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LICY ANALYSIS TRADE POLICY ANALYSIS TRADE POLICY ANALYSIS TRADE PO

April 28, 2009 No. 39

Audaciously Hopeful
How President Obama Can Help Restore
the Pro-Trade Consensus
by Daniel Ikenson and Scott Lincicome

Executive Summary
There is reason for grave concern about myths. Congress and the media have spoken
the direction of U.S. trade policy. The bipar- for years about the decline of U.S. manufac-
tisan, pro-trade consensus that served U.S. turing as though it were fact, when the over-
economic and diplomatic interests so well for whelming evidence points to a sector that,
so long collapsed during the final two years until the onset of the current recession, was
of the Bush administration. Trade skeptics robust and setting performance records.
have increased their ranks in the new Both lament the U.S. trade deficit without
Congress, a majority of Americans perceive attempting to convey or even understand its
trade as threatening, and grim economic causes, meaning, or implications. And both
news has made the political climate inhos- attribute these alleged failures of policy to lax
pitable to arguments in support of trade. enforcement of existing trade agreements.
But restoring the pro-trade consensus President Obama should reexamine
must be a priority of the Obama adminis- these premises. He will find that they are
tration. If the United States indulges mis- long on fallacy and short on fact. Mean-
placed fears, restrains economic freedoms, while, the president will find it necessary to
and attempts to retreat from the global rein in the congressional leadership’s
economy, the country will suffer slower increasingly provocative approach to trade
economic growth and have greater diffi- policy if he is to have success repairing
culty facing future economic and foreign America’s foreign policy credibility.
policy challenges. The determination of the president to
America’s trade skepticism is largely the arrest and reverse America’s misguided and
product of a top-down process. Perceptions metastasizing aversion to trade could dra-
have been shaped overwhelmingly by relent- matically improve prospects for restoring
less political rhetoric that relies on three the pro-trade consensus.

Daniel T. Griswold is associate director of the Cato Institute’s Center for Trade Policy
Studies.
Daniel Ikenson is associate director of the Center for Trade Policy Studies at the Cato Institute
and the co-author of Antidumping Exposed: The Devilish Details of Unfair Trade Law
(2003). Scott Lincicome is an international trade attorney with the law firm of White & Case,
LLP, in Washington, D.C.
For the sake of the as a sign of U.S. disengagement from an increas-
economy and Introduction ingly China-centric Asia.
According to public opinion polls, American
the prudent exercise There is reason for grave concern about the sentiment toward international trade and glob-
of foreign policy, direction of U.S. trade policy. The bipartisan, alization has been souring steadily throughout
pro-trade consensus, which served U.S. eco- this decade. Recent surveys find Americans
restoring the nomic and diplomatic interests so well for so believing, in historically large numbers, that free
pro-trade long, collapsed during the final two years of the trade leads to job losses, lower wages, higher
consensus should Bush administration. Congressional skeptics, prices, and economic contraction. Other surveys
who helped derail the U.S. trade agenda, have find that Americans believe there is more to fear
be an economic increased their ranks in the new Congress. than to embrace about international trade and
and diplomatic And, already grim economic conditions appear globalization.
to be growing worse, making the political cli- That Americans hold these views is one of
priority of the new mate even less hospitable to arguments favor- the great ironies of the early 21st century. After
administration. ing trade and globalization. all, increasing international trade and invest-
Yet, touting trade’s virtues is exactly what ment over the past several decades have been
President Obama and his cabinet should be catalysts for the unprecedented wealth creation
doing. For the sake of the economy and the pru- and robust economic growth experienced in the
dent exercise of foreign policy, restoring the pro- United States and around the world. Most
trade consensus should be an economic and Americans have been beneficiaries of sustained
diplomatic priority of the new administration. U.S. economic growth. Most Americans enjoy
U.S. consumers’ access to imported goods the fruits of international trade and globalization
extends family budgets. U.S. manufacturers’ every day. Most do not harbor antipathy toward
access to imported raw materials, components, trade because they or someone they know lost a
and capital equipment helps hold down produc- job to foreign competitors or because of out-
tion costs, which enables producers to pass on sourcing. It is simply implausible that the degree
savings to consumers and increase profitability of antipathy toward trade reflected by survey
and investment. And, access of U.S. manufac- results is driven by past personal experiences or
turers, farmers, and service providers to the 95 any realistic fears about the future.
percent of the world’s consumers that are living Could it be that U.S. policymakers and the
outside the United States is needed to accelerate media have helped shape and reinforce these
the nation’s return to economic growth. negative attitudes? After all, anti-trade rhetoric
President Obama has expressed a desire to flows from Congress and the media into Ameri-
repair America’s damaged credibility abroad. ca’s livingrooms via cable news—sometimes
But making amends for unilateralist missteps shortly before pollsters call, seeking opinions
during the Bush years will be difficult without about trade. Those opinions are then cited by
first challenging—and reversing—the congres- policymakers as evidence that their own hostility
sional leadership’s increasingly unilateralist toward trade reflects the views of a worried
approach to trade. The president’s repudiation of American public. And the vicious circle spins on.
the “Buy American” language in the so-called Congress and the media have indeed been
stimulus package was a commendable start. But central to the perpetuation of three myths. Both
he must do more. Reaching out to Hugo have spoken for years about the decline of U.S.
Chavez in Venezuela, while Congress continues manufacturing as though it were fact, when the
to deny Colombia—our staunchest ally in the overwhelming evidence points to a sector that,
region—the courtesy of a vote on the long- until the onset of the current recession, was
pending U.S.-Colombia Free Trade Agreement, robust and setting performance records. Both
will further damage America’s credibility. ascribe bloated significance to the U.S. trade
Turning our backs on another long-pending deficit without attempting to convey or even
trade agreement with South Korea will be seen understand its causes, meaning, or implications.

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And both contend that this alleged decline of sible and compelling so that the Obama admin-
manufacturing and the rising trade deficit attest istration may be more inclined to carry that
to the Bush administration’s failure to enforce message. Restoring the pro-trade consensus in
existing trade agreements. America should be among the most impor-
The media’s motive is straightforward: it is tant—and least expensive—objectives of the
giving its customers what they seem to want. Obama presidency. Particularly in this time of
Frankly—and regrettably—Americans seem to economic contraction, if the United States
be more captivated by stories of gloom and indulges misplaced fears and attempts to retreat
doom than by factual, logical arguments that from the global economy, the country will suffer
are devoid of sensational imagery. For that rea- perennially slower economic growth, which
son, the media seem to favor the anti-trade could adversely affect U.S. living standards.
narrative. Neither Democrats nor Republicans want this
Members of Congress are motivated by the to be our nation’s fate or their political legacies.
imperative of reelection, which for the Demo- The steadfast determination of the U.S.
cratic Party means doing the bidding of orga- president to arrest and reverse America’s mis-
nized labor—a special interest that opposes guided and metastasizing aversion to trade
international economic engagement and allow- would help restore the pro-trade consensus.
ing Americans the choices that trade affords. But that first requires that the president be The steadfast
Meanwhile, economic nationalists from the familiar with the lingering misperceptions and determination of
Republican Party see trade as a zero-sum game, political circumstances that have driven the the U.S. president
and a losing proposition from a national securi- backlash against trade. Thus, the first section of
ty perspective. They oppose U.S. policies that the paper provides some historical context for to arrest and
benefit potential adversaries, regardless of how that backlash. The next section exposes some reverse America’s
enriching those policies may be to Americans. of the pervasive myths that have motivated the
The Bush administration was also complic- backlash. The third section offers suggestions
misguided and
it—although sometimes unintentionally—in for changing the terms of the debate. And the metastasizing
this shaping of adverse public opinion. The very fourth section lays out some objectives for the aversion to trade
fact that former president George W. Bush (one Obama administration as it works to restore
of the least popular presidents in history) sup- the pro-trade consensus. would help restore
ported trade liberalization was reason enough the pro-trade
for many people to question its virtues. But
more substantively, President Bush and his trade The Backlash against Trade consensus.
policy team spent too much time touting the
benefits of exports while downplaying or ignor- Not too long ago, Bush administration offi-
ing the benefits of imports. In so doing, the cials spoke optimistically about a free-trade
administration reinforced public misconceptions zone from Alaska to Tierra del Fuego, and a
that imports are bad and that our large trade world free of industrial tariffs by 2015. U.S.
deficit is proof that the United States is losing at trade policy held promise as a tool to reduce
trade. global trade barriers and to achieve greater eco-
For our part, pro-trade advocates have failed nomic integration and growth.
to make a convincing and durable case for why With international solidarity strong and
free trade is superior to the alternatives. The fac- good will running high in the wake of the 9/11
tual arguments are compelling, but tend to be terrorist attacks, a new multilateral trade negoti-
lost on a public that is more susceptible to depic- ating round was launched in Doha, Qatar, under
tions of worst-case scenarios and the ill-con- the auspices of the World Trade Organization in
ceived policy bromides that follow. The scholar- November 2001. Within nine months—and
ship is there, but we need better salesmanship. after an eight-year lapse—Congress granted
The authors’ intention in this paper is to “Fast Track” trade negotiating authority,1 or
make the arguments for freer trade more acces- “Trade Promotion Authority,” to the president,

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who then initiated bilateral trade talks with options for bilateral agreements, since most
dozens of countries as part of the administra- developing countries were—and remain—
tion’s program of “Competitive Liberalization,” adamantly opposed to their inclusion.6 At the
hoping that it would build momentum to spur a Singapore Ministerial Meeting of the World
relatively quick and successful conclusion to the Trade Organization in 1996, trade ministers
Doha Round.2 issued a declaration of support for core labor
The administration’s efforts produced bilat- standards while simultaneously opposing the
eral and regional trade agreements with 16 idea of enforceable labor standards in trade
countries between 2002 and 2007.3 And U.S. agreements. Labor standards are promoted by
exports to the 11 trading partners with free- “economic growth and development fostered
trade agreements that entered into force by international trade and further trade liberal-
between 2001 and 2007 grew nearly 80 percent ization,” the statement read.7
faster on average than did U.S. exports to the Thus, the administration and the congres-
rest of the world.4 sional leadership decided to pursue a strategy
However, it is difficult to credit Competitive to secure enough Republican votes for trade
Liberalization with advancing U.S. trade-policy promotion authority without the need of
objectives more broadly. After all, TPA has Democratic support. To win that support from
expired, a Doha Round agreement remains elu- wavering Republicans in import-competing
sive, pro-trade voices in the Congress have dwin- states—and to forgo the need to make conces-
dled through consecutive elections, the fates of sions across the aisle—the administration
three completed bilateral trade agreements hang imposed steel tariffs, under Section 201 of the
in legislative limbo, and enforcement and litiga- Trade Act of 1974, and changed the rules of
tion seem to have supplanted negotiation and origin for certain apparel imports to favor
cooperation as the overriding theme of trade pol- domestic processors.
icy in Congress. Meanwhile, major U.S. trading Were steel tariffs and tightening the already
partners continue to pursue their own bilateral protectionist textile trade rules too high a price
and regional agreements, extending advantages to pay to avoid TPA language that mandated
to their businesses and consumers as U.S. trade enforceable labor and environmental standards?
Although organized policy remains grounded.5 They were certainly a high price, particularly
labor, through Although organized labor, through its influ- since the Doha Round is now hopelessly off
its influence on ence on Democratic policymakers, is ultimately track and the administration ultimately capitu-
behind the congressional backlash against trade, lated to the Democratic leadership’s demands
Democratic it is reasonable to suggest that Competitive for such standards in May 2007. Protectionist
policymakers, Liberalization helped fan the flames of that backsliding on steel and textiles helped solidify
backlash—one that was hot during the 1990s, developing-country suspicions of U.S. negotiat-
is ultimately behind went to embers in the wake of 9/11, was stoked ing objectives, and it helped produce the intran-
the congressional again in 2002, and began to rage with the elec- sigent negotiating positions of the various devel-
backlash tion of the 110th Congress in 2006. The tactics oping-country groups in the Doha Round. But
of the Bush administration, and the Republican it is also unlikely that the developing countries
against trade, leadership in Congress until 2006, probably would have allowed the negotiations to proceed
it is reasonable to helped spawn that backlash. if enforceable labor and environmental condi-
suggest that In seeking support for TPA from Demo- tions had been required by Congress in the TPA
crats in the first place, the Bush administration language.
Competitive determined that it would need to capitulate to Perhaps more importantly for U.S. trade pol-
Liberalization demands that new trade agreements include icy today, the Republican leadership’s decision to
enforceable labor and environmental provi- try to advance trade policy without the support
helped fan the sions. But the administration also knew that of the minority leadership ultimately alienated
flames of that such demands would cripple multilateral trade important Democrats who now control the con-
backlash. negotiations from the outset, as well as limit gressional trade agenda. It would be naive to

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believe that the experiences of those Democrats, House by a slim margin of 221–205, with only Opposition
as members of the minority in the 108th and 22 Democrats in support.9 to trade liberaliza-
109th Congresses, didn’t color their anti-trade Competitive Liberalization, and the eight
moods in the 110th Congress. Perhaps their dis- up-or-down votes that its fruits required from tion became a
positions will change with a fellow Democrat in the Congress, ensured that Democrats were reflexive and
the White House. reminded frequently that their concerns were
With each new trade agreement announced being marginalized. They were reminded fre-
reactionary policy
or concluded under TPA between 2002 and quently of the fact that President Bush was position, shaped
2007, Democrats in Congress seemed to raise granted TPA with the support of only 25 predominantly
new objections. If it wasn’t specific provisions Democrats in the House of Representatives.
in the agreement that bothered them, it was They were reminded frequently that the trade by political
the Bush administration’s alleged failure to agenda appeared to be a partisan enterprise. imperatives and
keep them informed of developments in the And that period gave ample opportunity for
negotiations that ruffled Democratic feathers. Democrats, with the encouragement of their
devoid of
If it wasn’t allegations of being kept in the dark, benefactors, to concoct new reasons to oppose compelling
it was that trade policy formulation rightfully trade agreements. Opposition to trade liberal- rationale.
belonged to the legislative branch in the first ization became a reflexive and reactionary policy
place (even though Congress delegated such position, shaped predominantly by political
authority to the executive branch under TPA). imperatives and devoid of compelling rationale.
Rep. Charles Rangel (D-NY)—now chairman Notwithstanding the partisan trade divide
of the House Ways and Means Committee that became stark between 2002 and the elec-
and historically a supporter of free trade— tion of 2006, the seeds of Democratic Party
objected to the process of the Oman FTA’s opposition to trade liberalization were sown
negotiations: earlier. From the mid-1990s forward, there
appears to have been a steady erosion of what
Over the years, it appears more and was once fairly broad bipartisan support for a
more that the United States Trade liberal trade agenda. Although foreign policy
Representative will deal with the hawks in the Republican Party became disen-
Republican leadership, but on issues chanted with the pro-trade consensus—partic-
that Democrats think are important, ularly as China’s economy began to emerge—
we have to deal with the country itself. by and large the erosion is best characterized as
This is wrong. Whatever political a fraying of the pro-trade consensus along
divisions we have in our country, we party lines.
ought to keep on this side of the flag
and not expose our differences to for- Democrats Ditch the Pro-trade Consensus
eign nations. Given today’s stark partisan differences over
... trade policy, it is easy to forget the Democratic
Democrats may be in the minority, but Party’s enlightened past. It was the Democratic
we should not be excluded from discus- Party that opposed—and the Republican Party
sions and negotiations with the USTR. that supported—tariffs from the end of the Civil
USTR should not send Democrats to War to World War I. President Woodrow
foreign representatives to see what we Wilson slashed tariffs considerably in 1913, only
can get in the bill, they are supposed to to have those tariffs raised again during the
be our negotiator the same way they are Republican administrations of the 1920s, culmi-
the negotiators for the majority party. nating in the Smoot-Hawley Act of 1930.
That does not happen, but it should.8 It was President Franklin D. Roosevelt and
his secretary of state, Cordell Hull, who began to
That same day, Rangel voted against the repair the damage caused by Smoot-Hawley by
Oman FTA, and the agreement passed the promoting the Reciprocal Trade Agreements

