Yearly Archives: 2020

How an America Firster Knocked Off a Sitting Republican Congressman

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By Greg Rushford

June 15, 2020

If all politics is local, as Tip O’Neill, the late Speaker of the House, used to say, it’s clearly the same for international trade politics. 

This story begins with a definite local twist, involving Republican Party inside politics in rural Virginia. But international trade aficionados everywhere will appreciate certain ironies that stretch far beyond Virginia’s sprawling 5th Congressional District, which ranges from the foothills of the Blue Ridge Mountains west of Washington, D.C., and down the Shenandoah Valley some 250 miles to the North Carolina border. 

The gerrymandered district, which heavily favors Republican candidates, is larger than six U.S. States, including New Jersey and New Hampshire. 

A sitting first-term U.S. congressman named Denver Riggleman has just been denied renomination by a handful of Virginia Republican activists. At first blush, this sure looks curious. Riggleman is a conservative Republican with a libertarian streak who boasts of voting with President Donald Trump more than 90 percent of the time. And he has supported international trade positions championed by the pro-market U.S. Chamber of Commerce and dozens upon dozens of small businesses in Virginia. 

On June 13, a convention of 2,537 Republican insiders voted to replace Riggleman with a challenger named Bob Good. Good trounced Riggleman by 58.1% to 41.8. So Good, not Riggleman, will be on the ballot in the forthcoming November 3 U.S. national elections. He will run against one of four Democrats who will be competing for their party’s nomination in a June 23 primary election. 

Good comes from southern Virginia’s Bible Belt. He’s a self-styled “Biblical Conservative” and a proud America First hardliner, even when it comes to legal immigration policies. He would deny automatic citizenship by birth. He would require immigrants to speak English. Good would deny women the rights to abortion, even when the mother’s life would otherwise be at risk. 

Such “bright red” positions, as Good puts them, would hardly be winning in Virginia statewide elections — especially with moderate-to-socially liberal Republicans from Washington, D.C.’s northern Virginia suburbs, and cities like Richmond and Charlottesville (home of the University of Virginia). But in the rural 5th District, they have much support. 

Moreover, the energetic Good simply outworked and outmaneuvered the hapless Riggleman at every turn. 

Most local press reports have rightly noted that Riggleman first landed in hot water with his Party’s social conservatives after officiating last summer at a wedding of two gay conservative Republican men. His stance reflected a refreshing tolerance and a sense of personal decency, not to mention respect for Virginia law that allows for same-sex marriage. Riggleman said all he saw was two fine young people who were in love.

But many 5th District Republicans saw a Biblical travesty. While the Party insists it is inclusive, such inclusiveness seems to extend only to supporters of the Republican platform — which considers marriage strictly a religious matter between men and women. 

But leaving the biblical politics aside, it’s the international trade ironies to this story that stand out. 

A central part of his campaign was putting “Americans, American jobs, and America first,” Bob Good told reporter Charlotte Rene Woods, who interviewed him for a May 14 Charlottesville Tomorrow article. “We’ve got to place a greater premium on protecting American jobs, American workers and reducing the number of worker visas to only what is truly needed and doesn’t depress wages or eliminate job opportunities for Americans.”

To further explain his agenda, Good posted a stirring commentary on his campaign website that one of his strongest political allies from Rappahannock County, VA, had published in local newspaper, the Rappahannock News, on March 12. 

Ms. Miller is a prominent 5tth District Republican who is well-known for bringing a passion to her political jousting. She is no stranger to hyperbole. “I am an avowed free-market capitalist living in a country that was sinking toward Marxism — then Trump began righting the ship of state,” Miller has tweeted. 

And in her commentary that became a centerpiece of Good’s campaign, Miller didn’t pull punches in criticizing Riggleman’s record on immigration. Riggleman had been serving the interests of “the power elites and special interests” on Capitol Hill, not his own constituents, she declared. 

In particular, Miller pointed to Riggleman’s vote for a measure last year aimed at increasing H2B visas for foreign workers. “This is for foreign workers to take the high-tech jobs your children and grandchildren are looking for,” Miller asserted. 

Miller also called Riggleman to task for voting for H.R. 1044, a House bill titled the “Fairness for High Skilled Immigrants Act,” aimed at increasing U.S. immigrant visas for high-skilled foreigners. The measure had been sponsored by Rep. Zoe Lofgren, an “ultra liberal Democrat from California’s Silicon Valley, the home of tech giants Google and Facebook,” Miller wrote.

Miller asked: “Why is the Republican congressman from the 5th district of Virginia doing the bidding of Democrat Zoe Lofgren’s Silicon Valley masters of the universe? Why isn’t he listening to his own constituents?”

One would expect a savvy incumbent congressman to shoot back that there definitely was another side to that story. That he had been listening to Virginians who wanted to be globally competitive. And that he had voted in the best economic interests of his constituents. 

