FACT: The U.S. collects more tariff money on Pakistani goods than on British goods.

THE NUMBERS: 

Imports from U.K., 2022:                $63.8 billion
Imports from Pakistan, 2022:         $6.0 billion

Tariffs on Pakistani goods, 2022:   $607 million
Tariffs on U.K. goods, 2022:           $578 million

 

WHAT THEY MEAN:

National Security Advisor Jake Sullivan in April asserted (mistakenly) that the U.S.’ “trade-weighted average tariff rate is 2.4 percent.” His source for this number is unclear; the actual figure, via the U.S. International Trade Commission (see below for detail on authoritative estimates) for 2021 was 3.0%, and pending their official word the 2022 rate looks like 2.8%.

A single number like this, though, is useful but blurry. The blurriness reflects the fact that the actual 11,414 official tariff rates vary greatly. The 5,864 ad valorem tariffs alone start at 0.1% and go as high as 48.0%, the 1,078 specific duties and compound tariffs add complexity, and both are then complicated by thousands of special waivers and surcharges. Therefore as a buyer, the rates you pay depend both on what you’re buying and from whom you got it, and as a country, it’s unusual to get a rate very close to the ‘average.

To oversimplify, the permanent “MFN” tariff system raised about $45 billion last year. It taxes low-priced clothes, shoes, and other consumer goods most heavily, natural resource products and high-tech goods most lightly, and heavy-industry and food in between. Therefore it hits lower-income families hardest. The Trump era’s administratively created “232” tariffs on metals and “301” tariffs on about half of imports from China brought in about the same amount of money (mainly from Chinese goods), but mainly cover industrial inputs such as metals, auto parts, and electronics, and so fall most heavily on industrial-sector buyers like auto plants, construction firms, and repair shops. Meanwhile, the U.S.’ 20 FTAs and three currently operating developing-country “preference” programs waive most tariffs for buyers of things from Canada, Mexico, Australia, South Korea, 16 other FTA partners, and also for countries in sub-Saharan Africa and the Caribbean littoral. Putting all these things together, in practice the 2.8% average becomes a range rising from 0% (for Cuba) to 15.0% (for Bangladesh), with natural-resource exporters and most African countries near the bottom, high-income countries a bit below the world average, diversified middle-income states very close to the average, and low-income Asian countries along with China at the top.

Here’s a look as of 2022, with a few entries from earlier years to illustrate the impacts of the 232 and 301 tariffs:

Three explanatory notes for this pattern:

High tariffs on low-income Asia: The high rates at the top reflect the specialization of many lower-income Asian countries — Bangladesh, Sri Lanka, and Pakistan in particular, Cambodia now a bit less so — in exports of clothing and home textiles. This explains why buyers of Pakistan’s modest $6 billion worth of shirts, towels, and similar goods pay fourteen times more than buyers of Norway’s slightly larger $6.7 billion in salmon, oil, and pharmaceuticals, and in fact more than buyers of $63 billion in British medicines, art auction proceeds, and aircraft parts. Ethiopia also shows up here, having lost its AGOA tariff waiver in January 2022 but still exporting somewhat smaller quantities of clothes.

Low-to-medium rate on others: The lowest rates show up for countries that are (a) natural resource exporters (oil for Kuwait and Saudi Arabia, fish for Fiji and Greenland); and (b) FTA partners and special program beneficiaries, with Canada, Jordan, El Salvador, South Korea, and Colombia representing the first group; and Kenya, South Africa, Ghana, Haiti, and Jamaica the second. Larger upper-middle-income and high-income countries — Germany, Poland, Brazil, Argentina, Thailand, Japan — have diversified export mixes, typically with a lot of zero-tariff products, a lot of mid-tariff products, and some high-tariff goods, and usually wind up in a range from 1% to 3%. India is also now in this range, though still a lower-middle-income country. There was only one actual zero-tariff country in the world — meaning, some imports but no tariff revenue collected at all. This weirdly turns out to be Cuba, where trade remains mostly banned, a few licensed U.S. buyers have been buying Cuban artwork, and tariffs on paintings, sculpture, antiques, etc. are all permanently set at zero.

301 & 232 effects: The U.S. worldwide tariff average — that is, the statistic Sullivan was looking for — doubled from 1.4% in 2017 to 2.8% in 2022. The effect of the Trump administration’s “232” steel and aluminum tariffs was small, affecting only about 1.5% of imports and changing average rates for suppliers like the EU, Japan, and Brazil only modestly. The higher global average mainly results from the “301” tariffs on Chinese goods: following these, though China lost some “import market share,” total imports of Chinese goods remained at $500 billion, tariff revenue rose about four-fold, and the average tariff paid by buyers of Chinese goods accordingly rose from 2.7% to 11.0%.  This 11.0% is quite high in comparison to the world average — but, pretty remarkably, is still below the normal rates imposed on buyers of Bangladeshi and Sri Lankan goods.

FURTHER READING:

Sullivan’s April global-economy talk.

… and a worried response from PPI’s Ed Gresser.

At home:

PPI’s take on the tariff system as a form of taxation, and its impact on low-income American families and communities.

Case study 1: PPI’s Valentine’s Day blast against the unfair, gender-biased U.S. underwear tariff system.

Case study 2:  And reports on the contrast between high tariff rates on cheap stainless-steel spoons, and low ones on sterling silver.

“Average tariff rate”:

The NSC’s neighbors at the Office of Management and Budget report $99.9 billion in “customs duties and fees” in FY2022. This makes the tariff system the fourth-largest federal tax, about equal to the combined revenue totals from the $32.5 billion inheritance taxes, the $46.6 billion gas tax, and the $10.2 billion alcohol and $11.3 billion tobacco excise taxes. Subtracting the two main fees from this total (CBP’s Merchandise Processing Fee and Harbor Maintenance Fee revenue), the result is an average of about 2.8%. The U.S. International Trade Commission annually reports “duties” without the “fees”, but hasn’t yet released its final 2022 figure. For 2021 it got $84.5 billion in tariffs, $2.824 trillion in imports, and a 3.0% overall rate. Their preliminary figure for 2022 is a bit lower, with $90.1 billion in tariffs on $3.277 billion in imports, or 2.75%.

OMB’s Historical Tables offer comparisons with other taxes.

… CBP explains the “fees.”

A long view – The U.S. International Trade Commission tracks U.S. tariff rates from the McKinley Tariff of 1890 to 2021.

The tariff system itself:

From the first chapter (01 for live animals) to the last, (97, for artwork), the tariff system’s 11,414 different eight-digit “lines” are meant to give every physical thing a number and a tax rate. The first line, “0101.21.00” stands for “purebred breeding horses” and is set at zero. The last, “9706.90.00,” is for antiques between 100 and 249 years old and is also zero. Overall, the 11,414 lines include (a) 4,315 set at zero (say, for natural gas, smartphones, paper, toys, and medicines); 5,864 with above-zero “ad valorem” (i.e., percentage) tariffs ranging from 0.1% to a peak of 48% for cheap sneakers; and 1,078 “specific duties” (flat fees) and “compound” tariffs (percentages plus flat fees), where tariff change each year with prices. For example, pinking shears used by tailors and dry cleaners are set at 8% plus 8 cents for each. Adding to the confusion are thousands of exemptions and surcharges coded via letters or set down in alternative chapters 98 and 99.

From the ITC, a two-page summary of the 11,414 U.S. tariff lines — how many zero? how many duty-free under FTAs and preferences? how many “specific duties” and compounds? — etc.

And the actual U.S. tariff system, by chapter or the full 4,352-page book in PDF.

International comparisons:

The World Bank’s interactive table of average tariff rates worldwide and by country uses the same “weighted” approach. It has a worldwide average of 2.6% as of 2017, and rates by country for the most recent available year. The world’s highest rate is Bermuda’s 24.1%, followed by Belize at 18.7%, Gambia 17.8%, and Djibouti 7.6%. The lowest are the zeroes for Hong Kong and Macao. Use this with care; its 1.5% figure for the U.S., though correct for 2017, is dated “2020” and isn’t right.

The WTO’s World Tariff Profiles 2022 has more detail, with simple averages, trade-weighted averages, “tariff peak” counts, ag vs. non-ag., and more for 151 countries.

 

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.

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FACT: American colonies’ “official” tea imports in 1772: 370 tons

THE NUMBERS: Vessel calls at Boston Harbor –

2020:         779*
1772:           845

* Cargo vessels; adding fishing vessels and cruise ships, the annual total is likely around 1,500. 

 

WHAT THEY MEAN:

A post-Fourth coda:

The Declaration’s opening paragraphs speak to aspirations — “Life, Liberty, and the pursuit of Happiness” — and the responsibilities of government.  The actual declaration of independence, “these United Colonies are, and of Right ought to be Free and Independent States”, comes at the close.  In between is a list of 27 grievances, of which the sixteenth is a trade policy complaint — “cutting off our Trade with all parts of the world” — and the seventeenth is a general problem of taxation appearing in the form of tariffs. (“Imposing Taxes on us without our Consent”.)  Apart from the patriotic images the list elicits – chests of tea falling into the harbor, red-coated soldiers patrolling colonial Boston, the Continental Congress meeting in Philadelphia — the grievances both refer to very specific events of 1773 and 1774, and raise larger questions about how trade policy and commerce interact with governance, personal rights and liberties, and war.

