Philip Thompson

ATRF Announces Release of the 2021 International Trade Barrier Index

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Posted by Philip Thompson, Rowan Saydlowski on Thursday, October 21st, 2021, 7:00 AM PERMALINK

The Americans for Tax Reform Foundation today released the 2021 International Trade Barrier Index. Singapore, New Zealand, and the Netherlands scored the top spots for trade liberalization. While India, Algeria, and China ranked the worst for deploying the most protectionist trade barriers. Due to Brexit, the UK is the most improved moving from 8th to 4th as it implements its own tariff schedule reducing trade barriers between it and the rest of the world. 

Trade barriers on the rise 

The TBI measures the direct and indirect trade barriers imposed by 90 countries affecting 84% of the world’s people and 95% of world GDP. The 2021 edition records a global .5% increase in the use of trade barriers from the first edition in 2019. 

Western Europe, as a region, leads the world in open trade. Yet the region was held back by a large number of new digital trade barriers that impose cross-border data restrictions, content moderation, and limit the scope of intermediary liability.  Only India, Indonesia, and China impose more digital trade restrictions than the European Union.  

Barrier-free trade is associated with beneficial social and economic outcomes. The Index finds countries with lower trade barriers experience more prosperity, economic freedom, and human development; while countries with higher trade barriers perceive greater rates of corruption, abuse of the press, and illicit trade. 

The United States largely maintained its restrictive trade profile, improving slightly from 54th to 51st mainly due to nominal reductions in non-tariff measures as a response to COVID-19. Yet the U.S. position as a global rule maker may be in jeopardy as the UK, China, the European Union, and each the 90 countries in the TBI on average signed at least one additional trade agreement granting comprehensive market access and cementing new rules. China also improved its score by reducing its average applied MFN tariff rate. 

India increased use of trade barriers to maintain the last spot on the Index. Not only did India increase its MFN average applied tariff rate; at the start of the COVID pandemic India had one of the world’s highest tariff rates on medicines and medical equipment and during the pandemic India added the most restrictive non-tariff barriers on medical equipment and vaccines.  

Only six countries with a combined population of 142 million people enjoy the highest level of barrier-free trade, with a TBI score below 3.0 Meanwhile, 13 countries remain in the “highly protected” range with TBI scores above 5.0, where 3.8 billion people have severely limited access to barrier-free trade.  

Philip Thompson, author of the Index remarked “it is people who trade, and when barriers are in the way it’s harder to source material, respond to consumer preferences, and create win-win exchanges to recover from a pandemic.”  

The Index includes eight case studies from leading free-market think tanks around the world that examine harms trade barriers impose from the availability of affordable housing in Sri Lanka to diversion of legitimate market activity to criminal syndicates in the illicit market.  

  • Mercosur and the Automobile Industry: Trade Diversion and Protectionism in the Southern Cone; By Pedro Raffy Vartanian & Vladimir Fernandes Maciel, the Mackenzie Center for Economic Freedom, Brazil 
  • South Africa’s Next Steps for Trade Liberalization, By Christopher Hattingh, Free Market Foundation, South Africa 
  • Benefits of Bilateral and Multilateral Free Trade Agreements; By Natalia Gonzalez & Tomas Flores, Libertad y Desarrollo, Chile 
  • The Effects of Pre-Shipment Inspections (PSI) on Food Trade in Indonesia; By Kukuh Sembodho & Arumdriya Murwani, Center for Indonesian Policy Studies, Indonesia 
  • Protectionist Tariffs Compromising Sri Lanka’s Middle-Income Earners’ Right to Shelter; By Sathya Karunarathne & Aneetha Warusavitarana, Advocata, Sri Lanka 
  • The Illicit Trade of COVID-19 Items: Poor Trade Enforcement as a Barrier to Access; By Giorgina Agostini, Rowan Saydlowski, & Philip Thompson, Property Rights Alliance, U.S.A 
  • The Proliferation of Digital Trade Barriers Threatens Innovation, Free Trade; Competition, and Free Speech; By Philip Thompson & Andreas Hellmann, Americans for Tax Reform, USA 
  • Lessons in High Tobacco Taxes and Smuggling in the Philippines; By Bienvenido S. Oplas, Jr., President, Minimal Government Thinkers, Philippines 

 

The executive summary of the International Trade Barrier Index can be found [here] and the interactive website is [here]


Absent the U.S. Others Gain in CPTPP

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Posted by Philip Thompson on Friday, August 28th, 2020, 1:19 PM PERMALINK

When the U.S. left the Trans-Pacific Partnership the remaining members rebranded it to the Comprehensive and Progressive TPP by suspending tough investor and intellectual property protections.

