The Post asserted that:
“[…]entering into a new TPP could unify Trump with other trading partners and put new pressure on Beijing to either allow more imports into China or risk being alienated by other Asian countries, that would now received new trade benefits as part of the deal.”
Actually, the countries in the TPP will receive relatively few “new trade benefits” as a result of the TPP. Six of the other eleven countries in the pact already have trade deals with the United States, which means there are very few remaining barriers to be reduced. (One of the other five countries is Brunei, whose trade patterns will probably not cause China’s government to lose much sleep.)
If the pact was intended to hurt China, its designers did not do a very good job. It has lax rules of origins requirements. In some cases, for example most car parts, an item with as little as 35 percent value added from TPP countries could qualify for preferential treatment.
This means, for example, that car parts produced in China, with Vietnam adding 35 percent of the value (possibly in a Chinese owned firm) would get preferential treatment under the TPP. Since these requirements are difficult to enforce rigorously, it is likely that some items with as much as 70 percent value-added coming from China will get preferential treatment under the TPP. That does not sound like an effective way to exclude Chinese products. (NAFTA’s rules of origins for car parts required 62.5 percent of the value-added to come from the countries in the pact.)
The TPP also includes provisions that will make member countries pay more money for prescription drugs due to longer and stronger patent and related monopolies. It also includes provisions on e-commerce that would likely make it more difficult to crack down on the sorts of abuses we are now hearing about from Facebook. These features, which are major parts of the pact, are not likely to help the United States build an effective coalition against China on trade or anything else.
The piece also tells readers that Trump has:
“[…]shown a general reluctance to enter into multilateral trade deals because he believes these allow the United States to be ripped off.”
It is not clear how the Post knows what Trump “believes.” It can tell readers what he says, but given the frequency with which he reverses his positions, it seems unlikely he believes anything.
The Post asserted that:
“[…]entering into a new TPP could unify Trump with other trading partners and put new pressure on Beijing to either allow more imports into China or risk being alienated by other Asian countries, that would now received new trade benefits as part of the deal.”
Actually, the countries in the TPP will receive relatively few “new trade benefits” as a result of the TPP. Six of the other eleven countries in the pact already have trade deals with the United States, which means there are very few remaining barriers to be reduced. (One of the other five countries is Brunei, whose trade patterns will probably not cause China’s government to lose much sleep.)
If the pact was intended to hurt China, its designers did not do a very good job. It has lax rules of origins requirements. In some cases, for example most car parts, an item with as little as 35 percent value added from TPP countries could qualify for preferential treatment.
This means, for example, that car parts produced in China, with Vietnam adding 35 percent of the value (possibly in a Chinese owned firm) would get preferential treatment under the TPP. Since these requirements are difficult to enforce rigorously, it is likely that some items with as much as 70 percent value-added coming from China will get preferential treatment under the TPP. That does not sound like an effective way to exclude Chinese products. (NAFTA’s rules of origins for car parts required 62.5 percent of the value-added to come from the countries in the pact.)
The TPP also includes provisions that will make member countries pay more money for prescription drugs due to longer and stronger patent and related monopolies. It also includes provisions on e-commerce that would likely make it more difficult to crack down on the sorts of abuses we are now hearing about from Facebook. These features, which are major parts of the pact, are not likely to help the United States build an effective coalition against China on trade or anything else.
The piece also tells readers that Trump has:
“[…]shown a general reluctance to enter into multilateral trade deals because he believes these allow the United States to be ripped off.”
It is not clear how the Post knows what Trump “believes.” It can tell readers what he says, but given the frequency with which he reverses his positions, it seems unlikely he believes anything.
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Once again Robert Samuelson takes a big swing and misses in his Washington Post column today. He argues that schools in states like West Virginia, Kentucky, and Oklahoma are underfunded and unable to pay their teachers a decent wage because of the cost for caring for the elderly.
This is wrong for two obvious reasons. First, these are all low-tax states. They could try something like raising taxes on higher income households. This is one way to get money.
The other problem is that a main reason why it costs so much to care for our elderly is that we pay our doctors and drug companies twice as much for their services and products as people in other wealthy countries. If we paid the same prices for our health care as people in Canada or Germany, it would free up more than $1 trillion annually for schools and other worthwhile items.
But The Washington Post doesn’t like to call attention to the incomes of the affluent, they would rather beat up on senior citizens.
Once again Robert Samuelson takes a big swing and misses in his Washington Post column today. He argues that schools in states like West Virginia, Kentucky, and Oklahoma are underfunded and unable to pay their teachers a decent wage because of the cost for caring for the elderly.
