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'Globalization' on the March

By Robert J. Samuelson
Wednesday, October 15 1997; Page A21

The president and Congress are having another trade debate, but there is less to it than meets the eye. The issue is no longer "free trade" vs. "protectionism," because history and technology have settled that question. Free trade – actually, open trade – triumphed, and there is no going back. Clinton now wants Congress to renew his broad authority to negotiate trade agreements (an authority confusingly called "fast track"), but in some ways it doesn't matter whether Congress accepts or rejects his proposal. Either way, trade will expand and the United States will remain highly intertwined with the global economy.

The debate isn't meaningless. Clinton's power ought to be renewed; otherwise, the United States will be hard pressed to win new trade concessions. But the stakes are smaller than they seem. The AFL-CIO, opposing the president, insists that new trade agreements contain strong protections for workers and the environment. The aim is to slow imports by raising other countries' wages and environmental costs. Even if this view prevails (unlikely), any extra protection would be fleeting. Foreign-exchange rates would soon drop against the dollar, restoring the competitiveness of imports. Congress can't easily manipulate massive trade flows.

Anyone who doubts this should recall that "globalization" is the reigning economic cliche and that it signifies something. It is, for example, battering an ancient distinction: the difference between traded and nontraded products. Trade traditionally involved mainly farm goods, manufactures and raw materials: corn, cars, oil and the like. Most services (from schooling to surgery) were nontraded. But this distinction is breaking down.

Since 1980, exports of U.S. "services" have grown more than twice as rapidly as exports of goods. In 1996, service exports totaled $237 billion; that was 39 percent of goods exports of $612 billion. Some service exports are standard: tourism accounted for $70 billion (when foreigners visit the United States, they buy tourism "exports," such as hotel rooms). But increasingly, service exports fall outside the old categories of tourism, air fares and freight transportation. Instead, they represent foreigners:

Watching American movies and TV programs (in 1996, foreign sales accounted for about half the film industry's $4.9 billion in box-office revenues, according to the Hollywood Reporter).

Hiring American investment bankers, engineers, accountants, architects, advertising agencies and even lawyers (all professionals and technical advisers earned $19.2 billion abroad in 1996, up from $4.4 billion in 1986).

Using American hospitals or attending U.S. schools (about 3 percent of all college students are foreigners, and even some community colleges now actively recruit abroad "in a bid to share in the $7 billion a year that tuition-paying foreign students bring to the United States," reports the Los Angeles Times).

Borders are becoming more open in countless, unplanned ways that won't – barring a global depression or major war – be undone. Since World War II, trade has usually grown faster than world economic output, and the gap has recently widened. Between 1979 and 1988, world output grew at an average annual rate of 3.4 percent while trade grew 4.3 percent, says the International Monetary Fund. Between 1989 and 1996, global output grew at an annual rate of 3.2 percent; trade expanded 6.2 percent annually.

Cheaper jet travel and international communications have greased global commerce. In 1975 overseas calls represented only 5 percent of the U.S. phone industry's revenues; by 1995 that was 20 percent. As important, much of the world decided in the past two decades that the advantages of joining the global economy were too great to stay out. China (population: 1.2 billion in 1996), India (952 million), Russia (148 million) and much of Eastern Europe fall into this category. And Latin American nations that had highly protectionist policies are dismantling them.

Globalization, then, is the worldwide convergence of supply and demand. More countries want the benefits of foreign trade, investment and technology; and multinational firms – desperate for new markets – supply these benefits. Writes economist Joseph Quinlan of Morgan Stanley Dean Witter: "Developing countries represent the last frontier for many multinationals. The world's new consumers, new builders of infrastructure and new investors are located outside [the United States, Europe and Japan]." Nothing Congress does (or doesn't do) on fast track will suppress these powerful forces. Companies work around trade and investment barriers.

Every president since Gerald Ford in 1974 has had fast-track authority. It allows the president to make trade agreements that, once completed, Congress must approve or reject without changes. By contrast, most other legislation can be amended. Fast track seems a huge and risky transfer of power to the president, and on paper it is. In practice it is less so, because – by law – the president must consult with Congress on trade goals and, before any agreement is submitted, bargain over details. There's ample give-and-take. But without fast track, it's hard for the United States to negotiate with other countries. They fear that once any agreement is made, Congress would undo it.

The paradox of an open world economy is that it requires more – not fewer – trade agreements, because more commerce than ever is global. Clinton's trade agenda includes talks on financial services and agriculture as well as regional negotiations in Latin America and Asia. The prospect of more trade shouldn't be frightening. Some companies and workers lose from trade; others win. That's true of any new competition. But on balance, trade helps Americans. If it had permanently inflicted higher unemployment, the jobless rate now wouldn't be 4.9 percent. And it has delivered other benefits, from expanded markets to a buffer against inflation. We can either accept or ignore the new realities of global commerce. But we can't will them away.

© Copyright 1997 The Washington Post Company

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