International trade, immigration, and elite-mass conflict

Jacob Miramar

2023-12-09 08:28:00 Sat ET

International trade, immigration, and elite-mass conflict

The elite model portrays public policy as a reflection of the interests and values of elites. In this model, elites and masses need not be in conflict: elites inevitably prevail at the expense of masses from time to time. The model envisions that elites determine the direction of public policy while masses remain largely apathetic with poor information. Elite views heavily affect the economic lives of masses. Also, the model acknowledges that elites may actively choose to pursue public-regarding policies, which benefit masses with minimal change to the welfare of elites. Nonetheless, key critics of the elite model often demand proof of elite-mass conflict over public policy and ultimate policy design to reflect elite preferences over mass welfare. In practice, these critics often demand proof that elites knowingly pursue policies that benefit themselves to the detriment of a majority of Americans. Although this view may or may not be a fair test of elite theory, there is ample evidence that on occasion elites do pursue narrow self-serving interests.


In describing international trade and immigration policies, we apply the elite model. Arguably, these policies usually tend to serve the interests of the largest multinational corporations at the expense of average U.S. workers. Global trade policies seem to have reduced average income per worker with greater social disparities in America. With respect to U.S. trade and immigration, masses and elites have very different policy preferences. These considerations often lead to the form of elite-mass conflict over U.S. trade and immigration policies.


In summary, the elite model portrays public policy as the majority preferences of elites. Even though this model may or may not assert that these preferences necessarily conflict with the welfare of masses, this model does imply that the elite preferences tend to prevail in public policy even when masses oppose public choices over trade and immigration in a democratic society.


Elite-mass gains and losses from free trade and comparative advantage

Today about one-quarter of the world’s total output adds to sales in a country other than the country of production. The U.S. exports almost 12% of its total GDP and imports about 17% of its total GDP per year. Global trade and product market competition heavily influence the U.S. economy. U.S. trade with Mexico, China, Taiwan, South Korea, and Malaysia etc grows rapidly in recent decades. Instead of domestic political and economic considerations, trade with these countries raises the most serious problems for the labor force in America.


Many years ago, the U.S. principal imports were oil and agricultural products not grown in America. These products include oil, natural gas, coffee, salt, and sugar etc. Today, however, the largest dollar-value U.S. imports are cars and semiconductor microchips, television sets, office machines, clothes, shoes, and toys etc. The largest dollar-value U.S. exports include airplanes, computers, power generators, and scientific instruments. The U.S. further exports some agricultural products such as wheat and corn. Farm workers use high-tech machinery to harvest these agricultural products. The U.S. imports fruits, vegetables, and many other agricultural products that require harvest by hand.


Supporters of open global markets refer to tariffs, quotas, embargoes, and other barriers to free trade as protectionism. Today, protectionism not only raises prices for U.S. consumers, but also directs capital and labor away from their best uses into inefficient sunset industries. For these reasons, protectionism is often inefficient for economic growth, employment, and price stability, among some other macro policy goals.


Prior to 1980, the U.S. enjoyed a positive trade balance due to exporting more goods and services than U.S. imports. Since the 1980s, the U.S. has incurred trade deficits every year. Nonetheless, today U.S. multinational corporations receive substantial revenues from their exports. Also, most U.S. multinational corporations have established modern manufacturing facilities as well as sales distribution operations worldwide. U.S. multinational corporations stand to gain much more from the globalization of free trade than they might lose from U.S. domestic competition from foreign firms.


The classic economic argument for free trade is the principle of comparative advantage. As nations devote more of their capital and labor resources to the production of those goods that they produce most efficiently, and trade for those other goods that other nations produce more efficiently, all free trade partners benefit from their unique specialization. Comparative advantage focuses on what each nation does relatively better than the other. Cross-border trade shifts productive economic resources (capital, labor, technology, and so forth) in each nation toward what each does best. Over time, the U.S. shifts the vast majority of economic resources to the high-tech industries for cars, airplanes, computers, power generators, and scientific instruments etc. In due course, the U.S. further imports clothes, shoes, toys, fruits, vegetables, and other low-cost agricultural products from many other nations. Each country benefits more from this free trade than from trying to produce bother clothes and airplanes. Because of free trade, the vast majority of consumers can become better off worldwide with higher living standards.


The efficiency gains from free trade often directly benefit U.S. consumers as they enjoy the available cost-effective U.S. imports. Export industries further benefit from free trade when the global market is open to their domestic products and services. Thus, U.S. exporters can often benefit directly from sales abroad. These U.S. exporters further benefit indirectly from free trade when foreign firms receive the licenses to sell in the U.S. domestic market. These foreign firms can use their U.S. dollars of sales revenues to fund the purchase of goods and services of the U.S. export industries.


