China recently overtook Japan as the second largest
national economy in the world. Thirty years ago, when China began
liberalizing its economy under the leadership of Deng Xiaoping, it
was one of the poorest nations in the world. China has come a long
way since then. Millions of its citizens have been lifted out of
poverty. Yet in the West, many advocates of protectionist trade
policies see Chinese prosperity as a threat, rather than an
opportunity.
The world has made tremendous economic progress in recent
decades thanks to freer international trade. The movement of goods,
services, capital, and people across borders has led to increasing
prosperity. That is why American backsliding on trade
liberalization since the beginning of the Great Recession is so
worrying. Candidate Obama was muddy on his stance on trade during
his campaign for the presidency. Today, his administration’s
approach to trade wavers between neglect and
protectionism.
An estimated 8 million jobs have been lost in the United
States since early 2008. For politicians seeking to place blame
elsewhere, international trade — and trade with China specifically
— make for a convenient punching bag. Preventing jobs from being
“shipped overseas” — as if jobs were fixed goods — is a common
talking point amongst politicians across the political spectrum.
And organized labor’s opposition to liberalized trade has helped
make it untouchable by Democratic politicians, who rely on
significant union support in their campaigns.
Negotiated trade agreements — with Colombia, Panama, and
South Korea — all await Congressional approval. Aside from a
potential resolution of the South Korean agreement, no progress is
expected anytime soon. Predictably, special interests have found
problems with each agreement, from environmental and labor concerns
to accusations that foreign countries “unfairly”
promote exports.
The economic stimulus bill included many “Buy American”
provisions. These arcane rules prohibit
construction projects funded by stimulus money from importing raw
materials, even when they cost less than if acquired from domestic
producers. (After Canada complained, the administration carved out
an exception to this provision for Canadian companies in exchange
for U.S. access to other Canadian markets.) And last September
President Obama signed a bill increasing tariffs on tires imported
from China, a move that was widely seen as a gift to Big Labor
unions and was strongly denounced by our trading
partners.
Now the protectionists are turning their attention
to stringent enforcement provisions in existing trade agreements,
hoping to use those as de fact trade barriers. Last week, the U.S.
government filed a complaint under the Central American Free Trade
Agreement with Guatemala over their failure to uphold labor laws
written into the trade agreement. The alleged violations include
the illegal firing of union workers and the failure to engage in
collective bargaining. This was the first time a country has filed
a formal labor complaint over a free trade agreement (possibly
under union pressure). There is considerable danger in all this.
Even small tariffs can lead to retaliation, resulting in
protectionist wars.
Protectionist policies are gaining traction in labor
markets, too. In the United States, many hurdles are being erected
to obstruct their lawful movement. Earlier this year, the
Department of Labor (DOL) raised the hourly minimum wage for
foreign farm workers on H-2A visas to $12.24. Additionally,
background checks are now mandatory for all immigrant farm workers,
at the employer’s expense, and all existing contracts must be
redrafted according to these new rules. The total cost runs to
thousands of dollars per employee.
For the H-1B visa, which covers highly skilled foreign
workers in specialty occupations, the U.S. Customs and Immigration
Service (USCIS) scheduled 25,000 surprise workplace inspections in
2010 — a fivefold increase from the previous year. While such
inspections aren’t prima facie protectionist, they cause severe
workplace disruptions that can often shut down operations for hours
and sometimes more than a day.
At the beginning of the Great Depression President Herbert
Hoover signed the Smoot-Hawley Tariff Act and an executive order
choking off all legal immigration into the United States.
International trade and the flow of people collapsed
catastrophically, adding to the misery of the Depression. The Obama
administration has not blundered in such spectacular fashion, but a
thousand legislative and regulatory cuts could savage the economy
if they continue unabated.
To revive economic growth and increase global prosperity,
the United States and other governments need to recommit themselves
to freeing up trade in goods and services, as well as the movement
of people across borders.