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Act, which became law in 1934 and enabled the vote indicates that President Clinton’s defeat
completion of new bilateral trade agreements. It came at the hands of his fellow Democrats. Only
was President Harry Truman who presided over 29 House Democrats voted in favor of Fast
America’s joining the General Agreement on Track (14 percent of all Democratic votes), join-
Tariffs and Trade in 1947, and it was President ing 151 Republicans (68 percent of all Repub-
John F. Kennedy who championed expansion of lican votes). Of the 243 votes against Fast Track,
GATT, endorsing a new round of negotiations 171 (over 70 percent) were cast by Clinton’s fel-
in 1961. The “Kennedy Round” was concluded low Democrats.13 Thus, the anti-trade stance of
in 1967 under the administration of President the 110th Congress cannot be explained fully as
Lyndon Johnson. an indictment against George W. Bush, given
Most of the Tokyo Round, the next major the post-URAA votes of the 1990s. Democrats
round of trade liberalization, was conducted have been slowly drifting away from the post-
during the Carter administration, and signed war, pro-trade consensus.
in 1979. And President Bill Clinton carried the The decade ended with some ominous
internationalist, pro-trade banner during his developments on the trade front. In 1999, at the
administration, a period during which the biannual WTO ministerial meeting in Seattle,
Uruguay Round Agreements Act (which creat- the anti-globalization movement burst onto the
Of the three most ed the WTO) and the North American Free scene. Demonstrators took to the streets, pro-
important trade Trade Agreement were implemented and testing international trade and globalization and
bills considered by China was granted Permanent Normal Trade its alleged costs and unfairness, and preaching
Relations status. disdain for the WTO as an institution (and
Congress during But during the 1990s, signs of fissure began revealing their ignorance of its purpose, func-
the 1990s, only the to emerge. The NAFTA vote in 1993 revealed tions, and modest authority).
differences between the parties (though not as Over the next few years, the sentiments
Uruguay Round pronounced as they would become). Over 70 expressed during those two days in Seattle were
Agreements Act percent of House Republicans and less than 40 expressed again in cities around the world host-
garnered the percent of House Democrats voted for passage ing WTO, World Bank, or International Mone-
of NAFTA. Almost four times as many Demo- tary Fund meetings. Thomas Friedman of the
support of a crats (156) as Republicans (43) voted against New York Times aptly described this anti-global-
majority of House NAFTA.10 ization movement at the time as “the well-inten-
Of the three most important trade bills con- tioned but ill-informed being led around by the
Democrats. sidered by Congress during the 1990s, only the ill-intentioned and well-informed.”14 Friedman,
Uruguay Round Agreements Act garnered the of course, was referring to the exploitation of
support of a majority of House Democrats.11 In youthful idealists (and run-of-the-mill vandals)
fact, more Democrats than Republicans voted in by labor unions, environmentalists, and other
favor of the URAA (167 versus 121). As a pro- organizations, in efforts to shroud their own
portion of their respective caucuses, 65 percent pecuniary, anti-trade agendas in cloaks of moral-
of Democrats and 68 percent of Republicans ity and righteousness.
voted for passage of the URAA in 1994—a And somehow, as the current decade pro-
solid majority of both parties.12 But that was the gressed, the Democratic Party’s trade perspec-
high-water mark for congressional bipartisan- tives came to reflect the anti-globalization
ship on trade. Democratic support for pro-trade movement’s mantra that trade is exploitative
legislation has never returned to that level. and benefits only rich corporations—at great
In 1998, Congress rejected President Clin- cost to workers and the environment. Prior to
ton’s attempt to secure Fast Track authority, 2000, these perspectives had not been a promi-
which had lapsed in 1994. That rejection is often nent feature of Democratic Party thinking on
mischaracterized as a vote to deprive a president trade.
who was regarded with contempt by the Re- A comparison of the language in the official
publican majority in Congress. But a review of Democratic Party Platforms in 1996 and 2008

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is instructive here. Indeed, the international more jobs for the people who make
trade sections diverge at the opening sentence them here at home. We have put in
and never look back. The 1996 Platform begins place the most sweeping agreements to
with a positive view of trade and engagement lower foreign trade barriers of any
and a commitment to opening export markets administration in modern American
for American products: history, including over 20 such agree-
ments with Japan alone—and Ameri-
We believe that if we want the can exports to Japan in the sectors cov-
American economy to continue strong ered by those agreements have increased
growth, we must continue to expand by 85 percent. All over the world, barri-
trade, and not retreat from the world. ers to American products have come
America’s markets are open to the down, exports are at an all time high—
world, so America has a right to de- and we have created over one million
mand that the world’s markets are open high-paying export-related jobs.
to our products. American products are
the best in the world. When American In 2008, the platform demotes trade to only
workers and American companies have part of a broader strategy that creates “good jobs”
the chance to compete around the but emphasizes “enforcement” to close the U.S.
world, we do not take second place.15 market to all sorts of nefarious foreign cheating.
Indeed, the only reference to a trade agreement
By 2008, the international trade section of in the platform is in its commitment to use the
the Democratic Platform opens with a passage WTO as a means to fight “unfair” trade:
that treats trade as the source of inequality and
“unsustainable” economic growth: Trade policy must be an integral part of
an overall national economic strategy
We believe that trade should strength- that delivers on the promise of good
en the American economy and create jobs at home and shared prosperity
more American jobs, while also laying a abroad. We will enforce trade laws and
foundation for democratic, equitable, safeguard our workers, businesses and
and sustainable growth around the farmers from unfair trade practices—
world. Trade has been a cornerstone of including currency manipulation, lax
our growth and global development but consumer standards, illegal subsidies,
we will not be able to sustain this and violations of workers’ rights and
growth if it favors the few rather than environmental standards. We must also
the many. We must build on the wealth show leadership at the World Trade By 2008,
that open markets have created, and Organization to improve transparency
share its benefits more equitably.16 and accountability, and to ensure it acts
the international
effectively to stop countries from con- trade section of the
The 1996 platform next lauds the Clinton tinuing unfair government subsidies to Democratic
administration’s strong history of commitment foreign exporters and non-tariff barri-
to bilateral and multilateral trade agreements— ers on U.S. exports. Platform opens
including NAFTA and GATT—that expand with a passage that
export markets and create American jobs: Finally, the 1996 platform promised a future
of more trade (along with the usual sops to
treats trade as
In the last four years, the Clinton-Gore enforcement, labor and environmental standards, the source of
Administration has signed over 200 product safety, and adjustment assistance): inequality and
trade agreements, including NAFTA
and GATT, to open markets around the In the next four years, we must contin- “unsustainable”
world to American products, and create ue to work to lower foreign trade barri- economic growth.

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As such, the ers; insist that foreign companies play As such, the Democratic Party Platform in
Democratic Party by fair rules at home and abroad; 2008 is difficult to distinguish from the anti-
strengthen rules that protect the global globalization movement’s views on trade, in-
Platform in 2008 economy from fraud and dangerous equality, labor, and the environment.
is difficult to instability; advance American commer- Figure 1 illustrates the decline in bipartisan-
cial interests abroad; and ensure that ship on trade matters. Only 35 percent of Demo-
distinguish from the the new global economy is directly ben- cratic members voted for Permanent Normal
anti-globalization eficial to American working families. Trade Relations with China in 2000, as compared
movement’s As we work to open new markets, we to 73 percent of Republicans.17 Only 12 percent
must negotiate to guarantee that all of House Democrats voted to grant Trade
views on trade, trade agreements include standards to Promotion Authority to President Bush in 2002,
inequality, labor, protect children, workers, public safety, as compared to 87 percent of Republicans.18 In
and the environment. We must ensure 2003, about 37 percent of House Democrats
and the adequate trade adjustment assistance voted for the U.S. trade agreements with Chile
environment. and education and training programs to and Singapore, whereas 87 percent and 88 per-
help working families compete and win cent of Republicans voted for those agreements,
in the global economy. respectively.19 In 2004, agreements with Morocco
and Australia both passed the Congress with
In 2008, the tone of the platform changed majority support in both parties. Opposition to
dramatically, promising only to negotiate trade those agreements by traditional Democratic Party
agreements with enforceable labor and envi- benefactors was more muted than usual.
ronmental standards and committing to “stand But in 2005, partisan battle lines were
firm against” agreements (like President Clin- redrawn over the Dominican Republic–Central
ton’s NAFTA) that are implied to be responsi- America Free Trade Agreement (DR-CAFTA);
ble for a litany of awful things: just 15 House Democrats (7 percent of all
Democrats) voted for DR-CAFTA, which
We need tougher negotiators on our passed by only two votes.20 And the U.S.-Oman
side of the table—to strike bargains Free Trade Agreement, which passed Congress
that are good not just for Wall Street, in 2006, attracted support from less than 12 per-
but also for Main Street. We will nego- cent (23) of House Democrats.21
tiate free trade agreements that open
markets to U.S. exports and include Public Sentiment Follows the Political
enforceable international labor and Rhetoric
environmental standards; we pledge to During the final two years of the Bush
enforce those standards consistently administration—a period coinciding with the
and fairly. We will not negotiate free return of Congress to Democratic Party con-
trade agreements that stop the govern- trol—once-giddy expectations for comprehen-
ment from protecting the environ- sive international trade liberalization yielded to
ment, food safety or the health of its the realization that free trade has its committed
citizens, give greater rights to foreign opponents who are intent on halting—if not
investors than to U.S. investors, require reversing—60 years of trade expansion.
the privatization of our vital public ser- In 2007, TPA expired and serious efforts to
vices, or prevent developing country extend or renew that historically crucial tool of
governments from adopting humani- trade diplomacy never materialized. Progress in
tarian licensing policies to improve the multilateral Doha Round also remained
access to life-saving medications. We elusive. And completed bilateral trade agree-
will stand firm against agreements that ments with Colombia, Panama, and South
fail to live up to these important Korea were shunted aside by a Congress seem-
benchmarks. ingly more interested in trade enforcement and

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Figure 1
Trade Votes in the U.S. House of Representatives, Percent of Respective Party Voting in Favor
% Voting “Yea”

Source: Compiled from tabulation of House voting records, http://clerk.house.gov/art_history/house_history/index.html.

prosecution than in commerce and negotia- reopened to include enforceable environmental
tion. Dozens of pieces of anti-trade legislation provisions and more stringent, enforceable labor
were introduced in the 110th Congress.22 conditions. Of course, the agreements had al-
Perhaps most indicative of the new dispen- ready been negotiated and concluded pursuant to
sation in Washington was the so-called “New the TPA language from 2002, which required
Trade Policy for America” put forth by the that our trade partners enforce, and not degrade,
Democratic trade leadership in May 2007. The their existing labor laws.
document was a Democratic Party manifesto Nevertheless, the Bush administration agreed
elevating enforceable labor and environmental to those conditions and our trade partners who
standards in trade agreements to priority sta- were vested heavily in the agreements’ success
tus, just ahead of “stand[ing] up for American had no real choice but to reopen the agreements.
workers, farmers, and businesses, especially in The required language was inserted, and eventu-
the hard-hit U.S. manufacturing sector.”23 The ally the Peru agreement was passed. However,
concept of opening foreign markets to create after all that, new objections were raised to the
new opportunities for U.S. workers, farmers, other three agreements.24
and businesses (traditionally the first priority of About the Colombia agreement, House
trade policy) was even further down the list. Speaker Nancy Pelosi and Chairman Rangel
From this document was negotiated a “Grand issued a statement in April 2008—almost a full
Bargain” on trade, under which Democrats year after the “Grand Bargain”—that read: “De-
vowed support for the pending bilateral trade spite progress made by [Colombian] President
agreements, provided those agreements be Uribe, Colombia remains a dangerous place to be

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For two years, a labor activist, and for those who commit these extent they try to sell in Korea. It’s a “heads I
anti-trade rhetoric acts of violence, there is little threat of prosecution win, tails you lose” proposition for Detroit. It’s
or punishment. Sustained progress on the ground a losing proposition for everyone else—espe-
spewed from the remains a prerequisite for our support [for the cially consumers.
halls of the trade agreement].”25 That excuse was echoed by Beyond the refusal to consider completed
then-presidential candidate Barack Obama in the trade agreements, members of the 110th Con-
110th Congress final presidential debate, as he explained his own gress introduced a few dozen bills, objectively
and onto the 2008 opposition to the agreement.26 Hopefully, as pres- characterized as antagonistic of U.S. trade part-
presidential ident, Obama will heed the facts about what has ners, including legislation that makes enforce-
been happening in Colombia and shed this ment of trade agreements systematic and manda-
campaign trail, abused, anachronistic excuse for rebuking a cru- tory;28 lowers the current evidentiary thresholds
helping spook cial U.S. ally in South America.27 for imposing anti-dumping, anti-subsidy, and
Spearheading the post-“Grand Bargain” China-specific safeguard duties;29 establishes a
Americans about opposition to consideration of the U.S.-Korea panel of retired federal judges to review adverse
trade and agreement has been House Ways and Means WTO decisions and advise Congress on the pro-
globalization. Subcommittee on Trade chairman Rep. Sander priety of those decisions before any steps toward
Levin (D-MI). Levin’s opposition is predicated compliance are undertaken;30 forbids the United
on the agreement’s failure to incorporate an States from entering into any new trade agree-
absurd proposal that he, Chairman Rangel, and ments;31 revokes China’s “normal trade relations”
13 other members—mostly from Michigan— status;32 defines and treats currency manipulation
foisted upon the U.S. trade representative in the as a “countervailable” subsidy;33 requires the pres-
waning weeks of the negotiations. Chairman ident to pursue concrete measures to achieve
Levin insists that the agreement be revised to greater trade balance with countries that have
condition-improved Korean access to the U.S. persistent trade surpluses with the United
auto market on the success of U.S. auto sales in States;34 and, expands trade adjustment assistance
Korea. Hence, in a given year, if U.S. auto pro- programs to cover people who have allegedly lost
ducers sell 10,000 more cars in Korea than in the jobs in the services sectors because of outsourc-
previous year, then Korean producers would get ing.35 Implicit in all of this legislation: trade liber-
duty-free access to the United States for 10,000 alization is bad, U.S. trade partners cheat, and the
more cars in the following year. Only after folly of America’s embrace of globalization is evi-
American sales success in Korea had been denced by its massive human toll.
demonstrated would the U.S. market be opened To complement the legislation there has
further to Korean autos. In other words, Korean been an orgy of political rhetoric. For two years,
producers’ access to the U.S. market would be anti-trade rhetoric spewed from the halls of the
determined by the sales objectives of the U.S. 110th Congress and onto the 2008 presidential
producers. By electing to sell nothing in Korea, campaign trail, helping spook Americans about
the U.S. producers would preempt any duty-free trade and globalization. And it has taken a toll
Korean sales in the United States. on the public psyche. The results of several dif-
To Levin and the other architects of the ferent opinion polls support the conclusion that
proposal, the fact that Korea’s auto market has public wariness about trade increased through-
been notoriously tough to penetrate renders out the decade. The same Gallup Poll question
Koreans untrustworthy enough to warrant per- asked in five different opinion surveys between
petual probationary treatment. But that char- February 2002 and February 2008, reveals a
acterization is all part of an elaborate smoke- sharp decline in favorable public sentiment
screen for sinking the agreement unless its toward trade. It asks:
terms favor the U.S. auto industry. In this case,
U.S. auto producers would dictate whether and What do you think foreign trade
to what extent they have Korean competition means for America? Do you see for-
in the United States by whether and to what eign trade more as an opportunity for