 
When it finally went into force in December 2018 businesses and entrepreneurs in initial batch of implementers: Canada, Australia, Japan, Mexico, New Zealand, and Singapore began enjoying preferential access to each other’s markets while their U.S. competitors have had to sit on the sidelines. 
 
The U.S. left behind a large gap of expected exports to Japan that largely Mexican and Canadian producers have surged to fill.
 
Greater access to Japan’s market was the huge economic and political win for the U.S., but not enough for Trump or Clinton to endorse in 2016. Japan is the largest economy in the trade bloc after the U.S., a top U.S. trade partner, and always a chief source of FDI fueling nearly a million jobs, $8 billion in R&D, and $95 billion in exports. Not only was this relationship expected to grow, analysts expected it would make the bloc large enough to achieve other foreign policy aims.
 

As the richest economy on a per capita basis in the region and the 3rd largest GDP in the world, Japan made the group “pivotal,”  capable of attracting the rest of Asia from China’s political and economic gravity into a rules-based,  market oriented system.  

Trump has managed to make up for some of the economic loss to Japan’s market by negotiating and implementing a phase 1 trade agreement with Japan, the USJTA went into effect January 1, 2020. Yet it doesn’t cover everything that was in TPP.

In fact, Canada estimated, quite explicitly that “in the absence of U.S. competition” its “GDP gains would improve to $3.4 billion under the CPTPP, compared to $2.8 billion under the TPP.” It seems to be the case for Mexico as well.

For instance, under CPTPP Japan imports tomatoes, helmets, and coats duty-free, and fish at a reduced 2.5 percent tariff rate. These aren’t covered by the USJTA forcing American exporters to pay Japan’s MFN rate of 5 percent for tomatoes, 5% for helmets, up to 16% for coats, and 5% for fish.  Thus, since implementing the CPTPP in 2018, U.S. exports of fish to Japan have declined by 21%, the industry has no hope of competing with their Mexican competitors which export 5 times as many, by value, to Japan.  
 
In other areas, such as pharmaceutical goods and pork products Japan still imports more from the U.S., but that gap is closing. For instance, before CPTPP the U.S. exported $1.2 billion of pork to Japan, 16% more than our chief competitor Canada. In 2019, after CPTPP took effect and before the USJTA which secured the same preferential tariff rate, U.S. pork exports to Japan declined by 4%, while Canadian exports rose 6% reducing the US-CAN export gap to 7%.
 
Generally, because Mexico has more preferential trade agreements than the U.S., American companies export more cars and car parts from Mexico to the CPTPP region and the rest of the world than they do from the U.S. ports. That trend has increased. At the same time, Japan, competing with the U.S., Canada, and Mexico exports double the value of autos and auto parts they send to the CPTPP region than North America. At the same time U.S. exports of electric machinery, and other industrial goods, has declined or stagnated while new players have Vietnam have increased their exports of electrical machinery to the region by 37%.
 
The Recent executive order to buy American pharmaceuticals from domestic producers and to raise steel tariffs only increase the price Americans have to pay for them and make it harder for these industries to compete abroad.
 

In 2018, 25 Republican senators signed a letter urging the Trump administration to get back into the TPP, not only for the economic benefit, but also to “counter the influence of the People’s Republic of China.” Rejoining TPP, the senators stated, would “increase pressure on the PRC to adopt substantive and positive economic reforms.”

Clearly, not going ahead with the TPP has ceded U.S. competitiveness in a region of 500 million people. Now that the USMCA has been implemented and phase 1 agreements with Japan and China have been signed, re-engaging with the trade bloc should be seen as a next step in confronting China and boosting America’s economic potential.

Photo Credit: Tom Fisk

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EU Rules Haunt U.S.-UK Trade

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Posted by Philip Thompson on Friday, July 31st, 2020, 12:00 AM PERMALINK

As the UK’s Independence Day quickly approaches, government officials have been planning for the first time in 47 years an independent trade policy for the UK. 

A major component of the new trade regime will be to achieve mutually beneficial terms of trade that invite competition where the UK has comparative advantage and avoids lopsided protections that restricted trade and always benefitted the EU more than the UK. 

Already the UK has signed trade deals with 21 countries that will take effect immediately after the transition period on January 1, 2021. Where a preferential trade agreement is not achieved, goods entering the UK will be met with a new tariff regime. The UK Global Tariff (UKGT) eliminates tariffs less than 2% and reduces complexity of 6,000 tariff lines.  On the whole, 50 percent of lines will be duty-free, a marked improvement over EU where only 28 percent of lines are duty-free.  

To ensure the smoothest transition the UK is still negotiating agreements with its largest trade partners: the U.S., the EU, Japan, Australia, New Zealand, India and several others. 

