National Security Advisor Jake Sullivan’s April 27 speech at the Brookings Institution, explaining the Biden administration’s global-economy policies, is an odd piece at an important time. Mr. Sullivan covers a lot of ground in a lengthy (4,981-word) speech: “industrial strategy” and subsidies; trade and tariffs; the U.S. relationship with China; brief excursions into finance, aid, and infrastructure, and so on. Parts of it work well, in particular his passage on China policy. Some other parts less so. That on trade especially is a sort of study in breezy mis-summarization of history, muddy elucidation of current choices, and unclear future direction.
Most important, when taken as a whole and given its timing just as the 2024 presidential campaign begins, the speech seems to be politically out of tune and picking the wrong targets. It is vigorous if defensive in rebuking the Biden administration’s liberal-internationalist friends for their worries that it may be overreaching in industrial strategy and under-reaching in trade policy. It is premature at best in positing that the administration’s global-economy agenda has achieved consensus status as the “project of the 2020s and 2030s,” and does not recognize — despite warnings from allies as important and close to the subject as Japan — the strength of the Chinese counter-“project.” And while spending lots of time in an argument with the 1990s, it elides not only the recent Trump administration record but the domestic political challenge from the administration’s Trumpist/isolationist enemies — which, in a few months, will seek to end the Biden administration, and with it not only Sullivan’s version of international economics but the 80-year liberal-internationalist legacy the speech rightly praises.
“Industrial” 517,000 Electronics 136,000
Automotive 121,000
All other 260,000
Specialized services 121,000
“Consumer” 19 million
* International Federation of Robotics, 11/22
WHAT THEY MEAN:
Reporting from Guangzhou last November, Reuters finds Chinese workers losing interest in manufacturing work:
“More than 80% of Chinese manufacturers faced labor shortages ranging from hundreds to thousands of workers this year, equivalent to 10% to 30% of their workforce, a survey by CIIC Consulting showed. China’s Ministry of Education forecasts a shortage of nearly 30 million manufacturing workers by 2025.”
The article’s young blue-collar Chinese interlocutors now prefer additional education or finding jobs in services (and a startlingly large number, Reuters also says, are “adopting a minimal lifestyle known as ‘lying flat,’ doing just enough to get by and rejecting the rat race of China Inc.”) China’s factories seem, however, to be adapting – in part by trying to offer higher wages, but also by hiring metal and plastic stand-ins. The International Federation of Robotics’ annual snapshot of the robot universe, World Robotics 2022, reports that over half of last year’s 517,385 newly employed industrial robots last year went to work in China, and that Chinese factories are now more robot-heavy than America’s:
“Every other robot globally installed in 2021 ended up in China: Installations surged by 51% to 268,195 units.”
On a broader scale, IFR’s report divides the new-robot picture into three parts:
Industrial robots: Last year’s Chinese robot surge was unusually large, but also reflects a trend sustained over the past decade. China is now by far the world’s top industrial-robot employer, home to 1.22 million working factory robots, or over a third of the world’s 3.48 million total. A contributor to this is the shifting industry-sector balance of robot use: auto plants (especially in the U.S., Japan, Korea, and Germany) were the first and historically the largest employers of robots, but have been surpassed at least in raw numbers by the electronics industry.
By this total count, China is the world’s robot metropolis. A different perspective — the ratio of robots to human workers — finds neighboring Korea easily eclipsing even China’s mighty robot army. The Korean government reports exactly 1,000 robots for every 10,000 Korean factory workers, far ahead of second-place Singapore’s 670 robots per 10,000 factory workers. After them comes Japan at 399 and Germany at 397; China is sixth at 322; and Taiwan and the U.S. essentially tie for eighth at 276 and 274 respectively. (The world average is 141.) Japan, finally, is likely the industrial-robot production center; though this year’s report doesn’t have a figure, last year’s cited Japan as producing 45% of industrial robots.
Specialized services robots: Robot services professionals are fewer in numbers than their proletarian factory cousins — 121,000 new ones last year, about a quarter of the 517,000 new industrials — and (like the human “services sector”) are very diverse. The largest group, 49,500, went to work in logistics, carrying packages in warehouses and delivery centers, and moving industrial components through factories. Another 20,000 took “hospitality” jobs, such as ferrying food from kitchen to table in large restaurants* or greeting customers; 14,800 went to work in hospitals, clinics, or emergency medical services, 12,600 in industrial cleaning work, and about 8,000 in farms, dairy, and ranching. IFR’s report regrettably doesn’t have figures on the countries in which these high-skill robots are lighting up, but notes that (in some contrast to the industrial-robot world, where Japan is the largest producer and neighbors Korea and China the leading users), the U.S. is the largest services-robot manufacturer.
Homes: Finally, 19 million humble domestic robots went to work in homes, mainly for interior cleaning and vacuuming, but also for lawn-mowing.
* The Trade Fact series editor encountered two attentive and polite restaurant robots at a restaurant in Chiang Rai in the northern reaches of Thailand in February. Thai industrial-robot installation rose by 36% last year, to about 4,000.
FURTHER READING:
Chinese workers not so interested in factory jobs.
… but no worries, here are the metal and plastic replacements. Global highlights from the International Federation of Robotics’ World Robotics 2021.
… and IFR’s closer looks at industrial and services robots.
The New York-based Institute of Electrical and Electronics Engineers has a weekly new-robot video. Try the prototype seabed-cleaning jellyfish-robot.
A few looks ahead, and one look back, from robot arts and lit:
Capek’s R.U.R. (1921) invented the word “robot,” and the classic “robot uprising” plot. The title acronym stands for a fictional “Rossum’s Universal Robots” company, with “Rossum” a slightly modified version of the Czech word for “reason,” and “robot” likewise an adapted term for “worker.” A Penn State robotics academic looks at R.U.R. a century later.
In robot-friendly Japan, by contrast, Astro-Boy (said to be the first anime character) is a helpful friend to humanity.
Stanislaw Lem’s “Mortal Engines” collection speculates about machine intelligence. In “The Hunt”, a well-meaning human pilot volunteers to destroy a supposedly mad robot; next, in “Mask,” a troubled, self-aware female robot-assassin tracks down a political dissident.
Philip K. Dick thought humans and robots would lose the ability to distinguish themselves from one another.
And Adrienne Mayer’s Gods and Robots: Myths, Machines, and Ancient Dreams of Technology takes the long look back, at visions of androids, flying cars, computers, and other semi-inventions in classical Greece, with comparators from India, Babylon, and the mechanical men of the Qin Dynasty court.
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.
FACT: U.S. Customs seizes 75 shipments of counterfeit goods imports each day.
THE NUMBERS: Counterfeit goods seizures by U.S. Customs* –
FY2021 value $3.3 billion
Number of seizures 27,115
FY2016 value $1.4 billion
Number of seizures 31,560
FY 2011 value $1.1 billion
Number of seizures 24,792
* CBP data; “value” is at the “Manufacturers Suggested Retail Price” of an authentic item.
WHAT THEY MEAN:
Here’s fashion magazine Allure with a closeup on the criminal fringe of the global manufacturing economy, through the lens of a 2016 seizure of counterfeit perfume in New York:
“Five men have been arrested in New York by U.S. Immigration and Customs (ICE) for knowingly selling counterfeit designer perfumes made with ingredients including antifreeze and urine across at least seven states … The authorities reportedly recovered approximately 10,000 boxes of the faux scents, whose ingredients included the aforementioned urine and antifreeze along with ‘other unpleasant, flammable, or dangerous chemicals that burn when applied to the skin.’ ”
Background: The most recent big-picture study of trade in counterfeits, a 2021 report from the OECD, estimated an upper limit of $464 billion worth of counterfeit goods flowing across borders in 2019. This would have been 2.5% of that year’s $19.8 trillion in goods exports — not much different from the 3.3% counterfeit share they estimated for 2016 and the same as their 2.5% estimate for 2013. By the OECD’s account, 90% of counterfeit goods come from five places — China, Hong Kong, Singapore, Turkey, and the United Arab Emirates — and the most frequently counterfeited products include shoes, clothes, perfumes and cosmetics (making Allure‘s New York arrest story a pretty representative case), along with watches and leather products like luggage and handbags.
U.S. counterfeit seizure statistics likewise seem to show a fairly stable level of counterfeit trade (or at least of interdictions of counterfeit goods) over the past decade, after a sharp rise in the 2000s. CBP’s FY2011 report tallied 24,792 seizures of counterfeit shipments (about 70 each day), and the 2016 report noted a higher total, at nearly 32,000. The 2021 total, at 27,115 seizures, was in between. Three ways to look at these totals:
(a) Number and kind of products: The 27,115 seizures in 2021 in turn brought in over 115,000 different “lines” of products, which reflect OECD’s report on the most frequently counterfeited goods fairly well: 73,367 seizures of counterfeit designer clothes, shoes, and luggage; 3,155 of personal products like the counterfeit perfumes, medicines, and medical products (including, in that troubled year, 35 million substandard masks and 38,154 useless or dangerous faux-COVID test kits); 5,380 sets of consumer electronics items, and 1,083 shipments of aircraft and auto parts.
(b) Origins: Here the U.S. statistics slightly differ from those of the OECD. As with OECD, they report China and Hong Kong as the top sources, accounting for 51,787 of the 115,000 “lines” of counterfeit goods, and also have Turkey in third with 10,781 lines. The remaining two are the Philippines with 6,416, and Colombia with 5,912.
(c) Transport methods: Counterfeit goods most frequently travel to the U.S. (assuming that CBP’s seizure statistics more or less accurately reflect the counterfeiting industry’s logistics choices) by express deliveries and mail shipments. CBP’s figures show 16,926 of the seized shipments arriving via express delivery, while 7,293 arrived by mail, 2,274 by maritime cargo, and 622 by unspecified other methods. The maritime cargo seizures, however, were apparently very large and valuable; weighted towards consumer electronics counterfeits, they accounted for $1.5 billion or half the total value of all seizures.
The amount of counterfeit goods which get all the way to consumers is by nature uncertain. The CDC, looking closely at medicine, says that “in high-income countries, such as the United States, less than 1% of medicines sold are counterfeit.” Medicines, though, are presumably an area where providers are especially cautious and law enforcement especially vigilant. CBP’s advice to consumers (and the message implicit in Allure’s graphic description of counterfeit perfume ingredients), though, is to be careful with what you buy: “Counterfeit products are low quality and can cause injuries or even death when used.”
FURTHER READING:
Ewww – Allure (2016) on the gross ingredients and nasty side-effects of counterfeit perfume.
… and a similar report this week from CBP, on a seizure of 150 parcels containing 744 counterfeit Botox shipments this Monday in Louisville.
CBP’s one-page, three-point guide for consumer awareness.
… and from the U.S. Trade Representative Office, this morning’s “Special 301” report on intellectual property reviews counterfeiting law and enforcement on pp. 16-20.
U.S. seizure data:
The Customs Service’s annual reports on counterfeit seizures, by country and type of good, back to FY2003. Seizure counts rise steadily from the 5,973 of FY2003 to 14,675 in FY2007 and 19,959 in FY 2010, peak at above 31,000 in FYs 2016, 2017, and 2018, and then drop back a bit to the 27,115 of FY2002. Next update likely in September.
And the World Health Organization’s home-page for counterfeit medicine.
And beyond the borders:
Wealthy countries with sophisticated and efficient customs enforcement record most seizures of counterfeit goods; in lower-income regions, seizures are less systematic and counterfeits are much more likely to reach consumers. As an example, the UN’s Office of Crime and Drug Control reports that substandard or counterfeit medicine rates are above 40% in eight countries — Venezuela, Suriname, Mali, Ghana, Malawi, Nepal, Bhutan, and Vietnam — and between 20% and 39% in 15 more. They published estimates this spring that these counterfeits contribute to as many as 267,000 annual deaths from malaria, and 169,000 deaths from childhood pneumonia. UNODC’s examination of counterfeit medicine in Africa, with a closeup on especially vulnerable low-income Sahelian states.
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.
FACT: Natural disaster death rates fell by over 90% in the last century.
