The Costs of Free Trade

Steven Landsburg, an economist at the University of Rochester and author of the excellent The Armchair Economist, has a very interesting op-ed in the New York Times today. Landsburg argues that calls for retraining and support from workers who lose their job due to competition and globalization should be ignored, especially by the Republican presidential candidates who, particular before the Michigan primary, openly pandered to such calls. According to Landsburg:

All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?

Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

I doubt there’s a human being on earth who hasn’t benefited from the opportunity to trade freely with his neighbors. Imagine what your life would be like if you had to grow your own food, make your own clothes and rely on your grandmother’s home remedies for health care. Access to a trained physician might reduce the demand for grandma’s home remedies, but — especially at her age — she’s still got plenty of reason to be thankful for having a doctor.

Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.

Landsburg is exactly right. In theory. But, in theory, communism works. Landsburg has the economics down, but misses the larger political context of free trade debates. It is true that, as Landburg argues "Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices." But that winning can't happen if Americans as a political entity reject free trade and globalization due to the costs.

Free trade by nature is particularly vulnerable to collective action problems (in short, the steel worker who loses his job to foreign competition has more incentive to lobby for redress than the millions of people who save $2 on each car they purchase have to lobby for expanded free trade). As we saw in the 2006 midterm elections, the political opposition against free trade is growing stronger, even as the economic benefits from globalization continue to increase. A recent Pew Research Center poll showed that Americans had the lowest favorable attitudes towards globalization and trade of all 47 nations surveyed.

In terms of pure economic efficiency, and maybe even morally, it might not make sense to compensate the losers from globalization. But from a political perspective, it is imperative that we do so, if only to be able to maintain public and political support for expanding free trade. If some of the gains of free trade have to be spent to maintain the regime, so be it.

TV: Bad For Your Kids, Good For Indian Women

A study by Emily Oster, an economist at the University of Chicago, reports that introducing cable television into the homes of rural women in India results in:

women [being] less likely to report that domestic violence towards women is acceptable. They also report increased autonomy (for example, the ability to go out without permission and to participate in household decision-making). Women are less likely to report son preference (the desire to give birth to a boy rather than a girl). Turning to behaviors, we find increases in school enrollment for girls (but not boys), and decreases in fertility (which is often linked to female autonomy).

Furthermore:

The effect is also large relative to, for example, the effect of education on these attitudes and behaviors: introducing cable television is equivalent to roughly five years of female education in the cross section. These effects happen very quickly; the average village has cable for only 6-7 months before being surveyed again, which implies a rapid change in attitudes.

Oster surmises, although she admits it's difficult to identify the actual causal relationship, that it exposure to attitudes and experiences different from their own that makes the difference. At root, this is the basic logic behind globalization and more specifically the policy of engagement that the US has adopted towards China. By exposing people to the values and lifestyle of western modernity, they will, in turn, become more like us, especially in their attitudes towards liberal policies.

Who knew that crappy TV could be such a powerful force for good?

A Trade Trade?

The Washington Post reports that congressional Democrats are seeking to expand the role, scope and power of the Trade Adjustment Assistance program. The TAA was implemented to help workers adjust to the impact of globalization, by providing funds for re-training, relocation, and job searching to those "whose hours of work or wages are reduced as a result of increased imports." Currently, TAA assistance is limited to those in the manufacturing sectors, whom had been the hardest hit by globalization; the Democrats are trying to expand TAA to jobs in the service industries, such as computer programmers and call-center staffers. According to the Post:

Last year, the Labor Department approved 1,400 petitions covering about 400,000 workers, according to a recent study by the Government Accountability Office, though fewer than 100,000 workers sought and received benefits. The agency denied 800 petitions, mainly because the workers did not produce "an article" and hence fulfill the basic definition of a manufacturing worker. Most of the denials involved two industries, the GAO said: business services such as computer programming and airport-related services such as aircraft maintenance.

