Tuesday, November 28, 2006

No Love for Free Trade

Club for Growth notes a great speech by Treasury Secretary Hank Paulson regarding the benefits of free trade:

Protectionist policies do not work and the collateral damage from these policies is high. Jobs saved in the short term are offset by more job losses and a lower standard of living in years to come...

We cannot allow protectionist elements to stifle our growth, limit our opportunities, and dictate the terms of our engagement with the world. Giving in to protectionist sentiment would send a terrible signal. We would be telling developing nations that while we have benefited from increased trade, we aren't going to allow them the same opportunity to develop. We would effectively be relegating countless people to the status of a perpetual underclass, with little income and few opportunities for advancement. That is not only bad policy, it is morally wrong.

This is all true - and important. More's the pity that this administration - like all the administrations going back to Reagan at least - don't really believe it. Or at least, they act as if they don't.

Adam Smith said: Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

That's pretty clear, and it is the intellectual foundation for open markets. The elimination of taxes on trade enhances the power of the consumer to choose his or her best option. It lowers prices and improves quality through competition. The elimination of taxes on trade is in and of itself a good thing; it should not be 'traded' for 'concessions' from other trading partners. It should be adopted in its own right as the proper policy.

Of course, no one believes this anymore. For decades opinion leaders have failed to make the case for cheap, high-quality imports. Rather, places like Wal-Mart are mocked. Companies move production abroad because import restrictions make it too difficult to bring necessary inputs here. And how did President Bush attempt to push back against this philosophy? He supported curbs on steel imports, quotas on textiles, managed trade in a host of areas, and god-awful farm supports that make a mockery of free-market rhetoric.

This is not to pick on George Bush. He did what any President would have done - and what all recent Presidents have done. He bent to constituencies that don't believe in free trade, knowing that consumers would not reward him if he stood with them, or punish him if he did not.

Pete DuPont asks why Democrats fight free trade. That's a fair question. But my question is why Republicans fight it. The Doha Round of trade talks was dead when Republicans ran Congress, partly because farm interests were too strong to allow more dramatic concessions on subsidies. When the talks went into hiatus, it immediately emboldened those farm interests to demand more in the next Farm Bill.

And where were Republican free traders? Most are cowed, realizing that consumers don't understand when their ox is being gored.

For too long arguments for free trade have been built on the notion that they are a necessary evil; that we must open our market so that others open theirs, and allow our exports to create jobs at home. Exports are good and the wealth they create is good. But more important is the ability of our consumers to take advantage of the best the world has to offer - regardless of whether other countries give their consumers the same power.

Washington has seen a gradual weakening of support for free trade. It has more support among Republicans, but even the Republicans don't generally support real free trade. The trade agenda will be threatened as long as trade proponents cede half the playing field. They must stress the value of imports, as well as exports.

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