THE NUMBERS: Annual deaths to natural disasters* –
2020s 13,000 (world population 8 billion)
1970s 99,000 (world population 4 billion)
1920s 524,000 (world population 2 billion)
* Our World in Data
WHAT THEY MEAN:
Each year brings about the same count of floods, earthquakes and tsunamis, droughts, hurricanes and cyclones, and other tragedies and disasters of geology and weather. But the toll these events take on life, society, and the economy seems to lessen over time. Website Our World in Data, using a simultaneously gloomy and hopeful database developed by the University of Louvain, summarizes:
“[O]ver the course of the 20th century there was a significant decline in global deaths from natural disasters. In the early 1900s, the annual average was often in the range of 400,000 to 500,000 deaths. In the second half of the century and into the early 2000s, we have seen a significant decline to less than 100,000 — at least five times lower than these peaks. This decline is even more impressive when we consider the rate of population growth over this period. When we correct for population — showing this data in terms of death rates (measured per 100,000 people) — then we see a more than 10-fold decline over the past century.”
Why? Gingerly comparing two sets of historical tragedies and disasters:
Japan and Earthquakes: This September marks the centennial of the Great Kanto Earthquake, the deadliest in Japanese history, which struck Taisho-era Tokyo in 1923. Believed to have reached 7.8 on the Richter Scale,* the quake killed over 105,000 of the city’s then-2.2 million residents through building collapses and fires. (Based on the Japanese government’s most recent estimates; earlier estimates were closer to 150,000.) The vastly larger Great Tohoku Earthquake of 2011 — 9.1 on the Richter scale, 20 times more powerful than the 1923 event — is thought by geologists the fourth-largest earthquake ever measured anywhere. It nonetheless took many fewer lives, because of the efficiency of Japan’s urban building codes, sea walls able to absorb at least some of the tsunami impact, immediate electronic warnings to bullet trains and motorists, and rapid-response civil defense bureaucracy.
Bangladesh and Cyclones: The Bhola Cyclone which struck Bangladesh in 1970, during which winds reached 145 mph, may have killed half a million people. More recent cyclones, though sometimes comparably powerful, are less deadly. The 2020 “super-Cyclone Amphan” and its 150 mph winds, for example, took 26 lives in Bangladesh, 98 in India’s neighboring West Bengal province, and 4 in Sri Lanka. Drawn from a least-developed country rather than Japan’s high-income, high-tech economy, Bangladesh’s post-Bhola experience is an equally powerful illustration of the ways in which weather service, evacuation drills, cultivated coastal mangrove forests to absorb storm impact, and evacuation drills are, though unable to prevent disasters, can make them far less dangerous.
More generally, the Our World in Data figures suggest that the level of annual disaster deaths is quite variable, and not precisely comparable across time since large individual events often affect not only annual totals but decade-long averages. Nonetheless, the broad trend seems clear. The 1920s featured the highest number of annual disaster deaths on average in OWiD‘s table, at over half a million per year. In the 1970s, a half-century later, the average was just below 100,000 disaster deaths per year. For the 2010s, it was 45,000 per year; and for the incomplete 2020s, the lowest of all at 13,000 per year.
The scale of this decline varies for different kinds of events. The sharpest reductions are in deaths to droughts and consequent famines, which are down 99.8% from the 472,400 per year average of the 1920s to 2,012 per year in the 2010s and 837 per year so far in the 2020s. (Famines remained significant causes of death in South Asia through the 1940s and in China to the early 1960s, and in the Horn of Africa until the last such event in anarchic Somalia 30 years ago. Better infrastructure, emergency relief, globalization, and multiple sources of food can ensure that people don’t starve when local or individual international sources go down, people no longer starve.) Losses to inland river floods have dropped almost as sharply. Those to earthquakes and tsunamis seem more uneven, with the recent averages much affected by the 2007 Port-au-Prince earthquake and the Indian Ocean tsunami which struck Indonesia, Thailand, and Sri Lanka in 2004. Hurricane and cyclone mortality, finally, is down about 90%, from 12,000 to 14,000 per year in the mid-20th century to about 1,600 per year so far in the 2020s, with Bangladesh’s post-Bhola experience striking evidence for the success of preparation and disaster relief in vulnerable least-developed countries. Last word to Our World in Data:
“This trend does not mean that disasters have become less frequent, or less intense. It means the world today is much better at preventing deaths from disasters than in the past.”
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.
* About 20% for a spoon valued at 25 cents on imports; 25% for a spoon costing 10 cents or less. Tariff lines are 71141130 for sterling silver, 82159930 for stainless steel spoons costing less than 25 cents each, and 82159935 for spoons at or above 25 cents each.
WHAT THEY MEAN:
How is it that cheap spoons are taxed more heavily than sterling silver?
In his 1832 essay on the U.S.’ tariff law, the former Treasury Secretary Albert Gallatin — then a 70-year-old observer and occasional commentator on policy; in earlier life a teenage immigrant from Geneva in the 1780s, a Jeffersonian-Republican politician and founder of the Ways and Means Committee in the 1790s, and Treasury Sec. for the Jefferson and Madison administrations from 1801-1814 — makes a cautious case for progressive taxation:
“Higher duties on luxuries than on articles generally, and in some cases exclusively, used by the less wealthy classes of society are justified by the propriety of laying a heavier burden on those who are the best able to bear it.”
He then glumly notes that, tariffs being an especially opaque way to raise money, and businesses and wealthy people being more able to investigate and complain about their “burdens” than the public in general and the poor in particular, the tariff laws of 1816 and 1828 had done the opposite.
“The principal commodities which have been selected for special protection, iron and all the coarser woollen articles of clothing, are as well as salt, coal, and sugar, essentially necessary to all classes of society. The duties laid on such commodities fall therefore much more heavily, in proportion to their means, on the less wealthy classes; and it has already been seen with what singular ingenuity that on woollens has been so arranged, as to make the poor pay, in every instance, considerably more than the rich. This your memorialists consider to be one of the most obnoxious features of the restrictive system.”
Income and payroll taxes now far exceed the $90 billion tariff system as a U.S. revenue source. But 190 years after Gallatin’s essay, the case of spoons raises some strikingly similar questions. Buyers of cheap stainless steel spoons pay about four times the tax on wealthy neighbors buying sterling, to wit:
(1) Mass-market: Low-priced stainless steel spoons, imported at prices below 25 cents each, get a 14% tariff. For readers familiar with the D.C. metro area, think middle-class and low-income families in Rockville or P.G. County, or the Salvadoran and Ethiopian restaurants along Georgia Avenue just north of the District. No such spoons seem to be made in the U.S. at all.
(2) Luxury: The tariff on sterling silver spoons is 3.3%, a bit less than a quarter of the cheap-stainless rate. Say, McLean and Georgetown, the Mayflower and the Four Seasons, downtown law firms, etc. In this sector, American companies and individuals do make sterling silver spoons, sometimes in batches and sometimes as artisanal pieces, but the prices are high enough to make tariff rates irrelevant.
(3) Mid-tier: More expensive stainless steel falls in the middle, with a 6.8% tariff. One company in upstate New York, Sherill Industries, makes high-priced stainless steel silverware, whose prices seem to average around $4.00 per piece.
Gallatin’s term “obnoxious” is subjective, but doesn’t seem unreasonable here. Neither the cheap-spoon line (“82159930”) nor the sterling line (71141130”) appear to affect trade flows much, so in this case the tariff system is acting much more in its ‘tax’ role than its ‘trade’ role. There’s little doubt that in this case the poor are taxed considerably more than the rich, and the spoons case is more a typical case than a weird anomaly. An illustrative table of 12 products, drawn from PPI testimony to the International Trade Commission last year:
In this perspective, Gallatin seems to identify a structural challenge that remains powerful despite the passage of nineteen decades. Perhaps especially in tariffs as opposed to more transparent income or sales taxes, low-income people often don’t know when they are being taxed and aren’t in a position to ask for lighter burdens. And in the political system, most tariff analysis relates to trade policy rather than the role of tariffs in taxation; Gallatin’s Ways and Means Committee, in fact, appears not to have held a hearing on the tax implications of tariff policy since 1974. So with little knowledge about strange phenomena like the differential rates on stainless steel and sterling even among policymakers, policies rarely get critical examination and “the less wealthy classes” seem to wind up carrying the heavier burdens.
FURTHER READING:
Analysis then and now:
Frederick Taussig’s State Papers and Speeches on the Tariff collection (1892), featuring Gallatin’s 1832 essay along with other 18th- and 19th-century trade policy luminaries (Alexander Hamilton, Daniel Webster, and the now-obscure Robert Walker, who was James K. Polk’s Treasury Secretary in the 1840s).
The Harmonized Tariff Schedule; see Chapter 71, heading 7114 for sterling silver and other precious-metal “silverware,” and Chapter 81, heading 8215 for “base metal.”
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.
FACT: Multinationals employ three out of every 10 American workers.
THE NUMBERS: Employees of multinational firms (U.S.- and foreign-based) as a share of total U.S. private-sector employment –
2020 31%
2019 29%
2012 26%
2002 26%
1992 25%
WHAT THEY MEAN:
Here is J.M. Keynes, looking back from 1919 at the “globalized” world of the 1910s, from the perspective of a wealthy (male) Londoner:
“[For] the middle and upper classes, life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.”
Taking up his themes of easy and uninterrupted flows of investment and trade a century later, with some employment focus as against Keynes’ investor-and-consumer viewpoint–
The U.N. Conference on Trade and Development’s annual “World Investment Report”, reports that annual cross-border “foreign direct investment” flows have varied between $1 trillion and $2 trillion over the last decade, with the U.S. in most years both the largest source and recipient. Last year was a typical example, with the U.S. receiving $367 billion of the worldwide $1.6 trillion in total inbound FDI flows, and sending out $404 billion.
Reporting each year on these flows’ real-world manifestations, the Commerce Department’s Bureau of Economic Analysis publishes figures on international businesses’ employment, investment stocks, employment, R&D, payrolls, and so forth in the United States and abroad. Their most recent editions cover the year 2020 and find U.S. “affiliates” of foreign-based firms employing 8.6 million workers, and U.S.-based firms with overseas operations employing 28.4 million people in the U.S. (along with 14 million overseas). Together, then, internationally operating businesses employed 37 million private-sector workers, or 31% of the COVID-depressed 120 million total. Two bits of perspective on this:
(1) Economic role: The “multinational’ firms — both U.S. “parents” and foreign “affiliates” — are particularly employers in manufacturing (10 million of 12.2 million), retail (10 million of 17 million, and information industry (2.0 million of 2.7 million). They are also very prominent in private-sector science, together accounting for $430 billion of 2020’s $717 billion in U.S. R&D spending. (U.S.-based firms did most of this at $361 billion, not counting $59 billion in overseas R&D; U.S.-based affiliates of foreign firms contributed $73 billion in U.S.-based R&D. And they account for about two-thirds of U.S. goods trade, including $1.08 trillion of 2020’s $1.66 trillion in exports, and $1.43 trillion of the $2.35 trillion in imports.
(2) Over time: At least with respect to employment, multinationals’ role in U.S. economic life has been pretty stable over the last generation. The 31% share of employment in 2020 is at the high end of BEA’s records, but this is mainly because, before COVID vaccines, employment was especially depressed in industries with fewer multinationals, such as restaurants, hotels, beauty shops, and other small services businesses. Over the last 30 years, the “multinational” share of U.S. employment has varied between 25% and 29% of private-sector workers – or, to cite a few specific years, 26% of the 121 million private-sector workers in 2012, 26% of the 108 million in 2002, and 25% of the 90 million in 1992. Over this time, U.S.-based multinationals have added about 11 million employees in the U.S. (17.5 million then, 28.4 million in 2020), while simultaneously adding 10 million overseas. International firm employment in the U.S. has grown at a slightly faster pace in percentage terms but less sharply in total numbers, rising by about 80% from 4.8 million in 1992 to 8.6 million in 2020.
Lots of money and research, the various products of the world freely available, employment rising at typically modest but positive gradations each year. All this may feel a bit reassuring, as “geopolitics” grows steadily more menacing, and international institutions fray at the edges — but it also makes Keynes’s close, as he reflects on how fragile the apparent calm and stability of his own recent past were, especially unsettling:
“[H]e [the hypothetical upper-middle class Londoner, probably referring to himself] regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life.”
