The Democratic Party under the leadership of President Bill
Clinton was largely pro-trade and pro-globalization. Witness the
102 Democratic votes for NAFTA in November 1993 or the 105
Democratic votes in favor of normalized trade relations with China
in July 1999. But after major losses in 2000, the party spent six
years completely out of power and became increasingly hostile to
globalization. There were just 15 Democratic votes in the House in
favor of the Dominican Republic-Central America Free Trade
Agreement (DR-CAFTA) in 2005 and 22 in favor of the Oman trade
agreement in 2006.
Republican support for free trade has slipped markedly as well.
While House Republicans voted overwhelmingly for recent trade deals
such as DR-CAFTA, Oman, and Bahrain, there is much more to
promoting free trade than trade agreements. A number of other
indicators are more worrisome. Consider the relatively
large numbers of Republican votes in the House that supported
these policies:
- Forcing China's state-owned oil company, CNOOC, to back away
from its successful bid to buy the oil company Unocal in August
2005;
- Forcing Dubai Port World to withdraw its bid for U.S. ports in
early 2006;
- Requiring or authorizing punitive measures against China for
pegging the yuan to the dollar;
- Maintaining current agriculture programs, when reform could
break the Doha logjam; and
- Requiring the Department of Agriculture to require country of
origin labeling.
In the months since the 2006 election, both Republicans and
Democrats have sounded increasingly skeptical of trade. For
example, GOP presidential candidate and sitting House Member Duncan
Hunter recently said in a speech to conservatives,
"And I can tell you that as president of the
United States, I will junk the bad trade deal that we currently
have with China. More importantly, I'll stop their cheating on the
one that we have right now. We're going to have a new policy with
respect to trade deals."
This spring, representatives and senators will have their true
trade colors tested during a critical time. The President's trade
promotion authority (TPA) expires on June 30 of this year, just as
the World Trade Organization (WTO) is inching toward agreement on
its Doha round. All the rhetoric about "protecting" Americans from
trade will be put to the test every time a bilateral deal is voted
on, and especially when Doha and TPA votes are taken.
For the record, the last five-year renewal vote on TPA was back
in 2002. There were 190 Republican "yeas" and 27 Republican "nays,"
compared to 25 Democratic "yeas" and 183 Democratic "nays."
Sadly, even if a negotiating breakthrough in the Doha
round were to occur today, the legal details and review time would
delay a vote on the final agreement in Congress until after the
current TPA expires. So the real challenge is this: Will Congress
grant American negotiators the authority to close this multilateral
deal?
Those who have followed the tortuous progression of Doha know
that special interest groups in many countries are scheming to
abort this round, notably European agribusiness. The protectionists
in Europe are undoubtedly dragging their feet at the negotiating
table, hoping that dithering by the U.S. Congress absolves their
own sloth. Likewise, anti-globalists on Capitol Hill are happy to
see agonized good-faith sloth among Doha negotiators, making any
sloth on their part seem inconsequential.
Meanwhile, some Democratic Members who believe in the power of
trade against poverty are working with the Administration to hash
out a workable compromise on what a new TPA might look like.
Representative Charlie Rangel (D-NY), Chairman of the Ways and
Means Committee, is leading the effort to carve out common ground.
This effort is commendable.
But for those who promote economic freedom, the entire spectacle
is somewhat deceiving. Free trade is dead, living on in
policymaking as a euphemism for conditional trade deals.
"Yes, Peru, Americans will trade 'freely' with your citizens on
the condition that you do X, Y, and Z." This is not the
American way; conditional interstate commerce among the United
States was made unconstitutional in 1789 precisely because the
Founding Fathers recognized the pettiness and gross inefficiency of
protectionism.
Paulson Calls Out Protectionism
Sensing this bipartisan slide toward protectionism, Treasury
Secretary Hank Paulson has responded with very principled arguments
in favor of American openness. Paulson started calling a spade a
spade in his first speech as Treasury Secretary on August 1, 2006,
in which he said of protectionism, "Sadly, I have seen this mindset
paralyze the Doha round of global trade negotiations."
Exactly seven months later, Paulson gave an even harder hitting
speech before the Economic Club of Washington:
Despite our healthy economy and rising living standards, more
and more Americans seem to doubt that trade brings greater benefits
than costs. Some politicians from both parties, reflecting what
they are hearing from their constituents, are moving further toward
embracing protectionism. This is a worrisome trend. And it is a
trend we must resist.
A number of Secretary Paulson's vital points bear repeating:
- "Our dynamic economy…does create dislocations and
anxiety." However, trade should not be the "scapegoat" for that
anxiety because "the global economy is here to stay."
- "More than 57 million Americans are employed by businesses that
engage in international trade." Losing jobs to China or NAFTA was
and is a bogeyman, especially in light of the more than 7 million
new payroll jobs created since mid-2003.
- Imports are good for the U.S. economy. "[L]imitations on
imports do not benefit the vast majority of Americans. They deny
people the freedom to choose from a broader array of goods and
services, and impose a cruel tax on people who rely on low prices
to stretch their family budgets."
- American wages are thriving, not declining. "Globally engaged
U.S. multinationals on average pay their employees about 20 percent
above the national average."
- American industry is thriving, not declining. "America is the
world's number one manufacturer, accounting for more than 20
percent of worldwide manufacturing value-added-that's more than
Japan, twice as much as Germany, and more than 2.6 times as much as
China. We manufacture more today than we ever have in our
history-seven times as much real output as in 1950, with about the
same number of workers."
- America needs to rethink the way it categorizes workers.
"Service industries, which account for 80 percent of employment in
America, [include] our ten highest paying industries." It is high
time official statistics refine the employment category "Service"
with narrower categories, such as "knowledge," "trade," "health,"
and "government."
The Global Economy Is Here to Stay
Every year, global economic integration deepens. Inaction in
promoting new agreements will not slow the growth of trade, only
the acceleration of the growth of trade. Trade flows have been
expanding for centuries, long before preferential, multilateral
arrangements existed.
Yes, increased trade via the WTO would be more grease for the
machine of growth. A deal on the Doha round would be worth billions
for U.S. prosperity and for development worldwide. But a larger
test is whether the U.S. becomes actively protectionist with the
passage of targeted tariffs aimed at "currency manipulators" or
"non-marketing economies" (NMEs). These are dangerous policies, and
one can only hope that support for them-in all parties-is still in
the minority.
The largest trade deficit in American history occurred just last
year, when imports of goods and services exceeded exports by $763.6
billion. As a percentage of GDP, this measured 5.8 percent, the
same as the year before. Contrary to the naysayers' fretting, there
is no harm in a high trade deficit. Jobs are plentiful,
unemployment is low, and American productivity is the envy of the
world. Indeed, many economists believe the goods deficit is a
consequence of America's investment surplus and will only recede
when America becomes less friendly to entrepreneurship. None other
than Ben Bernanke, the Federal Reserve chairman, suggested this
direction of causality with his "global savings glut" theory.
On March 9, 2007, the government reported that the January trade
balance had narrowed slightly from the month before-exports up by
one and a half billion, imports down by one billion. But is this an
improvement? As Secretary Paulson remarked, "The last time we ran a
trade surplus our economy was in recession."
Tim Kane,
Ph.D., is Director of the Center for International Trade and
Economics at The Heritage Foundation.