No Free Trade? No US Exports!

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Global Trade, Macroeconomics

I had a chance to re-connect with an old friend today. I have to speak sparingly of identifying details lest his identity and comments become public. We’ll suffice it to say that he spends quite a bit of time with an old line industrial manufacturing concern. Thinking about impending blog deadlines, I asked him what this old industrial manufacturing company’s biggest threat was given the current economic environment. He mentioned the prospects of free trade under an Obama administration as one of the biggest threats. And not surprisingly this company is running scared but not for the reasons you might expect. 

In my mind, the argument against free trade is made primarily by one of two constituencies…workers who have been displaced from their jobs due to “outsourcing” and producers who have been harmed by cheap imports. The later make their case via anti-dumping claims or by aggressive lobbying efforts in support of import quotas or tariffs. But in those media stories about jobs lost to other countries or harm caused to a specific domestic industry, nobody seems to talk about the harm caused to US exporters. And therein lies the rub. When we as a nation take a more protectionist stance and subsequently develop policies designed to support that, there are always unintended consequences. One of those unintended consequences relates to the fact that trading partners begin to restrict US goods into those markets. And make no mistake about it, US exports have led the economy up until very recently. Any economic recovery will be dependent not only on increased domestic spending on goods and services but also foreign consumption of US produced goods and services.

So where does that leave us?

As this recent Forbes article suggests, “Will Obama Restrict Trade With China?” the answer may be a resounding yes but not due to his own decision-making. First, according to the article, China in an effort to save its exporters, stopped allowing the renminbi to appreciate, giving its exporters a cost advantage. Because labor unions provided so much support to Obama, he will need to appease those groups and many of these have been hit very hard by the recent economic turmoil. They will not lend a supporting ear to the cause of free trade. The article goes on to cite the increasing China trade surplus as another factor which many feel ought to be remedied by protectionist policies. Finally, the failed Doha round of trade talks this past summer, just before the economic upheaval, make stewardship of a free trade agenda an unlikely path for the new President.

But make no mistake about it, US exporters, many of whom rely on competitively priced imports such as steel to maintain competitiveness on the world stage will be severely handicapped if a free trade agenda moves to the wayside. If US exporters have their own products and services blocked by trading partners (the typical knee-jerk reaction to US protectionist policies), we’ll see even more job loss and economic contraction. Let’s hope President-elect Obama will re-consider his position on free trade.

–Lisa Reisman

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