America Needs More than Rhetoric and Piecemeal Trade Measures for Economic Growth
The President’s recognition in last night’s Fox News interview that exports play an important role in bolstering U.S. economic performance was welcome, but missed at least half of the trade story. Imports benefit America, too, through lower prices to consumers and manufacturers that raise incomes and boost productivity and competitiveness.
The President promised a thorough review America’s trade policy over the first half of 2009 and a new road map for U.S. trade relations this summer – a promise that remains unfulfilled as the year comes to a close. The nation’s trade regime is instead being shaped and undermined by a slow and steady creep of protectionism in Congressional legislation and in ad hoc measures designed to cater to special interests.
The President will, presumably, get around to articulating the promised comprehensive trade policy at some point. In the meantime, there are plenty of steps that the government could—and should—take to boost U.S. trade with Asia and the rest of the world that would speed the economic recovery and improve America’s job climate.
First, U.S. trade barriers enacted over the last year should be eliminated. This action would go far to mend the damage done to both America’s economic future and image abroad. The Obama Administration needs to embrace trade policy as a tool for restoring America as a credible global partner for economic growth – a necessary and critical step towards reasserting the rules-based spirit of the international trade system and restoring worldwide prosperity.
Of course, this means greater opening of the U.S. economy as well. Imports are not a bad thing. While production may fall in less competitive industries due to imports, exporters and domestic producers that use lower-cost imported inputs gain a competitive boost that promotes investment, productivity, and growth in these industries. Lower prices for imported goods also help households to stretch their incomes, enabling them to buy more of everything, including goods and services that are produced domestically. With freer trade, resources flow from less competitive uses to more competitive and efficient uses, creating opportunity and bolstering long-run economic growth and job creation.
Second, long-pending trade agreements with Colombia, Panama and South Korea need to be passed and the WTO Doha Round of trade negotiations concluded in 2010. Trade agreements generally strengthen the transparent and efficient flow of goods, services, and investments between member countries, protect investors, and increase economic opportunity and prosperity. Free trade agreements serve to promote U.S. interests, not to weaken them or to place an unfair burden on Americans.
Third and more generally, lower taxes, smarter, more transparent regulations and other cost saving measures to bolster U.S. competitiveness are also needed. What aren’t needed are government subsidies aimed at trying to promote U.S. exports. When the government takes labor and capital out of the economy through taxation and then gives it to specific private companies in the form of export subsidies, it does so at the expense of the economy as a whole. Rather than flowing toward the most efficient activities as determined by the market, these resources are instead redirected to boost output in less efficient sectors – reducing the potential for real job growth in competitive sectors.
Ultimately, the best “export-promotion” strategy to Asia or anywhere is one that fosters ever freer trade.