This is wrong for two obvious reasons. First, these are all low-tax states. They could try something like raising taxes on higher income households. This is one way to get money.
The other problem is that a main reason why it costs so much to care for our elderly is that we pay our doctors and drug companies twice as much for their services and products as people in other wealthy countries. If we paid the same prices for our health care as people in Canada or Germany, it would free up more than $1 trillion annually for schools and other worthwhile items.
But The Washington Post doesn’t like to call attention to the incomes of the affluent, they would rather beat up on senior citizens.
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Many more of us are food consumers than farmers, yet somehow the prospect that a trade war with China will lead to lower prices for soybeans and other agricultural products is never reported as a positive development. Undoubtedly, the pain to farmers is much more important to them than the small benefit that many of us may see in the form of lower food prices, but reporters have felt it important to tell us about the small cost that many of us might see as a result of higher steel and aluminum prices as a result of Trump’s tariffs on these products.
This seems like a serious asymmetry in reporting on this topic.
Many more of us are food consumers than farmers, yet somehow the prospect that a trade war with China will lead to lower prices for soybeans and other agricultural products is never reported as a positive development. Undoubtedly, the pain to farmers is much more important to them than the small benefit that many of us may see in the form of lower food prices, but reporters have felt it important to tell us about the small cost that many of us might see as a result of higher steel and aluminum prices as a result of Trump’s tariffs on these products.
This seems like a serious asymmetry in reporting on this topic.
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I see that five former Democratic chairs of the Council of Economic Advisers warned of an impending debt crisis in a column in the Washington Post. They tell us that current and projected future levels of deficits and debts will soon send interest rates soaring, crashing the economy. While I am skeptical about the basic proposition for a number of reasons, perhaps most importantly Japan’s persistently low interest and inflation rates in spite of a debt-to-GDP ratio that is two and a half times ours, but let me offer a solution: selling off patent monopolies.
We can sell off patent monopolies in all sorts of areas, auctioning off as many as are necessary to make our deficit hawks happy. For example, we can sell off a patent on the idea of turning left at a fork in the road. If people try to get around the patent by taking three rights, we can sell off the patent on turning right at the fork in the road. And of course, we can sell off a patent on turning around and going in the opposite direction to take care of these wise asses.
We can sell off patents on boiling water and making ice. We can make as long a list as we like, there are no shortage of items which we can turn into patent monopolies.
Is this horrible economic policy? Of course it is, but our deficit hawks never pay attention to the obligations we impose on future taxpayers by granting patent and copyright monopolies, they just look at the debt. So, if that s all they care about, let’s solve the debt problem by issuing more patent and copyright monopolies and make many of our country’s leading economists happy.
And, just to be clear, we are talking about enormous sums of money. In the case of prescription drugs alone, patent and related protections cost us around $370 billion a year. This is almost 2.0 percent of GDP or more than twice the burden of interest service on the debt, net of money refunded by the Fed. (This is discussed in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
We could clearly raise enough money by selling off various patent and copyright monopolies to get our debt down to whatever size is needed to make our economists happy. It’s stupid policy, but as the old saying goes, economists are not very good at economics.
I see that five former Democratic chairs of the Council of Economic Advisers warned of an impending debt crisis in a column in the Washington Post. They tell us that current and projected future levels of deficits and debts will soon send interest rates soaring, crashing the economy. While I am skeptical about the basic proposition for a number of reasons, perhaps most importantly Japan’s persistently low interest and inflation rates in spite of a debt-to-GDP ratio that is two and a half times ours, but let me offer a solution: selling off patent monopolies.
We can sell off patent monopolies in all sorts of areas, auctioning off as many as are necessary to make our deficit hawks happy. For example, we can sell off a patent on the idea of turning left at a fork in the road. If people try to get around the patent by taking three rights, we can sell off the patent on turning right at the fork in the road. And of course, we can sell off a patent on turning around and going in the opposite direction to take care of these wise asses.
We can sell off patents on boiling water and making ice. We can make as long a list as we like, there are no shortage of items which we can turn into patent monopolies.
Is this horrible economic policy? Of course it is, but our deficit hawks never pay attention to the obligations we impose on future taxpayers by granting patent and copyright monopolies, they just look at the debt. So, if that s all they care about, let’s solve the debt problem by issuing more patent and copyright monopolies and make many of our country’s leading economists happy.