BEA’s figures look at U.S. private-sector investment abroad as well as multinationals operating here, with some detail on destinations for U.S. investment and the ownership of investment here. As both a destination and a source, Europe is the main partner and Canada is disproportionately large. By value (“investment stock”), Europe is home to $4 trillion of $6.5 trillion in U.S. FDI abroad (2020), with the U.K. at $1.0 trillion, EU members $2.7 trillion, and Switzerland, Norway, Iceland, and Turkey together $0.25 trillion. Latin American countries are at $0.25 trillion, led by Mexico at $110 billion; Asia and the Pacific are at $960 billion, topped by Singapore at $294 billion, Australia at $167 billion, and Japan and China both around $118 billion. Measured by jobs, though, U.S. firms employ about as many people in Asia as in Europe. A table of U.S. overseas employment by region:
Looking the other way, European firms are likewise the main international employers in the United States, at 5 million jobs or about 60% of the 8.6 million total. By country, U.K. firms led at 1.2 million, followed by Japanese at just above 1 million, Canadians just below, Germans at 885,000, French at 740,000, and Dutch at 569,000. Japanese firms employed a bit more than 1 million Americans, second only to the Brits; Canadians just a bit less at 940,000. Chinese firms, though receiving much attention and publicity, were modest employers of Americans at 153,000; Mexicans were at 89,000, and Indians 73,000.
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.
The venerable International Telecommunications Union (ITU), the world’s oldest “international organization,” has been printing, telegraphing, broadcasting, and posting telecom data since its launch in 1865.* Its most recent look at the digital world, out last September, finds 5.3 billion people, or two-thirds of the world’s 8 billion population, now have internet access. Two observations on this:
(1) This year’s 5.3 billion internet users are nearly three times the 2.0 billion ITU counted in 2010; over ten times the 0.4 billion it found in 2000; and about 1,000 times the roughly 3 million comp sci students, telecom enthusiasts, and government officials using the pre-WWW, copper-cable-based networks of 1990. In high-income countries, more than 90% of people are now online, with the exceptions (if the U.S. is a good sample) mostly infants and elderly people who don’t want service. Many of the newer users — 600 million have logged on since the COVID pandemic — are now in lower-income regions: Least-developed country use has jumped from 89 million to 407 million since 2015, and 40% of sub-Saharan African households are now online, as against 11% in 2015.
(2) Information exchange is rising faster than user count. ITU estimated 1,230 terabits of bandwidth in use every second (Tbps) in 2022, up from 979 Tbps in 2021, and four times the 292 Tbps it found in 2017. About 40% of data exchange goes on in Asia, which accounted for 542 of the 1,230 TBps last year. Europe added 242 TBps, the Western Hemisphere (including the U.S., Canada, the Caribbean, and Latin America) 224, and the rest of the world 220.
Intellectual and cultural assessments of the rising user counts and accelerating data exchanges are always pretty subjective. Economic measurements are also often murky, but there are some useful gauges, especially with respect to the U.S.. The OECD, for example, estimates that the $25 trillion U.S. economy now includes $112 billion in annual sales of data and data-related advertising, and that data stocks are worth about $421 billion in national “wealth.” With respect to trade, the Commerce Department’s Bureau of Economic Analysis reports $89 billion in U.S. exports of information and communications services and $594 billion in digitally deliverable services in 2021 — together, more than a quarter of the $2.26 trillion in total U.S. exports.
In purely physical terms, the growth in user counts will have to slow down by the late 2020s. But the scale of information exchange can easily keep rising, since the physical capacity to carry data continues to grow both under the oceans and above the atmosphere. The glass-watchers at TeleGeography, for example, see 552 submarine cables operating in 2023, with 33 new ones scheduled to go live this year and 19 more so far in 2024. Meanwhile, satellites are handling larger shares of data flow, and 1,000 to 1,500 new ones go into orbit each year.
In ‘governance’ terms, however, questions about fraying policies and thickening cyber-borders seem to be intensifying even as the Internet accommodates more users and carries more information. Examples: steady interest among lots of governments in digital service taxation; last year’s efforts, especially from India, to end the WTO’s 24-year-old “moratorium” on tariffs for digital transmissions; and the quiet but intense ideological tug-of-war between the “internet sovereignty” concepts proposed by authoritarian governments and the “multi-stakeholder”/free flow of data views held traditionally by the U.S. and most liberal democracies, and elaborated in last year’s 61-country Declaration for the Future of the (“open, free, global, interoperable, reliable, and secure”) Internet.
* Created to deal with the questions raised by the deployment of the first telegraph cables; converted into a League of Nations organization in 1919, and a U.N.-specialized agency more recently.
FURTHER READING:
ITU’s 2023 “Facts and Figures” report on internet populations, data exchange, smartphone use, and more worldwide and by region.
… and the 61-country Declaration for the Future of the Internet, including 39 in Europe, five in the Pacific, three in Africa, one in the Middle East, and 9 in the Western Hemisphere (of which two are Caribbean, two North American, one Central American, and four South American).
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.
THE NUMBERS: World ozone-depleting substance consumption* – 19891.32 million tons 20050.25 million tons 2010 0.10 million tons 20150.01 million tons?
* Includes chlorofluorocarbons, hydrochlorofluorocarbons, methyl bromide, carbon tetrachloride, halons, and methyl chloroform. (Our World in Data)
WHAT THEY MEAN:
Here is a success story:
Chlorofluorocarbons, known for pronunciation’s sake as “CFCs,” are strings of carbon atoms joined with the halide elements fluorine and chlorine rather than their more common hydrogen-ion partners. First synthesized in 1928 by American refrigerator-makers, they were used worldwide as coolants and industrial solvents from the 1930s to the 1990s by manufacturers, building superintendents, food-service professionals, and home-owners, all of them unaware that CFCs react easily with ozone, and that this, in turn, could have large consequences.
Via eleventh-grade chemistry, meanwhile, ozone is a pungent form of oxygen arranged chemically as “O3,” as distinct from breathable oxygen “O2.” Floating in a “layer” 15-35 kilometers above the earth, ozone absorbs ultraviolet light and in doing so reduces the risk of skin cancer to people, cools lower-atmosphere temperatures, and facilitates photosynthesis in land plants and oceanic phytoplankton. CFCs are fairly stable molecules that float around for a long time — depending on the particular molecule, they can last from 100 to 200 years before breaking up and raining down out of the sky — and react quickly with ozone. Thus their release from buildings and refrigerators began an era of high-atmosphere chemical reactions, which scientists predicted in the 1970s and then detected as a fall in the atmosphere’s “total column ozone” count by 1985. This eased ultraviolet light passage to the earth, with especially large effects over Antarctica where a large “hole” of missing ozone appeared in the early 1980s, first at about 5 million square km and reaching 28 million square km by 2000.
How to respond? The Montreal Protocol, a monument of Reagan-administration and international environmental diplomacy, banned the production and use of CFCs in 1987, and has since been ratified and implemented by 196 countries and territories. Over the ensuing 35 years, production and industrial consumption of CFCs has dropped by about 100%, from 1.1 million tons in 1986 to 43,000 tons in 2005, then to a tiny 63 tons in 2010, and since then oscillating around zero. (“About 100%” and “oscillating” because sometimes discovery and destruction of unused CFC stocks create a negative output; alternatively, sometimes destruction of old buildings inadvertently releases old “banks” of CFC-containing insulation for a small positive output.)
The “Kigali Amendment” negotiated under the Obama administration in 2016 added a ban on hydrofluorocarbons — a temporary replacement for CFCs which are less potent ozone-depleters but have strong greenhouse effects — and made the sale of the next generation of chemicals conditional on participation. This went into effect in 2019, with Senate ratification last fall. The HFCs are supposed to be gone by 2030.
Two results of all this:
(1) CFC atmospheric concentration down: Near zero in 1920, the level of chlorine in the Antarctic stratosphere hit 2.2 parts per billion in 1980 and peaked at 4.7 parts per billion in the mid-1990s. Since then it has been falling by 0.4% to 0.8% per year, with NOAA charts showing “CFC-11” down from 540 points per trillion to 490 ppt since the late 1990s, “CFC-12” from 270 ppt to 220 ppt, and “CFC-113” from 84 ppt to 68 ppt. The current CFC level is about 3.5 parts per billion, and though CFCs degrade only slowly, NOAA’s projections show a return to 1980 levels by the 2070s.
(2) Ozone layer slowly recovering: As CFC levels drop, ozone levels have stabilized. UNEP believes “total column ozone” is rising by about 1% to 3% per year, and the “ozone hole” above Antarctica now oscillates in a range between 16 million square km in 2019 and 24.5 million square km in 2022. The UN Environmental Programme’s 2022 ozone assessment tentatively projects that atmospheric ozone will return to its 1980 levels sometime around the year 2040 worldwide, and in the 2060s for the Antarctic. The reduced emissions of CFC and related gases, meanwhile, appear to have averted a rise of 0.5 to 1 degree Celsius in average global temperatures; and the Kigali Amendment is likely to prevent another 0.5-degree rise.
So altogether: With good scientific evidence, commitment by governments of quite different political outlooks, implementation by bureaucracies and businesses, and some modest temporary sacrifice for the common good, policy can achieve a lot.
FURTHER READING:
Then –
From Ronald Reagan’s enthusiastic comments on the Montreal Protocol in April 1988:
“The Montreal protocol is a model of cooperation. It is a product of the recognition and international consensus that ozone depletion is a global problem, both in terms of its causes and its effects. The protocol is the result of an extraordinary process of scientific study, negotiations among representatives of the business and environmental communities, and of international diplomacy. It is a monumental achievement.”
And NASA’s ‘ozone watch’ tracks ozone density (as measured in Dobson Units) over the South Pole
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.
* Our World in Data. Note that data (a) is available for 70 countries in 2017 and fewer in earlier years, (b) covers “non-agricultural workers,” so is less dependable for countries with large rural/farming populations, and (c) applies to formal-sector workers for whom data is reported and available, and misses sometimes very large informal-sector workforces.
WHAT THEY MEAN:
The Washington Post reports on an unusual proposal from the Korean Labor Ministry:
“South Korea’s conservative government has proposed increasing the legal cap on weekly work hours from 52 to 69 … South Koreans already toil more than many of their overseas counterparts. They work an average of 1,915 hours a year, compared with 1,791 hours for Americans and 1,490 hours for the French, who have a 35-hour workweek, according to figures from the Organization for Economic Cooperation and Development. The OECD average is 1,716 hours.”
Comparisons like these are a bit fraught. The OECD, whose data covers 44 middle- and upper-income countries plus averages for the EU and the OECD membership, very responsibly warns that its “data are intended for comparisons of trends over time; they are unsuitable for comparisons of the level of average annual hours of work for a given year, because of differences in their sources and method of calculation.” Broader attempts to add low-income country data (for example the 70-country table published by Our World in Data) are even riskier, (a) low-income country statistical agencies may be less accurate; (b) coverage of informal-sector workers in low- and middle-income countries will be either much spottier than formal-sector work or nonexistent; and these surveys typically exclude farm labor, whose share of total jobs is low in high-income regions but often high in low-income countries. All these cautions noted, the available figures do suggest a couple of conclusions:
1. Southeast Asians spend the most time on the job. Our World in Data, whose figures go through 2017, reports that Cambodians — garment-workers in Phnom Penh, hotel maids and concierges around Siem Reap, truckers, and crane operators on the Phnom Penh-Sihanoukville run – spent an average of 2,456 hours on the job that year.* Also in Our World’s top six: Myanmar at 2,438 hours per year, Malaysia and Singapore at 2,238 hours each, and Bangladesh (“South Asian” by geographic convention but in the same neighborhood) at 2,232 hours. The non-Asian representative in the longest-hour tier is Mexico, at 2,255 hours per year. ASEAN generally is a long-hour region: Thai workers rank 10th in the Our World table with 2,185 hours per year, Vietnam and the Philippines 12th and 13th, and Indonesia 19th with 2,024. To the west and north, India and Pakistan clock in at about 2,100 hours each, with China at a slightly higher 2,174 hours.
