Curse You, Drezner!
It's Hard To Be High And Mighty When You Are A Free Trader
By Pejman Yousefzadeh Posted in Economy | Featured Stories — Comments (1) / Email this page » / Leave a comment »
Dan Drezner's writing is always illuminating. However, from time to time, not only does he illuminate, he depresses as well (read on):
Trade is vital to the U.S. economy. In 1970, the sum of imports and exports was less than 12 percent of gross domestic product. By 2004, that figure had doubled to 24 percent. U.S. exports accounted for approximately 25 percent of economic growth during the 1990s, supporting an estimated 12 million jobs. From agriculture to manufacturing to technology to services, the U.S. economy needs international trade to prosper.
Despite trade's importance to America, U.S. trade policy seem like it is at a standstill. Both the Doha round of world trade talks and negotiation over the proposed Free Trade Area of the Americas are deadlocked. The legislative branch is putting enormous pressure on the Bush administration to punish China for its large bilateral trade surplus. President Bush's Trade Promotion Authority will expire in June 2007, and the political odds of its reauthorization are remote.
Why has U.S. trade policy ground to a halt? Shifts in domestic attitudes and world politics have combined to create one of the least hospitable environments for trade liberalization in recent memory. The most dramatic shift in opinion came from Americans making more than $100,000 a year. According to the Program on International Policy Attitudes (PIPA), support in that income group for promoting trade dropped to 28 percent in 2004 from 57 percent in 1999. A September 2005 German Marshall Fund (GMFUS) survey revealed that 57 percent believe that freer trade destroys more American jobs than it creates, and 58 percent of Americans would favor raising tariffs for imported goods if it meant protecting jobs -- a higher number than in Germany, France, or Great Britain. Healthy majorities believe that trade primarily benefits multinational corporations at the expense of small businesses.
Three political facts of life have caused many Americans to shift their support from free trade to fair trade. (A recent Council on Foreign Relations' report, U.S. Trade Policy, Free Versus Fair, outlines the costs and benefits of these two trade policy options.) First, during times of economic uncertainty, public suspicion of free trade policies explodes into public hostility. Inevitably, foreign trade becomes the scapegoat for business-cycle fluctuations that have little to do with trade. Second, it is particularly difficult to make the case for trade expansion during election years. Trade generates diffuse benefits at concentrated costs. Those who bear the costs are more likely to vote on the issue -- and make campaign contributions based on the issue -- than those who reap the benefits. Third, both advocates and opponents simultaneously inflate the importance of trade while framing the issue as a zero-sum game. Trade is both blamed and praised for America's various economic strengths and ills, even though domestic factors -- such as macroeconomic policy, fluctuations in the stock market, and the pace of innovation -- matter more for America's economic performance.
[. . .]
U.S. trade policy is at a crossroads between pursuing freer trade or fairer trade. A free trade approach would jumpstart Doha by cutting agricultural subsidies or allowing greater cross-border movement of foreign workers; pursuing free trade agreements with South Korea, India, or Japan if the Doha round cannot be restarted, and pledging an all-out political push for the renewal of TPA in early 2007. A fair trade approach would refuse to make further concessions in the Doha round of negotiations until developing countries and the European Union demonstrate a greater receptivity to American exports; halting bilateral free trade agreements with developing countries; and relying more on "managed trade" arrangements, unilateral trade sanctions, escape clauses and safeguard mechanisms to rebalance U.S. trade.
The "fair trade" meme is one of the most pernicious to afflict debate about economic policy in recent memory. To be sure, fair trade really isn't "fair", but the dangers the meme poses to the formulation of trade and economic policy go beyond a mere unwillingness to actually be fair to workers. In the long run, "fair trade" ultimately means "as little trade as possible" and only serves to hinder economic growth.
But as Drezner points out, "fair trade" is easier to sell, which means that it is easier for us to grease the skids towards a recession prompted by Neanderthal trade policies than it is to pursue enlightened policies that augment economic growth and our ability to wield significant economic--and diplomatic--influence. If that doesn't depress the policy wonks amongst the readership, I don't know what will. The wonk writing this blog post is plenty glum, I can promise you.
(Thanks to Greg Mankiw for the link.)
I will put forward two other reasons why our free trade movement has come grinding to a halt. First, the portions of our economy that benefit from domestic subsidies has increased to a point where the pro-business groups that normally push for trade expansion are outnumbered by the grassroots powerhouses of the pro-subsidy domestic businesses. Second, the democrats have abandoned the battlefield leaving it completely to the republicans.
Regarding subsidies, groups such as the Farm Bureau as well as specific farm commodity groups such as sugar, corn, oranges, fish, beef, etc.etc. have sided with manufacturers of steel, aluminum, and other material makers in an unholy alliance to protect the government subsidies and protections that “keep them in business.” While many of these groups have always opposed trade, the difference is that now many of these pro-subsidy businesses are in “red states.” They are fueling the fire for Republicans, nationalists, and protectionists to oppose trade deals that might bring competition to their commodity economies and yes, possibly put them out of business.
When you couple the pro-subsidy anti-traders with the complete abandonment of free-trade by the democrats you can see how difficult passing anything through Congress can be.
Not longer than 20 years ago NAFTA was passed by a Democrat controlled Congress with only a minority of republicans voting for it, and a majority of the democrats voting in favor. Compare that to the recent passage of CAFTA which was done with only a handful of democratic support.
The truth is democrats have been the free trade party up until the last 2 decades, and the republicans have not risen to the occasion and taken the reigns. Republicans from farm states especially, are addicted to central government economic planning in the form of counter-cyclical subsidies, and trade protections.
- JG