And, just to be clear, we are talking about enormous sums of money. In the case of prescription drugs alone, patent and related protections cost us around $370 billion a year. This is almost 2.0 percent of GDP or more than twice the burden of interest service on the debt, net of money refunded by the Fed. (This is discussed in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
We could clearly raise enough money by selling off various patent and copyright monopolies to get our debt down to whatever size is needed to make our economists happy. It’s stupid policy, but as the old saying goes, economists are not very good at economics.
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Seriously, the NYT ran a piece with the headline, “why Trump’s tariffs could raise the cost of a hip replacement.” The point of the piece is that we now import a substantial amount of medical equipment and devices from China. This means that if we have to pay 25 percent more, then the price of these items in the United States will be higher. This means that operations like hip replacements that might require some equipment now purchased from China will cost more.
Okay, let’s try to use some numbers here. The piece tells us that we import $3 billion a year in medical equipment from China. According to the Commerce Department, we spent over $90 billion on medical equipment and devices last year (National Income and Product Accounts, Table 5.5.5U, Line 6). This means that the items imported from China came to a bit more than 3 percent of the total.
If the tariffs are passed on in full (a very questionable assumption, both because of the large market here and the fact that actual production costs are a small fraction of the price of these patent-protected items), then the price of medical equipment would rise on average about 0.8 percent. Most of the cost of major surgeries like hip replacements go to the doctor and hospital, not the artificial device, but let’s say that half of the cost is the device itself.
This means that the cost of your hip replacement surgery will rise by a whopping 0.4 percent as a result of the Trump tariffs! The NYT should look for some better ammunition if it wants to seriously push its case.
Addendum
Robert Salzberg points out to me that if the artificial hip itself were produced in China, then the price increase resulting from the tariff would be 25 percent on the implant, not 0.8 percent as I assume above. In this post, I assumed that implants are as likely to be produced in China as medical equipment more generally, but Robert’s point is worth noting.
He also points me to an old NYT piece on medical travel, which gives the price of manufacturing an implant at $350 in the United States and $150 in Asia. This piece gives further evidence that any increases in the price of implants from China due to the tariff will be virtually invisible in the cost of the procedure.
It is also yet another reminder of the enormous potential gains from free trade in medical travel. If any of our politicians actually supported free trade, the gains from setting up an institutional structure (i.e. rules for insurers and malpractice) to facilitate medical travel would swamp the gains from trade deals like NAFTA and the TPP. Unfortunately, most politicians are staunchly protectionist when it comes to measures that might reduce the income of doctors, hospitals, and medical equipment manufacturers. They only are interested in reducing trade barriers when most of the losers are less-educated and less politically powerful workers.
Seriously, the NYT ran a piece with the headline, “why Trump’s tariffs could raise the cost of a hip replacement.” The point of the piece is that we now import a substantial amount of medical equipment and devices from China. This means that if we have to pay 25 percent more, then the price of these items in the United States will be higher. This means that operations like hip replacements that might require some equipment now purchased from China will cost more.
Okay, let’s try to use some numbers here. The piece tells us that we import $3 billion a year in medical equipment from China. According to the Commerce Department, we spent over $90 billion on medical equipment and devices last year (National Income and Product Accounts, Table 5.5.5U, Line 6). This means that the items imported from China came to a bit more than 3 percent of the total.
If the tariffs are passed on in full (a very questionable assumption, both because of the large market here and the fact that actual production costs are a small fraction of the price of these patent-protected items), then the price of medical equipment would rise on average about 0.8 percent. Most of the cost of major surgeries like hip replacements go to the doctor and hospital, not the artificial device, but let’s say that half of the cost is the device itself.
This means that the cost of your hip replacement surgery will rise by a whopping 0.4 percent as a result of the Trump tariffs! The NYT should look for some better ammunition if it wants to seriously push its case.
Addendum
Robert Salzberg points out to me that if the artificial hip itself were produced in China, then the price increase resulting from the tariff would be 25 percent on the implant, not 0.8 percent as I assume above. In this post, I assumed that implants are as likely to be produced in China as medical equipment more generally, but Robert’s point is worth noting.
He also points me to an old NYT piece on medical travel, which gives the price of manufacturing an implant at $350 in the United States and $150 in Asia. This piece gives further evidence that any increases in the price of implants from China due to the tariff will be virtually invisible in the cost of the procedure.
It is also yet another reminder of the enormous potential gains from free trade in medical travel. If any of our politicians actually supported free trade, the gains from setting up an institutional structure (i.e. rules for insurers and malpractice) to facilitate medical travel would swamp the gains from trade deals like NAFTA and the TPP. Unfortunately, most politicians are staunchly protectionist when it comes to measures that might reduce the income of doctors, hospitals, and medical equipment manufacturers. They only are interested in reducing trade barriers when most of the losers are less-educated and less politically powerful workers.