2. Europeans spend the least time on the job: Relaxed but efficient Europeans show up at the bottom-hour tiers of all three surveys. Defying all stereotypes, Germans work the fewest hours, at 1,354 per year in Our World’s 2017 table, and 1,349 hours in OECD’s 2021 figures. This is the equivalent of 38 five-day weeks, assuming 8-hour days, with 14 weeks off. Just above the Germans come Danes, Luxembourgers, Dutch, Norwegians, Icelanders, Austrians, Swedes, and French, all working less than 1,500 hours per year. EU workers score well on productivity figures, though, so they get a lot done in their limited office/plant/lab/shop time. Americans are pretty near a hypothetical world average (1,757 working hours by Our World’s count and 1,791 hours according to the OECD) with Japan’s 1,738 hours and Australia’s 1,731 about the same. The longest high-income work years turn up in the Baltic states and Taiwan at nearly 2,000 hours each — 30 8-hour days more than Americans — with Hong Kong’s 2,186 hours and Singapore’s 2,238 hours the high-income world’s longest working years.
3. Over time, people work less: In the very big picture, even the world’s highest work-hour totals look modest when matched against those of earlier times. The Our World database includes 11 countries whose labor ministries were able to estimate annual work hours in 1870. All reported over 3,000 hours a year on the job, with Belgium’s 3,455 hours — essentially a ten-hour day, every day with a couple of holidays and no weekends off — looking like the longest year ever measured. The U.K.’s 2,755 hours, the lowest in the 1870 records, is still 300 hours more than Cambodia’s modern estimate. National holidays, 8-hour-day laws, overtime pay rules, and similar legal and regulatory changes brought these remarkable totals down through much of the 20th century. In the U.S.’ case, the 3,096-hour work year of 1870 fell to 2,605 hours by 1913. In 1950, 15 years after the Fair Labor Standards Act, the work year was just above 2,000 hours.
4. No clear recent pattern: Using a more relatable time frame — say, the last generation’s experience since 1990 or 2000 — no clear pattern appears. The U.S.’ total hasn’t changed much — 1,796 hours in 1990, a bump up to 1,845 in 2000, and 1,796 in 2021. On the other hand, work years have lengthened in much of Asia and parts of Latin America — up by 30 to 84 hours in India, Colombia, Cambodia, the Philippines, China, and Indonesia. Elsewhere, though, Thai workers have cut their 2500-hour year by 310 hours since 2000, Taiwanese by 190 hours, Irish by 187 hours, and Chileans and Costa Ricans by 289 and 155. And as the Korean economy has evolved from a heavy-industry center to a services-and-tech “Hallyu Wave” [link: https://www.progressivepolicy.org/blogs/ppis-trade-fact-of-the-week-squid-game-outdrew-the-world-series-this-year-nov-17-2021/], its working year has fallen by a full 600 hours: 2,677 hours in 1990, 2,509 in 2000, 2,063 in 2017, and most recently 1,909 in 2021. This is still a bit long by high-income country standards, but represents a drop of 600 hours, or 75 8-hour days, in a single generation. Perhaps this suggests why senior Labor Ministry bureaucrats, remembering their weekend-less youth, may feel that 69 hours a week isn’t too much to ask?
* As an example, the 2,456-hour average may reflect the experience of a very limited fraction of Cambodian workers, as ILO figures show 92% of Cambodians are in informal work, and World Bank data report that 75% of Cambodians live in rural areas.
The U.S. Geological Survey’s mineral commodity statistics, covering steel, aluminum, and 130 other substantives from abrasives, aggregates, and aluminum to yttrium and zirconium, with salt, pumice through steel, aluminum, rare earth elements, cement, gold, iridium/osmium/platinum, gemstones, tin, and more.
… and Cambodia’s Better Factories program, an ILO-launched system operating since 1999, offers independent inspection for hours, union rights, sexual harassment, and other labor rights standards for garment workers in 557 factories
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.
FACT: U.S. steel and aluminum output have changed little since 2017.
THE NUMBERS: Steel production in the United States –
2000 102 million tons 2001-2010 average 95 million tons 2011-2017 average 84 million tons 2017 total81.6 million tons 2018-2022 average 83 million tons 2022 total82 million tons (first estimate)
WHAT THEY MEAN:
A passage from the Commerce Department’s January 2018 “Section 232” report on the national security implications of steel trade argues for a tariff or global quota, on the grounds that this would (a) reduce imports, (b) thus allow U.S. mills to run at 80% capacity instead of the 74% measured in 2017, and so finally (c) secure a U.S. national security need for long-term sources of locally cast metal. Note in particular the leap of faith in the third sentence: “If a reduction in imports can be combined with an increase in domestic steel demand, as can be reasonably expected …”:
“By reducing import penetration rates to approximately 21 percent, U.S. industry would be able to operate at 80 percent of their capacity utilization. Achieving this level of capacity utilization based on the projected 2017 import levels will require reducing imports from 36 million metric tons to about 23 million metric tons. If a reduction in imports can be combined with an increase in domestic steel demand, as can be reasonably expected [with] rising economic growth rates combined with the increased military spending and infrastructure proposals that the Trump Administration has planned, then U.S. steel mills can be expected to reach a capacity utilization level of 80 percent or greater. This increase in U.S. capacity utilization will enable U.S. steel mills to increase operations significantly in the short-term and improve the financial viability of the industry over the long-term.”
The Department eventually recommended a 25% tariff on most imported steel, and a similar 10% tariff on most imported aluminum, and received these in March 2018. The tariffs are mostly still in place (along with intense controversies between the U.S. and its allies, and at the WTO), though modified by Biden administration agreements with the U.K., EU, and Japan for duty-free imports up to a particular annual quota level.
How do the results look five years later, when compared with the report’s 2018 predictions? Useful figures come from the U.S. Geological Survey, which each year produces concise 2-page reports on mining, smelting, proven reserves, shares of world production, and other stats for 138 metals and minerals, from abrasives and aggregates to yttrium and zirconium, with salt, talc, tin, crushed rocks, gemstones, gold, rare earth elements, platinum group metals, steel, and aluminum in between. This year’s steel section, out January 31, reports the following:
(1) Output: U.S. raw steel production, at 82 million tons in 2022, was about the same as the 81.6 million tons in pre-tariff 2017, after ticking up to 87.8 million tons in 2019 and then dropped during and since the COVID pandemic. The total is more or less the same as the average output over the last decade or in the five pre-232 years.
(2) Capacity utilization: The Federal Reserve’s “FRED” database reports U.S. steel capacity utilization at 72.6% in December 2022, slightly below the 74.0% reported in December 2017. Full-year average figures were 73.5% in 2017 and 74.7% in 2022.
(3) Domestic demand: USGS’ calculates U.S. ‘apparent consumption’ of steel at 96 million tons in 2022, down a bit from 99 million tons in 2017. The 2022 figure is essentially equal to the 2007-2017 average of 95.5 million tons per year (and far below the 104 million-ton average from 1996-2006).
By these measures, the U.S. steel industry looks about the same in 2022 as it did in 2017. Thus the Commerce Department’s prediction that growth plus public policy would create “an increase in domestic demand” for steel, and long-term higher capacity utilization despite the higher prices tariffs would create, didn’t pan out. Two other measures, though, do show some changes:
(4) Trade: U.S. imports of steel were 30 million tons in 2022, well below the 42.4 million tons reported for 2017 and slightly below the 32 million-ton average from 2008 to 2017. U.S. steel exports are also down, though, from 9.6 million tons in 2017 to 8.0 million tons. In effect, since the tariffs U.S. producers have gained some market share within the United States, but lost a bit worldwide.
(5) Employment: USGS finds blast furnaces and steel mill employment down from 80,600 in 2017 to 75,000 in 2022, and foundry employment from 65,000 to 50,000. (More recent Bureau of Labor Statistics shows smaller declines, from 82,000 to 80,000 in mills and from 117,000 to 108,000 in foundries.) Either way, this isn’t a great industrial measure, since lower employment with identical output can easily reflect investment in technologies and higher productivity.
The aluminum story seems pretty similar. USGS’ aluminum survey reports 741,000 tons of primary aluminum output in 2017, rising to 1.09 million tons in 2019 and then falling back to 860,000 tons in 2022. As with steel, 2022 aluminum imports and exports were both below their 2017 levels, with imports down from 6.2 million tons in 2017 to 5.9 million tons in 2022, and exports from 1.3 million tons to 1.0 million tons. Their figure for aluminum import market share has oscillated more violently than that for steel, having risen from 33% in 2014 to 59% in pre-tariff 2017, falling to 38% in 2020 during the COVID pandemic and 41% in 2021, and then jumping back up to 54% in 2022.
In sum, imports of both metals did in fact drop after the tariffs; but the Commerce Department’s anticipation of higher output and higher capacity utilization rates didn’t materialize, and its expectation that tariffs would be consistent with rising domestic use of these metals looks a bit optimistic.
FURTHER READING:
The “Section 232” site for the Commerce Department’s Bureau of Industry and Security, with links to the 2018 reports on steel and aluminum.
The U.S. Geological Survey’s mineral commodity statistics, covering 132 substantives from abrasives, aggregates, and aluminum to yttrium and zirconium, with salt, pumice through steel, aluminum, rare earth elements, cement, gold, iridium/osmium/platinum, gemstones, tin, and more in between.
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.
How does the Trump-era agenda hold up six years later, when matched against its officials’ trade-balanced centered critiques of their predecessors and goals for their own program?
Each February, the U.S. Trade Representative Office puts out a report entitled “The President’s Trade Agenda,” which sets out Administration goals for the coming year. The 2017 edition cited a U.S. global trade balance statistic as proof that earlier administrations got things wrong:
“In 2000, the U.S. trade deficit in manufactured goods was $317 billion. Last year [i.e. 2016] it was $648 billion – an increase of 100 percent.”
The next edition, in 2018, used “bilateral” trade balance with Mexico — i.e. country-to-country, subtracting the value of U.S. exports to Mexico from the value of imports from Mexico — to claim failure for the North American Free Trade Agreement and set a goal for the renegotiated “USMCA”:
“[O]ur goods trade balance with Mexico, until 1994 characterized by reciprocal trade flows, almost immediately soured after NAFTA implementation, with a deficit of over $15 billion in 1995, and over $71 billion by 2017. … USTR has set as its primary objective for these renegotiations – to improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries.”
How does this hold up six years later? Before turning to the bleakly comical answers, an econ. note and a couple of stat. correctives:
(1) Standard Econ 101 equations show that a country’s trade balance always matches the difference between its savings and its investment. Since the mid-1970s, Americans have been investing more than we save; ergo, trade deficits. The orthodox view is that while very high trade deficits can arouse alarm as indicators of unsustainable booms, the appropriate response is fiscal contraction and long-term measures to raise savings rates (and contrariwise, expansion and higher consumer purchasing in surplus countries). One corollary of this is that trade policy measures like tariffs or FTAs won’t much affect overall balances, and shouldn’t really be judged on a balance basis. A second is that a program like the Trump administration’s — business tax cuts which will (barring some offsetting rise in family or corporate savings) lower the national savings rate and possibly raise investment, plus higher government spending which will (barring some offsetting collapse of private-sector investment) raise national investment rates will naturally create a higher trade deficit. (Or lower surplus for countries in surplus.) The Trump administration’s evident hypothesis was that this basic equation is in error, and a combination of tariffs and negotiated purchasing commitments, rules of origin, efforts of will, and so forth, would force the plus and minus signs to change.
(2) Statistically, the best way to compare balances across time (and especially over decades) is to look at “trade balance relative to GDP,” rather than “nominal” dollar totals which don’t account for inflation or the scale of trade relative to the economy. By this measure, the U.S. trade deficit has averaged 2.7% of GDP since 1982, with lows of 0.5% in 1991 and 1992 and highs of 5.7% in 2005 and 2006. The 2016 level was 2.7% of GDP, exactly the 40-year average and a bit below the 3.7% of GDP of 2000 and the 3.0% of GDP in 1987.