Background: Just before the revolution, the American colonies had a population of about 2.15 million spread out along the Atlantic seaboard, with the largest concentrations in Massachusetts, New York, Pennsylvania, and Virginia. They appear to have made up about 20% of the population and 30% of the “GDP” of the British empire, and had very busy maritime economies.  Modern attempts to estimate a trade-to-GDP ratio for the early United States in the 1790s show imports at something like 17% of GDP and exports a bit less — figures very close to those of the 2020s — and these ratios were probably higher before the Revolution. Actual figures collected at the time illustrate: The Port of Boston served a Massachusetts population of about 280,000 and reported 845 ship arrivals in 1772, the year before the Tea Party.* Of this total, 93 came into port from Britain and Ireland, 20 from continental Europe, 216 from the Caribbean, and 427 from other North American ports. Adding New York, Philadelphia, Hampton, and Charleston to the Boston figures gives a total of 3,076 arrivals, including 393 from Britain and Ireland, 230 from Europe, 31 from Africa, and 985 from the Caribbean.

In financial and product terms, outbound vessels carried about £3.4 million a year in colonial exports, of which about half (by value) went to Britain and Ireland, a quarter to continental Europe, and a quarter to the Caribbean. These were mostly resource products and agricultural goods. The top 1772 export, accounting for a bit more than a quarter of the total, was £907,000 worth of tobacco from slave-worked plantations in the mid-Atlantic. Next came £397,000 of New England fish, £504,000 of flour and bread, £341,000 of South Carolina rice, and on down through indigo, wheat, furs, whale oil, horses, and a few manufactured goods including wooden barrels, pig iron, and ship masts. British “Navigation Acts” dating to the 17th century regulated several of these products quite strictly (for example, on grounds of naval need the colonies weren’t allowed to ship timber anywhere but Britain) but don’t seem to always been very energetically enforced in other areas. The Declaration’s two trade grievances, relating to events of 1773 and 1774, are as follows:

(1) “Imposing taxes without our Consent”:  Parliamentary laws in the 1760s imposing a series of taxes — first document-stamping, then imported molasses, paper, glass, sugar, and tea — opened up the taxation-without-representation argument. The Tea Party event (December 16, 1773) was the last phase in this dispute, and adds vivid global-economy color to its more abstract intellectual and constitutional core. To recap:  about three dozen “Sons of Liberty” raided three Nantucket-owned ships chartered by the British East India Company, which then administered Britain’s relatively new Asian empire (concentrated in present-day Bangladesh and the Calcutta hinterlands along with southern India and Bombay but quickly getting bigger) and handled China trade. The actual tea thrown into the harbor, collected in 342 wooden chests weighing about 125 kilos each, had all been purchased in Guangzhou in 1771. It included 75 chests of green tea, 240 of low-priced bohea, 15 of upper-class congou, and 10 of elite Fujian souchong. Together it weighed 46 tons, or about an eighth of the year’s British 370 tons of tea sales to the colonies.

The grievance prompting this event was a 3 pence-per-pound tea tax, kept in effect since 1768 though the other objectionable taxes had been withdrawn in 1770. In passing the May 1773 “Tea Act,” Parliament’s main ‘policy’ goal was to bail out the East India Company, which had nearly bankrupted itself during the conquest of Bengal. The Company had originally purchased the tea intending to auction it off in London, but found itself stuck with more than it could sell during an economic downturn. (Having sat in warehouses for two years, it might have gotten a bit moldy.)  In more ideological terms Parliament wanted to (a) enforce Navigation Act regulations barring colonists from buying tea from other sources, amid probably exaggerated claims that as much as 85% of colonial tea came tax-free from the Netherlands via colonial “smugglers”, and (b) insist once again on the very grating point about Parliamentary rights to tax the colonies without their approval.  Bostonians weren’t alone in their annoyance: Philadelphians boycotted a similar East India Company tea ship in the same month (the captain left without a fight), and New Yorkers had planned to do the same, but their tea ship got blown off course in a storm and wound up in Antigua. The last tea ship, sent to Charleston, off-loaded the tea but couldn’t sell it.

(2) “Cutting off our Trade with all parts of the world”: Parliament learned of the Tea Party in late January of 1774 — the trans-Atlantic voyage took about a month — and responded in March with five new laws collectively called the “Coercive Acts.” The first of these, the “Boston Port Act,” banned shipping from Boston with the exception of ships delivering food and fuel. The loss of 800 or more ship visits and nearly a million pounds worth of exports, and the presumed intention to wreck the Massachusetts economy as retaliation for the Tea Party, likely discredited whatever pro-U.K. sentiment remained, even apart from the four other laws. (Two of them involving “quartering” soldiers at local expense, the other two reducing local government and judicial rights. These points are noted in grievances #11, 14, 21, and 22.)

Massachusetts Bay diplomats in turn requested a sympathy boycott of trade with Britain from the other 12 colonies. The Continental Congress, meeting in September, agreed with an exception for rice exports. By 1775 imports had dropped from £2.59 million to £0.2 million, and most of this seems to represent flows of weapons to the British garrison in Boston. The export boycott program worked less quickly, but effectively enough that almost all trade had ceased by the time the Continental Congress reconvened in June of 1776.

PPI wishes you a happy, if slightly belated, Fourth.

* By way of context, this 845 vessel-call total compares very favorably to the Department of Transportation’s report of 779 cargo vessel arrivals in Boston Harbor in 2020. Cruises, non-existent in the 1770s, add another 115 or so, and two or three fishery vessels arrive daily, so a combined total is likely around 1,500.

 

 

FURTHER READING:

The National Archives’ official Declaration text.

The Massachusetts Historical Society’s Tea Party recap.

Colonial data on demographics, maritime economy, import/export, the 18th-century slave trade, and other topics from the Census Almanac of Statistical Abstracts.

… and the Department of Transportation’s Boston Harbor cargo snapshot.

From the World Green Tea Association in Japan, a concise piece on the British East India Company and the tea trade.

 

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.

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FACT: The African American exporting community shrank by 34% in 2020.

THE NUMBERS: African American-owned exporting businesses* –

2021:        Data not yet available
2020:                   1,001
2019:                   1,514
2017-20 avg.       1,380

*Census/BEA

 

WHAT THEY MEAN:

The Census’ annual counts of U.S. exporting businesses peak at 305,200 in 2014.  Then they drift downward, to 289,400 in 2019; then comes a sheer drop to 271,705 in COVID-stricken 2020.  The most recent report, for 2021, shows a modest rebound to 278,400 in 2021 as trade flows recovered. (The update for 2022 comes in January.) All the loss has come in the small-business sector. Census’ count of “large company” exporters — those with 500 or more employees — has actually risen a bit, from 6,968 in 2014 to 7,121 in 2021. The tally of very small exporters (those with fewer than 100 employees each) has meanwhile dropped by almost 10%, from 281,300 in 2014 to 255,300 in 2021.  For some reason, which is not clear in the data, this drop appears to have been steepest among African-American businesses.

This insight comes from a decade-old Census/BEA statistical collaboration to provide a very detailed look at the nature of smaller exporters. For 2012, and then the years 2017-2020, the two agencies identified the ownership of about two-thirds of U.S. exporters by race and ethnicity, gender, public vs. private ownership, and veteran status.  From there they proceed to find the countries where exporters find their customers; levels of employment and pay (including with comparison to non-exporters); and at least for 2017-2020 changes over time. The 2020 report, taken in the context of the 2017/2018/2019 editions shows the following about African American exporting firms:

(1) Total count, employment, and pay: Census and BEA found 1,001 African American-owned exporting businesses in 2020. As a group, they employed 49,045 workers, with a combined payroll of $1.96 billion — that is, an average of 49 people per business, at payrolls of $39,900 per worker. Their non-exporting peers, meanwhile, averaged 9 workers at payrolls of $33,191 per worker.

(2) Markets: The 1,001 firms earned about a tenth of their income from exports. (In precise terms, $1.1 billion out of $12 billion in total receipts). The European Union was their largest customer at $467 million, and bought from 358 of the companies. Canada was next at $115 million. The African American businesses were significantly more focused on African markets than other exporters: 13.8% of them, or 138 of the 1,001 in actual numbers, had African customers in 2020, as opposed to 8.4% of exporters with owners of other races and ethnicities. By country, over the most recent four years, Nigeria was their largest African market, followed by Ghana.

