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Sunday, January 14, 2007

The Split over Trade Is Not Confined to Democrats

There has been attempt after attempt to portray the trade issue as an area where Democrats are deeply divided, and there has been much written about how Democrats will stifle trade and hurt the economy now that they are in power.

But the split is not unique to Democrats. As with immigration, Republicans are no less divided on this issue. First, the article about Democrats:

The Coming Democratic War on Free Trade, by Steve Chapman, Real Clear Politics: It's an elementary axiom of economics that if Person A sells something to Person B, it's good for each of them. Otherwise, why would they bother? It should follow that if Country A sells something to Country B, both again benefit. But Democrats have turned against that basic insight. They think if Americans buy something from abroad, it makes us worse off, and they want to protect us from such folly.

"Free," when modifying "trade," is a four-letter word on the left. Bill Clinton favored breaking down barriers to international commerce, but the idea has lost favor in the Democratic party... The American Prospect, a liberal magazine, reports with glee that "every single newly elected Democratic senator is a critic of free-trade orthodoxy."

Among the most vocal critics of open commerce is Sen. Sherrod Brown of Ohio, who ... vows not to vote for any agreement that doesn't impose strong labor and environmental standards on our trading partners. Brown reflects the views of labor unions... Demanding the imposition of American-style labor and environmental standards on poor nations is merely a ruse for rejecting trade liberalization altogether. ... Likewise with environmental rules. ...

Trade opponents retort that the job growth has been a hollow victory, because the rich are getting richer and everyone else is getting poorer. But the facts indicate otherwise. As economist Alan Reynolds notes in a new study for the Cato Institute..., the Census Bureau calculates that ... income has risen just as fast among the bottom 40 percent of households as it has among the top 40 percent. ...

Brown and others cling to the superstition that we can get rich by sealing ourselves off from the world and paying each other high prices for products made entirely in the U.S. of A. If they manage to erect new barriers to trade, we'll learn once again that protectionism is nothing but fool's gold.

Saying that '"Free," when modifying "trade," is a four-letter word on the left' is a misrepresentation. It's a misrepresentation because the same division appears on both sides of the political aisle, and because many Democrats favor free trade. More on this in a moment, but this is not the only argument the author makes that is misleading. For example, the author cites The American Prospect as gleeful that "every single newly elected Democratic senator is a critic of free-trade orthodoxy." But here's Robert Reich writing in American Prospect, and there are many more examples like this:

The New Domino Theory, by Robert B. Reich, American Prospect: ...Early next year, as part of its entry into the World Trade Organization, Vietnam will reduce tariffs on foreign goods and open its telecom and financial services sectors to foreign investment. But as things now stand, America won’t benefit from these measures because Congress won’t normalize trade relations with Vietnam. Why not?

Some right-wingers still regard Vietnam as a menace. ... Republicans from textile-producing states don’t want cheap fabrics from Vietnam. A majority of House Democrats think Vietnam’s labor standards are inadequate. ... But there’s reason to suspect there’s something more going on here than a vote against trade with that former communist nation.

Congress’s distrust extends beyond Vietnam, to other areas where global capitalism is expanding. Trade bills now pending with several poor countries in Africa, Asia, and Latin America are also in jeopardy. Don’t expect the next Congress to look on these trade deals more favorably. Many of the newly-elected members campaigned openly and vocally against free trade.

Whether it’s a renewed fear of foreigners, or fear of job losses to them, this nation seems to be turning inward. Sadly for us, as well as for millions of poor people around the world, America may be on the brink of a new Cold War -- with the enemy this time not global communism but global capitalism.

So, we have one of the founding members of American Prospect chastising both Republicans and Democrats for their anti-trade stances. He doesn't sound gleeful to me.

The author also cites Reynolds' work in an attempt to rebut that trade is responsible for inequality (which isn't even the argument many such as Krugman make). Reynolds' work which has been thoroughly debunked here and elsewhere, and the author does not bother to cite the widely accepted results in the area. And comparing the bottom 40% to the top 40% to evaluate changes in inequality completely misses the point anyway. That gives you a clear indication this is a political hit piece rather than an attempt at serious analysis.

Back to the split among Republicans on trade. A version of this has appeared here before, but a it's worth repeating:

Grand Old Protectionists, by Daniel Gross, Commentary, Washington Post: Since the midterm elections, concerned internationalists have fretted that the incoming Democratic Congress will curtail the nation's free-trade policies. In Slate, Jacob Weisberg identified the new breed of protectionist Lou Dobbs Democrats. "So is America headed for a bout of protectionist class warfare?" worried the Economist. "With the Democrats having won a majority in Congress, and disquiet over globalization growing, a party faction that has been powerless -- the economic populists -- is emerging," Louis Uchitelle wrote in the New York Times. Washington Post columnist Sebastian Mallaby, reflecting the consensus, concluded that "the two parties have opposing attitudes on the subject of trade: Republicans see it as a source of growth, Democrats as a source of inequality."

