The Informationist

Two Cents of Free Trade

Free trade seems to be the topic of the day, so I thought that I would add my two cents.

The dilemma of free trade is that it is always good economics and bad economics. Societies that reduce their trade barriers always gain; those that erect and maintain barriers always lose. But within societies, the gains and losses are uneven. Small numbers of people tend to lose significant amounts, while much larger numbers of people gain small amounts. While the net effect is always positive (hence good economics), those losing the most will fight the hardest (hence bad politics).

In the 1990s, Bill Clinton and Newt Gingrich did the country a huge favor—they took trade off the table. As soon as they left, however, the parties reverted to form. The Republicans refused to renew Clinton’s Fast Track/Trade Promotion Authority. Bush imposed steel tariffs for bald political reasons. The Republican Congress imposed farm subsidies for similar reasons. These actions both destroyed our credibility in international negotiations and repoliticized the issue at home. Democrats have been tripping over each other to prove their protectionist credentials ever since.

Granted, there are legitimate reasons to complain about parts of our trade policy. Our adjustment assistance programs are pathetically underfunded and rarely targeted towards the sorts of retraining and relocation assistance truly necessary for adjustment. Labor unions remain fixated on protecting dead-end jobs rather than on helping their members retrain for the future. The WTO, despite being perhaps the finest rule-based international organization ever formed, lacks transparency. And we continue to write protectionist clauses into our trade agreements—even our best “free trade” agreements are not sufficiently free. But these are all problems that we can address without forcing consumers in the developing world and producers in the developed world to pay the price.

CAFTA may fail because standing for free trade requires political courage. It requires standing up to important constituencies and telling them that though they may deserve assistance adjusting, they do not deserve to impede economic development. Backing CAFTA is not a good way to score political points or to shore up a political base. And anyone paying attention to Washington knows what today’s political leadership values. Politics these days is entirely about running up the score. Until someone decides to put country above party, we’re not likely to see much change.

Bush cynically repoliticized trade while claiming to be a free trader. Is it any wonder that our legislators have responded in kind?

Cross-posted with TPMCafe

Posted by Bruce Abramson from on 07/06 at 01:13 PM in The Not-Quite-Yet Information Economy, American Government, Politics, and Domestic Policies