For openers, Riggleman could have pointed out that H2B visas are not for “high-tech” jobs. He could have said that dozens of Virginia’s small businesses — notably including landscapers — depend upon H2B visas to bring in temporary workers from Mexico and Central America — only after American workers cannot be found. 

These temporary foreign landscape artisans work during the growing seasons, pay their U.S. income taxes, and then return home to their families. Riggleman could have argued strenuously that such legal immigration is entirely defensible, and that it discourages illegal immigration. That the visas are not only good for the American economy and American enterprises — but very Republican. 

The congressman might also have reminded Good and Miller that the H2B visa legislation was strongly supported by a long list of such mainstream pro-market business advocacy organizations as the U.S. Chamber of Commerce, the Virginia Forestry Association, the Virginia Nursery and Landscape Association, the National Fisheries Institute, and the Seasonal Employment Alliance. These are top-notch outfits, and respected on both sides of the aisle in Washington. 

As for H.R. 1044, which does bring in high-tech foreign workers, Riggleman could have explained that it was simply wrong to accuse him of doing the bidding of the “ultra liberal” Zoe Lofgren from the Silicon Valley. (Lofgren is not regarded as a leftist firebreather on the Hill; she enjoys a reputation as a sensible lawmaker who is respected across party lines.) 

In truth, H.R. 1044 was clearly bipartisan; it was co-sponsored by Colorado Republican Rep. Ken Buck, a lawmaker with strong conservative credentials. It passed the House last summer with a substantial bipartisan majority of 365-65. Every Virginia Republican congressman voted for it. But only Riggleman will be soon be out of a job because of his vote. 

There’s a lot more: The measure’s companion bill in the Senate is being supported by such Republican stalwarts as Sense. Josh Hawley of Missouri and Tom Cotton of Arkansas. These legislators are hardly “ultra liberals.”

In sum, there were plenty of opportunities for Riggleman to have reminded his constituents that he had been supporting measures designed to promote legal immigration in the interests of helping American businesses to compete for talent in the global marketplace.

But the congressman never effectively made the case to his constituents, essentially ceding the political territory to opponent Good. (In the weeks before the June 13 convention, Riggleman’s press secretary did not respond to repeated requests for comment for this article.)

That political naiveté — a certain back-footedness, if you will — goes a long way toward explaining why the June 13 Republican convention delegates who voted outside the Tree of Life Ministries in Lynchburg enjoyed chucking Riggleman out.

Miller declined to comment for this article. But she told a reporter for the Rappahannock News after last Saturday’s vote that she had been “disappointed” in Riggleman’s performance in Congress. And the newspaper quoted a triumphant post-convention e-mail written by another ardent Rappahannock County Republican named Ron Maxwell. “Vote for more foreign workers and you’ll be voted out of office!”  

The late Speaker Tip O’Neill, who said that all politics is local, would understand (and lament) the current polarized political atmosphere in America. So would former Republican President Ronald Reagan. Reagan touted what he called the Eleventh Commandment: “Thou Shalt Not Speak Ill of Any Fellow Republican.”

Despite their differing political philosophies, conservative Reagan and the Democratic liberal O’Neill operated with mutual respect for each other. They knew how to forge political compromises in the best interests of their country.  

Republican candidate Bob Good doesn’t seem to be interested in Tip O’Neill or Ronald Reagan. “I’m not going to Washington to compromise for the Democrats,” he told reporter Tyler Hamilton of the Daily Progress earlier this month. “I disagree with the Democratic Party on everything.”

Introduction to International Political Economy: The Wakefield Seminars (Class Three)

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By Greg Rushford

May 24, 2020

NOTE TO READERS: This text is the third of three lectures that I presented via Zoom to students at the Wakefield Country Day School in Huntly, VA.  I presented this third class on May 19, 2020.  For the first lecture, click here, and for the second lecture, click here. You may also return to the main page and click on the links there.

Welcome to the third of three classes on the fundamentals of International Political Economy. This one’s on the big picture: the World Trade Organization. The WTO is the international institution that has presided over the rules of global trade flows for the past 25 years. 

The WTO has been part of the world’s most successful international economic experiment that has served the world well for 70-plus years, but is currently facing an uncertain future. 

This is because political support has waned for its mission in key world capitals has waned — notably including New Delhi, Beijing, and Washington, D.C. Before we’re finished this morning, I’ll pass along some context aimed at helping make some rather confusing current headlines, well, perhaps less so. 

This topic is important. There’s not enough time this morning even to mention all the issues, much less answer the inevitable questions. But I can explain the basics, and offer an analytic framework aimed at equipping you to think through some big thoughts independently. And I can point you to sources aimed at smoothing the path for further reading and reflection. 

Let’s take this from the top.