10
economic growth through increased Congress often cites this growing antipathy
U.S. exports, or a threat to the econo- toward trade as justification for its strident
my from foreign imports? rhetoric and provocative proposals. In introduc-
ing the Trade Enforcement Act of 2008, Chair-
In 2002, a 52 percent majority viewed trade man Rangel offered:
as an opportunity, while 39 percent viewed trade
as a threat. In each successive poll, the percent- The American public is skeptical
age viewing trade as an opportunity decreased about U.S. trade policy in part because
and the percentage seeing trade as a threat the public does not believe that our
increased. By 2008, the tables had turned entire- trading partners are playing by the
ly, with 51 percent seeing trade as a threat and same rules as the United States. Our
only 40 percent seeing it as an opportunity.36 It trading partners need to open their
is worth noting, however, that even Gallup poll- markets to U.S. exporters. They need
sters have succumbed to the “exports good, to stop providing trade-distorting sub-
imports bad” fallacy. The phrasing of the ques- sidies, and to stop dumping their
tion steers the respondent toward the negative products in our market. They need to
response. The question associates exports with protect intellectual property rights,
“opportunity” and imports with “threat” (even and they need to ensure that their Chairman Rangel
though rising imports are empirically associated exports to the United States are safe. states that the
with economic growth). The most commonly The Trade Enforcement Act of 2008 American public is
referenced trade statistic in America is the trade will help to regain confidence in U.S.
balance, which is published on a monthly basis trade policy.38 skeptical about
by the Commerce Department. Is it possible, trade without
then, that the increase in unfavorable responses Subcommittee Chairman Levin added:
simply reflects the fact that the trade deficit
noting the irony of
increased between 2002 and 2008? For international trade to work for U.S. his own role in
A long-running Pew Research Center survey workers, farmers and businesses, we perpetuating that
question asks respondents whether they think must be sure that trade is a two way
the impact of trade agreements on the country is street. We need to start enforcing the skepticism.
a “good thing” or a “bad thing.” In six surveys agreements that have been reached,
dating back to September 1997, the percentage rather than passively accepting their
of people choosing “bad thing” ranged from 29 breach. We need a more assertive ap-
percent in September 2001 to 35 percent in proach to the enforcement of our inter-
December 2006. In the April 2008 poll, that fig- national agreements and trade laws.
ure shot up to 48 percent and was 13 percentage The Trade Enforcement Act of 2008 is
points higher than the figure for those people a major step in the right direction.39
indicating it is a “good thing.”37 Could that spike
have something to do with the heated presiden- It is grossly misleading—but increasingly
tial campaign, which filled the airwaves and par for the course—for the two highest-rank-
television channels with anti-trade rhetoric dur- ing members of the House of Representatives
ing the debates? It was at the end of February on matters of trade to concoct a feeble excuse
2008, during a debate at Cleveland State for U.S. protectionism by implying that foreign
University on the eve of the Ohio primary, that markets are closed to U.S. exports when, in
the late Tim Russert extracted renunciations of fact, U.S. exports have been setting new records
NAFTA and promises to reopen the agreement year after year. Chairman Rangel states that the
from both Democratic candidates, Hillary American public is skeptical about trade with-
Clinton and Barack Obama. Those exchanges out noting the irony of his own role in perpet-
kept trade issues in the news cycle for the dura- uating that skepticism. The backlash against
tion of the primary election campaigns. trade is demonstrably a top-down, rather than

11
a bottom-up, phenomenon. Trade has been century (between 1983 and 2007), as the value
demonized because important political inter- of U.S. trade increased more than five-fold in
ests want it curbed, and because politicians can real terms, U.S. employers added 46 million
exploit the public’s naivete about the topic. jobs to payrolls and real GDP more than dou-
The actions and rhetoric of the 110th bled to $14.5 trillion.40
Congress have signaled to the world that U.S. Most Americans enjoy the fruits of interna-
trade policy is at a crossroads. It is difficult not tional trade and globalization every day: dri-
to conclude that the post-WWII preference for ving to work in vehicles containing at least
engagement, negotiation, and cooperation some foreign content; talking on foreign-made
between the United States and other nations is mobile telephones; having extra disposable
yielding to a burgeoning desire for isolation, income because retailers like Wal-Mart, Best
litigation, and enforcement. That conclusion is Buy, and Home Depot are able to pass on cost
particularly troubling considering how essen- savings made possible by their own access to
tial America’s global engagement has been to thousands of foreign producers; eating healthi-
U.S. and world economic growth during the er because they now can enjoy fresh imported
past 60 years. It would be irresponsible of produce that was once unavailable out-of-sea-
Congress and the new president to pretend son; paying lower mortgages on account of the
that this change in attitude toward trade is dri- availability of foreign capital in the lending
ven by facts and logic, rather than the worst market; depositing bigger paychecks on ac-
kind of political maneuvering. count of their employers’ growing sales to cus-
President Obama famously said there is nei- tomers abroad; and enjoying health or vacation
ther a Red America nor a Blue America, only benefits provided by an employer that happens
the United States of America. Anti-trade dem- to be a foreign-owned company.
agoguery tends to hail from the far left and far It is simply implausible that the degree of
right of the traditional political spectrum. The antipathy toward trade reflected in opinion
president has stated that he intends to govern polls is driven by past personal experiences or
from the center. Most of President Obama’s realistic fears about the future. The overwhelm-
cabinet and adviser appointees in the economic ing majority of Americans have not lost jobs to
sphere seem to have centrist sensibilities. And import competition or outsourcing, nor do they
freer trade has been the policy objective of the know someone who has. Less than 3 percent of
moderate center through Democratic and U.S. job loss is attributable to import competi-
Republican administrations and Congresses tion or outsourcing.41 Nevertheless, surveys in-
since the Reciprocal Trade Agreements Act of dicate that Americans, by large margins, fear
1934. rather than embrace trade and globalization.
Hopefully, President Obama will be more So this all raises a crucial question: Why?
successful than his predecessor at convincing Why have Americans grown so skeptical and
It is simply Congress that trade bashing is destructive and fearful of trade and globalization? Could it have
implausible that the wrongheaded. Hopefully, he will see the light something to do with the fact that they are bar-
and do his vital part to restore the bipartisan, raged routinely with reports from the media,
degree of antipathy pro-trade consensus. campaigning politicians, and from Congress
toward trade that trade is a scourge that threatens their jobs
reflected in opinion and their futures? These tales usually rely on one
Exposing the Myths or more of three prominent myths.
polls is driven by that Malign Trade
past personal Myth 1: Manufacturing Is in Decline . . . and
That trade and, more broadly, U.S. engage- Trade Is to Blame
experiences or ment in the global economy have been so badly A popular refrain heard on cable news
realistic fears about maligned is one of the great ironies of the early channels, from members of Congress, and dur-
the future. 21st century. After all, during the past quarter ing the 2008 presidential campaign is that U.S.

12
manufacturing is in decline and that trade and the expense of—or caused a “decline” in—U.S. The success
globalization are to blame. Unfair import com- manufacturing. that trade’s
petition, closed foreign markets, and “Benedict The success that trade’s detractors have had in
Arnold” corporations that outsource or use off- smothering an honest dialogue about the condi- detractors have had
shore production have caused deindustrializa- tion of U.S. manufacturing has kept the myth of in smothering an
tion and manufacturing job loss in the United manufacturing decline alive. In the process, those
States. detractors have inflicted damage on Americans’
honest dialogue
Consider the following quote from Sen. confidence in their country’s future, raised undue about the
Sherrod Brown (D-OH), a long-time oppo- fears about trade, and helped perpetuate a divi- condition of
nent of globalization and free trade: sive and highly misleading narrative about Main
Street versus Wall Street. U.S. manufacturing
Having lost more than 3 million man- According to nearly every financial statistic has kept the myth
ufacturing jobs since 2000, it is impera- that is relevant to evaluating the health of the
tive that U.S. trade negotiators rigor- manufacturing sector, it was unequivocally
of manufacturing
ously defend our trade laws. Strong thriving until the onset of the recent U.S. finan- decline alive.
trade laws ensure there is a level playing cial crisis and recession. In 2006, U.S. manufac-
field for our farmers and workers. . . . If turing achieved record highs for output, rev-
our trading partners seek any weaken- enues, profits, investment returns, exports, and
ing of these trade laws, they should imports.43 Yes, imports. In fact, U.S. producers
understand it will be met with steadfast accounted for at least 55 percent of U.S. import
opposition in Congress.42 value in 2006 and 2007.44 And not just by coin-
cidence: in 2007 new records were set for out-
As with most political speeches about man- put, revenues, value added, and exports in the
ufacturing and trade these days, Sen. Brown manufacturing sector.45 Profits and return on
relies on the “assumptive close” to guide his investment tailed off in 2007 because of the ris-
audience around a debatable proposition and ing costs of commodities and transportation.
straight to his solution. The assumptive close is According to economists at the National
a psychological technique commonly used by Bureau of Economic Research, in December
sales people to get you to agree to something to 2007 the U.S. economy slipped into recession
which you’re not prepared to agree. You’re and the manufacturing sector has not been
asked: “What color sedan will you be buying?” spared. Like other sectors of the economy, man-
before you’ve even decided that you’re going to ufacturing value added has contracted, and sales,
buy a car in the first place, or “Shall I hold that profits, and return on investment have suffered.
dress at the counter for you, while you find But it is important to make this crucial distinc-
matching accessories?” before you’re even sure tion: manufacturing is suffering a cyclical down-
the dress is for you. turn, not a structural shift reflecting deindustrial-
The myth of U.S. manufacturing decline has ization.
been sold to the public with a classic assumptive The U.S. and global economic slowdown—
close. Before sparing even a moment to assess and not import competition or outsourcing—
the premise that manufacturing is in decline, the explains the 2008 contraction in American
assertion is inoculated from close scrutiny by manufacturing. Manufacturing performance
shifting attention to the follow-up: that trade is records were achieved in 2006 and 2007, amid
to blame for the condition of manufacturing. record-high imports. Manufacturing contract-
After all, Americans are aware that imports are ed throughout 2008, as imports began a steep
more ubiquitous today than in the past, and that decline after July. Thus import penetration did
products bearing the “Made in America” label not cause the U.S. manufacturing sector’s prob-
are harder to find in retail stores. So if people are lems in 2008. Moreover, trade skeptics like
aware their shopping carts contain imports, they Sen. Brown have been lamenting manufactur-
should just assume those imports have come at ing’s demise for several years now, even during

13
years when output and operating performance Instead, we see large and increasing foreign
were setting new record highs. direct investment flowing into the U.S. industri-
It is true that there are fewer workers in the al base year after year. Why is ThyssenKrupp
manufacturing sector today than in years past. building a $3.7 billion green field steel produc-
But manufacturing employment peaked in tion facility in Alabama?47 Why do foreign
1979 and started to decline well before trade nameplate automakers continue to invest in U.S.
accounted for even a fraction of GDP. Strong manufacturing facilities?48 Why do the 5.3 mil-
productivity gains and the continuing shift of lion Americans employed by U.S. subsidiaries of
the U.S. economy toward services explain the foreign-owned companies earn on average 32
decline in manufacturing employment. percent higher compensation than workers at
Between 1979 and 2007 the number of U.S. U.S.-owned companies?49 Because there is no
manufacturing jobs declined from 19.4 million race to the bottom in pursuit of lower wages and
to 13.9 million, or by 196,429 per year. In the lax standards, as some suggest. Rather, there is a
14 years between 1979 and the launch of race to the top—for skilled workers, for access to
NAFTA, the U.S. manufacturing sector shed production facilities closer to markets, for
2.7 million jobs. In the 14 years between the investment in countries where the rule of law is
launch of NAFTA and 2007, the sector shed an clear and abided, where there is greater pre-
For starters, almost identical 2.8 million jobs. During the dictability to the business climate, where tax
it is incomplete and manufacturing recession period that encom- rates are more favorable, where the specter of
misleading to speak passed months during 2000–2003, the rate of asset expropriation is negligible, where physical
job decline increased five-fold to 933,333 per and administrative infrastructure is in good
of the “advantages” year. But from 2004 to 2007, the decline was shape, and so on. Labor costs are but one of a
held by foreign- only 100,000 per year. In other words, the peri- multitude of considerations driving investment
od of steep employment declines ended six decisions. With respect to virtually all of the
based producers years ago and, despite unrelenting political other factors, the United States fares extremely
in the realm of rhetoric to the contrary, the rate of job attrition well relative to most other countries.
international in manufacturing remained well below the 28- Indeed, a recent study by McKinsey &
year average from 2004 through 2007.46 Company found that in 2008 rising oil prices,
competition Trade critics like to attribute the decline in the declining value of the U.S. dollar, and logis-
without speaking of manufacturing employment to competition tics concerns, among others, could cause many
from producers who have shuttered operations investors to rethink off-shoring strategies and
the advantages held in the United States to relocate abroad, where even to consider “re-shoring” manufacturing
by American-based they have the unfair advantage of access to low- facilities in the United States.50 The study makes
producers. wage workers and lax business operating stan- clear that sourcing decisions require a complex
dards. But that is a far-fetched proposition. calculation in which labor costs are one of many
For starters, it is incomplete and misleading factors.
to speak of the “advantages” held by foreign- The manufacturing sector’s declining share
based producers in the realm of international of total U.S. gross domestic product is often
competition without speaking of the advan- cited as evidence of deindustrialization. But the
tages held by American-based producers. Sure, sector’s share of the economy peaked in 1953
lower wages abroad can serve as an incentive to and also started to decline long before trade
off-shore manufacturing or to outsource ser- accounted for little more than a rounding error
vices functions, but wages are neither the in the calculation of GDP.
only—nor the most important—consideration Relative to the value of our total economy,
in these production/investment decisions. If manufacturing has declined on account of
wage differentials were determinative, there growing output from our burgeoning services
would be very little manufacturing or services sector. But in absolute terms, manufacturing
activities in the United States. It would all be output typically sets new records year after
gone. year. In fact, in the 48 years between 1959 (the

14
first year in Table B-51 of the 2009 Economic cent.53 Thus, for every dollar of output coming
Report of the President) and 2007 (the last full from Chinese factories, U.S. factories produce
year of the report), manufacturing output almost $2.50. The main reason for continued
exceeded the previous year’s output 42 times.51 American industrial preeminence is that the
In 2007, manufacturing output was at an all- U.S. manufacturing sector has continued its
time high, breaking the record set in 2006— transition away from labor-intensive industries
which broke the record from 2005. toward higher value-added production. It is the
In the past quarter century, annual manu- value of production that matters. It is the value
facturing output contracted just twice—during of output that determines the size of the econ-
the recessions of 1991 and 2001. Where’s the omy, not whether producers make highly visi-
deindustrialization in those figures? Official ble consumer goods. And, contrary to the
figures for 2008, when they are released, may rhetoric, it is not how many workers a produc-
very well show a contraction in manufacturing er employs that matters, but really how few, or
output. But like the previous six contractions put differently, how productive each is. If 10
over the last half-century, it will reflect a cycli- workers are required to produce $1,000 worth
cal downturn from which the manufacturing of output, then each worker (all things equal)
sector will recover. accounts for an average $100 of output and,
Another common misperception encour- assuming a simple example, an average $100 of
aged by the shallow political discourse on this income. But if five workers can produce that
topic is that we don’t make anything anymore— same $1,000 worth of output, not only do
that everything on the store shelves is made in incomes rise to $200 for those workers, but
China; that the Chinese are “eating our lunch.” there are now five additional workers who are
Certainly, foreign-made goods have a much free to add value in some other endeavor. It is
greater presence in retail stores than they once the freed-up capacity of those five workers—
had. In fact, many of the product categories that when applied elsewhere in the economy—that
Americans purchase in retail establishments— fuels economic growth.
clothing, electronics, tools, housewares, furni- If it wasn’t the value of output that mat-
ture—are all dominated by foreign producers tered, but was instead its physical weight, then
nowadays. So what? one could reasonably assert that Chinese pro-
Consumers are more likely to see “Made in ducers dominate world manufacturing. But it is
China” or “Made in Vietnam” than they are like- value that matters, and U.S. factories produce
ly to see “Made in the U.S.A.” But that doesn’t more value than factories in any other country. American factories
mean U.S. producers don’t make anything any- U.S. manufacturing has ceded most of its
more. American factories make lots of things, lower value-added production to other coun- make lots of things,
and in particular, higher-value products that tries, which has enabled it to ascend the value and in particular,
aren’t typically sold in retail stores—like air- chain to focus on the next generation of
planes, advanced medical devices, sophisticated machinery, instruments, chemicals, and biotech-
higher-value
machinery, and biotechnology products. Figure nology applications, while U.S. consumers have products that aren’t
2 provides a glimpse of the changing composi- been afforded greater variety and better prices typically sold in
tion of U.S. manufacturing since the 1940s. As for everyday products. If that process were stunt-
the steel and textile industries have diminished ed, if American manufacturers were forced to retail stores—like
in terms of their relative contribution to overall devote resources to the production of goods of airplanes, advanced
manufacturing value added, more sophisticated yesteryear—toys, clothes, hand tools, mass-pro-
and less labor-intensive industries have become duced furniture—then our ascent up the value
medical devices,
more meaningful. chain would be retarded and our rising stan- sophisticated
In fact, American factories are the world’s dards of living threatened. machinery, and
most prolific, accounting for over 25 percent of The capacity to pioneer the manufacturing
the world’s manufacturing value added in frontier is crucial to the health of American biotechnology
2006.52 China accounted for about 10.6 per- manufacturing and the health of the broader products.

