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NAFTA Debate Mirage

April 20, 2008

It seems both Sen. Barack Obama and Sen. Hillary Clinton are desperately trying to run to the left of each other on trade.

Their recent statements about renegotiating the North American Free Trade Agreement exposes a real problem in how both candidates respond to the economic anxiety of people in Pennsylvania, Ohio, Michigan and other states on globalization and trade.

Most recently, the rhetoric surrounding the pending U.S.-Colombia Free Trade Agreement has been equally unhelpful, particularly since most Colombian products already enter the U.S. duty-free under existing trade arrangements and all the agreement would do is lower tariffs for U.S. products exported to Colombia and lock in needed reforms in Colombia.

The problem that people are right to be concerned about stems from fears about who they are competing against. The global economic competition of today is a two-sided coin. On one side, the increased competition leads to benefits for U.S. consumers—lower interest rates, lower prices and more choice for products.

These consumer benefits are rarely mentioned by Mr. Obama and Mrs. Clinton, which is strange given that these consumer benefits help the poor far more than they help the rich. These benefits are good things that should be celebrated. The other side of the coin includes the unfairness about which so many complain.

But we must be careful to differentiate between the competitor from overseas that wins because of business prowess, efficiency and skill, which should be encouraged, as opposed to the competitor that wins because of the market-distorting practices of its home government.

Without question, we must have a trade policy that deals properly with those complaints and, in effect, tells the displaced worker that we feel your pain, that pain arises because of a lack of free trade and free markets in other countries, and that we can and will move those countries further down the free-market, free-trade path to ensure the global market is fair. And we must honestly say some part of that pain, perhaps the lion's share, is due to the fact the world is changing and that we need education systems and market-based health-care policies that (1) adequately equip our workers for the jobs of tomorrow and (2) do not unnecessarily burden U.S. firms and workers.

Sadly, the world seems divided between those ardent free traders who have no response to the anger and frustration expressed in Ohio, Pennsylvania and Michigan right now, and protectionists whose solution is to make our market less free in order to keep others out.

But there is another path that we could and should tread. That path recognizes the enormous benefits free markets and free trade have brought about in this country, and realizes that in this globally interconnected world those benefits and freedoms are challenged if other countries are allowed to distort their markets and act in anti-competitive ways.

This other path recognizes what the protectionists and populists do not, which is that the engine of global economic growth on which we all rely has only two settings—"on" and "off." There are no "partially on" settings. There is no "on, but redistribute" setting. We have a choice. We can by our policy actions allow the global economic engine to be on (increasing total global gross domestic product [GDP]), or we can shut it down with devastating consequences for all.

The NAFTA discussions have moved on since the early 1990s. Ironically, NAFTA, of all the trade agreements being discussed is currently doing the most to recognize the reality described above, through the ongoing discussion about regulatory reform in its member countries and dealing with distorting practices that have trade effects in other members. If only other agreements placed these issues at their core.

We owe our children—who will have to face far greater competition than we ever had to face—a reasoned discourse that offers real solutions to these issues, and not demagoguery, populism and pandering. As Mr. Obama is fond of saying, "words matter."

Those political candidates who have hidden behind trade as the primary reason for economic anxiety are hiding voters from the truth of the new global economy. This is the worst kind of pandering.

A man who leaps off a cliff into the ocean can either be told how to swim, or he can be told to defy gravity and somehow jump back onto the cliff. Being told how to swim is no guarantee of survival, but in truth there has never been such a guarantee, and Americans, in particular have benefited from the uncertain waters of market capitalism. Both Democratic candidates must do a better job of responding to voters' economic anxiety with reality and not rhetoric.

Shanker Singham is chairman of the International Roundtable on Trade and Competition Policy, and is the author of a General Theory of Trade and Competition (published by Cameron May 2007). He is a partner with global law firm, Squire Sanders & Dempsey, L.L.P. He is a member of the Council of the Americas.

This article was first published in the Washington Times.