More than 600 international civil servants who come from 80-some countries work in the WTO’s secretariat, which is headquartered in Geneva, Switzerland. The Centre William Rappard building is a gem of European classical architecture. The building dates to the 1920s, and is situated in a lovely park — adorned with inspiring sculptures — that runs along the shores of Lake Geneva, with distant views of the famous Mont Blanc and the Swiss Alps. 

Regardless of the impressive surroundings, keep this in mind: the responsibility for the decision-making is not vested in the staffers and their Director General who work in Geneva, as important as their renowned expertise is. The responsibility for setting the rules of global commerce is to be found at the highest political levels of government in 164 member countries. 

To repeat, because this isn’t always understood as well as it should — the key to understanding the international economic issues that drive the WTO’s trade negotiations is to be found in in the political calculations in various world capital cities. 

So why is the WTO so important?

The importance of tariff slashing

The driving economic idea when the WTO was launched in 1995 was to broaden the successes of its predecessor organization, the General Agreement on Tariffs and Trade. The GATT — just 23 countries led by the United States —had been established in 1947. It was first tasked with slashing high protectionist tariffs that had been notorious drags on global economic growth during some particularly nasty trade wars of the 1930s. 

But before we get to the economics of dealing with tariff wars and dismantling other barriers to trade, the first thing to keep in mind is the fundamental rationale that has always driven the GATT and the WTO: national security. 

National security drives the economics

I highly recommend that you google a 2018 report: The International Trading System at Risk and the Need to Return to First Principles. The report was written for the economics and security committee of the NATO Parliamentary Assembly. This is as good an explanation of the importance of the GATT and the WTO, historically and currently, as I’ve seen, even though the NATO economists are not connected to the WTO in any way.  

The NATO Parliamentary Assembly is based in Brussels. It brings together parliamentarians — members of the U.S. Congress and their legislative counterparts in the 30 NATO countries— to exchange ideas.

The acronym NATO stands for the North Atlantic Treaty Organization. This North American-European military alliance was created in 1949 as a defensive shield against military aggression from Joseph Stalin’s Soviet Union. (The world’s oldest military alliance, today NATO forces remain on the watch for mischief from Russia’s president, Vladimir Putin. American leadership in NATO has always been regarded as central.)

To be clear: NATO and its parliamentary assembly are totally separate institutions from the GATT/WTO. People who work in these organizations don’t even talk to each other. I’m not even sure how much the NATO parliamentarians talk to their counterparts on the military side of NATO.

Still, it’s important to recognize that prominent NATO circles understand and respect the economic portfolios of the GATT and WTO. They understand that this is about more than economics. And they certainly do not want NATO countries to start slapping each other with high tariffs and other trade restraints, as such would weaken the vital security ties. 

The 2018 report looked back over the years at what the GATT/WTO had accomplished:  

“[T]he liberal trading system established after World War II had not only contributed to an unprecedented rise of prosperity on both sides of the Atlantic, pulled millions out of poverty, and encouraged the diffusion of technology and ideas, it had also reinforced the security order. In fact, security, democracy and free trade proved mutually reinforcing.” 

The report recognized that world leaders who had created the liberal international economic order after World War II “knew full well that during the 1930s an array of ‘beggar thy neighbour’ protectionist measures had contributed to the Great Depression, poisoned inter-state relations and had doubtless been a central factor in the descent into World War II.” 

In other words, as former U.S. Secretary of State Cordell Hull, who served under President Franklin D. Roosevelt from 1933-44, was fond of saying: trade wars tend to end in real shooting wars. 

“I saw that you could not separate the idea of commerce from the idea of war and peace,” as Hull recollected n his memoirs. “I thereupon came to believe that if we could increase commercial exchanges among nations over lowered trade and tariff barriers and remove international obstacles to trade, we would go a long way toward eliminating war itself.”

This nexus between national security, peaceful resolution of conflicts, and economic prosperity is so fundamental to the WTO’s mission that it’s often overlooked, or just taken for granted.

The business of streamlining global trade flows

Why have the GATT and the WTO been regarded as the world’s most successful international economic experiment? The short answer is that when the GATT was launched in 1947, average global tariffs had been in the 20-30 percent range — with peaks for some import-sensitive products far higher than that. 

This was, at least, a measurable improvement from the higher (prohibitive) tariffs during the 1930s Great Depression. 

But the GATT’s founders realized that there would inevitably be powerful domestic lobbies around the world that would always seek protection from import competition. Nations cannot be counted upon to dismantle their protectionist schemes unilaterally, even though such would be in their own self-interests. 

A series of GATT multilateral negotiating rounds steadily slashed tariffs, which had fallen to an average of perhaps 11 percent when the WTO took over the GATT’s legal framework in 1995. Presently, they are about nine percent worldwide — and are roughly between two- and three percent for the most advanced economies in Europe, the United States, and Japan.

