May 29, 2012 7:00 AM GMT+0800 In a speech two weeks ago, Senator John McCain delivered ablistering assessment of President Barack Obama s trade policy. The United States has been sitting on the sidelines, and Asia issprinting forward without us, he said. After four years, thisadministration still has not concluded or ratified a singlefree-trade agreement of its own making. McCain conceded that on Obama s watch Congress passed threefree-trade agreements made under President George W.
Bush. But, hesaid, Since 2003, China has secured nine FTAs in Asia and LatinAmerica alone. It is negotiating five more, and it has four othersunder consideration. Japan and India are seeking tradeagreements, as well. As of last year, one report found that Asiancountries had concluded or were negotiating nearly 300 tradeagreements — none of which included the United States ofAmerica.
He concluded that we, too, should pursue an ambitioustrade strategy in Asia. McCain s criticism of Obama is fair. It is also a bit strange, andin a way that reflects the oddly narrow scope of the debate abouttrade policy in the U.S. McCain worries that we are falling behind other countries. Roll Forming Machinery
But theclassical case for free trade doesn t fit this concern very well.That case warns against treating international commerce as acompetition among nations — against, that is, identifying acountry s interests with those of its exporters. Economic Argument Economists, or at any rate the vast majority of them, say nationsshould lower their barriers to imports because it promotes theefficient allocation of resources. That argument doesn t depend onwhether other countries are making trade agreements with oneanother. It doesn t even depend on whether those countries havebarriers against our imports. The theory suggests that if nationslower their barriers to one another s imports, they will make moregains than if only one country does so. Slitting Line Machine Manufacturer
It also suggests that acountry makes itself better off by lowering its barriersunilaterally. U.S. politicians who support free trade rarely make any suchargument, and haven t done so for decades. Instead they makemercantilist arguments for free trade, in which we must regrettablyopen our markets to foreign imports as the price for getting othercountries to do the same for our exports. Roll Forming Machinery Manufacturer
In debates over tradeagreements, both sides typically accept the notion that imports arebad and exports are good. The question becomes whether theagreement will do more to boost imports or exports. It isn t uncommon for administrations that seek to liberalizetrade overall to erect barriers for the benefit of this or thatindustry. The Bush administration briefly imposed steel tariffs toplacate members of Congress from the Rust Belt.
The Obamaadministration has placed tariffs on tires (at a cost of at least$900,000 for each job saved). This tactic fits comfortably withinthe political consensus for free-trade mercantilism. In recent years, the debate has narrowed still further because bothsides have converged rhetorically. Protectionists in the U.S.
donot advertise themselves as such: They say they favor free trade solong as it is fair. Free traders don t wish to be portrayed assupporting unfairness, and so everyone calls himself a supporter of free and fair trade. Whatever its theoretical inadequacy, free-trade mercantilism hasworked pretty well since World War II. It has enabled a vastexpansion of global trade and thus of global wealth. But it isyielding diminishing returns as a strategy for liberalizing trade.Public support for open trade has fallen in the U.S.
Majorities inthe 1990s thought the opportunity for economic growth throughincreased U.S. exports outweighed the threat to the economyfrom foreign imports. They no longer do. Critical Turn The Democratic Party, which in the middle of the last century wasthe more pro-trade of the two parties, has turned sharply criticalof it.
In the 2004 and 2008 Democratic presidential primaries, mostcandidates were competing on the basis of who could be most hostileto trade agreements. In 2008, Obama even called for renegotiatingthe North American Free Trade Agreement enacted in 1993. He shelved that idea in office. But as McCain observed, Obama stillhasn t shown much leadership on trade.
Daniel Ikenson and ScottLincicome wrote a paper for the Cato Institute at the start of theadministration expressing the hope that Obama would restore thecountry s pro-trade consensus. Ikenson now says he was toooptimistic. Free traders are spending more time fending offprotectionist measures against China than they are on offense. MittRomney, Obama s presumptive Republican opponent in November, iscontributing his share of tough talk on trade with China. (Thisposition might go the way of Obama s Nafta idea if he takesoffice.) The prevailing rhetoric on trade corresponds less and less toreality.
Ikenson notes that 58 percent of imports are ofintermediate goods and capital equipment that companies here use tomake finished products. Cutting the cost of those imports bylowering trade barriers helps these companies compete rather thanhurting them. That s one reason for free traders like McCain to ditch the oldmercantilist strategy. The other is its increasing politicalfailure. Falling support for trade has many causes, but the failureof almost anyone in politics to make the real and unequivocalargument for it has almost certainly been one.