15
Figure 2
Changing Composition of U.S. Manufacturing Value Added by Select Industry Groups (as % of Manufacturing
Value Added) 1947–2007 by Decade Average
% of Manufacturing Value Added

Source: Bureau of Economic Analysis, Gross Domestic Product by Industry Data, http://www.bea.gov/industry/gdpbyind_data.htm.

economy because new innovations create rev- politicians and the media. In fact, the complete
enues for U.S.-based producers (exclusively for opposite is true. U.S. manufacturing has been
a period of time), and spur the creation of new thriving. And it has been thriving, in large
jobs in the manufacturing and the services sec- measure, because of trade. Access to foreign
tors that transport, market, advertise, retail, and markets for export sales and access to foreign
engineer those new innovations. An open trad- suppliers for U.S. manufacturing inputs are
ing system facilitates this process: access to important parts of the manufacturing sector’s
export markets increases revenue potential and success story.
creates economies of scale for U.S. producers,
while access to imported raw materials reduces Myth 2: The Trade Balance Is the Scoreboard
the cost of production, enables Americans to The second pervasive myth is that exports
buy and save more, and provides foreigners are good, imports are bad, and the trade
with the resources to purchase U.S. exports. account is the scoreboard. According to this
The assertion that U.S. manufacturing is in perspective, the large U.S. trade deficit con-
decline is an enduring myth—perpetuated by firms that the United States is losing at trade.

16
Consider the following quote from TV’s loud- and his trade policy team frequently reinforced Dobbs is confused.
est trade skeptic, CNN’s Lou Dobbs, at a 2007 these misconceptions. The former U.S. trade His indictment of
congressional hearing on U.S. trade policy: representative Susan Schwab liked to speak of
the fact that the United States was running a trade policy is
The United States has sustained 31 trade surplus with the dozen or so countries impossible to link
consecutive years of trade deficits, and with whom free-trade agreements were imple-
those deficits have reached successive- mented during the Bush years. Implicit in her
to the trade balance
ly higher records in each of the past selling point was that trade surpluses are an because the trade
five years. The trade deficit has more unequivocally good thing and that maximizing account is not a
than doubled since President George exports and minimizing imports are worthy
W. Bush took office. The U.S. trade objectives. Well, if net exports are the metric by function of trade
deficit has been a drag on our eco- which to measure success, then it does not policy.
nomic growth in 18 of the 24 quarters require a sophisticated analysis to conclude
of George W. Bush’s presidency. that, with a $700–$800 billion aggregate trade
deficit, overall U.S. trade policy is an abject fail-
The current account deficit in 2006 ure. But that would be wrong—or at least
reached almost $857 billion, also a impossible to conclude from those data.
new record, and now represents 6.5 The Chinese have been big savers through-
percent of our total GDP. Since 1994, out their process of economic liberalization,
the first full year in which the North which began in 1978. Americans, on the other
American Free Trade Agreement was hand, have tended not to save very much.
in effect, the United States has accu- Some might want to chalk that up to American
mulated more than $5 trillion in exter- profligacy or evidence of declining industrious-
nal or trade debt. . . . ness and virtue, but the fact is that one of the
reasons for low U.S. savings rates is that for-
As I’ve already pointed out, free trade eigners have traditionally preferred investing in
has been the most expensive trade pol- the United States over other economies. The
icy this nation has ever pursued. There availability of foreign capital has helped drive
is nothing free about ever-larger trade U.S. business expansion as well as helped tip
deficits, mounting trade debts and the the balance in favor of spending over saving for
loss of millions of good-paying Ameri- many Americans. Relatively low interest rates
can jobs.54 have made spending more affordable and sav-
ing less prudent.
But Dobbs is confused. His indictment of Foreign investment in U.S. real estate, facto-
trade policy is impossible to link to the trade ries, equities, and government debt—all
balance because the trade account is not a func- reflected in the large U.S. capital account sur-
tion of trade policy. Trade imbalances reflect plus—helps explain low U.S. saving rates. The
disparate patterns of saving and consumption surplus of foreign capital (which mirrors the
in different countries, which are functions, to deficit in the current account) has kept U.S.
some degree, of monetary policy, fiscal policy, interest rates low, and interest rates are the cost
faith in public institutions (like banks, markets, of current spending vis-à-vis saving. When
and the justice system), culture, and degrees of interest rates fall, the cost of spending versus
confidence about what the future may hold, saving also falls.
among other things. It is these differences between the United
It is easy to understand why Dobbs and States and other countries in levels of con-
many other Americans are confused about sumption and saving that explain the current
these matters. After all, the fallacy is reinforced, large U.S. account deficit and the equally large
often unknowingly, by policymakers who pur- capital account surplus. Neither is much a
port to champion open trade. President Bush function of trade policy.

17
Second, the idea that balanced trade or a almost invariably, except in the case of
trade surplus should be an explicit goal of pol- sudden surges in energy prices, total job
icymakers is utter folly. Between 1983 and numbers rise when imports are rising.
2007, the annual U.S. trade deficit increased When imports go down, on the other
from $67.1 billion to around $819.4 billion— hand, it means nobody is buying things
or by nearly six-fold in real terms.55 During and the economy is in recession. Since
that same period real GDP grew at an average World War II, therefore, periods of
annual rate of 3.2 percent and employers added recession and job loss match falls in
an average of 1.8 million net new jobs to pay- imports almost perfectly.61
rolls every year.56 The unemployment rate also
declined over the period: the average rate in the Figures 3 and 4 support PPI’s assertion that
1980s was 7.2 percent; in the 1990s it was 5.7 imports are pro-cyclical. Figure 3 plots annual
percent; and, between 2000 and 2007 it aver- GDP growth on the x-axis and annual import
aged 5.0 percent.57 growth on the y-axis for the years 1960
The surge in unemployment during 2008 through 2007. Each point represents the rate
from 4.9 percent in January to 7.2 percent in of GDP growth and the rate of import growth
December cannot be attributed to a growing during a particular year. The trend line running
The trade deficit trade deficit, since the deficit shrunk consider- through the scatter plot shows a strong direct
is maligned because ably during the year.58 The January–November correlation between the two series. In only two
imports are trade deficit in goods and services stood at of the 48 years plotted are GDP growth and
$631 billion in 2008, $643 billion in 2007, and import growth not moving in the same direc-
maligned, but $693 billion in 2006. The November 2008 tion, while the remaining 46 years fall into the
the fact is that deficit was $40.4 billion, 34 percent lower than top right (positive, positive) or bottom left
the $61.4 billion registered during the peak (negative, negative) quadrants.
imports declined 2008 deficit month of February.59 Figure 4 shows average annual import growth
precipitously in the The trade deficit is maligned because imports by ranges of GDP growth. The picture clearly
second half are maligned, but the fact is that imports declined demonstrates that import growth increases when
precipitously in the second half of 2008 as the GDP growth increases, and import growth
of 2008 as the U.S. U.S. economy entered recession and unemploy- increases faster when GDP growth is faster. The
economy entered ment began to climb.60 According to a report same is true of the trade deficit and the current
from the Progressive Policy Institute, a centrist account deficit, although politicians have tended
recession and Democratic think tank, November’s import to muffle that fact to please important con-
unemployment decline of $25 billion, or 12 percent from the stituents.
began to climb. previous month, and the $46 billion five-month An excerpt from a 2008 opinion piece writ-
decline from July’s peak, were the steepest drops ten by Chairman Levin captures the essence of
in import values since 1942. The author corrob- the trade balance myth:
orates what Cato scholars have been reminding
policymakers for years: that there is a positive The U.S. trade deficit was $711.6 bil-
correlation between imports and economic lion in 2007—among the highest in
growth: history and a full 5 percent of the U.S.
economy. This deficit is a drag on eco-
The normal pattern of American eco- nomic growth and on job creation at a
nomics is for imports to grow, as shop- time when our nation can afford nei-
pers pick up mall purchases and busi- ther.62
nesses buy metal, semiconductor chips,
and energy. Anxiety emerges when this Levin’s conclusion affirms the conventional
growth speeds dramatically, reflecting wisdom, but it is demonstrably incorrect. A
an upheaval in commodity prices or a 2007 Cato Institute study examined annual
rearrangement of global industry—but changes in the U.S. current account balance

18
Figure 3
Annual Import Growth Rates and GDP Growth Rates 1960–2007
Import growth

GDP growth

Source: Compiled from tables in the 2009 Economic Report of the President.

and U.S. GDP growth since 1980. It found nomic activity, while declining imports and a
that a rising deficit is typically associated with decreasing trade deficit are associated with
faster economic growth, and a shrinking deficit slowing economic activity. That relationship
with slower growth. In those years in which the may not hold in every country—as economic
deficit grew modestly, between 0.0 and 0.5 per- structures and resource endowments differ by
cent, GDP growth averaged 3.0 percent. And country—but there is evidence from abroad
in those years in which the current account that should give pause to those who think that
deficit expanded by more than 0.5 percent of balanced trade or a trade surplus should be a
GDP, real GDP growth grew by an average of national policy objective.
4.1 percent. In other words, economic growth Japan has run a trade surplus every year since
was more than twice as strong, on average, in 1980. Japan ran its largest trade surpluses in the
years in which the current account deficit grew 1990s, a decade often referred to as Japan’s “lost
sharply compared to those years in which it decade.” Since 1991, Japan’s average annual eco-
actually declined.63 nomic growth rate has been a moribund 1.2 per-
The U.S. experience, as discussed above, cent.64 Likewise, France suffered anemic eco-
suggests that rising imports and an increasing nomic growth and double-digit unemployment
trade deficit are associated with increasing eco- throughout the 1990s, while running fairly large

19
Figure 4
Import Growth Rates by Ranges of GDP Growth Rates 1960–2007

Source: Compiled from tables in the 2009 Economic Report of the President.

current account surpluses.65 There simply isn’t worldview of EPI’s Robert Scott:
much real-world evidence supporting the
notion that a trade surplus leads to economic Unbalanced U.S. trade with China
growth or that a trade deficit stymies it. But pol- since 2001 has had a devastating effect
icymakers should ask themselves this question: on U.S. workers. Between 2001 and
What is the proper objective of economic poli- 2007, 2.3 million jobs were lost or dis-
cy—trade balance or economic growth? placed, including 366,000 in 2007
An even more inane assertion commonly alone. These jobs were displaced by the
heard from trade’s detractors is that U.S. trade growth of the U.S. trade deficit with
policy should concern itself with bilateral trade China, which increased from $84 bil-
balances and that our bilateral trade deficit lion in 2001 to $262 billion in 2007.66
with China, for example, is evidence of a
flawed trade policy. The Economic Policy It’s difficult to pick a place to begin expos-
Institute, a Washington-based clearinghouse ing the absurdity and recklessness of that state-
for ideas promoted by organized labor, likes to ment. But one might start by pointing out that
alert the public to what it sees as the perils of China—with its big bilateral surplus—has
unbalanced bilateral trade. In the zero-sum actually shed many millions more manufactur-

20
ing jobs than the United States has in recent fell to 26 percent before rising slightly to 28
years—and for the same reasons U.S. jobs van- percent in 2007.69 However, China’s share of
ished: increased labor productivity.67 Or one the east Asian total has grown considerably—
could question the premise that the $178 bil- from 20 percent in 1995 to 34 percent in 2001,
lion net increase in imports from China and to 58 percent in 2007.70
between 2001 and 2007 was offset by an equal So, although a significantly larger percentage
reduction in American purchases of goods that of imports comes to the United States directly
were produced mostly in American factories, from China, the overall value of imports from
and not imported from other low-wage coun- the region, as a percentage of all U.S. imports,
tries before 2001. Or one might reject Scott’s has been steady (and, in fact, declined slightly).
apparent assumption that U.S. workers and Japan’s, Taiwan’s, and South Korea’s share of
Chinese workers (with their different physical U.S. import value declined over the period,
and human capital endowments) are close sub- while China’s grew considerably. There has sim-
stitutes, or the validity of the proposition that ply been a shift in production processes—which
exports create jobs, therefore imports destroy speaks to the internationalization of supply
jobs. The fact is that U.S. labor and Chinese chains more than anything else—with China
labor are better characterized as complements featuring prominently as the final assembly
in a transnational production supply chain point for goods destined for the United States.
rather than competing substitutes in a zero- These data also strongly support the argument
sum world. That is a relatively new reality of that Chinese exports to the United States have
international commerce that trade policy, trade not come at the expense of U.S. workers, but
negotiations, and too many trade commenta- rather at the expense of workers in other Asian
tors have yet to fully grasp. countries that used to perform these relatively
Over the past couple of decades, China has low-skilled functions before transnational pro-
become a prime destination for investment in duction became so common.
low-to-medium-value manufacturing operations Further evidence that the bilateral trade
and final assembly processing. Many companies account scaremongers are wrong can be found in
around the world that used to produce entirely in some recently published research from more
one locale—typically in the companies’ home objective sources. A recent study from the U.S.
countries—have adopted transnational produc- International Trade Commission found that only
tion processes, and China often features promi- about 50 percent of the value of a typical contain-
nently in their supply chains. Thus, a good por- er of imports from China is Chinese value-added.
tion of what used to show up on U.S. trade sta- The other half comprises material and labor from
tistics as imports from Japan or Korea or Taiwan other countries.71 A 2003 Stanford University
or Thailand, now register as imports from China study found Chinese value-added to be even The fact is that
simply because of China’s usual position at the smaller—at around 35 percent.72 A recent
end of the production supply chain. Because Congressional Budget Office survey of these and U.S. labor and
China is the final country from which these other studies puts Chinese value-added in the Chinese labor are
transnationally produced goods are shipped to range of 35 to 55 percent of the value of “Chinese
the United States, the value of the cargo is regis- imports.”73
better characterized
tered as an import from China. The fact of the proliferation of transnational as complements in
This change in production processes is supply chains renders bilateral trade accounting a transnational
made evident by a review of the trade data, almost entirely meaningless. What significance
which reveals that imports from east Asia (as a should be attached to the fact that the United production supply
percent of total U.S. import value) have been States runs a trade deficit with China with chain rather than
remarkably steady over the past 15 years.68 In respect to Apple iPods? For Christian Weller
1995, imports from east Asia accounted for 30 and Holly Wheeler at the Center for American
competing
percent of all U.S. imports of goods and ser- Progress, the deficit in high-tech products is substitutes in a
vices. In 2001, the relative value from east Asia “worrisome since it shows that many of our zero-sum world.

