Commentary

Democrats Create Pessimism About Trade Prospects

By Sallie James
This article appeared in Detroit News on January 14, 2008.

As the Democratic candidates jockey for position in the primaries, free trade has taken a more prominent role than anyone expected. Exit polls in New Hampshire on Tuesday showed the economy was the No. 1 issue for voters there, with Democratic voters more concerned than Republicans. With economically floundering Michigan the next stop this Tuesday, we can expect more demagoguing on trade from the candidates.

Last week, the trade-skeptic activist group Iowa Fair Trade Campaign (whose name tells you all you need to know) sent a letter to all the candidates, asking for their views on “an acceptable trade and globalization policy.” The results are revealing, if disheartening for advocates of more liberal trade and economic growth.

Overall, the five Democrats (the only respondents at press time) lay out an agenda more preoccupied with fair labor rights and environmental standards than the free exchange of goods between people who want to sell them and people who want to buy.

Clinton

Of the three top Democratic candidates, Sen. Hillary Clinton’s letter was the least strident. She pledged to review all existing trade agreements and craft a “comprehensive, pro-America trade policy.” There was much talk of plans, distributing the economic benefits of trade (well, at least she acknowledges they exist) and a “comprehensive innovation agenda to encourage the development of new product and industries” (as if the market doesn’t do that already).

Edwards

Clinton’s measured response stands in stark contrast to that of John Edwards, whose letter to the trade campaign rails against “special interests” and those who would “exploit workers.” Among the general and predictable criticisms, a few statements stand out as especially alarming. Edwards claims trade causes “downward pressure on every worker’s wages” and calls for “not (trading) with countries where being a trade-unionist means putting your life at stake.”

If Edwards literally meant not trading at all with those countries, then Americans could see their exports to and imports from many trading partners reduced dramatically. Our trade with Colombia, where murders of trade unionists have held up passage of a trade pact, amounts to $15.5 billion a year. Does Edwards truly mean to give that up?

Edwards’ proposal to “let our WTO trading partners with which we have material deficits know that the current WTO constructs are simply not working” — presumably as a prelude to “fixing” them — is badly misguided. Will Edwards welcome the inevitable phone calls from countries with which the United States has a material trade surplus, asking for a similar renegotiation of the rules to satisfy their own mercantilist impulses?

Many of Edwards’ proposals are based on easily refutable claims.”

Many of Edwards’ proposals are based on easily refutable claims. For example, amid booming international trade in the past decade, the American economy has added a net of more than 11 million jobs. The President’s Council of Economic Advisers estimates that only three percent of mass layoffs result from import competition.

Finally, Edwards links his trade policy to the broader theme of his campaign, the bold declaration that “NAFTA and the WTO (work) for insiders and special interests but leave American workers in the cold.”

Edwards here has the metric precisely backwards: lowering trade barriers lowers the prices of imported goods for everybody, even if workers employed in competing firms lose their jobs or see lower nominal wages. In other words, lowering trade barriers benefits the many at the short-term expense of the few. And that is before taking into account the benefits from more product variety, productivity growth and rising living standards that more liberal trade brings.

Obama

Barack Obama’s letter also misses this fundamental point and indicates his preference to put “working people ahead of special interests and Washington lobbyists.” He boasts about voting against the Central American Free Trade Agreement and explains his vote in favor of the free trade agreement with Peru in terms of its provisions on labor and environment. Obama wants to add enforceable labor provisions to, among other deals, the World Trade Organization, which would surely see the end of any further progress in global trade talks for the foreseeable future.

Similarly, he wants to “fix” the North American Free Trade Agreement and “reinvigorate” the U.S. manufacturing sector, which actually saw a record year of outputs and profits in 2006.

The primary process always yields extreme positions before candidates move to the center for the general election. Let’s hope that the end of the primaries brings with it some clearer thinking.

Sallie James is a trade policy analyst at the Cato Institute, a libertarian research group in Washington, D.C.