(3) Trends: Exporting communities of almost all ethnicities shrank in 2020, but the COVID shock seems to have hit African American exporting firms much harder than others. The 1,001 African American exporters in 2020 represents a drop of 27% from the average across 2017-2019, and 34% from the 1,514 in 2019. The count of African American exporters to Africa specifically fell especially steeply, dropping by half from 278 in 2019 to the 138 of 2020.  Meanwhile, the counts of African-American exporters to China fell from 117 to 87, to Mexico from 121 to 108, and to India from 53 to 28.  By comparison, BEA’s tallies of white-owned and Hispanic exporters were down about 7% from the 2017-2020 averages, and that of Asian-owned exporters by 3%. Native American exporters were an interesting exception, growing a bit in 2020 to 511 firms from an average of 452 across 2017-2019.

The reports do not indicate why, in the context of a general decline in trade during the COVID pandemic, the African American exporter group would have contracted more sharply than others. Nor do they say (since the most recent edition covers 2020*) whether their rebound in 2021 might have been stronger. Combined with Census’ total-exporter counts, though, they do seem to indicate that (a) U.S. small-business exporters have been struggling in general for nearly a decade, (b) the most recent drop hit African American exporters hardest, and (c) while government policies are never the only answer to a problem, the agencies charged with supporting SME exporters ought to be thinking about recovery options for this particular group, and probably more generally about whether their current approaches are enough.

*  Census will update its total-exporters in April 2024 (with a preliminary edition in January) with 2022 figures. This will presumably help show whether the modestly higher count of 2021 was the beginning of a nearly decade-long negative trend, or just a small bounce after an unusually bad 2020. The very detailed Census/BEA studies with race/ethnicity/gender/market data for 2021 (assuming the two agencies keep doing them) would likely come out in May, with information on whether African American export businesses rebounded from the COVID shock at par with, or faster than, or slower than, their peers.

 

 

FURTHER READING:

Census/BEA’s collaborative series on the nature of exporting businesses, with data on exporters by ownership, overseas markets, export dependence levels, employment, and payroll (2020 version; go to the main page for 2017, 2018, and 2019).

… and the annual report on exporters and importers by large/medium/small size, known as “Profile of Importing and Exporting Companies,” has totals, state-by-state figures, SMEs vs. large firms for 25 countries as well as the world, etc.

A recent report from PPI in collaboration with Prosperity Now looks at the barriers facing entrepreneurs of color, and the smaller, less profitable businesses that emerge as a result.

Government Resources:

The Minority Business Development Administration (2015) looks at diversity and success in American export firms.

The Commerce Department’s Global Diversity Exporter Initiative.

And the Small Business Administration’s export center.

World Perspective: 

The WTO looks at small businesses and trade.

And the Geneva-based International Trade Center’s SME competitiveness report.

 

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.

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FACT: World carbon emissions are at 37.8 billion tons annually.

THE NUMBERS: World surface temperature average* –

2022                               14.8 C
20th-century average    13.9 C
1880                                13.7 C

* National Oceanic and Atmospheric Administration, www.climate.gov

 

WHAT THEY MEAN:

In PPI’s newest policy paper, PPI’s Paul Bledsoe and Ed Gresser look at global industrial carbon emissions, commiserate over transatlantic climate policy arguments (European carbon fees vs. American subsidies and local-production tax breaks) that though (a) steadily more fractious are (b) steadily less relevant to the main question of how to reduce global carbon emissions, and suggest a way forward. This is an “Alliance for Clean Trade” in which the U.S. and EU (or the G7, or the OECD members generally) agree on standards for emissions levels by industry, and fees for locally produced and imported goods whose production entails emissions above this standard.  The hope would be to cool the arguments, speed up emissions reductions, and create more effective incentives for big middle-income countries to participate.

Background, and then a quick summary:

Humans now put just under 38 billion tons of carbon into the air per year. This compares to 0.2 billion tons in 1850 as Victorian steam technology took off; 6 billion tons in 1950; and 25 billion tons in 2000. The rise in emissions, especially in the last 50 years, has unbalanced a natural cycle in which volcanoes, forest fires, etc. put about 100 billion tons into the air annually, while carbon sinks such as oceans, forests, and phytoplankton pull it back. As a result, the “average surface temperature” worldwide is up by 1.1 degrees Celsius so far. Beleaguered climate scientists hope to stabilize this rise at 1.5 C, which entails bringing the current +38 billion tons to ‘net zero by 2050, and warn that failure to do so risks impacts ranging from the elimination of the 4-million-year-old Arctic sea ice and steadily escalating flood and fire impacts, to drier agricultural lands, alterations in ocean currents, and “feedback” effects from tundra melt that can accelerate the whole thing.

“Net zero” obviously requires reducing emissions by tens of billions of tons annually (and to the extent of possibly amplifying natural “sinks” and creating artificial ones that remove more carbon from the air). A look at current emissions by country provides a starting point for thinking about figures on this scale. Per “Our World in Data”, country totals in 2021 (counting the European Union as a single economy) looked like this:

World                    37.1 billion tons
China                     11.5 billion tons
U.S.                         5.0 billion tons
European Union     2.8 billion tons
India                       2.7 billion tons
Russia                    1.8 billion tons
Japan                     1.1 billion tons
Iran                         0.7 billion tons
Saudi Arabia          0.7 billion tons
Indonesia               0.6 billion tons
Korea                     0.6 billion tons
Canada                  0.6 billion tons
Brazil                     0.5 billion tons
South Africa          0.4 billion tons
Turkey                   0.4 billion tons
Mexico                   0.4 billion tons
All other                 7.3 billion tons

Looking ahead, European and American emissions (along with Japanese, Canadian, Australian, etc. emissions)  are falling. The U.S. for example peaked at 6 billion tons in 2005, and with a push from last year’s Inflation Reduction Act are likely to drop to 3 billion by 2030. Nonetheless, the divergence between the EU’s carbon price programs, and the more recent U.S. subsidies and tax credits, are sparking steadily angrier trans-Atlantic debates, with retaliations and countervailing duty cases possibly ahead.  Meanwhile, China’s 12 billion tons are about a third of the world’s total and rising. Emissions from the four other “BRICS” (Brazil, India, Russia, and South Africa) added 5.4 billion tons more, and are also rising. If these countries — or more abstractly, big middle-income countries and oil exporters — do not start cutting emissions very soon, the world in general will not only fail to hit net-zero on the scientists’ hoped-for schedule but may not cut emissions at all.

So the steps “developed” economies are taking are important but insufficient, and they should try to settle their quarrels over diverging national reduction strategies, improve them to the extent possible, and find ways to induce large middle-income countries to join. This is the point of the paper’s “Alliance for Clean Trade” idea and its hopefully catchy ACT acronym. The goal would be to reduce worldwide emissions from industrial sources, which in total produce about a quarter of world emissions. The basic points:

(1)    ACT participants would set a common “standard” for carbon emissions released in the course of producing selected relevant goods (beginning with the six products chosen to launch the EU’s carbon border adjustment program — steel, aluminum, cement, fertilizer, hydrogen, and electricity) and collect identical fees for emissions above the standard.  This would apply to both locally produced and imported products, and so be consistent with the WTO “national treatment” principle.

(2)    The ACT would supersede the European Union’s CBAM, while the U.S. would authorize full participation in tax credits for minerals and automobiles (as Canada and Mexico now receive) produced in ACT-compliant countries, and consider eligibility for participants in additional clean energy subsidies.

(3)    Original participants would at minimum be the U.S. and EU, or in more ambitious versions the G7 countries or the 37 OECD members. Once launched, the group would consider creating “on-ramps” for countries at different stages of development.

 

FURTHER READING:

Gresser/Bledsoe’s report on climate change, trade, and a different approach.

Background and data:

NOAA’s summary of worldwide surface temperature change since 1880.

The International Energy Agency reports on carbon emissions in 2022.

Our World in Data tracks emissions by country, industry sector, etc.

And the Energy Information Administration’s International Energy Outlook 2021 looks ahead with projections by region and major country through 2050 (now a bit dated; EIA will publish a new version in September).

And some science: 

NASA explains the natural “fast” (air to plants) and “slow” (rocks to air) carbon cycles, and the impact of human-caused emissions. Dates to 2011, so the human emissions totals are badly dated, but the basic science remains useful.

 

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.

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FACT: 13.4 billion COVID vaccinations and boosters have been delivered since December 2020.

THE NUMBERS: World under-five mortality rate, per 1,000 births* –

2021	38
2010	52
2000	76
1990	93
1980	132

* World Health Organization for 1990-2021; World Bank World Development Indicators for 1980.

 

WHAT THEY MEAN:

Trade Fact series editor Ed Gresser, testifying at the House Judiciary Committee last week on COVID-19, the WTO’s intellectual property rights (“TRIPS”) agreement, and the WTO members’ decision to authorize a temporary waiver of some patent rules last summer, was asked whether the COVID pandemic had definitively “ended.” Having been down with a (very mild) COVID bout the previous week, his answer was (i) a rueful but clear “no.” But (ii) with mass vaccinations — 82% of Americans, 70% of the world — the danger COVID posed to life and health has been greatly diminished. So (iii) the Biden administration’s decision to declare the “public health emergency” phase of the pandemic over was the right call.