The ideal agreement with the U.S. would not only eliminate protective tariffs on previously protected industries, but allow businesses, professionals, students, data, and finances to move freely between the countries that already enjoy a special relationship. In effect, a closer, more comprehensive, agreement with the U.S. could replace the UK’s expected losses to certain EU markets, a punishment for seeking independence.  

It is not hard to imagine that once independent, the UK could move from the 8th on the Trade Barrier Index to competing with Singapore for 1st, a badge indicating it utilizes the fewest trade barriers to restrict trade. 

Yet, special interests in the UK are working hard to replicate some of the most restrictive EU trade protections. These barriers, such as animal welfare standards that restrict imports of chicken cleaned with chlorine from the U.S. ensure UK consumers pay a premium to receive 90 percent of their poultry imports from EU producers such as the Netherlands and Poland. 

Leaving the EU and keeping these non-tariff measures in place, not only continues the carve out to EU producers, but serves as an additional negotiating burden. Under the new UKGT tariff regime imports of frozen chicken breasts would be subject to a 6 percent tariff that wasn’t there before, unless the UK concedes on something else in an EU deal to eliminate it.  

Instead of adopting a Singapore style trade regime the UK would be adopting failed Indonesian import substitution. There, similar excessive import controls force rice prices above a designated ceiling to two times the world price, contributing to unaffordability, malnourishment, and stunted growth.  

Besides being tasked with eliminating “Non-tariff barriers that discriminate against U.S. agricultural goods,” which make up 2 percent of U.S. goods exports. The USTR must also focus on eliminating the UKs threat to levy digital service taxes, ensure the UK adopts digital rules that prevent data localization or restrict data flows, ensure the UK adopt rules on state-owned enterprises, and increase market access for telecom and financial services competition, among other objectives.  Together these effect the economy, national security, and society on a much broader scale than chicken breasts.  

Time is running out. Both chief trade negotiators, Robert Lighthizer and Liz Truss, have expressed doubt a comprehensive deal will be struck and in place before the end of the year.  Certainly, there are barriers the U.S. can remove, but as long as EU rules continue to be carried over it is hard to prioritize what would otherwise be low-hanging-fruit: intellectual property, goods trade, and financial services.  

Photo Credit: Pierre Blaché from Pexels

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Open trade helps Americans do more of what they do best

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Posted by Philip Thompson on Monday, June 29th, 2020, 3:08 PM PERMALINK

On July 1st the USMCA will finally go into force after all parties ratified the agreement and sent notifications certifying that they have taken all the required steps to be in compliance. The new trade agreement provides a much-needed update to NAFTA which went into force in 1994, 26 years ago. It began a new era of comprehensive global trade liberalization as the WTO followed suit in 1995, and both had their impetus with former president Ronald Reagan. 

A popular criticism has been the effect open trade has had on jobs, specifically the claim that trade propelled American businesses into an era of offshoring resulting in the loss of 5 million manufacturing jobs.  Free trade allows companies to search the 50 states and all the nations of the world to find the most efficient producers.  That is only part of the recent history of manufacturing employment in the U.S.  Automation and robotics have played a role in allowing American manufacturers to produce more with less employees.

But Americans have also voluntarily left the manufacturing sector in droves, enabled by the highest rates of education in the country ever, 90 percent have completed high school, and a third have completed a bachelors degree.  This new comparative advantage allows them to seek high paying, high skilled jobs outside of assembly lines. Creating trade barriers to maintain current levels of manufacturing employment risks missing the forest for the trees, in more ways than one.

For starters, protecting the rights of Americans to exchange goods and services on mutually beneficial terms, free from managed impediments, allows workers to exploit all the advantages of a free society. This includes starting businesses, innovating new products, and deploying high-skilled services. These new opportunities have resulted in a net increase in jobs. Since 1992 open trade has added 39 million jobs to the American economy as total trade increased from 20 percent of GDP to an all-time-high of 30 percent reached in 2014. And, according to the Trade Partnership, “trade-dependent U.S. jobs have grown more than four times as fast as U.S. jobs generally.”

The open trade environment, in fact, attracts foreign companies to do business in America more than anywhere else. The United States is the largest recipient of Foreign Direct Investment inflows, a sign that foreign companies see investing in America, and American workers, as a best business practice.  Together foreign companies employ 7.4 million U.S. workers, pay them on average 26 percent more than the economy wide wage, and they produce 25 percent of U.S. exports.

