37 percent of U.S. merchandise export growth since the financial crisis has gone to Canada and Mexico.
December 5, 2013
THE NUMBERS: U.S. merchandise* export growth, 2009-2013
|To World||$420 billion|
|To Canada & Mexico||$154 billion|
|To Asia||$116 billion|
|To European Union||$26 billion|
* Merchandise only; services figures by country are not yet available for 2013.
WHAT THEY MEAN:
Writing in November 1993, the late Octavio Paz took the long view as he warned against rejection of the North American Free Trade Agreement:
“The treaty has implications that affect the historical memory of Mexicans and the future of our relationship with the United States. [Therefore the] consequences of rejecting NAFTA would be not only economic and political but historical as well. … To reject it would revive old injuries, feed historical hatreds and ultimately sow today’s wind so we can reap tomorrow’s whirlwind.”
Twenty years later, the NAFTA looks modest in comparison to more recent trade agreements which cover Internet issues, take up services trade and intellectual property rights in depth, and deal with labor and environmental linkages in a considerably more ambitious way than did the 1993 ‘side agreements.’ Even at the time, it was less a sharp break with the past than a confirmation of existing trends. Passage and implementation (a) deepened the northern-border economic integration process begun with the 1965 U.S.-Canada Automotive Parts Agreement and sealed with the 1989 U.S.-Canada FTA; (b) completed an opening of the U.S. to Mexican goods, already extensive under the Generalized System of Preferences, by abolishing tariffs and opening the American sugar and clothing markets; and (c) validated a long-term Mexican program of economic liberalization, trade reform, political opening, and reorientation of foreign policy originating in the oil-price collapse in the 1980s.
All this duly noted, the agreement’s consequences look significant in economic terms – for the United States, particularly since the 2008-2009 financial crisis – and something of a watershed in Paz’ sense of Mexican history.
Economics: Since the vote, the Canadian & Mexican share of U.S. merchandise exports has risen from 31.1 percent in 1993 to 33.3 percent in 2013. Their share of U.S. imports is up a bit less, from 25.6 percent to 26.6 percent; their shares of services trade and U.S. overseas investment have been roughly stable. (For data on this, see below.) Since the financial crisis in particular, the agreement’s role in the U.S. economy has been especially important, with the shoppers and businesses of Mexico and Canada playing a uniquely large role in the American recovery. Over the four years since 2009, American merchandise exports have risen by $76 billion to Mexico and $78 billion to Canada – more than the combined $140 billion in growth to all of Asia and the European Union combined, and 37 percent of all U.S. export growth.
Politics: If Paz’ fears of a permanent U.S.-Mexican breach in the aftermath of a rejection did not materialize, has his implicit hope for something better has been realized? Since the 1993 debate, the Mexican-U.S. relationship has evolved from the mutually wary “Distant Neighbors” relationship of the post-Mexican Revolution decades to become a modern near-alliance. Ambassador Eduardo Medina-Mora, speaking in Washington this past September, comments on the way in which post-NAFTA economic integration has brought the two countries closer together:
“The United States and Mexico (as well as Canada) build things together to sell here and abroad. While the tag may say Made in Mexico or Made in the United States, more and more, those products are actually just Made in North America and the label should reflect that. In the paradigm of the new global economy, the interests of Mexico and the United States are aligned because we build and export things together.”
Nonetheless border issues remain difficult and emotional; immigration reform remains a hope and a controversy; and Ambassador M.-M. speaks wistfully of enduring stereotypes about the agreement, film portrayals of Mexico as a country of ‘gardeners, drug dealers, and impoverished villages,’ and bits of data that ought to be better known. (Mexican GDP has tripled since 1993, higher-education rates have also tripled, the middle class is growing by about 5 percent per year), Though with less anxiety and more confidence about the foundations of the relationship, Medina-Mora’s conclusion has some echoes of Paz’ long view two decades back – we can still do better:
“Remember that we, Mexico and the United States together, can be forgiven by history but never by geography. Neither of us is going anywhere, so we might as well try and get to know each other a little bit better.”