21
Imports of iPods trading partners are eating our lunch in the high- the U.S., the politically volatile U.S.
from China support tech competition where they can develop indi- trade deficit with China increased by
vidual niches.”74 But that conclusion really miss- about $150 (the factory cost). Yet, the
high-paying es the big picture. The proper conclusion should value added to the product through
American jobs in account for the words inscribed on the back of assembly in China is probably a few
every iPod: “Designed by Apple in California; dollars at most.76
engineering, Assembled in China.” Imports of iPods from
design, marketing, China—like many (perhaps most) high-tech For all those reasons, worrying about the
manufacturing, products imported from China—support high- bilateral trade deficit with China is a bit hys-
paying American jobs in engineering, design, terical and misplaced.
and logistics, marketing, manufacturing, and logistics, as well
as well as jobs in as jobs in the transportation and retail sectors. Myth 3: Our Trade Partners Cheat with
A 2007 study published by the University of Impunity
the transportation California–Irvine sought to determine “who The third myth is that the United States is
and retail sectors. captures value in a global innovation system” by losing at trade because its trade partners cheat
disaggregating the components contained in an with impunity, and that better enforcement of
Apple iPod and determining the companies our current trade agreements would help reverse
and countries involved in manufacturing a unit myths one and two. Chairman Levin is fond of
in China. The authors found that the compo- this theory:
nents were produced in the United States,
Japan, Singapore, Taiwan, Korea, and China by Take, for example, the WTO where we
companies headquartered in the United States, should be insisting each and every day
Japan, Taiwan, and Korea. The total cost of that our trading partners play by the
producing the iPod (components plus labor) same internationally negotiated rules as
was estimated to be about $144. Most of the we do. Under the Clinton administra-
profits on the constituent components accrue tion, from 1992 through 2000, the
to Japanese companies, who produce the most United States filed an average of 11
important and most expensive parts. Two U.S. WTO cases per year to pry open for-
and some other foreign components’ producers eign markets for U.S. exporters of goods
all capture small shares of the value. But the and services. From 2001 to now, the
lion’s share of value accrues to Apple since United States has filed an average of just
iPods retail for $299 and the cost of production three cases per year.77
is $144 (at the time this article was written).
Some of the $155 per-unit mark-up goes There is no doubt that our trade partners
toward compensating U.S. distributors, retail- have violated trade rules over the years, both
ers, and marketers, while the rest is distributed knowingly and unknowingly. And so has the
to Apple shareholders or devoted to research United States. But the implication that viola-
and development, which supports engineering tions are so endemic as to require daily, high-
and design jobs higher up the value chain.75 profile enforcement efforts is misleading. It
Should we lament a trade deficit in iPods or could be that more WTO cases were brought
any other products assembled abroad that com- during the Clinton administration than during
prise U.S. value-added and support high-pay- the Bush administration because the former had
ing U.S. jobs, as some scholars of trade policy a hand at negotiating the Uruguay Round,
do? Before jumping to conclusions, it would be which created the WTO. That experience gave
wise to consider this important point in the Clinton administration negotiators active
iPod study: knowledge about which countries were already
likely to be out of compliance with provisions of
[T]rade statistics can mislead as much the various new agreements. Many of the cases
as inform. For every $300 iPod sold in filed during the Clinton years addressed residual

22
issues from the negotiations or had been on the ing in subsidization of industry, currency
USTR’s radar for a long time, and thus were manipulation, intellectual property theft, unfair
essentially low-hanging fruit with which to test labor practices, dumping, and other under-
the dispute settlement system. Also, it is reason- handed methods. Although some of those alle-
able to assume that, in response to the growing gations have merit—and resolution of some
body of WTO jurisprudence over the years, claims is being pursued through different
WTO members have, at least to some extent, channels—the total impact on trade is quite
amended their rules, regulations, and practices. small. For example, trade enforcement hawks
Accordingly, a comparison of the two adminis- have for years alleged that illegal Chinese sub-
trations’ records in this area is misleading. sidization was a root cause of the U.S. bilateral
All trade agreement member countries trade deficit with China, and that better
should have recourse to resolving problems and enforcement would help balance trade.
curbing chronic violations. That’s part of what In 2007, the U.S. Department of Commerce
the rules-based system of trade is about, as reversed its long-standing policy of not applying
Chairman Levin implies. But it is also impor- the Countervailing Duty (or anti-subsidy) Law
tant to recognize that trade enforcement is not to so-called nonmarket economies when it initi-
an end in itself. Countries enter trade agree- ated a CVD investigation of Coated Free Sheet
ments to increase trade flows, not to claim the Paper from China. Subsequent to that policy Trade enforcement
title of having initiated the most trade litigation change, 12 more CVD cases were filed. The does not always
or having won the most disputes. The United results in some of those 2007 and 2008 CVD need to be
States has recourse to formal dispute settlement investigations are not yet final. But even if coun-
in the WTO and in its other trade agreements, tervailable subsidies are ultimately found in each antagonistic,
but those are not the only channels for resolving case, the total value of “unfairly” subsidized im- nor must it be so
disputes. Trade enforcement does not always ports would be, at most, less than 1 percent ($1.6
need to be antagonistic, nor must it be so high- billion) of the total U.S.-China trade deficit in
high-profile—
profile—as though its purpose were to avail 2006 ($232.6 billion).78 When one adds 2006 as though its
politicians of the opportunity for theatrics. import values of Chinese products subject to purpose were to
Communication between the United States anti-dumping investigations that were initiated
and its trade partners about issues that could after 2006, the total value of potentially unfair avail politicians of
evolve into formal trade disputes is an ongoing imports rises to only slightly more than 1 percent the opportunity for
process. Potential issues are frequently identi- ($2.38 billion) of the total 2006 deficit.
fied, defused, and resolved through bilateral If Chinese unfair trade practices are so
theatrics.
exchanges away from the cameras in capital insidious, where are all of the cases? Why has
cities and through WTO delegations in U.S. industry been unwilling to avail itself of
Geneva. Every year, the United States publishes the opportunity to demonstrate the unfairness
its Special 301 and National Trade Estimates of Chinese competition, particularly when—as
Report on Foreign Trade Barriers, which alert many of our policymakers assert—U.S. manu-
other countries to America’s trade policy con- facturing is on life support? And why do
cerns and often trigger resolution of disputes— “unfairly traded” imports represent such a tiny
well before the issues become prominent politi- fraction of the total bilateral trade deficit? All
cal footballs. And the Strategic Economic Dia- of the inflammatory accusations of cheating
logue between the United States and China hurled at China cannot be justified by the
during the latter part of the Bush administration dearth of evidence thus far presented. If unfair
led to quiet reforms in China and helped resolve trade practices amount to only 1 percent of our
concerns about various Chinese trade practices trade deficit with China, then surely the acri-
without the need of WTO adjudication. mony that characterizes the U.S. debate about
However, Chairman Levin and others in the trade relationship should yield to comity.
Congress hold the view that China is the most Last year a study was commissioned by
prominent cheater on matters of trade, engag- Chairman Rangel to investigate, among other

23
things, the relationship between Chinese gov- measures were imposed on imports from China,
ernment policies and the U.S. trade deficit with but during the Bush presidency, 42 anti-dump-
China. But that study was abruptly terminated ing measures were imposed, restricting imports
when Rangel decided, after seeing a draft of the on a variety of products.
International Trade Commission’s report, that Of course, the number of measures imposed
proper treatment of the topic was impossible depends on a variety of factors and does not
because of “limitations on the Commission’s support a conclusion that the Bush administra-
time, resources, and lack of experience to date in tion has been tougher on China. But nor does
investigating, identifying, obtaining, and analyz- Chairman Levin’s implication that the greater
ing the kinds of information critical to the number of WTO cases brought by the Clinton
analysis sought in the Committee’s request.”79 administration supports the conclusion that
The chairman cited numerous “mischaracteriza- the Bush administration was asleep at the
tions” in the draft. But the termination of this wheel on enforcement issues.
much-ballyhooed and long-awaited study on a Certainly, there have been violations and alle-
highly controversial issue has raised suspicions gations of violations that fall outside the reach of
that Rangel cancelled the report because it U.S. trade remedies laws. In 2006, the USTR
found no significant linkage between Chinese published its “Top-to-Bottom Review” of U.S.-
government policies and the bilateral trade China trade relations, in which it proclaimed the
deficit. Unless the ITC is allowed to publish its beginning of a new phase in the relationship,
research, the public will never know for sure. stating, effectively, that the honeymoon period
Chairman Levin also cites the Bush admin- (of reform implementation) was over and fore-
istration’s failure to implement the ITC’s recom- shadowing greater resort to the WTO dispute
mendations for trade restrictions in four so- settlement system to achieve further compliance.
called China-specific safeguard cases as evi- One month after publication of that report, the
dence of lax enforcement.80 But President Bush USTR filed a WTO complaint alleging that cer-
was simply exercising his discretion to overrule tain Chinese policies discriminate against
the ITC on the grounds that relief was not in imported automobile parts. In 2008, a dispute
the national economic interest—a perspective settlement panel ruled in favor of the United
that members of Congress, representing state States. The WTO Appellate Body upheld the
and local interests, are unlikely to consider.81 But major findings of that panel in December 2008.
if you ask U.S. importers, retailers, and manufac- Before the auto parts case, only one com-
turers who rely on Chinese inputs for their own plaint about Chinese practices had been lodged
But if you ask production and sales, few would complain of lax with the Dispute Settlement Body. It con-
U.S. importers, enforcement under the Bush administration. cerned a value-added tax on integrated circuits
retailers, and Less than one year after expiration of the that was allegedly applied in full to imports
long-standing textile and apparel quota regime only. During the consultation phase of the dis-
manufacturers on January 1, 2005—which had restricted pute (and without need of formal adjudica-
who rely on imports of textiles and clothing from most tion), the Chinese agreed to change their prac-
developing countries since 1974—the Bush tice and the dispute was resolved.
Chinese inputs for administration forced the Chinese to accept In 2007, the USTR filed three WTO cases
their own three more years of quotas under threat that it against China. The first involved certain tax
production and would otherwise unilaterally impose restrictions provisions that allegedly amounted to subsidiza-
on hundreds of products by way of the the so- tion of Chinese exporters. In response to the
sales, few would called China-specific textile safeguard. The allegations, China changed its tax rebate prac-
complain of lax China textile safeguard was another concession tices (although the dispute is not completely
granted by China to the United States upon its resolved yet). The second concerned enforce-
enforcement accession to the WTO. Those quotas were just ment of intellectual property rights. After failing
under the Bush lifted on January 1, 2009. Also, during the years to resolve this dispute during the consultations
administration. of the Clinton administration, 15 anti-dumping phase, the United States requested the establish-

24
ment of a dispute settlement panel, which ruled What, then, leaves a more a lasting impres- Free-trade
in favor of the U.S. position on two of the three sion: a story about how a new trade agreement advocacy has
issues raised (finding that both China’s copy- will add $1,200 per year to the average family’s
right law and customs law were inconsistent purchasing power, or a story about a shuttered assumed a
with another WTO agreement). The third steel mill and the residual effects of that closure defensive posture,
WTO case concerned alleged barriers facing on the community and its once-proud people?
foreign traders and distributors of copyrighted Ironically, protectionists appear to have a com-
but it must find a
materials like books, videos, and DVDs. As of parative advantage in cultivating messages about way back to the
publication of this study, the dispute settlement trade that stick. Given the incessant competition other side of the
panel has not produced its report. for the American public’s attention, and the
In early 2008, the USTR brought a sixth case, apparent necessity of those competing for that 50-yard line.
alleging discrimination against U.S. providers of limited attention span to break everything down
financial services information in China. That into short bullet points and compelling visuals,
dispute also was resolved during the consulta- protectionists may be better suited to make their
tions phase, when China agreed to remedy the case than are free traders.
measures at issue. In December 2008, the United Without some explanatory discussion first,
States brought a seventh case against China in once the public’s mind has been filled with sto-
the WTO when it requested consultations over ries of doom and gloom, it’s tough to put into
various government grants and loans alleged to context—and refute in a 10-second sound
be available to Chinese enterprises. bite—the exaggeration that three million good-
Enforcement is an important part of the paying manufacturing jobs have been lost since
rules-based system of trade. But enforcement 2000; or that the $800 billion current account
efforts are more nuanced than some policy- deficit reflects a failure of U.S. trade policy; or
makers care to admit. Certainly, the emphasis that we don’t make anything in the United
placed by some on lax enforcement is not com- States anymore; or that China is eating our
mensurate with the relatively small impact of lunch; or that the U.S. market is wide open,
trade “violations” on the trade account or the while our trade partners keep U.S. imports out.
economy. All of the harping has conferred Free-trade advocacy has assumed a defensive
undue significance on the issue and has rein- posture, but it must find a way back to the other
forced damaging perceptions about trade and side of the 50-yard line. It must force protec-
our trade partners. tionists to refute the abundance of evidence—
anecdotal and empirical—that argues against
their policy prescriptions, rather than let the
Changing the Terms anti-trade crowd moralize its perspectives with
of the Debate diversions, half-truths, and outright lies.
In November 2007, a centrist Democratic
Although there is nearly a consensus among think tank called Third Way published the first
economists that the benefits of free trade dwarf installment of a study titled, “Why Lou Dobbs
its costs, the public appears to be less receptive Is Winning.” It’s an important contribution to
to pointy-headed economic analysis than it is the discussion about why the pro-trade con-
to visuals and anecdotes. And that reality favors sensus collapsed and what to do about it.
purveyors of protectionist gloom-and-doom. About free-trade advocates (and advocacy), it
While the benefits of free trade for American offers three broad conclusions that are good
families and businesses are large, they are dif- launching points for further discussion.
fuse and often taken for granted. On the other First, the authors conclude that free traders
hand, the much smaller “costs” resulting from are “guilty of a failure of vision”:
such trade tend to be concentrated within
industries or geographies, or among people The cause of open trade has been most
with similar skill sets.82 compelling when linked to a broader

25
political and economic vision. In the Mart—benefits like more-affordable clothing,
post–World War years, that goal was food, and other everyday products—count for
preserving the peace; during the Cold nothing. The public is told that trade enriches
War, the goal was fighting commu- the Chinese government, but that the benefits
nism. Today, the overall goal of Ameri- to U.S. manufacturers and their workers from
can global engagement is far less clear, record export sales to Chinese customers over
and trade’s role in achieving that goal is the past few years are meaningless. In the polit-
murky. How do open-traders envision ical realm, trade is never about individuals act-
the world and America’s place in it 20 ing in their own best interest by transacting
years down the road? At the moment, with whom they choose to transact. Instead,
we have no compelling answer.83 trade is a zero-sum game featuring the collec-
tive “Us” versus the collective “Them,” and
The most principled case for free trade is a “they” are gunning for “our” jobs and wealth
moral case. It is rooted in some of the very ideals using underhanded tactics.
upon which the United States was founded: the Of course the prescribed “elixir” of limiting
pursuit of life, liberty, and happiness, and the or regulating trade invariably benefits those
rule of law. Every American should be free to who speak the loudest against free trade. Trade
Individuals transact with whomever he wishes to transact, barriers are no different from earmarks. Trade
deciding for regardless of the nationality or location of the barriers are like pork projects. Trade barriers are
themselves how and other party. Voluntary exchange is inherently akin to the auto bailout. In all three cases, spe-
fair, benefits both parties, and allocates scarce cial interests persuade rulemakers that their cir-
with whom to resources more efficiently than a system under cumstances justify expropriation of other peo-
conduct commerce which government dictates or limits choices. ple’s resources to subsidize their own endeavors.
Individuals deciding for themselves how and Each is an affront to the rudimentary concept
will advance their with whom to conduct commerce will advance of fairness, individual liberty, and the rule of
own well-being, their own well-being, and thus the nation’s, far law.
and thus the more efficiently than would some centralized Beyond the moral case for free trade, there is
authority that tries to influence private decisions the burgeoning reality that trade policy is badly
nation’s, far more by tipping the scales. lagging commercial reality. Many Americans—
efficiently than Furthermore, government intervention in including policymakers—still embrace this ana-
voluntary economic exchange on behalf of chronistic view of trade as a zero-sum contest
would some some citizens at the expense of others is inher- between “our” producers and “their” producers.
centralized ently unfair, inefficient, and subverts the rule of The belief that we are “winning at trade” when
authority that tries law. Instead of individuals seeking to optimize our producers sell more stuff than their produc-
their conditions subject to the rules, they are ers requires ignorance of the evolution of global
to influence private incentivized to divert resources from produc- business and trade patterns and sets us up for
decisions by tipping tive endeavors to changing the rules to their some pretty awful public policy.
the scales. advantage through politics and backroom deal- Moreover, the U.S. economy comprises not
making. only insular domestic producers, but consumers,
Alas, this very sound and simple justifica- wholesalers, retailers, importers, shippers, de-
tion for free trade has been distorted over the signers, engineers, marketers, financiers, and
years by groups seeking to tip the scales in their integrated producers who have great stakes in an
favor. They mischaracterize trade in the ancient open world economy. What is in one producer’s
but false dichotomy of the haves versus the interest is not necessarily in the interest of the
have-nots. Evil corporations, they say, benefit other constituents in the economy or even other
from trade while regular people suffer its producers in the same industry. That has always
wrath. The public is told that companies like been the case.
Wal-Mart profit from trade, but that the vast But today, international competition can
benefits afforded Americans who shop at Wal- hardly be described as a contest between “our”

26
producers and “their” producers. Whereas a gen- as much as their governments are competing to
eration ago a product bearing the logo of an secure valuable positions for their people in the
American company comprised exclusively U.S. global supply chain. All countries are compet-
labor, materials, and overhead, today that is ing for investment in production processes and
much less likely. Products bearing the names of all countries aspire to attract investment in the
U.S. companies often comprise substantial for- highest value-added processes. Only the coun-
eign value-added, regardless of whether the tries that have the highest-skilled human capi-
product was “completed” in the United States or tal will occupy the most lucrative links of the
abroad. Moreover, the distinction between U.S. global supply chain. All countries, to compete
nameplate production and foreign nameplate successfully for investment now and into the
production has been blurred by foreign direct future, need to have business and regulatory
investment, cross-ownership, equity tie-ins, and environments that can accommodate the fast-
transnational supply chains. As but one of myr- moving nature of global, just-in-time, transna-
iad examples, consider the “U.S.” auto industry, tional production processes. That means coun-
as described by the Wall Street Journal: tries must eliminate administrative and physi-
cal frictions that might slow the process and
Once you put down the flags and shut deter investment. Good transportation and
off all the television ads with their communications infrastructure, access to ports
Heartland, apple-pie America imagery, and to the country’s interior, rule of law,
the truth of the car business is that it administrative transparency, low or no trade
transcends national boundaries. A car or barriers, a relatively stable policy environment,
truck sold by a “Detroit” auto maker and a work force whose skills are suited for par-
such as GM, Ford or Chrysler could be ticular value-added activities in the supply
less American—as defined by the gov- chain are increasingly the keys to attracting
ernment’s standards for “domestic con- investment.
tent”—than a car sold by Toyota, Honda International competition is no longer us
or Nissan—all of which have substantial versus them. Instead it is more appropriately
assembly and components operations in characterized as a competition between differ-
the U.S.84 ent supply chains, many of which comprise
value added from many different countries.
As noted earlier, the outdated “us-versus- This description of how the international trad-
them” view of trade is reinforced by trade nego- ing system really works must become second
tiations, where representatives of governments nature to policymakers and the public if we are International
offer the “concession” of access to their markets to vanquish, once and for all, the outdated, competition is no
in exchange for the “benefit” of access to oth- destructive characterization upon which rests longer us versus
ers’ markets. But on whose behalf are those the argument for protection and insularity.
negotiations conducted? Better access to the Second, Third Way concludes that “our bat- them. Instead it is
Brazilian market for U.S.-based exporters ben- tleground is data, not values”: more appropriately
efits U.S.-headquartered companies as well as
Stuttgart- or Tokyo-headquartered companies. Defenders of trade are losing public
characterized as a
Likewise, better access to the U.S. market ben- support in part because of their strategy competition
efits foreign-based producers as well as U.S. and tactics. While critics of trade speak between different
and foreign producers operating in the United evocatively of “fairness” and justice,”
States, who rely on access to imported raw trade-liberalizers counter with eco- supply chains,
materials, components, and capital equipment. nomic numbers and opaque economic many of which
The reality is that globalization has been theories. It is not only elitist; it is like
making this old adversarial framework obso- bringing a knife to a gun fight. It is not
comprise value
lete. Companies are not competing for markets enough to win the minds of the public; added from many
through their governments’ trade negotiations we must win hearts as well.85 different countries.

