Advocates of international trade agreements frequently express wonderment at their adversaries' alleged inability to understand the basic principles of the economics of international trade (see, e.g., Clive Crook's latest column in the print Atlantic) but what's truly baffling is the tendency of the proponents of such agreements to totally mangle the theoretical basis for their policies. Check out this McClatchey account of wrangling over proposed trade deals with Peru and other Latin American countries:
"Members of Congress need to understand that a 'no' vote on any one of these (free-trade agreements) will not create a single job in the United States or sell a single pound of meat or a single piece of medical equipment or software," U.S. Trade Representative Susan Schwab told an "FTA rally" last Monday on Capitol Hill. [...]
"This is a time to step it up," said Commerce Secretary Carlos Gutierrez, who took a delegation of nine lawmakers to Peru, Colombia and Panama last week. "It's good for exports, good for the economy and good for leaving a solid record for the future as to how we treat our friends and how we treat our allies."
Gutierrez argues that U.S. exports have risen faster to countries that have signed free-trade agreements with the United States. He points out that the United States is running a trade surplus with five Central American nations and the Dominican Republic after enacting CAFTA, as the free-trade agreement with those nations is called.
This is very odd stuff. Schwab and, especially, Gutierrez appear to be arguing that the purpose of these agreements is to generate trade surpluses. This, of course, is mercantilism, precisely the approach to policy that trade advocates have traditionally disparaged. And they've disparaged it with good reason. If Schwab and Gutierrez really want to run trade surpluses, signing these deals is a terrible idea. Instead, we should erect really high barriers to imports and try to use our non-trade forms of geopolitical leverage to force other countries to be more open to US exports than we are to their products.
Not that I'm saying we should implement those policies -- we shouldn't -- but that'd be the way to maximize our trade surplus.
And, of course, Schwab and Gutierrez aren't really confused about this. Rather, they think, as apparently all politicians do, that the American people aren't grown-up enough to hear the actual case for lowering trade barriers. But given the public's apparently diminishing tolerance for these agreements, it seems to me that one potentially promising approach to rebuilding support would be for the advocates of diminished barriers to start putting the real argument on the table.
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Heads in the Sand
If Schwab and Gutierrez really want to run trade surpluses, signing these deals is a terrible idea. Instead, we should erect really high barriers to imports...
Matt, I think you're either misreading the McClatchey piece or being slightly disingenuous. What Schwab and Gutierrez in the first two paragraphs are saying is so vague as to be meaningless. Gutierrez's quote in the third paragraph seems intended as a palliative to those who've heard of the U.S. trade deficit with China and have concluded that "trade deficit=bad, so trade surplus=good." I doubt that Guiterrez, or any other economist, would contend that an measures should be taken to maximize our trade surplus are inherently good (as you seem to be implying he is.)
The usual disclaimer: I didn't read the whole linked article.
Posted by James Gary | September 17, 2007 6:55 PM