Friday, February 29, 2008

LA Times Gets Real on Trade

This past Wednesday night Barack Obama came to campus. He held a rally near the river on campus--Texas State University is blessed to have spring-fed river that originates on campus--and about 12,000 people showed up. This came right after the debate in Ohio, which for many economists was a little disconcerting given all the NAFTA bashing. I was curious to see if Obama's anti-NAFTA rhetoric would carry over into this rally in Texas. Well, surprise, surprise, he said absolutely nothing about NAFTA. This absence makes political sense, but it is frustrating to watch. What does the real Obama think about trade? Are we just seeing primary season pandering or is this the real deal? As Greg Mankiw said over at his blog "will the real Obamanomics please stand up?"

Mark Thoma provides some links to different commentators who on balance suggest to me Obama is less protectionist than is indicated by his rhetoric. Nonetheless, the Financial Times reports Canada and Mexico, our NAFTA partners, are not pleased with all the anti-trade rhetoric coming out of the Obama camp. So, as Daniel Drezner points outs, "Democrats cannot simultaneously talk about improving America's standing abroad while acting like a belligerent unilateralist when it comes to trade policy" (hat tip Greg Mankiw). This point becomes even more salient if we look beyond Mexico and Canada and consider all the developing economies who are dying to penetrate the U.S. market (or desire to have the U.S. cut its distortionary subsidies to U.S. firms). What are they thinking when they hear such anti-trade talk?

The LA Times had an editorial yesterday that touches on some of these issues and is worth the read.

Deal with the Trade-Offs

The 14-year-old North American Free Trade Agreement has become a hot issue in this year's Democratic presidential campaign -- in Ohio, at least. When Sens. Hillary Rodham Clinton and Barack Obama hit the hustings in the Buckeye State, they compete to be NAFTA’s biggest critic. But when they jet to Texas, which is also holding its primary Tuesday, the candidates have little or nothing to say about the pact

The disparity illustrates two truths about major trade deals: They're a magnet for pandering, and they produce both winners and losers. Ohio, like other states in the Rust Belt, is stinging from the loss of manufacturing jobs in the years since NAFTA took effect. In Texas, however, communities near the border have blossomed with an influx of investment, jobs and workers

And the differences haven't just been regional. The trade deals signed since 1980 have helped spur job growth for some types of workers while decreasing jobs for others. Men at the high and low ends of the career ladder have benefited, but those in the middle have suffered, while the opposite holds true for women, according to a recent study by economist Stephen Rose at the Progressive Policy Institute.

The president's job is to take the long view of what's best for the country as a whole. Although it's hard to pinpoint jobs lost or created because of NAFTA, U.S. employment has grown far beyond even pessimistic estimates of the trade deal's costs. You wouldn't know that listening to Obama, who declared in a recent speech that "trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage." His stance is echoed by Clinton, who scolded Obama's campaign for distributing a flier that said she had called NAFTA a "boon" to the economy.

The centerpiece of both candidates' positions on trade is that future deals must include "good" or "strong" labor and environmental standards. That's vaguely comforting and feel-good-ish, but it's also misleading. Higher standards won't protect jobs and bottle up capital in the U.S. over the long term.

That's why the best course is to embrace free trade and fight for lower tariffs and other barriers to U.S. goods and services overseas. Protecting U.S. workers means giving them the education, training and, if necessary, retraining needed to compete for the higher-paying jobs that result from open markets. The capital and jobs that leave can help U.S. workers too by fostering stronger economies in the rest of the world and thus creating markets in which we can sell our products.

The increasingly global nature of business causes pain, but it's better to adapt to the competition than shake your fist at it.

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