To get to this point, in three years the world’s science, industry, pharmacies, clinics, and hospitals have moved from:

(a)     Not quite a standing start (though close to it): as of early 2020, scientists had some knowledge of coronaviruses generally, and could make use of mRNA and nanotech technologies developed in the 1970s and 1980s and first used in development of an Ebola virus, but had no knowledge of the actual COVID-19 virus before its isolation in December 2019; to

(b)     A safe, effective, and transportable vaccine by December 2020; and then

(c)     Manufacturing, logistical, and primary-care delivery systems at a scale needed for a patient population comprised of “the whole human race” by mid-2021; and finally

(e)     Delivery of 13.4 billion actual vaccinations and booster shots — almost two for everyone in the world — as of mid-2023.

Thus a landmark achievement in a very short time for policy, science, manufacturing, logistics, and public health providers worldwide. Pulling back a bit, the speed in this case was exceptional. But as a large-scale achievement of policy, production, delivery, and public health it wasn’t entirely unique. In fact, it is one with many precedents, and is part of a larger story of remarkable successes in vaccination generally. Polio is a particularly striking case, with complete eradication of the disease now achingly close. Here’s a count of polio cases worldwide over the last 25 years:

1988	350,000 cases
2010	650 cases
2020	6 cases

Measles presents a second example: an easily transmissible disease mostly affecting children, for which large-scale vaccinations began with a U.S. launch in March of 1963, and deaths have dropped by 95% over the last generation, from 2.6 million deaths a year to 600,000 in 2000, 210,000 in 2010, and 128,000 in 2021. Likewise deaths of neo-natal tetanus, after campaigns to vaccinate pregnant women and guarantee antiseptic standards in poor-country maternity clinics, have dropped from 787,000 in 1988 to 309,000 in 2000 and 25,000 in 2018 (the last year for which data is available).

Overall, the invention of new treatments and medicines, worldwide vaccination campaigns, and improving primary-care delivery have helped cut world under-five mortality rates from 132 per 1,000 children in 1980, to 78 per thousand in 2000, and 32 per thousand in 2020, or in overall terms by 70%.

Against this background, the success of the vaccination program for COVID-19 is, again, a remarkable success of focused policy in emergencies, scientific research and development, manufacturing and logistics technologies, and delivery systems. Its speed has been particularly impressive (and the Trade Fact series editor is appropriately grateful). But it’s especially heartening to see that this is not something entirely unique, but more like a representative case in the larger vaccine story.

* More precisely, the Judiciary Committee’s Subcommittee on the Courts, Intellectual Property, and the Internet.

 

FURTHER READING:

COVID-19:

Gresser on WTO intellectual property rules as supporters of research, exceptions in emergency situations, and the Biden administration’s reasonable choices.

… and from the House Judiciary’s Subcommittee on Courts, Intellectual Property and the Internet, the hearing video and testimonies.

Chad Bown of the Peterson Institute for International Economics maps the international science, manufacturing, and logistical “supply chains” which created COVID-19 vaccines.

HHS’ Office of Global Affairs on U.S. work.

And Our World in Data has stats for Covid vaccinations, cases, deaths, and more.

Background: 

The World Health Organization on vaccines.

… and an update on hopes for measles eradication in the next decade.

 

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.

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FACT: Seven countries have ratified the WTO fishery subsidies agreement.

THE NUMBERS: Fishery subsidies (2018 estimates*) –

World	$35.4 billion
Asia	$19.5 billion
China only	$7.5 billion
Europe	$6.4 billion
EU members	$3.8 billion
U.S./Canada/Mexico	$4.4 billion
U.S.	$3.4 billion
South/Central America	$2.0 billion
Africa	$2.1 billion
Oceania	$0.8 billion

* Sumaila et al.

WHAT THEY MEAN:

A year ago at the WTO’s 12th Ministerial Conference in Geneva, the 164 WTO members “reached consensus” — WTO-speak for agreeing on something with no holdouts — on the first new multilateral trade agreement in a decade. This is the “Agreement on Fishery Subsidies,” a trade/environment accord that “prohibits support for illegal, unreported and unregulated (IUU) fishing, bans support for fishing overfished stocks, and ends subsidies for fishing on the unregulated high seas.”

Where does it stand a year later? Some context first, on fish, ships, and money:

Fish: Last year’s fishery market, according to the UN’s Food and Agriculture Organization in State of World Fisheries and Aquaculture 2022, totaled about $406 billion at “first sale” (i.e. price on the dock, rather than on the plate) with $151 billion of this from exports. “Capture” marine fishing (i.e., caught from a boat as opposed to farmed) produced about 80 million tons of seafood, a total which has been roughly stable for the last 25 years. (The freshwater catch came to 10 million tons, and aquaculture about 88 million tons.) To put these figures in context, the human race collectively weighs about 500 million tons.

The top fishing countries by the FAO’s tally are China, Indonesia, Peru, India, and Russia, with the U.S., Vietnam, Japan, Bangladesh, and Norway next. Together, these ten countries catch about half the global “capture fishing” total. China alone, at 13 million tons, makes up about a seventh of the combined marine and freshwater catch, and (see below) is also the largest provider of fishery subsidies. Estimates for the sustainability of this catch often read the data differently, but express similar pessimistic messages. FAO says that “the fraction of fishery stocks within biologically sustainable levels decreased to 64.6% in 2019” (from nearly 90% as of 1974), or in more detail that 35.4% of world fisheries are overfished, 57.3% are at maximum yield, and only 7.2% are “underfished.” The view of the NGO Oceana (not necessarily contradictory in factual terms, but different in emphasis) is that only 17% of fisheries are currently able to produce more fish, and over 80% “cannot withstand additional fishing”.

Ships: The FAO’s report counts 4.1 million fishing vessels on the water in 2022, topped by 2.7 million in Asia and 1 million in Africa. Most are very small, and the total includes 1.5 million sailing or rowing boats. About 45,000, though, are large factory-type ships of lengths over 25 meters and weight above 100 tons. To put this in context, UNCTAD’s World Maritime Review 2022 reports that the world’s cargo fleet comprises 102,899 ships of more than 100 tons. Navies operate about 10,000 boats, while wealthy individuals and businesses sail around in about 10,800 pleasure yachts. So all told, FAO’s figure suggests that about a third of the world’s big ships are large fishing vessels.

It would be nice to think that these large fishing ships are professionally managed and less likely to be involved in IUU or other destructive fishing practices than small boats.  But this is not so. One notorious individual case, that of the Vladivostok 2000 — a converted oil tanker said in media reports to be the world’s largest factory fishing vessel — is an example. At 228.6 meters in length and 49,400 tons, it is about twice as large as UNCTAD’s 21,700-ton average for major cargo ships, and can process half a million tons of fish a year. V2K was blacklisted by the South Pacific Regional Fisheries Management Organization as an IUU vessel ten years ago (under its earlier name Damanzaihao) but continues in operation and is en route this week in the Sea of Okhotsk, traveling from Russia’s Maritime Province to Sakhalin Island.

Subsidies: Estimates of the scale of fishery subsidies are currently about $35.4 billion (as of 2018) — that is, nearly a tenth of “first sale” and a quarter of export value. A detailed look from a research group finds these subsidies heavily concentrated in Asia, where China pumps $7.5 billion into fishery fleets each year and other Asian states add $13 billion more. North America and Europe combine for $8 billion; Latin, Africa, and Pacific subsidies are modest by comparison, combining for a value of about $5 billion. About 80% of subsidies go to large boats and fleets, and 20% to smaller boats and artisanal fisheries. By function, $22 billion goes to ramp up the size of fishing fleets, and $7 billion to subsidize fuel.

Back now to the WTO. Last June’s agreement caps fully 24 years of official negotiating, dating back to the Clinton administration’s adoption of fishery subsidy reduction as a WTO cause in the late 1990s. So, quite an accomplishment for governments, activists, scientists, and responsible industry. On the other hand, reaching a consensus on the text was a milestone rather than a final act, and (setting aside big implementation and enforcement jobs), still has two steps to go:

(1) Ratifications and acceptances: The agreement requires ratification by two-thirds of the WTO’s 164 members to go into effect. Only then will countries be required to start cutting back their fishing-fleet enhancement, fuel, and other subsidy budgets. Seven countries have ratified so far: the United States, Canada, Iceland, the Seychelles, Singapore, Switzerland, and the United Arab Emirates.

(2) Unsettled issues: Finally, the agreement has a “provisional” quality, as it left some issues unsettled last year.  WTO members need to settle these to make it permanent. Especially notable among them is treatment of subsidies related to overcapacity. Once in force the agreement will last only for four years and self-terminate if these remaining questions aren’t settled in future talks.