The U.S.-Mexico relationship and the North American Free Trade Agreement today -
Ambassador Medina-Mora on Mexico and the U.S.-Mexican relationship: http://embamex.sre.gob.mx/eua/index.php/es/comunicados2013/659
And the Canadian Embassy’s trade and investment page: http://can-am.gc.ca/relations/commercial_relations_commerciales.aspx?lang=eng<?/>
The NAFTA Secretariat: https://www.nafta-sec-alena.org/Default.aspx
And the New York Times on Mexico as immigration destination: http://www.nytimes.com/2013/09/22/world/americas/for-migrants-new-land-of-opportunity-is-mexico.html?_r=1&
And four sides of the 1993 debate -
Then-President Clinton at the signing ceremony (Dec. 8, 1993): http://www.presidency.ucsb.edu/ws/?pid=34906
Octavio Paz worries about the consequence of rejection (November 11, 1993): http://articles.baltimoresun.com/1993-11-10/news/1993314232_1_treaty-foreign-policy-small-nations
The Senate debates the agreement (November 20th, 1993; an old file, with entries 1, 41, 44, and 50 for the pro- and con- arguments): http://thomas.loc.gov/cgi-bin/query/B?r103:@FIELD%28FLD003+s%29+@FIELD%28DDATE+19931120%29”
And Ross Perot’s Save Your Job, Save Our Country (released September 1993): http://www.amazon.com/Save-Your-Job-Our-Country/dp/1562827111
And a bit of data –
Whatever the flaws of Mr. Perot’s arguments, his alarmist ‘giant sucking sound’ phrase has outlasted the rest of the rhetoric of ‘93. How does it hold up? As of 2012, according to the Commerce Department’s Bureau of Economic Analysis, U.S. investment in Mexico totaled $101 billion. This is –
(a) Up from $15 billion in 1993, which was 2.7 percent of the U.S.’ $564 billion global FDI stake;
(b) Larger than U.S. FDI in any other developing country,
(c) Just above the $99 billion combined FDI stake in China and Hong Kong combined,
(d) 2.3 percent of today’s total $4.453 trillion in global U.S. FDI holdings, meaning the Mexican share of overall U.S. investment is very slightly smaller than in 1993; and
(e) Far short of the $350 billion U.S. FDI stake in Canada, and dwarfed by the $2.5 trillion in the European Union.
On the other side of the FDI ledger, Mexican investment in the U.S. was $14 billion in 2012, market a ten-fold increase from the $1.5 billion of 1993 and about 0.6 percent of the $2.65 in total foreign direct investment in the United States. Canada’s is $225 billion, 8.5 percent of the total and essentially identical to the 8.6% measured in 1993.
The Commerce Department’s FDI page, with interactive data: http://www.bea.gov/iTable/index_MNC.cfm
Research and development rates have risen worldwide.
November 27, 2013
THE NUMBERS: Patent awards in the U.S. to developing-country inventors* -
* Not including China, where growth has been from 48 patents in 1994 to 5,341 in 2012. For context, PTO awarded 134,187 patents to American inventors in 2012, and 142,601 to foreign inventors. Japan led at 52,173, followed by Germany at 15,041, Korea at 14,168, and Taiwan at 11,624, with Canada, France, the U.K., and China rounding out the top eight.
