Posted by Brad @ 10:51 pm on April 27th 2008

Ugh, Free Trade Good

Via Freedom Democrats, here is very interesting editorial in the Wall Street Journal by Senator Sherrod Brown, newly minted, of Ohio, on the whole “free trade v. protectionism” debate. Whereas most liberals are reflexively cowed by the “free trade” label (sort of as they have been by “family values” or “support the troops” or what have you), Brown decides to take it on, albeit pithily. His point, and I think it’s a good one, is that while the basic ideological concept of “free trade” is good enough, in practice, it usually isn’t simply a matter of tariffs vs. no tariffs, free market vs. government intervention.

The supporters of our trade policy rarely mention our exploding trade deficits. In just 15 years, our annual trade deficit has mushroomed to over $800 billion from $38 billion in 1993. With Mexico, our trade surplus evolved into a $90.7 billion trade deficit. With China, our trade deficit jumped to $250 billion today from about $22 billion. President George H.W. Bush once estimated that a $1 billion trade deficit represents 13,000 lost jobs. Do the math.

One country’s deficit is another country’s surplus. Our annual trade deficit helps fuel the growth of government-owned investment funds overseas. Free traders rarely mention these funds even as they proliferate.

Nonetheless, today, five governments control more than $2 trillion that they use to buy stocks and other assets in America and other countries. So far, the funds controlled by the People’s Republic of China and the United Arab Emirates have been passive investors. So far.

More to the point:

The Colombia Free Trade Agreement is being shopped around Congress by an overzealous White House. Let’s put aside, for now, the debate about rewarding a country that has done little to stem the tide of rampant labor abuses and human rights violations – including dozens of murders.

Let’s focus on the merits of the agreement. Supporters sell it as a free-trade agreement, a great opportunity for American companies because it eliminates tariffs on our products. If that were true, the agreement would be a few lines long.

Instead, we have a trade agreement that runs nearly 1,000 pages and is chock full of giveaways and protections for drug companies, oil companies, and financial services companies, and incentives to outsource jobs now held by Americans.

Nafta. The Central American Free Trade Agreement. China. Now Colombia. We have a pattern in our trade policy that aims to protect special interests, but betray our workers, our environment, our communities.

This is one of those issues on which I’ve gotten a lot more…I don’t want to say “liberal”, but perhaps “urbane”, if I’m being especially haughty about it? Maybe “wishy washy” is best. Regardless, as a young conservative, trade was an especially easy issue to handle. Anything short of unfettered free market was protectionism, anything championed as free trade was good. End of discussion.

But in practice, of course, things sold as “free market solutions” tend to be a little more complicated. As it pertains to trade, as Brown notes, it isn’t simply a matter of one side wants superfluous tariffs and the other wants none. Quite often, the byzantine agreements are wrestling between putting a thumb on the scale in favor of corporate interests (read largess) and the investor class, or putting a thumb on the scale in favorite of labor interests and the consumer class. Again, it used to be, as a 17 year-old Dole supporter, that anything that benefited business was, ipso facto, good, but the older I get and the more firsthand experience I have with government regulation, I’ve tend to found that no, something that favors business is not inherently or necessarily more free market than something that favors, say, labor, or consumer rights, or what have you.

On this, I think Brown has a point. It is, incidentally, one of the things that separates guys like Ron Paul from guys like James Inhofe, and a point of emphasis I don’t think small government conservatives emphasize nearly enough. Corporate largess is absolutely one of the factors that makes our markets unfree in this country, and in many ways, it may be the PRINCIPLE factor (that was probably not true until the last 20 years or so). When the government is bending over backwards to create “opportunities” for the investor class at the expense of workers or consumers, I don’t see any particular reason why the regular “free trader v. protectionist” label-throwing necessarily applies.

