free trade

In the USMCA Ratification Battle, A Big Tariff Fight Is Brewing

For those of us who support the North American Free Trade Agreement (NAFTA), the renegotiation process had us at the edge of our seats each day.  Would the three parties be able to reach agreement? If not, would the Trump administration try to withdraw from NAFTA? And if so, would Congress act to stop the withdrawal? When the newly minted U.S.-Mexico-Canada Agreement (USMCA) was signed last November, there was a brief reprieve from the stressful, high-stakes negotiations.

Trump, Trade and Foreign Policy

Donald Trump has been touting staunchly protectionist and isolationist rhetoric on trade policy throughout his campaign. Whether this was merely campaign-talk is still to be seen.

However, at his core, Trump is a businessman. In the business world, isolationism is synonymous with self-destruction.

Read Cato Trade’s Comprehensive Analysis of the Trans-Pacific Partnership

The Trans-Pacific Partnership trade agreement between the United States and 11 other countries was reached late last year, signed by the parties earlier this year, and now awaits ratification by the various governments. In terms of the value of trade and share of global output accounted for by the 12 member countries, the TPP is the largest U.S. trade agreement to date.

Trade Is Not a Trade-Off: The Stronger Case for Free Trade

Too many advocates of trade liberalization don’t really understand the case for free trade. Consider this sympathetic interview by Steve Inskeep of NPR with U.S. Trade Representative Michael Froman, the chief negotiator of the Trans-Pacific Partnership:

INSKEEP: Froman argues the TPP, the Trans-Pacific Partnership, will give U.S. industries more access to foreign markets. Granted, there’s a trade-off. Other nations get more access to the U.S. for their products. Froman contends that, at least, happens slowly as tariffs or import taxes drop.

FROMAN: The tariff on imported trucks from Japan, as an example, won’t go away for 30 years. On apparel and textiles, we worked very closely with the textile manufacturers in the U.S. to come up with an outcome that they could be comfortable with, so that we’ll let in clothes coming that are made Vietnam or made in Malaysia, but they’ve got to use U.S. fabric.

Inskeep refers to the lowering of U.S. tariffs as “a trade-off,” and Froman accepts that characterization. Both operate from the premise that Americans want other countries to reduce their barriers to our exports, and that the “trade-off” for that benefit is that we must reduce our own trade barriers.

That’s backwards. The benefit of trade is that we get access to goods and services that we might not get otherwise, or we get to pay lower prices for the goods we want. More broadly, we want free – or at least freer – trade in order to remove the impediments that prevent people from finding the best ways to satisfy their wants. Free trade allows us to benefit from the division of labor, specialization, comparative advantage, and economies of scale.

The Benefit of Free Trade Is Not Exports, It’s Lower Prices on Things We Want

In the news this morning, Sen. Orrin Hatch (R–UT), author of the Trade Promotion Authority bill, makes the usual case for trade agreements and TPA:

We need to get this bill passed. We need to pass it for the American workers who want good, high-paying jobs. We need to pass it for our farmers, ranchers, manufacturers, and entrepreneurs who need access to foreign markets in order to compete. We need to pass it to maintain our standing in the world.

It’s certainly good that the chairman of the Senate Finance Committee supports freer trade. But I fear he’s as confused as most Washingtonians about the actual case for free trade.

This whole “exports and jobs” framework is misguided. Thirty years ago in the Cato Journal, the economist Ronald Krieger explained the difference between the economist’s and the non-economist’s views of trade. The economist believes that “The purpose of economic activity is to enhance the wellbeing of individual consumers and households.” And, therefore, “Imports are the benefit for which exports are the cost.” Imports are the things we want—clothing, televisions, cars, software, ideas—and exports are what we have to trade in order to get them.

And thus, Krieger continues, point by point:

Cheap foreign goods are thus an unambiguous benefit to the importing country.

The objective of foreign trade is therefore to get goods on advantageous terms.

That is why we want free—or at least freer—trade: to remove the impediments that prevent people from finding the best ways to satisfy their wants. Free trade allows us to benefit from the division of labor, specialization, comparative advantage, and economies of scale.

I write about this in The Libertarian Mind (buy it now!):

Roger Milliken’s Company Joins the Global Economy

Roger Milliken, head of the South Carolina textile firm Milliken & Co. for more than 50 years, was one of the most important benefactors of modern conservatism. He was active in the Goldwater campaign, and was a founder and funder of National Review and the Heritage Foundation. He dabbled in libertarianism, too. He was a board member of the Foundation for Economic Education and supported the legendary anarchist-libertarian speaker Robert LeFevre, sending his executives to LeFevre’s classes.

But he parted company with his free-market friends on one issue: free trade. Starting in the 1980s, when Americans started buying a lot of textile imports, he hated it. As the Wall Street Journal reports today,

Milliken & Co., one of the largest U.S. textile makers, has been on the front lines of nearly every recent battle to defeat free-trade legislation. It has financed activists, backed like-minded lawmakers and helped build a coalition of right and left-wing opponents of free trade….

“Roger Milliken was likely the largest single investor in the anti-trade movement for many years—as though no amount of money was too much,” said former Clinton administration U.S. Trade Representative Charlene Barshefsky, who battled with him and his allies….

Mr. Milliken, a Republican, invited anti-free-trade activists of all stripes to dinners on Capitol Hill. The coalition was secretive about their meetings, dubbing themselves the No-Name Coalition.

Several people who attended the dinners, which continued through the mid-2000s, recall how International Ladies’ Garment Workers Union lobbyist Evelyn Dubrow, a firebrand four years younger than the elderly Mr. Milliken, would greet the textile boss, who fought to keep unions out of his factories, with a kiss on the cheek.

“He had this uncanny convening power,” says Lori Wallach, an anti-free-trade activist who works for Public Citizen, a group that lobbies on consumer issues. “He could assemble people who would otherwise turn into salt if they were in the same room.”…

“He was just about the only genuinely big money that was active in funding trade-policy critics,” says Alan Tonelson, a former senior researcher at the educational arm of the U.S. Business and Industry Council, a group that opposed trade pacts.

But the world has changed, and so has Milliken & Co. Roger Milliken died in 2010, at age 95 still the chairman of the company his grandfather founded. His chosen successor, Joseph Salley, wants Milliken to be part of the global economy. He has ended the company’s support for protectionism and slashed its lobbying budget. And as the Journal reports, Milliken’s executives are urging Congress to support fast-track authority for President Obama.

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