WHAT THEY MEAN:
As the WTO’s “Agreement on Trade-Related Aspects of Intellectual Property” approaches its 20th anniversary, ProgressiveEconomy’s newest research paper, TRIPS at 20, examines its record. Known as “TRIPS” for short, the agreement sets patenting, copyright, trademark and other intellectual property rules for the 159 WTO members. On its signature in 1994, the agreement sparked both hope for the promotion of science and art, and questions about the costs of access to new technologies and medicines. After two decades of experience, and with a particular focus on access to medicines after the past year’s U.S.-India controversy over revocations or “compulsory licensing” of medicine patents, P.E.’s paper takes a data-based look at these questions. Two findings:
(a) Research rates have risen worldwide, and developing countries have become larger centers of science. Among the 35 OECD members (mostly ‘developed’ countries, but also middle-income states including Turkey, Chile, and Mexico), R&D spending has risen from an average of 2.1 percent of to 2.4 percent. In real-world terms, this is a rise of $220 billion, equivalent to the combined national research investment of Japan and Germany. Though developing country statistics are generally scarcer, UNESCO databases find the scientific commitments of most major developing income countries much increased: since 1994, R&D spending has risen from 0.6 percent to 1.8 percent of GDP in China, 0.7 percent to 1.2 percent in Brazil, 0.6 percent to 1.0 percent in Malaysia, 0.6 percent to 0.8 percent in India and South Africa, from 0.2 percent to 0.4 percent in Egypt, from 0.2 percent to 0.45 percent in Pakistan.
(b) Health gaps between rich and poor countries have narrowed, with developing countries’ share of medicine consumption rising (by the estimate of the IMS consultancy) from 11 percent in 1990 to 28 percent in 2012, and likely over 30 percent by 2016. The World Health Organization’s World Health Statistics 2013 report (speaking on general trends in health rather than research or intellectual property in particular), is strikingly positive:
“In absolute terms, the dramatic progress made in the bottom 25% of countries over two decades is clear, as is the narrowing of the gaps between the top and bottom categories.”
In general, then, the record looks good: a larger global commitment to research, and some narrowing of rich-poor health gaps. The paper offers two cautions in discussing these developments. One, be cautious about causality: the relationship between rates of research and invention, economic growth and development, intellectual property law, and improving health or social conditions is a highly complex one, in which the different factors all act upon one another. Two, even in generally positive circumstances, emergency situations will sometimes require emergency approaches (as the 2001 TRIPS and Public Health Declaration recognizes in specifying rights to waive patent rules for national health emergencies.) This said, the paper concludes, the TRIPS agreement appears to be working, and its authors can take some pride in their work.
The WTO’s TRIPS agreement: http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm\
And the Declaration on TRIPS and Public Health: http://www.wto.org/english/tratop_e/trips_e/pharmpatent_e.htm
The U.S. Patent and Trademark Office looks at international patenting trends: http://www.uspto.gov/news/speeches/2013/rea_singapore.jsp
The World Intellectual Property Organization’s Global Health Challenges project: http://www.wipo.int/policy/en/global_health/
The U.S. Patent and Trademark Office’s figures on U.S. patent awards by country, 1967-2012: http://www.uspto.gov/about/stats/index.jsp
The World Intellectual Property Organization’s patenting database, with figures by country: http://ipstatsdb.wipo.org/ipstatv2/ipstats/patentsSearch
UNESCO’s research and development database: http://stats.uis.unesco.org/unesco/ReportFolders/ReportFolders.aspx?IF_ActivePath=P,54&IF_Language=eng
IMS Health looks at medicine consumption by region, and developed-vs.-developing groups:
And WHO’s World Health Statistics 2013 (part 2) on progress toward the Millennium Development Goals in health and the improving health outcomes of poor countries: http://www.who.int/gho/publications/world_health_statistics/2013/en/index.html
Congress has granted trade 'negotiating authority' 18 times since 1934.
November 13, 2013
THE NUMBERS: Supporters of 2002 ‘Trade Promotion Authority’ law still in office -
53 of 215 House Members
19 of 64 Senators
WHAT THEY MEAN:
Pondering the end-game of the Trans-Pacific Partnership talks, and the early stages of the Trans-Atlantic Trade and Investment Partnership, the Obama administration has asked Congress for guidance, in the form of a ‘Trade Promotion Authority’ bill:
“With Trade Promotion Authority, the United States will be able to pursue 21st century trade agreements that support and create U.S. jobs while helping American manufacturers, service providers, farmers and ranchers increase U.S. exports and compete in a highly competitive, globalized economy.”
