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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 19, 2012 at 10:00 AM

What is this thing called ‘free trade’?

Concern over the proposed Trans-Pacific Partnership is justified. We’ve come a long way from the NAFTA debate, where Al Gore, arguing for the agreement, demolished Ross Perot on national television. Back then, most Americans had been net winners from “free trade,” which was sold as all sides playing by the same rules, lowering barriers and liberalizing markets. What’s most memorable from the debate is Perot’s prediction of “a giant sucking sound” of U.S. jobs.

It’s happened, especially since China joined the World Trade Organization and plays by its own rules. Millions of jobs have been lost, not just in the industrial Midwest but in the devastated textile, apparel and furniture sectors of the Carolinas. There are only so many Wal-Mart greeter, call-center and server-farm janitor jobs to replace them. Washington is different, a net winner. But that might be different if not for Boeing, whose operations are subsidized by tax incentives and tax avoidance, military contracts and the U.S. government pushing hard to sell its airplanes abroad.

So it’s not really “free trade” we’ve seen the past 18 years but managed trade. And with the huge U.S. trade deficit — fixing it could go a long way to repairing high unemployment — we’re on the losing end. Our consumption mania, to be sure, is partly to blame. But so are the protectionist policies of countries such as China, and the eagerness of U.S. corporations to send jobs offshore. Not for nothing did America protect its industries with tariffs for most of the history of the republic.

Disclosure: I spent most of my career as a free-trade advocate, including for NAFTA, although I had concerns about China’s ascension to the WTO. For one thing, I agreed with the belief that freer trade would avoid the kinds of conflicts that convulsed the world in the first half of the 20th century. We’ll see if that holds true as China faces off against its neighbors over offshore natural resources. In any event, I hold to the Keynes quote, “When the facts change, I change my mind. What do you do, sir?” And our trade strategy is broken.

The Trans-Pacific Partnership, contrary to administration claims, is competing with another trade agreement, the Comprehensive Regional Economic Partnership. That involves 10 southeast Asia nations, plus China, India, South Korea, New Zealand and Australia (including six of the TPP nations). Then there’s “free trade” initiatives from the Asia Pacific Economic Cooperation summit. And if we’re all in the WTO, why do we need these special deals anyway?

Clyde Prestowitz, trade negotiator for President Reagan, has the answer on his Foreign Policy blog:

[I]t’s not about free trade at all, or at least, it’s very little about free trade… All these arrangements are about exercising influence. None of them deal with the really key elements of trade and investment. Many of these countries pursue export led growth strategies and manage their currencies to be undervalued as a way of subsidizing exports. Many also operate indigenous industry and technology development policies and make technology transfer a condition of market access. Many also offer big tax breaks and other incentives to lure foreign investment and technology transfer. Despite all the free trade deals, the fact is that the markets of many of these countries are among the most managed and difficult to penetrate in the world. And most of these countries run persistent trade surpluses. Yet, these issues are never on the negotiating agendas.

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Comments | More in Aerospace/Boeing, China economy and business, Global economy, Trade

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