Donald Trump has indicated that he might slap high tariffs on imports from Mexico as a way to make the country pay for his border wall. While it’s not clear this makes sense, since U.S. consumers would bear the bulk of the burden from this tax, it would certainly reduce imports from Mexico. It would also would violate NAFTA and WTO rules, thereby opening the door to a trade war with Mexico and possibly other countries.
Many have seen this as taking us down a road to ever higher tariffs, leading to a plunge in international trade, which would have substantial economic costs for everyone. However, Mexico could take an alternative path that would provide far more effective retaliation against President Trump, while leading to fewer barriers and more growth.
The alternative is simple: Mexico could announce that it would no longer enforce U.S. patents and copyrights on its soil. This would be a yuuge deal, as Trump would say.
To take one prominent example, suppose that Mexico allowed for the free importation of generic drugs from India and elsewhere. The Hepatitis C drug Solvaldi has a list price in the United States of $84,000. A high quality generic is available in India for $200. There are also low cost generic versions available of many other drugs that carry exorbitant prices in the United States, with savings often more than 95 percent.
Suppose that people suffering from Hepatitis C, cancer, and other devastating and life-threatening diseases could get drugs in Mexico for a few hundred dollars rather than tens or even hundreds of thousands of dollars in the United States? That would likely lead to lots of business for Mexico’s retail drug industry, although it would be pretty bad news for Pfizer and Merck.
The same would apply to other areas. Medical equipment, like high-end scanning and diagnostic devices, would be very cheap in Mexico if they could be produced without patent protections. This should be great for a medical travel industry in Mexico.
There would be a similar story on copyright protection. People could get the latest version of Windows and other software for free in Mexico with their new computers. This is bad news for Bill Gates and Microsoft, but good news for U.S. consumers interested in visiting Mexico, along with Mexico’s retail sector. Mexico could also make a vast amount of recorded music and video material available without copyright protection. That’s great news for consumers everywhere but very bad news for Disney, Time-Warner, and other Hollywood giants.
Of course, the erosion of patent and copyright protection will undermine the system of incentives that now support innovation and creative work. This means that we would have to develop more efficient alternatives to these relics of the feudal guild system. Among other places, folks can read about alternatives in my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free).
Anyhow, this would be a blueprint for a trade war in which everyone, except a few corporate giants, could be big winners.
Donald Trump has indicated that he might slap high tariffs on imports from Mexico as a way to make the country pay for his border wall. While it’s not clear this makes sense, since U.S. consumers would bear the bulk of the burden from this tax, it would certainly reduce imports from Mexico. It would also would violate NAFTA and WTO rules, thereby opening the door to a trade war with Mexico and possibly other countries.
Many have seen this as taking us down a road to ever higher tariffs, leading to a plunge in international trade, which would have substantial economic costs for everyone. However, Mexico could take an alternative path that would provide far more effective retaliation against President Trump, while leading to fewer barriers and more growth.
The alternative is simple: Mexico could announce that it would no longer enforce U.S. patents and copyrights on its soil. This would be a yuuge deal, as Trump would say.
To take one prominent example, suppose that Mexico allowed for the free importation of generic drugs from India and elsewhere. The Hepatitis C drug Solvaldi has a list price in the United States of $84,000. A high quality generic is available in India for $200. There are also low cost generic versions available of many other drugs that carry exorbitant prices in the United States, with savings often more than 95 percent.
Suppose that people suffering from Hepatitis C, cancer, and other devastating and life-threatening diseases could get drugs in Mexico for a few hundred dollars rather than tens or even hundreds of thousands of dollars in the United States? That would likely lead to lots of business for Mexico’s retail drug industry, although it would be pretty bad news for Pfizer and Merck.
The same would apply to other areas. Medical equipment, like high-end scanning and diagnostic devices, would be very cheap in Mexico if they could be produced without patent protections. This should be great for a medical travel industry in Mexico.
