The Obama administration’s economic policies thus far would suggest that it sees the only way to increase growth is to increase federal spending. However, Free Trade Agreements (FTAs) that increase competition by removing tariffs and other barriers to trade may do more to promote America’s economic recovery than billions of dollars of government stimulus ever could. If boosting anemic GDP growth is indeed the priority, both parties should support the passage of the US-Colombia, US-South Korea, and US-Panama Free Trade Agreements currently under debate.
A well designed Free Trade Agreement provides reciprocal benefits through increased investment and economic growth. For example, the Office of the United States Trade Representative argues that the passage of the US-Colombia FTA alone would increase US GDP by $2.5 billion. Why then, despite the overwhelming macroeconomic benefits of free trade, have these agreements not yet been ratified?
Firstly, change is never costless. A modern capitalist economy operates in flux, as jobs are created and lost depending on a country’s unique competitive advantages. Free trade, by enhancing the process of creative destruction, will inevitably change the status quo. As lawmakers grapple with the difficulty of balancing the interests of diverse constituencies– unions fearful of domestic job losses, human rights advocacies concerned about lower worker safety standards abroad, and even religious groups morally opposed to trade with a drug-ridden country like Colombia—immediate re-election pressures may trump long-term economic wisdom.
Furthermore, both sides have succumbed to the temptation to manipulate FTA support as a political tool. Most recently, Obama threatened to withdraw support for the FTAs unless the Republicans agreed to renew the Trade Adjustment Assistance program (TAA). Originally designed to retrain workers who became unemployed as a result of ‘foreign competition’, the lack of specificity has allowed the TAA to dramatically expand, with its increasing reach corresponding to increasing costs. For Republicans eager to rein in federal spending, agreeing to the continuation of the TAA seems tantamount to a bargain with the devil.
A government program that amounts to a cash transfer to anyone who claims to be harmed by globalization is not valuable. Republicans should accept Obama’s offer but push for redefined TAA that operates on a narrower scope.
Even if both sides can agree over the TAA, they may be unwilling to face the voter backlash that inevitably accompanies any policy that might endanger even one American job. However, as the administration is increasingly forced to take ownership of a failing economy, 2% GDP growth and 10% unemployment may prove more politically detrimental than a few factory workers protesting. Unless, of course, the factory is in Iowa.