Politics & Policy

Trading Up

In a long-overdue vote on Thursday, the House passed the U.S.-Peru Free Trade Agreement over considerable Democratic opposition. It faces less resistance in the Senate, which looks set to take action before its Thanksgiving recess. The Bush administration has also sent trade agreements with Colombia and Panama to Capitol Hill, but House Ways and Means Committee chairman Charles Rangel has said he will be too busy to schedule votes before next year. This is a shame, for reasons economic and strategic.

The Peru deal had been awaiting congressional action since 2005. Even after Democratic congressmen Rangel and Sander Levin of Michigan convinced the administration to strengthen the agreement’s provisions on labor and environmental standards, many Democrats objected. They said the deal would outsource American jobs to South America, increasing economic instability and undercutting the U.S. manufacturing sector. Critics of the proposed deals with Colombia and Panama make similar arguments.

But the agreements with Peru, Colombia, and Panama are not about letting U.S. companies outsource jobs. The vast majority of what we import from those countries is already duty-free. Under the Andean Trade Preference Act, the U.S. opened its markets to most products from Peru and Colombia in exchange for their help with drug eradication. (Panama benefits in a similar way from the Caribbean Basin Initiative.) In other words, American companies wanting to build factories in Peru, Colombia, or Panama and import their products to U.S. markets were already free to do so. The new trade agreements simply open the Peruvian, Colombian, and Panamanian markets to American-made goods. It is a question of reciprocity.

As far as the more general health of the manufacturing sector is concerned, Democrats seem to be reading yesterday’s news. The sector has fully recovered from a four-year recession that ended in 2003, and last year, U.S. manufacturers set new records for output, sales, and profits. Employment in manufacturing continues to decline (as it has for decades), but “outsourcing” is not the culprit. Rather, as the Cato Institute’s Dan Ikenson has noted, “[Record output and declining employment] taken together are evidence of soaring labor productivity, which is the source of long-term increases in living standards.”

Passage of the deals would also advance important strategic interests of the United States. Hugo Chávez continues trying to spread his poisonous anti-Americanism across Latin America. Stronger economic ties between the U.S. and the countries in Chavez’s geopolitical neighborhood would help isolate him and check his influence.

It’s hard to see how anyone could expect free-trade agreements with three relatively small countries to massively disrupt the U.S. labor market. Opposition to the deals is more likely a protectionist reflex from Democrats — many of them freshmen — who feel they owe their seats to anti-trade rhetoric. If it was this hard for Nancy Pelosi and Charles Rangel to pass the Peru deal, we fear that the Bush administration’s remaining big-ticket trade proposals — the U.S.–South Korea Free Trade Agreement, and the renewal of the president’s fast-track trade-negotiating authority — will be battles for a future occupant of the Oval Office to fight.


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