Congress has passed 18 such bills since 1934, when the first one (Franklin Roosevelt’s Reciprocal Trade Agreements Act)provided a three-year authorization for tariff cuts of up to 50 percent, done through agreements with foreign countries. Up to the 1950s they were frequent and short-term; more recently, meant to guide trade policy for a decade or so, they have been relatively rare. The big ones date to 1962, 1974, 1988, 1991, and 2002. As Congress approaches a new grant, given the gaps of time and membership in mind, here’s some background:
The Constitution gives Congress the authority to ‘regulate commerce with foreign nations,’ and also to ‘lay and collect taxes, duties, imposts, and excises.’ On the other hand, administrations are responsible for treaties, and de facto must negotiate with foreign governments. 19th-century Americans tried to solve the problem by dividing trade policy into two parts: Administrations negotiated 93 “Treaties of Amity, Commerce, and Navigation” to secure equal treatment vis-à-vis Britain, France, and other global powers in tariffs for American goods and port regulations and taxes for American ships, and also joined early multilateral agreements standardizing time zones, weights and measures, submarine cable compatibility, and patent rights. Congress meanwhile passed 11 tariff bills raising and lowering trade barriers between 1789 and 1930.
The last of the 11 tariff bills, the 1930 law known as ‘Smoot-Hawley’ for its authors Sen. Smoot and Rep. Hawley, received credit as (a) the most restrictive American trade policy ever, and (b) (as foreign countries retaliated) as a big contributor to the length and severity of the Depression. Thus the New Deal Congresses and Roosevelt administration jointly decided on a new approach, intended to reduce overall world trade barriers through negotiations, and designed the concept of ‘negotiating authority’ to implement it.
Ever since then, the U.S. has done trade policy mostly through negotiating agreements with foreign countries, with Congress setting policy and overseeing the negotiations through formal grants of ‘negotiating authority’ to administrations. These have successively been termed “Reciprocal Trade Agreements” authority from the 1930s to 1960s, “fast-track” procedure in the 1970s to 1990s, and most recently “Trade Promotion Authority.” They have grown more complex over time, with the bills since 1962 typically including three categories of things:
(1) Policy goals: Congress sets policy by writing out “negotiating objectives” defining the things agreements will include, and whom these agreements should be with. The 2002 bill had 99 objectives and sub-objectives ranging from staples of 19th-century tariff debates like sugar and textile policy, to “trade remedy” laws (on anti-dumping and subsidy policy) dating to the early 20th century; and on to the technical standards, labor and environmental clauses, on-line copyright, and electronic commerce concerns added to the agenda in the later 20th century. A 2013 version will presumably add guidance on Internet trade, state-owned enterprise competition, update the labor and environmental sections to reflect the 2007 ‘May 10th’ agreement between the Bush administration and Congress, and some other topics.
(2) Procedural Rules: These add a variety of consultation and notification rules to ensure continuous oversight. (The 2002 bill, for example, required administrations to notify Congresses 90 days before launching negotiations, and also 90 before signing an agreement.) In return, having set policy goals and monitored administrations’ progress toward reaching them, Congress commits to vote on the results within a fixed period of time, without amending the substance of the agreement. Pre-1974 bills, in particular the Reciprocal Trade Agreements Acts passed between 1934 and 1958, covered mainly tariff issues and simply authorized administrations to implement the resulting agreements by ‘proclamation.’
(3) Administrative organization and worker supports: Kennedy’s Trade Act of 1962 set up the modern trade bureaucracy by creating the U.S. Trade Representative as a central negotiating group, and also invented the Trade Adjustment Assistance program, which provides supports to workers dislocated by trade. Since then the government trade bureaucracy has remained basically stable, while TAA has been updated four times. The 2002 bill, for example, specified that workers displaced by services-trade competition and “offshoring,” as well as by manufacturing competition, would be eligible for supports.
