The juxtaposition of these two undeniable facts — economic prosperity and record trade — places protectionists in an uncomfortable box. After all, the Pat Buchanan‐Ross Perot‐Ralph Nader‐labor union coalition has been preaching that free trade and mobile capital cause (a) unemployment; (b) falling wages; (c) deindustrialization; (d) investment flight; or (e) all of the above. Yet the patient has drunk a full chalice of the free‐trade poison, and it not only lives, it thrives!
This inconvenient reality has reduced anti‐free‐trade activists to a form of denial. While most Americans see an economy headed in the right direction, the protectionists want us to see dislocation, decline and defeat. Labor and Naderite opponents of the North American Free Trade Agreement, for example, are forced to argue on its fifth anniversary that NAFTA has eliminated a huge number of jobs, when in fact the U.S. economy has reached full employment by just about anybody’s definition. Pat Buchanan’s nostalgic 1998 book on trade, The Great Betrayal, seems especially ill‐timed. Buchanan yearns for a golden past when Americans were so much better off because we could not buy televisions made in Mexico, shoes made in Brazil, cars made in Japan, toys made in China and computer chips made in Malaysia. Instead of seeing a dynamic and deregulated American economy that today is leading the world into the information age, he points to the trade deficit, the rise of Wal‐Mart, falling union rolls, and the decline of manufacturing jobs since 1980 as evidence of “a nation that has begun its descent.” In the face of a steady drumbeat of positive economic news contradicting his thesis, Buchanan has turned in his syndicated columns to the mantra, “We shall see.”
Far from being the ruin of our economy, expanding trade has been an integral part of its current success. American companies consume more than half of the trillion dollars of goods and services we now import annually. More open access to raw materials (including oil), capital goods and intermediate inputs reduces production costs, allowing U.S. firms to price their final goods more competitively at home and abroad. Competition from foreign producers spurs American firms to greater innovation and efficiency, rewarding consumers with better products at better prices.
Of course, trade leads to the elimination of some jobs as it creates other (usually better paying) jobs. In this way, trade is like technology. It shifts employment, capital and resources from less productive to more productive sectors — enhancing the general prosperity of society even as it causes some painful dislocations.
The dynamic impact of trade can be seen readily in places such as the Interstate 85 corridor that runs through Virginia, the Carolinas and Alabama. In the last five years, the region has lost an estimated 35,000 jobs in the apparel, furniture and textile industries. But that is less than half the story. Today, according to a recent report in the Wall Street Journal, “the corridor is booming with semiconductor plants, pharmaceutical companies, auto‐assembly operations and new steel mills that export to markets around the globe. In all, the corridor has added about 65,000 new manufacturing jobs despite the losses in textiles and furniture.”
In his testimony, Greenspan warned that any drift in Congress toward protectionism would blunt the expansion and could send the stock market reeling by undermining expectations for future profits. “Protectionism was a threat to standards of living when capital asset values [read: stock prices] were low relative to income. It becomes particularly pernicious in an environment, such as today’s, when that is no longer the case.”
In America today, trade and prosperity are a package deal. Americans who are tempted to follow the protectionist pied pipers should ask themselves if they really want to put at risk the unprecedented prosperity now benefiting the vast majority of Americans.