(3) Less consequentially, U.S. goods trade with Mexico might be termed “characterized by balanced trade” across the entire 1970-1990 stretch of time, but oscillated with growth trends and energy prices from a surplus (from a U.S. perspective) in the 1970s, to deficits from 1982 through 1990, and then briefly surplus during the Mexican boom/U.S. recession in 1991-1993.
These points duly noted, here are the 2022 figures analogous to those in the 2017 and 2018 President’s Trade Agenda reports:
Overall and manufacturing balances: The largest measurement of trade balance is the (exports of goods + services) – (imports of goods and services). At 2.7% of GDP ($480 billion) in 2016, this reached 3.0% of GDP ($845 billion) in 2021, and 3.8% of GDP ($948 billion) in 2022. The manufacturing deficit was $892 billion in 2020, $1.06 trillion in 2021, and $1.20 trillion in 2022. Thus it nearly doubled the $648 billion nominal-dollar figure cited as evidence of debacle in 2017.
Bilateral balances: The U.S.-Mexico goods trade balance with Mexico, two years into the USMCA, was -$120 billion in 2022, nearly double the 2017 figure used to illustrate the need to renegotiate the NAFTA. The balance with Canada, a $16 billion deficit in 2017, was $80 billion in deficit as of 2022. USMCA may well have some advantages over the NAFTA — new digital material, labor, and environmental coverage, and so on – but with respect to balance the Trump negotiators look to have over-reached. Even the China goods deficit, at $383 billion in 2022, was well above the pre-“301” tariff of $347 billion of 2017.
In sum, not quite what the policies’ authors predicted, and a bit of vindication for the economists who (a) thought use of trade balance as a success-meter was a mistake in general, and (b) based on policy and growth trends, predicted an outcome a lot like the one that actually happened.
* As above, this should be adjusted for inflation and so doesn’t quite double the 2016 figure.
FURTHER READING:
The Trump administration’s 2017 Executive Order on “Omnibus Report on Significant Trade Deficits” asked the U.S. Trade Representative Office and the Commerce Department to write up a report on trade balances with most major U.S. trading partners. This was never released:
As noted above, a better way to put trade flows and balances in context is relative to GDP. A quick run-down of imports, exports, and balances in 2016 and 2022, with 2000 and peak-deficit year 2006 added for context.
What Happened?
Why the upward turn since 2016? Tax policy is the logical suspect. Three of four big upward ratchets in U.S. trade deficits since the 1970s followed tax-cut bills: one in 1981, another in 2001, and the third in 2017. Bills of this sort typically bring somewhat higher government deficits (“dissavings”), which mean an overall drop in national savings unless offset by higher family or business saving. All else equal, by virtue of the “savings-investment = trade balance” identity, trade deficits rise.
The main balance effects of the Trump-era tariffs are likely (a) shifting some of the overall U.S. deficit from China to Vietnam, Mexico, and some other mid-income countries, and (b) also probably, though less certainly, concentrating the deficit more in manufacturing than had been the case before 2017. Trump-era tariffs on steel, aluminum, and Chinese goods fall heavily on industrial inputs — metals, auto parts, electrical converters, etc. — and require U.S. manufacturers and farmers to absorb extra costs. The likely result is some marginal loss of competitiveness for exporters trying to sell to foreign buyers and for firms competing against imports at home, pushing a larger share of the overall U.S. deficit into manufacturing, reducing the erstwhile agricultural surplus, and accelerating the shift of energy from deficit to surplus.
… and the 2018 followup (with an extraordinary claim that the 2017 tax bill “has the potential to reduce the U.S. trade deficit by reducing artificial profit shifting”).
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.
Two human things are measured in quadrillions. One is energy — about 640 quadrillion annually burnt “BTUs” heat the world’s homes, propel its ships and planes, run its server banks, and water its gardens. The other is money. The Bank of International Settlements’ most recent Triennial Survey (out last December) says that governments, businesses, banks, tourists, and computerized trading programs exchanged $7.5 trillion in currency daily, or $2.739 quadrillion over the year. With all the zeroes, this is “$2,739,000,000,000,000.” Some particulars:
Scale and rate of growth: Annual currency turnover was a modest $6 trillion exchanged mostly for purposes of tourism, debt repayments, and import/export trade (as had been standard practice since the invention of money in the Lydia kingdom in present-day Turkey) just before the abandonment of the gold-based “Bretton Woods” system in 1971. The contemporary ‘floating exchange’ which replaced Bretton Woods, after an interval of some confusion, launched precisely fifty years ago, on March 1, 1973, and has since become the largest market of any sort in human history. Annual currency trading reached $500 trillion in the early 2000s; hit the $1 quadrillion mark in 2008, and reached $2 quadrillion — mainly for hedging and futures markets rather than more traditional purposes — in 2017 or 2018. Assuming no gigantic upheaval in global finance, current trends suggest $4 quadrillion by 2030.
Currencies: U.S. dollars figured in 88.6% of all world currency exchanges in 2022. This is a bit less than the 89.9% rate of 2001, but more than the 84.9% of 2010. The dollar’s use in currency exchange has been pretty stable over the past 20 years, as has that of the euro and yen. (Euro: 32% of transactions in 2001, 30% in 2022; yen: 15% and 17%). Speculation about the Chinese yuan’s rising role remains, well, speculative: Used in 0.5% of exchanges in 2007, the yuan now appears in 1.6% of transactions in 2022 — rising, but about equal to use of the Mexican peso and well below the Aussie dollar.
Trading sites: Having lost its role as reserve-currency issuer in the 1930s, the U.K. found a new one as the central forex trading site and holds it still. City of London banks and firms handle 38% of world currency trades, or about $1 quadrillion worth each year. New York ranks second with 19%; Singapore, Hong Kong, Tokyo, and Switzerland follow at about 9%, 7%, 4%, and 3% respectively. BiS speculates that Brexit may have slightly reduced the British share of currency trade, with some shift to the United States and Singapore.
To put this in context, blithely ignoring differences between exchanges, value-added output, asset wealth, and so on: $2.7 quadrillion per year is (a) 6 times the estimated $450 trillion value of total world privately held wealth in the forms of real estate, stocks, money, physical possessions, and other assets; (b) 26 times the $104 trillion world GDP of 2022; (c) 100 times the $25 trillion in 2022 goods and services exports, and (c) 400 times the $7 trillion in actually existing physical coins and bills. As to whether this gigantic roar of hedging and futures-trading very significantly raises real-world growth rates or improves global economic efficiency: research appears insufficient.
In practical terms, over the last six years the currency markets have worked to raise the value of the dollar vis-à-vis other currencies. Some IMF staff thoughts on the implications
A comparative table: Forex vs. wealth, vs. stocks, vs. GDP, vs. trade, etc.* All figures are for 2022:
Annual currency trading: $2.739 quadrillion
Total privately held world wealth: $464 trillion
Global public & private debt: $235 trillion
World GDP: $104 trillion
Total world stock market capitalization $93 trillion
Total world stock trading $61 trillion
Total world goods/services exports: $28 trillion
U.S. GDP $25 trillion
NYSE market capitalization: $22 trillion
U.S. “M1”** $20 trillion
All world tax revenue for governments $14 trillion
World currency reserves $13 trillion
All the money (physical coins & bills) in the world ~$7 trillion
U.S. currency printed annually $0.3 trillion
* BIS for currency trading; Credit Suisse for world wealth; IMF for world GDP, world debt, and world currency reserves; Federal Reserve for currency in circulation and U.S. annual currency printing; World Bank for world stock trading and tax revenue, NYSE for market cap.
** M1 includes all U.S. currency, money held in bank accounts and CDs, etc. See here.
How much is “all the money in the world”?
Private wealth: Credit Suisse estimates world household wealth in the form of homes, stock portfolios, condos, bank accounts, land, and so on — at $464 trillion for 2022. This is a bit more than double the $221 trillion of 2012, in nominal terms. No estimates are available for government assets (navies, buildings, national parks, etc.), but “all the money in the world” by this definition might be near $1,000,000,000,000,000.
Government reserves: Governments’ “wealth” may be unknown, but in terms of actual ‘money’ they now hold about $12.8 trillion in reserves. As with currency trading (but not quite as much, and not quite so certainly) most of their holdings are, metaphorically, a big pile of dollars. Dollars make up $6.44 trillion of the $10.77 trillion the IMF identifies by currency type — 60% of the total, slightly below 62% for 2012 and noticeably less than the 71% in 2000. Euros account for 20%, and the yen and sterling 5% each. The IMF’s financial reserve data.
Circulating money:The Federal Reserve reports that about $2.3 trillion in actual U.S. paper and metal coins is currently in wallets, bank vaults, cash registers, safes, mason jars, and so on.
And the Treasury Department monitors dollar exchange rates.
And some history:
Currency was the invention of an anonymous fellow early in the 7th century B.C., most likely in the Kingdom of Lydia in modern-day Turkey, home to semi-legendary King Croesus — and quickly copied by neighboring Greece and Persia. A look at the first coins, with a mini-bio of Croesus and some lumpy-looking early Lydian efforts (made of electrum, a mix of gold and silver) stamped with pictures of lions.
The “money-changers” of the Gospels were a consequence of these innovations six centuries later. For a small fee, they swapped Roman, Greek, and Persian coins carried by out-of-town pilgrims for half-shekel coins minted in Jerusalem and Tyre, with exchange rates depending on the quantities of precious metal contained in the coins, enabling pilgrims to pay the modest tax needed to finance Temple operations, and pay for food, shelter, and shopping during their stay. The account in Matthew.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
FACT: The U.S. Generalized System of Preferences program has been expired for more than two years.
THE NUMBERS: Sample GSP imports from Pacific Island countries, 2020* –
1,835 tons of oilcake from Papua New Guinea
540 tons of Fijian ginger (candied and sushi-grade)
312 tons of Solomon Islands canned tuna
292 tons of Tonga yams
133 tons of Samoan taro root from Samoa
3 tons of Fijian incense
* Last year GSP benefits were in effect
WHAT THEY MEAN:
A case study in one approach to U.S. government policymaking: Here is PPI Vice President Ed Gresser, testifying on Pacific Islands policy yesterday at the U.S. International Trade Commission (ITC):
“A next-generation approach to GSP, or more broadly to trade preferences, could set goals including: help Pacific Island countries diversify their economies and attract investment in labor-intensive industries through more extensive or better use of preferences; support regional economic integration, intra-Pacific Island trade flows and joint trade policy development; encourage sustainable forestry, mining, and fisheries; work closely with U.S. allies such as Australia and New Zealand; and address logistical costs and marketing opportunities as well as tariff policy.”
By way of background: (1) The Biden administration’s “Pacific Strategy” document, released after the U.S.-Pacific Islands summit last September, notes that the U.S. devoted less than sufficient attention to this part of the world in recent decades and promises a battery of climate and sustainable fisheries programs, newly opened embassies in Tonga and the Solomon Islands, aid and technical support, and new trade and financial policy ideas. (2) Following up on this a week later, U.S. Trade Representative Ambassador Katherine Tai asked the ITC for an in-depth look at “potential impediments to and opportunities for increased trade flows between the United States and the Pacific Islands, with an emphasis on barriers Pacific Islands may face exporting to the United States,” and in particular, whether the 49-year-old Generalized System of Preferences (“GSP” for short) could provide more help or whether some other approach might be preferable. The ITC then (3) solicits comments and holds a public hearing, and will report back to her this fall.
Four months into this, PPI’s contribution to this focuses on GSP, a tariff waiver program Gresser oversaw as a government official from 2015 to 2021. Dating to 1974, GSP is the largest and oldest U.S. “trade preference” program, removing tariffs on about 3,500 of the U.S.’ 11,000 “tariff lines” for 119 eligible low- and middle-income countries and territories. These include 13 Pacific Island states, in the range from large and low-income Papua New Guinea through small and middle-class Fiji, to very small islands such as Tonga, Samoa, Cook Islands, and Tuvalu. The idea is that the tariff waivers can help such countries offset the scale and speed larger producers offer, and so encourage their economic and trade diversification and development. Participating countries need to meet 15 eligibility criteria, on cooperation against terrorism, labor standards, intellectual property, expropriation, reasonable access to markets for U.S. exporters, and other issues.
