The Economy

Peter Crabb: Idaho would benefit if Congress would keep trade free

Professor of finance and economics at Northwest Nazarene University in NampaMarch 19, 2014 

Peter Crabb

Where's the freedom in our free-trade agreements?

The United States has been actively seeking new international trade accords on both shores. The Trans-Pacific Partnership is a 2005 agreement between a few small nations that the U.S. would like to see expanded to across the Asia-Pacific region. The Transatlantic Trade and Investment Partnership is a series of talks on trade issues between the U.S. and the European Union.

If talks under both these program reach fruition, the extent to which our economy trades with the rest of world could grow rapidly. U.S. multinational corporations stand to gain significantly under new trade laws through the expansion of exports and gains in global market share.

If true, employment prospects in the U.S. would improve significantly. It may be the best economic stimulus policymakers in Washington could hope for.

Unfortunately, the devil is in the details of these trade agreements. Negotiations under each agreement look more like managed trade, not free trade.

Economic theory and historical evidence have long shown the benefits of free trade across borders. In Adam Smith's "Wealth of Nations," published in 1776, he demonstrated how a country increases its economic opportunities through specialization and trade.

Another classical economist, David Ricardo, further supported Smith's work with his theory of comparative advantage. This economic model shows that trade makes everyone better off, because it allows people to specialize in those activities in which they have advantages in both skills and costs.

Today, politicians often treat international trade as a contest that 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.

Negotiations under TPP and TTIP are conducted by the president's Office of the U.S. Trade Representative. At the same time, however, Congress is limiting talks and suggesting the administration favor certain industries or geographic areas.

The president's "Trade Policy Agenda" says that we will work with developing nations to help alleviate their poverty only if it "simultaneously creates better market opportunities for U.S. exporters." Apparently our large and productive industries can't compete on their own.

Congress will put in its two cents as well under the proposed Congressional Trade Priorities Act of 2014. This bill says all trade negotiations must include rules covering labor issues, monetary policy, environmental regulations and more. Every aspect of the U.S. economy under regulation now will be discussed as part of any trade agreement.

Our policymakers seem to be saying that we are not just going to open borders and tell foreign companies to operate their businesses here as U.S. companies do. Instead, we are going to discuss how business is done in their home countries as well.

This could take a long time.

Idaho knows the benefits of free trade. Much of what we produce here is sold in international markets.

Last year, Gov. Butch Otter traveled with political and business leaders on a "trade mission" to South Korea and Vietnam. The goal of the trip was to open up these markets even further for Idaho goods and services.

But unless the broader TPP or TTIP agreements are signed, Idaho's gains from international trade remain at the mercy of federal trade restrictions and perhaps endless negotiations.

Hopefully someday we will think more about freedom in free trade agreements.

prcrabb@nnu.edu

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