The principle, I think, is right from the free trade crowd, which is why I’d describe myself as one. But like anything—and especially as is the case in 10000 page bilateral trade agreements—the devil is quite often in the details, and even if one side seems to fall nicely under one rubric or another, I agree with Brown that people calling for a significant hashing through of our trade agreements are not, automatically, in favor of artificially retarding markets for the sake of it. I think conservatives, by and large, are losing credibility on questions of globalization and international trade precisely because they often enough refuse to engage in the debate past the label-throwing level. Which is bad for all of us. And I think quote-unquote “fair traders” are gaining credibility, in large part because they can easily point to any number of examples of the government bending markets to favor their favorite players at the expense of the, again quote-unquote, “common man”, and it touches the same “hey, that’s not right” chord in people that arguments in favor of free trade do, but with the added benefit that it makes free traders look like hypocrites besides. Perhaps being in the rust belt makes me unduly sensitive to this, but I think I agree with Brown, that maybe it’s time free trader conservatives actually deign to engage in these discussions, and even, when called for, go after, gasp, corporate interests when THAT’S standing in the way of market freedom.

This has been your Generalized Ramble of the Day.

15 Comments »

  1. Brown does realize that bilateral trade agreements are the product of negotiation between two self-interested parties, correct? And that all those many, many clauses are not necessarily the product of some kind of nasty pro-corporate swinishness on the part of Republicans, but were, you know, necessary to produce the agreement of both nations?

    I’m delighted that Sherrod Brown feels that he knows better than trade negotiators how they ought to do their job, but I am somehow skeptical that his objections truly lie in the complexity of the trade agreements themselves. I suspect that if the United States Congress were to take up the only form of unilateral free trade action of which it is capable–a unilateral reduction of trade subsidies–Brown would be screaming his head off that it represented some kind of unilateral disarmament. Yet that is the only alternative to the sort of complex trade deal he’s complaining about.

    Don’t get me wrong; my personal preference would be for EXACTLY that kind of voluntary subsidy reduction. Ask yourself this, though, Brad: how much energy is actually being spent by Democrats on simplifying trade deals? Is there ANY Dem proposal on the floor to do this with ANY trade agreement?

    Is “complexity” the complaint that Clinton and Obama have put forth on NAFTA? Or have they both been calling for a renegotiation that would make it a hell of a lot more complex? Specifically, by imposing specific measures to “protect” allegedly deserving lobbies from competition?

    If the latter, then you can accurately assume that the “complexity” argument is a smokescreen for more of the same ol’ protectionist same ol’.

    Comment by Rojas — 4/28/2008 @ 12:29 am

  2. Brown does realize that bilateral trade agreements are the product of negotiation between two self-interested parties, correct? And that all those many, many clauses are not necessarily the product of some kind of nasty pro-corporate swinishness on the part of Republicans, but were, you know, necessary to produce the agreement of both nations?

    To the italicized bit, I suppose the question Brown might ask is whether the product of the negotiation is the only possible agreement that could have produced the deal. To say those many many clauses were each of them necessary to produce the agreement is one of those “truths” that I don’t think bears any kind of practical analysis. There are many, many different sets of conditions, things you’re willing to be malleable on, things you are not, concessions you seek, concessions you are willing to give, etc. that could produce a bilateral trade agreement. It’s not as if there are two pieces of paper and one says “free trade” and the other “no trade”. Though I have no idea, how many clauses in a 1000 page bilateral trade agreement do you figure are insubstitutable for any others? Here, you seem to be saying “none”, which is, I think, patently ridiculous, or at best a huge measure of good faith on your part.

    What Brown and other fair traders seem to be asking is not a total breakdown of the process, but a shift of emphasis as to what priorities we come to the table with. One can debate the merit of those various priorities line by line—and, indeed, they should—but when it gets parsed down this kind of caveman language of “free trade vs. protectionist”, the debate, I think, loses all meaning.

    I don’t think, frankly, that NAFTA under Clinton or Obama would be any more or less complex. As it stands, most trade negotiations, at least in my understanding, are already a hopeless hodgepodge of shoe-horned in interests (that come, I would imagine, as equally from “free market” forces as from “fair trade” markets). That’s fine, by the way—trade between two nations is a complex thing. But I certainly don’t think that saying we should place a greater emphasis on, say, labor, consumer, or environmental concerns necessarily follows that it would require a hopeless morass of complexity such that the whole system would break down.

