Stop Bashing Free Trade

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Stop Bashing Free Trade


Category: Trade

by David McIntosh, a former Indiana Congressman

Trade has been a major issue in 2016. Free trade has been blamed, defamed, and mostly made the scapegoat for America’s economic woes.

In a fact-free political climate, it’s easy to bash free trade. The American people are genuinely frustrated at the economy, and they have a right to be. Barack Obama’s wishful thinking hasn’t changed the harsh reality for most American workers. Wages are barely moving, underemployment remains high, and economic growth is still anemic, seven years after the great recession.

But channeling anger at free trade is like biting the hand that feeds you. Free trade agreements have meant big business and jobs for U.S. companies. In 2015, U.S. goods exported to free trade agreement (FTA) partners brought more than $700 billion to the American economy. And the most recent data says 97 percent of exporters are small and medium-sized businesses.

The often-maligned North American Free Trade Agreement (NAFTA) is a classic example of analysis gone awry. Here are some facts from the U.S. Chamber of Commerce you don’t often hear about NAFTA:

  • Exports from U.S. service industries to Mexico and Canada tripled from 1993 to 2011
  • U.S. agriculture exports rose by 258 percent to Canada and 408 percent to Mexico during the same period.
  • About one-third of all U.S. merchandise exports are bought by those two countries.
  • And, the jobs that Mexico has gained from NAFTA often depend on supplies from U.S. manufacturers. It’s been estimated that about $36,000 is generated annually for every American factory worker through Mexican and Canadian purchases of U.S. goods.

The point is simple: there are countless examples of American companies – often with less than 500 employees – who rely on the FTAs that some politicians now want to eliminate.

Instead of trashing FTAs, we should be expanding those agreements with foreign countries and tearing down barriers to free trade. The Trans-Pacific Partnership (TPP) is crucial to moving forward with 11 Pacific Rim countries.

Several Southeast Asia countries already impose tariffs on US goods that are five times higher than those we face elsewhere, making it difficult for U.S. companies to compete. And, many of those nations are actively pursuing trade agreements with other countries. By rejecting TPP, the U.S. would be left standing on the sidelines. But, with TPP it’s estimated that our exports could increase by more than $350 billion.

The argument for protectionism and higher tariffs will only lead to trade wars. And, history gives us countless examples of how those tariffs damage the economy. They tend to hurt consumers, who are forced to pay higher prices, and businesses that either pay more for goods or face tariffs that overprice the good they’re trying to sell in other markets.

The most recent example of the consequences of such trade wars came when President Obama tried to repay a favor to some labor unions by imposing high tariffs on Chinese-made tires. The result? Consumers paid more than $1 billion on tires. A generous estimate is that 1,200 American jobs were created in the tire industry, at a cost to consumers of about $900,000 per job. But that’s not all. China retaliated with punishing tariffs on the U.S. poultry industry, costing that industry about $1 billion.

Tariffs not only punish consumers and businesses, but they tend to reward the particular sector of an industry that is being protected. In other words, it’s cronyism that hurts the free markets and does nothing to fix whatever perceived problem there was with trade.

It’s time to end the talk of punishing American businesses and consumers by raising taxes through imposing tariffs.

The real answer for U.S. manufacturing, and American businesses in general, lies in policies that lower taxes and cut unnecessary federal regulations. The next president and Congress will have ample opportunities to boost the economy by incentivizing growth through policies that unleash the free markets and expand trade.

Source: CNBC

Published: January 11, 2016