Free Trade, Without Apologies

The benefits of unfettered global capitalism


International trade has been one of the most powerful forces for prosperity in the history of the world. But a lot of Democrats, including the one occupying the Oval Office, treat it as a mixed blessing at best, requiring reparations for the alleged victims.

That's the source of the fight between the president and congressional Republicans over two things the White House wants: free trade agreements with South Korea, Colombia, and Panama and renewal of assistance to workers whose jobs disappear because of foreign competition.

Republicans are agreeable to the trade deals. But the Trade Adjustment Assistance program, which doles out funds for extended unemployment benefits, job training, and relocation, is another story entirely.

They think it amounts to largely wasting billions of dollars. They see no reason to hold free trade hostage to this boondoggle. And they're right.

The argument for the program is that trade has many beneficiaries and a small number of victims, who ought to be compensated for their trouble. Most of us get richer from buying and selling in the international marketplace, and this program takes some of that extra wealth and spreads it around to the unlucky few who are worse off.

But the logic has never stood up well to inspection. If a steelworker in Pennsylvania loses his job because of competition from Texas, he is just as unemployed as one whose competition comes from Brazil. Yet the latter gets special help and the former gets none.

Capitalism is a dynamic system producing ceaseless change. Lots of people have been laid off because of big forces beyond their control—from the financial crisis to the housing bust to the price of fuel.

They get considerable help in the form of unemployment insurance (which has been extended to up to 99 weeks for the current troubles). Why are those affected by trade entitled to additional consideration?

The answer is political, not economic. To get lawmakers distrustful of global commerce to go along with trade agreements, presidents had to give them this program as compensation.

But as compensation, it falls lamentably short. The purpose is to assure that jobless workers find well-paid new employment. In reality, it's no big favor to the recipients. The surprise is that for all the money spent ($1.3 billion this year), the program's impact is undetectable.

In a new study published in the journal Contemporary Economic Policy, American University economists Kara Reynolds and John Palatucci found "no statistical evidence that the TAA program improves the average employment outcome of beneficiaries over a comparison group." It makes zero difference.

Tying a renewal of this program to the new trade deals, which originated in the Bush administration, is particularly bizarre. It assumes that such agreements make some American workers at a disadvantage. The truth is that U.S. trade deals invariably require other governments to do the real heavy lifting.

We're already largely open to imports. It's the rest of the world that isn't.

At the moment, for example, farm products entering South Korea are subject to duties of 54 percent on average—compared to the typical U.S. rate of 9 percent. American-made cars face an 8 percent levy in South Korea; Korean cars shipped to the U.S. get off with 2.5 percent.

These tariffs would either be abolished immediately or phased out over time, bringing both sides down to zero. We scrap low tariffs on their goods—while the Koreans get rid of high ones on ours. How could that be harmful to American industries and workers?

Likewise with Colombia. Few Colombian goods pay any U.S. import duties at all, but our exports to Colombia get taxed at an average rate of 12 percent. Free trade means both sides go to zero. Panama? Same basic story.

The value of free trade agreements deals is twofold. The first is to open up foreign markets to our exporters, who are projected to reap big sales gains from the new access. The second is to lower the cost of imports to consumers, which also tends to lower the price of goods made here at home.

We could treat open commerce as a proven way to raise the living standards of all Americans, instead of pretending it's a dangerous foreign plot. But for many politicians, that's an impossible adjustment.