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I guess “terrific” doesn’t mean what it used to mean. According to the Washington Post, the average monthly before-subsidy premium for a plan purchased in the health care exchanges was $621, an increase of 30 percent from 2017. For some reason, this rise in premiums doesn’t seem to be getting as much attention as the increase in premiums while President Obama was still in office.
I guess “terrific” doesn’t mean what it used to mean. According to the Washington Post, the average monthly before-subsidy premium for a plan purchased in the health care exchanges was $621, an increase of 30 percent from 2017. For some reason, this rise in premiums doesn’t seem to be getting as much attention as the increase in premiums while President Obama was still in office.
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I would agree with pretty much all of Paul Krugman’s criticisms of Donald Trump’s trade war with China, but I would strongly disagree with one of his criticisms of China. He tells readers:
“In some ways, China really is a bad actor in the global economy. In particular, it has pretty much thumbed its nose at international rules on intellectual property rights, grabbing foreign technology without proper payment.”
The issue here is who set the rules and what is proper payment.
The problem is that it was largely the United States that has set the rules in this story and it is demanding ever more money for items protected by its patent and copyright monopolies. We do this through our control of trade arrangements, most importantly the WTO where we had the TRIPS provisions inserted as a late entry to the Uruguay Round that was concluded in 1994. These rules were about forcing developing countries to pay more money to companies like Pfizer and Microsoft for everything from drugs and medical equipment to seeds and software. It shouldn’t be surprising that developing countries like China might not like these rules.
The idea that developing countries would seek to get around rules established by their richer counterparts should not be alien to people in the United States. The United Kingdom had made it illegal to transfer blueprints for steam engines out of the country in order to preserve its competitive advantage. Francis Lowell famously memorized plans on a trip there in order to build the first steam-powered factory in the United States. The United States refused to recognize UK copyrights for much of the 19th century. So if China is not following the rules today, it has an important role model it can point to.
There is certainly a valid point that the cost of innovation must in some way be shared internationally. Certainly, the US shouldn’t be expected to foot the bill for the whole world. But does Krugman really want to argue that patent and copyright monopolies are the most efficient mechanisms available? We should be looking for more modern mechanisms that focus on sharing rather than bottling up knowledge, with China and other developing countries having a serious voice in their construction.
On this topic, it is important to note that China may have fired a serious shot over the bow this week. It announced a major initiative to promote the manufacture and use of generic drugs. I have no idea if this has anything to do with Donald Trump’s trade war, but this could be a very big deal if China is going to be aggressively pushing generic drugs both in its domestic market and internationally. The fact is, the “rules” in many areas are not very clear (it is much harder to get a patent on a drug in India than the United States) and if China is going to press the boundaries, look for a really big hit to Pfizer and Merck’s stock prices.
I would agree with pretty much all of Paul Krugman’s criticisms of Donald Trump’s trade war with China, but I would strongly disagree with one of his criticisms of China. He tells readers:
“In some ways, China really is a bad actor in the global economy. In particular, it has pretty much thumbed its nose at international rules on intellectual property rights, grabbing foreign technology without proper payment.”
The issue here is who set the rules and what is proper payment.
The problem is that it was largely the United States that has set the rules in this story and it is demanding ever more money for items protected by its patent and copyright monopolies. We do this through our control of trade arrangements, most importantly the WTO where we had the TRIPS provisions inserted as a late entry to the Uruguay Round that was concluded in 1994. These rules were about forcing developing countries to pay more money to companies like Pfizer and Microsoft for everything from drugs and medical equipment to seeds and software. It shouldn’t be surprising that developing countries like China might not like these rules.
The idea that developing countries would seek to get around rules established by their richer counterparts should not be alien to people in the United States. The United Kingdom had made it illegal to transfer blueprints for steam engines out of the country in order to preserve its competitive advantage. Francis Lowell famously memorized plans on a trip there in order to build the first steam-powered factory in the United States. The United States refused to recognize UK copyrights for much of the 19th century. So if China is not following the rules today, it has an important role model it can point to.
There is certainly a valid point that the cost of innovation must in some way be shared internationally. Certainly, the US shouldn’t be expected to foot the bill for the whole world. But does Krugman really want to argue that patent and copyright monopolies are the most efficient mechanisms available? We should be looking for more modern mechanisms that focus on sharing rather than bottling up knowledge, with China and other developing countries having a serious voice in their construction.
