Free Trade 101

Free Trade 101 for Members of Congress

by Daniel Griswold

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If I were a member of Congress back home for the August recess and a constituent asked me at a town-hall meeting why I support free trade, here's what I would say in my policy-wonkish way:

Free trade empowers the individual and limits the state. The government should not be telling us where we can and can't spend our money. We don't need big government rigging markets to favor one producer over another at the expense of competition and the little guy.

Free trade helps American families balance their budgets. Import competition means lower prices, more choice, and better quality — for shoes, clothing, cars, computers and smartphones. Lower prices for consumer goods mean higher real wages for workers.

Free trade promotes liberty, prosperity, and peace. That’s a good deal for America.

Protectionism is really a tax on the poor. Our highest remaining trade barriers unfairly tax products made and grown by poor people abroad and consumed disproportionately by poor families at home. We still impose unconscionably high tariffs on imported food, clothing, and shoes — the basics of a poor family's budget. The $26 billion we collect each year from duties on imports represent the federal government's most regressive tax. Free trade is a tax cut for the poor.

Trade is not about more jobs or fewer jobs; it's about better jobs. Trade only accounts for 3 percent of job displacement. Technology and internal competition displace far more workers. Just ask folks laid off from Borders, Blockbuster or Kodak. (Bought any film lately?) Our high unemployment today has nothing to do with trade but with our "Made in the USA" housing bubble and failed stimulus.

Imports fuel American industry. More than half of what we import each year is not consumer goods but the stuff businesses buy to produce their final products — raw materials, intermediate inputs and capital machinery. Anti-dumping duties on steel and import quotas on sugar drive up costs for U.S. manufacturers, giving them one more reason to relocate their production offshore.

Exports are key to expanding U.S. output. Three-quarters of the world's spending power is outside the United States, and most of the world's growth is now in emerging markets. China is now the No. 3 market for U.S. exports and the No. 1 market for U.S. agricultural exports.

Exports allow American companies to raise productivity through specialization and economies of scale. A quarter of a million small- and medium-sized U.S. companies are now selling abroad, accounting for almost a third of U.S. exports. Trade agreements such as NAFTA and the pending agreements with South Korea, Colombia and Panama give U.S. exporters the level playing field the politicians say they want.

Daniel Griswold is director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute and author of the 2009 book, Mad About Trade: Why Main Street America Should Embrace Globalization.

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Foreign investment in America is the flip side of the trade deficit. If foreigners don't use the dollars they earn selling in our market to buy U.S. exports, they buy U.S. assets — Treasury bonds, stock in U.S. companies, direct investment in U.S. factories. Today more than 5 million Americans work for foreign-owned affiliates in the United States, earning 30 percent more than the average American worker. Companies such as Honda, Nissan, Toyota, BMW, Michelin and Severstal steel employ one out of eight American manufacturing workers. Raising trade barriers will only make it harder for people in other countries to earn the dollars they need to buy our exports and invest in our economy.

Protectionism is a fool's game. The Smoot-Hawley tariff bill of 1930 didn't create or save jobs. Instead, it provoked retaliation against U.S. exports and only deepened the Great Depression. Republicans and Democrats worked together after the war to promote more open trade and peaceful commerce with our allies. It would be a huge mistake to turn our backs on such a successful bipartisan policy.

Free trade promotes liberty, prosperity, and peace. That's a good deal for America.