The Secret To Trade Policy Success

University teaching is again in session. As in past summer and fall semesters I teach international business at both Georgetown University in Washington D.C. and at Kent University in Canterbury, U.K.

With students I note three different categories of sentiments, quite telling of voting tendencies.  Two virtually equal blocs boast firmly established perspectives with little room for flexibility. Between them are the persons most crucial for policy and politics: hedonists. They seek to enjoy life, adopt views of happiness and comfort, and, in all likelihood, determine the key  prize: election victory!

At Kent, discussions will often times center around the political disputes surrounding the British exit from the European Union and th outcomes of new steps taken by Prime Minister Boris Johnson.

Students and faculty are highly aware that the value of the pound is declining against the dollar and that some beach houses near Kent are for sale. However, this is only relevant to those who need dollars or want to sell a beach house. Some seem to value education less which leads to a drop in student enrollment and translates into less public support for universities. Overall, dislocations are mainly seen as temporary phenomena – so no major changes by voters and businesses are implemented or expected.  Even if there are shifts, primary attention rests with the British Isles, not with the rest of the world.

At Georgetown, there is great interest in international business as illustrated in my seminar on “International Trade: ‘The Insiders’”.  Students were given the following prompt, “In case of a trade war, which international products would you be willing to give up and which ones would you stress to keep?”

Students generally agreed they could not do without their foreign-made consumer electronics and technology. “I am extremely reliant on Chinese made Apple products in my everyday life,” was a typical statement.

Low-tech was important too.  Examples were an unwillingness to sacrifice foreign pencils and pens, because of other countries’ comparative advantage in quality and price.

There was a split and much disagreement regarding clothing. Some believed it would be a necessary industry to bring back to the U.S. Others felt the increase in prices would hurt low-income and middle-class families, an issue of personal responsibility or promulgated by those who enjoy the good life.

Respondents also disagreed on automobiles. Some felt U.S. consumers should have access to foreign automobiles, because they “tend to be of higher quality in luxury, performance, and fuel economy”.  Those who believe that the U.S. should stop importing cars also extoll the value of public transportation and environmentally-friendly options. Economic resurgence of domestic manufacturers was seen as a side benefit. Stop importing products known for exploiting child labor or using harmful labor practices was a strong sentiment.

Food issues drew mixed opinions. Some felt that the U.S. should feed its residents with domestically-produced goods only, while others believed that autarky with domestic agriculture would erode quality of life and hurt the environment. Values were important. Tobacco and other socially harmful products should be abandoned.

Proponents for giving up foreign steel cited America’s heartwarming history. With its production the  US used to have a steel industry that was respected, wide spread, moderately effective and an important employer.

Personal experiences influence what one is willing to give up. “I would sacrifice olives from Greece because I have them right now and I don’t eat them,” said one. “I have

a surplus of nylon clothing that is definitely [not] necessary considering how little I actually go to the gym,” admitted another.  “I don’t want to sacrifice my eating preferences under any circumstances,” a Nutella lover wrote.

Differences in reasoning by students who are the upcoming “young tigers” reflect diverse perspectives, priorities, and preferences. There was little room or willingness to change one’s views. Consequently, any new trade policy will require room for implementation and will face strong variance of support.

Americans have  large and acceptable self interest, which must be understood by policy  makers. I perceive personal self-oriented desires to account for approximately one fourth of the tipping power leading to decisions. These special needs and expectations must be recognized, affirmed, appealed to and rewarded with clear commitments to make and fulfill promises. Ignoring the smiles, the pleasures and the extent to which life is affected by policy and its collateral effects is done at ones’ own peril.  It’s not all economics!

Georgetown First Year Seminar Guest Speaker

We were visited by Mr. Barry Rhoads, Chairman of Cassidy and Associates. He presented his insights on the role of private sector influence on government, establishing and disrupting relationships and the achievement of thought for legislation.

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Mr. Rhoads arrived in Washington as an officer in the U.S. Army, became a tax prosecutor for the U.S. Department of Justice. He is now the head of one of the largest lobbying firms in Washington D.C where he represents interests both foreign and domestic, such as Airbus Industries.

Good Corporate Citizenry, No Longer a Choice But a Necessity

By Victoria Galeano & Jerry Haar

When queried at a 1909 business meeting about the choice of colors available for his automobiles, Henry Ford replied that customers could have any color they wanted as long as it is black. Fast forward to the late 20th and early 21st centuries and consumers today are now in the driver’s seat (no pun intended). Publications such as Consumer Reports, CNET, and a myriad of other independent professional and consumer reviews of goods and services empower buyers, dictating to producers the style, features, and price ranges that consumers seek.

