Since last November’s elections, Democratic leaders have been asserting that, despite the hostile rhetoric of their rank and file, they view trade openness and engagement as indispensable to U.S. economic and security objectives. That with some accommodation of Democratic priorities on labor and environmental issues, the administration and Congress can work together to advance a bipartisan trade agenda.
The credibility of those assertions is about to be tested. The recently concluded but yet-to-be ratified U.S.-Korea Free Trade Agreement will reveal whether the Democratic congressional leadership can be trusted to continue the time-tested tradition of promoting economic growth through liberalized trade.
South Korea is one of the fastest growing markets for U.S. exports, the seventh-largest U.S. trade partner, and the world’s tenth-largest economy. Its citizens enjoy a per-capita income of $24,000, placing them among the world’s richest. A free-trade agreement would increase U.S. national income by an estimated $17 billion to $43 billion per year.
But already opposition is building among Democrats, despite the fact that labor and the environment are virtual non-issues. And it’s not just the boisterous rank and file agitating. The leadership is more than complicit here.
Spearheading the opposition is House Ways and Means subcommittee on trade chairman, Rep. Sander Levin, a Democrat of Michigan. Levin’s opposition is predicated on the agreement’s failure to incorporate an absurd proposal that he, House Ways and Means chairman Rep. Charles Rangel, a Democrat of New York, and 13 other members — hailing mostly from Michigan — foisted upon the U.S. trade representative in the waning weeks of the negotiations.
Levin insists that the agreement be revised to reflect his proposal, which conditions improved Korean access to the U.S. auto market on the success of U.S. auto sales in Korea. Thus, in a given year, if U.S. auto producers sell 10,000 more cars in Korea than in the previous year, then Korean producers would get duty-free access to the United States for 10,000 more cars in the following year. Only after American sales success in Korea is demonstrated would the U.S. market open further to Korean autos.
To Levin and the other architects of the proposal, the fact that Korea’s auto market has been notoriously tough to penetrate — and it has — renders Koreans untrustworthy enough to warrant derogatory treatment. But that characterization is all part of an elaborate smokescreen for sinking the agreement unless its terms favor the U.S. auto industry. In this case, U.S. auto producers would dictate whether and to what extent they have Korean competition in the United States by whether and to what extent they try to sell in Korea. It’s a “heads I win, tails you lose” proposition for Detroit. It’s a losing proposition for everyone else — especially consumers.
Over the past couple of years, U.S. exports to Korea have been growing fast, while U.S. imports from Korea have been falling. U.S. goods exports to Korea increased by over 23 percent, to $32.5 billion in 2006 from $26.4 billion in 2004. During the same period, U.S. goods imports from Korea declined to $44.7 billion from $45.0 billion. On a per capita basis, Koreans are already buying far more from Americans than the other way around. American businesses are doing quite well in the Korean market. If ratified, the U.S.-Korea Free Trade Agreement, reached at the beginning of this month, will only bolster that success.
Rangel has yet to express his position on the agreement. But his recently unveiled “New Trade Policy for America,” which includes some laudable objectives but also a litany of provocative measures, contains one bullet point calling for implementation of his and Levin’s excluded proposal. Since the agreement does not include their proposal, will Rangel, like Levin, oppose and virtually guarantee the agreement’s defeat in Congress?
Now is the time for pro-trade Democrats to prove that they exist. If Rangel wishes to demonstrate that his party is not reflexively opposed to trade deals and that it will not subordinate national policy to the whims of its most protectionist constituencies, he should endorse the agreement and set the right example. Perhaps Levin will then recognize what already should be obvious to him already. Without the agreement the Korean auto market isn’t going to open more to U.S. exports anytime soon. With the agreement, it will. That should be enough to render a tepid supporter of trade a pro-trade Democrat.
– Daniel Ikenson is associate director of the Center for Trade Policy Studies at the Cato Institute.