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July 2009 Archive for The Truth about Trade

RSS By: Dean Kleckner, AgWeb.com

Dean is Chairman Emeritus of 'Truth About Trade & Technology, a nonprofit advocacy group led by a volunteer board of American farmers.

Protectionism: An Economic Retardant

Jul 30, 2009
I've said it before and I will say it again - the climate-change legislation recently approved by the House of Representatives is a bad bill and it is forcing bad choices - including a ticking time bomb. It requires the United States to impose tariffs on countries that fail to restrict their carbon emissions by 2020.
 
Reasonable people can differ on global warming. Is it really happening? An even bigger question: Does human activity contribute to the problem? Can we do anything about it without strangling our economy?
 
On one subject, however, everyone should be in full agreement: This is a bad bill and adding protectionist policies will not help us achieve our climate-change goals.
 
President Obama was wise to criticize it. “At a time when the economy worldwide is still in deep recession and we’ve seen a significant drop in global trade, I think that we have to be very careful about sending any protectionist signals out there,” he said recently. “I think we’re going to have to do a careful analysis to determine whether the prospects of tariffs are necessary.”
 
Technically, Obama didn’t oppose the tariffs. But in the language of Washington-speak, he made a clear statement: Protectionism should play no part in any bill that emerges from the Senate.
 
On a superficial level, the goals of the protectionists are not wholly unfounded. They believe that if the United States imposes greenhouse-gas limits on its own energy-intensive industries, competitors in other countries with no such restrictions will enjoy an unfair advantage. Tariffs are supposed to level the playing field.
 
Tariffs as 'border adjustments' are never good. The House legislation attempted to address this problem by creating mechanisms to assist “trade-vulnerable industries” through special compensation. Is there something else that could be done to deal with this inequity? It's obvious that the tariffs were added late in the game for blatantly political reasons. They were inserted not to benefit ailing industries or to drive economic growth a decade from now, but to help a controversial bill limp across the legislative finish line.
 
Representative Tom McClintock of California has a name for the climate-change bill: “our generation’s Smoot-Hawley.” That’s a reference to the 1930 law whose increased tariffs is widely credited with turning a deep recession into the Great Depression. McClintock was referring to more than just the House bill’s protectionism. Even so, his comparison was both appropriate and compelling. The last thing we need right now is an economic retardant—an anti-stimulus that kills jobs, threatens exports, and shrinks consumer choice.
 
We’ve recently seen how a congressional flirtation with tariffs can spark a trade war. The so-called “Buy American” provisions approved earlier this year have led to retaliation from Canada. North of the border, American companies soon could be locked out of municipal construction projects.
 
This is a textbook case of unintended consequences. Perhaps Congress didn’t mean to damage U.S. business opportunities in Canada. But it neglected to remember that protectionism often follows one of the fundamental laws of physics: For every action, there is an equal and opposite reaction.
 
This will be no less true in 2020, if the tariffs included in the House bill become a reality. The United States will start slapping duties on a variety of products, especially imports from developing countries such as China and India. The theory is that if they don’t enjoy access to American consumers, they’ll cut back on their own carbon emissions. This is probably wrong.  A more likely response is the one we’ve seen countries take time after time: retaliation. Rather than bending to our will, they’ll try to make us bend to theirs by restricting our access to their consumers.
 
Keep in mind that the economies of China and India currently service about 2 1/2 billion people. It would be a big mistake to let short-sighted congressional horse-trading in 2009 deny ourselves the long-term opportunity of selling them goods and services as they grow larger and wealthier.
 
Some climatologists think that global warming is a big threat. Others disagree. Think what you will about their predictions and agendas. Meantime, here’s a forecast in which we can place our total confidence: No matter what the weather is like in the future, protectionism will make the economy worse.
 
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade.org
 
 

A Legislative Drought

Jul 23, 2009
 
Can you imagine California without farms? Secretary of Energy Steven Chu already has.
 
“We’re looking at a scenario where there’s no more agriculture in California,” he said earlier this year.
 
He was talking about the threat of climate change—and the prospect that rising temperatures could cause the Sierra snowpack to melt permanently.  This would devastate farms in the San Joaquin Valley. “I don’t think the American public has gripped in its gut what could happen,” said Chu.
 
Maybe not. Yet some public officials are doing their best to give us a taste of this grim future. By hurting the Golden State’s farmers, they’re throwing people out of jobs and jeopardizing one of America’s most important sources of food.
 
