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The Case for Free Trade

The U.S. has seen a substantial portion of its manufacturing base eroded by cheap overseas production. American workers blame free trade. So why should we speed up the process?

The Case for Free Trade

That’s one way of framing the debate over granting the President fast-track authority for negotiating two massive new free-trade agreements: the Trans-Pacific Partnership (TPP) among 12 Pacific Rim trading nations, and the Transatlantic Trade and Investment Partnership

(T-TIP) between the U.S. and the European Union. Neither pact is expected to be ratified anytime soon without the help of fast-tracking, which would severely restrict congressional input and debate.

We’ve heard the arguments against fast-track authority, and free trade in general. What are those in favor?

Start with the idea that free trade is essential to keeping economic recovery on track, sparking additional growth and creating new markets for U.S. products around the world. Agreements such as TPP and T-TIP, which would open up domestic markets to more imports, are also key to bringing down barriers to American goods and services.

“Trade agreements not only benefit U.S. retailers looking to open new stores and operations in new markets … but also American consumers, who will see increased product selections and lower prices,” said Matthew Shay, president and chief executive officer of the National Retail Federation.

Free trade is such a sensitive issue in Washington, however, that any attempt at forging new agreements is likely to be scuttled by Congress – unless fast-tracking is in place. And that, trade advocates say, is precisely what needs to happen.

“New trade promotion authority provides our nation’s trade negotiators with the clarity and flexibility they need to deal with our current and future trading partners,” Shay said earlier this year. He was speaking in support of the proposed Bipartisan Congressional Trade Priorities Act of 2014 – which, despite its optimistic name, faces stiff opposition from both sides of the aisle.

Critics argue that fast-track authority will undermine Congress’s constitutional role in the negotiation of trade agreements. Marianne Rowden, president and chief executive officer of the American Association of Exporters and Importers, says that simply isn’t so.

The fast-track bill “does afford Congress an opportunity to set trade priorities for the country in these free-trade agreements,” she says. “That is a sort of quid pro quo for having a truncated or streamlined process by which trade agreements are shepherded through the House and Senate.”

Rowden suggests that free-trade pacts, made possible by fast-track authority, are simply a reflection of the realities of global commerce today. Consumer goods manufacturers source their components and raw materials from all over the world. Supply chains have become complex and multifaceted. Advances in cheap telecommunications and efficient transportation “have blown out the traditional borders of countries,” she says.

The current debate over free trade should serve as something of a reality check for Americans. Many seem fixated on the post-World War II era, when the U.S. was the world’s sole industrial power, domestic markets were thriving, and trade was an afterthought. Now, with China asserting itself on the world stage, and the European Union coming together to create a unified bloc, free trade and the seeking of global opportunities become vital to economic survival.

One side effect is a progressive narrowing of the wage gap between American workers and their foreign counterparts. “The period we are in is much more of a historical norm,” says Rowden. “Our leaders have not been honest with the America people [about the need] to adjust their expectations. We really need to compete – everybody’s playing our game.”

Like it or not, globalization is a reality. “It’s sort of like stopping plate tectonics,” says Rowden. That said, free-trade agreements do “turbocharge” the trend. But they are also instrumental in bringing down tariffs and non-tariff barriers, so that the U.S. and its trading partners can compete fairly in global markets.

She is sympathetic to the plight of American workers whose jobs are threatened by free trade and cheap imports. Yet she argues that labor “is not a static, zero-sum game.” Global sourcing strategies can experience sudden and dramatic shifts.

Consider the impact of high oil prices and logistical concerns on companies manufacturing in China. Some have found it necessary to shift production to other countries, in a few cases back to the U.S. The result is far from a return to the glory days of the American economy, but it does suggest that free trade provides benefits that can offset the more obvious drawbacks for domestic workers.

Rowden doesn’t sugarcoat the impact of free trade on U.S. labor. “We in the trade community have to acknowledge these job losses and damage that can happen to people when they are competing against six billion other people in the world.” Protections need to be in place for those who have lost jobs as the result of a free-trade agreement. The Trade Adjustment Assistance program is supposed to do just that, “but whether it’s meeting its statutory obligation is very open to question,” she says.

Rowden also wants to see more corporate retraining programs, coupled with a public education system that prepares young people for operating in a global environment. “If you know you can’t stop this from happening,” she says, “the question is how do we help people not just survive, but thrive.”

For all their potential drawbacks, free-trade agreements on the scale of TPP and T-TIP will have a net positive impact, Rowden insists.

“I believe in free and open trade,” she says. “You’re lowering the transaction cost for shipping goods across the border, and that’s always good.”

It all comes down to a better quality of life for the American consumer, who benefits from a broader array of products at cheaper prices. Assuming, of course, that the individual in question still has a job.

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