 

 

FURTHER READING:

Counting fish and boats:

FAO’s State of World Fisheries and Aquaculture 2022 reports on fish take, fleets and employment, sustainability and more. A sample, breaking down the 80 million tons of sea catch:

• 67 million tons of fish, led by anchovies, Alaska pollock, and skipjack tuna;
• 5.6 million tons of crustaceans, mostly varieties of shrimp and crab;
• 5.9 million tons of mollusks, topped by squid;
• 0.5 million tons of edible jellyfish, sea urchins, sea cucumbers, and miscellaneous other sea life.

FAO’s report.

UNCTAD’s World Maritime Review 2022, meanwhile, tracks the world’s merchant fleet.

Negotiators and agreement text: 

The WTO’s agreement on fishery subsidies reduction.

A Washington signature ceremony.

Fishery subsidies and sustainability:

Rashid Sumaila et al. in Science Direct tabulate a worldwide $35.4 billion in fishery subsidies by region, purpose, large vs. small ships, and more.

Final thought from the researchers:

“[In the past decade] no real progress to eliminate capacity-enhancing subsidies has been made. For example, fuel subsidies are still the largest subsidy type being provided by countries. This is not good news as this subsidy is the most directly linked to overfishing. A concerted effort by all countries to discipline these subsidies via the WTO or other mechanisms is crucial.  … The fact that countries that fall within the high HDI [“high development index,” a UN index of wealth] group, including Russia and China, provided 87% of total global subsidies is telling. It is clear that to discipline subsidies and safeguard marine fisheries, these countries will need to step up.”

Oceana reports that $5.3 billion worth of subsidies, or a fifth of the world total, go to support fleets operating in other countries’ water.

… and reviews depleted, overfished, and sustainable fisheries.

UNCTAD on subsidies, sustainability, and policy.

And “IUU” (illegal, unreported, unregulated) on the water: 

Track the notorious Vladivostok 2000, steaming this week from Vladivostok to Sakhalin.

The U.S. Coast Guard vs. a Chinese IUU fleet and its diplomatic defenders in the South Pacific.

And a list, regularly updated, of 352 vessels blacklisted by Regional Fisheries Management Organizations for IUU fishing.

 

 

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.

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FACT: India is now the world’s most populous country.

THE NUMBERS: Annual deaths to natural disasters* –

World population	17.5%
World GDP	3.0%*
World goods/services exports	2.2%

 

* Exchange-rate basis, IMF estimate. The alternative purchasing-power parities calculation gives a GDP share of 5.9%.

WHAT THEY MEAN:

One day towards the end of April, or perhaps in the early days of May, a handful of births and a few memorial services left India (by the U.N.’s estimates) passing China as the world’s most populous country. (Bharat 1.427 billion; Zhongguo 1.426 billion.) A couple of India-in-the-world observations at this point of transition:

1. People: India’s 1.427 billion people represent a bit more than one in six of the world’s 8 billion. Apart from being a shade above China’s now-gently-declining population, the total is (a) about equal to the population of continental Africa, and (b) 200 million more than the 1.24 billion of all high-income countries combined. Put another way, seven of India’s 28 states and Union Territories would be among the world’s 20 most populous countries.

2. Economy: Indian GDP, now fifth-largest in the world after passing France in 2019 and the U.K. in 2020, is about $3.7 trillion and growing at 5.9% by IMF estimates this year.  This puts India at about 3% of the $105 trillion world GDP (with the U.S. at $26.9 trillion, China $19.4 trillion, and the EU $17.8 trillion). Perhaps still modest in comparison to population, but growing faster than all 19 of the other top-20 world economies this year (and also faster than 49 of the world’s top 50, just shaded by the Philippines’ 6.0%).  International Monetary Fund forecasters see enough sustained growth for India to reach $5 trillion in 2027, passing both Germany and Japan that year.

3. Trade flows: India’s presence in trade flows remains particularly small.  As of 2021, India’s $395 billion in goods exports made up 1.8% of a $22.4 trillion world total, at par with Spain and the United Arab Emirates.  Its $240 billion in services exports draws a lot of attention and is in fact larger, but still is only 4% of the $6.0 trillion world services-export total.  Some of this reflects geography — particularly the constant turbulence and frequent border closures with Pakistan — but not all; it’s hard to find explanations outside policy for India’s very small trading relationships with the ASEAN and the East African countries on its east and west.

4. Trade policy: India’s contemporary trade diplomacy inherits powerful swaraj (“self-sufficiency”) instincts, and (at least in the view of two generations of frustrated American trade negotiators) puts more energy toward import limits than export goals. As of 2022, India’s tariff rate is the highest among the 164 WTO members — 18.3% by simple applied average according to the WTO’s World Tariff Profiles 2022, or 12.6% by trade-weighted average. India is also the WTO’s most enthusiastic anti-dumping user, with 775 anti-dumping penalties reported from 1995 through 2022, about a sixth of the 4,463 total known worldwide. One index of the consequences is India’s modest overall share of trade; another one is the particularly low level of trade with neighboring countries — about 3% of ASEAN’s goods exchanged, and 5% of sub-Saharan Africa’s. India’s place in services trade is, however, larger — 4.0% of exports, slightly above India’s GDP share but probably still below potential.

 

FURTHER READING:

The U.N.’s Department of Economic and Social Affairs on a world-population milestone.

The IMF’s World Economic Outlook database tracks and estimates GDP in dollars and by growth rates, imports and exports, and lots more, for all countries.

The WTO reviews Indian trade policy now (or more precisely January 2021; new review coming next year).

India’s Embassy in D.C.

… and the March 2023 U.S.-India Commerce Department/Commerce Ministry joint statement reviews the state of U.S.-India trade and goals for 2024.

Indian Trade policy then: 

The Arthasastra, an encyclopedia-type Sanskrit work traditionally ascribed to the Maurya empire’s 4th century B.C. political fixer Kautilya, has a reasonable claim to be not only the world’s oldest political guidebook but also the oldest trade-policy manual (or even the first think-tank product, translating in English to 800 pages on war, administrative organization, tax, natural resource management, and more, complete with bullet-point format). Quick samples:

As a strategist and diplomat, Kautilya has a pessimistic, probably overly reductive premise:  any bordering kingdom is your enemy; any neighbor of that kingdom, so long as it doesn’t also border you, is your natural ally. As a human resources theorist, he’s practical and not much inhibited by conventional scruples: “Those who are cruel, lazy, and devoid of any affection for their relatives shall be recruited as poisoners.” On the other hand, K. takes a sensible view of natural resource management (designate state forests and limit their exploitation for wood), and views consumer protection as an important government responsibility. His trade advice is precise, profit- and growth-minded, and divides easily into three parts:

(a) Trade facilitation: A wise ruler will appoint officials responsible to keep international trade routes “free from obstruction by courtiers, state officials, thieves, frontier guards, and herds of cattle.” (Note the assumption that the main obstructors are likely to be the king’s own greedy officials.) Also, set up marketplaces in towns and at crossroads to ensure access to imports.

(b) Import promotion: Importers should get special privileges as suppliers of essential goods.  Kautilya recommends (i) exempting the early-India equivalent of the retail and wholesale sectors from taxes imposed on people selling only locally-produced goods, and (ii) allowing them to make 10% profits as opposed to the 5% cap for local business.  Offsetting this, he recommended a 20% ad valorem tariff — coincidentally, almost identical to the 18.3% “simple average applied” tariff the WTO reported for India last year — with the uncharacteristically sentimental exceptions of duty-free treatment for goods meant for weddings, dowries, and religious occasions.

(c) Export policy: Here Kautilya is cautious, apparently reflecting the relatively poor information available to rulers about foreign markets and likewise the high level of physical risk involved in moving valuable stuff past the border. Kings should authorize exports, he says, but only careful investigation shows that (i) their likely selling price would bring a profit after netting out the costs of shipbuilding, harbor and/or road fees, tariffs, and payoffs to royals in the receiving kingdom, or (ii) that exports would bring some other (unstated) “economic, political, or strategic” advantage. He forbids exports of metals, armor, weapons, or other national security assets, and advises a strong armed guard for outbound caravans.

Kautilya’s Arthasastra in modern translation.

And now:

The WTO’s Tariff Profiles 2022 catalogs tariff rates in 145 countries and economies around the world.  These can go into great detail — simple average bound, “non-agricultural,” peaks, etc. A first approximation (using “simple average applied”) looks like this, with Iran and Sudan as the highest-tariff countries in the list (and perhaps the world) to Hong Kong and Singapore among five zero-tariff economies:

Sudan	21.6%
Iran	20.1%
India	18.3%
Brazil	13.3%
Nigeria	12.1%
Jamaica	8.6%
South Africa	7.8%
China	7.5%
El Salvador	6.0%
Malaysia	5.6%
European Union	5.4%
Japan	4.2%
United States	3.4%
Timor-Leste	2.5%
Peru	2.4%
New Zealand	1.9%
Mauritius	0.8%
Singapore	0.0%

The WTO’s Tariff Profiles 2022.

