Categories
Select Country
Follow Us
Perspectives

Bill Reinsch: Danse Macabre on Trade

With debate about trade heating up in Congress, the inevitable list of rumors and speculation about the potential negative fallout has begun. These rumors are overblown.

 

It’s a new Congress, but the same debate over trade. Just as lawmakers are about to take up legislation that would grant President Barack Obama Trade Promotion Authority (TPA) to negotiate free trade agreements, the parade of horribles has begun:

My personal favorite, proving that this debate is timeless, goes back to the U.S.-Canada Free Trade Agreement (FTA) in the 1980s: “Free Trade Called Threat to Day Care.” The good news is that Canada’s children survived that crisis, just as the world will survive the other presumed disasters created by trade agreements.

These allegations ignore the fact that TPP and TTIP are still being negotiated, so any conclusions about their contents are premature. They also ignore the fact that the critics, for the most part, have not had access to the actual draft texts of the agreement that might provide a basis for their charges. There is an irony here: the agreements are criticized because they are secret and also because their contents are objectionable — even if we don’t know what is in them. That raises the issue of transparency of the negotiations — a discussion for another day.

More importantly, these assertions are wrong. But, as is the case with all good allegations, they’re not made up out of whole cloth. Critics can always point to a provision or two in a trade agreement that in their minds will inevitably lead to a horrible consequence, or they can always trot out an economic theory to prove their point.

Take the first one above about job losses. This comes from an Economic Policy Institute (EPI) blog post that makes the same point the think tank has made a number of times over the years — imports cost jobs. The argument is based on an assumption that the jobs “lost” due to imports from a particular source — Korea or China are good examples — would be regained in the United States if the imports stopped.

The truth of that probably varies from case to case, but most economists would probably agree that the more likely result would be a shift in imports from one location to another. In other words, if the U.S. were to withdraw from its free trade agreement with Korea, the increased imports from Korea that EPI has identified would not simply be replaced by American production (and therefore jobs) — they would more likely be replaced by imports from other countries in Asia.

The truth, perhaps an unfortunate one, is that the United States is no longer the low-cost producer of many items. Unless we stop taking in imports from everywhere, which would be a historic mistake, the arrival or departure of a trade agreement is just going to shift things around rather than create U.S. jobs in industries where we are not competitive.

That said, it is certainly true that trade agreements have cost jobs — and the new agreements being negotiated will probably do so as well. But they also create jobs, and we should look at the net result rather than focusing on only one side of the equation. For example, we know that the Generalized System of Preferences (GSP) program that cuts tariffs on key imports from developing nations supports 82,000 U.S. jobs, and its expiration has led to small businesses across the country cutting jobs and deferring new hires.

Unfortunately, as a Democrat, the fundamental principle of trade policy for my side of the debate is that losses tend to be short term and specific, while gains tend to be long term and diffuse. The “losers” in a trade agreement self-identify very quickly and very loudly. The “winners” often don’t know they have won and don’t figure it out for several years — such as companies that are competing with state-owned enterprises in our potential TPP partner countries.

However, that is a political problem — not an economic problem. Congress has historically been smart enough to figure that out in the course of studying and then debating a proposed agreement.

So much for one of the horribles in the parade. Others will inevitably follow.

 

Bill Reinsch is President of the National Foreign Trade Council.

 

 

 

 

Subscribe to our GE Brief