    And, I suppose, that’s part of my point with the post. I think, on the whole “protectionism” thing, free markets advocates have simplified the whole debate beyond all meaning. It has essentially come to mean “let corporate interests and conservative politicians dictate the terms of the agreement; anything less is by definition anti-trade”. As to my personal evolution, the older I get the harder it is to get excised about that charge.

    Comment by Brad — 4/28/2008 @ 1:07 am

  3. I’m with Rojas. The ideal situation is one of unilateral across-the-board elimination of tariffs and subsidies. You could do that with a single paragraph of law.

    The less ideal option would be what we currently engage in: bilateral trade barrier reduction. This provides an opportunity for special interests to weasel exceptions into the agreements, but as Rojas pointed out, since both parties must agree on the agreement the egregiousness of the exceptions are metered by the process. The end result is usually a reduction of trade barriers, tariffs and subsidies, albeit moderated to a degree by corporate handouts and the like.

    The third option is the most easily corrupted – domestic protectionism. It’s far easier to get Congress and the President to react in response to a special interest than it is to get the US Congress, the US President, the Panamanian President and the Panamanian Congress to all agree on some thing helping corn farmers outside of Des Moines. By entering into international agreements the power of domestic lobbies is stifled.

    I am adamantly against corporate handouts and protection. While horrendously long bilateral trade agreements carve out protections for powerful industries in both countries, I find them vastly preferable in contrast to the alternative. I would obviously prefer completely unhindered trade; however when choosing between a semi-free trade agreement and an un-free trade alternative, I’ll gladly take the better option (semi-free trade) even if it is a convoluted, complex and problematic document. It’s not perfect, but it sure beats the alternative.

    On a side note, the bitching and moaning about the trade deficit is bullshit.

    I’ve argued that the best way to illustrate the principles of free trade is to apply it to the various states:

    – Does anybody in Ohio complain because everybody goes to Nevada to blow money on casinos?

    – Who hesitates when buying Idaho potatoes because of the money being transfered out of Kentucky into those foreign Idaho farmers?

    – How is there no outrage when a Miami company buys up property and buildings in Houston’s port? You’re talking about Floridians buying up Texas owned ports?! How dare they…

    – Where is the outrage when a Phoenix based company decides to sell computers in Biloxi, undercutting a local manufacturer? Dumping! Oh wait, the Biloxi consumers are buying the cheaper computers…

    – What about when Dunder-Mifflin merges the Stamford, Connecticut branch and outsources the workers and work to Scranton, Pennnsylvania? Outsourcing! Everybody duck and cover!

    Isn’t it pointless to talk about Oregon’s trade surplus in relation to Connecticut? Or cross-state transfers of wealth or workers? Or interstate ownership of infrastructure and property? And yet, there’s such a fuss over the same issues whenever it becomes an international scale.

    Comment by Cameron — 4/28/2008 @ 1:36 am

  4. And yet, there’s such a fuss over the same issues whenever it becomes an international scale.

    There are issues of control and responsibility that you are ignoring.

    Regions within the same nation can influence one another through political power. This influence includes taxing and spending as well as common regulation. This is not true with respect to regions located outside the governmental structure.

    With this control comes some responsibility (and liability). Like it or not, when workers in another state lose their job you and I will pay for them and their family in the form of unemployment payments, welfare or both.

    Similarly, we will pay for medical care as well as social security if the become disabled.

    Thus, the job status of someone in Ohio is much more meaningful to me than someone in China, as the person in Ohio has political influence over me.

    This is true for natural disasters as well. A hurricane that goes through Florida hits me right in the wallet. If it takes a left turn and goes through Mexico I certainly feel their pain, but not financially (or at least less so).

    People who talk about free trade need to acknowledge that it is not sustainable within our current social structure. You can’t have a welfare state with environmental reguations with 100% free trade.

    That is the problem with the CATO/Reason crowd. They pretend this trade-off does not exist, or at least they don’t talk about it. That is because if you tell people what free trade will mean in the end it will not be supported.

