Federal Triangle: Distorting Trade Practices
On 20 February Depart-ment of Commerce released 2002 trade statistics showing that U.S. imports of goods exceeded exports by $484.4 billion, which when reduced by $49.1 B in services surplus, leaves a record $435.2 B trade deficit. Trade policy critics, labor unions, and leftist think tanks immediately began beating their drums, sounded quarterly when such data is published, that these deficits mean lost jobs; the bigger the deficit the more jobs are gone. Rubbish.
As described in studies by Dan Griswold of Cato Institute, trade protectionists always estimate job losses due to trade deficits by comparing actual employment with what it would be if the deficit were zero and imported products were U.S. made. That analysis claims that 3 million U.S. jobs were lost in the 1994 to 2000 period. Protectionists ignore the fact that foreign export income is preferentially invested in America and are "guilty of counting the withdrawls and not the deposits in our national balance of payments account," as Griswold puts it. Assumptions that imports directly displace domestic output collides with reality. During that 1994 to 2000 time, civilian employment rose by 12 million to 135.2 million, the unemployment rate fell from 6.1% to 4%, and U.S. manufacturing output rose 40% even though import volume doubled for manufactured goods. In 2001, while U.S. manufacturing fell 4.1% from the prior year, imports of manufactured goods fell 5.4%. There is no correlation or basis to allege that trade deficits or imports result in fewer American jobs.
In efforts to protect their jobs and political power with trade restrictions and all manner of subsidies, all of which distort free trade and competition, unions and many industry leaders intervene in the efficient flow of goods and capital across national borders. Griswold divides the world into four classes of thinking on these issues. Free traders are those who oppose both trade barriers and support subsidies; internationalists oppose barriers but do support subsidies; isolationists favor barriers but oppose subsidies and interventionists favor both trade barriers and support subsidies.
Recall that intervention takes two basic forms. Tax and regulatory barriers are instituted by government to discourage targeted commerce while support subsidies encourage other types of commerce. Barriers protect high cost domestic producers from lower-cost competition, raise prices and draw labor and capital away from industries that would otherwise strive to be competitive globally. In the long term, barriers inhibit healthy growth and innovation. It was estimated in a 2001 economic study conducted by Tufts University and University of Michigan that elimination of current world barriers to trade would raise world welfare by $1.9 trillion and in the U.S. alone boost the economy $537 billion or 5.9% in GDP. U.S. import barriers against steel, shipbuilding, lumber, ball and roller bearings, pressed and blown glass, and coastal maritime shipping costs the U.S. $14 billion annually, according to the International Trade Commission. Subsidies reduce national welfare by directing resources to less efficient uses, mandated by government instead of the marketplace, favoring the few at the expense of the many. Free traders and interventionists in Congress become very important to every reader's business.
The Griswold study evaluated 432 Members of the House who voted on half or more of eighteen recorded votes relevant to trade and subsidy issues and 99 Senators on twelve recorded votes, both in the completed 107th Congress. In the House there were only 15 free traders, 14 Republicans and 1 Democrat. Among internationalists there were 58 Republicans and 12 Democrats; 6 isolationist Republicans and 3 Democrats; and there were 24 Democrats and 12 Republican interventionists. These 130 Members were consistent while the remaining politicians were not. On the Senate side, there were 22 free traders, all Republicans; the internationalist camp contained 7 Republicans and 5 Demo-crats; the 2 isolationists were both Democrats; and all 22 interventionists were Democrats. Again these 58 Senators among the 99 assessed were consistent. The Senate is obviously more polarized than the House; Republicans opposed trade barriers 86% of the time compared to 31% among Democrats; the GOP Members voted against subsidies 62% of the time versus 26% for their opponents. In the new 108th Congress the Senate should be a bit more hospitable for free traders but there is little change expected in the House.
The U.S. is not at the forefront of world trends toward free trade and must get its house in order without resorting to excuses. Distorting trade practices is a losing proposition all around.