27
In the legal It is a bit harsh to characterize the mar- Americans spend higher proportions of their
profession, there is shalling of facts in support of an argument as budgets on necessities, U.S. tariffs are the most
“elitist.” However, the point is well taken. In regressive taxes under law.86
an old adage that the legal profession, there is an old adage that Consider the case of U.S. shoe tariffs. The
says that if the facts says that if the facts aren’t on your side, then weighted average U.S. tariff rate for all goods is
pound the table. In essence, opponents of trade 1.6 percent. But on footwear, tariffs start at 8.5
aren’t on your side, follow that adage. They pound away with percent for leather dress shoes, increase to 20
then pound the imagery and evocative stories to compensate percent for running shoes, and exceed 60 percent
table. In essence, for the dearth of facts supporting their posi- for some low-cost sneakers. To put that in per-
tions. On numerous occasions, supporters of spective, the tariff on cheap sneakers is roughly
opponents of trade trade have advocated the free-trade position in three times the federal tax on a similarly-priced
follow that adage. debates, summoning the facts, demonstrating pack of cigarettes, four times the national gas tax,
how those facts support the conclusion that and twice the tax on whiskey, vodka, and other
free trade leads to greater opportunity and spirits.87 Meanwhile, most footwear consumed
prosperity than the alternatives, only to lose the in the United States is produced by poor workers
crowd’s sympathies to a protectionist argument in lower-income countries. Thus, U.S. protec-
that ignores the facts and relies exclusively on a tionism is a double whammy, disproportionately
story about the “unfair” impact of a plant clo- harming poor families at home and abroad. It is
sure. Of course, there is never the concession unfair and unjust, and its elimination should be
that the existence of the tariff or quota in the something that both engenders broad bipartisan
first place was the real unfair burden; that it support and puts protectionists where they right-
taxed the resources of other Americans (most- fully should be—on the defensive.
ly, lower-income Americans) to subsidize the Third, “our policies do nothing to restore
incomes of the plant’s owners and workers. middle-class confidence in the future”:
Rather than focus on appealing new visuals
or anecdotes, trade advocates should take back Middle-class economic anxiety is wide-
what has been commandeered by protection- spread and legitimate. And fairly or not,
ists—namely, the claim to fairness and justice. much of the blame for this anxiety is
There is nothing “fair” about government poli- landing squarely on trade. As a conse-
cies that force some Americans to subsidize the quence, advocates of trade must free
decisions and livelihoods of other Americans. themselves from the narrow silo of
But to whom is it unfair when Americans are trade-specific policy and embed their
free to exchange with anybody else in the goals in a broader agenda that addresses
world? It’s certainly not unfair to U.S. produc- all of the sources of middle-class eco-
ers or their workers, who know they must earn nomic anxiety—as well as middle-class
each consumer’s business. It may constitute a hopes for success. Reforming and ex-
competitive reality that keeps profits lower panding Trade Adjustment Assistance is
than the U.S. producers might like, but there’s necessary but far from sufficient.
nothing unfair about that. Americans have to feel secure and confi-
Recent studies demonstrate that U.S. trade dent in their own economic future
barriers are most pervasive and highest on basic before they are comfortable reaching out
necessities, like food, clothing, and footwear. If to the world.88
one also considers longstanding anti-dumping
and countervailing duty restrictions on steel, The Third Way identifies a legitimate prob-
lumber, and cement, the necessity of shelter is lem—that much of the blame for middle-class
also highly taxed through U.S. trade policy. anxiety has landed squarely on trade. But, in this
These tariffs benefit a few politically connect- case, its solution is wrong. Free trade is very sim-
ed industries at U.S. consumers’ expense. And ply about the natural right of people to choose
by virtue of the fact that lower-income how and with whom they transact. Assertion of

28
those rights need not—and indeed should ber of households earning more than $75,000
not—take a defensive posture. We need not has increased, while the number earning less
compensate others or apologize for making the than $35,000 has declined.90
choices that optimize our own well-being. As If Americans break away from the oppressive
economist Steven Landsburg put it: political rhetoric about trade and the economy
and make their own observations, they are likely
Suppose, after years of buying sham- to conclude that the country has strengths and
poo at your local pharmacy, you dis- competitive advantages unmatched anywhere
cover you can order the same shampoo else in the world. The continuing flow of foreign
for less money on the Web. Do you investment into the U.S. economy is testament to
have an obligation to compensate your that fact.
pharmacist? If you move to a cheaper Beyond these strengths and competitive ad-
apartment, should you compensate vantages enjoyed by U.S. residents, there is the
your landlord? When you eat at Mc- fact that 95 percent of the world’s consumers live
Donald’s, should you compensate the outside of the United States. Yet when politicians
owners of the diner next door? Public and the media speak about trade, they usually
policy should not be designed to ad- focus exclusively on the Malthusian fiction of six
vance moral instincts that we all reject billion people competing for 100 million U.S. Americans no
every day of our lives.89 jobs. From the perspective of the American work- more owe the
er, under this slanted premise, trade and global- textile worker who
Americans no more owe the textile worker ization can only upset the apple cart. There are
who lost his job because J. C. Penney decided only ramifications—and negative ones at that— lost his job because
it would be better for its shareholders to source on the supply side of the equation. All that trade J. C. Penney
its clothing primarily from Vietnam than we has to offer under this portrayal is increasing
owe a bodega clerk who lost his job because we competition for my job, and downward pressure
decided it would be
prefer to shop at the new supermarket. In fact, on my wages. better for its share-
there is a stronger case to be made that the tex- But an accurate accounting of the effects of holders to source its
tile worker should compensate the consumers trade and globalization on the lives of Americans
of the products he made, if tariffs and quotas across the income and wealth spectrum must clothing primarily
forced consumers to subsidize his job. include a consideration of the fact that the pre- from Vietnam than
Trade is not the reason for so-called “mid- ponderance of world-demand growth henceforth
dle class” angst. But scaremongering about will occur outside of the United States. And the
we owe a bodega
trade is certainly one of them. Purveyors of the preponderance of the value of global production clerk who lost his
trade myths described earlier tend also to per- will happen pursuant to a global division of labor, job because we
petuate the related myth that import growth which renders American jobs complementary to
has created greater income disparity, which has —and not in competition with—labor in the prefer to shop
led to the erosion of the middle class. But that’s world’s most populous countries. One must thus at the new
just not true. As imports have risen, so have discount predictions of U.S. wage suppression supermarket.
real wages and benefits in the United States. and consider the positive impact on U.S. wages of
Over the last decade, average real compen- foreign demand growth. The media and Con-
sation—wages plus benefits—increased by 22 gress have their motives for wanting Americans
percent. Real median household income was 6 to see the glass as half empty. But we need not fol-
percent higher at the peak of the current busi- low the script.
ness cycle (2007) than it was at a comparable
point in the previous business cycle. And, while
doomsayers point to the decrease in the num- Rebuilding the Consensus with
ber of households earning between $35,000 Truth and Transparency
and $75,000 as evidence of middle-class ero-
sion, they tend to ignore the fact that the num- More than a decade of Democratic opposi-

29
tion to trade liberalization has almost erased more value than the manufacturing sector of
from memory the fact that the fathers of the any other country in the world.
modern American free-trade movement were President Obama should try to reverse the
not Republicans, but Democrats like Secretary of effects of years of needless misconception about
State Cordell Hull, Presidents Harry Truman imports and the trade deficit. Americans enjoy
and John F. Kennedy, and Sen. Albert Gore Sr., sports metaphors, but the trade account and the
who each understood the economic and diplo- current account cannot be likened to score-
matic importance of open trade.91 boards. The fact of our large trade deficit is not
When freedom to trade is properly cast as a evidence that we are losing at trade. It is evi-
fundamental right and impediments to exercis- dence that foreigners have confidence in the
ing that right are cast as coercive and immoral, U.S. economy and that their investments here
trade liberalization can once again be a biparti- have supplemented Americans’ income streams
san endeavor. When protectionism can be by keeping interest rates lower than they would
properly equated to earmarking and backroom have otherwise been. It is also evidence that
dealmaking, and cast as a regressive tax, with there is a lot of pent-up demand among the 95
onerous effects on poorer people in the United percent of the world’s population living in other
States and abroad, the cause of free trade can countries, and that the United States must stay
transcend partisanship. When trade liberaliza- engaged in the global economy to benefit from
tion can be seen as strengthening the ties that the likely explosion of global demand in the near
bind people in different nations and reducing future.
prospects for conflict, free trade can become a In many cases, imports directly support U.S.
goal shared by all Americans. jobs. U.S. producers routinely account for the
Unfortunately, the heated partisan debate majority of the value of U.S. imports. Those
about trade over the past several years—and imports are used as complements to U.S. work-
the tactics used to spread skepticism across the ers to produce the wares coming out of U.S.
country—probably precludes resumption of an factories. Without imports, the cost of produc-
ambitious agenda of U.S.-led trade liberaliza- tion would be higher, and the expedient to
tion during the next couple years. But it cer- reduce labor costs would be more likely to
tainly should not preclude the steps necessary materialize quickly.
to start rebuilding the pro-trade consensus. The iPod example described earlier speaks
to the complementary nature of global produc-
Repair Perceptions First tion. Rising imports are often a necessary con-
President Obama would do the country a dition of U.S. job growth. Without access to
great service by encouraging an open dialogue assembly operations in lower-cost countries,
When freedom about trade and globalization, by challenging the mass production and proliferation of iPods
critics and proponents of trade to support their and similar devices likely would not have been
to trade is assertions, and by supporting the publication of possible. Instead of $299, iPods would cost
properly cast as a objective studies about manufacturing, imports, perhaps $500 or more if they had to be pro-
fundamental right trade agreements, and the trade account. Find- duced entirely in the United States. At that
ing and sharing the truth about trade should be price point, it is unlikely that sales of iPods
and impediments to among the first steps toward rebuilding the pro- would ever have been as successful as they have
exercising that right trade consensus. been, and the need for all of those American
To repair unfavorable perceptions about jobs in engineering, logistics, transportation,
are cast as coercive trade, President Obama should speak openly advertising, web design, and retailing might
and immoral, trade and honestly about the myths that have been never have materialized.
liberalization can the catalysts for the backlash against trade. He The president should also clarify that the
should emphasize that U.S. manufacturing is allegations about the Bush administration’s
once again be a not in decline, but rather that U.S. factories failure to enforce trade agreements have been
bipartisan endeavor. remain the world’s most prolific, generating driven by the politics of special interests. Sure,

30
it is likely that some violations have occurred to reassure Americans that trade is not a The president
and persisted that should have been addressed scourge and is vital to economic growth, the should also
and resolved. But the fact is that so-called Obama administration should undertake spe-
unfair trade constitutes a small fraction of the cific initiatives to reinforce those assurances, remind Americans
total trade and the emphasis placed on our fail- rebuild U.S. credibility on trade, and demon- that they have some
ings to better enforce trade laws is simply not strate how trade liberalization benefits lower-
justified by the economic stakes. That empha- income families in the United States and
profound
sis only raises American suspicions and hostil- around the world. competitive
ity toward trade when the overwhelming 1. Establish a “Trade Transparency Initiative.” advantages in our
majority of trade is unobjectionable. To those ends, President Obama should an-
That is not to say that the president should nounce something like a “Trade Transparency solid institutions
forswear trade litigation and systematically Initiative,” with the goal of publishing indepen- and way of life.
ignore violations. The president should explain dent findings about the effects of trade and trade
in clear terms to the public that the United barriers on the U.S. economy and its constituent
States is part of a rules-based system of trade elements without political interference. As of
that is not perfect, but that has worked with now, the ITC serves that role, but in a manner
great success over the years. Since the advent of that denies full independence and objectivity.
the WTO there have been virtually no trade One of the ITC’s functions is to provide eco-
wars, but rather, the evolution of a fairly robust nomic research in accordance with the research
system for resolving disputes. Its continued suc- parameters established by a requesting congres-
cess will ensure that U.S. industries have sional committee member or a designated exec-
recourse to resolution of important violations. utive-branch official. That Congress or an
However, its continued success also requires that administration official can limit or expand the
the United States lives up to its own commit- scope of a ITC research project—and can com-
ments and respects the findings of the WTO mission and decommission those studies on a
Dispute Settlement Body. whim—subjects the process to bias, politics, and
He should explain that the WTO is not grandstanding. The ITC, or some other agency
anti-American (as detractors suggest), but that that is sufficiently shielded from political influ-
the dispute settlement system has a pro-com- ence, should be allowed to fulfill its statutory
plainant bias that reflects the fact that member authority to conduct independent research and
countries tend not to seek WTO adjudication publish findings on matters related to trade, and
of issues willy-nilly. Rather, members tend to the public should be directed to those findings as
bring cases about which they are reasonably objective sources of analysis. An independent
confident of success. And that confidence process like that—which is properly publicized
comes from careful deliberation about the pros by a president promoting change—would prob-
and cons of filing particular complaints. ably help disentangle trade from the truth-sup-
The president should also remind Americans pressing effects of politics and help fulfill the
that they have some profound competitive president’s goal of having a more transparent and
advantages in our solid institutions and way of open government.92
life. He should explain that for all those reasons, Perhaps the Obama administration’s first
trade must be embraced. And on top of that, by study under the Trade Transparency Initiative
the way, 95 percent of the world’s consumers live should focus on the U.S. Tariff Schedule. The
outside of the United States. As they grow rich- report would likely reveal that U.S. tariffs are
er, the pie will grow larger even faster. To partake highest on shoes, clothing, clothing inputs (like
of that growing pie, America needs to stay front fabric, yarn, and cotton), food (including fruits
and center in the global economy. and vegetables), and food ingredients (like sugar,
wheat, and soybean). In conjunction with trade
Some Specific Initiatives remedy duties on imported steel, lumber, and
Concurrent with President Obama’s efforts cement, U.S. tariffs and quotas on food and

