Free For All

by David Trumbull

March 24, 2006

The furor over the bid to have a company based in Dubai, United Arab Emirates, run our ports was just the latest in a cycle of agitation and neglect with regard the globalization of our economy.

Remember the presidential election of 1992? Globalization was a big issue then. Messrs. Bush and Clinton both pushed for the North American Free Trade Agreement (NAFTA), while third-party candidate Perot warned of the "giant sucking sound" of job whooshing down to Mexico. Well, Perot was right about the loss of jobs due to trade liberalization. But the flow was to the East, not the South. In the past decade both the U.S. and Mexico have seen a huge outflow of jobs to China and India.

The debate over NAFTA passed, as did the public's interest in trade agreements. But globalization continued apace. In fact, at a quickening pace. The rapidity of change ought to make us wonder whether this huge transfer of wealth from the West to the East is really, in the long run, such a great thing for ordinary Americans.

Rapidity of change.

The second largest source of funding for the federal government, after income tax, is duty on imports of foreign goods. Every free trade agreement, from NAFTA which went into effect in 1994, to the Central American Free Trade Agreement (CAFTA) which is in the process of implementation now, shifts the tax burden away from foreign imports and onto American workers by way of payroll taxes and state and local taxes. And the number of these agreements is exploding.

As recently as 2003 the U.S. was partner to just three free trade agreements: the U.S.-Israel FTA, NAFTA (with Canada and Mexico), and the U.S.-Jordan FTA. As of January 1st of this year the U.S. is partner to seven such agreements that abolish import duties in favor of direct taxation on American workers. We now have duty-free imports from Singapore, Chile, Australia, and Morocco. And, as noted, CAFTA, which is, as of March 1st, effective with El Salvador, will over the next few weeks be expanded to waive duties on imports from Dominican Republic, Guatemala, Honduras, Nicaragua, and Costa Rica. The free trade agreements with Bahrain, Oman, Peru, and Colombia will go into effect sometime over the next few months.

Back to the aborted Dubai port deal. Did you know that the U.S. is negotiating a free trade agreement with the United Arab Emirates? We are, as well as with Ecuador, South Korea, Malaysia, Panama, Botswana, Lesotho, Namibia, South Africa, Swaziland, and Thailand.

President Bush hopes to have agreements with all those countries, which would make for duty-free status for about 30 our trading partners, by June 2007 when his mandate from Congress (called trade promotion authority) expires. Undoubtedly, trade, in general, is good. But you don't have to be a right-wing America-first type, nor a left-wing skeptic of free markets, to question whether such a huge shift in trade policy and of the burden of taxation over a mere two year period, is not, perhaps, just a bit imprudent.

--30--