Ad without a difference

Hawaii is overwhelmingly Democratic, has been for decades. So local and national Republicans are very excited that they have a viable candidate to take a Senate seat out here, something that has been only a dream for them since Hiram Fong left the Senate in 1977. Linda Lingle, a former two-term governor, earned good marks for supporting business and Hawaii’s economy. She is opposed in the primary by John Carroll, a former state senator, airline pilot and businessman. I know them both slightly. John is a nice guy, and I agree with his views on shipping, but Linda will be the Republican candidate. I am not sure her support for Sarah Palin four years ago will help in the general election, but Linda is a very strong campaigner with impressive financial backing.

The two main Democratic contenders are Mazie Hirono, former Lt. Governor and present Congresswoman, and Ed Case, a former Congressman. Again, I know both of them, Mazie slightly, and Ed better. It is fair to say that Mazie is the Democratic establishment candidate, which makes her rather liberal from a mainland perspective. Ed is more of a centrist, and so is viewed with suspicion by the left-leaning establishment out here. That said, they are both strong campaigners. Case vs. Lingle, or Hirono vs. Lingle, it’s going to be vicious in the fall.

There are strong, polarizing differences on economic issues among these four. Mazie Hirono, like her mentor Senator Daniel Inouye, tends to vote the party line on trade issues. (For you trade policy junkies, Hirono voted against all three free trade agreements last fall.) John Carroll and Ed Case, though in opposing parties, both want to repeal the Jones Act (or its application to Hawaii) because it raises shipping costs for anything moving into or out of the state via the U.S. West Coast (which is almost everything). Hirono supports the Jones Act and I don’t recall that Lingle did anything about it during her time as governor. Lingle was a strong supporter of trade and investment with China. Case has broader trade interests. I’m not sure about Carroll and Hirono. [Full disclosure: Ed Case is a former member of the Hawaii Pacific Export Council, which I chair, so I know his views on trade issues better than I do the others.]

There is one trade issue on which all four candidates agree, regardless of party affiliation and political spectrum. No politician in Hawaii can ignore or diss tourism – and all support Hawaii’s #1 industry and leading export earner. All have done so in state office, and both Case and Hirono have done so in Congress. If there is any topic that wins bipartisan support in Hawaii, it is tourism. Lingle, Case and Hirono have each endorsed President Obama’s new national plan to support tourism. Carroll probably has, too. Tourism is NOT a differentiating issue.

So the U.S. Chamber of Commerce decided to endorse Lingle and yesterday began fielding TV ads in her favor. What issue did they pick to emphasize? Her support for tourism! Nice flashy ad. No substance, and no suggestion of how Lingle’s support for tourism is different from her opponents, but the photography is good. There must be another agenda at work, since this is perhaps the only issue on which all the candidates can agree.

I suspect the Chamber’s support for Lingle will backfire, as she was already being accused of relying too much on financing from outside Hawaii. The Chamber ad will tend to reinforce that whether the charge is true or not. That’s not a problem for her in the primary, but could be a big issue come November. If there is an impact in the primaries, it may be to foster a suspicion of business, which would tend to favor Mazie Hirono over Ed Case. And that could put Mazie Hirono in the U.S. Senate – probably not the U.S. Chamber’s objective.

It seems that neither capitol can resist an opportunity to annoy the other one when it comes to trade. Washington last week decided to continue the chicken war with China. And why not – since we had fun for years fighting over chickens with the Europeans. We even had a turkey war with Taiwan, a story I have told before. But Washington is not necessarily being unreasonable in the current chicken war.

Chicken paws

The main U.S. contention is that Beijing did not adequately investigate the dumping and subsidy charges it leveled against the American poultry. Beijing, of course, begs to differ. [It does seem odd how Beijing can reach decisions on such things almost instantly while other WTO members take months or years to go through CVD and AD investigations. But that's just me.] Despite the headlines in China about American chicken aggression, last week’s request by Washington for consultations in the WTO is merely the next step in dispute settlement, the step you take after bilateral consultations haven’t worked.