And the WTO’s anti-dumping statistics.

… Or direct to a count of anti-dumping penalties by country, each year from 1995-2022 and with the full 28-year totals.

 

 

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.

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FACT: Corruption is a large factor in the global economy, but one with few verifiable statistics.

THE NUMBERS: U.S. “corruption perception” ranking, Transparency International –

2022        24th
2020       28th
2017        16th

WHAT THEY MEAN:

Corruption is notoriously difficult to track and measure: hidden from the public for obvious reasons, slippery to define, perhaps meaning one thing in government and other things in businesses, unions, media, nonprofits, etc. Those hoping to put numbers on it find it still harder to get anything very reliable. Even the White House’s June 2021 Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest wound up passing on a long-debunked data point. (“It has been estimated that acts of corruption sap between 2% and 5% of global gross domestic product.” See below for a look at the origins of this statistic.) But though particular numbers and definitions may dissolve under examination, broad definitions, general observations, and case studies alike suggest that the White House’s view of corruption as a security threat is well-founded. Three useful approaches:

(1) Definitions – Corruption beyond bribery and crimes: William Riordan’s Plunkitt of Tammany Hall (1905), an admiring/appalled biography-in-interviews of an early 20th century NYC political boss, explains why actual bribery (and by extension other crimes) aren’t always the right things to look for. “With the grand opportunities all around for a man of political pull,” says Plunkitt, “there’s no excuse for stealin’ a cent.”  He viewed taking a bribe as the high-risk, low-reward act of a fool, because the big money was in low-risk, high-reward insider deals. Plunkitt made himself rich through perfectly legal purchases of land he knew NYC would later designate for city parks, which he then sold to the city at much higher prices a few months later. As a more sinister and security-linked modern counterpart, look perhaps to the high-pay, low-work sinecures and Board consultancies Russia’s state energy and mining firms were giving out to retiring Western politicians during the 2010s.

(2) A general approach – Corruption shifts wealth and reduces long-term growth: The IMF’s Paolo Mauro (2021) looks at ways in which corruption can shift taxation and spending, and (over time) eat away at long-term growth and development. He reports that governments in low-corruption countries collect about 4% of GDP more in tax revenue than governments in high-corruption countries, and that in practical terms this suggests that if high-corruption governments reduced corruption rates to those of their low-corruption counterparts, they would gain perhaps $1.25 trillion in revenue. This wouldn’t be “lost,” or “sapped” from global GDP, but would presumably move away from mansion-building and tax-haven accounts to public investment. Moreover, Mauro observes, lower-corruption governments use revenue differently (spending somewhat less of their money on defense and public works and somewhat more on education and public health), and get more growth for the money:

“Grand corruption is usually associated with complex and costly projects such as construction and defense equipment. By comparison, it is harder to collect bribes on teachers’ and health care workers’ wages. As a result, spending on education and health is likely to be lower where corruption is high, making it less likely that worker productivity and living standards will improve.”

(3) A case study – Corruption and the erosion of state legitimacy: In Thieves of State (2015), Sarah Chayes draws on ground-level experience to explain how province- and federal-level corruption hollowed out attempts to build a representative government in Afghanistan, prefiguring the fall of the state:

“Officeholders who had to recoup the money they’d spent buying their jobs would request assignments in zones where cash flowed.  Senior officials, anticipating the sums to be collected, would not try too hard to fill billets in impoverished rural districts.  … An absence of integrity in the system meant that this late in the game [2009] constructive men and women had been stripped out – and by now might want to stay clear. ‘No one would dirty his hands getting near this government,’ a Kandahar-area farmer exclaimed to me once.’” 

In conclusion: The White House might have been a bit quick to pass on an interesting data point. But it’s probably right to view corruption as a national security threat, and to think about ways to do better.

 

FURTHER READING:

Policy: 

The White House’s June 2021 Memorandum designating corruption as a national security threat.

… six months later, the formal “Anti-Corruption Strategy” launch.

… and from this past March, Treasury Secretary Yellen updates.

Analyses and examples: 
    
IMF analyst Paolo Mauro estimates that governments lose about $1 trillion in tax revenue to corruption.

Sarah Chayes’s prescient Thieves of State: Why Corruption Threatens Global Security analyzes the fall of democratic Afghanistan six years before it actually happened.

And William Riordan’s admiring/appalled look at turn-of-the-20th-century American city politics in Plunkitt of Tammany Hall: A Series of Very Plain Talks on Very Practical Politics.

A cautionary statistical tale:

Where did the White House figure come from? To refresh, the June 2021 Memorandum asserted that: “it has been estimated that acts of corruption sap between 2 and 5 percent of global gross domestic product.” Others — the U.N. Secretary General, academic analysts, etc. — had used variants of this before, often adding a figure of “$2.6 trillion” to the percentage. A January 2021 note by the World Bank’s Anti-Corruption Resource Center tracked this back through a quarter-century of quotations and extrapolations, to a 1998 speech on money laundering (a different though related topic) by then-International Monetary Fund Managing Director Michel Camdessus. Camdessus had cautiously suggested that the ratio of annual laundering flows to global GDP might be 2% to 5%. A separate organization appears to have inappropriately converted this in 2008 from a “flow” to a “net cost to global GDP” and derived the $2.6 trillion in losses from it.  (World GDP in 2007 was $58 trillion.)  The WB group’s plea: “No organisation or advocate should cite this statistic under any circumstances.”

The WB fact-checks 10 frequently cited corruption stats, and finds not even one of them usable.

… a similar error from the UN Secretary-General (2018).

… and a depressing coda, in which the WB press office encourages lazy tweeters to forward a short sentence that seems more likely to aggravate the problem than to warn over-eager analysts away. (“A popular estimate is that more than $2.6 trillion, or 5% of global GDP, is lost to corruption annually around the world.”)
  
Another approach:

What then might be a useful measurement? One very well-known approach is that of Transparency International, a 30-year-old NGO which else publishes an annual Corruption Perceptions Index. This is a kind of global opinion poll asking how corrupt the respondents think various governments and institutions might be. Their most recent edition, released in January 2023 and covering perceptions as of late 2022, ranks 180 countries. It places Denmark, Finland, and New Zealand at the very top; North Korea, South Sudan, and Somalia at the bottom; and India exactly in the middle.  The U.S. is in 24th place. This is an improvement from the 28th-place ranking of 2020, enough to America’s anti-corruption image above those of Taiwan, Bhutan, Chile, and the United Arab Emirates, but still well below the 16th-place ranking in the 2017 Index (and only sixth among the G-7 countries). TI’s summary suggests that the U.S.’ not-entirely-savory reputation reflects perceptions less of corruption in state/federal bureaucracies or of private-sector businesses than of a deteriorating political system:

“The [U.S.’] lack of progress on the CPI [Corruption Perceptions Index] can be explained by the persistent attacks on free and fair elections, culminating in a violent assault on the U.S. Capitol, and an increasingly opaque campaign finance system.”

Transparency International’s 2022 Corruption Perceptions Index, with links to earlier Indexes back to 1995.

 

 

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.

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FACT: Louisiana is the U.S.’ top exporting state.

THE NUMBERS: Export share of state “GDP,” 2022, goods only –

Louisiana	43.4%
Texas	20.6%
Oregon	11.4%
Alabama	9.2%
Indiana	9.9%
Washington	8.4%
Wisconsin	6.8%
Pennsylvania	5.4%
Massachusetts	4.8%
New Mexico	3.9%
D.C.	1.0%
Hawaii	0.7%

* Goods only (manufactures, agriculture, energy, mining, returns, waste & scrap, low-value shipments); no data exists for state services exports.

WHAT THEY MEAN:

A note from Virginia electric co-op newsletter “Cooperative Living” last week tallies farms and trade: 41,500 Virginia farms export $4 billion a year to 152 countries, topped by China at $1.36 billion, then Canada, Taiwan, Mexico, and Japan at $362 million, $161 million, $140 million, and $129 million.

Their piece draws on work at the Census, Department of Agriculture, and the Bureau of Economic Analysis, whose stat experts over the past decade become steadily more ambitious and precise in tracking exports down to states, cities, and “metro areas.” Their data — try in particular the Commerce Department’s “TradeStats Express” — show that (a) Virginia overall is very close to the “typical” state, placing exactly 24th in 2022 with $25 billion in total exports; (b) is one of 34 states for whom Canada is the top overseas (if that’s the right term) customer, and one of 13 whose top ag market is China; and (c) together with the agriculture exports comes in at $5.8 billion in energy, $2.2 billion in computers and electronics, and $1.4 billion worth of paper (fifth-ranked in the country); $631 million in waste and scrap metal for recycling, $188 million in pesticides and “other agri-chemicals,” and so on.

