The Economy by Peter R. Crabb: Global talks must resume to boost international trade

Peter R. Crabb, professor of finance and economics at Northwest Nazarene University in NampaApril 23, 2013 

We can only expect so much.Gov. Butch Otter is currently on a trade mission to South Korea, Taiwan and Vietnam. He can hopefully open up these markets for more Idaho goods and services, but his hands are relatively tied when it comes to the many trade restrictions of the United States.

For our economy to benefit, policymakers at the national level need to free up trade in all goods and services. The known benefits of free trade across borders go back centuries. In the seminal book, "An Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith writes of the benefit to all through specialization and trade.

Trade makes everyone better off because it allows people to specialize in those activities in which they have advantages in both skill and costs. Politicians often treat international trade as a contest where one side has to lose. Supposedly, if we are importing more goods from some other country we must be losing the game. In fact, the reverse is true. Countries benefit from trade because it allows for specialization.

Economists then question why, for example, the U.S. government purchases large portions of our annual raisin crop or sugar production. Why do we place high taxes on the import of automobile tires? All such actions come at high cost to consumers here and hinder our ability to sell other goods and services to the rest of the world.

Idaho knows the benefits of trade. The Idaho Department of Commerce reports that export sales by Idaho companies reached a record high in 2011. We sell nearly $6 billion in goods and services to more than 156 countries, including Canada, China and Taiwan.

But the benefits of these sales are unlikely to grow, or may even be lost, if we don't reciprocate by opening our national markets more. To that end, a resumption of global trade talks is needed.

At a 2001 conference in Doha, Qatar, World Trade Organization member governments agreed to launch negotiations for lower trade barriers.

Unfortunately, no significant reductions have been achieved more than a decade later.

Rather, national policymakers are discussing regional trade pacts, such as the Trans-Pacific and the Transatlantic Partnerships. These agreements will promote more trade in specific areas and for specific types of goods, but a worldwide agreement would make everyone better off.

Researchers at the International Monetary Fund studied hundreds of countries over four decades and showed that these economies grew faster after broad trade liberalization than following any regional trade agreement. A multilateral agreement through the WTO or simply the unilateral lowering of our trade barriers will go further than the complicated and difficult-to-negotiate regional trade agreements.

We can only expect so much. The governor may have a nice trip to Asia, but without a national policy favoring more free trade, we won't see much benefit.

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prcrabb@nnu.edu

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