Tuesday, January 25, 2011

With (Trade) Friends Like These...

I've frequently lamented the attempts of many advocates of trade liberalization and FTAs to champion free trade policies through an exports-only, essentially mercantilist, approach.  Tonight's State of the Union Address - and protectionists' responses to it - perfectly demonstrate why my angst is well-deserved and why free trade proponents in Congress, the White House and the US business community need to ditch the mercantilism and adopt a new sales pitch.

Beyond the simple fact that there are myriad moral and economic arguments for open markets that are equal to or better than an export-centric approach, one of the biggest problems with a "free trade" message based only on exports is that it's completely self-defeating.  As I said last year when commenting on the President's post-State of the Union statements on trade to a group of GOP congressmen:
Obama states that "the suspicion about trade agreements is that they're all one way." Ok, that's true, but what's feeding that suspicion is not the FTAs themselves, or most Americans' real-world experiences with imports and free trade, but rather political demagoguery and media misreporting on imports, the trade deficit and the state of US manufacturing.... Until these myths are corrected - until the American people understand that imports are good for US businesses and consumers, that US manufacturing output is still the world's largest, and that the US trade balance is not some "free trade scorecard" - any attempt to sell free trade through an exports-only focus will actually enhance Americans' suspicions, rather than alleviate them. Americans simply will look at the trade deficit (which the US has held since the 1960s, so it's not like it's going away anytime soon) and think that we're "losing" at trade, and that our supposedly "reciprocal" FTAs stink. Why? Because the President told them that exports are the only thing that matter, and that the only reason that American companies aren't exporting more is because our trading partners are cheating by illegally denying US companies access to their markets....
Protectionists, of course, are more than happy to exploit this glaring vulnerability and, as I've noted many times here, they've tailored their trade-skeptical (and myth-filled) messages to prey on the public's misconceptions about trade - many of which are fueled by free trade advocates' shoddy trade salesmanship.

Case in point: President Obama's State of the Union sales pitch on the US-Korea FTA:
To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.
The message here is clear: FTA = exports = jobs.  And while exports are certainly a fine and laudable goal, the immediate protectionist response to this argument is exactly as predicted:

  • Whether trade creates U.S. jobs depends on net export gains and reducing the trade deficit, which our past policies have not done.
  • U.S. export growth under past Free Trade Agreements (FTAs) has been less than half that to countries with which we do not have FTAs.
  • The U.S. International Trade Commission's (USITC) official study of the Korea FTA that Obama will emphasize concluded that the deal would increase the U.S. trade deficit.
  • Korea FTA's chief U.S. negotiator admitted it would not be a boon for U.S. exports.
  • Beware of administration claim that the Korea FTA will "support" 70,000 jobs; the core question is what net effect the Korea FTA will have on U.S. employment.
  • The Economic Policy Institute projects American job losses from the Korea FTA at 159,000.
  • The December 2010 Obama supplemental Korea trade deal does not alter the increased trade deficit, job loss findings.
  • The USITC study identified nine losing U.S. economic sectors that include many high-wage industries, including auto and electronics manufacturing.
  • Beware of the administration claim that the Korea FTA could reduce the U.S. trade deficit.
  • The auto manufacturing industry may lose a significant number of workers due to the Korea FTA.
  • Lack of currency manipulation disciplines in the Korea FTA mean agriculture could also lose out.
Every single one of these arguments is based on the same old protectionist myths about imports, the US trade deficit, and the state of US manufacturing.  And, despite the fact that these myths (and bogus "stats" like those from the union-backed Economic Policy Institute) have been routinely debunked here and elsewhere, they unfortunately sound almost-plausible when cast against the backdrop of the President's mercantilist SOTU statements on exports and the US-Korea FTA (and, of course, other, similar statements from pro-trade members of Congress and the US business community).

Just as troubling is the fact that the anti-trade "response" above actually came out yesterday!  In short, the "pro-trade" message coming from the White House and Congress has become so stale and predictable that anti-traders don't even have to wait until after the message has been delivered before they respond with their tired, mythtastic talking points.  (It must be nice to get paid for repeatedly cutting and pasting the same old arguments over and over again, huh?)

Could you imagine if the President and other trade advocates ever changed their mercantilist tune and spoke about the benefits of both exports and imports?  Or if they defended each American's freedom to engage in voluntary, mutually beneficial transactions with whomever he or she pleases, regardless of the political boundaries involved?  Or if they denounced protectionism as a pernicious, regressive tax on American consumers designed to line the pockets of a few well-connected producers?  Or if they simply explained that the American manufacturing sector has resumed its decades-long rise and remains the world's largest, or that an expanding US trade deficit is closely associated with economic growth, or that 55% of all imports are capitol goods and equipment that American businesses use to remain globally competitive?

For starters, anti-traders' responses couldn't be mailed-in anymore; and they'd actually have to come after the President's remarks, not before them.  Maybe they'd come up with new arguments, but seeing the dreck that they currently peddle, I'm not so sure that they could.  And considering that they've been relying on the same tired playbook for the last twenty-odd years, it would definitely be fun watching them scurry to come up with new dreck for a change.

Crazy thoughts, I know.


LE said...

All great points. One comment: you claim that a good argument to overcome protectionism is to remind us that Americans have a superior manufacturing sector. It seems to me that American manufacturing superiority is irrelevant, and that you risk producing a red herring; that is, I don't see any reason to imply that having a strong manufacturing sector is inherently better than having a comparative advantage in some other sector. Your case for free trade is strong enough to stand even if the US didn't still have the world's strongest manufacturing sector.

Scott Lincicome said...


You're definitely right that touting the superiority of American manufacturing is not a good lead-in argument for the reasons you set forth. Indeed, when I bring that stat up I typically add "not that it really matters." BUT the reason why it's important to discuss American manufacturing success is that the "demise of US manufacturing" is one of the most widely-used (and successful) protectionist myths. Most citizens today actually believe that we "don't make anything anymore." Thus, while saying we're still #1 is not a good lead-in, it's brutally effective at revealing anti-traders' deception.

Anonymous said...

Scott! When in the history of the United States has a President spent the majority of a SOTHU discussing international trade and competitiveness????? This is a major victory for you and the many others that have work so hard to advocate for further economic integration with the ROW.

Anonymous said...


How many times has a U.S. President talked about international trade? You should be incredibly satisfied that you and others have induced this change....

Scott Lincicome said...

Thanks, anon, but I unfortunately don't share your enthusiasm. Last night wasn't about "free trade," it was about economic nationalism and an adversarial approach to globalization and competitiveness. It was classic "us versus them" statist nonsense, and when the President says "competitiveness," he basically means "more subsidies for things I like" (except for the corp tax proposal, which, although I agree with it, I'm highly skeptical it'll happen, at least to the extent needed).

On Obama's "adversary economics," see my posts here: http://lincicome.blogspot.com/search/label/Adversary%20Economics

Minus the corporate tax pitch, last night was just more of the same.