    If you want 100% free trade you need to admit that over time it will destroy, over time, many of the social “contracts” people have elected to create using the democratic process.

    Comment by daveg — 4/28/2008 @ 4:10 am

  5. It is difficult to tell if unilateral free trade “agreements” are also realitist.

    Every nation engages tries to promote national business for the good of the people they are supposed to represent. It is hard to argue that these programs are not successful, at least in some instances.

    For example:

    Uncertainty about extending a 10-year tax holiday for IT companies have left Indian chip design houses in a quandary.

    Most of the more than 200 design houses in India were launched under the Software Technology Parks of India (STPI) scheme, which offers a 100-percent tax exemption to IT companies through April 2009. In 1999, the Indian government offered tax exemptions on export earnings under the income tax law to increase India’s software exports.

    Link

    The subsidies can be direct like this, or general like free university education and government financed R&D.

    Would companies forgo all these government goodies to set up shop in a low tax country? Hard to say.

    Also, would they just be developing ideas generated elsewhere at public expense? Possibly.

    I think the free trade idea will work, but there are serious questions that should be kept in mind.

    Comment by daveg — 4/28/2008 @ 6:08 am

  6. Other than “corporations are not true capitalists,” I see not one argument here based on economics rather than emotions.

    Trade deficits mean consumers are getting goods and services more cheaply than they could in a closed economy. This is bad — how?

    Capital surpluses mean that U.S. enterprises can raise capital more cheaply than they could in a closed economy. This is bad — how?

    Trade does not, net-net, destroy jobs, it creates jobs. The fact that some people are the bad side of the “net-net” does not change that fact.

    Etc.

    Comment by KipEsquire — 4/28/2008 @ 6:56 am

  7. Rojas,

    Since when were United States Senators, members of the chamber which approves of treaties, supposedly locked out of the process of trade negotiations?

    You could very well take your statement that Brown shouldn’t question the trade negotiators over in the executive branch and carry the same logic into the Iraq War: Sherrod Brown shouldn’t question the generals and assume that he knows better than them on how to do their job.

    With both Clinton and Bush I think it was clear that the executive branch in charge of trade negotiation had a different agenda in mind than the majority of the Democratic caucus in Congress. That caused in-fighting for Clinton, partisan bickering for Bush. Clinton at least was smart enough to try to navigate his trade deals through Congress, Bush seems to be set on a “my way or the highway” approach.

    Comment by FreedomDemocrat — 4/28/2008 @ 9:06 am

  8. Some good arguments in this thread.

    Brad: clearly, I’m not arguing that every portion of a given trade deal is necessarily a product of bilateral negotiation. What I AM arguing is that the likes of Sherrod Brown are not going to be particularly good at diagnosing which treaty provisions were critical negotiating points and which ones are giveaways to some interest group or other.

    Again, I’d call your attention to the fact that neither Brown nor any of his ilk has taken step one towards actually simplifying the treaty process. This ought to suggest to us that the entire argument is a stalking horse. Brown wouldn’t support unilaterally implemented free trade and hasn’t proposed it. He doesn’t want to see protectionist measures stopped; he merely wants to see those groups which he prefers protected. So does Obama. So does Clinton. All of them are making a massively dishonest and disingenuous argument. Moreover, there isn’t a line-item veto for trade deals (nor could there be), so Brown’s entire objection is immaterial as a practical matter. It’s an excuse to vote against any and all free trade deals while claiming to be pro-free trade.

    FD: I’m not arguing that Brown can’t vote however he wishes on any particular trade deal. What I AM arguing is that he can’t reasonably object to a deal which on-balance lessens trade restrictions while absenting himself from the economic and political consequences of casting an anti-trade vote. It would be akin to a pro-choice Senator voting against Ruth Bader Ginsburg on the grounds that he wanted someone even MORE pro-choice on the Supreme Court.