There would be a similar story on copyright protection. People could get the latest version of Windows and other software for free in Mexico with their new computers. This is bad news for Bill Gates and Microsoft, but good news for U.S. consumers interested in visiting Mexico, along with Mexico’s retail sector. Mexico could also make a vast amount of recorded music and video material available without copyright protection. That’s great news for consumers everywhere but very bad news for Disney, Time-Warner, and other Hollywood giants.
Of course, the erosion of patent and copyright protection will undermine the system of incentives that now support innovation and creative work. This means that we would have to develop more efficient alternatives to these relics of the feudal guild system. Among other places, folks can read about alternatives in my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free).
Anyhow, this would be a blueprint for a trade war in which everyone, except a few corporate giants, could be big winners.
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A Reuters piece carried by the New York Times told readers:
“If built, TransCanada’s Keystone XL from Alberta to Nebraska would yield about $2.4 billion (C$3.2 billion) a year for Canada, split between government revenues, shareholder profits and re-investment into the still-recovering Canadian oil patch, according to a Conference Board of Canada research note prepared for Reuters on Thursday.
“That’s because the 800,000 barrels-per-day (bdp) line would provide cheaper shipping and a new outlet for the country’s vast but landlocked oil sands reserves, giving them increased access to the stronger U.S. market. Canadian producers could likely command around $2 more per barrel, analysts and investors said.”
Okay, let’s check this one. If the pipeline is used at its 800,000 barrels-per-day capacity, it will carry 292 million barrels over the course of a year. If it will lead to an additional $2 per barrel for Canadian producers, as the article reports, this implies an increase in revenue of $584 million a year. That is quite a bit less than the $2.4 billion a year touted in the first paragraph.
This looks like another case where someone is wrong on the Internet.
A Reuters piece carried by the New York Times told readers:
“If built, TransCanada’s Keystone XL from Alberta to Nebraska would yield about $2.4 billion (C$3.2 billion) a year for Canada, split between government revenues, shareholder profits and re-investment into the still-recovering Canadian oil patch, according to a Conference Board of Canada research note prepared for Reuters on Thursday.
“That’s because the 800,000 barrels-per-day (bdp) line would provide cheaper shipping and a new outlet for the country’s vast but landlocked oil sands reserves, giving them increased access to the stronger U.S. market. Canadian producers could likely command around $2 more per barrel, analysts and investors said.”
Okay, let’s check this one. If the pipeline is used at its 800,000 barrels-per-day capacity, it will carry 292 million barrels over the course of a year. If it will lead to an additional $2 per barrel for Canadian producers, as the article reports, this implies an increase in revenue of $584 million a year. That is quite a bit less than the $2.4 billion a year touted in the first paragraph.
This looks like another case where someone is wrong on the Internet.
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The NYT decided to scare its readers about the budget deficit with a headline warning “[f]ederal debt [is] projected to grow by nearly $10 trillion over next decade.” While the article does put this figure in some context, expressing it as a share of GDP, readers who only look at the headline will undoubtedly be scared by this huge number.
Given the past commitments of the paper to express large numbers in context, a headline telling readers that the Congressional Budget Office (CBO) projections show the debt-to-GDP ratio rising to 89 percent of GDP, would have been more informative. Of course, it likely would have been less scary.
In addition to the headline, the piece is on questionable grounds when it tells readers:
“Such a high level of debt could increase the likelihood of a financial crisis and raise the possibility that investors will become skittish about financing the government’s borrowing.”
The link between levels of debt and financial crises is dubious, at best. The United States, Spain, Ireland, and Japan all had financial crises with very low levels of debt to GDP. On the other hand, Japan’s ratio of debt to GDP is now close to 250 percent, yet there are no obvious signs of financial instability.
Nor is clear that high debt-to-GDP ratios will cause investors will become skittish. Japan can currently borrow long-term at an interest rate of 0.05 percent. Other countries with high debt-to-GDP ratios like France can also borrow at very low interest rates.