The largest GSP imports are things like jewelry, electrical equipment, luggage, and other mid-range manufactures from middle-income countries such as Lebanon, Georgia, Thailand, or the Philippines; the Pacific Island states, though, mainly use it for farm products and food. The normal tariff rate for ginger, for example, is 2.4%, and the American groceries and restaurants buying the stuff have six significant overseas suppliers: Thailand at the top, along with China, Australia, South Korea, and Indonesia. Despite a much smaller population and logistical disadvantages, Fiji ranked third in the world as a ginger supplier to the U.S. in 2020. Other examples include waivers of tariffs set at 2.3% and 6.4% for the Samoan and Tongan taro and yams, 0.45 cents/ kilo for the Papuan oilcake, and (in a special benefit available only to “least-developed” countries) 12.5% for the Solomon Islands canned tuna.
Ambassador Tai’s question is whether this system can serve the very small, and geographically distant, Pacific Island countries better than it now does. Gresser’s testimony offers five ideas, plus a sixth option of an alternative system (noted below). Ideas #2 to #5:
(2) Avoid adding too many new eligibility criteria to the system, but do add an environmental clause (must be done by Congress);
(3) Allow Pacific islands to ‘cumulate’ inputs to meet the “rules of origin” that define what it means to be ‘made in’ a GSP country (can be done by the USTR personally);
(4) More frequent visits and webinars from U.S. government personnel to explain the benefits island producers can use (an interagency option); and
(5) Provide complementary assistance, working with the existing Australia/New Zealand “PACER+” (“Pacific Agreement on Closer Economic Relations Plus”) programs to improve island logistics efficiency and reduce their high communications and financial transfer costs. (USTR, State Department, Treasury, USAID, MCC).
(6) Develop a regional preference program comparable to those created for sub-Saharan Africa in 2000 and the Caribbean Basin (in various stages) from 1983 through 2007. This is more challenging as it would require legislation, Congressional debates, and so on. On the other hand, it has the potential for more impact, as it could give Pacific Island states some tariff waivers currently unavailable in GSP (for example clothing and canned tuna), and also be a “convening” device for more regular top-tier meetings and events.
Recommendation #1 from Gresser, however, sticks out as extremely simple, more important than options #2 to #5, and frustratingly not yet done. This is that GSP is not now providing any benefits to the Pacific Islands (or other low- and middle-income countries) at all, since the law authorizing the tariff waivers lapsed at the end of 2020 and (despite a possibly overly-large set of ideas for improving and complicating it) has been out of commission for over two years. This leaves the U.S. alone among major economies in not having such a program, not only for the Pacific Island countries but also Pakistan, Lebanon, Ecuador, Armenia, Georgia, ASEAN members Thailand, the Philippines, Indonesia, Cambodia, and so on. During this lapse, for example, while Fiji has held its third-place position as a ginger supplier since 2020, its share of U.S. imports has fallen from 29% to 21% while those of Australia, Thailand, and China have bumped up; likewise, the Tongan and Samoan taro root exports appear to have fallen by about half. So: U.S. government development of new and more effective policies sometimes involves complex questions and requires detail work, but also sometimes involves quite simple and important first steps.
And a 2022 look at the GSP system — benefits and eligibility rules, successes and limits, next steps — with some concern about over-enthusiasm for adding new eligibility rules in the 2021/22 Congressional proposals for revisions and reforms.
The U.S. Trade Representative’s GSP Guidebook explains GSP program goals, product coverage, eligibility rules, and country participation.
The Obama administration (2016) evaluates U.S. trade preference programs (including GSP and also the African Growth and Opportunity Act and the Caribbean Basin Economic Recovery Act) and their records on poverty alleviation.
And some international comparisons:
Japan’s Ministry of Foreign Affairs on the Japanese GSP.
The European Union’s more complex program involving three tiers of beneficiaries, more expansive but less frequently invoked eligibility rules, and a somewhat different list of eligible products.
Australia’s “ASTP” (Australian System of Trade Preferences).
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
Today, the Progressive Policy Institute (PPI) released a new report as part of PPI’s Ed Gresser’s testimony to the International Trade Commission’s (ITC) hearing on United States-Pacific Trade. Mr. Gresser spoke in support of the U.S. Trade Representative Katherine Tai’s request letter to the ITC on the Pacific Islands.
“I strongly endorse the Biden administration’s effort to rethink and upgrade U.S. policy in this region,” writes Ed Gresser in the report. “The administration’s decision to rethink Pacific Islands policy and develop more ambitious goals for these relationships is appropriate and timely. The United States has very substantial economic, human, and political assets in this part of the world, and can use them more effectively than we have in the past several decades, in the interest of both the United States and the Pacific Island countries.”
Gresser asks Congress to consider a 5-step process:
Renew the Generalized System of Preferences system soon
Add an environmental eligibility criterion
Allow Pacific Island Forum member to “cumulate” one another’s inputs
Develop a program of regular visits to the region
Work closely with allies to upgrade the U.S. government’s capacity-building and technical assistance programs
He also suggests a more ambitious and difficult alternative which would require legislation, in the creation of a “regional” preference program for the Pacific Island countries similar to the Caribbean Basin Initiative and African Growth and Opportunity Act.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI. Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he rejoined USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
PPI Vice President Ed Gresser submitted this testimony to the International Trade Commission at its public hearing on “U.S.-Pacific Islands Trade and Investment: Opportunities and Impediments” on February 14, 2023. The ITC held this hearing as part of a “Section 332” investigation project requested by U.S. Trade Representative Ambassador Katherine Tai as part of the implementation of the Pacific Strategy released by the Biden Administration at the U.S.-Pacific Islands summit in September 2022.
Chairman Johanson and Commissioners:
Thank you very much for this opportunity to offer thoughts as the U.S. International Trade Commission considers America’s trade and investment relationship with the Pacific Island countries.
By way of introduction, I am Vice President of the Progressive Policy Institute (PPI), a 501(c)(3) nonprofit think tank, established in 1989 and publishing on a wide range of public policy topics. In this position, I oversee our research and publications on trade and global economy matters. I came to PPI in October 2021, after six years of service as Assistant U.S. Trade Representative for Trade Policy and Economics.
Among the Trade Policy and Economics Office’s responsibilities is administration of the Generalized System of Preferences. During my term at USTR, in October 2018, I made a GSP- focused visit to Papua New Guinea and Fiji to discuss the program with these two countries’ government, policy, and business communities, and also with representatives of the 18-member Pacific Islands Forum at the group’s headquarters in Suva. I believe I and Lauren Gamache, an ITC expert on detail to USTR at the time, were the first USTR officers to visit the region at least since the 1980s (with the exception of APEC-related travel to PNG), and perhaps much longer. My testimony will draw on this visit and subsequent research and discussions, focusing principally on the third topic Ambassador Katherine Tai raises in her request letter: Pacific Island beneficiary country use of GSP, and ways in which GSP might more effectively serve their development goals and U.S. policy.
INTRODUCTION
As a point of departure, I strongly endorse the Biden administration’s effort to rethink and upgrade U.S. policy in this region. The administration’s “Pacific Partnership Strategy,” released at the U.S.-Pacific Islands Country Summit meeting in September 2022, lays out goals, including:
“Partnering with the Pacific Islands to drive global action to combat climate change … maintaining free, open, and peaceful waterways in the Pacific in which the rights to the freedom of navigation and overflight are recognized and respected, people are prioritized, trade flows are unimpeded, and the environment is protected. … [and] ensuring that growing geopolitical competition does not undermine the sovereignty and security of the Pacific Islands, of the United States, or of our allies and partners.”
I believe these goals mesh well with those of Pacific Island governments. I was struck, for example, by how many of my interlocutors took the opportunity during conversations focused on trade and tariff issues to stress their concern about climate change and overfishing, the strong and emotional commitment many stated for liberal democratic political systems, and their close study of U.S. trends in these areas. And I feel that as the Biden administration and Congress consider future policies, the United States has many political and financial assets in these areas. For example:
Geographically, the Pacific Island countries may seem far away, but are near neighbors to Hawaii, American Samoa, Guam, and the Northern Marianas Islands, and U.S. policy can therefore have a disproportionate impact;
Economically, we are roughly at par with New Zealand and Australia as their largest export market and largest source of remittance flows; and
In people-to-people terms, 1.4 million Americans trace their families to Pacific islands and have accordingly significant economic and intellectual influence on many Pacific Island countries.
The Biden administration and Congress, through ideas like Representative Ed Case’s “BLUE Pacific Act,” is looking for ways to use these assets more effectively. I believe GSP, assuming Congress renews the program, can help with this task. First of all, more than half of all Pacific Island countries are GSP beneficiaries. Ambassador Katherine Tai’s September 29, 2022, request letter to the ITC on the Pacific Islands lists 22 countries and territories of concern. Thirteen of these are GSP beneficiary countries: the Cook Islands, Fiji, Kiribati, Niue, Papua New Guinea, Pitcairn, Samoa, the Solomon Islands, Tokelau, Tonga, Tuvalu, Vanuatu, and Wallis and Futuna. The Pacific Islands region thus includes over 10% of all 119 current GSP beneficiary countries, though since their sizes are small, GSP imports from this group are rather low, varying between $10 million and $20 million over the last decade. Thus, they typically make up about 2% to 5% of the roughly $500 million in U.S. imports from Pacific Island countries and 0.1% of the $20 billion in annual total GSP imports.
GSP can be more effective in supporting the Pacific Islands countries in trade and economic diversification than it has been to date. And given that the scale of U.S.-Pacific Island trade is extremely small, even a significant increase would have minimal impact on the U.S. economy or on other countries exporting to the United States. However, it should not be “oversold,” and should be part of a larger program that also includes support for trade facilitation and logistical efficiency, lower-cost financial flows, and digital linkages in the region and with the United States. This is because while a tariff preference program on its own can create useful pricing advantages for small-country producers, it also has limits, and these are especially clear in the Pacific Island region:
(a)A tariff preference is only useful for products where tariff rates are above zero. Most Pacific Island country exports are natural resources and fishery products, which are already mostly duty-free under MFN tariffs in the United States, and tropical agriculture goods where tariffs are low.
(b)A tariff preference is most effective in high-tariff products, and many high-tariff products (e.g. clothing and canned tuna) are excluded from the U.S. GSP system as import-sensitive.
(c)Experience with targeted preference programs such as the Caribbean Basin Initiative and African Growth and Opportunity Act show that tariff benefits have only limited ability to offset geographical disadvantages and high transport costs.
So GSP or an alternative regional preference program will be most effective if accompanied by support for improved logistics, training in marketing of products in areas of Pacific Island comparative advantage, reduction of U.S.-Pacific Island and intra-Pacific communications and financial costs, and other measures.
BACKGROUND: PACIFIC ISLANDS GEOGRAPHY AND TRADE
Geographically, the South Pacific’s roughly 3,000 islands spread over an expanse of water as large as Asia, Europe, and North America combined. They combine to form 14 independent countries, three French overseas territories, one U.S. state, three U.S. insular territories, and three autonomous territories associated with Australia and New Zealand. Together they are home to about 11.5 million people, including about 9 million in Papua New Guinea, one million in Hawaii, and 1.5 million in the other 15 countries and territories combined. Their populations are very small (apart from Papua New Guinea), in a range from 10,000 to 900,000. And with the exception of Fiji, their economies are simple ones resting on small-scale agriculture, fisheries, tourism, and, in a few cases, logging and mining.
To review their trade profiles briefly:
OVERALL TRADE SUMMARY
First, while the Pacific Island countries’ trade volumes are low in comparison to those of larger countries, the islands are relatively trade-dependent. The World Bank’s estimate of their “trade share of GDP” has ranged from 80% to 100% over the past decade, a figure about double the 50% for all developing countries and four times the U.S.’ 25% level. This reflects in part their need to import most (and in some cases all) of their fuel, machinery, and marine technologies, but Pacific Island country exports are also quite large, typically around 40% of GDP.
