EYE ON
AMERICA Trade agreements and populist
protectionism By Peter Morici
Americans offer to the world a simple
idea: the progress of mankind is best served by
empowering individuals and competition. Universal
suffrage and free elections, private enterprise
and free markets, best promote peaceful
cooperation among nations, personal liberty and
dignity, and material progress for all.
US
international economic policy is plainly revealed
by advocacy for the World Trade Organization (WTO)
and the various trade
agreements that deepen
cooperation with developing countries, such as
Mexico and Chile, and nations in transition from
socialism, such as China and Russia.
The
premise undergirding free trade is simple. Let
each nation and individual specialize in what it,
he or she does best and everyone prospers. More
imports raise living standards by providing
cheaper goods, and more exports raise productivity
and create higher-paying jobs.
Increasingly, free trade is under attack
by what former US deputy secretary of state Robert
Zoellick and his colleagues call populist
protectionism. In Brazil, India and China,
state-directed capitalism holds sway, and these
nations block progress in WTO negotiations by
refusing to open their markets.
American
workers, deprived by the rapidly rising trade
deficits of opportunities to replace jobs lost to
imports with better jobs in export industries,
wonder where the promise of free trade has gone.
They lobby Congress to slow down globalization.
To counter populist protectionism in Latin
America and at home, Zoellick suggests deepening
commercial integration with the 12 nations with
whom the United States has negotiated free-trade
agreements through what he calls an Association of
American Free Trade Agreements (AAFTA).
Such an institution could extend free
trade to non-participating countries such as
Brazil, reinforce cooperation on immigration,
labor rights and the environment, and assist
businesses in building out markets on a
hemispheric scale.
What Zoellick and the
trade-policy establishment fail to understand is
that free trade is under attack because the US
government, under both Democratic and Republican
administrations, has failed to make free-trade
agreements work as they should.
Most
significant, the United States and the European
Union substantially opened their markets by
admitting China to the WTO. Now, US Federal
Reserve chairman Ben Bernanke and others have
concluded that China subsidizes exports by
maintaining an artificially undervalued currency.
More broadly, China engages in myriad industrial
policies that promote exports, block imports, and
create huge trade surpluses.
Instead of
standing up to China, the administration of US
President George W Bush has engaged in endless
diplomacy bordering on appeasement. Observing that
China's growth is surging at better than 10% while
its inflation remains contained at less than 2%,
other developing countries are attracted to
China's brand of state-managed capitalism.
China's authoritarian government, coupled
with its growing and prosperous working class,
throws cold water on the US thesis that democracy
and free markets are the best prescription for
raising millions beset by poverty in the
developing world. But China is succeeding because
Washington lets Americans fall prey to its
mercantilism.
Americans displaced by
imports from China are not finding good-paying
jobs making exports to be sold in the Middle
Kingdom, because Washington tolerates China's
mercantilism. Instead, these workers are forced
into low-paying service-industry jobs, where
health insurance and other fringe benefits are
scarce.
Top corporate managers, investment
bankers and other professionals, who engineer and
arrange financing for outsourcing, enjoy rapidly
rising incomes, but many ordinary working
Americans are poorer for the game. For the moment,
Americans live beyond their means by borrowing
from the Chinese and other foreigners, but that
debt grows by more than US$50 billion each month
and has reached $6 trillion.
The United
States doesn't need more trade agreements; it
needs to make the ones it has work better.
Americans who embrace that position are not
populist protectionists; rather they want
something done about malignant Chinese
protectionism.
Zoellick and his
colleagues, by tarring those who disagree with
them as protectionist, display an arrogant
disregard for their ideas and integrity and a
disturbing neglect for the conditions of ordinary
working people whose lives have been degraded by
the trade agreements gone awry.
An AAFTA
and a free-trade agreement with a country like
Brazil would plague American workers with another
China. Bent on exporting without importing, Brazil
would deprive even more American workers of
good-paying jobs without offering them prospects
for rewarding employment through equally increased
exports.
Before Zoellick and his
colleagues propose any more trade agreements, they
should suggest a strategy to get China and others
to live up to their commitments under the trade
agreements the US already has.
Peter
Morici is a professor at the University of
Maryland School of Business and former chief
economist at the US International Trade
Commission.
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