Trade and its discontents

July 29, 2005

THE PRESIDENT had to go to Capital Hill to lobby for it. Sugar and textile producers had to be given guarantees. All manner of pork had to be doled out. But late Wednesday, the administration pushed through the Central American Free Trade Agreement -- by two votes.

This fight was about politics, not economics. Trade with the six nations covered by CAFTA is relatively small. Almost 80 percent of their exports to the United States already enter without tariffs. In mercantile terms -- by opening the region to U.S. exports -- America likely gains modestly.

But the CAFTA vote was disproportionately symbolic. A defeat in Congress would have been a first for a trade pact in 40 years. It would have made it far more difficult for presidents to pursue trade deals, let alone the larger Free Trade Area of the Americas or global liberalization via the World Trade Organization's Doha talks. CAFTA may not be ideal, but its rejection would have been very damaging to long-term U.S. interests in expanded free trade and greater integration with the world.

In their objections, veteran free-trade supporters -- notably Baltimore's Rep. Benjamin L. Cardin -- had a point: Protections for foreign workers under CAFTA could be stronger. But more broadly, opposition to this trade deal was rooted in rising qualms among Americans about globalization.

This is understandable. As economists frequently note, the dollars-and-cents losses from trade -- think textile jobs -- are smaller but highly concentrated, while overall gains from trade -- lower-priced goods, for example -- are larger but more diffuse. Trade's big losers get a lot of attention (and this nation needs to be spending a lot more to aid trade-dislocated workers), but in reality, the vast majority of Americans are neither big losers nor big winners.

The Institute for International Economics' Gary C. Hufbauer and Paul L. E. Grieco calculate that lowered trade barriers and advances in long-distance transportation account for about 10 percent of U.S. gross domestic product -- $1 trillion a year, or roughly $10,000 per household. They figure another $5,000 per household could be gained from more trade liberalization -- far outweighing trade's costs.

This is difficult to sell, particularly to those hit by layoffs or wage depression from foreign competition. But the political fight over CAFTA shows that free-trade proponents are going to have to do a much better job of compensating for its losses and highlighting its gains if America is to sustain its long-running, bipartisan support for dismantling the world's trade barriers.

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