Commentaries

Posted: Jan 18, 2007 | Author: Pete du Pont

Ensuring Economic Growth

Milton Friedman was right, and the protectionists in the new Congress are wrong. 

 

''Free trade is the most important single way to promote growth,'' Milton Friedman said in an interview a few weeks before his death.

Back in the '90s, when then-President Clinton was signing the North American Free Trade Agreement, it appeared that the United States had finally reached a bipartisan consensus on the importance of free-trade policies.

Yet just a week after the 2006 elections, Congress voted down the new trade agreement with Vietnam. And that is before 16 newly elected House Democrats opposed to free trade were even sworn in.

As incoming House Ways and Means Committee Chairman Charlie Rangel put it, ``We need to be angry as hell and try to protect American industry.''

Five new Democratic senators share similar views on free trade. Ohio's Sen.-elect Sherrod Brown wrote a book titled Myths of Free Trade, arguing that trade agreements should only be allowed if those nations pass laws ``guaranteeing enforceable labor and environmental standards.''

Republicans aren't always better. President Bush in his first term imposed tariffs on imported steel, which saved the jobs of 5,000 U.S. steelworkers but caused higher steel prices that eliminated 23,000 jobs in the steel-consuming industries.

Bush focused on trade

Fortunately, Bush has become more trade focused. The Central American Free Trade Agreement, allowing freer trade with the Dominican Republic and five Central American nations, was approved in 2005; and a dozen other bilateral or regional free-trade agreements with foreign nations have been put in place. Eleven more agreements are under negotiation -- with two of them and the granting of normal trade status to Vietnam awaiting congressional approval.

These trade agreements expand America's marketing opportunities and the jobs that go with them.

As a recent Wall Street Journal editorial pointed out, Peru already has broad duty-free access to U.S. markets, so by the new Peru agreement ``80 percent of U. S. industrial and textile products, and more than two-thirds of U.S. farm exports would enter Peru duty-free immediately.''

NAFTA has expanded total trade between the United States, Canada and Mexico by 172 percent. U.S. exports to Mexico have grown by 189 percent and to Canada by 111 percent. U.S. agricultural exports to Canada have doubled to $10.6 billion from $5.3 billion, and to Mexico even more -- to $9.4 billion from $3.6 billion.

More than one million jobs were created in America by NAFTA. Overall the U.S. Trade Representative's office says that 10.4 percent of the 2005 American GDP is the result of U.S. exports of goods and services.

The Peterson Institute reports that globalization boosts the U.S. economy $1 trillion annually, or about $10,000 per household. The new Doha round of World Trade Organization talks has been delayed by America's and France's refusal to agree to reduce agricultural subsidies. Perhaps these are negotiating positions, but would the United States ever agree to reduce farm subsidies for greater international trade access?

In a Congress run by Democrats like Harry Reid and Nancy Pelosi, certainly not!

While U.S. farmers received $47 billion from the U.S. government in 2004, or about 18 percent of farm income, free trade and lower agricultural subsidies would be a substantial step forward for most Americans.

Another rallying cry for the anti-trade lobby is ''outsourcing'' -- using companies in other nations that can provide services to American people at lower costs.

Reject protectionism

Of course job outsourcing works both ways: outsourcing by foreign companies has created more than 6.5 million jobs for American workers -- with the Honda automobile plant in Ohio and BMW factory in South Carolina being two prime examples.

In short, trade helps people while protectionism hurts them.

Imports give people a wider choice of goods, often at lower prices; protectionism helps local industries maintain higher prices at the expense of broad social and economic prosperity.

Milton Friedman was right, and the protectionists in the new Congress are wrong.

Pete du Pont is chairman of the National Center for Policy Analysis, a conservative, free-market think tank.

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