31
clothing ensure that the prices of life’s most basic products most heavily penalized by U.S. protec-
necessities (food, clothing, and shelter) are arti- tionism.
ficially inflated by government policies. And But to really make progress toward repairing
since lower-income Americans spend a higher America’s damaged credibility abroad, President
proportion of their budgets on life’s necessities, Obama will have to challenge the congressional
these trade policies amount to the kind of leadership to abandon its increasingly provoca-
regressive tax that Democrats profess to abhor. tive and unilateralist positions on trade. The
In a similar vein, a Trade Transparency president was successful at convincing Congress
Initiative report profiling recipients of U.S. agri- that “Buy American” provisions do not help
cultural subsidies would likely help put to rest advance U.S. standing in the world. But there is
the notion that poor family farms are the bene- much more to be done.
ficiaries of taxpayer subsidies. In reality, thou- For example, the 2008 Democratic Platform
sands of households across the United States includes this criticism of the Bush administra-
(including some addresses in Manhattan) tion’s foreign policy:
receive checks from the federal government to
not produce agricultural products. Real estate in In Asia, we belittled South Korean
certain jurisdictions is bought and sold with efforts to improve relations with the
But to really make agricultural subsidies listed as a conveyance with North. In Latin America, from Mexico
progress toward the sale of the property.93 And, as is the case to Argentina, we failed to address con-
repairing America’s with respect to imported footwear, many U.S. cerns about immigration and equity
tariffs are vestiges of a bygone era and no longer and economic growth.94
damaged credibility have patron industries or producers to provide
abroad, President even the faintest veil of justification for their However, these are the same countries that are
existence. most affronted by Democratic Party antago-
Obama will have President Obama can help relieve the burden nisms on trade: Mexico on NAFTA, and
to challenge the that is borne, in particular, by lower-income Colombia, Peru, and Korea on pending free-
congressional Americans from the tariffs on food and cloth- trade agreements. Chairman Rangel and Chair-
ing, and reduce subsidy transfers to America’s man Levin traveled to Peru in 2007 for the pur-
leadership to already wealthy agricultural sectors by challeng- pose of overseeing the Peruvian government’s
abandon its ing Congress to finally abolish regressive tariffs rewriting of its labor laws, as a condition of pass-
and farm programs. The economic benefits of ing the Peru FTA. The agreement was imple-
increasingly those reforms would be a permanent stimulus mented in January, but the chairmen have hint-
provocative and for the U.S. economy, and would cost American ed that the Peruvians have more hoops to jump
unilateralist taxpayers nothing. The unbiased empirical through yet. Both chairmen continue to ignore
results of the Trade Transparency Initiative the tremendous progress that the Colombian
positions on trade. would give President Obama the ammunition government has made in reducing violence and
he will need to put congressional protectionists prosecuting thugs who have terrorized labor
of both parties where they rightfully belong—on organizers in the past. Both chairmen continue
the permanent defensive. to demand more progress as a condition of pass-
2. Reinforce for Congress the Fact that a ing the Colombia FTA. And both are so open-
Unilateralist Trade Policy Undermines a Multilat- ly distrustful of the South Korean government
eralist Foreign Policy. Over the last few years, that they are demanding what amounts to man-
Democrats have expressed a desire to repair aged trade and conditional market access terms
America’s damaged credibility abroad. President as an insurance policy.
Obama shares that goal, which would be sup- It is difficult to appreciate any rhetorical
ported by eliminating trade barriers on clothing differences between the Democratic leader-
and food and rescinding agricultural subsidies. ship’s approach to our trade partners and the
After all, it is factory workers and farmers in Bush administration’s approach to foreign rela-
developing countries who produce the kinds of tions that Congress so condemned. President

32
Obama should help Congress come to terms the practice of producing annual foreign trade
with this glaring inconsistency and recognize barrier reports to alert trade partners to U.S.
the significance of leaving three partners at the concerns and to put them on notice that formal
altar, after multi-year courtships, by failing to dispute settlement proceedings could be lodged
even consider their signed free-trade agree- if progress toward resolution is not forthcoming.
ments. And, indeed, when U.S. exporters are experienc-
President Obama must push Congress to at ing chronic problems with market access in for-
least make good on the U.S. government’s eign countries, or their expectations of national
promises to subject those agreements to votes in treatment continue to go unmet, and it is deter-
the legislature. He need not push for new trade mined to be in the national interest to pursue
agreements at this point and he need not con- dispute settlement, then the Obama administra-
tinue ongoing negotiations. Better to rebuild tion should not be shy about lodging formal
consensus first. But he must push hard for con- WTO complaints.
gressional consideration of the pending agree- However, efforts to systematize and com-
ments because U.S. failure to live up to this most moditize trade complaints—which seems to be
basic of obligations casts a pall over U.S. trade an objective of the Trade Enforcement Act of
policy and tarnishes America’s image as a credi- 2009, with its creation of an Office of the Con-
ble and reliable partner. Moreover, congression- gressional Enforcer—are likely to be perceived as
al refusal to consider the agreements represents provocative and could undermine global support
an immense diplomatic failure that strains criti- for the rules-based system of trade.
cal U.S. alliances and emboldens America’s Relatedly, if the administration and the
detractors in two key regions: Asia and Latin aggrieved U.S. parties in trade cases expect our
America. partners to take seriously the outcomes of the
As important as our military and diplomatic dispute settlement process, then by all means
alliances are, a majority of America’s allies care as the United States should take seriously and act
much or more about the economic relationship. expeditiously to comply with dispute settle-
That is why many of our closest allies—from ment outcomes requiring changes in U.S. poli-
Canada to Australia to Colombia to Korea— cies. Presently, the United States remains out of
have sought to cement bilateral economic ties compliance with several Appellate Body deci-
with the United States. And some of these eco- sions regarding various technical anti-dumping
nomic relationships serve to increase American procedures and agricultural policies. Congress
influence in regions that are prone to episodic also recently reauthorized a farm bill contain-
anti-Americanism. ing provisions that have been ruled WTO-
Continued American economic engage- inconsistent.
ment with the rest of the world is essential to If we are to ignore WTO rules and dispute
national security, and building economic ties settlement outcomes, how can we legitimately
with less-friendly nations raises the cost of expect our trade partners to behave any differ-
confrontation and discourages rogue behavior. ently? American constituencies cannot expect
Moreover, if President Obama is to succeed in their complaints about violations and lax en- If we are to ignore
“renewing American leadership in the world,” forcement to fall on sympathetic ears while the
he must renew U.S. leadership on trade—a U.S. government continues to be remiss in its WTO rules and
cornerstone of the global framework since own compliance. They should only expect simi- dispute settlement
World War II. lar behavior from our trade partners. And if more
3. Craft a Pragmatic, Principled Approach to and more WTO members choose to ignore the
outcomes, how can
Enforcement. In keeping with the idea that trade outcomes of dispute settlement, the system will we legitimately
enforcement—as abused as that term has cease to function properly and the rules-based expect our trade
become—can be a constructive tool for opening system of trade could fall into disrepair.
markets where liberalization has been too slow 4. Adopt a China Policy of Carrots and Sticks. partners to behave
in coming, President Obama should continue Of course the elephant in the room is China. any differently?

33
President Obama The success of the Obama administration’s First, graduation from NME status is one
would invigorate approach to trade relations with China is like- of the Chinese government’s top international
ly to set the tone for overall trade policy for the trade priorities. China wants to be treated like
the relationship next four years. It is important that the Obama all other major economies, and accordingly, the
if he were to administration appreciate the complementary Chinese government is likely willing to make
nature of the U.S.-China trade and economic important concessions in other contested areas
grant China relationship so that it is not baited into an of trade policy to achieve market economy sta-
“market economy” unnecessarily confrontational stance. The pres- tus. But the longer we wait to grant market
treatment in ident should continue to push China to open economy status to China, the less valuable that
more of its markets faster and wider. But that concession becomes. Under the rules governing
anti-dumping objective would best be served by avoiding fire- China’s accession to the WTO, the United
cases. works-prone exchanges through the media. States must repeal China’s NME designation
In that regard, President Obama should by 2016. Thus, the value of that “concession”
continue the tradition established by his prede- will be greater in 2009—seven years early—
cessor of engaging in quiet dialogue where than it will be in 2010 or 2012. Much beyond
issues can be defused or resolved in that man- 2012, and the concession looks a bit like
ner, and to resort to the WTO dispute settle- Confederate money.
ment system only when the situation and facts Second, China’s NME designation has
support doing so. drawn intense criticism from domestic consum-
President Obama should also consider that ing industries, trade policy experts, and U.S.
the public U.S.-China dialogue during the past trade partners because of its incongruous appli-
few years—the tenor of which was set by a cation (for example, Russia was deemed a “mar-
Congress that was in perpetual protest of the ket economy” in 2002, yet still is not a WTO
Bush administration’s China tack—has been member, while China became a WTO member
more of a litany of U.S. gripes than a dialogue. in 2001) and the latitude for abuse of adminis-
Demands that China stop dumping, stop sub- trative discretion it affords.95 Also, the relatively
sidizing, stop manipulating the currency, stop recent change in policy that opened the door to
stealing intellectual property, and stop engag- countervailing duty cases against China has
ing in unfair labor practices came to character- sparked controversy about whether NME treat-
ize the dialogue. Some of the allegations have ment in anti-dumping cases should still be per-
merit; some are exaggerated; others are fabrica- missible. U.S. revocation of China’s NME status
tions. But most policymakers would be hard would alleviate many of those domestic con-
pressed to recite any of the Chinese govern- cerns at virtually no cost to domestic petitioning
ment’s requests of the United States. industries, but petitioners value NME because
The time has come to seriously consider car- of the trade-suppressing uncertainty the process
rots and not just sticks—particularly since the engenders.
pain from the sticks is not limited to its intended It is important that President Obama under-
targets, but is felt in the United States and in stand that our trade relationship with China has
other countries, given the transnational nature of been mutually beneficial, that the rhetoric about
supply chains. President Obama would invigo- the impact of unfair Chinese practices has been
rate the relationship if he were to grant China highly exaggerated, and that unnecessary provo-
“market economy” treatment in anti-dumping cation could open a Pandora’s Box of economic
cases. While such a reform would take very little problems.
out of petitioning industries’ hides, the gesture 5. Craft a Proactive Agenda for Implementa-
would win vast sums of goodwill from the tion When Trade Consensus Reemerges. Finally,
Chinese—goodwill needed to resolve more after a year or two of reconsidering the impor-
important issues going forward. Indeed, repeal of tance of trade, consolidating gains, and demon-
the non-market economy (NME) designation strating how trade benefits the country as a
presents a “win-win” scenario for several reasons. whole, the administration should contemplate

34
the next steps for U.S. trade policy. When the If the more optimistic interpretation is the
United States is ready to reembrace a liberal trade right one, then there is hope that the pro-trade
agenda, policymakers will need to consider fur- consensus can be restored under the Obama
ther unilateral measures, as well as the viability of administration. For that to happen, the congres-
pursuing the Doha round, some other multilat- sional leadership will need to afford President
eral trade round, or individual bilateral agree- Obama the opportunity to start repairing the
ments. But for now, President Obama’s trade damage and to begin changing minds about
policy should focus on restoring the pro-trade trade within Congress and across the country.
consensus. President Obama is in a unique position to rise
above parochial interests and the partisan fray
and really speak to the broader national interest.
Conclusion In so doing, he should dispel the persistent
myths that have damaged Americans’ perspec-
Trade has been a crucial component of U.S. tives on trade and summon the wide variety of
and world economic growth for over six facts that strongly support a policy of U.S. inter-
decades. But during the past decade—and par- national commercial engagement.
ticularly in the last few years—trade policy has The President’s success at restoring the pro-
become partisan, rancorous, and divisive. That trade consensus will build a strong foundation If the more
divisiveness has encouraged myth making, tale for future prosperity. It will foster economic optimistic
telling, and fear mongering, all of which has growth and rising living standards at home and interpretation is
undermined Americans’ confidence that they abroad, particularly among those most adversely
can survive—and indeed, thrive—in the global affected by trade barriers. It will engender good- the right one,
economy. In the process, important facts about will among nations and augment a resurgent then there is hope
the benefits of trade have been lost beneath American multilateralism. It will help reestab-
mountains of misconceptions and fears. lish U.S. leadership in the global economy and
that the pro-trade
Still, there is a potential silver lining in these thwart growing protectionist sentiment around consensus can be
dark clouds. Despite all of the rhetoric, despite the world. And it will serve as a testament to restored under
the occasional ill will, and despite the piles of America’s dedication to, and belief in, the indis-
anti-trade legislation introduced in the last pensability of liberty and free markets during a the Obama
Congress, not a single provocative trade measure period in our history that desperately needs such administration.
was passed into law during the 110th Congress. an example.
Some would argue that the presence of a
Republican president and the absence of both a
filibuster-proof majority in the Senate and a Notes
veto-proof majority in Congress explain the lack 1. Fast Track (renamed “Trade Promotion Au-
of action, and that the 111th Congress will pro- thority” by the Bush administration) enables the
duce nasty trade fireworks. That’s quite possible. executive branch to negotiate trade agreements
But there is also this more hopeful interpre- with other countries, within certain congression-
al parameters, and then present those completed
tation: the leadership in Congress is mindful of agreements to Congress for an “up-or-down” vote
the adverse ramifications of punitive, unilateral without amendments. The measure also imposes
trade actions; does not really believe the anti- strict timetables for congressional consideration
trade rhetoric it has proffered to change the of a trade agreement and mandates passage of the
agreement should Congress fail to meet pre-
terms of debate; realizes that trade barriers are scribed deadlines.
regressive taxes; wishes to honor America’s com-
mitment to the rules-based system of trade; and 2. Under the “Competitive Liberalization” ap-
does, in fact, recognize the importance of trade proach, the United States entered into bilateral/
regional trade negotiations with several countries
to the U.S. and global economies. And it will be simultaneously to induce competition for access to
more willing to work with a Democratic presi- the U.S. market and to help motivate WTO mem-
dent—or just a new president. bers to complete the Doha round more quickly.

35
Former U.S. trade representative Robert Zoellick clerk.house.gov/evs/1994/roll507.xml.
coined the term and describes its intent in Robert B.
Zoellick, “Unleashing the Trade Winds: A Building- 13. Roll Call Vote 466, September 25, 1998, http:
block Approach” (2003), http://usinfo.state.gov/ //clerk.house.gov/evs/1998/roll466.xml.
journals/itps/0803/ijpe/pj81zoellick.htm.
14. Thomas L. Friedman, “Foreign Affairs; Pro-
3. Since 2002, the United States has completed and testing for Whom?”, New York Times, April 24,
implemented trade agreements with Australia, 2001, http://query.nytimes.com/gst/fullpage.ht
Bahrain, CAFTA countries (Costa Rica, Dominican ml?res=9A0CEEDE1639F937A15757C0A9679C
Republic, El Salvador, Guatemala, Honduras, and 8B63#.
Nicaragua), Chile, Morocco, Oman, Singapore,
and Peru. It also completed agreements with South 15. The 1996 Democratic National Platform: To-
Korea, Panama, and Colombia, but Congress has day’s Democratic Party: Meeting America’s Challenges,
not approved those agreements. Prior to 2002, the Pro-tecting America’s Values, http://www.presidency.
United States had agreements with Canada and ucsb.edu/showplatforms.php?platindex=D1996.
Mexico (NAFTA), Israel, and Jordan. 16. The 2008 Democratic National Platform:
4. Office of the United States Trade Representa- Renewing America’s Promise, pp. 26–27 (emphasis
tive, “Highlights of Bush Administration Trade added).
Accomplishments,” Trade Facts, December 2008, 17. Roll Call Vote 228, May 24, 2000, http://clerk.
http://www.ustr.gov/assets/Document_Library house.gov/evs/2000/roll228.xml.
/Fact_Sheets/2008/asset_upload_file570_15256.
pdf. One of the 11 agreements (with Jordan) was 18. Roll Call Vote 370, July 27, 2002, http://
negotiated during the Clinton administration, clerk.house.gov/evs/2002/roll370.xml.
but implemented starting in 2001.
19. Roll Call Vote 436 (Chile FTA), July 24, 2003,
5. Recent statistics from the World Trade Organ- http://clerk.house.gov/evs/2003/roll436.xml;
ization and other sources indicate that close to 100 and Roll Call Vote (Singapore FTA), July 24, 2003,
bilateral/regional free-trade agreements are now http://clerk.house.gov/evs/2003/roll432.xml.
under negotiation—without the United States as
party. 20. Roll Call Vote, 443, July 28, 2005, http://
clerk.house.gov/evs/2005/roll443.xml.
6. Many developing countries fear that the inclu-
sion of enforceable labor and environmental pro- 21. Roll Call Vote 392, July 20, 2006, http://
visions in trade agreements would invite bogus clerk.house.gov/evs/2006/roll392.xml.
claims of violations. That would create an uncer-
tain business climate that could dissuade busi- 22. According to statistics from the U.S.-China
ness with or investment in local factories, which Business Council, approximately 50 pieces of leg-
undermines the primary objectives of trade agree- islation were introduced in the U.S. House of
ments in the first place. Representatives or Senate that sought to slow or
cease Chinese imports into the United States.
7. World Trade Organization, “Singapore Decla- Sponsors of these bills routinely blamed imports
ration,” 1996, http://www.wto.org/english/the for harming U.S. jobs and businesses, citing the
WTO_e/minist_e/min96_e/wtodec_e.htm#core_ expanding U.S.-China trade deficit as proof of
labour_standards. China’s adverse impact on the U.S. economy. See
h t t p : / / w w w. u s c h i n a . o r g / p u b l i c / d o c u -
8. “Oman FTA is the Product of a Broken Process,” ments/2008/110th-congress-legislation-related-
(press release, office of Rep. Charles Rangel (D-NY), to-china.pdf.
July 20, 2006).
23. U.S. House of Representatives, 110th Con-
9. Roll Call Vote 392, July 20, 2006, http://clerk. gress, “A New Trade Policy for America,” http://
house.gov/evs/2006/roll392.xml. waysandmeans.house.gov/media/pdf/NewTrade
Policy.pdf.
10. Roll Call Vote 575, November 17, 1993, avail-
able at http://clerk.house.gov/evs/1993/roll575. 24. The agreement with Panama has been side-
xml. lined, ostensibly because the president of the
Panamanian National Assembly was tried in a
11. The URAA implemented the GATT agree- Panamanian court and absolved of the killing of
ments that were concluded during the Uruguay an American soldier in 1992.
Round (1986–94), and created the World Trade
Organization. 25. Office of the Speaker of the House of Rep-
resentatives, “Pelosi and Rangel Statement on
12. Roll Call Vote 507, November 29, 1994, http://

