The Entrepreneurial View #454
Trade Talk
by Raymond J. Keating
International trade is a hot topic again. Unfortunately, the clear and enormous benefits of free trade are at risk of being lost in a murky fog of pandering, populist politics.
Consider a few recent developments.
First, there was some good news out of Costa Rica on Sunday, but just barely. Costa Ricans went to the polls and gave a thumbs up to CAFTA, the free trade agreement between Central America and the U.S. According to The Financial Times, with 96 percent of the vote counted, 51.6 percent of voters were in favor, with 48.3 percent opposed. Costa Rica is the only CAFTA signatory that has not yet ratified the deal.
Second, Secretary of State Condoleezza Rice in an October 9 speech at the Organization of American States made clear how important it is for Congress to pass the three pending trade agreements with the Latin American nations of Peru, Panama and Colombia. Rice noted that if the agreements are not ratified, "it would send a signal loud and clear across the region that the United States cannot be trusted to keep its promises."
For good measure, the New York Times editorial page on October 8 wrote with general approval of a letter from "a group of former Democratic leading lights from the Clinton White House and Congress telling their Democratic brethren on Capitol Hill to get their act together and pass the pending free trade agreements with Peru, Panama and Colombia." The editorial was correct in adding: "In economic terms, the letter should have also recommended passing the pending agreement with South Korea."
Third, during the October 9 debate among Republican presidential candidates, most spoke strongly in favor of benefits of free trade, and noted the ills of protectionism. However, there was some anti-trade sentiments expressed, but fortunately, those were largely limited to a couple of candidates going nowhere.
The economic benefits of trade are not in serious dispute. It is one of those few areas where most economists are in agreement. That fact means that even Secretary Rice, the leading Republican presidential candidates and the New York Times editorial page can deliver the same message.
Fourth, the tale on the Democratic side, though, is more starkly protectionist. Not only is the Democrat-led Congress delaying the Peru, Panama, South Korea and Colombia trade deals, but it did not renew trade promotion authority for the President. In addition, the Democrats' leading presidential candidate, U.S. Senator Hillary Clinton (D), told USA Today (reported on October 9) that NAFTA has cost U.S. jobs. She wants to adjust NAFTA, and postpone any new free trade agreements. Such blatant, misguided protectionism coming from a leading major party candidate is deeply worrisome.
Finally, there is the puzzle of the polls. A Wall Street Journal/NBC News poll released on October 4 is getting lots of attention. That poll indicated that 59 percent of likely Republican voters said that foreign trade is bad for the U.S. economy. That's deeply disturbing, given that Republicans tend to be far more positive on trade than Democrats. But, as columnist John Podhoretz has pointed out, on the same day, the Pew Center released a poll pointing to 59 percent of Americans supporting free trade.
Perhaps the most we can take away here is that here is more evidence that the way questions are asked in polls can lead to dramatically different results.
In the end, the U.S. cannot and should not become isolationist and protectionist in its economic dealings with the rest of the world. That would be economic suicide. We tried it once before, and the result was the Great Depression followed by World War II.
We also cannot afford to stay in place while world trade and economic growth advance. Keep in mind that total trade (exports plus imports) in 2006 equaled 28.6 percent of the U.S. economy. That's up from 7.8 percent in 1960.
Consider a few other points made by the U.S. Trade Representative's office on the benefits of free trade for the U.S.:
• "Manufactured exports support more than 1 in 6 manufacturing jobs (according to the Dept of Commerce), and an estimated 5.2 million jobs in the U.S. (estimate for 2002)."
• "Agriculture exports support 926 thousand jobs in the U.S. (estimate for 2004 by Dept of Agriculture)."
• "U.S. jobs supported by goods exports pay more: an estimated 13% to 18% more than the U.S. national average. Reducing trade barriers will spur greater exports and the creation of more, higher paying U.S. jobs."
• "Today, U.S. annual incomes are $1 trillion higher, or $9,000 per household, due to increased trade liberalization since 1945 Source: Institute for International Economics (IIE)"
• "The two major trade agreements of the 1990s - the North American Free Trade Agreement and the Uruguay Round - generate annual benefits of $1300-$2000 for the average American family of four."
• "If remaining global trade barriers are eliminated, U.S. annual incomes could increase by an additional $500 billion, adding roughly $4,500 per household Source: IIE"
For good measure, free trade is good for entrepreneurs and small businesses. As the SBA's Office of Advocacy has noted, small businesses "made up 97 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004."
Trade has been a tremendous source of growth, jobs and entrepreneurial opportunity. Putting that in danger or on hold means placing the entire U.S. economy in the same position.
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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
This article may be reprinted with appropriate citation and credit.