It is also worth noting that much of the cause of the projected rise in deficits is due to a projected rise in interest rates. CBO projects that the 10-year Treasury rate will rise from 2.4 percent today to 3.6 percent by the end of the 10-year forecast period. While this is possible, CBO has been over-projecting interest rates ever since the recession. It did this again last year, projecting a 3.0 percent average interest rate for 2016. The number ended up being 2.1 percent.
It is also worth noting that interest payments on the debt (net of money refunded by the Fed) are projected to still be less than 2.5 percent of GDP by the end of the period in 2027. This is still lower than levels close to 3.0 percent in 1990s. It is also likely to be considerably less than the burden the government will be imposing on the public by granting patent monopolies for prescription drugs, medical equipment, and other areas. These government granted monopolies already cost us almost 2.0 percent of GDP for prescription drugs alone.
Anyone who is actually worried about the burden the government is placing on our children would be far more attentive to the burden posed by these monopolies than the much smaller burden imposed by the debt. Of course, the burden imposed by the imposition of austerity following the recession is far larger than either.
The NYT decided to scare its readers about the budget deficit with a headline warning “[f]ederal debt [is] projected to grow by nearly $10 trillion over next decade.” While the article does put this figure in some context, expressing it as a share of GDP, readers who only look at the headline will undoubtedly be scared by this huge number.
Given the past commitments of the paper to express large numbers in context, a headline telling readers that the Congressional Budget Office (CBO) projections show the debt-to-GDP ratio rising to 89 percent of GDP, would have been more informative. Of course, it likely would have been less scary.
In addition to the headline, the piece is on questionable grounds when it tells readers:
“Such a high level of debt could increase the likelihood of a financial crisis and raise the possibility that investors will become skittish about financing the government’s borrowing.”
The link between levels of debt and financial crises is dubious, at best. The United States, Spain, Ireland, and Japan all had financial crises with very low levels of debt to GDP. On the other hand, Japan’s ratio of debt to GDP is now close to 250 percent, yet there are no obvious signs of financial instability.
Nor is clear that high debt-to-GDP ratios will cause investors will become skittish. Japan can currently borrow long-term at an interest rate of 0.05 percent. Other countries with high debt-to-GDP ratios like France can also borrow at very low interest rates.
It is also worth noting that much of the cause of the projected rise in deficits is due to a projected rise in interest rates. CBO projects that the 10-year Treasury rate will rise from 2.4 percent today to 3.6 percent by the end of the 10-year forecast period. While this is possible, CBO has been over-projecting interest rates ever since the recession. It did this again last year, projecting a 3.0 percent average interest rate for 2016. The number ended up being 2.1 percent.
It is also worth noting that interest payments on the debt (net of money refunded by the Fed) are projected to still be less than 2.5 percent of GDP by the end of the period in 2027. This is still lower than levels close to 3.0 percent in 1990s. It is also likely to be considerably less than the burden the government will be imposing on the public by granting patent monopolies for prescription drugs, medical equipment, and other areas. These government granted monopolies already cost us almost 2.0 percent of GDP for prescription drugs alone.
Anyone who is actually worried about the burden the government is placing on our children would be far more attentive to the burden posed by these monopolies than the much smaller burden imposed by the debt. Of course, the burden imposed by the imposition of austerity following the recession is far larger than either.
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Eduardo Porter used his NYT column to discuss how Mexico could put pressure on Donald Trump in a renegotiation of NAFTA. After discussing different pressure points he then turns to the ways in which the deal could be modernized. High on the list was fully opening long-distance trucking, which would put truckers in the United States even more directly into competition with much lower paid Mexican truck drivers. (NAFTA already allows Mexican truck drivers to carry many loads into the United States.)
It is interesting that Porter has no interest in removing the protectionist barriers that help our most highly paid professionals. Under current law, even well established Mexican doctors would get arrested if they practiced in the United States. To be eligible to practice they must complete a U.S. residency program.
If we had free traders involved in this negotiation process, surely they would be able to design an evaluation system that would ensure Mexican doctors met U.S. standards, and then could be allowed to practice in the United States. In the same vein, Mexican dentists are also prohibited from practicing in the United States unless they graduate from a U.S. dental school. (Recently, graduates of Canadian schools have also been allowed.)