To produce such figures is challenging. Manufactured goods, for example, are usually composite assemblies of parts made in lots of places rather than monoliths built from scratch at a single site. (If a car has an engine made in Ohio, a windshield made of Kentucky glass, a chassis from Indiana metals, computers using semiconductor chips in Arizona, all coming together at a Michigan factory, the logical and preferred — but still not totally satisfying — answer is that it’s “from” Michigan.) Agricultural exports are even more hotly disputed: One Department calculates totals based on the location of the port or railhead where river barges and containers full of (say) soybeans come together to load for shipment abroad, and counts processed foods as manufactured goods, while another uses average production value by state and counts processed foods as agricultural products.  And nobody has figured out a way to calculate state services exports. But these points noted, the government’s upgraded state data make one thing very clear, make a lot of things pretty clear, and provide many interesting points to say about state specialties, regional economies, and their links abroad:

Very clear: As of 2022, Gov. John Bel Edwards’ Louisiana is the king of state exporters.  Louisiana’s $122 billion in exports last year — more than double the $56 billion in 2017 — gives the state a 43% export-share-of-GDP ratio when matched against its $281 billion GDP.  This is twice the 20.6% ratio of second-place Texas. The boom mainly reflects the roaring growth of U.S. energy exports centered around Louisiana’s three specially designed liquefied natural gas export terminals. (Since 2021, the U.S. has been the world’s top energy exporter, with gas and oil, and the smaller coal/electricity/biofuels sectors, accounting for 18.4% of U.S. exports last year, an all-time record far above the 13.2% peak achieved in the 1920s.)

A look at the top five state export-to-GDP ratios illustrates:

Louisiana       43.4%
Texas             20.6%
Puerto Rico   17.0% (2021)
Kentucky       13.2%
Mississippi     11.8%

Pretty clear: The remaining 46 states and D.C. fall in a range from sixth-place Oregon’s 11.4% through the 5% to 7% common in the Northeast, to the lowest export-to-GDP ratios (D.C.’s 1.0% and Hawaii’s 0.7%). Finding patterns is tricky given that some of the data remain blurry, especially for small, agriculture-reliant inland states. But overall, Southern and Midwestern states appear on average somewhat more export-reliant than East Coast and West Coast states.  Measured in total dollars, Texas (benefiting, like Louisiana, from a gas and oil surge) is easily the top exporter at $486 billion, with California a distant second at $186 billion. (Though, given the absence of services data, this doesn’t include anything Californians may possibly be earning from overseas sales of software, movies showings, music downloads, etc.). Louisiana’s $122 billion is third, followed by New York’s $106 billion and Illinois’ $78 billion. The next five are Florida, Washington, Michigan, Ohio, and Pennsylvania.

Lots of Information: TradeStats Express lets you arrange the data in an unusual variety of ways: by overseas markets, by single products, in-depth panoramas for particular states, comparisons among neighboring states, etc. For example, Texas is by far the top state exporter to sub-Saharan Africa at $5.1 billion of a nationwide $18 billion; Pennsylvania, meanwhile, is the U.S.’ top exporter of sugars and confectionery, while Florida leads in ships and boats, and California in mushrooms.  As to farmed fish, Maine exports over two-thirds of the U.S. total. Or, as noted earlier, Canada is the top market for 34 states, while among the rest, Mexico is the top market for six states (Arizona, California, Kansas, Nebraska, New Mexico, Texas); China for four (Alaska, Washington, Oregon, and Massachusetts); Germany for two (Alabama and Connecticut); the U.K. for one state (Utah) and the District of Columbia; and one each for Brazil, (Florida), Singapore (Hawaii), Switzerland (New York**) and the Netherlands (Puerto Rico). Or, a few single-state studies:

1. Arizona: On the bottom-left corner of the map, Arizona’s $27 billion in exports rank 20th in total dollars, in a three-way tie with Virginia and Minnesota. Mexico is Arizona’s main customer, buying $8.7 billion or about a third of the $27 billion total. Canada is second, followed by China and the Netherlands. Top products are aerospace ($4.6 billion), semiconductors and electronics ($4.4 billion), and old-standard metal ores ($2.2 billion).

2. Illinois: The U.S.’ fifth-largest exporter at $78 billion in 2022, Illinois relies especially heavily on Canadian and Mexican customers ($23.8 billion and $11.7 billion respectively).  Australia is the third-largest at $4.6 billion, buying mainly farm equipment and medicines, followed by Germany and China. Illinois beats California and Texas as top exporter to Australia, and ranks 4th for New Zealand.

3. Kentucky: Gov. Andy Beshear’s justifiably enthusiastic press release notes heavy international investment in Kentucky business: “Kentucky’s international presence includes more than 500 facilities that employ almost 115,000 people and represent 33 different countries.” His trade experts, obviously adept followers of the Census and BEA stats, report exports of $34.4 billion led by “aerospace products and parts, pharmaceuticals and medicines, motor vehicles”, etc., with Canada, Mexico, the U.K., China, and France as the Kentucky’s top five buyers.

4. Oregon: The most “export-intensive” state in the West in 2022, with exports accounting for 11.4% of Oregonian GDP. China is easily the top market, buying $8.3 billion of Oregon’s $34 billion in total exports, mostly semiconductors and related high-tech electronics.  Next come Mexico, Canada, Malaysia, and Ireland.

5. Puerto Rico: The Commonwealth’s $20.7 billion in exports are very concentrated in pharmaceuticals, which make up $16.3 billion or nearly 80% of the total.  Most go to Europe: $3.5 billion to Spain, $3.4 billion to the Netherlands, and $1.3 billion to Italy, with Japan and China next, followed by Belgium, Germany, and Austria.  The only Caribbean neighbor in Puerto Rico’s top 20 markets is the Dominican Republic, in 11th place at $465 million.

6. Vermont: And in the map’s top right corner, with $2.5 billion in 2022 exports, Vermont ties New Hampshire as the most export-reliant Northeastern state. (6.2% of Vermont’s $40.6 billion GDP.)  Semiconductors and other electronics account for about half of the total, with Canada the top market at $777 million, Taiwan second at $465 million, and China third at $211 million.  Note the $54 million in sugars and confectioneries — presumably the iconic “sweetest thing,” maple syrup and maple sugar — all destined for Canada.

* Using 2021 exports and ‘GDP’ for Puerto Rico, as the 2022 figures aren’t yet available.
** A 2022 anomaly, probably reflecting a one-year surge in gold exports; typically Canada is New York’s top market.

 

 

FURTHER READING:

From the states: 

Cooperative Living (pg. 35) has a snapshot of Virginia farm exports.

???? King of exports: Louisiana Gov. John Bel Edwards pitches natural gas exports and investment opportunities in Asia last March.

Kentucky Governor Andy Beshear on Kentucky’s global investment/SME export boom.

Puerto Rico’s export development program.

Data sources: 

BEA’s interactive & visualization data masterpiece.

Census’ convenient one-page state and metro-area trade data reports.

… and behind the numbers, a look at how Census tracks the figures back to local origins and the places they begin to blur.

USDA’s state agricultural trade data.

… and as with Census above, an explanation of how USDA’s Economic Research Service calculates origins.

BEA’s state GDP figures.

And for international context and comparisons, the WTO’s World Trade Statistical Review 2022 (2021 data; next annual edition likely in November).

 

 

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.

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FACT: Height of papers needed to qualify T-shirt as ‘CAFTA duty-free’: ~ four inches.

THE NUMBERS: U.S. clothing import growth, 2005-2022* –

World	+$30.2 billion
Vietnam	+$15.7 billion
Bangladesh	+$7.3 billion
China	+$4.0 billion
Cambodia	+$2.8 billion
India	+$2.8 billion
Indonesia	+$2.8 billion
Pakistan	+$1.6 billion
CAFTA/DR**	+$1.4 billion
Jordan	+$0.9 billion
Egypt	+$0.8 billion
Italy	+$0.8 billion
Haiti	+$0.6 billion
Kenya	+$0.3 billion
Ethiopia	+$0.3 billion
Peru	+$0.2 billion
Colombia	-$0.3 billion
Korea	-$1.0 billion
Mexico	-$2.6 billion
Hong Kong	-$3.5 billion

* * Counting from completion of CAFTA/DR. See below for a more recent count of change 2012-2022.
** Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and the Dominican Republic as a group.  More detail: Nicaragua +$2.0 billion, Honduras +$0.6 billion, El Salvador +$0.3 billion, Guatemala +$0.1 billion, Costa Rica -$0.5 billion, Dominican Republic -$1.2 billion.

WHAT THEY MEAN:

CBP’s “border encounter” statistics show about 34,000 Central Americans reaching the U.S.’ southern border each month so far this year. Ten years ago, following their trek north in his book The Beast* (2010) Salvadoran journalist Oscar Martinez recounts stories of gang kidnappings and extortion, rape and sexual abuse, fatal falls from the roofs of trains along the way, and likely arrest at the end. Asking himself in closing why anyone would make such a trip, Martinez decides that the largest cause is simple:

“They’re unable to accept that miserable routine of waking up at five in the morning to travel two hours on a dangerous public transit system to get to a fast-food restaurant or a market or a warehouse in San Salvador, or Tegucigalpa, or Guatemala City, where they spend the whole day toiling away at undignified work only to return to their small homes, dog-tired, making a measly minimum wage that barely lets them afford beans and tortillas for their children.”