The 2013 debate -
The U.S. Trade Representative on TPA: http://www.ustr.gov/trade-topics/trade-promotion-authority
Writing for GE/Atlantic Media project IdeasLab, Ed Gresser has three ideas for Congress as it approaches TPA (think big, look ahead, and remember the poor): http://www.ideaslaboratory.com/2013/08/09/ed-gresser-eyes-on-the-horizon-shaping-the-future-of-trade/
… and in ‘Nine Windows on Trade Policy,’ looks at the relevance of arcane and jargon-ridden trade policy concepts – tariff lines, binding agreements, intellectual property, data flows, Trade Adjustment Assistance, labor standards, border inspections, national security – to daily and national life:
And the background -
The 2002 Trade Promotion Authority Act: http://www.gpo.gov/fdsys/pkg/PLAW-107publ210/content-detail.html
Pres. Kennedy launches the Trade Expansion Act of 1962: http://www.presidency.ucsb.edu/ws/?pid=8688
The House of Representatives looks back on Roosevelt’s 1934 Reciprocal Trade Agreements Act: http://history.house.gov/HistoricalHighlight/Detail/36918
*** SPECIAL NOTE ***
In the aftermath of Typhoon Haiyan, the Philippines are grappling with an unprecedented human catastrophe and public health threat: likely more than 10,000 dead and perhaps a million homeless, with attendant emergency needs and disease potential. For those interested in donating to the relief effort, the Philippine Embassy has recommendations for charities: http://www.philippineembassy-usa.org/news/3686/300/ADVISORY-ON-DONATIONS-FOR-VICTIMS-OF-TYPHOON-HAIYAN-YOLANDA/d,phildet/
Hazardous child labor fell by two-thirds between 2000 and 2012.
September 25, 2013
THE NUMBERS: Children 5-14 in hazardous work, worldwide –
WHAT THEY MEAN:
Released last Monday by the International Labour Organization, Marking Progress Against Child Labor is the fourth in the ILO’s quadrennial series of estimates of child labor rates and trends. Its conclusion:
There were almost 78 million fewer child labourers at the end of this period [in 2012] than at the beginning [in 2000], a reduction of almost one-third. The fall in girls in child labour was particularly pronounced –there was a reduction of 40 per cent in the number of girls in child labour as compared to 25 per cent for boys. The total number of children in hazardous work, which comprises by far the largest share of those in the worst forms of child labour, declined by over half. Also progress was especially pronounced among younger children, with child labour for this group falling by over one third between 2000 and 2012.
More detail -
At the turn of the millennium in 2000 – or, alternatively, in the last Year of the Dragon before 2012 – the ILO’s first report estimated that 245.5 million children aged 5-17 were in child labor.* 186 million child laborers were 14 or younger – that is, about 10 percent of the 1820 children 14 and below. In turn, 111 million boys and girls in this younger child-labor group were engaged in “hazardous work,” which the ILO defines this as “work in dangerous or unhealthy conditions that could result in a child being killed, or injured and/or made ill as a consequence of poor safety and health standards and working arrangements.”
One turn of the Chinese calendar later, the children born in 2000 are finishing 5th grade. They are much less likely to work than were their elder siblings and cousins a decade ago. The ILO’s newest estimates, from Monday’s report, find the number of child laborers worldwide down to 168 million. This includes 120 million children 14 or younger – about 7 percent of a slightly larger total population of 1860 million. Fully half the decline in very young work came between 2008 and 2012, meaning that the decade’s decline in child labor not only survived the financial crisis, but accelerated. The number of younger children in hazardous work, finally, has fallen fastest of all – dropping by fully two-thirds from the 111 million of 2000 to 38 million in 2012.
Remarkably good news, then. Why? Three hypotheses, not mutually contradictory, include demographic change, the retreat of poverty, and deliberate policy choices by governments.
(1) Demographics: Child labor is most common in rural areas, and the world’s rural population is slowly falling. Ninety-eight million of today’s 168 million child workers are in agriculture – still a majority, but a 50-million drop from the 2000 estimate of 148 million agricultural child laborers. The ILO considers agricultural labor particularly dangerous for children, and the sharp decline in rural child labor thus helps explains why “hazardous” child labor has fallen faster than child labor overall. Rural child labor is falling fast in part because of some good policy ideas (for which see below), but also just because there are fewer rural children relative to city children than there were in 2000. Rural populations accounted for 53 percent of the world’s people in 2000, and now 49 percent. Urban parents are more likely to have wage income, urban children are more likely to have nearby schools, and urban local governments are more able to provide basic services; therefore, some natural decline in child labor.
