Foreign Relations Federalism: The Promise of Targeted Retaliation, in Alabama

I’ve been arguing for some time (here, here, and here, all pre-SSRN) that the globalized economy enables the world to directly discipline US states in the context of foreign relations and human rights, and that this in turn erases the need for a dormant federal foreign affairs power.

The thumbnail version: in the old world, state-level foreign relations activity involved intolerable externalities to the extent international actors held the nation responsible for state-level misdeeds, along the lines of Hamilton’s “the peace of the Whole ought not be left to the disposal of a Part.”  That’s no longer a problem if international actors hold states discretely responsible, and put their money where there mouths are, through boycotts or redirected foreign direct investment. The situation becomes self-correcting, eliminating the need for judicial intervention and any departure from ordinary federalism baselines.

The institutional logic has always seemed pretty strong to me, and globalization supplies the tools.  The problem has been (loosely speaking) an empirical one.  There aren’t too many examples of targeted retaliation on the ground (for a small handful, the most interesting one involving California’s unitary taxing scheme that ending up being upheld in Barclays Bank, but later repealed, see pp. 1261-70 of this).

Along comes Alabama’s recent immigration law H.B. 56 (immigration law is inherently a foreign relations issue because it implicates citizens of other countries).  From an editorial in today’s NYT, on the “price of intolerance”:

A growing number of Alabamians say the price will be too high, and there is compelling evidence that they are right. Alabama is already at the low end of states in employment and economic vitality. It has long struggled to lure good jobs and shed a history of racial intolerance.

That was turning around and many foreign manufacturers, including Mercedes-Benz, Hyundai and Honda, have set up there. Its business-friendly reputation took a serious blow with the arrest in Tuscaloosa of a visiting Mercedes manager who was caught driving without his license and taken to jail as a potential illegal immigrant.

Sheldon Day, the mayor of Thomasville, has aggressively recruited foreign companies to his town, including a Chinese company — Golden Dragon Precise Copper Tube Group — that plans to build a $100 million plant there, with more than 300 jobs.

Mayor Day is now worried about that project and future prospects. He was quoted by The Press-Register in Mobile as saying business inquiries had dried up since the law was passed. “I know the immigration issue is being used against us.”

Alabama’s competitors certainly won’t waste any time. After the Tuscaloosa incident, the editorial page of The St. Louis Post-Dispatch invited Mercedes to Missouri. “We are the Show-Me State,” it said, “not the ‘Show me your papers’ state.”

A similar story has been unfolding in Arizona with respect to SB 1070.  The equation is pretty simple. Anti-immigration measures look good to state legislators until they lead to lost jobs. Other states see an opportunity to attract foreign business with a more accommodating attitude. Bad state learns a lesson, steps back from offending law.  Competitive federalism at its best.