Summer, 2004

From the Editor

Trade: Free Vs. Fair

In recent months the Bush administration has announced the completion of a roster of free-trade agreements. There was one with Morocco, one with several nations in Central America and the Dominican Republic, one with Australia and one with Bahrain. All of these treaties, if ratified by the U. S. Senate, will serve to expand trade and deepen relations between these countries and the United States.

These nations were selected as much for political as economic reasons. Australia has been America’s stalwart ally in Iraq. Morocco is an Arab and Muslim nation with a long history of political moderation and thus key for the War on Terror. Bahrain serves as the base for America’s 5th Fleet. Central America and the Dominican Republic are close at hand and a major source of U.S. immigrants. America has every incentive possible to help these countries prosper.

The United States generally has lower tariffs than other nations, so when it comes to exporting gains, we benefit disproportionately from most free trade agreements. Other nations agree to the terms because it gives them entry into the world’s largest market.

The Senate has not yet ratified any of these. If President Bush fails to win reelection, their future is in doubt. Although Senator Kerry’s Senate record is very strong on free trade, in his Presidential run he has pledged to reject, as written, the Central American Free Trade Agreement.

Why the change? Organized labor and environmentalists are key constituencies of the Democratic Party. And, in wooing their support, Kerry has accepted their distinction between Free Trade and Fair Trade.

What is Fair Trade? Basically Kerry has pledged to oppose new agreements and even look to renegotiate older agreements that do not contain “enforceable labor and environmental standards at the core of every trade agreement.” Advocates point out we place loads of requirements on U.S. business. Minimum wage laws, restrictions on polluting the air, water and soil, and a plethora of other regulations and requirements serve to raise the cost of doing business in the United States.

These higher costs lead to some production being done out of the United States, either because U.S. companies move production out of the country or because non-U.S. companies see an opportunity to compete effectively. In any case some American workers can lose their jobs or never get jobs because this production is being done overseas.

The countries doing this production now have extra money with which to buy American products or to buy products elsewhere, enabling those people to buy American products. Sometimes the movement of some jobs overseas may enable a U.S. company to continue to prosper, and thus keep high paying headquarters jobs in the United States.

Of course, if less expensive products are available to U.S. consumers, they have more disposable income, which creates jobs all on its own.

Good economics will not likely prevail. If Senator Kerry wins in a narrow victory, he will feel compelled to attempt to renegotiate these agreements with labor and environmental standards.

Most developing countries will refuse to sign such agreements, because they see such rules as meddling in their internal affairs and because applying American regulatory standards would substantially negate their ability to compete.

In truth, it reflects a kind of arrogance by a sector of the American Left. As a very rich country, the United States can choose to set all kinds of regulatory standards, but we weren’t always rich and didn’t always have those standards. It took the United States many stages of development to become rich enough to worry about these issues.

Those who propose requiring these high standards universally do not do so in order to help people in developing countries. In fact, just the opposite — advocates of these policies proclaim their goal is to keep jobs in the United States or, in other words, to ensure that the population of developing countries should remain without jobs and opportunity.

Many people who oppose free trade agreements are generous in proposing aid to developing countries. Policies must be judged not on the heart of their proponent but on their effect. In many cases giving food to developing nations serves to distort the market and make it impossible for domestic producers in those countries to sustain a farm or ranch.

It is more charitable to allow for trade. Let economies grow by producing things of value and, soon enough, each society will be rich enough to want its own environmental and labor standards.

The proposed Free Trade Agreements are important steps in building a prosperous, stable and free world. President Bush knows this. Based on his votes in the Senate, Senator Kerry knows it as well. If Kerry should win, the world will be hoping he was making campaign promises he never intended to keep.  EXP