cotton or polyester), girdles 20%, and corsets 23.5%.
3. Costs: Third, tariffs on underwear, like consumer goods tariffs generally, are eventually paid by shoppers. Since Americans buy more women’s underwear than men’s, and since it is more heavily taxed, Customs raises more money from the women’s stuff. About three quarters of the $1.54 billion in underwear tariffs last year — $1.23 billion on $7.90 billion in imports, for an average rate of 15.5% — came from women’s underwear. Men’s brought in $306 million on $2.65 billion, for an 11.5% average. Peering a bit more closely, the $1.23 billion in lingerie tariffs came from 3.28 billion separate articles — i.e., about 37 cents per piece. The $306 million on men’s products came from 1.28 billion separate articles, or about 24 cents each. Markups, domestic transport costs, sales taxes, and so forth appear to have roughly tripled the prices of clothing*** from border to cash register last year, with tariffs amplified a bit at each stage. While precise figures would vary with the price of the item, on average the tariff system appears to add about $1.10 to the cost of each women’s underwear item, and 75 cents to men’s.
4. Comparisons: In international context, the U.S.’ underwear tariff rates as an overall average are pretty typical. But the U.S. system is (a) very unusual in taxing luxuries more lightly than mass-market goods, and (b) possibly unique in taxing women’s underwear more heavily than men’s. Most tariff systems have flat rates applying to all underwear: 5% in Australia, 10% in New Zealand, 18% in Canada, 20% in Colombia, also 20% in Jamaica, 25% (with an anti-poor twist, see below) in India, 30% in Thailand, an eyebrow-raising high 45% in South Africa, and so on. The Japanese and EU tariff systems in fact have a modest pro-female tilt, as they impose lower rates — zero in the Japanese case, 6.5% in the EU — on products in the 6212 heading, such as brassieres and corsets, as against flat rates of 9% and 12% for the rest.
As to the U.S., shifting from the jargon of customs and trade to that of policy analysis and evaluation: Seriously?! Boo! Do better! 😡 😡 😡
Nonetheless, we still wish readers a happy and romantic Valentine’s Day.
* Up from 12.0% in 2017. This increase to some extent reflects the “301” tariffs on Chinese-stitched brassieres, briefs, etc. imposed in 2019, but other factors are at work as well. Both China and zero-tariff Central America have also lost market share, while MFN suppliers in Bangladesh, Vietnam, Cambodia, Indonesia, and India have gained relative to both.
** Some other clothing items show up in Chapters 42 and 48 — respectively leather and rubber products — but underwear of these types have no specific tariff line, so left out of the analysis above.
*** Clothing spending by consumers was about $400 billion last year; import value at the border $110 billion; 98% of clothing is imported.
FURTHER READING:
The U.S. International Trade Commission maintains the U.S. Harmonized Tariff Schedule. Check Chapter 61, sections 6107 and 6108, and Chapter 62, sections 6207, 6208, and 6212 for underwear.
And the ITC’s Dataweb requires a bit of HTS expertise but appears unique in the world in allowing ordinary citizens to get not only tariff rates but very detailed information on U.S. exports, U.S. imports, and tariff collection, by product and country.
Background:
Is the anti-female tilt of underwear tariffs typical of the American tariff system, or a weird anomaly? Overall, the “class” bias, in which silks and cashmeres are taxed lightly while cottons are taxed heavily and polyester and acrylics most of all, is the norm for U.S. consumer goods tariffs. The “gender” bias, in which women’s underwear attracts higher tariffs than analogous men’s goods, seems less systematic though still the rule. Asked to study these questions in 2018, ITC economists concluded the following:
“… [T]ariffs act as a flat consumption tax. Since a flat consumption tax is a regressive tax on income, tariffs fall disproportionately on the poor. Across genders, we find large differences in tariff burden. Focusing on apparel products, which were responsible for about 75% of the total tariff burden on U.S. households, we find that the majority, 66%, of the tariff burden was from women’s apparel products. In 2015, the tariff burden for U.S. households on women’s apparel was $2.77 billion more than on men’s clothing. … . This gender gap has grown about 11% in real terms between 2006 and 2016. We find that two facts are responsible for this gender gap: women spend more on apparel than men and women’s apparel faces higher tariffs than men’s.”
