March 12, 2009
FREE TRADE BULLETIN

A Protectionism Fling: Why Tariff Hikes and Other Trade Barriers Will Be Short-Lived
by Daniel J. Ikenson

The global economic contraction has caused some governments to dabble in policies long considered vanquished. Some have raised tariffs and other barriers to trade. In a paper released today, Daniel Ikenson, associate director of Cato’s Center for Trade Policy Studies, writes, “Despite some episodes of backsliding, the world is unlikely to witness a significant departure from the trend toward trade and investment liberalization that has been evident since the end of World War II.”

Ikenson notes the apparent consensus among economists, scholars, and journalists that an outbreak of protectionism would be devastating to prospects for economic recovery, but writes, “Although some governments will dabble in some degree of protectionism, the combination of a sturdy rules-based system of trade and the economic self interest in being open to participation in the global economy will limit the risk of a protectionist pandemic.”

Unlike the 1930’s, today there are reasonably well-respected rules of trade and burgeoning domestic interests in a growing number of countries that rely on openness to trade in both directions. “It is not the existence of the rules that compels countries to liberalize trade. Governments typically are not looking for excuses to raise trade barriers. If compliance were the primary motivation for countries to liberalize trade, we would not observe applied tariff rates that are so much lower than the maximum allowable rates,” concludes the author.

Ikenson also points out that “An increasing number of governments have come to recognize that optimal economic outcomes arise under conditions where policies enhance—rather than limit—the freedom of people to transact with others, including foreigners. Protectionism limits choices and thereby undermines human liberty and economic efficiency.”

The full version of the new Free Trade Bulletin #37.

January 13, 2009
FREE TRADE BULLETIN

"Shipping Jobs Overseas” or Reaching New Customers? Why Congress Should Not Tax Reinvested Earnings Abroad
by Daniel Griswold

Politicians are making a huge mistake by targeting alleged “tax breaks to corporations that ship jobs overseas.” In a new Free Trade Bulletin, the Cato Institute’s Daniel Griswold finds that U.S. corporations that invest in overseas production are actually more likely to increase employment and production at their U.S.-based facilities. “Investing abroad is not about ‘shipping jobs overseas,’" Griswold writes. “In fact, the evidence and experience of U.S. multinational companies points in the opposite direction: foreign and domestic operations tend to compliment each other and expand together.”

Investing in foreign affiliates has become the primary way that U.S. companies sell their goods and services abroad, according to the new Cato study. For every $1 billion in goods that U.S. producers exported in 2006, they sold $6.2 billion through majority-owned foreign affiliates. Close to 90 percent of the goods and services produced by those affiliates were sold to customers either in the host country or exported to consumers in third countries outside the United States. Griswold concludes that repealing the current deferral for foreign earnings would cripple the ability of U.S. corporations and their workers to compete in foreign markets. [more]