The reality is that in a free economy the fundamentals change as workers respond to incentives- the incentive to earn a higher income by providing things that people want without big brother bullying. According to the first U.S. Census in 1790, 90 percent of the U.S. labor force was gainfully employed in farming. As farms became industrial, employing technological innovations like the cotton gin, more Americans moved to cities to work in manufacturing. Today less than 3 percent of Americans are farmers and services industries employ 80.2 percent of Americans, manufacturing employment peaked in the 1980s. 

The new USMCA will continue this trend. The USITC estimates it will add 176,000 jobs to the economy, with 79 percent of those going to services. Rather than jeopardizing this benefit, and those to come from agreements with the UK, the EU, and Kenya by scapegoating competition, protectionists should eye domestic policy failings that prevent workers from upskilling in our most competitive sectors.

Photo Credit: Tom Fisk

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Does Leaving the WTO Achieve U.S. Trade Objectives?

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Posted by Philip Thompson, Chrysa K. Kazakou on Thursday, June 4th, 2020, 3:11 PM PERMALINK

Ronald Reagan paved the path to the WTO. Motivated by an ambition to counter unfair trade, Reagan declared “if trade is not fair for all, then trade is free in name only. I will not stand by and watch American businesses fail because of unfair trading practices abroad.

I will not stand by and watch American workers lose their jobs because other nations do not play by the rules.” Later Reagan launch the Uruguay round GATT negotiations that eventually concluded with the forming of the WTO in 1995 charged with guarding a rules-based trading system with a focus on reducing barriers to trade. Through his insistence negotiating objectives included dramatic lowering of global tariff rates, ensuring national treatment of traded goods, and protection of intellectual property.

By no means has the WTO achieved free-trade or eradicated all unfair trade practices. Recently, Senator Josh Hawley raised some common shortcomings of the WTO in a NYT op-ed, and concluded that it should be abolished. His concerns center on the fact that China, which acceded to the WTO, continues to violate the international trade system's norms without making expected market or democratic reforms. He notes that China uses forced labor and theft of intellectual property with impunity. In return, he claims, the U.S. has seen a flight of jobs overseas, and U.S. agriculture has been undercut at home due to imports.

This contrasts with what Trump’s chief trade negotiator, Robert Lighthizer, testified to the Senate Finance Committee that “if we did not have the WTO, we would need to invent it” as it “offers many opportunities for the United States to advance our interests on trade.” It is also not legally possible to abolish the WTO unilaterally. Instead, a few days later, Hawley introduced a bill to take the U.S. out of the WTO. Such a joint resolution is unamendable, does not require committee approval, and cannot be delayed. In other words, if Hawley’s resolution reaches the Senate floor within 90 legislative days after the submission of USTR’s February 28 report, it will force a Senate referendum on the merits of the United States remaining in the WTO.

Hawley’s concerns are legitimate. It’s worth considering if leaving the WTO would resolve the issues he raises while avoiding harmful unintentional consequences.

Overall, since the founding of the WTO, global tariffs have been cut in half, global trade increased from $58 billion in 1948 to above $20 trillion today. Global trade openness, the sum of imports and exports as a share of global GDP increased from 5 percent to 22 percent (peaking just before the financial crisis). U.S. has reaped the most economic value from membership adding $87 billion to the economy. While those left outside the WTO have seen their exports decrease and GDP contract.  

Inside the WTO, U.S. exports benefit from a relatively low Most-Favored Nation tariff rate imposed by partners and U.S. importers from a very low average 3.3% MFN tariff rate imposed by Washington D.C. Outside the WTO, imports to the U.S. will face an average 32% tariff rate. U.S. exports will also face discriminatory tariff rates imposed by other countries and designed with same goal in mind- to encourage membership in the trade organization. 

Inside the WTO the U.S. benefits from lower trade barriers with all 164 country members, allowing our market-based economy to concentrate on working to its comparative advantage. Since joining the WTO, industrial output increased 50%, 32 million jobs have been added, and nonfarm compensation has risen 32%.

As a member of the WTO the U.S. has access to a predictable process-oriented dispute resolution system. The U.S. wins 85.4 percent of its WTO dispute cases. In particular, the United States gets good results, when defending its own policies towards China. Between 2002-2018 the US had won 11of out 24 cases against China.

Indeed, the system could be improved to further restrain bad actors, reform appellate panel decisions, and address unresolved trade barriers such as subsidies and e-commerce. Outside the WTO, the U.S. will be immediately hit with higher tariffs and be exposed to an even more illiberal trade order. It would create radical uncertainty in the markets undermining our comparative advantage and provide little certainty towards resolving trade disputes.  

Persistent, illicit trade practices and stalled reforms at the WTO seriously hinder American importers and exporters from experiencing the full benefits of a free market. However, it is not clear that withdrawal from or abolishment of the WTO will resolve these issues or avoid creating new barriers.

Photo Credit: Tom Fisk

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