Vice President Kamala Harris makes a similar comment in a February conference on the “Northern Triangle” (Guatemala, Honduras, and El Salvador):

“[P]eople generally do not want to leave home.  And when they do, it is because they are either fleeing some harm or because staying home will mean that they cannot satisfy the basic needs of their family and themselves.”

The conclusion drawn from their comments — that if the U.S. has a particular interest easing political stress and migration pressure in Central America, American policy should encourage investment and higher-quality employment — has a forty-year history. Four decades ago, the Ronald Reagan/Tip O’Neill “Caribbean Basin Initiative” aimed to encourage clothing-making in Central America by waiving U.S. tariffs under a complex legal formula known as “Section 807,” which offered buyers of Central American-made clothes duty-free treatment so long as the shirts, blouses, etc. were made of U.S.-produced fabric. The hope was that a growing garment industry would create many jobs, dampen the economic volatility arising from heavy reliance on fruit and coffee exports, reduce the social temperature, and so ease peace-making. A decade later, Central American maquiladora factories — long lines of sewing machines operated by young women; complementary male employment in factory repair, and transport — provided $4.8 billion of America’s $39.4 billion in clothing imports, or about eighth (by value) of the total.

After 20 years, the “CAFTA-DR” – the full and permanent Free Trade Agreement now joining the U.S. with Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and the Dominican Republic – replaced the CBI in phases from 2005 through 2009. Its hope was that a permanent agreement would make the region more competitive and build buyer confidence. But in practice, this hasn’t exactly happened. Though Central America’s clothing trade has grown a bit in dollar terms, despite its tariff advantage the region’s share of U.S. imports has dropped from 12.3% in 2005 to 10.1% in 2022. Though CAFTA-DR clothes have no tariff, while as of 2022 Asian clothes were taxed at an average of 18.8%,** most new clothing imports in the last two decades have come from Asia. (China in the 2000s, Vietnam and Bangladesh in the 2010s and 2020s). Also a bit striking: imports from FTA partner Jordan and ‘preference’ beneficiary Haiti (which operates under another upgrade of CBI rather than a free trade agreement), though smaller overall, have grown much faster than imports from the CAFTA-DR countries.

Why?  A plausible explanation is the complexity and costliness of the CAFTA/DR agreement. Like its CBI predecessor, CAFTA-DR retains a clause — known as a “yarn-forward rule” in apparel-trade jargon — requiring nearly all of (say) a T-shirt’s cloth and yarn*** to be made in the U.S. or a CAFTA country to qualify it for duty-free status. This means very restricted supply options for garment factories — to cite FTA partners only, no high-quality Peruvian cotton, no Colombian cloth, no Korean yarn or thread. Furthermore, CAFTA/DR includes a 143-page list of “product-specific rules of origin” writing special provisions for individual products meant to suit the very specific business models of many individual U.S. firms as of 2005. As a case in point, the agreement’s denim rules were meant to guide Central American manufacturers to fabric from a particular U.S. mill in North Carolina. As a sample of the daunting legal language this entails, here’s a passage drawn from the 2007 “textile amendment” requiring users to monitor the width of wool in the lining of jackets and skirts down to the half-micron:

“Chapter Rule 1 Except for fabrics classified in tariff item 5408.22.aa, 5408.23.aa, 5408.23.bb, or 5408.24.aa, the fabrics identified in the following headings and subheadings, when used as visible lining material in certain men’s and women’s suits, suit-type jackets, skirts, overcoats, carcoats, anoraks, windbreakers, and similar articles, other than men’s and boys’ and women’s and girls’ suits, trousers, suit-type jackets and blazers, vests, and women’s and girls’ skirts of wool fabric, of subheadings 6203.11, 6203.31, 6203.41, 6204.11, 6204.31, 6204.51, 6204.61, 6211.39, or 6211.41, provided that such goods are not made of carded wool fabric or made from wool yarn having an average fiber diameter of less than or equal to 18.5 microns, must be both formed from yarn and finished in the territory of one or more of the Parties: 51.11 through 51.12, 5208.31 through 5208.59, 5209.31 through 5209.59, 5210.31 through 5210.59, 5211.31 through 5211.59, 5212.13 through 5212.15, 5212.23 through 5212.25, 5407.42 through 5407.44, 5407.52 through 5407.54, 5407.61, 5407.72 through 5407.74, 5407.82 through 5407.84, 5407.92 through 5407.94, 5408.22 through 5408.24, 5408.32 through 5408.34, 5512.19, 5512.29, 5512.99, 5513.21 through 5513.49, 5514.21 through 5515.99, 5516.12 through 5516.14, 5516.22 through 5516.24, 5516.32 through 5516.34, 5516.42 through 5516.44, 5516.92 through 5516.94, 6001.10, 6001.92, 6005.31 through 6005.44, or 6006.10 through 6006.44.

Compliance with these rules requires 31 classes of documents ranging from bills of lading and employee time-cards to contracts with dyers and finishers, invoices, proofs of payment and so on; the resulting sheaf of paper is said typically to be about four inches high. Apart from the cost and lawyer-hours involved in verifying all this, rules designed for specific products from particular factories tend to lose relevance over time. In the denim case, the plant in question closed after a chemical accident in 2017, and since then Guatemala, El Salvador, and Honduras have stopped selling jeans to the U.S.

Thus CAFTA producers have been treading water as full-tariff competitors in Southeast Asia boomed. The Jordan agreement and the Haiti programs, simpler as they require only a showing of local added value rather than requiring detailed sourcing, appear much more successful.

Turning back now to Martinez’ journalism and Vice President Harris’ observation, the main point – to lower social temperatures and reduce migration pressure — still seems like a strong one. With it in mind, can we do better?  Could individual pieces of the CAFTA/DR that are no longer relevant – perhaps the denim piece — be scrapped? Could Congress allow Central American factories to use cloth and yarn from FTA partners, or Latin America generally? Or perhaps the whole thing might be redone, merged with the “USMCA” and the string of smaller FTAs going south from Panama to Colombia, Peru, and Chile?

* A bit dated as a description of the migrant route around 2010, but still relevant. ‘The Beast’, La Bestia, is a migrant nickname for southern Mexican freight trains.
** Counting Chinese products, many of which are subject to the Trump administration’s additional “301” tariffs. The 2022 rate for Asian clothes excluding Chinese-made goods was 16.6%.
*** Using a cotton T-shirt because this (HTS 61091000) is the top import from the CAFTA/DR countries, at $2.8 billion of the U.S.’ $35 billion in total imports (everything, clothes, coffee, oil, mangoes, etc.) from these countries last year. 

 

FURTHER READING:

Harris on Central America strategy this February.

The White House’s “Root Causes of Migration” strategy document.

And Ronald Reagan’s 1982 Caribbean Basin Initiative message.

Book recs: 

On migrants: Martinez’ The Beast: Riding the Rails and Dodging Narcos on the Migrant Trail.

… and for clothing-trade background: (as with Martinez’ book, slightly dated but still full of insights), Pietra Rivoli’s Travels of a T-shirt in the Global Economy (2005).

Data:

Customs and Border Patrol tabulate border ‘encounters’.

Clothing and textile import data in various forms from the Commerce Department’s Office of Textiles and Apparel.

The CAFTA/DR:

Full agreement text for CAFTA/DR; see Chapter 4, Annex 4.1 and “Textiles Amendment” for clothing rules.

An alternative clothing-import table:

The chart at the top counts from the signature of CAFTA/DR in 2005. A more recent count, looking at the decade 2012 to 2022 would be somewhat different, with China down rather than up, Vietnam and Bangladesh getting almost 2/3 of all new imports, and slightly higher growth for the CAFTA/DR countries. Same table, though a bit shorter:

World	+$23.6 billion
Vietnam	+$11.3 billion
Bangladesh	+$5.3 billion
India	+$2.8 billion
CAFTA/DR	+$2.7 billion*
Cambodia	+$2.0 billion
Pakistan	+$1.4 billion
Jordan	+$1.0 billion
Italy	+$1.0 billion
Sri Lanka	+$0.7 billion
Indonesia	+$0.7 billion
Turkey	+$0.7 billion
Egypt	+$0.5 billion
Haiti	+$0.6 billion
Peru	+$0.4 billion
Madagascar	+$0.4 billion
Burma	+$0.4 billion
Kenya	+$0.3 billion
Ethiopia	+$0.3 billion
Colombia	+$0.1 billion
Mexico	-$0.2 billion
China	-$8.4 billion

*Within CAFTA/DR, totals are Nicaragua +$1.4 billion, Guatemala +$0.7 billion, Honduras +$0.6 billion, El Salvador +$0.1billion, Dominican Republic unchanged, Costa Rica -$0.2 billion.

 

 

 

 

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.

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