The TAA is a grand political compromise that helps make globalization possible. While globalization produces massive net benefits, those benefits tend to be spread across the entire population, while the costs of globalization are typically localized in inefficient industries that suffer as jobs move abroad. Those that lose their jobs have a larger incentive to lobby their congressmen than the vast majority that benefit from lower prices and increased quality; thus, globalization contains the seeds of its own defeat. The TAA helps reduce the cost of economic dislocation, making it easier for the public and politicians alike to "do the right thing" by advancing the cause of globalization. The TAA has typically enjoyed broad bipartisan support, and the current bill is co-sponsored by Sen. Olympia Snowe (R-ME) and Sen. Max Baucus (D-MT).

Why is this effort from the Democrats problematic then? In the past, TAA has been part of a grand trade deal: Republicans would support TAA and in return Democrats would support free trade deals. But the current Congress doesn't seem as willing to give that quid pro quo. The extension of Trade Promotion Authority (formerly known as Fast Track, TPA means that Congress can only vote up-or-down on trade bills, rather than amending, adding, and subtracting to the deal. Without TPA, it is exceedingly difficult to conclude trade agreements, as other states are loathe to make concessions knowing that Congress may very well undo whatever US concessions are given in return.) is in danger, and Congress has delayed consideration, let alone approval, of the previously signed trade deals with Peru, Panama, Colombia, and South Korea, despite a deal in May to bring the agreements to a vote. Protectionism was a major theme of many of the Democrats who won office in last year's election, and passing TAA in the absence of a commensurate expansion of global trade will only further retard the global and domestic economy.

Hopefully, Senate Republicans will insist that the Democrats acquiesce on trade in exchange for expanding protection for those who suffer from globalization. If they don't, and the growing anti-trend continues, economic promise will grow dim.

A Victory For Engagement

I blogged a few days ago about the role of the US strategy of engagement in moderating the behavior of China and how the recent filing of suit against China by the US in the WTO was likely to produce a nice test of the strategy as well as China's preferences. Today we have more evidence that the strategy of engagement is working. The New York Times is reporting that, after two years of shielding Sudan from international sanctions over the situation in Darfur, China has recently begun applying more pressure to Sudan. According to the article:

A senior Chinese official, Zhai Jun, traveled to Sudan to push the Sudanese government to accept a United Nations peacekeeping force. Mr. Zhai even went all the way to Darfur and toured three refugee camps, a rare event for a high-ranking official from China, which has extensive business and oil ties to Sudan and generally avoids telling other countries how to conduct their internal affairs.

Why the change? The Times credits a PR campaign waged against the upcoming 2008 Olympics to be held in Beijing:

Credit goes to Hollywood — Mia Farrow and Steven Spielberg in particular. Just when it seemed safe to buy a plane ticket to Beijing for the 2008 Olympic Games, nongovernmental organizations and other groups appear to have scored a surprising success in an effort to link the Olympics, which the Chinese government holds very dear, to the killings in Darfur, which, until recently, Beijing had not seemed too concerned about.

Ms. Farrow, a good-will ambassador for the United Nations Children’s Fund, has played a crucial role, starting a campaign last month to label the Games in Beijing the “Genocide Olympics” and calling on corporate sponsors and even Mr. Spielberg, who is an artistic adviser to China for the Games, to publicly exhort China to do something about Darfur. In a March 28 op-ed article in The Wall Street Journal, she warned Mr. Spielberg that he could “go down in history as the Leni Riefenstahl of the Beijing Games,” a reference to a German filmmaker who made Nazi propaganda films.

Four days later, Mr. Spielberg sent a letter to President Hu Jintao of China, condemning the killings in Darfur and asking the Chinese government to use its influence in the region “to bring an end to the human suffering there,” according to Mr. Spielberg’s spokesman, Marvin Levy.

China soon dispatched Mr. Zhai to Darfur, a turnaround that served as a classic study of how a pressure campaign, aimed to strike Beijing in a vulnerable spot at a vulnerable time, could accomplish what years of diplomacy could not.

Groups focusing on many issues, including Tibet and human rights, have called for boycotts of the Games next year. But none of those issues have packed the punch of Darfur, where at least 200,000 people — some say as many as 400,000 — mostly non-Arab men, women and children, have died and 2.5 million have been displaced, as government-backed Arab militias called the janjaweed have attacked the local population.

