CAFTA and the future of free trade

Posted: May 16, 2005 12:00 AM

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.

Long term, trade benefits everyone. Yet there is no question that short term there is some temporary economic hardship for some people. As I've noted before, people live in the short term, and economists' charts are little consolation to the workers who lose their jobs because they are displaced by cheaper producers. But there is no doubt the enemy of U.S. workers is not across our borders or across the oceans. The real enemy of U.S. workers is the stupid tax and regulatory policies coming out of Washington that are strangling America's small and large businesses' ability to compete in the global economy. This economic hardship must be addressed through training and education assistance, not protectionism. Protectionism for uncompetitive industries is as counterproductive as banning machine tools to protect blacksmiths would have been 150 years ago.

CAFTA is a key test for the future of free trade because the arguments are even simpler than usual. About 80 percent of imports from the CAFTA countries already enter the United States without tariffs under the Caribbean Basin Initiative and the Generalized System of Preferences, which makes this deal more about exports than politically sensitive imports. Even the notoriously anti-trade textile industry is largely supporting CAFTA, with both the National Cotton Council and the National Council of Textile Organizations issuing strong endorsements. The strongest opposition to the agreement comes from the politically influential sugar industry, which has a racket where it donates millions of dollars to politicians in exchange for billions of dollars of taxpayer and consumer money. Ironically, CAFTA was designed with a carve-out for sugar that would allow only a token increase in imports, yet the industry is still dead set on killing the agreement.

The ferocity of the sugar industry's opposition, and the intensity of the larger anti-trade pressure on CAFTA, a deal that on the merits is a no-brainer, makes sense when you consider how critical the upcoming vote on CAFTA is for the future of free trade. Bush has now stepped up his political efforts in the push for CAFTA, and both sides understand that this vote will be about much more than Central America. If a vote identified by the administration as the key trade vote for this term can't pass - a deal that is mostly about exports, not imports, and enjoys support from traditional anti-trade interest groups - then no major trade deal can pass. We would have no credibility in ongoing multilateral trade talks, and Bush's ambitions for a Free Trade Area of the Americas would be dead on arrival. The president's fast-track trade promotion authority, which was approved by just a single vote in the House, would probably expire, likely marking the end of our successful push to expand trade through bilateral agreements.

If Congress would only give new U.S. Trade Representative Rob Portman the chance, he is eminently capable of carrying forward the efforts so capably begun under his predecessor, Robert Zoellick. With the stakes this high, it's imperative that all pro-growth Congressmen line up behind the president on CAFTA. If necessary, they should be willing to compromise on expanding trade adjustment assistance to soften the blow on any workers who are displaced in the short term.

 With the future of free trade likely hanging in the balance, and with it our future prosperity, Republicans should fall in line behind the president. And considering that the vision for CAFTA was set down by John F. Kennedy's hemispheric "Alliance for Progress," pro-growth Democrats should put aside partisan politics and embrace free trade and prosperity by voting "yes" on CAFTA, too.