Mon, Jul 02, 2007 - Page 9 News List

America's free trade agenda crumbling despite the many benefits

By Doug Bandow

Support for free trade has long transcended party in the US. But that era officially ended with the expiration of presidential "fast track" negotiating authority on Saturday. Lest the US give up on its effort to continue liberalizing the international economy, the Bush administration and Congress need to work together to renew what is formally known as "trade promotion authority" (TPA).

Mutual reductions in trade barriers offer enormous economic benefits. Over the years large-scale negotiations, such as through the WTO, have dramatically opened the world economy.

Unfortunately, the so-called Doha round has stalled over farm subsidies, with the latest attempt to break the deadlock collapsing late last month.

Bilateral and regional agreements are the main alternative.

Four free-trade agreements (FTAs) currently await congressional approval. But the Democratic Congress has been critical of the accords and TPA, under which they were negotiated. The administration agreed with the House of Representatives' Democratic leaders on a new, supposedly bipartisan trade policy incorporating enhanced environmental and labor regulation. But any restrictions will limit the benefit of any resulting FTAs.

The advantages of free trade are significant. Note Richard Fisher and Michael Cox of the Federal Reserve Bank of Dallas, "Larger markets give companies a wider field to search for scarce capital, cheaper inputs and human talents. They provide added impetus for innovation, business formation and risk-taking."

In this way trade creates wealth, and ultimately more, and better, jobs. Overall, trade, production and employment tend to expand together. An expanding economy raises demand both for imports and domestic products.

Americans have prospered as globalization has intensified. Writes Fareed Zakaria of Newsweek: "Over the past 20 years, as these forces have accelerated, the US has benefited enormously ... America has grown faster than any large industrial economy during these years: over the past two decades, US per capita GDP has roughly doubled. The median income of a family of four rose 23 percent between 1985 and 2005."

Further liberalization would yield substantial additional gains. Federal Reserve Chairman Ben Bernanke estimates that dropping all trade barriers would increase household income in the US by between US$4,000 and US$12,000, a particularly notable gain for lower-income families. Other nations would benefit as well.

The fall in manufacturing employment is a global phenomenon. At the same time, US manufacturing output continues to grow. Indeed, average factory worker productivity increased two-and-a-half times from 1979 to 2005.

The US' trade deficit remains high, but it is counterbalanced by the inward flow of economic investment. Far from costing the US jobs, explains the Cato Institute's Dan Griswold, "large trade deficits are typically associated with more output and more jobs."

Free trade has non-economic benefits as well. Incorporating South Korea and Taiwan into the international economy raised their incomes and moderated their politics, encouraging democratization.

FTAs sometimes yield geopolitical benefits -- strengthening economic ties with nations in sensitive regions.

NAFTA has aided Mexico, the US' next door neighbor and source of substantial illegal immigration.

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