In light of the continuing Doha round negotiations this year, Monday’s Wall Street Journal (WSJ) features an opinion piece urging the U.S. to take on a leading role in the Doha multilateral trade negotiations. The author rightly points out that increasing global trade has been an important engine for growth and job creation, at home and abroad.
Despite broad agreement on the general benefits of free trade, the misconception prevails that only multilateral trade agreements distribute the benefits from trade in a fair manner. Thus, the emphasis on the Doha round of negotiations which are targeted to conclude by December 2010.
In “While Doha Sleeps,” Dan Ikenson, associate director of trade policy studies at the Cato Institute, makes the point that, while multilateral negotiations are in general beneficial, they often create perverse incentives. Namely, using trade liberalization and facilitation, (measures which benefit countries unilaterally) as concessions to be made multilaterally, bolsters the misconception that exports are beneficial and that imports hurt the domestic economy.
Much of this anti-trade sentiment rests on a misunderstanding of global markets. Opponents of unilateral free trade assert that it is only exports that create domestic jobs and help the U.S. economy grow, while allowing foreign imports are a necessary evil to be minimized in trade negotiations. However, in today’s global economy, free trade is no longer a question of “their” producers versus “ours,” rather, various producers are integrated in global supply chains that span across national borders.
The reality of our integrated global economy renders trade-openness imperative for success. American producers have been able to reap tremendous gains from specializing in ever-more globalized supply chains. Made in China, often times only refers to assembled in China, while the largest value-added comes from more technologically-advanced countries, such as the U.S. The result is that Made on Earth would serve as more informative label in today’s global economy.
A question that is inevitably raised by the composition of today’s integrated economy is, What is an American product? One made by American workers on American soil? One made by an American business, at home and/or abroad? A good example of recent legislation that took the complexities of the U.S. economy into account was Cash for Clunkers. Regardless of how you feel about the program, what it didn’t do was discriminate against foreign car-manufacturers, many of which, such as Toyota and Volkswagen, operate partially on U.S. soil and employ American workers.
In contrast, another recent piece of legislation failed to recognize this global integration and threatens to cost us dearly. The Jobs for Main Street America Act of 2010, with the stated aim of increasing American employment, includes “Buy America” provisions which make it very difficult to use foreign inputs in the construction of stimulus-funded infrastructure projects, even though these might boost domestic employment. More importantly, these provisions are provoking retaliation from our trading partners who object to being excluded from the American government procurement process and thus threaten to impose similar measures which could cost the U.S. many more jobs than it can hope to gain from the Act. The Peterson Institute estimates that for every 1 percent of American exports lost by foreign retaliation, the resulting employment loss would be around 6,500 U.S. jobs. Compared to the approximately 1,000 jobs expected from the American Recovery and Reinvestment Act “Buy American” provisions, this is clearly a bad trade-off.
My point is, protectionism is bad for America. The U.S. should take on a leading role in increasing free trade, not just multilaterally, but unilaterally. Free trade creates jobs and economic growth for America. Why wait on Doha to reap these benefits?