However, these arguments misunderstand the new politics of trade. It's not a left-right split. Since 2000, Bush Republicans have done as much as Democrats, if not more, to erect trade barriers and tariffs. ...[J]ust as free trade was a bipartisan project in the 1990s, this decade's anti-trade backlash has been bipartisan as well. Sens. Charles E. Schumer (D-N.Y.) and Lindsey O. Graham (R-S.C.) share little in common besides a desire to slap huge protective tariffs on Chinese goods. And all by themselves, Republicans have done great damage to the cause of free trade in the past several years.

In March 2002, for example, Bush proudly signed "temporary safeguards" that imposed tariffs of 8 percent to 30 percent on most steel imports for three years. ... When the World Trade Organization ruled the tariffs illegal, and retaliatory tariffs were set to be imposed on goods produced in Florida and other politically sensitive states, Bush ended the so-called safeguards in December 2003.

In May 2002, ...[j]ust six years after President Bill Clinton signed the 1996 Farm Bill, which slashed agricultural subsidies, Bush jacked up federal payments by as much as 80 percent ... and offered new subsidies... He even revived ... subsidies ... that Clinton had killed. Bush's signing of this bill led the Economist to brand him just about the worst thing the magazine can call anybody: an anti-globalizer. ...

In fact, some analysts have blamed the failure of the Doha Round of global trade talks this year on the U.S. refusal to alter its expensive anti-consumer, anti-free trade farm policy. There's more. Earlier this year, Bush proposed dropping the absurd 54 cent-per-gallon tariff on imported ethanol, first enacted in 1980 (although he didn't recommend cutting the 51 cent-per gallon tax credit for domestic ethanol producers). The Republican Congress, filled with members from big corn-producing states, said no.

Even as lame ducks, Republicans in Congress haven't been unanimous voices for free trade. In mid-November, more than 60 Republicans voted against a proposed free-trade deal with Vietnam, ... embarrassing the president on the eve of a state visit. The Wall Street Journal noted that a vote had been delayed in part because Graham and fellow GOP Sen. Elizabeth Dole (N.C.) had put the bill on hold, pending measures protecting U.S. textile companies.

With the GOP base now shrunk to the Old Confederacy (sugar, cotton, peanuts) and the Great Plains (corn, wheat, soy), look for more of the same protectionism. ...

There's one other critical Republican failure when it comes to free trade. ... Free trade has exposed U.S. workers to global competition on an unprecedented scale. In recent years, wages have stagnated (despite massive increases in corporate profits and steady economic growth), jobs have become more insecure, and benefits ... are being wiped out. Is free trade the cause of all these woes? Not necessarily. Does free trade coincide with all these woes? Absolutely.

Rightly or wrongly, many Americans, even those who reap the gains of trade daily, identify free trade and globalization with their declining financial security. And the response of Bush and congressional Republicans has essentially been: tough. ...

This you're-on-your-own attitude has ultimately been more damaging to the cause of free trade than anything the Democrats could do. Yet, in coming months, we're sure to hear a great deal of talk tarring Sen. Harry M. Reid (Nev.) and Rep. Nancy Pelosi (Calif.) as the present-day incarnations of Sen. Reed Smoot and Rep. Willis C. Hawley, the sponsors of the disastrous Smoot-Hawley Tariff Act of 1930. By slapping massive tariffs on a vast range of imported goods, Smoot-Hawley helped turn a recession into the Great Depression.

But Smoot and Hawley were Republicans. And so was President Herbert Hoover, who signed that disastrous legislation into law. Today, the protectionist gene may no longer be dominant among Republicans, but it's still an important part of the GOP's DNA.

I'm in favor of free trade, but I understand that view is controversial (I can think of several Republicans who comment here who take me to task immediately whenever the trade issue comes up). Economists supporting free trade are being asked to justify this position in light of what appears to be evidence that some groups fare poorly under globalization. That is a fair request and I've tried to do that in the past and will continue to do so in the future, though I'm not sure it's convinced anyone opposed to globalization to change their views. The point here is not to answer all the questions that surround the trade issue, but simply to emphasize that the divisions that exist are not confined to a particular party no matter what some pundits would have you believe.

    Posted by on Sunday, January 14, 2007 at 11:11 AM in Economics, International Trade | Permalink  TrackBack (2)  Comments (79)


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    [Source: Economist's View] quoted: As with immigration, Republicans are no less divided on this issue. First, the article about Democrats: The Coming Democratic War on Free Trade, by Steve Chapman, Real Clear Politics: It's an elementary axiom of econo... [Read More]

    Tracked on Sunday, January 14, 2007 at 09:56 PM

    » The blog wheel has turned from Daniel W. Drezner

    Between 2002 and 2006, I noticed a meta-narrative that appeared in the blogosphere every so often: 1) Policy X is promulgated; 2) Policy X is generally acknowledged to be bad by policy wonks across the ideological spectrum; 3) The left... [Read More]

    Tracked on Monday, January 15, 2007 at 11:26 AM


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