The problem is a drought, brought on by weather patterns outside our control and political malfeasance that is entirely man-made. It’s amazing how some people can take a bad situation and make it worse.
 
Get used to hearing about water scarcity. Around the world, it’s an emerging problem. More than a billion people live in areas where water is in short supply. If they resort to drinking unclean water, they put their health at risk: cholera, typhoid fever, and dysentery become everyday threats.
 
If current trends continue, one day we may worry about water the way we now agonize about energy. One important difference is that with oil, at least we have the opportunity to develop alternatives, such as biofuels. Water, however, has no substitute. It’s the ultimate biofuel—an irreplaceable ingredient for life itself.
 
In California, we aren’t getting nearly enough.  This year, I’ve had to let a good portion of my own cropland lie fallow, simply because I can’t deliver enough water. Many other farmers are making similar decisions, out of sheer necessity. In Fresno County alone, the water shortage has idled 262,000 acres. Throughout the state, the figure is 450,000 acres.
 
For a state that produces about half of America’s fruits, vegetables, and nuts, this is a major problem. Consumers will feel the consequences when they pay more at the grocery store for everything from canned tomatoes to almonds.
 
More rainfall would help, but that’s not the only problem. Politics is wreaking havoc as well. Radical environmentalists favor fish over farmers. In particular, they’re lobbying on behalf of a minnow-like species called the delta smelt. Their efforts are working, as public officials in both Sacramento and Washington conspire to neglect the needs of agriculture.
 
Water levels in our area are actually at about 95-percent normal. Farmers, however, are getting only about 10 percent of their fair share, based on agreements we have made with the government. We’re trumped by the delta smelt. This is not a phenomenon of climate, but rather a political choice. That’s why I’ve started referring to our problem as a “legislative drought.”
 
It’s a strange set of circumstances, given the financial crisis. The University of California at Davis estimated that 35,000 people had lost their agricultural jobs as of May. A few of our towns have some of the highest unemployment rates in the country. In addition, farm revenue was down by $830 million. If lawmakers truly want to stimulate our local economy, they simply should release more water to food producers.
 
If they don’t, and this problem persists, Steven Chu’s alarming vision of California agriculture could come to pass. More than jobs are at stake. Americans would have to rely upon imports for much of their food supply. This would imperil our national food security.
 
A few weeks ago, thousands of farmers and farm workers staged a demonstration, calling for better management of our natural resources. “Water makes the difference between the Garden of Eden and Death Valley,” said the comedian Paul Rodriguez, whose parents are farmers in the region.
 
We aren’t looking to rebuild the Garden of Eden, of course. All we want is the water that will let us grow enough crops to maintain our livelihoods and sell the food that everybody needs.
 
Unfortunately, a line from “The Rime of the Ancient Mariner” is now coming to describe the plight of the California farmer: “Water, water everywhere / Nor any drop to drink.”
 
Ted Sheely raises lettuce, cotton, tomatoes, wheat, pistachios, wine grapes and garlic on a family farm in the California San Joaquin Valley. He is a board member of Truth About Trade and Technology www.truthabouttrade.org
 
 
 
 
 

Rebranding A Crisis

Jul 16, 2009
When the global-warming alarmists realized that they had a serious branding problem, they did what any marketing expert might advise: They changed the name of the product they’re trying to sell. And so “global warming” became “climate change.”
 
That’s what one too many snowstorms during congressional hearings on a heating planet will force a movement to do.
 
The rebranding may have worked: The House of Representatives has passed a massive bill aimed at reducing greenhouse-gas emissions in the United States. Debate now moves to the Senate and is likely to continue for at least a couple of months. If you’ve ever visited Washington, D.C. at this time of year, you probably know that a summer blizzard isn’t likely to disrupt these deliberations.
 
Farmers, however, may want to hope for one: This is a bad bill for agriculture. The American Clean Energy and Security Act goes by the acronym “ACES.” Since we’re on the subject of rebranding, I’d like to propose an alternative. This legislation is not an ace, but a joker. Farmers and ranchers are fools if they fall for it.
 
Oh, sure, the legislation in its current form is not as horrible as it once looked. During negotiations this spring, Rep. Collin Peterson of Minnesota, chairman of the House agriculture committee, forced a few improvements. Yet the environmental lobby finally found his price. The rest of us should recognize that making a horrible bill slightly less awful still does not make it good.
 
Much has been made over the fact that under the bill’s current provisions, farmers and ranchers won’t have to limit their carbon emissions. But who expects this exemption to last? It concedes a critical point—the notion that climate change poses such a certain and enormous threat that we must take drastic action to address it, despite high economic costs during a global financial crisis.
 