(2) Economics: Poverty has receded quickly since the millennium. Then, by the World Bank’s count, 1.7 billion people lived in “absolute poverty,” meaning at $1.25 per person per day. By 2010 there were 1.2 billion. With fewer families at bare subsistence levels, fewer parents must feel forced to sacrifice children’s education for modest household income gains; more low-income parents, on the other hand, can afford to keep their children in school.
(3) Policy: Innovative government programs, pioneered in Latin America and copied worldwide, help accelerate the decline in child labor. Brazil’s bolsa escola program, set up during the presidency of Fernando Cardoso in the 1990s and extended as bolsa familia under President Lula, is a leading example. It pays about 11 million low-income families small stipends – averaging $35 per month – to keep children in school. ILO credits this with raising Brazilian primary school attendance from 86% to 97% since the mid-1990s, and increasing high school enrollment as well.
* As distinct from “children in employment,” which includes child labor plus some part-time after-school work in family businesses, apprenticeships, and other light work, limited to 14 hours or less, viewed as acceptable under the ILO Child Labor Conventions. The number of children “in employment” but not in “child labor” was 106 million in 2000, and 97 million in 2012.
**: By sector, the ILO divides child labor into “industry,” “agriculture,” and “services.” Child labor in “industry – including manufacturing, quarrying, construction, and mining – is a much smaller phenomenon than agricultural child labor, but is dropping about as fast. The ILO’s 2000 estimate was 17 million in 2000, and the estimate for 2012 is 12 million. By contrast, the count of children working in basic urban services – as maids, cooks, hotel-workers, messengers, sweepers, and so on – has fallen dropped only slightly, from 56 million in 2012 to 52 million in 2000.
The ILO on child labor -
Marking Progress Against Child Labor, the International Labor Organization’s 2013 report: http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_221568/lang–en/index.htm
A closer focus on agriculture: http://www.ilo.org/ipec/areas/Agriculture/lang–en/index.htm
And the 1973 Core Convention #138 on minimum working ages: http://www.ilo.org/ilolex/cgi-lex/convde.pl?C138
Around the world -
The U.S. Department of Labor’s International Labor Affairs Bureau manages U.S. child labor reduction programs and reporting: http://www.dol.gov/ilab/map/countries/map-cont.htm
Success stories from Egypt, Cambodia, Uganda, Colombia, and the United States for reducing hazardous child labor: http://www.ilo.org/ipecinfo/product/viewProduct.do?productId=19315
And the World Bank looks at Brazil’s Bolsa Familia: http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21447054~pagePK:64257043~piPK:437376~theSitePK:4607,00.html
And the unfinished work at home -
American child labor laws, designed in the 1930s, sets a minimum age of 14 for agricultural work. The ILO standard in Core Convention 138 (which applies to “plantations and other agricultural undertakings mainly producing for commercial purposes,” but, like U.S. law, excludes family farm work and apprenticeships) has a minimum working age of 15. America’s Fair Labor Standards Act sets a minimum working age of 14, and a number of state laws are well below this level.
The Labor Department reviews American agricultural child labor laws by state: http://www.dol.gov/whd/state/agriemp2.htm
And Human Rights Watch, studying Michigan, Florida, Texas, and North Carolina in Fields of Peril (2010) blasts American agricultural child labor law as largely unenforced as well as insufficient: http://www.hrw.org/node/90125/section/4
‘Sequestration’ is slowing U.S. trade policy to a crawl.
September 11, 2013
THE NUMBERS: Five comparisons for the $4 million monthly U.S. Trade Representative budget –
1. Significantly, but not wildly, more than the $1 million annual revenue of a Taco Bell franchise in Howard County, MD, or the $700,000 price to buy the franchise outright.