As tariffs and other restraints to trade have been slowly-but-steadily slashed in the past seven-plus decades, world trade volumes have risen a whopping 4,136 percent, the WTO has reported. The lives of countless millions of people worldwide who have never heard of the GATT or the WTO have been enriched. 

It’s more than just tariffs

These days, the WTO deals with far more than tariffs: too many issues to list here. 

There have been successful negotiations that have smoothed the flow of information technology across international borders. And others aimed at giving the poorer WTO members a helping hand in expanding their international trade. Perhaps the most difficult political issues are associated with making international agriculture trade more efficient. The WTO’s website has the details. 

You might also familiarize yourself with the sites for the World Bank and the Organization for Economic Cooperation and Development (OECD). The Bank, headquartered in Washington, D.C., is one of the so-called Bretton Woods institutions, dating to 1944. The OECD, based in Paris, is an organization whose members are the so-called rich countries). These sites house some of the world’s best international economic research.You will never run out of term-paper materials. 

The importance of being true to core principles

It is always worth keeping in mind the core principle that has always driven the GATT and the WTO. It’s called MFN: most-favored-nation. It’s simple — but not simplistic. MFN’s so-called “national treatment” means that WTO member countries must not discriminate against other trading partners: all must be treated equally. 

The United States, once again, was first-among-equals in insisting that the GATT and WTO would be based on the core MFN obligations. That’s not surprising, as the concept of treating all of America’s trading partners equally goes to the heart of who we are as a people. 

I strongly recommend a book called Clashing Over Commerce: A History of US Trade Policy. This tome looks rather daunting; it runs over 800 pages. Fortunately, it is smooth reading and can be absorbed in bites. This remarkable scholarship was researched and written by Douglas Irwin, the nation’s leading economic historian who teaches at Dartmouth College. I keep this book close, for the perspectives it sheds on current, sometimes confusing, headlines.

And some of the most valuable perspectives shed light that is related to the American character — and is particularly striking in current political environment in Washington.

Irwin notes that Thomas Jefferson wrote in 1785: “I think all the world would gain by setting commerce at perfect liberty.” And consider this observation on trade, from Benjamin Franklin: “Most of the restraints put upon it in different countries seem to have been the projects of particulars for their private interest, under the pretense of public good.” 

It’s that last phrase where Franklin nailed it. (Remember last class, when we talked about globally uncompetitive U.S. rose growers who lobbied for high “unfair dumping” tariffs on Colombia that would have resulted in sky-high prices for all American consumers?)

Difficult Global Politics

So why, despite the impressive history, is the WTO today an institution in serious trouble? 

Since its creation in 1995, the WTO has not been able to conclude one major multilateral trade-liberalizing round of negotiations. The so-called Doha Round, which began in 2001, has been in a coma for more than a decade. (Paul Blustein, a former top Washington Post reporter, wrote about the Doha collapse in his 2009 ground-breaking book, Misadventures of the Most Favored Nations. This book is required reading.)  

The most important reason for concern is simply put: the political will in key world capitals when it comes to dismantling trade barriers has been gradually but steadily weakening. 

I’ve been tracking this decline for years, and immodestly suggest that you might want to go to my website, www.rushfordreport.com. I wrote “Murder on the Doha Express” for the Milken Institute Review in 2012. Two years later I contributed “The General Disagreement on Tariffs and Trade” to Foreign Policy magazine. In 2015, I contributed “The WTO Struggles in Nairobi” for the Wall Street Journal. And in 2018 I wrote “Trump’s War on the WTO,” again for the Journal. 

While there are many complexities, a quick look at the attitudes of just three WTO member countries — India, China, and the United States — illustrate what’s been going on. 

“India First”

India, although that country has only about a two-percent share of global trade flows, has always been difficult. Indian politicians have never really seemed to believe in multilateral trade liberalization. They will tell you that India can cut its own (high) tariffs and dismantle the rest of its (considerable) trade barriers when leaders believe that is in their own self-interest — which doesn’t happen frequently. 

When Indian trade diplomats speak, many other developing countries’ leaders tend to listen. So protectionism, New Delhi-style, has champions far beyond the Subcontinent. 

Indian political leaders have always championed restrictive “Buy India” laws, aimed at keeping globally competitive foreigners at bay. It’s terrible economics, the evidence for which is seen in India’s continuing poverty. But the politically-connected domestic lobbies in India that benefit from the schemes have never complained. 

India has just this year played a leading role in once-again delaying the most important current negotiations the WTO has underway. Those negotiations are aimed at prohibiting harmful governmental subsidies that have contributed to overfishing and the depletion of fish stocks worldwide. They have been dragging on for some two decades, with no particular sense of urgency. (If you are wondering why, stay tuned. I intend to publish a report on the fish negotiations in my online journal in the very near future.) 