Second, their exports are concentrated (with the exception of Fiji’s) in fishery products and natural resource goods. Major exports include canned and fresh tuna, tropical timber, mining products such as gold and copper, coconut, and primary agricultural goods ranging from chocolate and vanilla to taro, sweet potatoes, and cassava.
Third, their trade costs are high and their “connectivity” is low. A recent UNCTAD/World Bank/Pacific Islands Forum report (2021) shows the region is less advanced than others in implementing WTO Trade Facilitation Agreement measures such as the early release of shipments, special treatment for perishable goods, and electronic payment of customs duties and fees.
With these overall points as the background status quo, the U.S. is a major market for most Pacific Island countries, purchasing about a quarter of their total exports. We are not, however, an overwhelmingly large market, as is the case for the Caribbean islands. Other significant Pacific Island country markets include Australia and New Zealand, Japan, China, several ASEAN countries (typically purchasing fresh fish for processing), and intra-island trade.
The Census Bureau reports about $400 to $500 million a year in imports from the Pacific Islands, as against a range of $550 million to $1.25 billion in U.S. exports to these countries over the past five years. The largest share of U.S. Pacific Island country imports is in fisheries and agriculture, with fisheries accounting for $100 million in 2021, and agriculture a slightly lower $93 million. Agricultural import trends reveal some clear comparative advantages for Pacific Island producers. For example, Fiji ranks 5th, Samoa 11th, and Tonga 15th as sources of taro; Fiji is 9th and Tonga 12th as sources of cassava; Samoa ranks 9th as a supplier of coconut oil; Papua New Guinea and French Polynesia are suppliers of natural vanilla and Papua New Guinea of high-quality coffee and cocoa beans. Drinking water from Fiji is also a large import, at $40 million. Manufactured goods are a relatively small share of Pacific Island imports, as only Fiji has a significant manufacturing sector.
An important point to note here, as Appendix 1 illustrates in statistical form, is that roughly 80% of America’s Pacific Island country imports are duty-free under MFN tariff rates. This includes most fresh and chilled fish, water, coffee, and other natural resources. Thus, GSP is not relevant to some important Pacific Island nation products, and a program intended to improve the islands’ overall export fortunes should consider ways to improve the competitiveness of MFN-zero goods, as well as look at preference options.
COUNTRY SUMMARIES
Economically and for trade policy purposes, it might be useful to divide the islands into three groups, each sharing some general characteristics:
Group 1: Fiji
Fiji is unique in the region as a middle-income, complex economy with a container port as well as air cargo capacity, light manufacturing in processed foods and garments, and a relatively large and diverse export economy. It is also a center of policymaking and intellectual debate, as the site of the Pacific Islands Forum and the main campus of the University of the South Pacific.
According to the IMF’s “Direction of Trade Statistics” database, Fiji typically exports just under $1 billion per year, with the U.S. buying 20% to 25% of the total. The leading U.S. import is drinking water, widely sold under the “Fiji Water” brand. Australia and New Zealand are together a comparably large market for Fijian goods, as are the other Pacific islands.
Fiji is a successful GSP exporter in processed foods and some farm products, especially above-quota cane sugar (1.46 cents/kg), fresh and chilled taro (2.3% MFN tariff), candied and sushi-quality ginger (2.4% MFN tariff), bakery products (4.5% MFN tariff), and a canned fish product (6.0%). GSP imports typically are $10 million and $20 million per year, or about 5% to 10% of Fiji’s exports to the United States. The plant east of Suva which accounts for much of Fiji’s GSP ginger exports employs several hundred Fijians and at the time of my visit was using Oregon-distilled vinegar and Florida-made food manufacturing machinery to produce candied and sushi-quality ginger for American and Australian customers.
Fiji also has a large fisheries industry, including a fish processing plant. Several Fijian officials inquired as to whether canned tuna, for which U.S. MFN tariffs range as high as 35%, could be made GSP-eligible. It is already eligible for least-developed countries, but has traditionally been politically sensitive when proposed for eligibility for all beneficiary countries, given the importance of a tuna cannery to employment on American Samoa. It may also be that simply adding canned tuna to GSP without some attempt to reserve the benefits for Pacific Island countries might yield little, as larger producers such as Thailand and the Philippines would be eligible as well and might be lower-cost and preferred sources.
Group 2: Samoa, Tonga, Niue, Cook Islands, Tokelau, French Polynesia
These are small island archipelagoes, often heavily reliant on fishery and vulnerable to storms and overfishing by foreign fleets. The U.S. is a large export market for this group, whose $250 million in exports to the world in 2021 included $64 million to the United States. Other markets include Australia, New Zealand, and Japan. Several of these countries are successful GSP users. Tongan exports to the U.S. typically range between $1 million and $10 million, with up to 30% covered by GSP, led by taro (2.3% MFN tariff), yams (6.4%), frozen and chilled cassava (7.9% and 4.5%), and sweet potato (6.0%). GSP likewise applies to $2.9 million of Samoa’s $9.1 million in exports to the U.S., including fruit juice (0.5 cents/liter), taro (2.3%), and several processed foods under GSP.
French Polynesia is not a GSP beneficiary country.
Group 3: Papua New Guinea, Solomon Islands, New Caledonia, Vanuatu
These countries have extensive land area and undeveloped economies — the Solomon Islands are a Least Developed Country, and Vanuatu and Papua New Guinea are slightly above the LDC line — centered on large, generally foreign-owned mining and timber resource industries.
Papua New Guinea is unusual among Pacific Island countries for its large population, roughly 9 million. By World Bank estimates, PNG is the most “rural” country in the world, with 87% of the population living in villages, and has very limited internal road and air connectivity. Papuan exports total about $7 billion per year, concentrated in mining and timber for Asian markets (accounting for about 30% of Papuan GDP). The U.S. is a relatively small market for Papuan goods, with U.S. imports concentrated in MFN-zero products such as coffee, cocoa beans, vanilla, shrimp, and artwork. One product — oilcake, a coconut residue, with an MFN tariff of 0.45 cents/kg — frequently arrives in the U.S. under GSP, I believe for scientific purposes, with a value of about $0.3 million per year.
Vanuatu and the Solomon Islands have significant fishery industries, and the Solomon Islands have a large timber industry meant for Asian markets, accounting for about 25% of GDP. The Solomon Islands, as the region’s only Least-Developed Beneficiary Country, is the only Pacific Island state able to export duty-free canned tuna (in variety subject to a 12.5% MFN tariff) under the GSP program. Vanuatu has not exported under GSP in recent years, and New Caledonia is ineligible for GSP based on per capita income.
Group 4: Kiribati, Nauru, Tuvalu, Cook Islands, Niue, Tokelau
These are very small atoll states, with extremely low populations ranging from roughly 600 for Niue to about 40,000 for Kiribati. They have simple economies, often producing fish for local consumption and sometimes coconut products. Nauru is ineligible for GSP based on per capita income levels, and Tokelau is recorded as exporting a small quantity of miscellaneous goods under GSP. Their worldwide exports combined for $270 million in 2019, with the U.S. a very modest market at about $3.5 million.
Group 5: Marshall Islands, Palau, and the Federated States of Micronesia
These are “compact” states, assigned to the United States by the U.N. as Trust Territories after the Second World War and gaining their independence in the 1980s and 1990s. They are covered by a specially designed duty-free program, including duty-free privileges for canned tuna, and are not enrolled in GSP.
Final Point on Small-Scale Trade
Finally, though this is hard to measure, Pacific Island countries may be relatively more reliant on very small-scale trade flows than most countries.
Tongan writer Epeli Hau’ofa suggested this in a 1990s essay entitled Our Sea of Islands, in which he describes the large economic role emigrant workers in Australia, New Zealand, and the United States play in island economies:
“[A]t seaports and airports throughout the Central Pacific, consignments of goods from homes abroad are unloaded as those of the homelands are loaded. Construction materials, agricultural machinery, motor vehicles, other heavy goods, and a myriad other things are sent from relatives abroad, while handicrafts, tropical fruits and root crops, dried marine creatures, kava, and other delectables are dispatched from the homelands. Although this flow of goods is generally not included in official statistics, much of the welfare of ordinary people of Oceania depends on an informal movement along ancient routes drawn in bloodlines invisible to the enforcers of the laws of confinement and regulated mobility.”
TOWARD POLICY
How can U.S. policy generally, and GSP significantly, help the countries draw more economic and development benefit from trade? We should begin with some realism and avoid over-promising. The Pacific Island countries’ small population makes economic integration and diversification difficult, the large distances between them and the relatively high cost of transport and communications make economic integration and value-added exporting more challenging than is the case for (for example) the Caribbean, and most Pacific Island exports are already duty-free under MFN tariff rates.
However, trade preferences such as GSP can help in combination with capacity-building programs. The Biden administration has several options at different levels of ambition, ranging from more regular communication of GSP benefits to Pacific Island businesses and governments, to communication plus capacity-building in logistics, trade facilitation, and financial flows, to a regional program covering all Pacific Island country imports including those considered “import-sensitive.” Obviously, some of these are more ambitious and would require more political capital. But equally as obvious, the level of U.S. imports from the Pacific Islands is extremely low, and the real-world chance of any industrial disruption (or a significant import diversion away from other sources) emerging from even a large increase in Pacific Island imports would be minimal.
A next-generation approach to GSP or more broadly to trade preferences could set goals including:
Help Pacific Island countries diversify their economies and attract investment in labor-intensive industries through more extensive or better use of preferences;
Support regional economic integration, intra-Pacific Island trade flows and joint trade policy development;
Encourage sustainable forestry, mining, and fisheries;
Work closely with U.S. allies such as Australia and New Zealand;
Work on logistical costs and marketing opportunities as well as tariff policy.
With these goals in mind, I recommend five steps in the near-term, and the consideration of a sixth. The near-term options are (1) renew the GSP system soon; (2) add an environmental eligibility criterion during this renewal; (3) allow Pacific Island Forum members to “cumulate” one another’s inputs to qualify products for duty-free treatment under the GSP rule of origin; (4) develop a program of regular visits to the region to help local businesses and governments understand their potential GSP benefits; (5) work closely with Australia, New Zealand, Japan, and other allies in upgrading the U.S. government’s capacity-building and technical assistance programs in trade facilitation; sustainable fisheries, mining and forestry; financial exchanges including remittance costs. The more ambitious (6) would be to create a regional preference program drawing on experience from the Caribbean Basin initiative, which provides duty-free access for sensitive products including canned tuna and apparel, and the African Growth and Opportunity Act, which has similar broad benefits and also serves as a convening device through annual meetings with African Trade Ministers and other officials.
1. Renew GSP System
First, I hope Congress will renew the GSP system soon. In principle, some new approaches to policy can help make GSP more effective than it has been in the past. But GSP benefits expired as of January 1, 2021, and have not been reauthorized. In practice, therefore, GSP is offering no support for Pacific Island or other developing-country trade. The first step in any new approach to this region is the renewal of the program benefits.
2. Add an Environmental Criterion
Second, as part of this renewal, I would recommend adding an environmental criterion to GSP’s current list of 15 mandatory and discretionary eligibility criteria. I personally feel that the major GSP reauthorization bills in the last Congress proposed too many new criteria, and probably too strict revisions of some already in the GSP statute. This made me concerned that systematic and equitable enforcement of the criteria would become difficult, leading either to somewhat arbitrary openings of reviews, or even to an unintended wholesale expulsion of beneficiary countries from the system. I do, however, believe an environmental criterion, related to sustainable timber and mining, maritime environmental issues, and sustainable fisheries, would serve both a general good and Pacific Island nation policy goals.
Island governments and the people they represent have a high concern for the protection of fisheries and marine resources, but with very small governments their ability to impose these policies is modest. Likewise, the large timber and mining exports of some countries, amounting to 25% of GDP or more, can lead to deforestation if not managed properly and can also create incentives for corruption. A criterion can help encourage governments to give these issues priority and provide some leverage in the event that we see problems. But we should also be aware that often their resources are very small, not only in terms of finances but in terms of the number of trained lawyers, scientists, police officials, and other policy implementers a country of 100,000 people can bring to any policy problem. Therefore, the aim of eligibility criteria in the environment (or other areas) should be to encourage governments to adopt good policies and make good-faith efforts to enforce them, rather than to require enforcement levels often beyond their reach. An environmental criterion should also be complemented by capacity-building programs for Coast Guard training, fisheries management, and sustainable timber and mining industries. The Millennium Challenge Corporation is in fact working on a Compact to support the Solomon Islands on this issue.
