Politics & Policy

Trading toward Recovery

Congress should pass trade agreements to help the economy.

As the economy continues to stumble, Congress and President Obama have repeatedly refused a unique opportunity to bolster our workforce and our economy. Their inaction on three pending Free Trade Agreements (FTAs) — particularly one with Colombia (CFTA) — is costing U.S. consumers and businesses billions in lost opportunities.

The U.S. International Trade Commission estimates that the CFTA would increase U.S. GDP by $2.5 billion. Exports to Colombia would increase by $1.1 billion when tariffs — ranging from 10 to 35 percent per good — were lifted. On the import side, 90 percent of Colombian goods already enter the United States without any tariffs, but nevertheless, imports from Colombia are projected to increase by $487 million annually if the agreement is approved.

Economists from across the political spectrum have argued that reducing trade barriers is one of the most effective ways to spark economic growth. The Copenhagen Consensus, a Danish think tank, argues that completing the World Trade Organization’s Doha Round of trade talks could boost growth in the world’s poorest countries by 1.4 percent per year. The CFTA is a small but important piece of that puzzle. It is also low-hanging fruit. Negotiations were completed three years ago. All that’s left are votes by the House and Senate.

These agreements are not perfect. They contain a number of trade-unrelated provisions, mainly labor and environmental standards. But the benefits of increased trade are huge.

Trade works because it applies Adam Smith’s theory of division of labor — the idea that when people and countries focus on what they’re good at, and rely on others for the things they’re not good at, everyone benefits. Henry Ford applied this theory to the factory floor; on his assembly lines, each worker had a specialized task. He produced more cars more cheaply than his competitors, which had little to no such specialization.

All this is old hat to economists. But the general public is ambivalent on trade.

A common objection non-economists have to freer trade is that it ships jobs overseas. Such people are at a loss to explain why more than 20 million net jobs have been created in the U.S. since NAFTA passed. Trade doesn’t affect the number of jobs. It affects the types of jobs. Trade allows each person to create more wealth than each could create on his own.

The AFL-CIO cites violence against union members as a reason for opposing the CFTA. While Colombia has a high (but decreasing) murder rate, union members are in no more danger than the general population. Around 2 percent of Colombians are union members; they comprised fewer than 0.5 percent of the 17,000 murder victims in 2007. They are actually about four times safer than the general population. Restricting access to trade will do absolutely nothing to decrease violence.

One cannot help but wonder if American labor leaders are exploiting the violence in Colombia as a means of hiding from competition.

Meanwhile, Colombia has been busy passing FTAs with other countries — Canada, Argentina, and parts of Europe. Imports to Colombia from those countries have soared at the expense of U.S. exports and workers. The longer we delay in passing this agreement, the more difficult it will be for U.S. businesses to regain the markets they’ve lost to other countries.

U.S. Trade Representative Ron Kirk and President Obama need to press Congress to liberalize trade with Colombia. Similar agreements with South Korea and Panama also deserve to be passed. There are long-term consequences to holding America back from the benefits of freer trade. The world is moving forward in globalized trade relations; the United States cannot afford to be left behind.

– Geoffrey Michener and Brian McGraw are research associates at the Competitive Enterprise Institute in Washington, D.C.

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