Free trade once again is at a crossroads. Protectionist pressures are intensifying from all directions - from labor unions and environmentalists, to powerful interest groups like the sugar industry, to pundits like Lou Dobbs, to xenophobes of the left and right, the ominous drumbeat of protectionism is growing louder and louder. Last week the White House unfortunately succumbed to protectionist pressures on one key trade issue, reimposing import quotes on Chinese textiles. The Doha Round of global trade talks is stalled. The president's fast-track trade-promotion authority, which provides for a straight up-or-down vote on trade agreements, is set to expire next year and may prove very difficult to renew. The Central American Free Trade Agreement is the centerpiece of Bush's trade agenda for this term, and it is shaping up as a very difficult uphill fight in Congress. CAFTA is a must-win for the future of free trade and a "win-win" for our hemisphere.
Given the political controversy, you might assume that there is an underlying dispute among economists on the issue of free trade. There isn't. The theory has been settled for centuries, since David Ricardo's famous theory of comparative advantage demonstrated that trade allows each country to concentrate on doing what it does well, thus increasing wealth for both countries involved.
The overall economic benefits of free trade are clear as a matter of historical record. Global economic growth has accelerated dramatically over the last 50 years, coinciding with the liberalization of international trade. While the world economy has expanded rapidly, the benefits have not been evenly distributed. A study conducted by the Heritage Foundation and The Wall Street Journal over the past seven years found that countries that trade freely have had a much stronger economic performance than relatively closed countries, which have grown slowly or not at all.
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