The immediate pressure of competition from foreign firms can help force the U.S. domestic industries to become more efficient. These efficiency gains often prevail in the common form of either lower production costs or continuous product quality improvements. Free trade can often help quicken the flow of both ideas and high-tech advances. In this knowledge transfer, many trade partners can learn from each other through patents, trademarks, and copyrights. Finally, free trade expands the menu of goods and services available to most countries that strategically engage in regional free trade networks such as RCEP and CPTPP. In summary, U.S. consumers gain access to everything from exotic agricultural food products and foreign-language movies to Porsches, BMWs, and Jaguars.


A multinational organization General Agreement on Tariffs and Trade (GATT) was built after World War II for the purpose of regulating global trade affairs. In its early years, GATT has reflected many banking, business, and commercial interests in Western countries that seek multilateral tariff reductions with the relaxation of quotas in time. These interest groups have been especially successful over the years in opening the giant U.S. market to foreign goods and services. Indeed, average U.S. tariffs fell from more than 30% in 1947 to less than 1% today. Through many rounds of GATT negotiations, new rules and regulations were written multilaterally to accommodate free trade in goods and services from banks, insurers, hotels, telecommunications, transportation hubs, and finally the protection of intellectual property with patents, trademarks, and copyrights.


International trade mediators such as the WTO, IMF, and World Bank

In 1993, the Uruguay Round resulted in the creation of the World Trade Organization (WTO). The WTO was given power to adjudicate global trade disputes among countries. The WTO monitors and enforces the multilateral trade agreements under GATT. Countries bring their own trade disputes to the WTO if they think there is some infringement of their trade rights. Judgments by independent experts often reflect and substantiate their interpretations of the trade agreements under GATT. Unfortunately, the Doha Round of WTO multinational trade negotiations from 2001 to 2008 failed to produce a workable agreement on global trade in agricultural food products.


The WTO serves as a democratic organization and seeks to improve the economic welfare of citizens of member countries through global trade liberalization. Nevertheless, the primary WTO decision-makers convene the Ministerial Conference with trade representatives from all WTO member countries. Through the Ministerial Conference, trade representatives often voice their concerns about the limits and constraints of free trade in some specific industries. From time to time, these industries usually formulate the backbone of domestic economies in those member countries.


The International Monetary Fund (IMF) helps facilitate free trade worldwide. The IMF allows member countries to borrow to stabilize their balance of trade payments. When economically weak countries incur chronic balance-of-trade deficits and perhaps face potential default on international debt, the IMF may condition interim loans on changes in the country’s economic policies for better fiscal-monetary policy coordination. The IMF may conditionally require a reduction in the country’s government deficits through lower public expenditures and higher taxes. Alternatively, the IMF may allow the government to devalue its own currency to make exports cheaper and so more competitive worldwide (and imports more expensive). The IMF may further require the adoption of non-inflationary monetary policies in addition to counter-cyclical fiscal policies. In recent decades, the IMF and World Bank actively help China, India, Iran, North Korea, Russia, and other states of the former Soviet Union to convert to market economies for better free trade worldwide. The World Bank makes long-term loans, primarily to developing countries, to assist in economic development. The World Bank works closely with the IMF to investigate the economic conditions of countries that apply for interim loans from the IMF. Thus, the World Bank often imposes IMF requirements on those countries as conditions for offshore loans.


Fair trade practices under NAFTA, USMCA, and the Sino-American trade war

In 1993, America, Canada, and Mexico, signed the North American Free Trade Agreement (NAFTA). A torrent of bipartisan support by President Bill Clinton (and his adversary former President George H.W. Bush), Democrats and Republicans in Congress, and the American corporate community drowned out objections by U.S. labor unions and lawmakers. NAFTA envisions the eventual removal of tariffs, quotas, and embargoes on virtually all products by all 3 member countries over a period of 10 to 15 years. NAFTA also allows banks, insurers, and other financial service providers to cross these borders. Since its inception, NAFTA has succeeded in increasing free trade between all 3 countries. The domestic jobs lost from the U.S. to Mexico have been in some traditional industries with lower wages, whereas, the new U.S. jobs due to NAFTA have been in new industries such as trade, finance, and technology with higher wages. A simple cost-benefit analysis shows that the benefits of free trade often outweigh the costs. In this light, free trade helps improve the economic lives of citizens in all member countries.


In 2018, the Trump administration announced a new trilateral free trade pact among America, Canada, and Mexico: the US-Mexico-Canada Agreement (USMCA) replaced and revamped the 24-year-old North American Free Trade Agreement (NAFTA). Through the agreement, the Trump administration granted Canada and Mexico interim reprieve on automobile tariffs. In return, Canada reduced import barriers for American dairy products, and Mexico further introduced new employee protection rules and regulations. USMCA enriched the economic lives of the U.S. middle-class and thus created new job opportunities for half billion residents in North America. The trade pact came up for trilateral review once every 6 years and in turn gave the Trump administration significant leverage to ensure fair trade and commerce with Canada and Mexico. President Trump hailed this new trade pact as a major win for American workers and especially the U.S. automobile industry. The main pillars of North America Free Trade Agreement (NAFTA) survived President Trump's hardball strategy to reshape global trade and commerce.