One unintended consequence of this tiff is that the price of chicken feet, also known as paws, has skyrocketed in China. Chicken paws, I’m told, fetch higher prices than breast meat in China and make up a huge fraction of the poultry impacted by the Chinese duties. The consequence is that Chinese consumers, as well as U.S. chicken farmers, are footing the bill.

The tit-for-the-tat, as it were, was that China’s poultry duties were a retaliation for one of the Obama Administration’s first trade actions: anti-dumping duties on car tires from China. This time, it was Beijing that started the WTO dispute settlement process, raising questions about how Washington does its investigations. They pushed things to a WTO panel of experts which came back with a finding that Washington did a proper investigation and applied the anti-dumping duties correctly. [The panel didn't address the question of whether Washington was wise. The unintended consequence of the tire tariffs was simply to switch our imports to other, more expensive foreign suppliers - hurting U.S. consumers, but not helping U.S. manufacturers. But that's just me again.]

Not ones to let bygones be bygones, Beijing responded to the WTO ruling by suddenly applying both anti-dumping and countervailing duties against U.S.-made vehicles that have larger than 2.5 liter engines. China already had a 25% customs duty on such vehicles and the AD and CVD duties will add another 2% to 21% depending on make and model. In what may be another unintended consequence, the duties will fall heavily on non-U.S. companies that happen to make certain models in the United States: Mercedes, Honda and BMW. GM and, to a certain extent, Chrysler will be hit, but Ford doesn’t sell U.S.-made cars in China. Did Beijing intend to bring Berlin and Tokyo into this spat? You can bet that Washington will immediately begin WTO proceedings, asking first for bilateral consultations.

I foresee a larger and more serious case coming in 2012 in which Washington asks searching questions about China’s super-lightening investigations that seem tied to political convenience. And I can see Japan and the European Union, maybe others, chiming in on that one.

Lacking imagination

It is officially called the “American Jobs Act”, which sounds like a pretty good thing about now. I’m all for creating new jobs in this economy and have frequently and openly wondered why our politicians so often fail to do so (by not rushing to implement free trade agreements, for instance). But the Obama Administration’s proposed American Jobs Act has a few zingers hidden amongst its 155 pages of stultifying legislative language. Take a look at it on Scribd or download it as a searchable .pdf and check for yourself. I just did a search for “Buy American” and guess what I found?

SEC. 4. BUY AMERICAN — USE OF AMERICAN IRON, STEEL, AND MANUFACTURED GOODS.

(a) None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

That’s pretty blatant, isn’t it? To be honest, there are some add-on clauses. One allows purchase of foreign products IF buying U.S. goods will increase the cost of the project by 25% or more. How generous. The other says:

(d) This section shall be applied in a manner consistent with United States obligations under international agreements.

OK. So why do we have a Buy America provision in the first place? If the purchase is covered by international rules, we can’t exclude foreign products. If it isn’t covered, we can. Do we need a new law to say that?

The proposed American Jobs Act gets a little more subtle after that. Buried in a portion of the bill is a section about modernizing community colleges, which includes …

SEC. 231. BUY AMERICAN.
Section 1605 of division A of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) applies to funds made available under this title.

Seems innocuous, but actually brings in more Buy America provisions that have already backfired on us overseas. Quoting a letter sent last week from the National Foreign Trade Council to Congressional leaders …

The inclusion of the same Buy American provisions in the American Recovery and Reinvestment Act (ARRA) in 2009 led countries in Europe, Asia, Latin America and elsewhere to impose additional restrictions on the purchase of U.S. goods and services.

Similar provisions apply the ARRA to transportation infrastructure projects and “Project Rebuild” for repairing housing and rebuilding neighborhoods. These potentially involve billions of dollars in spending.

Can’t we do something for our economy without starting a trade war? Our politicians apparently lack the imagination for it.