The European Union tariff system has a 12% tariff on all briefs, panties, and boxers whether cotton, silk, or polyester, and whether designated “men’s and boy’s” or “women’s and girl’s,” and a lower 6.5% on brassieres and corsets.
Japan’s is 9% on comparable things and duty-free on brassieres and corsets.
India has an anti-poor tilt (many items get “25% or Rs25, whichever is higher,” in practice meaning >25% rates for anything costing less than $1.25 per item, so in practice cheap goods important to low-income families will be taxed more heavily than expensive luxuries), but no divergence in men’s and women’s rates.
… and a nine-expert panel (“Does Trade Liberalization Have Gender’s Back?”) from last December’s.
ABOUT ED
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.
On the eve of last week’s annual School Choice Week celebration, the Supreme Court gave millions of parents, teachers, and students, including the public charter school community, a surprising gift. Many Americans are likely unaware of pending legal activity in Washington, D.C., that could dramatically alter public education as we’ve known it. The pending litigation is a big deal, and the Supreme Court acted with common sense by seeking outside advice on whether or not to take the case.
The case at issue is Peltier v. Charter Day School. The defendant, Charter Day School (CDS), has appealed an en banc ruling from the Fourth Circuit Court of Appeals to the Supreme Court. The Fourth Circuit’s ruling legally designated the North Carolina public charter school as a public school, finding that it had acted under the “color of state law” when it implemented a policy prohibiting girls from wearing pants to school.
An Introduction from PPI’s Government Relations team…
Two years into President Biden’s first term, a narrow Republican majority in the House threatens to thwart the historic progress made by his Administration. Kevin McCarthy and the House Republican Caucus have already threatened to drive the U.S. into default, engaged in partisan investigations, and neglected to lay out a sound legislative agenda. Once again, a divided government endangers real progress.
At PPI, we hope President Biden will see Tuesday’s State of the Union address as an opportunity to chip away at the partisan stalemate that has taken hold of American politics. With Republicans content to do nothing but obstruct and finger-point, President Biden should play the long game and start charting the Democratic Party on a course to build a lasting, durable majority that is capable of withstanding the electoral swing every two years.
In order to achieve this goal, the President ought to focus on ways in which the party can dramatically expand the size of its coalition. In the 2022 election cycle, independent voters broke in large numbers for the Democratic party, making a dramatic difference in key states and races all across the county. President Biden should make a direct appeal to these voters and other working class Americans by offering a clear vision and compelling solutions to issues that polling shows they care about like crime, immigration, inflation, and the economy. The President should consider embracing cultural moderation and directly address the concerns of vital constituencies that far-left progressives have been alienating.
In terms of policy, this means embracing the innovation economy, not trying to break it up, reducing inflation and debt, and adopting an export-oriented trade policy. It means ending the disparity between the huge amounts of money Washington invests in college-bound people and the paltry investments it makes in the skills and career prospects of the non-college majority. It means championing public school choice and accountability rather than the K-12 status quo that’s failing low-income families. It means climate pragmatism that recognizes that we can achieve our greenhouse reduction goals through intelligent use of all energy sources and innovations like carbon capture and storage.
Finally, the President should unequivocally affirm America’s support for Ukraine and reject anti-democratic movements both abroad and at home. Free nations across the globe are dealing with the rise of authoritarianism, and America must show to the world that America will stand strong to defeat it.
Below, our experts at PPI have presented more bold policy suggestions and radically pragmatic solutions for the Administration to consider as they build out the agenda for the final years of the President’s first term.
President Biden’s State of the Union address comes at a turning point for the economy. Although fiscal stimulus was right for the economy in the depths of a pandemic recession, continuing to pursue legislation and executive actions that increase rather than reduce deficits undermines the Federal Reserve’s progress in controlling inflation. After a midterm in which a plurality of voters in exit polls ranked inflation as their number one concern and gave Democrats poor marks for their handling of it, Biden should use his speech to show that he will do the hard work to regain credibility on the issues of responsible fiscal management and inflation control. One way he could do this is by announcing a commission to review the recovery response and how policymakers can better address recessions and inflation in the future, which is an idea first proposed by PPI and endorsed in the New Democrat Coalition’s Inflation Action Plan last year.