Doctors in the United States are paid on average more than $250,000 a year, roughly twice the average in other wealthy countries. Dentists are paid on average $200,000 a year, also twice the average in wealthy countries like Germany and Canada. This protectionism costs patients in the United States more $100 billion a year in higher health care costs (more than $700 per family, per year).
It is striking that the debate over NAFTA is so dominated by protectionists that measures that would reduce the barriers that privilege our most highly paid workers are never even discussed. It should not be surprising that truck drivers and manufacturing workers who do have to face competition would not be happy about trade deals.
Eduardo Porter used his NYT column to discuss how Mexico could put pressure on Donald Trump in a renegotiation of NAFTA. After discussing different pressure points he then turns to the ways in which the deal could be modernized. High on the list was fully opening long-distance trucking, which would put truckers in the United States even more directly into competition with much lower paid Mexican truck drivers. (NAFTA already allows Mexican truck drivers to carry many loads into the United States.)
It is interesting that Porter has no interest in removing the protectionist barriers that help our most highly paid professionals. Under current law, even well established Mexican doctors would get arrested if they practiced in the United States. To be eligible to practice they must complete a U.S. residency program.
If we had free traders involved in this negotiation process, surely they would be able to design an evaluation system that would ensure Mexican doctors met U.S. standards, and then could be allowed to practice in the United States. In the same vein, Mexican dentists are also prohibited from practicing in the United States unless they graduate from a U.S. dental school. (Recently, graduates of Canadian schools have also been allowed.)
Doctors in the United States are paid on average more than $250,000 a year, roughly twice the average in other wealthy countries. Dentists are paid on average $200,000 a year, also twice the average in wealthy countries like Germany and Canada. This protectionism costs patients in the United States more $100 billion a year in higher health care costs (more than $700 per family, per year).
It is striking that the debate over NAFTA is so dominated by protectionists that measures that would reduce the barriers that privilege our most highly paid workers are never even discussed. It should not be surprising that truck drivers and manufacturing workers who do have to face competition would not be happy about trade deals.
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The NYT ran a front page story on the drop in women’s labor force participation rates (LFPR) since 2000. The decline in LFPR for women is noteworthy because many economists have sought to blame the decline in LFPR for men on various problems unique to men. The fact that the LFPR for women has declined also suggests that the problem is on the demand side of the labor market, not the pathologies that afflict the men who are dropping out.
The NYT ran a front page story on the drop in women’s labor force participation rates (LFPR) since 2000. The decline in LFPR for women is noteworthy because many economists have sought to blame the decline in LFPR for men on various problems unique to men. The fact that the LFPR for women has declined also suggests that the problem is on the demand side of the labor market, not the pathologies that afflict the men who are dropping out.
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In his column today Thomas Friedman was reasonably arguing for stronger supports for workers who are transitioning between jobs. However, the fundamental premise of his piece, that:
“every worker today will most likely have to transition multiple times to multiple jobs as the pace of change accelerates,”
…directly contradicts the economic assumptions used by the Congressional Budget Office (CBO) and other official forecasters.
While Friedman is asserting that pace of change in the economy will accelerate, in its most recent budget projections, which were highlighted in a front page story in the New York Times, CBO assumed that the pace of change in the economy would slow over the next decade. CBO assumed potential productivity growth will average just 1.3 percent annually over the next decade. This is down from an average of 1.7 percent over the period from 1950 to 2016, and a peak of 2.4 percent annual growth from 1950 to 1973 (Table 2-3).
Of course, it is possible that Friedman will be right and we may see a pace of change equal to the 1.6 percent long period average or even the 2.4 percent rate of the 1950s and 1960s. However, if this is true, then CBO has hugely over-estimated the size of the budget deficits we will be seeing in the next decade. Higher productivity growth will mean more economic growth and more tax revenue and therefore low budget deficits. In other words, if Friedman’s claims about accelerating productivity growth are taken seriously, we have no reason to be worried about budget deficits.