“China First”

Naturally, everyone is curious about China’s contribution to the WTO’s decline.  

I was among those who welcomed China’s joining the WTO in 2001, and was thrilled when that formerly impoverished country started to embrace global competition — lifting hundreds of millions of ordinary Chinese people out of cruel economic miseries. 

But anyone who scans the current headlines can see ample cause for concerns about where China is now heading.

For openers, China has also been one of the obstacles to a successful WTO deal to save the world’s fishing grounds. China is the world’s biggest subsidizer of its huge industrial-scale fishing fleets that are devastating fishing grounds as far away as West Africa. (Check out the website of the Environmental Justice Foundation for those sobering details. It has fascinating and alarming documentation.)

China is also the world’s second-largest economy. Yet in the WTO fish negotiations, China is insisting that it be given special carveouts to continue the destructive practices — as if China it were still one of the world’s poorer nations. 

Since joining the WTO in 2001, leaders of the Chinese Communist Party in Beijing have often spoken highly of the institution. They have praised multilateralism, in general. But if I had to write an article making the case that China is anywhere close to becoming a respected WTO leader today, it would be, well, short. 

Beijing has been negotiating to join the WTO’s Government Procurement Agreement, under which member countries agree to open public contracts to competitive international bidders since 2002 —without summoning the political will to seal the deal. 

In 2008 China helped put the WTO’s so-called Doha Round of multilateral trade liberalization in its coma, by refusing to cut high tariffs on a range of about a dozen key industrial tariffs. (India was an accomplice. As mentioned previously, Paul Blustein’s Misadventures of the Most Favored Nations has those details.)

Remember how trade politics in New Delhi turn on Buy Indian trade rules? Beijing has its Buy Chinese rules, and the Party has many ways to make life uncomfortable — miserable, even — for foreign investors, while propping up its own government-owned enterprises. 

This month, Australia called for a global medical investigation to pinpoint precisely how the global coronavirus pandemic began. Who wouldn’t want to know that?

It seems the Communist Party of China is, well, sensitive on this particular issue. Furious Chinese officials immediately banned imports of Australian beef from four processors — keeping straight faces to pretend the ban was driven by health concerns. As the Wall Street Journal editorialized last week, this constitutes flat-out “coercive” economic diplomacy. (Not to mention the cruelty of denying delicious Aussie steaks to innocent Chinese diners.)

Such Beijing bullying is hardly an isolated case.

The Chinese have also just slapped on prohibitive 73-plus percent anti-dumping tariffs on imports of Australian barley. Here’s a term-paper idea: figure out how Chinese officials calculate that Australian barley farmers are so generous that they would sell their stuff to Chinese consumers at a 73 percent loss.  

“America First”

Meanwhile, America’s political support for multilateral trade liberalization has been declining in recent years.

President Barack Obama never gave the WTO much of a priority. His three favorite words, Obama told campaign audiences, were “Made in America.” Unwilling to focus on the WTO’s multilateral trade-liberalizing negotiations, he focused on a smaller regional trade deal with eleven trading partners called the Trans-Pacific Partnership. But Obama failed to obtain the necessary approval for even that deal from the U.S. Congress. 

(In one of his first acts of office in 2017, President Trump withdrew the United States from the TPP, saying it would have been a terrible deal, while offering no evidence for that assertion.)

President Donald Trump’s stated positions on the WTO are clear. Multilateral trade liberalization is simply not on his agenda. 

He has repeatedly called the WTO a “disaster.” He has repeatedly said that he is a “Tariff Man.” He has launched a series of trade wars against “cheating” American trading partners ranging from Canada and the Europeans to China. Trump has said that he believes that trade wars are “easy” to win. (The WTO’s website reports that global trade growth had already begun to slow last year, before the coronavirus pandemic struck.)

The WTO was created “to benefit everybody but us,” Trump asserted on Fox News. He has threatened to withdraw.

And when it comes to matters of national security, the White House has been working to raise tariffs on certain imports on grounds they present security threats to America. These products include — I’m not making this up! — automobile bumpers, and nails. And the White House has also called steel imported from Canada, our NATO ally to our immediate north, a national security threat. Talk about material for student term papers! 

The United States has also brought to a halt the WTO’s legal machinery to resolve trade disputes between members. This has been accomplished simply by withholding consensus to replace the expiring terms of jurists on the Appellate Body. That judicial body — established when the WTO was created in 1995, with strong U.S. support — now cannot function because it lacks a quorum. 

United States trade officials no longer stress that Washington still believes in the WTO’s core principle: Most-Favored Nation non-discriminatory treatment of all trading partners. I’ve recently asked President Trump’s top trade negotiator, Robert Lighthizer, if he would care to issue a statement stressing the MFN’s importance. There has been no response. (U.S. Trade Representative Lighthizer hasn’t visited WTO headquarters in Geneva, sending another unmistakable signal that multilateral trade liberalization remains in disfavor in the White House.)

