America: Fair Weather Free Trader

-- (historic), Commentary, Trade, Uncategorized

The United States has shown courageous leadership in the war on terrorism, but is losing its moral authority in the battle for world prosperity. Recent protectionist backsliding in Washington, not least by a Republican president nominally committed to free trade, undermines America’s credibility with freer trade’s friends around the world. And this dubious prize has been won at the cost of punishing US consumers and invigorating what had been a nearly moribund anti-trade lobby.

Last week’s news photo of a beaming President George W. Bush signing a protectionist farm bill he had earlier sworn to oppose, was seen in newspapers around the world. The intellectual spirit behind free trade may be willing in the US but the political flesh is weak.

Yet that intellectual spirit, the case for freer trade, is far stronger than the protectionist one. Trade has consistently grown faster than domestic economies in most of the postwar era. Thus economies open to trade have prospered the most, while closed economies have seen the world pass them by. Compare Switzerland, Taiwan and Singapore with Cuba, North Korea and Burma. Or compare the India and China of old with the prosperity they enjoy today under more liberal economic arrangements.

No one has benefited more from freer trade than the United States. One of the chief effects of free trade is that it pushes individuals and businesses to do what they do best. Thus US businesses have progressively abandoned old industries, such as furniture, shoes and steel, turning instead to industries where America knows no peers: software, films, financial services, biotechnology, medical services, post-secondary education. And excellence can charge a premium. U.S. Trade Representative Robert Zoellick has estimated that jobs supported by exports pay as much as 18 percent more than other jobs.

But gains from trade only occur when more productive businesses supplant the old, less competitive ones. There are winners and losers, although the gains from trade are normally more than enough to compensate the losers and leave the general standard of living higher. Still, the populist appeal of “protecting” jobs and workers from foreign competition is obvious.

While the progress of freer trade has always been fitful, however, for decades the momentum has been forward. Political leadership has been vital to keeping that momentum going. Remember when Democratic Vice-President Al Gore wiped the floor on television with anti-free trade populist Ross Perot?

Today feels different. It’s not just the farm bill, however egregious the damage that it perpetuates to farming in America and abroad. It’s also the abuse of anti-dumping rules whereby America, free trade’s most powerful voice in the world, is also the largest user of this arbitrary anti-trade procedure. It’s the new tariffs on imported steel to protect an industry that already got over $1-billion in taxpayer-funded subsidies between 1980 and 1992. It’s the huge barriers thrown up against Canadian lumber, in effect a $1500 tax on each new house built in the US. It’s the textile tariffs and quotas. It’s the continuing failure to grant Trade Promotion Authority (TPA) to the president.

There are some signs of progress. But compared to the agenda that must be vigorously pursued if America and its trading partners are to unleash the prosperity that trade can create, baby steps such as free trade negotiations with Singapore and Chile hardly register.

What does register with the many opponents of free trade around the world is that America is only a fair-weather free trader. Opponents of freer trade in Canada and elsewhere gleefully point to each of America’s protectionist relapses as further proof that it will never really be restrained by negotiated trade agreements. If America is to be protectionist, than so must we, goes the refrain heard in capitals the world over.

The only way out is for America resolutely to take up again the leadership of the movement for global economic freedom. The President must aggressively seek approval of an unrestricted TPA. Supporters of freer trade in Washington must show that protection for steel and textiles and agriculture and lumber hurt the average American more than they benefit protected producers. Free trade begets low prices and plentiful goods.

Protection fosters scarcity and high prices. No prize for guessing where consumers’ interests lie. Washington best combats the abuses of its trading partners from the moral high ground of principle and scrupulous respect of trade rules rather than by proving it can bully with the best of them.

Access to America’s markets is the main prize that drives the rest of the world to seek freer trade. But America must set a high standard for trade behaviour, or free trade’s international supporters will lose the political argument. America, and the world, have gained too much from trade liberalization to risk it now.