April 22, 2008
Why the Colombian Trade Agreement is Small Enough Not to Pass
In an old story, a driver comes upon a farmer beating a mule hitched to a cart. The motorist stops and approaches the farmer. “Why are you beating him?” he asks. “Why not shake the reins and shout ‘giddyup’?” “I will,” replied the farmer, “but first I have to get his attention.”
That is the exercise in which Barack Obama, Hillary Clinton and House Speaker Nancy Pelosi are engaged in regard to the Colombia trade agreement. The people whose attention they are trying to get are almost everyone—almost everyone, that is, who is paid to form an opinion without being personally and directly affected by international trade: President Bush, economists, editorial writers and columnists. Pope Benedict XVI doesn’t profess his infallibility as ardently as free trade advocates profess the free trade gospel of wealth.
The Washington Post brands objectors to the agreement with Colombia “unseemly,” afflicted by “intellectual poverty,” their arguments “almost pretexts.” A vote against the trade agreement, or even a delay in voting on it, gives aid and comfort to Venezuelan president Hugo Chavez. The number of trade unionists murdered in Colombia (a key objection to the treaty among human rights advocates and American trade unionists) is down from 200 six years ago to “only 39,” says the Post, just two-tenths of a percent of all murders in Colombia. Besides, President Bush points out, we’re hurting ourselves more than we’re hurting Colombia. Most Colombian exports to the US already come in duty-free; the agreement would remove tariffs from the goods sent to Colombia by the 9,000 American firms that export to Colombia—a percentage of American businesses that is about 1/100 of the percentage of trade union leaders killed in Colombia, a percentage that, when it comes to murdered trade union leaders, is said to be too small to matter.
In fact it is precisely the small impact that passage of the Colombian trade agreement would have on the American economy, and the small impact its delay or defeat would have on the Colombian economy, that are the best reasons for slowing its headlong rush through Congress under the 90-day fast-track procedure President Bush has requested but will likely not get. Now, not when our relations with one of our major trading partners are at stake, is the time to take a deep breath, take a close look at the evidence of the past two decades of our experience with NAFTA, and figure out, not the freest trade arrangement that will get past Congress, but the trade agreement that best serves the national interest.
It is not the underlying theory on which free trade rests, the theory of comparative advantage, that is in question. If Country A is a comparatively efficient manufacturer of computers, Country B a comparatively efficient producer of computer games, and Country C a comparatively efficient producer of computer tables, computer users who need computers, games and tables will make out the best if each country produces the item in which it specializes—in theory.
A number of the problems with the practical application of the theory inhere in its essence. The low-wage countries that are the most efficient producers of labor intensive products are not low-wage countries by immutable divine decree. They are low-wage countries because their workers live on a few dollars a day or week instead of a few dollars an hour. Manufacturers in some of these countries are not burdened by environmental laws. They are not burdened by the demands of trade unions; less than 2% of Colombian workers belong to unions, compared to the 12% that are represented by the on-its-uppers American labor movement. In theory, the investment that flows to low-wage countries as efficient producers raises their standard of living. But of course, once their standard of living improves, the comparative advantage passes to countries with even more disadvantaged workers.
Other free trade problems arise in practice. Free trade, it is said, balances winners and losers: the factory jobs that are lost are balanced by high-technology jobs that are created. But what happens to the factory workers whose skill-sets are not well-matched to the demands of high-technology jobs? Bear in mind that companies are already choosing younger, more-recently-educated technology workers over middle-aged technology workers. What chance will a retrained assembly line worker have in such a market?
Free trade is supposed to raise the wages of workers in low-wage countries, decreasing the incentive for them to move to high-wage countries and compete with the workers there. But fourteen years after NAFTA passed, immigration from Mexico and other Latin American countries is, if anything, a bigger problem in the US than it was before NAFTA.
Free trade theory assumes that countries will act in their economic self-interest. But what happens when countries like Saudi Arabia, Iran and Iraq after we leave decide that, no matter the effect on their citizens, they would rather not sell to a country that makes the security of Israel, which they regard as an illicit and oppressive intruder in their region, an integral part of its foreign policy. What happens when a foreign company to whom we have contracted out the development or production of security-related technology when we were friendly with the country in which the company is located decides that it is no longer our friend?* Or decides that some policy of ours—the death penalty, say—justifies embargoing certain goods—just as we have enforced our policies with embargoes—no matter the effect on their economy?
What happens when medication—or toys or dog food–manufactured abroad turns out not to have been inspected as carefully as products made here? Inspect Chinese factories more closely? Please. We don’t even inspect our own factories closely enough.
Or what happens when the competition from free trade depresses the wages and benefits of American workers to a point that American companies cannot afford to provide their employees with health insurance and workers begin to drift back out of the middle class?
Of course, all these things have already happened or are in the process of happening. And our national response has pretty much been to live with it—or, to be precise, to force the people on whom the impact of these developments fall to live with it, and to denounce them as selfish protectionists when they complain to their elected representatives.
Nobody wants to do away with free trade; that would be a disaster. What we need is neither another affirmation of our faith in free trade nor a return to Smoot-Hawley protectionism. What we need is an unhurried, un-fast-tracked conversation about free trade. The conversation should begin in the presidential campaign, in which free-trade true-believer John McCain will be opposed by a Democratic candidate who is what might be called a cafeteria free-trader: a believer in the fundamental validity of free trade, but skeptical about whether the answer to the ills of the economy is always more free trade.
Then, with the voice of the electorate heard, with a new president in the White House and more or fewer free-traders in Congress, the country should talk seriously not about pledging fidelity to free trade or scrapping it, but about what trade policy is good for the country. That will be a conversation worth the time and effort of the people who comment on policy, influence policy and make policy.
But we first we have to get their attention.