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New World, New Policy: Entrepreneurial Money Produces Residency Permits

A successful Chinese entrepreneur, showed me a news article. It reported that wealthy Chinese could buy an American passport and become US citizens. Is this really true? What are the implications of this visa program?

The US Employment Based Fifth Preference (EB-5) program was established by the U.S. Congress in 1990, to link investment, employment and residency. Three years later, the program language was relaxed from “to create ten direct employment opportunities”, to “directly or indirectly create 10 job opportunities.” This is broad and flexible wording. It is designed for entrepreneurial and wealthy investors outside the US, who fund a new commercial enterprise of  at least $500,000 for investments. Under the program, those entrepreneurs, their spouses and their unmarried children under 21 years old can apply for green cards permitting residency.The objective is to attract foreign investments to the U.S., and to stimulate economic development and job creation.

EB-5 demand has increased rapidly. In 2012, President Obama extended the program. In May of 2017, Congress extended the EB-5 Program until September 2017. There are many supporters.

In 2014, 10 thousand EB-5 petitions were filed with the United States Citizenship and Immigration Services (“USCIS”). Overall, 5,115 have been approved. Over $2.5 billion investments were attracted. An additional $6.2 billion are awaiting federal adjudication. EB-5 capital is also an attractive low cost funding tool for project developers in the U.S. It offers foreign investors a way to permanent residency that is not backlogged by other applications and does not require sponsorship by a US employer.

Throughout the world today,  numerous programs like the EB-5 have been established. In Australia for example, foreign investors are granted the opportunity to immigrate, but only receive temporary residency for four years. An investment of AUD $1.5 million in an Australian company ( U.S $1.2 million) is required. France allows foreign investors to obtain residency for 10 years by making a “long term  and non-speculative investment of at least € 10 million (U.S $11.8 million) in industrial or commercial assets.”

There is a standard moral objection to the EB-5 program: The United States should not be in the business of selling the right to live there. This claim suffers from a slight misunderstanding. In effect, the government gives the visas away — to profit-making businesses that have jumped through the program’s requisite bureaucratic hoops. Then the companies can solicit investment based on the promise of permanent residency. In spite of ten thousand slots a year, 40,000 investors still wait for a green card. Obviously investor needs have not been met.

Investment immigrants are in high supply. The U.S government should use the opportunity and open the gates to them. The U.S. has an immigration culture, with a spirit willing to absorb both elites and  refugees of the world.

However, change must come; the program needs to be refined in terms of size of investment, number of jobs generated, industry direction, geographic location, and job recipients. I believe that the investment minimum should be $2.5 million, and the American job creation shall be at least 25. Then we can continue this program helping both investors and employees; a noble outcome!

New World New Policy: What Art Tells Us About the Global Economy

dafen-oil-painting-villageProfessor Michael R. Czinkota

The modern world of art offers fascinating insights into the forces currently shaping world trade and the global economic system. For decades, China has experienced breakneck economic growth and has become a world leader in both the consumption and production of art, which illustrates some intriguing changes in the global economy.

The global market for high-end, rare art pieces is a good example. In recent years, as China grew more prosperous, there has been a sharp uptick in luxury art purchases by Chinese customers. In 2016, according to insider information, Oprah Winfrey sold a 54”x54” painting to a Chinese collector for $150 million. This example indicates how China has grown in its appreciation of originals. This shift perhaps presages an eventual reduction in counterfeit products for which China is still infamous. Chinese auction houses have also risen to prominence. Of the world’s top ten art auction houses, six are Chinese, and many of the largest art houses are state-owned enterprises.

In the art world, China has not only become a dramatic consumer of art, but also a prodigious producer. The southern Chinese city of Dafen, nearby to megacity Shenzhen which borders Hong Kong, has become the center of knock off art masterpieces. Beginning in the 1980’s reform era, Dafen became a hub for starving artists from around the country to work and train, pumping out high-quality knock-offs of famous European and American painters ranging from van Gogh’s Sunflowers to portraits of Western icon John Wayne. Artists produce these works on the cheap and can offer custom alterations, such as changes to the color or size to fit the purchaser’s own décor. Since the works are not signed, they do not count as fakes.

The producers of export knock-off masterpieces will face pressure to adapt, focusing more on creativity and original works. When Chinese artists copy the great masters, they hone their skills and imagination, which over time will allow them to eventually emerge as new artists in their own rights

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