During the Sino-American trade war of 2020-2022, the Trump administration introduced 25% punitive tariffs on lower-cost products (worth $150 billions of dollars) from China. The Trump administration further launched new limits on high-tech investments by Chinese entities such as Huawei and ZTE in America. To better safeguard national security, these limits on high-tech development would focus on 5G telecommunication, AI support for arms and missiles, and other high-tech facilities for military uses. Despite domestic controversies and criticisms, the subsequent Biden administration continued the prior Trump hardball strategy on bilateral fair trade practices between the U.S. and China.


Dumping foreign goods refers to the sale of foreign goods in the U.S. market at prices below those prices available in the non-U.S. country of production. This trade practice presents a special trade problem. Foreign firms may voluntarily choose to dump their goods in order to introduce new products in the U.S market. Once Americans have accepted the new products, their prices would increase substantially. Specifically, Japanese automobile manufacturers have followed this unfair trade pattern. Dumping foreign goods may inadvertently undermine U.S. product market competition when U.S. domestic firms undersell their products and thus become out of business. Once foreign producers have driven out U.S. manufacturers, these foreign firms raise their prices to gain substantially more sales and profits. Dumping foreign goods may provide only temporary cost advantages to American consumers.


It is illegal for foreign firms to dump foreign goods in the U.S. market. The Trade Agreement of 1970 provides that the U.S. government has the legal right to impose special anti-dumping tariffs on foreign firms when it is proven that their foreign goods are being sold in the U.S. at unreasonably low prices below the corresponding prices available in the non-U.S. countries of production. However, it is often a difficult and lengthy process for U.S. domestic firms to bring formal complaints to the U.S. government for legal relief and resolution.


For many years, the U.S. has imported substantially more dollar values of foreign goods and services than the dollar values of U.S. exports. The dollar differences between U.S. imports and exports are U.S. trade deficits. The U.S. government makes up these trade deficits with the transfer of American dollars, government bonds, and corporate securities to foreign firms. U.S. banks as well as the U.S. Treasury benefit from these trade deficits in the basic sense that foreigners accept U.S. dollars, bonds, and securities in exchange for their products. In effect, the U.S. government finances its own huge fiscal deficits and trade deficits by selling government bonds to foreign investors. U.S. interest payments on this part of the national debt flow out of the country.


Indeed, global free trade has raised aggregate income for America. At the same time, free trade has worsened wealth and income inequality in America. Elite gains have often led to mass losses. Specifically, the global economy has produced better growth and employment for the largest U.S. multinational corporations. The resultant better job prospects benefit the U.S. higher-skill subject matter experts, specialists, and engineers. Greater free trade with developing countries such as China, India, and Mexico etc creates competition for American workers, especially low-skill low-income U.S. workers. It is difficult for the U.S. government and corporations to raise the wage levels of U.S. jobs, especially in labor-intensive industries, in the face of such competition due to cross-border trade liberalization.


U.S. export industries have thrived on global trade expansion. This macro trend adds jobs to the American economy and higher income for senior managers and high-skill specialists. This combination of adverse macro effects of free trade has inevitably led to the differential wealth and wage levels for high-skill senior experts and low-skill workers. In recent decades, global trade dramatically worsens wealth and income inequality in America. Inequality can worsen in time even though the total U.S. income rises over the same time frame. Meanwhile, the percentage of total family income of the highest U.S. income earners substantially rose from 43% to more than 65% over the time horizon from 1980 to 2023. The top decile of U.S. income earners now accounts for a dramatically larger fraction or over 70% of total income in America. Despite this social concern about wealth and income inequality, both Democratic and Republican presidents have supported greater free trade over the past half-century. The U.S. has led international efforts to liberalize world trade and investment with fewer foreign market barriers to American exports. These efforts include support for the WTO multinational trade agreement, NAFTA and USMCA regional free trade agreements, and several bilateral trade pacts with Australia, Japan, Singapore, and South Korea etc.


U.S. immigration policy considerations with elite-mass differences

Most immigrants move to the U.S. for economic opportunity. The vast majority of immigrants come from developing countries in East Asia and Latin America. The elite-mass politics of immigration focus on both cultural and economic issues. As the U.S. business and corporate leaders, elites tend to view immigration in economic terms, principally as an increase in the supply of low-wage workers in America. Middle-class Americans view immigration in cultural terms, principally its impact on the ethnic composition of local communities all over America. The vast majority of Americans are themselves the descendants of immigrants, and Native Americans now constitute only 1% of U.S. total population. In recent polls, most Americans believe that today immigrants are different from earlier waves. On the basis of both current immigration and domestic fertility (i.e. U.S. birth rates), population projections show that the ethnic character of the U.S. tends to change dramatically over time.


