Supporters of free trade — trade that is free of market-distorting barriers and subsidies — are hard to find in Washington. Even President Clinton, considered a champion of the cause, couldn’t talk about reducing barriers in his recent State of the Union message without on the same page praising the International Monetary Fund and calling for more export subsidies. Meanwhile, Congress is weighing quotas against imported steel and dragging its feet on fast-track trade authority.
A new study by the Cato Institute found that more than 90 percent of senators and representatives tended to favor trade restrictions or trade subsidies, or both, in their votes in the 105th Congress that ended in December. Only 25 House members and 12 Senate members voted a majority of the time on major votes to reduce trade barriers and cut international economic subsidies.
The study examined congressional votes in 1997 and 1998 on 15 major bills affecting international economic subsidies and the freedom to trade. Among the major issues were fast-track trade authority, extension of normal trade relations with China, trade sanctions; quotas on low-priced steel imports; funding for the IMF, the Export-Import Bank, the Overseas Private Investment Corp.; and other subsidies for international trade and investment.
Members were labeled free traders if they opposed both trade barriers and subsidies on a majority of major votes cast, internationalists if they opposed trade barriers and supported subsidies, isolationists if they supported trade barriers and opposed subsidies and interventionists if they supported trade barriers and supported subsidies. (See matrix.)
Trade barriers erected by Congress cost Americans an estimated $70 billion a year by raising prices and reducing competition.
President Clinton represents the internationalist approach, favoring U.S. “leadership” through a policy mix of fast-track-negotiated trade agreements and taxpayer funding of the IMF and Ex-Im Bank. Pundit and GOP presidential candidate Pat Buchanan speaks for the isolationists, denouncing the IMF and free trade alike with equally thunderous rhetoric. And top House Democrat Richard Gephardt (D-Mo.) is consistently interventionist, opposing efforts to reduce trade barriers while supporting subsidies such as the IMF and the Ex-Im Bank.
Few are the members who understand that free trade is about more than getting rid of tariffs, quotas and sanctions. It also means opposing trade and investment subsidies channeled through such agencies as the IMF, the Ex-Im Bank and OPIC.
Americans pay out of both pockets for congressional intervention. First, trade barriers erected by Congress cost Americans an estimated $70 billion a year by raising prices and reducing competition. Tariffs and quotas hurt not only individual consumers but also domestic companies that import capital equipment and intermediate inputs. Imposing a ban on imported steel, for example, will raise costs and reduce potential employment in such steel-using sectors as automobiles, construction, home appliances and industrial machinery (which, by the way, together employ 40 times as many workers as the domestic steel industry).
Second, Americans pay for international economic subsidies through higher taxes and distortions in the market. Programs such as Ex-Im Bank, which receives $800 million a year in taxpayer support, divert resources to a small number of exporting companies at the expense of the large majority of companies competing for the same capital, labor and inputs. Government-to-government loans through the IMF (which received another $17.9 billion from U.S. taxpayers last year) and the Exchange Stabilization Fund shield investors and policymakers from the consequences of their mistakes, setting the stage for more “crises” in the future.
The underlying assumption of both forms of intervention is the same: Americans cannot be trusted to spend their dollars in the global marketplace as they see best. They must either be barred from engaging in trade or investments that would otherwise benefit them, or they must be coerced into subsidizing what they would not support if acting on their own best judgment.
In the U.S. Senate, only a dozen members voted a majority of the time against trade barriers and against subsidies. Sen. Wayne Allard (R-Colo.) was the only senator to vote against trade barriers and subsidies on all six major Senate bills affecting U.S. international economic relations. Joining Allard in supporting free trade were two Democrats and nine other Republicans: Spencer Abraham (R-Mich.), Sam Brownback (R-Kan.), Richard Bryan (D-Nev.), Dan Coats (R-Ind.), Paul Coverdell (R-Ga.), Rod Grams (R-Minn.), Judd Gregg (R-N.H.), Kay Bailey Hutchison (R-Tex.), Herbert Kohl (D-Wis.), John McCain (R-Ariz.) and Don Nickles (R-Okla.).
In the House, the leading opponents of trade barriers and subsidies were Rep. Philip Crane (R-Ill.), Tom Campbell (R-Calif.), J. D. Hayworth (R-Ariz.), Mark Sanford (R-S.C.) and John Shadegg (R-Ariz.). Other prominent free traders were House Speaker Dennis Hastert (R-Ill.), Majority Leader Richard Armey (R-Tex.), James Rogan (R-Calif.), David McIntosh (R-Ind.) and Steve Largent (R-Okla.)
In the opposite corner were 17 House members (4 Republicans and 13 Democrats) and two senators who voted a straight interventionist line, favoring trade barriers and subsidies at every opportunity. The leading interventionists in the Senate were Olympia Snowe (R-Maine) and Carl Levin (D-Mich.)
Overall, 58 percent of House members voted as interventionists, supporting trade barriers and international economic subsidies on a majority of votes (with Democrats outnumbering Republicans 2 to 1); 11 percent voted as isolationists (with Republicans outnumbering Democrats 4 to 1); and 25 percent voted as internationalists (with Republicans again predominating 4 to 1). Only 6 percent of House members (all of them Republicans) voted consistently in favor of free trade without the distortion of barriers and subsidies. On average, Republicans in the House were twice as likely as Democrats to oppose trade barriers and subsidies.
The Cato study shows a drift toward isolationism in Congress, with newer members — those elected since 1992 — slightly less inclined to oppose trade barriers but significantly more skeptical of trade subsidies than more veteran members.
By redefining what it means to be a free trader, the Cato study demonstrates that members of Congress do not need to choose between the anti-trade isolationism of Pat Buchanan and the pro-subsidy internationalism of President Clinton. They can vote in the 106th Congress for a coherent program to liberalize trade and eliminate subsidies — that is, to let Americans enjoy the freedom and prosperity of a seamless free market undistorted by government intervention.