For free-traders, a siege mentality

This month's China trade vote may show if open-market momentum is truly stalled.

Bill Clinton is for it. Al Gore is for it. George W. Bush and the Republicans are for it.

So free trade - with China, Latin America, the world - should be a pushover, right?

Not so fast. The fact is, despite widespread prosperity and America's five-decade tradition of reducing trade barriers, the advocates of international commerce are on the defensive these days.

Global market-opening talks aren't even scheduled. The China trade bill is fighting for its life in Congress. Massive protests were the big stories at meetings of the World Bank last month and World Trade Organization last December. And President Clinton is talking about everything but his goal of a hemispheric trade zone.

In short, the forces of globalization are "under assault," concedes Frank Vargo, a trade analyst at the National Association of Manufacturers in Washington.

Free trade's stalled momentum doesn't portend a roll-back to the days of protectionism and high tariffs - moves that most analysts say would slow the pace of global economic growth. But what it does signal is a reassessment of globalization, including a closer look at its negative effects.

The NAFTA effect

For US workers, those effects are symbolized by the 1993 passage of the North American Free Trade Agreement.

Mr. Vargo, a former Commerce Department trade official, calls NAFTA "a defining point in free-trade history."

Vice President Gore helped the accord pass when he won a debate against Ross Perot.

But since then, forces have shifted against free trade:

*Labor unions have been regalvanized as a political force for the fall elections.

*Some economists are acknowledging downsides to free commerce, from volatile flows of investment money to harm to some US workers. On NAFTA, some say Mr. Perot was at least partly right about the "sucking sound" of jobs going south.

*The move to grant China "permanent normal trade relations," the biggest trade decision since NAFTA, is proving a tough sell in Congress, despite Republican control of both houses.

Gore, needing Big Labor's vote-gathering prowess, has gone into "hiding" on this issue as Congress prepares for the China vote, says Harald Malmgren, a Washington trade consultant.

The House of Representatives plans a vote on the issue the week of May 22. So far, supporters lack the votes to pass it, although the Clinton administration has intensfied its vote-getting efforts in recent days.

Struggles over trade liberalization aren't new. But NAFTA added a new dimension.

Organized labor became more convinced that the US-Mexico- Canada treaty - and freer trade in general - hurt many American workers. The deal allowed low-wage Mexicans to compete more freely with high-wage Americans. After NAFTA's passage, companies increasingly threatened to move factories to Mexico if union negotiations weren't settled favorably. Some actually did move.

Richard Freeman, an economist at Harvard University in Cambridge, Mass., says such threats backfired - making it harder for business to lobby for the China deal.

Workers remember the threats vividly. And China has hundreds of millions of low-wage workers.

Challenging the basics

More broadly, economists are reassessing the fundamental free-trade principle of "comparative advantage."

The theory, first stated by 19th-century economist David Ricardo, says all nations can benefit from trade by selling the goods they are best suited to produce. Ricardo's original example was of wine made in sunny Portugal and wool in damp Britain.

But as trade grows, vintners in Britain and shepherds in Portugal may well lose their jobs or suffer deep income losses.

So trade, notes Mr. Freeman, redistributes income in a nation. He calls it a "professional disgrace" that economists have not emphasized this point enough.

Wage gap exacerbated

In the current debate, many economists admit that freer trade has been a factor restraining the income growth of less-skilled Americans, thereby worsening the income disparity between rich and poor. One economist's estimate is that 39 percent of the increase in wage inequality from 1973 to 1993 resulted from the wage-depressing effect of increased trade.

"Manufacturing jobs are at stake," says Thomas Palley, an economist at the AFL-CIO.

Moreover, free-trade deals are becoming more ambitious. "They go much more deeply into domestic social arrangements," instead of simply reducing tariffs, says Dani Rodrik, a Harvard University economist. They involve intellectual property, privatization of state-run businesses, foreign investment, and so on.

As a result, some citizens have become more suspicious of institutions such as the World Trade Organization (WTO). They see decisions being made in remote settings by obscure bureaucrats.

All this doesn't discount the benefits of trade. For example, if imports are restrained, it means "the rest of us are paying for it" when buying higher-priced US-made goods, says Mr. Malmgren.

The job-loss factor

But America's growing trade deficit, while bringing cheap imports, costs jobs, say critics of the China trade deal.

Since 1992, rising exports have created 4.1 million jobs, while imports, growing even faster, cost the US 7.3 million jobs, says Robert Scott, an economist at the liberal Economic Policy Institute in Washington. China's entry into the WTO would not shrink the huge US trade deficit with China, so it is a "bad deal" for US workers, he says.

Gary Hufbaurer of the Institute for International Economics in Washington argues that Mr. Scott exaggerates both the job losses and the future US trade deficit with China.

In any case, with US unemployment running at a low 4 percent, the job-loss argument currently carries much less clout.

(c) Copyright 2000. The Christian Science Publishing Society

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