Mon, Jul 02, 2007 page9

• America's free trade agenda crumbling despite the many benefits

  • By Doug Bandow
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  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.

  The recently negotiated FTA with South Korea is particularly important since Seoul has been moving closer to China. Agreeing to a FTA with Taiwan could help ease that country's increased sense of isolation.

  Over the last decade the US economy has generated a net increase of 1 million jobs annually.

  "Off-shoring" has become politically contentious, but economist Jacob Funk Kirkegaard figures that this process is responsible for only about 5 percent of lay-offs.

  That the number of job losses is small in a macro-economic sense obviously does not help those who end up unemployed. But using trade barriers to hold jobs costs on average more than US$230,000 per job; in some industries the cost to US consumers is nearly US$1.4 million per "saved" job.

  Other nations pay a similar price. Unfortunately, there are growing numbers of Republicans and Democrats alike who are abandoning their past support for open international markets.

  Yet if there is one incontestable axiom of economics, it is that open markets yield growth and prosperity, rising employment and income, and accelerating technological advance.

  All countries have a stake in continued US support for an open international economy. Global economic prosperity is too important to sacrifice for the political advantage of any political party.

  Doug Bandow is the Cobden Fellow in Free Enterprise with the Competitive Enterprise Institute.
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