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Saturday, March 01, 2008

No Love On Trade

When the Secretary of Commerce beats up both Democratic candidates positions on NAFTA (at least as they stated them last week), it's to be expected. When the GOP Candidate whips up on them about it, it's to be expected. But when the editorial board at the Washington Post schools them, they should take note.

In their final head-to-head meeting before Tuesday's Ohio and Texas primaries, Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.) declared that they would opt out of the North American Free Trade Agreement with Canada and Mexico unless those two countries renegotiated the pact's labor and environmental provisions to the United States' liking. For two candidates who pledge to repair U.S. standing in the world, it was an odd swipe at our next-door neighbors.

The last line is especially true, it's hard to gain better standing anywhere when you want to renegotiate approved treaties from a "me first" perspective.

The Congressional Budget Office studied NAFTA in 2003, and found that the effect of it on the US economy wasn't huge, but it was a net positive, with our exports to Mexico growing faster in all but 3 of the first 10 years of the agreement than our imports from Mexico.

Carlos Gutierrez, the Secretary of Commerce makes two good points, one current and one historic. The current one being that while the economy has slowed due to the housing and credit crunches, our exports have been increasing, and cushioning that slow down. This was pointed out in the Wall Street Journal on January 28th by Brian Wesbury, who noted:

With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.
Does either Democratic candidate truly believe that we'll sustain that kind of export growth if we decide that unilateral renegotiation of trade agreements is the path we should take?

Gutierrez's historical note was based on the protectionist past of the US, and it's devastatingly bad impact on the economy:

There was a time in our nation's history when we sought to protect Americans by withdrawing from the world. In reaction to increasing agricultural imports, our government raised tariffs to historically high levels. We tried to protect jobs. But instead of the prosperity Americans expected, our unemployment rate increased to 25 percent and international trade dropped 66 percent. Protectionism was the wrong approach during the Great Depression, and it's still wrong in 2008.
We've seen this occur in small pieces over the last decade or so, whether is was the net loss of 250,000 manufacturing jobs to protect 60,000 steel workers with a misguided tariff on imported steel, or the decrease in agricultural exports to Europe when we decided to impose tariffs on certain imports from them, and got beat up at the WTO.

While it's easy to pander (as the Post puts it) to certain segments of the population for political gain, it's harder to reverse the notion with trade partners that you want to redo set agreements for your own gain. That same sentiment will end up creeping into negotiations with other potential partners, and soon you find that even if you support decent trade agreements you can't negotiate them because of the perceptions that are out there.

Isolationism and protectionist trade rants aren't going to turn back the clock to 1950, when the US was the supplier of everything to nearly everyone. It's not going to bring back jobs that were lost when segments of our industries became uncompetitive and too expensive to compete in the world market that has been emerging for the last two decades.

Instead, that type of rhetoric, and the actions suggested by both Clinton and Obama would bring back the 1930's, not a time many of us are yearning to return to. (Or in my case visit for the first time).

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