    Brown and the rest of the Senate are compelled by the process to support or oppose deals as a whole. If they want the deals negotiated differently, they can win the Oval Office. Short of that, there is really no mechanism by which they can exercise control over the negotiation process, and to attempt to do so is to engage in political fantasy. Their indirect mechanism of control is to vote down a trade deal–but if they take a deal which on balance increases free trade and vote against it, that has to be seen as an anti-trade vote. If you wish to make the Iraq analogy, my response is: Brown can criticize the generals all he wishes, but once he votes against troop appropriations on these grounds, he is accountable for that decision.

    I don’t understand the Clinton-Bush dichotomy you’re establishing at all. BOTH of them were compelled to get their treaties approved, or to “navigate them through Congress” as it were; neither had the option of renegotiating the deals to support the whims of individual members of Congress. For both it wound up being a “my way or the highway” matter, because the approval of treaties is INEVITABLY such a matter, no amendment being possible. What am I missing?

    Comment by Rojas — 4/28/2008 @ 10:42 am

  9. That’s a bizarre argument from Brown. A deficit is a sign that you’re not competing well enough across the board; either you compete better or you pick a different field in which you can bring your advantages to bear. It’s certainly not the government’s business to protect uncompetitive business (and corporate welfare is that, of course, and should also be cut).

    As for complexity, Rojas is right; Brown’s not planning to fix it. Trade agreements are bound to be complex to some extent; they are potentially able to get simpler over time as connections are strengthened and, in any case, familiarity with the rules lessens the complexity overhead. However, unless Brown wishes to make the case that the treaties are so complex that it’d be better not to have them at all (which is nonsense, it seems to me) then, like Rojas, I don’t think he is planning to simplify them in a way that results in more free trade, in which case he’s just drinking the protectionist kool-aid (or, more accurately, selling it).

    As for Ohio, even if the jobs came back to the US, they wouldn’t go back to Ohio (or Michigan). The dreamers should accept that, first, rather than casting around for a scapegoat to make the argument sound pseudo-respectable (extra bonus: blame the filthy foreigners and callous big business!).

    Comment by Adam — 4/28/2008 @ 11:43 am

  10. The dreamers should accept that, first, rather than casting around for a scapegoat to make the argument sound pseudo-respectable (extra bonus: blame the filthy foreigners and callous big business!).

    Eh, people would do better to discuss issues point-by-point than engage in name calling.

    The government bailed out Chrysler and that ended up saving and creating jobs for 30+ years. These jobs provided medical coverage, taxes and pensions that otherwise would not have been available.

    It kept people off the government dole.

    Foreign companies do produce automobiles competitively in the US. You may claim this is a sign that the free market works, but the fact is the US put a lot of pressure on these foreign companies to do so.

    These companies continue to add US plants in part so as to keep protectionist sentiment under control.

    Other countries practice all sorts of protectionist activities (as well as immigration control) and have very strong economies and little of the social problems we have in the US. Japan and Finland are but a couple of examples.

    Comment by daveg — 4/28/2008 @ 1:58 pm

  11. Trade does not, net-net, destroy jobs, it creates jobs. The fact that some people are the bad side of the “net-net” does not change that fact.

    Do you agree that folks who are unemployed can, via the power of government vote, to transfer money from some to others, and that they do so regularly?

    Is this power accounted for in your “formula?”

    Comment by daveg — 4/28/2008 @ 2:04 pm

  12. The government bailed out Chrysler and protected a company that continued to be a shambling producer of indifferent vehicles. Daimler did the same sort of thing, which goes to show that some people never learn, but at least that didn’t cost the US taxpayer so much.

    My understanding was that firms like Toyota appreciate the good PR from producing automobiles in the US as well as the other advantages (their plants are pretty profitable, I believe); however, I don’t think they’re going to be opening a large amount of plants in Ohio unless the people and government of Ohio do something to improve the business environment inside the state.

    That other countries don’t do free trade very well isn’t much of an argument, however. I am not convinced that the foundations of future Japanese prosperity are particularly well-laid, but you do rather overlook some of their other advantages (their extraordinarily rigourous education system, for example; Finland’s education system is also very successful, I believe, although I don’t know enough about the Finnish economy to comment in general).

