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Free trade agreements win-win for U.S.

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Free trade agreements win-win for U.S.

Bandow Op-Ed in the Politico

Support for free trade long has transcended party politics in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />America. But that era officially ended with the expiration of presidential "fast track" negotiating authority at the end of June.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Lest the U.S. give up on its effort to continue liberalizing the international economy, the Bush administration and Congress need to work together to renew what is formally known as trade promotion authority (TPA). Reductions in trade barriers offer enormous economic benefits. Over the years, large-scale negotiations, such as those through the World Trade Organization, have dramatically opened the world economy.

Unfortunately, the so-called Doha round has stalled over farm subsidies, with the latest attempt to break the deadlock collapsing in late June. Bilateral and regional agreements are the main alternative. Four free trade agreements (FTAs) currently await congressional approval. But the Democratic Congress has been critical of the accords and TPA, under which they were negotiated. The administration agreed with House Democratic leaders on a new, supposedly bipartisan trade policy incorporating enhanced environmental and labor regulation. But any such provisions will limit the benefit of any resulting FTAs. Trade creates wealth and, ultimately, more -- and better -- jobs. Overall, trade, production and employment tend to expand together. An expanding economy boosts demand for both imports and domestic products.

As Richard Fisher and Michael Cox of the Federal Reserve Bank of Dallas noted, "Larger markets give companies a wider field to search for scarce capital, cheaper inputs and human talents. They provide added impetus for innovation, business formation and risk-taking." Americans have prospered as globalization has intensified. "Over the past 20 years, as these forces have accelerated, the United States has benefited enormously," wrote Newsweek's Fareed Zakaria. "America has grown faster than any larger industrial economy during these years: Over the past two decades, American per capita GDP has roughly doubled. The median income of a family of four rose 23 percent between 1985 and 2005." Further liberalization would yield substantial additional gains. Federal Reserve Chairman Ben Bernanke estimates that dropping all trade barriers would increase household income in the U.S. by between $4,000 and $12,000, a particularly notable gain for lower-income families. Other nations would benefit, as well. The fall in manufacturing employment is a global phenomenon. Yet at the same time, American manufacturing output continues to grow. Indeed, average factory worker productivity increased 2.5 times from 1979 to 2005. America's trade deficit remains high, but it is counterbalanced by the inward flow of economic investment. Far from costing the U.S. jobs, explained Cato Institute trade policy analyst Dan Griswold, "large trade deficits are typically associated with more output and more jobs." Free trade also has other benefits. Incorporating South Korea and Taiwan into the international economy raised their incomes and moderated their politics, encouraging democratization.

Freer trade strengthens economic ties with nations in sensitive regions. NAFTA has aided Mexico, America's next-door neighbor and source of substantial illegal immigration, and brought it closer to America in foreign affairs. The recently negotiated FTA with South Korea is particularly important since Seoul has been moving closer to China. Agreeing to an FTA with Taiwan could help ease that country's increased sense of isolation. Despite the many and positive benefits of free trade, it does yield some losers. Yet over the past decade, the U.S. economy has generated a net increase of 1 million jobs annually.

"Offshoring" has become politically contentious, but as economist Jacob Funk Kirkegaard estimates, this process is responsible for only about 5 percent of layoffs. That the number of job losses is small is obviously of little comfort to those unemployed. But attempting to preserve jobs with trade barriers costs on average more than $230,000 per job; in some industries, American consumers have effectively paid nearly $1.4 million per job "saved." Other nations pay a similar price. Unfortunately, growing numbers of Republicans and Democrats alike are abandoning their long-held support for open international markets.

Yet if there is one incontestable axiom of economics, it is that open markets yield growth and prosperity, rising employment and income, and accelerating technological advance. All countries have a stake in continued U.S. support for an open international economy. Global economic prosperity is too important to sacrifice for political advantage.