From the WSJ Opinion Archives
OUTSIDE THE BOX
Protection Racket
Free trade is a key to prosperity. Why do Democrats fight it?
"Free trade is the most important single way to promote growth," Milton Friedman said in an interview a few weeks before his death.
But the new Democratic congressional majority doesn't understand that. Just a week after the elections one of the first actions Congress took was to vote down the new trade agreement with Vietnam. Ninety-four Democrats voted against it, 90 of them for it; and that is before some 16 newly elected House Democrats opposed to free trade are even sworn in. As Charlie Rangel, the incoming House Ways and Means Committee Chairman, put it, "We need to be angry as hell and try to protect American industry."
Five new Democratic senators share similar views on free trade. Ohio's Sen.-elect Sherrod Brown wrote a book entitled "Myths of Free Trade," arguing that trade agreements should only be allowed if those nations pass laws "guaranteeing enforceable labor and environmental standards." John Edwards is a protectionist zealot; John Kerry said in 2004 that unless the treaties had the standards in them he would as president veto them.
Republicans aren't always better: several years ago half of GOP senators voted for an amendment (which failed) forbidding the federal government from awarding contracts to companies that outsource any of their work overseas. And President Bush in his first term imposed tariffs on imported steel, which saved the jobs of 5000 U.S. steelworkers but caused higher steel prices that eliminated 23,000 jobs in the steel-consuming industries.
Fortunately, President Bush has become more trade focused. The Central American Free Trade Agreement, allowing freer trade with the Dominican Republic and five Central American nations, was approved in 2005; and a dozen other bilateral or regional free trade agreements with foreign nations have been put in place. Eleven more are under negotiation, with two of the agreements and the granting of normal trade status to Vietnam awaiting congressional approval.
These trade agreements expand America's marketing opportunities and the jobs that go with them. As a Wall Street Journal editorial pointed out last week, Peru already has broad duty-free access to U.S. markets, so by the new Peru agreement "80% of U. S. industrial and textile products, and more than two-thirds of U.S. farm exports would enter Peru duty-free immediately." That's a good deal for both countries and for their people.
Simply put, markets work. A recent Global Insights analysis concludes that Wal-Mart's 1985-2004 expansion of sales resulted in a 9.1% drop in the price of food at home, a 4.2% drop in the price of other goods and commodities, and a 3.1% decline in consumer prices overall, saving the average working family about $2,329 per year. And with that came a net increase of 210,000 Wal-Mart jobs in 2004 alone.
And trade agreements open market opportunities. The North American Free Trade Agreement, signed into law by President Clinton in 1993, has expanded total trade between the U.S, Canada, and Mexico by 172%. U.S. exports to Mexico have grown by 189% and to Canada by 111%. U.S. agricultural exports to Canada have doubled, to $10.6 billion from $5.3 billion, and to Mexico even more--to $9.4 billion from $3.6 billion. More than one million jobs were created in America by NAFTA.
Overall the U.S. Trade Representative's office says that 10.4% of the 2005 American GDP is the result of U.S. exports of goods and services. The Peterson Institute says that globalization boosts the U.S. economy $1 trillion annually, or about $10,000 per household. There is no question that trade both increases jobs in some areas and decreases them in others, both internationally and domestically. When cars replaced carriages, computers replaced typewriters, and E-ZPass replaced toll-takers in America, some jobs were lost and other were gained.
The new Doha round of World Trade Organization talks has been delayed by America's and France's refusal to agree to reducing agricultural subsidies. Perhaps these are negotiating positions, but would the U.S ever agree to reduce farm subsidies for greater international trade access? In a Pelosi-Reid Congress certainly not--U.S. farmers received $47 billion from the U.S. government in 2004, about 18% of farm income--but for the American people free trade and lower agricultural subsidies would be a substantial step forward.
Another rallying cry for the antitrade lobby is "outsourcing," putting together companies in other nations that can provide services to American people at lower costs than can be provided at home. Two years ago, as an example, radiologists in India were analyzing American patients' X-rays at one-fourth the cost of radiologists in the United States, and they were using U.S. computers and software. Protectionists would argue that this kind of thing must be stopped, but lower costs for customers are a good thing. And of course job outsourcing works both ways: outsourcing by foreign companies has created more than 6.5 million jobs for American workers-- the Honda automobile plant in Ohio and BMW's in South Carolina being two large employment examples.
In short, trade helps people while protectionism hurts them. Imports give people a wider choice of goods, often at lower prices; protectionism helps local industries--steel companies in the Bush protectionism case--maintain higher prices at the expense of broad social and economic prosperity.
Milton Friedman was right, and the protectionists are wrong. Free trade is essential to economic growth and opportunity.
Mr. du Pont, a former governor of Delaware, is chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month.