36
Administration Sending Colombia Free Trade 42. “Brown, Snowe, Stabenow, Bayh, Rockefeller
Agreement to Congress,” (press release, April 7, Call on USTR to Defend U.S. Trade Law at WTO
2008), http://speaker.house.gov/newsroom/press Meeting,” (office of Senator Sherrod Brown, press
releases?id=0596. release, July 21, 2008), http://brown.senate.gov/new
sroom/press_releases/release/?id=ab1f3785-bde4-
26. Remarks of Candidate Barack Obama, Tran- 431d-a7db-729c6e877553.
script of Presidential Debate, Hofstra University,
October 15, 2008, available at http://www.hofs 43. See Daniel Ikenson, “Thriving in a Global
tra.edu/debate/. Economy: The Truth about U.S. Manufacturing
and Trade,” Cato Institute Trade Policy Analysis
27. There has been a huge reduction in Colom- no. 35, August 28, 2007, p. 5, available at http://
bian violence under the government of Alvaro www.freetrade.org/files/pubs/pas/tpa-035.pdf.
Uribe. Between 2002 and 2007, common homi-
cides have declined by 40 percent; the number of 44. Bureau of Economic Analysis, Survey of Current
trade unionists killed has dropped by 88 percent Business (January 2009), U.S. International Trans-
(to 25 in 2007); kidnappings have declined by 82 actions, Table 2 (figure calculated as line 82 minus
percent; and, total terrorist attacks are down by line 96 minus line 116, as a share of line 82), http:
77 percent. See Daniel Griswold and Juan Carlos //www.bea.gov/scb/pdf/2009/01%20January/0109
Hidalgo, “A U.S.-Colombia Free Trade Agree- _itaq_tables.pdf.
ment: Strengthening Democracy and Progress in
Latin America,” Cato Free Trade Bulletin no. 32, 45. Council of Economic Advisers, 2009 Economic
February 6, 2008. Report of the President, Tables B-51, B-93, B-13, and
B-104, (January 2009).
28. H.R. 6530.
46. Ibid., Table B-46.
29. H.R. 6530.
47. “ThyssenKrupp Picks Alabama for $3.7 Billion
30. S. 1919. Steel Plant,” International Herald Tribune, May 11, 2007.
31. H.R. 294. 48. “Honda Opens New U.S. Plant as Detroit
Seeks Bailout,” Reuters, November 17, 2008, http:
32. H.R. 1958. //www.reuters.com/article/americasDealsNews/i
dUSTRE4AG7DU20081117.
33. H.R. 782.
49. Organization for International Investment,
34. H.R. 169. “Insourcing Statistics” (as of February 1, 2009),
35. H.R. 910. http://www.ofii.org/insourcing-stats.htm.

36. PollingReport.com, http://www.pollingreport 50. “Time to Rethink Offshoring?” McKinsey Quar-
.com/trade.htm. terly, http://www.mckinseyquarterly.com/Time_
to_rethink_offshoring_2190.
37. The Pew Research Center for the People and
the Press, “Public Support for Free Trade De- 51. 2009 ERP, Table B-51.
clines,” Survey Reports, Section IV, Trade and the 52. UN Industrial Development Organization,
Economy, May 1, 2008, http://people-press.org/ “Share in Regional and World MVA,” obtained from
report/?pageid=1295. interactive database at http://www.unido.org/in
38. “Chairmen Rangel and Levin Introduce Trade dex.php?id=o3474.
Enforcement Bill: H.R. 6530 Would Help to 53. Ibid.
Ensure that Trading Partners Play by the Rules”
(press release, office of Congressman Sander 54. Lou Dobbs, “Trade, Foreign Policy, and the
Levin, July 17, 2008), http://www.house.gov/apps American Worker.” (testimony before the House
/list/press/mi12_levin/PR071708.shtml. Foreign Affairs Subcommittee on Terrorism,
Nonproliferation, and Trade), March 28, 2007.
39. Ibid.
55. 2009 ERP, Table B-104, adjusted for inflation
40. Council of Economic Advisers, 2009 Economic using B-60.
Report of the President, Tables B-1 and B-2, (January
2009). 56. 2009 ERP, Table B2 for GDP; B-35 for labor.
41. Council of Economic Advisers, “The History 57. 2009 ERP, B-35.
and Future of International Trade,” 2006 Economic
Report of the President (January 2006). 58. Bureau of Labor Statistics, “Employment Situ-

37
ation: December 2008,” Economic News Release, Jan- eign-trade/Press-Release/current_press_release/
uary 9, 2009. press.html.
59. U.S. Census Bureau, “U.S. International Trade 71. U.S. International Trade Commission, Technical
in Goods and Services, November 2008,” news Assistance on Domestic Value Added to Exports in China,
release, January 13, 2009, http://www.census.gov/ (prepared for the staff of the House Committee on
foreign-trade/Press-Release/current_press_re Ways and Means), April 20, 2005.
lease/ft900.pdf. The January–November trade def-
icit in goods and services stood at $631 billion in 72. Lawrence J. Lau et al., Estimates of U.S.-China Trade
2008, $643 billion in 2007, and $693 billion in Balances in Terms of Domestic Value-Added, Working
2006. Paper no. 295 (Palo Alto, CA: Stanford University,
October 2006; updated November 2006).
60. Ibid.
73. Congressional Budget Office, “How Changes
61. Progressive Policy Institute, “U.S. Imports Fell in the Value of the Chinese Currency Affect U.S.
by $25 Billion in November,” PPI Trade Fact of the Imports,” July 2008, http://www.cbo.gov/ftpdoc
Week, January 14, 2009. s/95xx/doc9506/07-17-ChinaTrade.pdf.
62. Sandy Levin, “A Policy that Goes on the 74. Christian Weller and Holly Wheeler, “Our
Offense for U.S. Business and Workers,” The Hill, Nation’s Surprising Technology Trade Deficit: A
June 10, 2008, http://thehill.com/op-eds/a-poli Wide Array of High-Tech Imports Overtake U.S.
cy-that-goes-on-the-offense-for-u.s.-businesses- Exports,” Center for American Progress, March
and-workers-2008-06-10.html. 10, 2008 (emphasis added).
63. Daniel Griswold, “Are Trade Deficits a Drag on 75. Greg Linden, Kenneth L. Kraemer, and Jason
U.S. Economic Growth?” Cato Institute Free Trade Dietrick, “Who Captures Value in the Global Inno-
Bulletin no. 27, March 12, 2007, http://www.free vation System? The Case of Apple’s iPod,” Personal
trade.org/node/598. Computing Industry Center, University of Califor-
nia, Irvine, June 2007, http://pcic.merage.uci.edu
64. International Monetary Fund, “World Eco- /papers/2007/AppleiPod.pdf.
nomic Outlook Database,” http://www.imf.org/ex
ternal/pubs/ft/weo/2008/02/weodata/weorept.as 76. Ibid, p.10.
px?sy=1980&ey=2008&scsm=1&ssd=1&sort=cou
ntry&ds=.&br=1&c=158&s=NGDP_R&grp=0&a= 77. Levin.
&pr.x=46&pr.y=12.
78. Authors’ calculations based on U.S. Inter-
65. Ibid. national Trade Commission figures and data from
the United States Census Bureau (http://www.cen
66. Robert E. Scott, “China Trade Costs Trade in sus.gov/foreign-trade/balance/c5700.html#2006).
Every State,” Economic Policy Institute, Economic The authors note that USITC data were not pub-
Snapshot, July 30, 2008. licly available for four CVD cases, and thus the
authors calculated import values using data corre-
67. Between 1995 and 2002, China lost 15 million sponding to the Harmonized Tariff Schedule codes
manufacturing jobs, while the United States lost 2 provided in the USITC’s public determinations.
million. See “China Losing More Manufacturing Thus, these figures are very likely overinclusive and
Jobs than U.S. but Adding Service Jobs at a Rapid the percentage cited above is likely much lower.
Pace” (press release, The Conference Board, July 8, Data are available upon request.
2004), http://www.conference-board.org/utilities/
pressdetail.cfm?press_id=2432. 79. Chairman Charles Rangel, letter to U.S. ITC
Commissioner Daniel Pearson, April 1, 2008, http:
68. East Asia is defined as China, Japan, South //insidetrade.com/secure/pdf12/wto2008_4378b.
Korea, and Taiwan. pdf.
69. When the definition is broadened to Pacific 80. Levin.
Rim countries, which includes East Asia (see note
68) and several other countries, the relative per- 81. When China acceded to the WTO in 2001, it
centage goes from 39% in 1995, to 33% in 2001, agreed to allow other WTO members recourse to,
and to 33% in 2007. among other things, temporary trade restrictions
if imports from China were found to be “surging”
70. U.S. Bureau of the Census, Foreign Trade and causing “market disruption,” as determined
Statistics, Series FT900: U.S. International Trade in by the U.S. International Trade Commission.
Goods and Services, Compiled from Year End Revisions Though the USITC voted in 4 of 5 cases to grant
1995, 2001, and 2007, http://www.census.gov/for import relief under this provision (Section 421 of

38
the Trade Act of 1974), President Bush exercised search/tradeandeconomicfreedom/wm1756.cfm.
his discretion to deny relief. See Daniel J. Ikenson,
“Bull in a China Shop: Assessing the First Section 88. Kim et al.
421 Trade Case,” Cato Free Trade Bulletin no. 2,
January 1, 2003. 89. Steven E. Landsburg, “What to Expect When
You’re Free Trading,” New York Times, January 16,
82. The word “costs” is in quotes to acknowledge 2008, http://www.nytimes.com/2008/01/16/opin
that some people are made worse off by free trade, ion/16landsburg.html.
but that we should not necessarily think of that as
a cost. They are made worse off relative to their 90. Daniel Griswold, “Trading Up: How Expanding
previous levels of well-being, which were attained Trade Has Delivered Better Jobs and Higher Living
or sustained in part by protectionist policies that Standards for American Workers,” Cato Institute
forced others to subsidize their well-being. There Trade Policy Analysis no. 36, October 25, 2007,
is more discussion of this later in the text. http://www.freetrade.org/pubs/pas/tpa-036.pdf.

83. Anne Kim, John Lageson, and Jim Kessler, 91. Douglas Irwin and Amity Shlaes, “Democrats
“Why Lou Dobbs Is Winning,” A Third Way Report, Once Did Free Trade,” Wall Street Journal, August
November 2007, http://www.thirdway.org/data/ 2, 2008, http://online.wsj.com/public/article_
product/file/113/TW_Why_Lou_Dobbs_is_Win print/SB121763372626306175.html.
ning_Report.pdf. 92. Barack Obama, “Transparency and Openness”
84. Joseph B. White, “What Is an American Car?” (White House Memorandum for Heads of Exec-
Wall Street Journal, January 26, 2009, http://online. utive Departments and Agencies, January 2009),
wsj.com/article/SB123265601944607285.html. http://www.whitehouse.gov/the_press_office/Tran
sparencyandOpenGovernment/.
85. Kim, et al.
93. Dan Morgan, Gilbert M. Gaul, and Sarah
86. Daniel Ikenson, “Leading the Way: How U.S. Cohen, “Farm Program Pays $1.3 Billion to People
Trade Policy Can Overcome Doha’s Failings,” Cato Who Don’t Farm,” Washington Post, July 2, 2006, p.
Institute Trade Policy Analysis no. 33, June 19, A1.
2006, p. 17, http://www.freetrade.org/files/pubs/
pas/tpa-033.pdf. 94. 2008 Democratic Party Platform.

87. Edward Gresser and Daniella Markheim, “Cut 95. See, e.g., Daniel Ikenson, “Nonmarket Non-
Shoe Tariffs to Help Low-Income Families,” sense: U.S. Antidumping Policy toward China,”
Heritage Foundation Web Memo no. 1756, Cato Institute Trade Briefing Paper no. 22, March
December 21, 2007, http://www.heritage.org/re 7, 2005.

39
Board of Advisers CENTER FOR TRADE POLICY STUDIES
he mission of the Cato Institute’s Center for Trade Policy Studies is to increase public
Jagdish Bhagwati
Columbia University T understanding of the benefits of free trade and the costs of protectionism. The center
publishes briefing papers, policy analyses, and books and hosts frequent policy forums and
Donald J. Boudreaux conferences on the full range of trade policy issues.
George Mason University Scholars at the Cato trade policy center recognize that open markets mean wider choices
and lower prices for businesses and consumers, as well as more vigorous competition that
Douglas A. Irwin encourages greater productivity and innovation. Those benefits are available to any country
Dartmouth College that adopts free-trade policies; they are not contingent upon “fair trade” or a “level playing
field” in other countries. Moreover, the case for free trade goes beyond economic efficiency.
José Piñera The freedom to trade is a basic human liberty, and its exercise across political borders unites
International Center for people in peaceful cooperation and mutual prosperity.
Pension Reform The center is part of the Cato Institute, an independent policy research organization in
Washington, D.C. The Cato Institute pursues a broad-based research program rooted in the
Russell Roberts traditional American principles of individual liberty and limited government.
George Mason University
For more information on the Center for Trade Policy Studies,
Razeen Sally visit www.freetrade.org.
London School of
Economics Other Trade Studies from the Cato Institute

George P. Shultz
Hoover Institution
“A Service to the Economy: Removing Barriers to ‘Invisible Trade’” by Sallie James, Trade
Policy Analysis no. 38 (February 4, 2009)
Clayton Yeutter
Former U.S. Trade “Trade, Protectionism, and the U.S. Economy: Examining the Evidence” by Robert Krol,
Representative Trade Briefing Paper no. 28 (September 16, 2008)

“While Doha Sleeps: Securing Economic Growth through Trade Facilitation” by Daniel
Ikenson, Trade Policy Analysis no. 37 ( June 17, 2008)

“Race to the Bottom? The Presidential Candidates’ Positions on Trade” by Sallie James, Trade
Briefing Paper no. 27 (April 14, 2008)

“Maladjusted: The Misguided Policy of ‘Trade Adjustment Assistance’” by Sallie James, Trade
Briefing Paper no. 26 (November 8, 2007)

“Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards
for American Workers” by Daniel Griswold, Trade Policy Analysis no. 36 (October 25, 2007)

Nothing in Trade Policy Analysis should be construed as necessarily reflecting the views of the
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sage of any bill before Congress. Contact the Cato Institute for reprint permission. Additional
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