When farmers concede this point, they set themselves up for a calamity. Agriculture’s exemption won’t last. Instead, it will become the next target for zealots. We live in a world in which global-warming fanatics try to measure the impact of cow flatulence on the climate. If this is one of their obsessions, how long will they ignore the effects of our trucks and tractors?
 
What’s more, our exemption only goes so far. It certainly does not insulate us from the effects of the bill on the rest of the economy. We know that the legislation will make energy substantially more expensive. Some experts believe electricity prices will double. Fuel prices could increase by more than 50 percent. These are prices we will pay, even if we are not forced yet to track our carbon emissions.
 
High energy costs will affect farmers in all sorts of ways. Consider the impact on fertilizer, which requires a large amount of energy to produce. The price of this important commodity will soar. Farmers will have little choice but to pay up. Meanwhile, the fertilizer industry will confront difficult decisions. As a globally traded commodity, imports already account for more than half of America’s nitrogen fertilizer supply. The climate-change legislation almost certainly will push more of this offshore to nations without similar climate policies. It makes you wonder whatever happened to Washington’s calls for energy independence.
 
One of the reasons why the cap-and-trade system has gained political traction is because its supporters think they can sell it to the public as a way of improving the environment without imposing new taxes. But this is snake oil: What we have here is a carbon tax by another name. Instead of writing checks to the IRS, people will feel the pinch when they pay their electricity bills and fill their gas tanks.
 
They’ll also feel it at the grocery store. If farmers and ranchers have to pay more to produce food, so will consumers. Think of it this way: A carbon tax isn’t just a special tax on energy, it’s also a tax on food. You’ll pay it every time you eat.
 
So let’s rebrand the legislation. Supporters can call it a global-warming bill, a climate-change bill, or whatever they want. Farmers must recognize it as a new tax that will make virtually everything we do more expensive.
 
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade.org
 
 
 
 

St. Lawrence Seaway: Gateway to the World

Jul 09, 2009
It takes a ship almost nine days to travel from Duluth, Minn., to the Atlantic Ocean. The journey is more than 2,300 miles. Before the opening of the St. Lawrence Seaway, it wasn’t even possible--at least not for ocean-bound vessels that didn’t want to take their chances on Niagara Falls.
 
This year marks the 50th anniversary of the seaway’s opening, which literally connected the Great Lakes to the rest of the world. Celebrations are planned throughout this weekend at the Dwight D. Eisenhower Visitors’ Center in Massena, N.Y. They will honor the seaway’s historic role and its ongoing vitality--and also remind us about the economic importance of infrastructure projects that promote international trade.
 
It might be said that work on the St. Lawrence Seaway began in 1680. That’s the year the seaway’s website credits Dollier de Casson with beginning an effort to build a canal around the rapids of Montreal. He wouldn’t live to see his work finished. Neither would any of his contemporaries. It took until 1824 before a five-foot-deep canal was completed.
 
It goes to show that early on, people understood the necessity of opening the vast inland seas of North America. Serious discussions to embark on a major construction project began in the first years of the 20th century.
 
Unfortunately, special-interest lobbying from railways and U.S. ports forced numerous delays. Some things never change: The influence peddlers will always be with us, and their self-serving demands always must be overcome.
 
By the early 1950s, the Canadians announced that enough was enough: They were going to build the seaway with or without American help. This prompted the United States finally to get on board. Work began in 1954. It took five years. The seaway was formally opened in 1959 by President Eisenhower and Queen Elizabeth II, when they enjoyed a short cruise through a portion of the seaway aboard the royal yacht.
 
Since then, more than 2.5 billion tons of cargo, worth more than $375 billion, has gone up and down the seaway. Farmers in the Midwest have relied upon this outlet: This is how they’ve exported much of their grain to foreign buyers. Other commodities, such as iron ore and coal, also have depended upon the seaway. About one quarter of all seaway traffic involves a distant port in Europe, the Middle East, or Africa.
 
The St. Lawrence passage is so important that it has led to its own ship classification: Seawaymax. Just as Panamax ships are specifically designed to move through the Panama Canal, Seawaymax ships are built for the locks of the St. Lawrence Seaway. They’re 740 feet long, 78 feet wide, and have a draft of 26 feet. The record load for one vessel is 28,502 tons. The Great Lakes are home to a number of larger ships that can carry bigger loads, but they can’t pass through the seaway.
 
