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Monday, December 11, 2006

Trade and the 109th Denouement
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As the 12-year mostly uninterrupted reign of Republicans on Capitol Hill came to a close over the weekend, some trade legislation was finally approved. This should be cause for rejoicing, but the fact is that these relatively innocuous bills needed to be crammed onto a Christmas-tree bill passed in the dead of night in the December of a lame duck when everyone wanted to go home. That does not augur well for the 110th Congress; hostility can be found in both parties against trade, but it's unfortunately higher in the Democratic Party right now.

I've written here and elsewhere about perhaps history's most articulate trade advocate, the 19th Century wit Frederic Bastiat. He's often referred to as an economist, but perhaps the most accurate description of him would be an economic journalist. Here in the 21st Century, the economic arguments in favor of an open economy and free trade seem irrefutable, yet more and more politicians -- and more and more members of the public -- are turning away from trade. The economists clearly are failing to get the truth across. We need another economic journalist to writ in language people understand, and we need politicians brave enough to do what's necessary to make a more open economy a reality.

It's easy to argue that with trade, a rising tide lifts all boats. With trade, GDP grows and society overall benefits. But it's also easy to ignore the fact that in the short run, certain U.S. industries and certain communities will take a hit.

Look at the opposition to two trade bills in the omnibus package that snuck through Congress over the weekend. One bill ratified a trade agreement we reached with Vietnam. This was defeated last month in the House because it was put on the suspension calendar and couldn't clear the 2/3 vote needed. This bill was the definition of a no-brainer. Vietnam is joining the WTO; it's already winning. It can also strike deals with the EU and other countries. So by rejecting the treaty we signed -- which included significant concessions by the Vietnamese and promises tough IP enforcement in a country that needs it -- we were really hurting ourselves. But a lot of people feel our jobs are being exported to Asia, and the Vietnam treaty was a chance to make a statement.

The other bill -- one that would extend the ability of Haiti to export to the U.S. materials made in Haiti with materials acquired from elsewhere -- should also have met little opposition. To begin with, it's unclear how much Haiti can really overwhelm the U.S. textile industry, but the Carolinas in particular felt threatened, seeing this as an end-around by China and other cheap clothing manufacturers. But haven't we seen over and over again in the last 20 years how much Haiti has suffered, and haven't we been told that we have a moral responsibility to help our neighbor? Extending this provision preserves jobs in Haiti and will lead to further investment and further jobs. Developmental economists talk about the snowball effect that can come from just a little bit of wise investment in an extremely poor country; Muhammad Yunus just won the Nobel Peace Prize for a related concept, microloans. These developments are hardly the panacea for lifting a nation out of poverty, but they are positive steps.

Thus, the economic journalist I hope emerges in favor of trade already has one argument to promote -- doing the morally right thing for developing nations. I'm not much of an interventionist -- I earned my International Relations degree and studied IR at Oxford very much as part of the realist school that is suddenly making a comeback -- but those in both parties who are more inclined to use the U.S. to promote morals abroad should promote trade. But there's also a moral argument to be made at home.

I have no idea why CNN allows "journalist" Lou Dobbs to have his daily outsourcing rant, but he must be generating ratings and he obviously is striking a chord. People have lost their jobs in the U.S. to outsourcing and trade, and they will continue to do so. It makes no sense to tell someone a pie is getting bigger if they can't get a slice. And as we continue to evolve into a knowledge economy and leave manufacturing to countries with lower labor costs, we will see more displacement of manufacturing jobs here. These jobs -- often concentrated in specific geographic regions -- helped create the world's largest middle class, and politicians don't want that middle class to decline on their watch. So we must -- and the libertarian in me is chafing at this -- have a frank dialogue on how the government can help Americans displaced by our expanding open economy: improving K-12 education to preempt problems, continuing education for displaced workers, tax incentives and other initiatives to encourage job growth in blighted areas (I still like Kemp's enterprise zones and feel they weren't sufficiently applied).

I don't claim to have all the answers, or even pretend to have any of them. But I do know that fast-track authority expires next year, and it's hard for me to imagine it being renewed. If other countries know the USTR can't guarantee the deal that is negotiated will be the deal that is voted on, it will make it very difficult for us to close negotiations that are ongoing or initiate new ones. Other countries won't be as hampered. The growth in India and China is astounding; we're far too mature as an economy to ever have growth rates like that again. But if we are to continue to grow, and not to stagnate like Western Europe, one thing we must do in increasingly expand our exports and, yes, take advantage of low-priced imports. We also mustn't be afraid of a trade imbalance; it simply means we're buying more great stuff and saving our money for other uses.

Outsourcing is even hitting the journalism business, with more and more tasks typically associated with newspaper and wire staffs going to places like India. The temptation of displaced members of my former profession will be to go protectionist, like their cousins in manufacturing. But maybe one of them will realize the larger picture, and will use her talent with words to explain the role of trade in our 21st Century economy, and demonstrate the reslience that one can find in the American worker.

posted by Patrick Ross @ 10:35 AM | Capitol Hill , Economics , Taxes , Trade

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