In his column today Thomas Friedman was reasonably arguing for stronger supports for workers who are transitioning between jobs. However, the fundamental premise of his piece, that:
“every worker today will most likely have to transition multiple times to multiple jobs as the pace of change accelerates,”
…directly contradicts the economic assumptions used by the Congressional Budget Office (CBO) and other official forecasters.
While Friedman is asserting that pace of change in the economy will accelerate, in its most recent budget projections, which were highlighted in a front page story in the New York Times, CBO assumed that the pace of change in the economy would slow over the next decade. CBO assumed potential productivity growth will average just 1.3 percent annually over the next decade. This is down from an average of 1.7 percent over the period from 1950 to 2016, and a peak of 2.4 percent annual growth from 1950 to 1973 (Table 2-3).
Of course, it is possible that Friedman will be right and we may see a pace of change equal to the 1.6 percent long period average or even the 2.4 percent rate of the 1950s and 1960s. However, if this is true, then CBO has hugely over-estimated the size of the budget deficits we will be seeing in the next decade. Higher productivity growth will mean more economic growth and more tax revenue and therefore low budget deficits. In other words, if Friedman’s claims about accelerating productivity growth are taken seriously, we have no reason to be worried about budget deficits.
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Richard Gonzales, NPR’s ombudsman, addressed the question of why NPR does not say that Donald Trump is lying when he says something that is clearly not true. The immediate point of reference was Trump’s assertion to an audience at the CIA that the media had invented the feud between Trump and the intelligence agencies, even though Trump had repeatedly made harsh public comments directed at them.
Gonzales commented:
“On Morning Edition, Kelly [NPR reporter Mary Louise Kelly] explains why. She says she went to the Oxford English Dictionary seeking the definition of ‘lie.’
“‘A false statement made with intent to deceive,’ Kelly says. ‘Intent being the key word there. Without the ability to peer into Donald Trump’s head, I can’t tell you what his intent was. I can tell you what he said and how that squares, or doesn’t, with facts.’
“NPR’s senior vice president for news, Michael Oreskes, says NPR has decided not to use the word ‘lie’ and that Kelly got it right by avoiding that word.”
While it is a good practice for reporters not to attempt to tell their audiences what is in a politician’s head, this is not standard practice at either NPR or other news outlets. It is in fact quite common for reporters to tell us that politicians “believe” or are “concerned” about a particular issue or event.
For example, just yesterday NPR ran a segment on the budget which told us what Republicans “believe:”
“The House GOP’s plan, as outlined, would add to the deficit in that it would very likely result in less revenue coming in, but Republicans believe their tax overhaul would generate significant economic growth to make up the difference.”
I frequently complain about this sort of mind reading in Beat the Press (e.g here, here, and here). As Ms. Kelly and Mr. Oreskes said, reporters lack the ability to peer in politicians heads to determine what they are really thinking. Unfortunately, they have a tendency to claim that they do in their reporting.
It is understandable that NPR does not want to claim that it knows the state of Donald Trump’s mind. It would be a huge step forward if it would apply this standard in its reporting more generally.
Thanks to Keane Bhatt for calling this to my attention.
Richard Gonzales, NPR’s ombudsman, addressed the question of why NPR does not say that Donald Trump is lying when he says something that is clearly not true. The immediate point of reference was Trump’s assertion to an audience at the CIA that the media had invented the feud between Trump and the intelligence agencies, even though Trump had repeatedly made harsh public comments directed at them.
Gonzales commented:
“On Morning Edition, Kelly [NPR reporter Mary Louise Kelly] explains why. She says she went to the Oxford English Dictionary seeking the definition of ‘lie.’
“‘A false statement made with intent to deceive,’ Kelly says. ‘Intent being the key word there. Without the ability to peer into Donald Trump’s head, I can’t tell you what his intent was. I can tell you what he said and how that squares, or doesn’t, with facts.’