3. Regional Cumulation
Third, assuming GSP is renewed, I recommend that the U.S. Trade Representative authorize participants in
U.S.-Pacific Island Trade and Investment Framework Agreement meetings to “cumulate” the value of inputs bought from one another to meet GSP rules of origin. This would allow any Pacific Island GSP beneficiary country to use inputs from others and count the value of these inputs towards GSP’s 35% value-added rule of origin. For example, the Solomon Islands fish cannery could export tuna caught in Vanuatuan waters under GSP, and Fiji’s bakeries could use taro root grown in Tonga.
This would at least to a modest extent encourage regional integration, a major goal of the Pacific Islands forum. Cumulation is already in place for sub-Saharan African countries enrolled in the African Growth and Opportunity Act, and members of the Caribbean Community in CBTPA and CBERA. My understanding is that this can be done through an administrative action by the U.S. Trade Representative, and I strongly recommend that she take this action for Pacific Island countries.
4. Build Awareness of U.S. Market Opportunities
Fourth, increase the frequency of visits by U.S. government economic and trade officials to ensure that island government officials and businesses understand the opportunities GSP benefits can create. As noted earlier, my own visit to Fiji was the first to any Pacific Island country other than APEC member Papua New Guinea by a USTR official in at least 40 years and perhaps in the agency’s history. Presentations on GSP issues drew extensive interest and attendance in both Suva and Port Moresby from officials, scholars, businesses, and representatives of other island governments. Since then, USTR has concluded Trade and Investment Framework Agreements with Fiji and Papua New Guinea, which have created a forum for regular government-to-government discussions on a range of topics, including GSP but also issues related to fisheries management, bilateral trade issues, WTO cooperation on fishery subsidies and electronic commerce, and other issues. It may also be valuable to include training in marketing for Pacific Island country agricultural producers and businesses, both to help them reach overseas workers and other expatriates and to take more advantage of the apparent comparative advantage they have in taro, cassava, yams, and high-value chocolate and vanilla.
5. Trade Facilitation and Remittance Costs
Fifth, recognize that most GSP tariff margins are relatively modest, ranging in the Pacific Island cases from 2.3% to 7.9%. With Pacific Island logistics and communication costs high, these preferences provide only a limited advantage. Attention to tariff matters, therefore, while valuable, should be accompanied by technical assistance that can lower the cost of trade. Here major issues would be improving maritime and air transport capacity, reducing the cost of financial remittances and telecommunications, and other measures that can help ease the Pacific Islands’ cost disadvantages in general and perhaps especially for small-scale trade among family members conducted through packages, express delivery, and similar means. In the same way, the Administration spoke in the Pacific Strategy report of considering ways to lower the cost of remittances from overseas workers to families, which would raise purchasing power and make these links less costly.
In this area, the Administration should participate in and help to build upon the extensive work done by Australia and New Zealand in supporting regional integration and trade links. PACER-Plus, for example, includes significant Australian and New Zealand support for trade infrastructure, fisheries management, and other important policy questions, and it will be far better for the United States to provide support and complementary programs than to duplicate existing work.
6. Consider a Regional Preference Program
Finally, over the medium term, the administration and Congress should consider creating a regional trade preference program for the Pacific Islands. This would be a step comparable to the Caribbean Basin Initiative, which was launched in the mid-1980s as a development program for Central America and is now the centerpiece of U.S. trade relations with the Caribbean Island countries, or the African Growth and Opportunity Act in the case of sub-Saharan Africa, though it would affect a much lower level of imports than either of these programs. Such a program could include regular trade and economic discussions at the Trade Minister or Deputy Minister level, and authorize benefits for Pacific islands in products considered more sensitive such as canned tuna and apparel. This would obviously require Congressional legislation and some considerable political investment (including an investment in time and staff work by U.S. government officials), but could also bring a significantly greater return than an upgrade of GSP alone, both in terms of helping the Pacific Island countries succeed in trade and in developing a stronger basis for larger relationships.
CONCLUSION
In sum, I believe the administration’s decision to rethink Pacific Islands policy and develop more ambitious goals for these relationships is appropriate and timely. The United States has very substantial economic, human, and political assets in this part of the world, and can use them more effectively than we have in the past several decades, in the interest of both the United States and the Pacific Island countries.
Trade policy has a useful role to play in this, both through some redesign of U.S. trade preference programs, technical assistance and capacity-building, and more frequent and substantive contacts with Pacific Island governments and the Pacific Islands Forum as a group. I support Ambassador Tai’s interest in finding ways to achieve this, and hope my testimony provides useful material as the Commission considers the request.
* “Trade-weighted,” combining tariffs collected on all imports, including those under MFN tariff rates, Chinese products subject to “301” tariffs, and FTA/preference products exempted from tariffs.
WHAT THEY MEAN:
Worst Valentine’s Day surprise ever: The U.S. tariff system taxes women’s underwear more heavily than men’s. Facts follow:
1. Steel vs. Underwear: First, tariffs are fundamentally a form of taxation, and tariffs on underwear are high. A Google search this morning finds “about 144,000” uses of the phrase “steel tariffs” and “about three” (3) of the phrase “underwear tariffs.” But despite the domestic and international controversy over steel tariffs, clothing tariffs in general and underwear tariffs specifically are lots higher. In 2021, automakers, building contractors, and other metal buyers ferried 28 million tons of steel in from abroad for $44 billion, and paid the Customs Service $2.5 billion in tariffs. Thus the “average” tariff on steel came to about 5%. Buyers of clothing, meanwhile, bought 5.5 million tons of clothes for $109 billion and paid $16 billion on it, for an average of 14.5%. Underwear makes up about a tenth of clothing imports — 519,000 tons or 3.4 billion articles, at $10.1 billion last year — and brought in $1.54 billion in tariff revenue. The average underwear tariff, therefore, was 14.7%* or about three times the rate on steel.
2. Tariff Rates: Second, the U.S. tariff system taxes women’s underwear at higher rates than men’s. To dip briefly into Customs-and-trade-policy jargon, underwear tariffs are published in Chapter 61 of the Harmonized Tariff Schedule** (“Knitted or Crocheted”), headings 6107 and 6108, and in Chapter 62 (“Other than Knitted or Crocheted”) headings 6207, 6208, and 6212. Together these five sections spread out over 17 pages and include 68 separate tariff “lines,” from line “61071100,” for men’s cotton underpants and briefs, to line “62129000,” a catchall for unclassifiable and possibly exotic things. The rates in these 68 lines range from 0.9% to 23.5%, diverging mainly along lines of class and gender. Among the products with clearly comparable female and male items, (a) aristocratic silks are lightly taxed, at 2.1% for women’s panties and 0.9% for male boxers and briefs; (b) the analogous working-class polyesters are heavily taxed, at 14.9% for men and 16.0% for women; and (c) middle-class cottons are, well, in the middle, at 7.6% for women and 7.4% for men. The highest rates fall on women’s products in heading 6212 with no obvious masculine counterpart: brassieres in a range from 4.8% (silk) to 16.9% (cotton or polyester), girdles 20%, and corsets 23.5%.
3. Costs: Third, tariffs on underwear, like consumer goods tariffs generally, are eventually paid by shoppers. Since Americans buy more women’s underwear than men’s, and since it is more heavily taxed, Customs raises more money from the women’s stuff. About three quarters of the $1.54 billion in underwear tariffs last year — $1.23 billion on $7.90 billion in imports, for an average rate of 15.5% — came from women’s underwear. Men’s brought in $306 million on $2.65 billion, for an 11.5% average. Peering a bit more closely, the $1.23 billion in lingerie tariffs came from 3.28 billion separate articles — i.e., about 37 cents per piece. The $306 million on men’s products came from 1.28 billion separate articles, or about 24 cents each. Markups, domestic transport costs, sales taxes, and so forth appear to have roughly tripled the prices of clothing*** from border to cash register last year, with tariffs amplified a bit at each stage. While precise figures would vary with the price of the item, on average the tariff system appears to add about $1.10 to the cost of each women’s underwear item, and 75 cents to men’s.
4. Comparisons: In international context, the U.S.’ underwear tariff rates as an overall average are pretty typical. But the U.S. system is (a) very unusual in taxing luxuries more lightly than mass-market goods, and (b) possibly unique in taxing women’s underwear more heavily than men’s. Most tariff systems have flat rates applying to all underwear: 5% in Australia, 10% in New Zealand, 18% in Canada, 20% in Colombia, also 20% in Jamaica, 25% (with an anti-poor twist, see below) in India, 30% in Thailand, an eyebrow-raising high 45% in South Africa, and so on. The Japanese and EU tariff systems in fact have a modest pro-female tilt, as they impose lower rates — zero in the Japanese case, 6.5% in the EU — on products in the 6212 heading, such as brassieres and corsets, as against flat rates of 9% and 12% for the rest.
As to the U.S., shifting from the jargon of customs and trade to that of policy analysis and evaluation: Seriously?! Boo! Do better! 😡 😡 😡
Nonetheless, we still wish readers a happy and romantic Valentine’s Day.
* Up from 12.0% in 2017. This increase to some extent reflects the “301” tariffs on Chinese-stitched brassieres, briefs, etc. imposed in 2019, but other factors are at work as well. Both China and zero-tariff Central America have also lost market share, while MFN suppliers in Bangladesh, Vietnam, Cambodia, Indonesia, and India have gained relative to both.
** Some other clothing items show up in Chapters 42 and 48 — respectively leather and rubber products — but underwear of these types have no specific tariff line, so left out of the analysis above.
*** Clothing spending by consumers was about $400 billion last year; import value at the border $110 billion; 98% of clothing is imported.
FURTHER READING:
The U.S. International Trade Commission maintains the U.S. Harmonized Tariff Schedule. Check Chapter 61, sections 6107 and 6108, and Chapter 62, sections 6207, 6208, and 6212 for underwear.
And the ITC’s Dataweb requires a bit of HTS expertise but appears unique in the world in allowing ordinary citizens to get not only tariff rates but very detailed information on U.S. exports, U.S. imports, and tariff collection, by product and country.
Background:
Is the anti-female tilt of underwear tariffs typical of the American tariff system, or a weird anomaly? Overall, the “class” bias, in which silks and cashmeres are taxed lightly while cottons are taxed heavily and polyester and acrylics most of all, is the norm for U.S. consumer goods tariffs. The “gender” bias, in which women’s underwear attracts higher tariffs than analogous men’s goods, seems less systematic though still the rule. Asked to study these questions in 2018, ITC economists concluded the following:
“… [T]ariffs act as a flat consumption tax. Since a flat consumption tax is a regressive tax on income, tariffs fall disproportionately on the poor. Across genders, we find large differences in tariff burden. Focusing on apparel products, which were responsible for about 75% of the total tariff burden on U.S. households, we find that the majority, 66%, of the tariff burden was from women’s apparel products. In 2015, the tariff burden for U.S. households on women’s apparel was $2.77 billion more than on men’s clothing. … . This gender gap has grown about 11% in real terms between 2006 and 2016. We find that two facts are responsible for this gender gap: women spend more on apparel than men and women’s apparel faces higher tariffs than men’s.”
The European Union tariff system has a 12% tariff on all briefs, panties, and boxers whether cotton, silk, or polyester, and whether designated “men’s and boy’s” or “women’s and girl’s,” and a lower 6.5% on brassieres and corsets.
Japan’s is 9% on comparable things and duty-free on brassieres and corsets.
India has an anti-poor tilt (many items get “25% or Rs25, whichever is higher,” in practice meaning >25% rates for anything costing less than $1.25 per item, so in practice cheap goods important to low-income families will be taxed more heavily than expensive luxuries), but no divergence in men’s and women’s rates.
… and a nine-expert panel (“Does Trade Liberalization Have Gender’s Back?”) from last December’s.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
