Commentary

Five Goals for U.S. Trade

This article originally appeared in the Journal of Commerceon March 11, 1998.

For more than two decades, “fast track” negotiating authority has been the linchpin of the free-trade agenda. Free traders have sought to open markets through a strategy of negotiated liberalization: we’ll open our markets if you’ll open yours. To make this work, there has to be some mechanism to assure our trading partners that the deals we strike won’t be rewritten in Congress. Enter fast track: since 1974, Congress has allowed the president to negotiate trade agreements that are then subject to an up-or-down vote, without amendments, on an expedited calendar.

Now, however, the free traders’ linchpin has been pulled. Last November, despite furious lobbying from the White House, Congress failed to vote new fast track authority. Although President Clinton says he wants to try again, most observers concur that another vote this year is highly unlikely. Indeed, fast track appears dead until after the 2000 presidential election. So does this mean that free traders will just have to cool their heels for the next few years?

Absolutely not. During the forced fast track hiatus, supporters of open markets should dedicate themselves to the proposition that free trade begins at home. Now is the time to launch a campaign to get rid of our own trade barriers — not as part of any international agreement, but simply as a matter of sound economic policy. Free traders should turn their attention away from dickering at the bargaining table to convincing the American public that free trade is its own reward.

The trade negotiations strategy has accomplished much in the past, but it has always had a fundamental weakness. The problem with trade agreements is that even while they reduce trade barriers, they are based on the view of the world that gives rise to protectionism in the first place. Trade agreements are premised on the mercantilist notion that exports are good and imports are bad; in trade talks, freer markets at home are treated as the price we have to pay for freer markets abroad. Consequently, a free-trade strategy based on negotiations can help to foster a protectionist political culture and thereby contribute to its own undoing.

In recent years, supporters of free trade have done little to check this self-destructive tendency. Indeed, many have surrendered to it unreservedly. In the debates over NAFTA, the Uruguay Round and fast track, the most commonly heard argument in favor of these initiatives was that trade agreements increase the net number of jobs by promoting exports. Underlying this analysis is the presumption that exports create jobs and imports destroy them — exactly the same presumption that feeds opposition to trade agreements. Thus, while the two combating sides are labeled free traders and protectionists, the real dispute has been between optimistic mercantilists and pessimistic ones.

The pessimists have been winning. According to a Business Week/Harris poll last fall, 40 percent of Americans believe that expanded trade lowers wages, while only 17 percent think trade expansion leads to higher pay. Unsurprisingly, the same poll showed opposition to fast track by a 54 to 36 percent margin.

These dismal numbers illustrate the dangers of trying to beat protectionists at their own game. Both sides of the trade debate have been telling the American people that trade is a zero-sum game in which winners and losers are determined by current account balances. It’s little wonder that now they believe it, and little wonder that this belief spells trouble for the cause of free trade.

It’s time to start telling the whole story. Of course exports are beneficial, but imports are also crucial to our prosperity. Imports provide wider choices and lower prices for American businesses and consumers; they sharpen competition and spur our industries to higher performance. Moreover, imports create demand for our exports: when foreigners accept dollars for the goods they ship us, unless they are running a charity they must eventually spend those dollars on something.

To regain public support for trade liberalization, free traders need to challenge mercantilist fallacies head-on. The best way to do that is to urge the repeal of U.S. protectionist policies, of our own accord and regardless of what other countries choose to do. There are many possibilities, but the following five policy initiatives have much to recommend them.

Eliminate the sugar quota program. Tight restrictions on imports force Americans to pay grossly inflated prices for sugar, all to benefit a handful of well-heeled U.S. producers. This program serves no conceivable public interest and should be scrapped.

Repeal the antidumping law. Billed as a means to stop predatory pricing, this devilishly complicated law is really just a smoke screen behind which to stifle competition and gouge U.S. businesses and consumers. Punitive duties target supposedly “unfair” practices that are perfectly legal when engaged in by domestic producers. This discriminatory treatment should stop.

Revoke unilateral sanctions. Sanctions against pariah countries like Cuba or Burma may make us feel good, but they don’t work. The repressive regimes remain in power, while their innocent victims are made to suffer even more by our embargoes. Meanwhile, U.S. companies are blocked from export and investment opportunities.

Relax controls on encryption. The current tight restrictions impede U.S. software exports and stifle the development of electronic commerce. National security concerns don’t wash; indeed, the real threat is that excessive controls here may cause technological leadership to move elsewhere.

Ban new taxes on the Internet. President Clinton has wisely called for the Internet to be maintained as a global free-trade area. The best first step in that direction is passing the Internet Tax Freedom Act, which imposes a moratorium on new state and local taxes on electronic commerce.

This package of initiatives embraces a broad array of business interests — both exporting and import-using industries, ranging from food processing to energy to high tech. Powerful lobbying muscle could therefore be rallied in support of it. At the same time, these reforms do not suffer from the political weaknesses that now beset trade agreements. They pose no threat, real or imagined, to national sovereignty in general, or to U.S. environmental and labor standards in particular. And finally, taking these steps would do more to encourage free trade in other countries than any negotiations ever could. Leadership by example is much more effective than the usual combination of wheedling and bluster.

Admittedly, accomplishing these policy goals wouldn’t be easy. These reforms challenge widespread public misconceptions and deeply entrenched vested interests. But the mere act of fighting for unilateral free trade would itself constitute a major victory. By shifting the focus of debate away from trade deals and onto U.S. trade barriers, free traders could retake the intellectual offensive. Instead of apologizing for flawed agreements and the shortcomings of our trading partners, supporters of open markets could go on the attack and force their opponents to play some defense. What a welcome change that would be.

Brink Lindsey is vice president for research at the Cato Institute