On this topic, it is important to note that China may have fired a serious shot over the bow this week. It announced a major initiative to promote the manufacture and use of generic drugs. I have no idea if this has anything to do with Donald Trump’s trade war, but this could be a very big deal if China is going to be aggressively pushing generic drugs both in its domestic market and internationally. The fact is, the “rules” in many areas are not very clear (it is much harder to get a patent on a drug in India than the United States) and if China is going to press the boundaries, look for a really big hit to Pfizer and Merck’s stock prices.
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I am Dawn Niederhauser, CEPR’s Director of Development, and I am highjacking Beat the Press to make an important announcement. Many of you regular readers of Beat the Press may have received an email from me about this, but in case you missed the news, I am writing to let you know that there is a new way to support Dean and Beat the Press!
As you may know, Dean stepped down as CEPR’s Co-Director in January so that he could devote more time to his writing. We are thrilled that he will continue to “beat the press” in his new position as a CEPR Senior Economist. And as CEPR’s Director of Development, I am particularly thrilled that he has agreed to provide additional commentary via the Beat the Press page on Patreon.
For those of you who are not familiar with Patreon, it is a membership platform that provides tools for creators to run a subscription content service. It allows writers and artists (and even economists!) to provide exclusive content to their subscribers, or “patrons.” Anyone who signs up to support Beat the Press via Patreon will have access to additional commentary and will be able to engage with other subscribers and with Dean. But the main purpose is to provide ongoing financial support for Beat the Press.
Click here to support Beat the Press on Patreon!
Beat the Press will continue in its current format and will be free to all, as always. Dean has always made my job really difficult by insisting that all of CEPR’s content, even his books, be available for free. So we are mindful that offering any content that is only available to subscribers could be seen as going against precedent.
But honestly? Times are tough. CEPR has relied on foundation funding for the bulk of its operating costs since its inception. Foundation funding is becoming harder and harder to come by. We are looking to find ways to expand our funding base. After evaluating all the options, we decided that Patreon was the best avenue for creating a dedicated funding stream for Beat the Press. That seemed to us to be a “fair trade.”
For those of you who are already monthly sustainers and want to switch to supporting Beat the Press through Patreon, please send an email to [email protected] and I will cancel your monthly donation. You can then sign up to support Beat the Press on Patreon, at any amount. The more you pledge, the more resources Dean will have to skewer the likes of Robert Samuelson.
A big thank you to those of you who have already signed up to become Beat the Press patrons! We really appreciate your support.
Okay, back to your regularly scheduled programming. And remember, don’t believe everything you read in the newspapers.
I am Dawn Niederhauser, CEPR’s Director of Development, and I am highjacking Beat the Press to make an important announcement. Many of you regular readers of Beat the Press may have received an email from me about this, but in case you missed the news, I am writing to let you know that there is a new way to support Dean and Beat the Press!
As you may know, Dean stepped down as CEPR’s Co-Director in January so that he could devote more time to his writing. We are thrilled that he will continue to “beat the press” in his new position as a CEPR Senior Economist. And as CEPR’s Director of Development, I am particularly thrilled that he has agreed to provide additional commentary via the Beat the Press page on Patreon.
For those of you who are not familiar with Patreon, it is a membership platform that provides tools for creators to run a subscription content service. It allows writers and artists (and even economists!) to provide exclusive content to their subscribers, or “patrons.” Anyone who signs up to support Beat the Press via Patreon will have access to additional commentary and will be able to engage with other subscribers and with Dean. But the main purpose is to provide ongoing financial support for Beat the Press.
Click here to support Beat the Press on Patreon!
Beat the Press will continue in its current format and will be free to all, as always. Dean has always made my job really difficult by insisting that all of CEPR’s content, even his books, be available for free. So we are mindful that offering any content that is only available to subscribers could be seen as going against precedent.
But honestly? Times are tough. CEPR has relied on foundation funding for the bulk of its operating costs since its inception. Foundation funding is becoming harder and harder to come by. We are looking to find ways to expand our funding base. After evaluating all the options, we decided that Patreon was the best avenue for creating a dedicated funding stream for Beat the Press. That seemed to us to be a “fair trade.”
For those of you who are already monthly sustainers and want to switch to supporting Beat the Press through Patreon, please send an email to [email protected] and I will cancel your monthly donation. You can then sign up to support Beat the Press on Patreon, at any amount. The more you pledge, the more resources Dean will have to skewer the likes of Robert Samuelson.
A big thank you to those of you who have already signed up to become Beat the Press patrons! We really appreciate your support.
Okay, back to your regularly scheduled programming. And remember, don’t believe everything you read in the newspapers.
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