Diary

Free Trade: Yes or No?

Practically every article I read on this subject suggests that the Republican majority in Congress and the Obama administration can easily find common ground and pass any pending free trade agreements.  So what is the hold up?  [mc_name name=’Rep. Paul Ryan (R-WI)’ chamber=’house’ mcid=’R000570′ ] has recently mentioned that he intends to put this at the front of his agenda on the House Ways and Means Committee and get something done.

The interesting thing about the whole controversy is that everyone, in theory, is for free trade between countries.  What the Left objects to is the process and what the debate concerns is the concept of “fast tracking.”  Fast tracking first occurred in 1974, but the process has since expired.  Obama wants Congress to renew provisions that allow him to fast track trade agreements, especially the Trans-Pacific Partnership (TPP) and an agreement with the European Union.  When fast tracked, it allows the Executive to complete trade agreements, sign them and then send them to Congress.  Congress, in turn, cannot offer amendments and the treaty is subject to an up-or-down vote.  Thus, the debate is not so much about free trade per se as it is about the process.  Ironically, this has united some Tea Party people who say that Obama cannot be trusted and some liberals who claim he is sacrificing gains they fought for over many decades in the area of labor law, the environment and consumer advocacy.

Looking at the liberal objections, their primary concern is the loss of US jobs.  Several studies have shown that on net balance, job LOSS is minimal, if present.  Being the misinformed rubes they tend to be, they confuse job loss with job displacement.  It is true that free trade agreements can create job displacement in the United States and the numbers can be quite “disturbing.”  But, job displacement is not the same as job losses.  Technically speaking, 10,000 farmers becoming brain surgeons counts as 10,000 jobs displaced.  Is that such a bad thing?  In the area of labor, they also point out that foreign companies would be less inclined to set up business in the United States given our minimum wage laws.  Ironically, they are making a great argument against minimum wage laws in general and minimum wage increases in particular.

A second area where they object involves the environment.  However, like most liberal objections, facts often get in the way.  We heard these objections before with respect to NAFTA.  There is no evidence that so-called polluting industries automatically migrate to countries with more lax environmental regulations.  These same people were upset a few years back when a GATT ruling against the United States resulted in the import of yellow fin tuna products from Mexico.  Their objections had nothing to do with the tuna but the number of dolphins killed as a result of fishing.  When presented with the evidence that US fishermen kill more dolphins than their Mexican counterparts, we find that the environmentalist-induced ban on Mexican yellow fin tuna was a hollow argument.

Take the example of DDT use.  Not content with its ban in the US, environmentalists now insist on a worldwide ban despite evidence that suggests the initial scare was overblown.  Yellow fin tuna and dolphins are one thing, but human lives are another.  India, thankfully, did not fall for the environmentalist propaganda based on shaky, inconclusive science and in a single decade of use reduced malaria deaths 98%.  In short, the environmental objections are based on emotion, not rational analysis and should just be discounted.

It is also a fact that as the per capita income in developing countries increases, so does their environmental stewardship.  And make no mistake, free trade increases a country’s per capita income.  In the countries with the greatest amount of free trade and the underlying institutions that allow for it, per capita income averages $28,155 while in those with closed, protectionist policies, per capita income averages $3,420.  And if the environmental crowd needs any more proof of the fallacy of their arguments, China is a largely closed, protectionist economy AND the world’s largest polluter.  Furthermore, free trade agreements would facilitate the export of American technology to address these environmental concerns in foreign countries without resorting to the draconian solutions of the environmentalists who seem to desire a return to a pre-Colombian lifestyle.  Their desire is a simpler, low-technology world which translates into a race to the bottom when we should be encouraging the rest of the world to race to the top.

The TPP is very important since it involves countries that are traditional allies of the United States- Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and (not an ally) Vietnam.  Just in the area of agriculture alone, one can see the benefits.  Malaysia imposes a 40% tariff on US poultry exports- a tariff that would be voided under TPP.  The United States excels at producing food and if for no other reason this should be a selling point for TPP among farming state legislators.

The trickier parts of any agreements involve the more complex areas like services- namely, banking, transportation, communications, investment.  Unfortunately, many of these countries have state-owned enterprises, particularly Vietnam, that give them an unfair advantage against American exports.  If not state-owned, there are also government policies which create a bias for domestic services.  One area of concern- and the liberals in the US regularly try this ploy- is “local ownership requirements.”  These require that American made products be used in construction when the more logical and cheapest solution is use to the lowest bidder regardless of country.

Most importantly, free trade agreements allow each country to concentrate on their strengths and weaknesses.  We are repeatedly told by Leftists that American products are the highest quality, that our steelworkers are the best, that our technology is the best, that our farmers are the best.  Although they are correct in this assessment, they then construct barriers that do not allow our workers to demonstrate their strengths on the open market.  Our steel may be the best in the world, but the cost- given labor costs- prices us out of the market.  Our food may be the best in the world, but our domestic agriculture policy creates friction with other countries and they block that superior food.  Our technology may be the best in the world, but the world can never realize this fact because of silly, unsubstantiated environmental fears.

I am fully cognizant of the conservative’s trepidation when it comes to the Obama administration and fast tracking free trade agreements.  Perhaps, a modified fast track system could be approved where a limited number of amendments can be debated under specified time rules.  If there is truly agreement between Republicans and the Obama administration here, then surely some compromise could be worked out.  The fact is that it is the Leftist Democrats in Congress who are holding up any progress that could open Pacific markets to American goods and services.  If for no other reason, it would send a strong signal to China whom both conservatives and liberals alike consider the greatest trade threat to the United States and it would thwart their designs in the Pacific.