The Wall Street Journal-20080206-The Candidates and Trade
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The Candidates and Trade
Full Text (1146 words)Ronald Reagan once joked that "government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it!" His quip cuts to the heart of the free-trade debate. Which of the presidential contenders are in favor of facilitating economic movement?
Trade is a good litmus test of statesmanship, since many polls show that voters believe trade with other countries hurts our economy. Which of the presidential candidates will stick up for free trade in the face of doubtful and sometimes hostile audiences?
During their debates, some of the Republican candidates expressed more ifs, ands or buts about free trade than others. John McCain says: "Free trade should be the continuing principle that guides this nation's economy." Mitt Romney's position is: "I strongly support free trade, but free trade has to be fair in both directions." According to Mike Huckabee: "I believe in free trade, but it has to be fair trade." But elsewhere he has said: "I don't want to see our food come from China, our oil come from Saudi Arabia and our manufacturing come from Europe and Asia."
Hillary Clinton has taken an even stronger stance against free trade, suggesting that the economic theories underpinning it no longer hold. To support that she cited economics Nobel Laureate Paul Samuelson, but he was only making the long-understood but sometimes forgotten point that, even in the long run, free trade does not benefit everyone.
Mrs. Clinton believes in "smart trade." As president she would appoint an official to ensure that "provisions to protect labor and environmental standards" are enforced by international bodies like the WTO and the International Labor Organization. She proposes a "time out" on future trade agreements, and a reconsideration of existing deals -- including Nafta.
Barack Obama is more even-handed: "Global trade is not going away, technology is not going away, the Internet is not going away. And that means enormous opportunities, but [it] also means more dislocations." In a 2005 essay he said: "It's not whether we should protect our workers from competition, but what we can do to fully enable them to compete against workers all over the world."
If Messrs. McCain and Obama see foreign trade as a glass that is half-full, Mrs. Clinton, Mr. Romney and Mr. Huckabee see the glass as half- empty.
The costs that foreign competition impose on the economy have led to government spending programs, and around these have grown powerful constituencies devoted to maintaining and erecting barriers to trade. Farm subsidies protect immobility and hurt prosperity by diverting resources away from cheaper foods (foreign or domestic) toward more expensive ones. Trade adjustment assistance falls partly under the heading of facilitating movement, because it underwrites job retraining and income support for those who seek better opportunities than the jobs they lost.
It was courageous of Mr. McCain to tell Iowans that he would eliminate subsidies for ethanol and other agricultural products. Instead, he expressed strong support for job retraining programs: "We need to go to the community colleges. We even need, if you're a senior laid-off worker who gets another job, to make up in compensation for the amount of money that's the difference between the job that he lost."
This last idea goes far beyond helping workers and industries adapt to a changing world. A broad program of wage insurance could create another expensive constituency. Moreover, it would weaken the incentive to seek out the most productive and rewarding new jobs, and it would be unfair to those whose jobs have been disrupted by causes other than foreign trade.
Mr. Romney sometimes advocates less government intervention, other times more. In an optimistic speech in Detroit, he said "that Michigan can once again lead the world's automotive industry. But it means we're going to have to change things in Washington." Rightly pointing out that "the burdens on American manufacturing are largely imposed by government," Mr. Romney believes "taking off those burdens is only part of the solution."
But he will not leave the rest to the marketplace. He pledges to "make a five-fold increase -- from $4 billion to $20 billion -- in our national investment in energy research, fuel technology, materials science, and automotive technology." He also says he would maintain U.S. farm-subsidy programs until other countries remove theirs.
The Democratic candidates do not speak of reducing or eliminating farm-subsidy spending, only of redirecting it toward the "little guy." According to his Web site, Mr. Obama "will make sure our farm subsidies help family farmers, not giant corporations." He envisages "a national commitment to prepare every child in America with the education they need to compete in the new economy; to provide retraining and wage insurance so even if you lose your job you can train for another." These are laudable goals, but they sound impossibly expensive.
On willingness to let the markets rather than government drive the adaptation of the economy to foreign competition, Messrs. McCain and Obama outscore Mr. Romney. On willingness to confront politically entrenched but trade-unfriendly policies such as farm subsidies, Mr. McCain beats both Messrs. Obama and Romney.
Still, there's one final insight that even the most enlightened candidates have not grasped: the automatic reciprocity of markets. Opposition by Mr. Romney to the phasing-out of U.S. farm subsidies until other countries phase out theirs reflects a seductive theme in all free-trade debates -- "fairness."
Fears that the U.S. does not always get a fair shake are widely shared. Says Mr. Romney: "As we pursue new trade agreements, I'm far less interested in just getting an agreement signed than I am in getting an agreement signed that is good for America."
Government policy can influence trading patterns, but it can't force them. Politicians like Mr. Romney tend to feel most at home in a command-and-control environment. But they are living in a dream world if they think they can either dictate or enforce the patterns of trade. The rough justice of the markets will decide.
It's widely assumed that trade opportunities will be unfair unless balance is negotiated with foreign governments. Not so. U.S. imports and exports are tied into an integrated market system. The economy must export goods (or sell off assets) to pay for the imports it chooses. Because the system pays for its imports with exports, reciprocity is automatic. If imports are taxed or obstructed, that acts as an obstruction to exports too. We need a president who is wise enough to recognize that protectionism impedes our exports as well as our imports.
The candidates should not forget that whatever Washington does will be imitated (or retaliated against) by other countries. What goes around comes around. It's up to the U.S. to set the best example.
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Mr. Ranson is head of research at H.C. Wainwright Economics Inc.
