Free Trade's Destiny in CAFTA
Will globalization stop here? Congress will soon vote on a free-trade pact with five Central American nations and the Caribbean's Dominican Republic. While that market is small bananas for the US, the pact looks like it may be defeated. If so, it could send a worrisome signal that the world's leading free-trade nation is fed up with opening its markets and has gone protectionist.
That, in turn, could jeopardize President Bush's attempt to turn the Western Hemisphere into a single market and damage talks for a new world trade agreement, known as the Doha Round. Foreign investors might also start pulling money out of the US in expectation that Washington will now put up walls to trade on the theory that reducing global competition helps save Americans jobs.
If only that were true. Protectionism has been shown to hinder overall job growth while free-trade pacts that also help ease the transition for workers in uncompetitive industries have led to additional jobs. The US economy, for instance, saw immense job growth after the 1994 North American Free Trade Agreement (NAFTA).
Like NAFTA, the proposed Central American Free Trade Agreement (CAFTA) would help US neighbors to the south build up their economies, reduce the flow of illegal immigrants, and improve their democracies - many of which didn't exist during the civil wars of the 1980s.
If the pact does somehow pass, the five Central American nations - Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua - would have to lower their trade barriers far more than the US would. (Costa Rica's president has voiced concern about this). They also agreed to buy basic textile materials from the US to make clothing exports for the US - something that will help many American textile workers to compete with China.
China's huge export machine, in fact, is one reason why Capitol Hill's mood appears to be less pro-free trade. Further opening China's market should, indeed, be a prime goal of the US. But dissing CAFTA isn't the way to deal with China.
The strongest lobby against CAFTA is domestic sugar - from Florida cane growers to Montana sugar beet farmers - which enjoys a protectionist wall that keeps the price of sugar at home double that of the world price. CAFTA would only increase sugar imports by some one percent, but the precedent has that lobby out in full force.
If CAFTA loses in order to keep sugar prices high, or to save a few uncompetitive textile factories, it will be a sad day for both US trade leadership and US job creation.