“NPR’s senior vice president for news, Michael Oreskes, says NPR has decided not to use the word ‘lie’ and that Kelly got it right by avoiding that word.”
While it is a good practice for reporters not to attempt to tell their audiences what is in a politician’s head, this is not standard practice at either NPR or other news outlets. It is in fact quite common for reporters to tell us that politicians “believe” or are “concerned” about a particular issue or event.
For example, just yesterday NPR ran a segment on the budget which told us what Republicans “believe:”
“The House GOP’s plan, as outlined, would add to the deficit in that it would very likely result in less revenue coming in, but Republicans believe their tax overhaul would generate significant economic growth to make up the difference.”
I frequently complain about this sort of mind reading in Beat the Press (e.g here, here, and here). As Ms. Kelly and Mr. Oreskes said, reporters lack the ability to peer in politicians heads to determine what they are really thinking. Unfortunately, they have a tendency to claim that they do in their reporting.
It is understandable that NPR does not want to claim that it knows the state of Donald Trump’s mind. It would be a huge step forward if it would apply this standard in its reporting more generally.
Thanks to Keane Bhatt for calling this to my attention.
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The NYT did not bother conceal its enthusiasm for the Trans-Pacific Partnership (TPP) in a news article reporting on President Trump’s decision to kill the pact. It repeatedly referred to the TPP as a “free trade” pact, an inaccurate term chosen by its proponents to help promote the deal.
In fact, the TPP is largely protectionist, calling for stronger and longer patent and copyright related protections. While the article notes this fact, it doesn’t acknowledge that these incredibly costly forms of protection (which redistribute income upward) are in conflict with principles of free trade and open markets.
The piece also repeats claims from proponents of the TPP that the defeat of the agreement will be a big gain for China at the expense of the United States. It would have been helpful to point out that all of these proponents of the TPP favored bringing China in the WTO with few conditions. This act helped to expand China’s economic power enormously.
The NYT did not bother conceal its enthusiasm for the Trans-Pacific Partnership (TPP) in a news article reporting on President Trump’s decision to kill the pact. It repeatedly referred to the TPP as a “free trade” pact, an inaccurate term chosen by its proponents to help promote the deal.
In fact, the TPP is largely protectionist, calling for stronger and longer patent and copyright related protections. While the article notes this fact, it doesn’t acknowledge that these incredibly costly forms of protection (which redistribute income upward) are in conflict with principles of free trade and open markets.
The piece also repeats claims from proponents of the TPP that the defeat of the agreement will be a big gain for China at the expense of the United States. It would have been helpful to point out that all of these proponents of the TPP favored bringing China in the WTO with few conditions. This act helped to expand China’s economic power enormously.
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Both the Washington Post and New York Times had pieces about declining support for the left in France and the rise of a nationalist right in both Italy and France. Both pieces attributed the rise in support for the right to people losing from globalization, implying that this is some impersonal process that is causing these people to be losers.
In fact, the losers are suffering because of the insistence of the European Union that its members pursue austerity policies. These policies have led to almost a full decade of near zero per capita GDP growth in France and a drop of more than 10 percent in per capita GDP in Italy. There is nothing inevitable about these policies; they are conscious choices of the political leaders in Europe.
It is incredible that both the Post and Times would neglect to mention the role of austerity in hurting workers. The disgust with elites is understandable.
Both the Washington Post and New York Times had pieces about declining support for the left in France and the rise of a nationalist right in both Italy and France. Both pieces attributed the rise in support for the right to people losing from globalization, implying that this is some impersonal process that is causing these people to be losers.
In fact, the losers are suffering because of the insistence of the European Union that its members pursue austerity policies. These policies have led to almost a full decade of near zero per capita GDP growth in France and a drop of more than 10 percent in per capita GDP in Italy. There is nothing inevitable about these policies; they are conscious choices of the political leaders in Europe.
It is incredible that both the Post and Times would neglect to mention the role of austerity in hurting workers. The disgust with elites is understandable.
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