Why is America so prosperous? If somebody ever writes a book answering that question, the author will have to include a chapter on free trade
That’s because the United States has benefited enormously over the last half century as the world has become smaller, with technology flexing its muscles and trade barriers withering away.
But now free trade stands at a crossroads, as Federal Reserve chief Alan Greenspan pointed out last week. The man doesn’t speak in sound bites, but he’s brilliant and we need to study his words.
“Protectionism, some signs of which have recently emerged, could significantly erode global flexibility,” he said, delivering his remarks by satellite to a conference in Chicago. (Talk about technology making the world smaller!)
He continued: “We are already experiencing pressure to slow down the expansion of trade. The current Doha Round of trade negotiations is in some difficulty owing largely to the fact that the low-hanging fruit of trade negotiation has already been picked in the trade liberalizations that have occurred since the Kennedy Round.”
Greenspan is saying the easiest decisions have been made------what’s left is harder.
The latest bit of pressure, of course, comes in the shape of the World Trade Organization’s forthcoming ruling on the U.S. government’s cotton subsidies. The challenge for free trade isn’t so much with the decision itself, which actually seeks to expand trade, but from the political response--a lot of politicians have decided to attack the WTO, which has done so much to boost the American economy in recent decades.
Some people are even suggesting that we pull out of the WTO altogether. They may get their chance next year. Under the law authorizing American membership in the WTO, Congress faces a vote every five years on whether to stay in or get out of the organization. The next deadline is in 2005.
That’s fortuitous timing, because if falls just after the presidential election. Free-trade initiatives don’t often do well when pandering candidates are in full-time vote-seeking mode. A few months ago, there was some hope that Congress might consider the Central American Free Trade Agreement this year. Then came the public debate over the so-called outsourcing of jobs, fueled entirely by presidential politics, and CAFTA has been put on the shelf. There’s a reasonable chance it will pass next year, though the failure to consider it in 2004 is a small defeat for the friends of trade liberalization.
Congress may yet consider a pair of small-bore trade initiatives in 2004: free trade deals with Australia and Morocco. Both seem to enjoy a fair amount of support, despite the upcoming elections and the constant prattling of demagogues. Yet nothing is certain: Advocates of the Australia pact even worry that adding Morocco might be a fatal blow.
I still think there’s a good chance both will pass, either together or individually. Most people understand that approving them is the right thing to do. But anything is possible, even punting both into next year. That would be two more skirmishes lost – not because of economics, but politics.
Correcting our course so that we continue to benefit from international trade will require long-term thinking and planning, especially in response to the WTO’s decision on cotton. We’re going to have to look at how we subsidize crops in the United States, and probably get away from payments tied to yearly prices and production.
That’s not to say government won’t be able to support agriculture at all. We’ll just have to be more creative. Tax dollars can pay for infrastructure, such as better roads, waterways and rural electrification. They can pay for research at universities. They can invest in the environment. All of these avenues may be open and available to farmers.
But we’re also going to have to reconsider the matter of subsidies more generally. Every country in the world has politically sensitive commodities, but the answer isn’t to protect them from international competition forever. Instead, we must find ways to ease their transition into a global marketplace. We have to play especially close attention to the so-called white commodities--cotton, milk, rice, and sugar. Worldwide, they pose some of the biggest headaches in farm trade.
We’ll probably never live in a world of completely unfettered free trade. That’s something else Greenspan said last week. “Full globalization, in which trade and finance are driven solely by risk-adjusted rates of return and risk is indifferent to distance and national borders, will likely never be achieved,” he said.
But that shouldn’t stop us from achieving fuller globalization. As the world’s biggest buyer and seller of goods and services, we’re prosperous right now, but shouldn’t we work towards becoming more prosperous still?
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Why is America so prosperous? If somebody ever writes a book answering that question, the author will have to include a chapter on free trade
