Sunday, July 25, 2004

Election 2004:Issue #2- International Trade Policy (Trading Places)

If you have listened to Ralph Nader lately, you might be tempted to believe that President Bush and Senator Kerry are more similar than they are different. And while VOR will spend the next 3 months pointing out the very real differences between the candidates on the major issues, the bundle of policy debates surrounding trade may not be the best place to prove Nader wrong. After all, it is likely that a President Kerry would continue many of President Bush’s trade policies, if only with a different rhetorical emphasis. Similarly, President Kerry would actively court the same special interests that President Bush has, and likely make some of the same egregious handouts.

In theory, the U.S. benefits when we export goods made domestically to other nations and import their goods for consumption here. Since there are many goods that can be made more cheaply abroad, American consumers benefit from lower prices. In addition, since consumers in other countries present new and potentially large markets for American producers, increased foreign trade can also create jobs here at home.

But of course, it is not and never is that simple. The benefits of trade are often dispersed among a large number of people (i.e. millions of consumers paying lower prices at Wal-Mart), while the costs are concentrated among very few (i.e. workers who lose their jobs because their company moves to China). The benefits of trade can thus be difficult to see, while the costs are readily apparent. Those who lose out from trade often have an easier time organizing into an effective lobby, while the “winners” do not even recognize themselves as such.

As a result, we get the sheer hypocrisy of President Bush strongly supporting free trade agreements, while lavishing wasteful subsidies on inefficient industries at home. Or the disingenuous doublespeak of John Kerry, as he chastises “Benedict Arnold CEOs” for incorporating abroad, while raising millions of corporate dollars for the general election. The good news is that a general consensus exists between Democrats and Republicans on many trade issues. The bad news is that neither party can say that during the election season.

One supposed difference between Bush and Kerry is that the Senator will try harder to tie labor and environmental standards to trade agreements. On the other hand, Kerry strongly supports the Clinton era trade agreements (which do not contain these measures) and is not too specific on how he would compel our trading partners to abide by our standards. In general, it is questionable whether universal labor and environmental standards are really a practical goal anyway. If Kerry is elected, he is unlikely to make radical changes in trade agreements. If anything, he may try to arrange symbolic gestures to appease labor and environmental critics.

On outsourcing, economic reality once again makes it difficult for President Bush and Senator Kerry to have real differences. Kerry seems angrier about it and the “Benedict Arnold CEOs” comment was a reliable applause line during the primaries. But, what would he really do about it? Tax credits and other goodies for companies that keep jobs in the U.S. are specific ideas that he has offered, but these programs often turn out to be nothing more than thinly veiled corporate welfare. It might be advisable to directly help the workers who are displaced by trade through retraining programs and trade adjustment assistance.

Both Bush and Kerry promise to rein in Chinese piracy and other trade infractions, but it remains to be seen if either candidate can be successful. China is a huge market for U.S. goods and many powerful interest groups have incentives to moderate U.S. policy towards China. Whomever it elected, this fact will not change.

From a politics perspective, the trade issue has the potential to benefit Kerry the most in swing states like Ohio, where many manufacturing jobs have been lost. Bush, partly because he has not extensively outlined his agenda for his 2nd term, is vulnerable on this issue. His notable deviations from free trade and free market rhetoric are rightfully derided by his critics, while the economic recession and outsourcing issue became more acute under his watch.

For Kerry, it may be best to use John Edwards to highlight this issue, Edwards proved quite adept at using the NAFTA issue against Kerry during the primaries. Edwards’s practical populism is well suited to highlight the trade issue in the major swing states.

On a humorous side note, one of Kerry’s suggestions is that call centers be required to identify where they are located when U.S. customers call in. That way, when I call customer service for my Mp3 player at 1am, I will know that I am being helped by a young Indian in Bangalore, rather than a very tired American working for fives times the salary. I am fine with Kerry’s plan, as long as the young Indian customer service rep also reveals that he is working on a Dell computer, drinking a Diet Coke, and going to see Will Smith’s new movie after work. Now that would be a good trade policy.



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