It’s important, of course, to see how the White House defends itself from its critics. I suggest you google some recent columns in the New York Times written by Peter Navarro, a White House trade official, and by Ambassador Robert Lighthizer, the U.S. Trade Representative.  (Navarro has also authored a recent opinion piece in the Wall Street Journal, and has appeared on cable television frequently. And the Office of the U.S. Trade Representative has a website that further explains the Trump administration’s thinking.) 

Senator Josh Hawley, a Republican from Missouri, has been pressing for a congressional resolution calling for the United States to withdraw from the WTO. He also wrote it up for the New York Times’ opinion pages. (Remember, when the authors are politicians, the trick is to sift through the rhetoric, looking for economically viable thought.)

You might also want to become familiar with some  academically sound sources whom your university economics professors will expect you to be familiar with. In Washington, D.C., check out William Reinsch’s columns that appear on the site for the Center for Strategic and International Studies. The respected Peterson Institute for International Economics also publishes helpful research and analysis. 

In Europe, the site for the Brussels-based European Center for International Political Economy (ECIPE) is another must-read. 

Here’s another piece of unsolicited advice, if you want to keep on top of international affairs: If you aren’t already doing so, start reading The Economist immediately — and keep reading it for the rest of your lives.

So why be optimistic?

One final thought: don’t let the gloom-and-doom get the best of you. 

The declining support for the WTO’s international economic architecture that has served the world so well is deeply troubling to many. Still, there is good reason to end this class on an optimistic note. 

The problems that young people faced in previous generations were also daunting — even much worse. When I was born in 1944, people were still being killed in World War II. In 1945, after the war ended, Europe was devastated, with millions upon millions of refugees struggling to survive. Across the Pacific, Japan was flattened. People were starving in the Philippines. Africa, still in the grip of European colonialism, was unfree. 

When I first visited Europe in the early 1960s — almost twenty years after the fighting ended — piles of rubble from previously bombed-out cities like Rotterdam and London were still visible. Faces on the streets of Paris were still gaunt. 

Today, these wonderful European cities have been restored. They are marvelous — visit them. 

And go to Asia, Tokyo sparkles, as do other Asian cities that have embraced global competition: Hong Kong, Singapore, Seoul, Taipei. 

The Philippines unfortunately remains poor — due to insular “Filipino First” protectionist sentiments fueled by an entrenched corrupt elite that have long held that country back. 

But in recent years the Philippines has begun to open up to global competition, enough to become one of the fastest-growing economies in Southeast Asia. And while all of sub-Saharan Africa only has about one percent of global trade flows, there are some encouraging signs of progress there, also.

So there is much important work to do. Whatever you make of your lives, this is a wonderful time to be young and well-educated. 

As the 19th Century American thinker Henry David Thoreau once put it: “Go confidently in the direction of your dreams — Live the life you’ve imagined.”

Introduction to International Political Economy: The Wakefield Seminars (Class Two)

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By Greg Rushford

May 22, 2020

NOTE TO READERS: This text is the second of three lectures I presented via Zoom to students at the Wakefield Country Day School in Huntly, VA, earlier in May. For the first lecture, click here, or return to the main page and click on the link. I will post the third lecture in a couple of days.

Welcome to the second of three classes on what international-trade economists call Political Economy. This is the same basic presentation that I’ve made over the years in college economics classrooms. But if it sounds rather daunting to present college-level material to high school students, it shouldn’t be.

As you would know from last week’s class, the fundamental concepts are not difficult. Anyone can get this, simply by understanding a few simple economic definitions, and by looking around at what’s in their daily lives. 

For sure, looking around us here in Rappahannock County, Virginia, doesn’t immediately suggest that global trade flows touch our lives at all. We are in the boonies, tucked away in the foothills of the Blue Ridge Mountains — only 70 miles west of downtown Washington, D.C., but in the middle of nowhere.  

Rappahannock County is about the same size as Singapore, but instead of nearly six million people, there are only about 7,300 of us. Why, we don’t even have one stop light on our quiet country roads! 

But look more closely — look to the Virginia Inland Port, about twenty minutes to our north, just outside the little town of Front Royal. You’d be surprised at the amount of international cargo that goes through Customs at this inland port. The Front Royal port handles twice the cargo traffic as do the major U.S. southern seaports of Miami and Jacksonville, combined.

Many of the goods come into Front Royal’s customs zone from nearby Dulles International Airport, an hour’s drive from the East, on Interstate Highway I-66.