America has always been an ethnically pluralist society, but all Americans should adopt the U.S. political culture: individual liberty, economic freedom, political equality, and equality of opportunity. All of U.S. residents should learn American history and traditions, as well as the English language. The U.S. motto is E Pluribus Unum (one from many). Opponents of large-scale immigration fear that this immigration represents a threat to cultural and political unity. The current U.S. immigration policy admits more than 1 million legal immigrants each year with weak enforcement of laws against illegal immigrants. This policy largely arises from key industry groups seeking to reduce their labor costs. Agriculture, construction, hospitals, and restaurants, for example, all lobby heavily in Washington to weaken immigration laws and their enforcement.


America is a nation of immigrants, from the first boat people, the Pilgrims, to the later Cuban balseros (rafters). The vast majority of Americans are proud of their immigrant heritage and the freedom and opportunity that the U.S. has extended to generations of masses that yearn to be free. Today about 38 million people, or over 12%, of the U.S. population is foreign born. Today, the U.S. admits more than 1 million legal immigrants per annum as lawful permanent residents (persons with relatives who are either U.S. citizens or lawful permanent residents, or persons who have specific high-end job skills), or as refugees or asylees (persons with a fear of persecution in their country of origin) in America. Further, more than 33 million people receive visas to enter the U.S. for study, pleasure, or business.


The U.S. is a free and prosperous open society with more than 5,000 miles of borders (2,000 miles with Mexico) and hundreds of international air and sea ports. In theory, each sovereign country should be able to maintain secure borders. In practice, however, the U.S. has been unwilling and unable to do so. Estimates of U.S. illegal immigration vary substantially, from the official U.S. government estimate of 400,000 per year (or 45% of the legal immigration), to unofficial estimates up to 4 million per year. As a free society, the U.S. cannot undertake massive roundups and summary deportations of millions of illegal residents. The Fifth and Fourteenth Amendments to the U.S. Constitution require that every person (not just citizen) deserves the due process of law. Aliens have no constitutional right to come to America. For this reason, U.S. police may turn back alien persons at the border and can even hold them in detention camps. The U.S. coast guard may intercept boats at sea and can return persons to their country of origin. However, once persons are in America, whether legally or illegally, these alien persons deserve the due process of law and equal protection of the relevant U.S. laws. California, New York, Hawaii, Florida, and Texas have the highest proportions of legal immigrants among their populations. Together with Arizona, New Mexico, Colorado, Illinois, and New Jersey, these states probably have the highest numbers of illegal immigrants too. Further, the populations of particular cities (such as Los Angeles, Miami, El Paso, and San Antonio) may be one-third to one-half foreign born.


Conflict in Washington over U.S. immigration policy is quite intense. Various interests have prevented any actions to halt illegal immigration, or any actions to determine the status of millions of illegal immigrants already on U.S. soil, or any actions to infer the proper quota of legal immigrants each year, or any actions to determine the admission criteria for U.S. legal immigration. Among the diverse interests with a stake in U.S. immigration policy, employers actively seek to keep immigration as open as possible; millions of illegal immigrants seek a legal path to U.S. citizenship; and U.S. citizens seek better border security in lieu of amnesty for illegal aliens. The word, amnesty, is now politically unacceptable. Some other term may help describe how current illegal immigrants can gain legitimate status on U.S. soil.


Comprehensive immigration reform implies compromises among these diverse interests. In fact, Americans often convey their nagging concern that the government should take steps to halt the flow of immigrants slipping in at the border. Many Americans further believe that the government can reduce illegal immigration by instituting tough penalties for businesses that hire illegal immigrants. At the same time, however, many Americans believe that illegal immigrants who already live on U.S. soil should be given a legitimate path to U.S. citizenship (63%) in stark contrast to the more drastic action of deporting these illegal immigrants (18%). Among those Americans who support a path to citizenship, the most common requirements are: (1) have a job (89%); (2) learn to speak English (84%); (3) pass a health test (83%); (4) pay all taxes on U.S. past income (81%); and (5) have lived in U.S. for at least 5 years (67%).


This analytic essay cannot constitute any form of financial advice, analyst opinion, recommendation, or endorsement. We refrain from engaging in financial advisory services, and we seek to offer our analytic insights into the latest economic trends, stock market topics, investment memes, personal finance tools, and other self-help inspirations. Our proprietary alpha investment algorithmic system helps enrich our AYA fintech network platform as a new social community for stock market investors:

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