The president also needs to lay a clear marker for the upcoming fight over the federal debt limit. He is right not to reward Republican hostage-taking with the full faith and credit of the United States. But with annual interest payments on the national debt set to eclipse defense spending by 2030 and Social Security by 2050, Biden should outline a process for better budget negotiations, such as the Responsible Budgeting Act and the TRUST Act, that he is willing to engage in good faith after Republicans take the threat of default off the table. Getting our fiscal house in order would help control inflation today and boost economic growth over the long term.
Finally, Biden should offer a real plan for making access to higher education affordable for all Americans. With the Supreme Court likely putting his attempt to enact roughly half a trillion dollars of mass student debt cancellation by executive action on ice, it’s not enough to simply blame “partisan lawsuits” for his inability to reduce costs and expand access in a responsible and sustainable way. He should challenge Congress to strike a “grand bargain” on higher education and workforce development that controls costs and expands opportunity for workers across the income distribution. This includes both forcing colleges to get more cost-effective and finding new pathways to good jobs for non-college educated workers.
This post is part of a series from PPI’s policy experts ahead of President Biden’s State of the Union address. Read more here.
Biden SOTU Must Recommit to American Workers in a New Way
Last year’s State of the Union emphasized the Biden Administration’s commitment to the American worker. In his remarks, the President discussed the need to grow our skilled talent in the U.S. and create new jobs that offer stronger paths to the middle class. As we reflect on the past year, President Biden has kept some of his promises. The economy has continued to grow, with the last jobs report showing unemployment continuing to edge down to 3.4% with over 500,000 jobs created. While this is good news, it does not mean the commitment ends here. This State of the Union, PPI looks to President Bident to recommit to American workers and confront current and future challenges facing our nation, hearing the Administration’s plan to:
1. Prepare people for jobs of the future. Jobs will continue to change and be created through technological advancements. In addition, as America works to implement the recently passed CHIPS & Science Act, we need a workforce that is skilled at executing this policy’s vision and can grow America’s semiconductor industry.
2. Better support non-degree workers. To meet these skill needs, the Administration has continued to advocate for “college for all.” But most Americans don’t earn degrees, and a bachelor’s or advanced degree — which takes extensive time and resources — shouldn’t be the only path to a good, middle-class jobs. If the Administration truly wants to bolster America’s middle class, President Biden should stop discriminating against non-degree workers and commit to skill development strategies that work, are innovative and don’t promote college as the only postsecondary path.
3. Help eligible workers on the sidelines re-engage with the labor market. The last jobs report showed that our nation’s workforce participation rate, which represents the number of people working or actively looking for work, is at 62.4%, which is only one percentage point higher than it was at the start of the pandemic. This means roughly 37.6% of Americans that could be working are detached from the labor market because they believe there are no jobs available to them, or they are facing personal challenges that make it hard to retain employment. The Administration must address this phenomenon and commit not only to skill development efforts but to other supports, including policies around child care, family leave, and other services that can get American’s re-engaged with the labor market and reboot our nation’s workforce participation rate.
Looking to the next year of the Biden presidency, these issues must be a priority to ensure individuals are prepared for careers of the future, economic opportunity is shared and the U.S. remains competitive in the global economy.
This post is part of a series from PPI’s policy experts ahead of President Biden’s State of the Union address. Read more here.
The U.S. needs a new driver of growth as COVID-era fiscal stimulus is set to be replaced by deficit-cutting, and the consumer boom of 2021 and early 2022 fading. Exports should fill this need, but over the past six years, the United States has lost market share abroad and exporting companies at home. Between 2016 and 2021, the U.S.’ share of world exports fell:
From 8.6% to 7.3% in manufacturing
From 10.4% to 9.4% in agriculture, and
From 15.2% to 12.9% in commercial services
Meanwhile, the count of U.S. exporting businesses dropped from 290,600 to 277,500.
We hope President Biden will take the State of the Union opportunity to launch an ambitious program to rebuild America’s export economy in the aftermath of the Trump administration’s retreat. This includes a return to efforts to reduce tariffs and other barriers to U.S. exports, strong support for the Ex-Im Bank’s export financing mission, and export promotion programs. American allies such as Japan, the U.K., and others have expressed hopes for closer trade and investment links to the United States, and officials such as Treasury Secretary Yellen have sketched out the outline of a “friendshoring” program that can achieve it, and there’s no better place to launch this than the SOTU.
This post is part of a series from PPI’s policy experts ahead of President Biden’s State of the Union address. Read more here.