The imports also come into Front Royal — by rail and interstate highways — from the international terminals at Norfolk, VA, the big U.S. deep-water seaport some 220 miles to our southeast. And then they are sent on to other major cities whose economies also depend upon international trade: Atlanta to the south, Chicago to the west, and so on. And of course, the same international products are here in Rappahannock County. 

My wife and I often look around our American-made home and marvel at how the international marketplace is at our front door. Literally. That door comes from mahogany that was harvested in Honduras and finished in Costa Rica. Our cherry-wood floors come from Brazil. We’ve got lights made in China. A granite kitchen countertop from India. Some fixtures in our bathrooms come from Italy — and much more. 

So, if trade is obviously so important to our lives, why do many Americans believe it is “unfair?”

The heart of the matter begins to be seen in just two economic definitions that are in Economics 101 college textbooks. The first is Price Discrimination. Second: International Price Discrimination. The terms are presented in a rather dry fashion. But they aren’t dry to those who understand the politics that fuel the antagonisms toward trade.

Price Discrimination involves products that are sold at lower prices in some markets than others. Widgets might be sold at cheaper prices in, say, South Dakota than in Manhattan, based on calculations that New Yorkers might pay more. 

Or they even might be sold below their costs of production. You’ve perhaps noticed so-called “loss leaders” in your supermarkets: items priced so cheaply that they entice shoppers into the stores. This is often called cutthroat pricing. Economists tend to praise such ruthless pricing wars, as they encourage healthy competition. 

Only if Price Discrimination becomes predatory, in the legal antitrust sense of the term, do economists frown. Predation happens when, say, a large corporation with deep financial reserves deliberately prices products so low as to drive the little guys out of business. Then the big guys are left with so-called “market power,” or monopoly power — so they can raise prices on helpless consumers who don’t have a choice. The antitrust laws are meant to police such uncompetitive economic behavior. 

An automobile could be made in Detroit, and then sold more cheaply to Americans who live in Alabama, for example. But what if the Canadians make automobiles, and export them to Americans at prices that are lower than in Canada? Now we’re talking about International Price Discrimination.

International Price Discrimination is the same as domestic Price Discrimination. Except here, the goods cross international borders and are considered as having been “dumped,” and politically “unfair.”

Such “unfairly dumped” goods can be taxed, with high tariffs. Here in the United States, this happens a lot. Domestic concerns that can’t match the prices of their foreign competitors find themselves good lawyers. Those lawyers then file “anti-dumping” lawsuits with the U.S. government, which investigates and decides whether to tax the “unfair” imports with tariffs. 

 (Those “anti-dumping” cases are considered by the U.S. Commerce Department and the International Trade Commission, each of which has bureaucracies to consider various aspects of anti-dumping complaints by looking at the costs of production.)

Domestic advocates of the anti-dumping laws frame their arguments using antitrust-like language of predatory pricing. Politicians often misleadingly call International Price Discrimination “Illegal Dumping.” It’s in fact not illegal — or unfair — to price, say, automobiles or bicycles, you-name it, at lower prices in some countries than the home market. The item to which International Price Discrimination is applied, again, is just subject to being taxed. The rationale is more political than economic. And over the years, the cries of “unfair trade” have landed at the heart of the debate over whether international trade is a good thing, or not. 

Here’s how this works. 

I first began to understand the emotional world of anti-dumping litigation almost exactly thirty-six years ago to this week, around Mother’s Day, 1984. American flower growers were upset that Colombia was exporting roses to U.S. markets at low prices. Prices that rose growers in, say, Michigan, couldn’t match. That was unfair, the American rose lobby complained.

So the U.S. rose growers hired lawyers to petition the federal government to put high tariffs on the import competition from Colombia. 

Tariffs, of course, are taxes imposed on American businesses that import foreign products. American consumers who buy the foreign goods are taxed again when importers pass along their extra costs in the form of higher prices. The American rose growers hoped that higher tariffs on Colombian roses would allow them to keep prices high. 

I took the roses story to the CBS Evening News in May of 1984: The Rose you Buy for Mother’s Day is Part of an International Trade War. That was when I realized that economics could be easily explained to normal Americans who have never heard of price discrimination. 

The economic principle in the Colombian flowers “dumping” case was what the famous economic theorist David Ricardo — you’ll hear his name in your first college economics course — called comparative advantage. Rough translation: Countries export products that they are better at making than their trading partners. They import products that others make better. 

This isn’t rocket science. In the roses case, the Colombians’ comparative advantage was — sunshine. Simply tropical sunshine that nourished rose beds, for free. By contrast, rose growers in places like Michigan had to pay the high costs of electricity necessary to heat greenhouses in cold weather. The American rose growers thought that was unfair. They thought that the rest of us should pay far higher prices to keep them in business. 