    Comment by Adam — 4/28/2008 @ 2:13 pm

  13. Again, I’d call your attention to the fact that neither Brown nor any of his ilk has taken step one towards actually simplifying the treaty process. This ought to suggest to us that the entire argument is a stalking horse. Brown wouldn’t support unilaterally implemented free trade and hasn’t proposed it. He doesn’t want to see protectionist measures stopped; he merely wants to see those groups which he prefers protected. So does Obama. So does Clinton. All of them are making a massively dishonest and disingenuous argument.

    You and I are missing each other on this one.

    Brown, that I see it, isn’t arguing at all that his side would lessen the complexity of trade deals or that the other would increase it. He’s arguing, in effect, that there’s nothing inherently anti-trade about his side wanting to emphasize labor, environmental, or consumer interests in trade deals. He’s arguing the opposite of what you’re taking it as, namely, that the OTHER side ALSO is not interested in inherently “simplifying” trade, they’re just replacing one set of interests (labor, environmental, consumer) for another (corporate, investor, etc), while at the same time holding hostage the rhetoric that THEIR favored interests are inherently more “trade-y” than the other. I, personally, think that side has a point, but I also agree with Brown that the truth of the matter is a lot more complicated than “one side seeks free trade, the other seeks to retard it”.

    Brown’s argument isn’t so much a “my side is better” (though that’s, obviously, implied); it’s more a critique of “why do we automatically buy that everything the Republicans want included in trade deals is inherently more ‘free trade’ than what we want included”?, and on that, I think he has a point. I think, personally, that on balance Republicans are better, but again, the argument I’m sort of giving credence to in reposting the Brown essay is that the political rhetoric on this issue has oversimplified things to the point of nonsense. I do not, for instance, see bringing consumer protections or environmental concerns to the negotiating table as something we want some emphasis or concession on as being, necessarily, inherently protectionist, or at least any more inherently protectionist than many of the corporate largess type stuff that often gets included under the “free trade” rubric. Sherrod’s point, or at least the point I’m sort of endorsing, is that oftentimes we can’t even get into the line-by-line debate because the political rhetoric has gotten so polarized and shallowed that if corporations want it, it must be free trade, and if anybody else wants it, it must be protectionist.

    Does that make sense, or am I talking out of my ass here?

    Comment by Brad — 4/28/2008 @ 9:54 pm

  14. Free trade does make some people worse off. When the number of people who are worse off becomes large enough in a democratic society, they will not support free trade, as is their right.

    And in a democratic society, your fellow countryman can vote in ways that harm your interests, including electing to tax you and prevent you from doing business with other countries – try doing business with Iran or Cuba, for instance.

    Thus, the outcome of free trade vis-a-vi your fellow countryman is more important to you than that of a foreigner as they can not directly take money from you are restrict the way you do business.

    Physical proximity is also not to be ignored. If someone has very little money and is surrounded by wealth, the incentive and ability to commit crimes will be high. You are more easily robbed by your fellow citizens then someone overseas, giving you another reason to “prefer” you fellow countryman.

    And this would seem to be a relevent point as American has the highest percentage of people in prison of any country, despite being reasonably wealthy. While I am not a bleeding heart liberal, I acknowledge this situation is not ideal.

    Also, you should take a look at this movie trailer for an idea as to how bad it can get – Send a Bullet.

    Any model that does not take this into account is not a very good model, is it.

    Comment by daveg — 4/29/2008 @ 5:41 am

  15. Some people probably will be worse off. That’s the nature of competitions. Some people lose.

    The nature of changing conditions, of course, is that we have to be prepared to change in accordance with them.

    I, personally, have not said that people can’t vote to do things I believe to be stupid, like restrict free trade. People vote for stupid things all the time.

    Ironically, restricting free trade is unlikely to help Ohio and its rustbelt ilk at all because even within the US, they’re apparently not attractive places to do business. Easier to blame the filthy foreigners, though.

    Comment by Adam — 4/29/2008 @ 6:23 am

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