Free Trade

by David Trumbull

November 14, 2008

In October in this space I wrote that whatever the results of the November election, the lasting governing majority will be in the party that gets America back into the business of creating wealth and jobs. Well, we have the election results—the Democrats took control of the executive branch of the government and expanded their majorities in both houses of the legislative—what this means for jobs and wealth creation is yet to be seen.

As a candidate, Senator Obama was very critical of the North American Free Trade Agreement (NAFTA) that was signed into law by Democratic President Clinton. The AFL-CIO and its member unions, which endorsed Senator Obama in the Democratic primaries, have filed (joined by my employer, the National Textile Association) a workers’ rights case alleging labor abuses under the U.S.-Jordan Free Trade Agreement—another such free trade law that was signed by Democrat Clinton. And The New Republic reported on June 16, 1997, that the Clinton Administration had, already back in February of 1997, committed the U.S. to a policy that would severely limit the options for any future American administration that would seek to limit damage to the U.S. manufacturing sector from imports from China. In the campaign Senator Obama slammed recent U.S . China policy—one can only logically assume that he included the policies of his Democrat predecessor in the White House.

The conclusion? President-elect Obama has promised a different trade policy from that of President Bush and the Republican leadership in congress. That may be, but if it be, it will also be a different policy from President Clinton and the Democrats in congress who supported his trade agenda. It will also mean that President Obama will go against an orthodoxy that has reigned with little effective opposition in Washington, in the elite media, and in academia for six decades.

The orthodoxy I mean is something called “free trade” but which is in effect a policy of import maximization. Free trade is good. Trade with other nations gives American consumers a wider variety of choices of goods. Free trade means that each nation or region can focus on producing what it can make efficiently locally and import what it cannot make locally—we buy bananas from the tropical regions; they in turn can buy cranberries and maple syrup from New England. Some even argue that free trade, by bringing national economic interests together can even reduce tensions between nations and, thus, make war less likely.

Yes, free trade is good. And we already have it! Except for our embargoes of goods from Cuba and North Korea, the United States trades freely with the entire world. Anything that is legal to buy in the U.S. may be freely imported from any country. It’s true you cannot legally buy cocaine from Colombia, elephant ivory from Kenya, or slaves from Sudan. But that’s not because we don’t believe in free trade with those nations (Colombia and Kenya actually get special trade preferences from the U.S.), but because trade in humans and in the two products mentioned is, rightly, illegal in the U.S.

When the phrase “free trade” is used in Washington, it means “no import duties.” The result is not free trade, but an economic incentive to maximize imports and drive out domestic production and jobs. Say you are an American manufacturer of wiggets. Your plant is on land subject to state property tax. You pay payroll taxes and unemployment and workers’ compensation insurance premiums so that your workers can be financial taken care of in old age, illness, or during periods of unemployment. You pay federal and state corporate income tax. Federal and state labor and environmental regulations—many of them praise-worthy measures that benefit the entire community—are, effectively yet more government imposed costs, in other words, taxes. To sell your wiggets to an America retailer you have to set a price that covers your cost of production, plus all those taxes, and still add something for profit. But foreign manufacturers of wiggets have contributed nothing to the America tax base. Of course they were taxed in their home country, but when the product enters the U.S. the taxes paid on the production don’t benefit U.S. communities. Furthermore, all of our major trading partners have a system whereby all, or at least much, of the tax their manufacturers pay get rebated it they export the product. Under this system, where imports are subject to no import taxes, domestic producers, subject to many forms of taxation, cannot compete. And the jobs keep on going away.

[David Trumbull is the chairman of the Boston Ward Three Republican Committee. Boston's Ward Three includes the North End, West End, part of Beacon Hill, downtown, waterfront, Chinatown, and part of the South End.]

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