The American petitioners lost the rose-dumping case in 1984. It’s easy to argue that that was a sensible economic outcome; just go into your local grocery store and see those wonderful flowers from Central America, offered at affordable prices. And trade is a two-way street: Colombian buy American machinery,  cereals, various electrical and electronic goods, and more. 

Fast forward from the 1980s, and today there are hundreds of such “dumping” cases in which globally uncompetitive American industries have successfully sought high tariffs on too many products to mention here.

Many of these mini-trade wars have involved various types of steel: pipes, tubes, wire, hot-rolled steel, cold-rolled steel, and so on. There have been anti-dumping fights over bicycles, pencils, nails, bedroom furniture, candles, softwood lumber, manhole movers — and even something called extruded rubber thread, which is the rubber-like stuff that puts the snap in your underwear. 

Seafood products including crawfish, catfish, salmon, and shrimp have their own anti-dumping politics.

American catfish farmers from states such as Mississippi and Arkansas were upset that they couldn’t compete with catfish from Vietnam — so upset that they persuaded the U.S. Congress to make it illegal to call catfish from Vietnam, “catfish.” When you go into the seafood section of your supermarket, check out “swai,” or “basa,” or “tra” — ways to say “catfish” in Vietnamese. 

The idea was to make the affordable Southeast Asian catfish look perhaps too scary to eat. That didn’t work, as “Basa” sounded, well, exotic and interesting, to American consumers. 

Then the word was spread that foreign catfish is unhealthy. When nobody got sick, the American catfish lobby’s lawyers persuaded the U.S. government to hit the tasty foreign fish with anti-dumping tariffs. While the Vietnamese exports to America then slowed for awhile, the Chinese saw an opening and started to sell us their catfish. Economists call that: trade diversion. Erect high tariff walls on imports from one country, and exporters in other countries will take the advantage. 

Or take shrimp. Americans catch wild shrimp off coastlines that stretch down the Atlantic Ocean from the Carolinas to Florida, and then onto Louisiana and Texas along the Gulf of Mexico. Problem is, they can’t harvest enough shrimp even to supply one national U.S. grocery chain such as Costco. There isn’t enough American wild-caught shrimp to supply Red Lobster restaurants nationwide, or any other nationwide restaurant chain.

It takes foreign shrimp, mostly of it grown on farms in twenty-some countries around the world, to supply the shrimp you buy in your grocery stores. When I was young, living in a small city in Illinois, I didn’t get fresh shrimp until our family took a vacation to Florida when I was about eight. Now, thanks to international freight services, fish dealers all across the United States sell fresh imported seafood from everywhere to Americans, every day. 

That’s what trade does when free markets work properly. It creates winners. 

But that’s only one side of this story.

International trade also creates losers. 

Never forget this. We’re talking about people with real lives here. People who lose their jobs through no fault of their own, but because they had worked in industries that no longer could compete globally.

We could talk all day. Tell a steelworker in Ohio or Pennsylvania whose mill is shut down to praise economic efficiency and just move on with his life. Tell those steelworkers whose factories move to Mexico to appreciate the economic efficiencies. 

Tell women who have worked for generations in textile mills in the Carolinas that they should go to community college or enter various training programs where they would learn to do something else. Tell catfish farmers in the Mississippi Delta that they should realize that their competitors in the Mekong Delta in Southeast Asia can offer the same fish to Americans, at lower prices. You won’t get far. Change may be necessary, but it’s often wrenching. 

The losses from global competition can shake entire communities. I’ve been in declining steel towns in Pennsylvania and West Virginia to see Stand up for Steel rallies. Angry people came for miles around: the unemployed workers, their families, high-school bands, mayors, and even preachers who railed against foreign steel. 

(But then again, even that story wasn’t so simple. One CEO of the local steel mill in Wheeling, West Virginia, stirred the crowd by shouting that the foreigners could take their steel and “shove it where the sun don’t shine.” But when I later went to his office, it turned out the same CEO had also been busy doing profitable business with his Korean steel-making partner. In political economy, where people fight over money and jobs, things are often not quite what they appear.)

We are talking about a political-economic problem that nobody has ever been able to answer satisfactorily. The Luddites in the 19th century tried to prevent new machinery being brought into their mills that would throw some workers out in the streets. The blacksmiths were trapped when automobiles began to replace horses. Whenever there is rapid progress in technology and science that demands change, the lives of decent people will be upended. Not everyone will be able to cope, without help. 

Next week in Class Three, we’ll talk about how these fights over money and jobs are handled in the World Trade Organization, the international institution based in Geneva, Switzerland. The WTO presides over the rules of international trade. This institution’s smooth functioning is absolutely crucial to the health of the global economy. And it is currently in danger, thanks to parochial politics in key WTO member countries. 

So bring your thinking caps next week, as there are big issues here. They will be with you for the rest of your lives. Hopefully these classes that introduce International Political Economy will help you think them through yourselves.