The seaway’s peak year for cargo was 1979, when more than 7,300 vessels moved almost 75 million tons. Several factors have led to a long-term decline. European grain markets dried up. Canadian grain exports bound for Asia shifted to the West Coast. Competition from huge ocean ships and the Mississippi River system also have taken a toll. This year, battered by the global financial crisis in general and the depressed auto and steel industries in particular, the seaway expects its cargo to slip below 40 million tons.
 
Yet it would be wrong to conclude that the seaway is obsolete. Good infrastructure, supporting free trade is key to getting the world economy moving again.  One recent study estimates that it saves the regional economy more than $1 billion in annual transportation costs. It also provides hydroelectric power--a critical role at a time when the world needs energy.
 
As the seaway ages, public officials will have to make sure the locks and canals have the resources they need to thrive--and guarantee that the St. Lawrence Seaway remains an indispensable unit of the global economy.
 
Tim Burrack raises corn and soybeans in partnership with his brother on their NE Iowa family farm. Tim is a Board Member of Truth About Trade and Technology www.truthabouttrade.org
 
 
 

A Declaration for Trade Interdependence

Jul 02, 2009
As members of Congress prepare to celebrate the Fourth of July, they ought to perform an act of patriotism and embrace free trade--just as the Founding Fathers did in 1776.
 
The Declaration of Independence lists a series of reasons for breaking ties to the English crown. One of them is “for cutting off our trade with all parts of the world.”
 
Unfortunately, that’s precisely what the United States is now doing to itself, in the form of the “Buy American” rules Congress inserted into the $787-billion economic-stimulus bill earlier this year. Cutting off our trade with all parts of the world is a very bad idea--and it hurts ordinary citizens the most.
 
On the face of it, “Buy American” requirements are motivated by a love of country. During a time of economic crisis and high unemployment, lawmakers ought to make special efforts to save and create jobs. The “Buy American” provision purports to do this by forbidding the use of stimulus money on foreign-made iron, steel, and factory products.
 
Yet what sounds good in theory often fails in practice. “Buy American” requirements are destroying jobs, costing consumers, and undermining America’s position of global leadership.
 
Consider the case of Duferco Farrell, a steel company near Pittsburgh. It employs about 600 workers. Their jobs are now in jeopardy because the coils they make require imported steel slabs that aren’t readily available in the United States. As a result, the products these workers manufacture aren’t purely made-in-the-USA. Recipients of stimulus money can’t do business with them. This includes a huge client who is literally just down the road.
 
“You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs,” said Bob Miller, Duferco Farrell’s executive vice president, in the Washington Post. “I’ve got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?”
 
Many other jobs are at stake as well. The Peterson Institute for International Economics has estimated the “Buy American” law may create a few jobs--perhaps 1,000 for U.S. steelworkers, at companies other than Duferco Farrell. But there will be even greater costs. If “Buy American” rules provoke foreign governments into restricting their own purchases of American products, jobs that depend on exports will suffer. The Peterson report says these job losses could approach 65,000, depending on the extent of the retaliation.
 
This is already happening. China just approved its own economic-stimulus plan, worth $586 billion. It contains a “Buy Chinese” provision. In announcing this rule, the government in Beijing said it wanted to favor domestic suppliers over foreign ones. China’s foreign suppliers, of course, include Americans.
 
Canada has enacted its own preferential policies, involving municipal purchases. Because Canada is America’s largest trading partner, these new prohibitions really could hurt over time. Moreover, they were implemented explicitly in response to the “Buy American” law, which has forced many American companies to quit doing business with Canadians.
 
Even people whose jobs aren’t tied to trade with Canada will feel a pinch, in the form of rising consumer prices. Because protectionism reduces competition, it will make infrastructure projects sponsored by the stimulus bill more expensive. Taxpayer dollars won’t go as far as they should. Our public money will be wasted.
 
When the financial crisis set in last fall, world political leaders issued joint statements on the importance of international trade. Judging from what they said, they are committed to the idea that although protectionism holds a superficial allure, it delivers unintended consequences that do far more harm than good.
 
Who will hold them accountable to their own words? It won’t be the United States. As soon as President Obama signed the stimulus bill, our country lost its ability to lead by example.
 
Or maybe not. We can still admit our mistake and repeal the “Buy American” law. This would represent a feat of global political leadership--something sure to make the Founding Fathers smile on this Independence Day.
 
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology www.truthabouttrade.org
 
 
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