Solving the Free Trade Fiasco

Over the past few years Washington has shown a misguided preference for bilateral free-trade deals over multilateral agreements. That’s hurt the American economy—and it needs to change.

Not since the 1930s, when Cordell Hull ushered Americans into the new world of "reciprocal trade agreements," has foreign trade been a matter of such widespread public comment as today. In those years, exports and imports combined accounted for just 6 percent of the U.S. economy, and even in the 1970s, when the United States dominated world trade and the global economy, the ratio was just over 8 percent. Yet throughout those years public interest in trade remained low.

Today however, with foreign trade at a quarter of the American economy, the issue is high on the public agenda. Its main strands were highlighted in the Hufbauer-Stiglitz debate in the May/June issue of The National Interest. There, Gary Hufbauer wrote that free trade pays off "to the tune of $10,000 annually for each American household" while Stiglitz countered that in developed and developing countries alike, "trade liberalization has . . . made many people worse off."

American opinion has weighed in largely on the Stiglitz side: despite legions of economists wielding statistics to the contrary, Americans believe that trade is bad for the country, that it has irreversibly taken U.S. jobs, and that "globalization," its current manifestation, will further weaken the United States. This year's presidential campaign has mirrored the debate: John McCain has been on the "free trade" side while the Democrats have argued for one or another version of a "time out" on new trade agreements.

 

Despite legions of economists wielding statistics to the contrary, Americans believe that trade is bad for the country, that it has irreversibly taken U.S. jobs, and that "globalization," its current manifestation, will further weaken the United States.

 

The result is a genuine quandary, because no serious person believes the United States will or can turn its back on its deep involvement with international trade. Even so, our constant railing about nonlevel playing fields and other nations' weak or nonexistent labor and environment laws have fed a trade-victimization fire among Americans. A partial way out of the problem, largely crafted by former-Special Trade Representative Robert Zoellick, has been to create "special" trade pacts with special partners-partners who could be relied on or leaned on to follow the administration's lead on trade policy while buying quantities of U.S. goods.

That's the policy that gave us "free trade agreements" (FTAs). We have them now with Singapore, Australia, Chile, Peru and some others, as well as the FTA deals with Colombia and South Korea that Congress has yet to approve. Waiting in the wings are trade pacts being negotiated or hoped for with Malaysia and Thailand; a category that applies also to several in the Middle East.

Yet this approach carries several big troubles, among them that the other major trade powers have not stood still while the United States embarked on its bilateral and regional efforts. China, and to a much-lesser extent Japan, have built their own trade-agreement webs in East Asia, and the EU has lately begun similar activity in several world regions. The result is that the United States has had to play catch-up ball in this new trade game, a situation that has produced its own dynamic. Many now cite the danger of being "left out" of a growing and worldwide pattern of bilateral and regional trade deals, and on that basis they argue for more such American-sponsored deals.

That was the pattern before the spring of 2007, when the newly elected Congress first signaled its stiff resistance to approving those FTAs already on its plate. Until then, there were rising calls for even more trade pacts with even more partners, most of them quite small, and with new arguments to support their cause. As in the cases of Peru and Colombia, these arrangements are now promoted as much for their "strategic" and foreign-policy importance as for their market attractions, and similar foreign-policy arguments have been advanced in support of proposed FTAs with Indonesia, Taiwan and others.

The second big trouble is that calling for more such trade partnerships has led the administration to begin retreating from what it liked to call its "gold standard." Until very recently, it argued that America's single, high-quality template for trade agreements was superior to all others because it met not only U.S. domestic labor and environmental requirements, but also those of the World Trade and International Labor Organizations. It was conceded that this high standard might sometimes stretch out trade talks, but that was outweighed by its ability to produce a "comprehensive" FTA: one that would satisfy America's several export-oriented sectors in manufacturing, banking, farming, pharmaceuticals and telecommunications. That feature, along with meeting the turf needs of other government departments, would presumably assure an FTA Congress could support.

Lately, however, under the twin pressures of tough bargaining by projected partners and the need to keep up with the widening pattern of other nations' FTAs, the future of this "gold standard" template has been put in doubt. A powerful indication came last December, at a Washington meeting that dealt with East Asian economic integration. Ambassador Karam Bhatia, who until just weeks before had been deputy U.S. trade representative, was a featured speaker and was asked why the United States had not completed more East Asian trade agreements. He agreed the United States was "lagging" in this field, and then added that much of the reason was that "ours are of high quality." Then, in a clear reference to the labor and environmental clauses that are now regularly added to America's trade agreements, Ambassador Bhatia urged the need for what he called "separate templates."

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