2. Slightly below the $10 million list price for an expensive home in Potomac, MD.
3. Well below the claimed $25-million earnings of Washington’s pricy “Old Ebbitt Grill” restaurant, across Farragut Square from the USTR.
4. Not far above the $3 million the Small Business Administration is likely to spend on Metro subway-fare system subsidies for its workers.
5. And less than the annual income for a single, second-tier Chief Executive Officer of an American firm, based on the $14 million average found in a survey of 350 mid-to-large-sized American companies last year.
WHAT THEY MEAN:
From the New York Times last month, a brief look at the consequences of “sequestration” for American trade policy:
The Office of the United States Trade Representative has been waging a lonely battle for its budget, which shrank 7 percent to $47 million this year because of sequestration spending caps. [P.E. note: beginning in March 2013.] Officials in the office, pointing to the 2014 budget proposal in the Republican-controlled House, fear that they could end up with even less money next year. This matters, officials say, because trade negotiators fly hundreds of thousands of miles just doing their jobs. Since the trade representative’s office spends the bulk of its budget — $46 million — on fixed costs like salaries, benefits and office supplies, a cut of $5 million or $8 million could effectively ground much of its 250-person work force.
Some background – Solved by the tax and spending bills of 1990 and 1993 with a final assist in 1997, U.S. budget deficits re-emerged after the rounds of tax-cutting in 2001 and 2003. The landscape confronting budget policy now includes (1) tax revenues from stable rates, matched against (2) steadily rising costs of retirement and health costs as the elderly population grows, and (3) a series of temporary but large expenses and revenue losses, including the cost of wars plus the revenue drop and extra spending brought by the 2008-2009 financial crisis. All this together has meant a deficit peaking at $1.3 trillion in 2010, since then falling back to $744 billion, and (in the absence of some new shock or deficit-reduction program) likely to decline to $475 billion by 2018 before rising once again as aging and health pressures grow.
“Sequestration,” a percentage-based cut in federal agency budgets begun in March, was originally a short-term program of cuts to defense and domestic agencies, adopted in the evidently mistaken hope that a budget agreement targeting the basic causes of the deficit – i.e. revenue, retirement, and health costs – would replace it. Hence the U.S. Trade Representative’s lost $7 million, and its fears of worse to come.
Its main effect so far has been to rasp away at the USTR’s daily ‘bread-and-butter’ work rather than at negotiation of new agreements. Last year’s reductions meant reduced U.S. participation in WTO litigation and enforcement; cancelled participation in international meetings on agricultural trade barriers and inspection rules; smaller teams for negotiating rounds; and weakened ability to oversee implementation of existing agreements. This year’s sequestration version is meant to scrape away another $55 billion from defense and $37 billion from domestic ‘discretionary’ spending, with agency-by-agency shares to be determined later.
How does this relate to overall budgeting? According to the Office of Management and Budget, the big chunks of the $3.7 trillion in total federal spending for nearly-complete FY2013 include $660 billion for defense, $510 billion for Medicare, $818 billion in Social Security payments, $370 billion for other health programs, and $140 billion in veterans’ benefits. In a world of trillion-dollar retirement elephants and hundred-billion dollar vets’ benefit lions, trade policy is more like a parakeet and the USTR a cricket. The total U.S. trade policy budget – export promotion and export credit, research and analysis, negotiation and litigation, Trade Adjustment Assistance – comes to about $2.1 billion, or a dime in each hundred dollars of spending. By analogy, this is essentially the cost of a movie ticket to an affluent man earning $100,000 per year. The USTR’s yearned-for $56 million is much smaller, more like a roll of mints. And to use some real-dollar comparisons, a set of monthly comparisons looks like this, with the $7-million gap keeping USTR negotiators and lawyers home on the bottom:
|Monthly federal spending||$310,000,000,000|
|Monthly U.S. Trade Representative budget:||$4,000,000|
|Monthly income for “Old Ebbitt Grill” restaurant||$2,000,000|
|Average monthly CEO salary||$1,200,000|
|Price to buy Maryland “Taco Bell” franchise||$700,000|
|Monthly “sequestration” ‘savings’ from USTR budget cuts||$583,333|
So, no, not much meaningful difference in the budget here. In practical terms, the American public gets a year’s worth of trade negotiation, litigation, consultation, and other trade policy for the price of a couple of McMansions or the annual income of a few business executives. If trade policy is at all useful and valuable, that’s remarkably good budgeting. The savings “sequestration” gets to the government, meanwhile, over the balance of this year as trade policy slows to a crawl will be enough to buy a Taco Bell franchise; which hardly seems the right way to go about it.
