An American Trade Watershed

new atmWSJ Editorial Boards

The stakes are large for the country, and the Republican Party.

new WSJRepublican leaders sound increasingly optimistic that they have the votes to pass trade-promotion authority this week, but the fight isn’t over. Apart from the Iran nuclear deal, this is probably the most important vote that Members will take in the 114th Congress. It’s therefore crucial to understand the stakes of the trade vote—economic, political and strategic.

Start with the economics, which comes down to whether the U.S. is still going to lead the world or shrink from global competition. The U.S. needs “fast-track” trade approval in particular to conclude the pending pact with 11 Pacific nations, which would be the most important trade deal since the early 1990s. These deals invariably benefit the U.S., which tends to have lower tariffs and fewer trade barriers. Trade deals are crucial to opening these foreign markets to U.S. goods and services, as the economic facts show.

The U.S. has trade pacts with 20 markets around the world, and those markets account for 47% of U.S. goods exports, according to the U.S. International Trade Administration. U.S. goods exports to trade-pact countries rose 64% from 2009 to 2014, far more rapidly than the 45% growth with the rest of the world.

Exports have increased by 415% with Chile (trade pact in 2004); 378% with Mexico (1994); 111% with Canada (1994); 90% with Australia (2005); 84% with Singapore (2004); 74% with Central America (2006); 61% with Peru (2009); 42% with Colombia (2012) and 26% with Panama (2012) since the respective trade deals took effect.

Opponents cite the slow 2.3% annual export growth rate to South Korea since the 2011 trade pact. But that’s the result in part of slower growth in Korea, and it ignores the 25% growth in U.S. services trade with South Korea between 2011 and 2013. Seoul has opened up legal services to U.S. firms, and American investors can now own telecom operations in the country.

Protectionists focus on the U.S. trade deficit, but American manufacturers and consumers benefit from cheaper foreign imports. In any event, the U.S. last year ran trade surpluses with trade-agreement partners of $36.4 billion in machinery, $17.7 billion in plastics and $14.3 billion in aircraft.

According to the U.S. Trade Representative, exports have spurred one million new U.S. jobs since 2009. The highest export job growth has occurred in Texas (251,000), Washington (107,000), California (81,000), Louisiana (68,000) and Michigan (62,000). Exports have also fueled substantial job creation in Georgia (56,000), Illinois (56,000) and South Carolina (42,000).

Farm states in particular would benefit from agreements with the 11 Pacific Rim countries and the European Union, which like Japan imposes prohibitive regulatory and tariff barriers on U.S. agricultural exports. Both regions are also fertile markets for U.S. intellectual property and biotechnology. Politicians who vote against trade agreements are opposing these typically high-paying jobs.

The political stakes are also high—for the Republicans who now run Congress and the U.S. political system. Republicans complain with cause that they can’t accomplish much with President Obama in the White House, but he’s on their side on trade. It’s true he’s delivering precious few Democratic votes, but with GOP control comes responsibility. The GOP image as a pro-growth party would suffer a damaging blow if the trade vote fails.

So would the reputation of the U.S. around the world. Republicans have been telling foreign officials and American business leaders that the U.S. retreat from world leadership has been Mr. Obama’s choice. If a GOP Congress fails on trade, the message will be that both major parties have lost the will to lead. The unavoidable conclusion will be that America is choosing decline.

The big strategic winners in that event would be America’s adversaries, especially China, which is busy building economic alliances as a tool of its soft power. Chinese leaders are aiming to replace the U.S. as the dominant regional power in the Western Pacific, and a U.S. trade failure would speed that along.

“Fast-track” and the Pacific pact are also crucial to restoring Japan’s economic vitality. Prime Minister Shinzo Abe is using free trade to take on the calcified political interests that have slowed Japanese growth to a trickle. The U.S. needs a more confident, economically stronger Japanese ally to resist China’s inevitable advances. This trade-opening reform opportunity will not soon come again.

The sorriest excuse not to support freer trade is the one offered by some Republicans that they don’t trust Mr. Obama. We don’t either, but the language of the fast-track bill makes clear he cannot use it unilaterally to supercede American law. Mr. Obama is a short-timer in any case, and the next President may be a Republican who needs fast-track authority for his economic-growth strategy. Better to pass it now so he wouldn’t have to spend scarce political capital to pass it in 2017.

The trade vote is in sum a watershed about the kind of country America wants to be. Does the U.S. still have the right stuff to compete with and lead the world, or will it retreat behind barriers that provide the illusion of economic and political security.


Be the first to comment

Leave a Reply

Your email address will not be published.