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A Victory for the Flat-Earth Caucus

By James K. Glassman
Tuesday, November 11, 1997; Page A19

The Washington chapter of the Flat Earth Society, better known as the U.S. House of Representatives, has failed to muster the votes to pass "fast track," which would make it easier to negotiate deals that lower trade barriers.

President Clinton says he'll try again next year, but the damage is done. This country has told the world that, after more than 50 years of leading the fight to dismantle obstacles to the free flow of goods and services across borders, we're turning once more toward protectionism.

The last time this happened, the world was plunged into the Great Depression. Back then, it was the Republicans who tried to deter foreigners from selling their goods here. They wanted to protect big business from competition. Now, Democrats want to protect big labor – an ironic turnabout that's no less dangerous.

Markets hate trade disruptions, and, when they realize that the United States is serious in this retreat, they may react furiously. They did so in 1929 and 1930 after the House and then the Senate passed the Smoot-Hawley Tariff Act, which raised rates by 52 percent. They did so as well in 1987, responding to less vivid tampering.

Clearly, defeating fast track is not the equivalent of passing Smoot-Hawley. In the short term, it means only that we won't get quick free-trade deals with Chile and other Latin and Asian nations. But it bodes ill. "It will be seen as a victory for protectionism at a time when the U.S. is looked to for global leadership," says Thomas Gallagher of Lehman Brothers. "It invites comparisons to the 1930s."

The failure of fast track is particularly ominous when you realize it's happened at a time of broad prosperity. Just last week, the Labor Department announced that unemployment had dropped to 4.7 percent – the lowest in 24 years. Since 1992, the United States has created 11.2 million net new jobs, or 200,000 a month, and industrial employment is up more than 7 percent. The U.S. economy, growing at 4 percent in the past year with inflation of only 2 percent, is the strongest in the world.

If the foes of open trade can prevail when times are this good, what will happen in the downturn that these foes themselves may help provoke?

In economic terms, free trade is a no-brainer. "Ever since Adam Smith published `The Wealth of Nations' in 1776," writes Douglas A. Irwin of the University of Chicago, "the vast majority of economists have accepted the proposition that free trade among nations improves economic welfare."

In fact, the phrase "vast majority" is an understatement. It's hard to find a respectable economist who opposes free trade, the value of which is glaringly obvious. "It is the maxim of every prudent master of a family," wrote Adam Smith, "never to attempt to make at home what it will cost him more to make than to buy. . . . If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them."

In other words, the reason we trade is to buy things of higher quality or lower price than we can make them at home. We trade, in short, to get imports – shirts from China, stereos from Japan, cars from Germany.

In exchange, we offer other countries the things we make cheaper or better – computers, chickens, movies, power generators. Or we just offer dollars. They send us cars, we send them little pieces of paper. Quite a deal. We benefit from lower prices, and we can use the money we save to buy things made at home – or invest it.

It is just this point – the immense benefit of imports, which throttle inflation, force U.S. businesses to become more productive and help consumers live better – that the Clinton administration failed to promote in its tardy and confused battle for fast track, an authority enjoyed by every president since Gerald Ford.

(Perhaps, in keeping with contemporary practice, proponents should have run ads that claimed, "Fast Track Fights Cancer" – since free trade makes fresh fruits and vegetables more affordable.)

Instead, the administration said over and over that trade "creates jobs." That's not exactly true. Instead, trade results in a shift in jobs from sectors where we don't have a competitive advantage to those where we do. For the United States, that's a terrific trade-off: bad jobs out, good jobs in.

Yes, some workers are hurt, but they're also hurt by greater forces. Consider how many gas-station attendants have lost their jobs to automated pumps. NAFTA didn't do that. Technology did, lowering costs to consumers in the process.

Imagine a flying saucer lands here, and Martians plunk down a black box, which, at the push of a button, builds a car. Say they charge us $100 per auto. The result: hundreds of millions of cars created and hundreds of thousands of jobs in Detroit lost. Should we take the deal? Of course, since it would cut costs for each American family by about $3,000 a year. Trade, in less dramatic fashion, gives us black boxes.

But, incredibly, Reps. David Bonior (D-Mich.), Nita Lowey (D-N.Y.) and dozens of others want to disrupt a system that has worked enormously well for five decades.

Why? The benign answer is that they're merely ignorant. More likely, they are the disingenuous stewards of unions that are desperately trying to maintain their cartels, just as big businesses did in Smoot-Hawley days. In both cases, politicians favored highly organized producers over disorganized consumers.

In 1928, Democrats knew better. Unlike the Boniors and Loweys of today, they truly stood for the little guy. Their platform proposed to "increase the purchasing power of wages by reducing the monopolistic and extortionate tariff rates." Exactly. Whatever other nations do, we should get rid of all barriers to imports. The dollars that Americans earn buy more when foreigners vie for them, too.

The writer is a fellow at the American Enterprise Institute.

© Copyright 1997 The Washington Post Company

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