Sequestration & the negotiators -
The Office of the U.S. Trade Representative explains its mission: http://www.ustr.gov/about-us/mission
And the NYT watches as trade policy slows: http://www.nytimes.com/2013/08/06/world/tighter-travel-budget-curtails-trade-talks.html?ref=us&_r=2&
A comment from int’l-econ-blogger Dan Drezner: http://drezner.foreignpolicy.com/posts/2013/08/06/how_to_undercut_american_power_with_just_10_million
And a similar case – The Fish and Wildlife Service watches its elephant-protection programs erode: http://www.scientificamerican.com/article.cfm?id=why-elephant-poachers-lov
And some basics on the budget –
Budgeting is how much money to spend versus how much comes in. The sums are influenced by policy choices, by rates of growth (with recessions reducing tax revenue and requiring more spending on unemployment insurance, Medicaid, and other services), and by demographics (with young workers and immigrants entering the workforce, while elderly workers retire and move onto Social Security and Medicare.) A brief rundown:
Total spending – Total federal government spending in FY2013 was about 22.7 percent of GDP. The lowest figure in the last 50 years was 17.8 percent of GDP in 1966; the highest, 25.2 percent during the 2008-2009 crisis. Recent spending averages have included 19.8 percent of GDP under the second Bush administration, 19.6 percent under Clinton, and 22.4 percent under Reagan (which held the pre-crisis peak record, for 23.5 percent of GDP in FY1983.)
“Discretionary” spending – “Discretionary” spending, which includes the defense and domestic programs targeted by sequestration, was 7.8 percent of GDP in FY2013. This figure is well below the long-term average of 9.4 percent since 1962, and slightly below the 8.0 percent average of 1987-2012. In 2001, the last year of budget balance, discretionary spending was 6.3 percent of GDP; since then defense has risen from 3.0 to 4.0 percent, and domestic from 3.4 to 3.7 percent of GDP. By comparison, ‘entitlement’ spending (not covered by sequester) has grown from 10.3 percent to 14.0 percent, and interest payments (though now rising) have fallen from 2.0 percent to 1.4 percent of GDP. All this is to say, sequestration is targeting parts of the budget that haven’t caused the problem.
Employment – The federal government employs 2.74 million people, a figure which has been roughly stable for the past decade. Peak employment was in 1990 at 3.4 million; lower military employment accounts for about 200,000 of the 650,000 decline since then. Peak employment relative to population (excluding the Second World War) was in the 1950s, when government employed about 5% of workers; the figure for 1952, for example, was 2.58 million workers out of 49.7 million employed. Today’s federal total is 2.74 million out of 130 million workers, or about 1.5 percent of employees.
Revenue – Revenue was at 18 percent of GDP in the mid-1990s, and 19-20 percent when the budget came into balance between 1998 and 2001. After 2001, revenue fell to a 16-18 percent range; then as the economy went into crisis in 2008, to lows of 15.1 percent – the lowest rate since 1950. With a slow recovery, it has since rebounded to 16.7 percent.
Deficits & surpluses – The Office of Management and Budget records 30 surpluses, 2 precise balances, and 80 deficits in the last 112 years. The last surpluses came in the second Clinton term, during FYs 1998, 1999, and 2001:
OMB has tables on spending, revenue, balance, and more by dollar, relationship to GDP, etc. etc., from 1789-2013 http://www.whitehouse.gov/omb/budget/historicals
And the Congressional Budget Office forecasts future spending, revenue, and balances: https://www.cbo.gov/publication/44172