Prestowitz

Trade for jobs, not allies

Trade for jobs, not allies

One tires of the constant, mindless calls for the conclusion of free trade agreements by editorialists who think the economic impact of such deals is unimportant because they are mainly super diplomatic tools.

The New York Times was at it again on Saturday when its second lead editorial called on the Obama administration to push through approval of proposed Free Trade Agreements (FTAs) with Korea, Colombia, and Panama along with preferential access to U.S. markets for the Andean countries. Emphasized the Times:

"The agreements with Colombia and South Korea would cement relations with key allies and slash tariffs on a range of American agricultural and industrial goods. The Andean preferences would help to combat the cocaine trade by creating jobs in other export industries."

Just to be clear at the outset, let me say that I support approval of the deal with Colombia along with the Andean preferences and a proposed deal with Panama along the lines of the Colombian agreement. I do not support the FTA with South Korea.

But think about the reasons being given by the Times for approval of all of them. Let’s start with the bit about cementing ties with allies.

Why do we need FTAs to cement ties to allies and just exactly how do trade deals do that? The United States maintains about 30,000 troops in South Korea, another 50,000 or so in Japan, and has the Seventh Fleet patrolling the western Pacific. Indeed, under security arrangements with Seoul, the U.S. army actually has command responsibility over the Korean army in certain circumstances. All of this is in support of our South Korean ally. Likewise in the case of Colombia, we have had Plan Colombia and numerous other programs under which the United States has provided billions of dollars in support. Why hasn’t this kind of support over the past sixty years in the case of Korea and the past twenty or so in the case of Colombia already cemented our relationships with these allies? And, if it hasn’t, why does the New York Times think that a couple of FTAs would somehow do the trick? 

I mean, let’s be serious. The "cement relations with allies" argument is silly and is only being trotted out because the arguments on the merits for the deals are so weak.

Yes, Colombia and Panama will reduce tariffs on a wide range of U.S. exports and this will provide some relatively small benefit to U.S. producers and the U.S. economy. On the other hand, the exports of these two countries already enter the U.S. mostly duty free. So there will be no big gain for them except that the deal would make this duty free status permanent. Moreover, this may be counter-balanced by the impact of increased  imports of subsidized U.S. agricultural products, actually displacing small Colombian and Panamanian farmers and causing some increase in unemployment.

As for the Andean preferences, by all means, let’s have them renewed. I guess they are better than nothing. But the notion that they will have any significant impact on reducing cocoa production and the drug trade is just a fantasy. Given the relative profitability of the drug trade versus say the flower trade, is there any question what you would grow if you were an Andean farmer? Again, let’s get real.

If the economic gains from the Latin deals are likely to be small, they at least can be said to be real for both sides. In contrast, it is not clear that the proposed FTA with South Korea will produce any net gains for the United States at all. The U.S. International Trade Commission has calculated that the result of the proposed U.S.-Korea FTA is likely to be an increase in the overall U.S. trade deficit. And this is without accounting for the fact that South Korea’s currency management policies can easily offset any tariff reduction that may be made. Of course, some U.S. companies might benefit from the arrangement, but for the United States as a whole, any increase in its trade deficit at this time of high unemployment will only contribute to a further increase in the unemployment.

Why does the Times think we need to pay this price to "cement" our relationship with our Korean ally?

In view of the U.S. debt problem at both the domestic and international levels and the threat of a downgrade of U.S. debt recently hinted at by Standard and Poors, it must become the rule that the Times and others judge trade deals  based on their likely contribution to reduction of U.S. unemployment and debt – not to their "cementing" of U.S. relations with allies whose defense we already guarantee.