It is extremely important to China that the Games go off smoothly. Hosting the Olympics represents China's aspirations to join and get respect from the international community. Landing the Games in the first place was seen as validation for China's economic and political moderation, and it scares China that something like Darfur could taint that. According to J. Stephen Morrison of CSIS, China's goal "is to be seen as an ethical, rising global power. Their goal is not to get in bed with every sleazy government that comes up with a little oil."

Again we see the logic of engagement at work. Only by getting China to value its connections with the larger international community more than those with genocidal states would China be willing to challenge a strategic ally -- especially one that provides oil that is much-needed to maintain China's economic boom. While China has not yet agreed to allow the UN to impose serious sanctions on Sudan, there is evidence that Chinese pressure has been instrumental in the little ground Sudan has ceded lately. And while it may still be a long way to the deployment of an international peace keeping force, getting China to rethink where its interests lie is a critical step, and one that could only occur in the context of engagement.

China's Poker Face

The US recently announced that it would soon file suit against China in the World Trade Organization (WTO) over Chinese trade barriers as well as violations of intellectual property through piracy of DVDs, video games, CDs, books, and other good. The decision is a change in the long-standing approach of the US, defined as "engagement," in which the US has overlooked Chinese violations of various laws and norms -- such as in human rights as well as economic -- in order to not derail the process of tying China more tightly to the international political and economic community. For example, after the Tiananmen Square massacre in 1989, the economic sanctions imposed by the US only lasted about 6 months (although a joint arms embargo imposed by the US and the EU is still in place today). When newly-elected President Clinton tried to condition renewal of Chinese Most-Favored Nation status on improvements in Chinese human rights policies as a response to the perceived soft American reaction to Tiananmen Square, Clinton was forced to abandon his threat and back away from confrontation.

The policy of engagement is based on two assumptions. One is that the process of domestic economic growth will create a climate more conducive to the development of a middle class, which in turn will demand political reforms, such as property rights and increased access to information, to protect their new-found wealth and status and to ensure future competitiveness. Such political reform will inevitably move the country closer to democracy, and following the logic of the democratic peace theory, democracies are less bellicose. Thus, China's peaceful rise can be assured by turning the country into a nation of rich, middle-class consumers.

The second thread of engagement is an argument that as China's economy grows, China will become increasingly tied to international economic and political institutions, such as the WTO. As that interdependence grows, China will come to identify its national interest with cooperation, not confrontation, as confrontation would risk upsetting the apple cart, threatening to undermine all of China's economic ties.

This larger policy of engagement, however, does create a moral hazard problem, in which China is encouraged to "cheat" in the short-term, knowing that the US is taking a long-term approach, and won't punish defection too seriously for fear for ruining the larger relationship. This explains, among other things, the "China-Google" controversy from last year.

So why is the US willing to challenge China now? For one, the process of Chinese integration into the global economy and political superstructure has proceeded nicely. Chinese entry into the WTO marked a critical junction; if China was willing to join the WTO and alter its laws to meet membership requirements, it is possible that the appropriate level of economic and political integration has occurred, and that China now identifies its interest with the status quo.

In my dissertation, as well as an article I published in the journal Security Studies entitled "Institutional Signaling and the Origins of the Cold War," I argued that institutions are vitally important to international politics not only for their intended benefits, but because they force states to reveal private information about their type and preferences. Complying with an institutional obligation forces a state to revel that it values adherence more than defection. That enables other states to then judge the first state's intentions and preferences.

China will be faced with a separating equilibrium -- a costly decision that will force actors of one type to choose one action, while actors of another type will not be willing to pay the cost and thus will choose a different action; this then reveals the preferences of the actors -- in the WTO: Risk losing in the WTO process and be forced to change its laws and behaviors (something China obviously would prefer not to do, otherwise the laws and behaviors in question wouldn't exist), or refuse to comply. Refusal will, however, force the EU and the US to question Chinese commitment to the multilateral economic and political institutions that make up the international system. Why would China be allowed to benefit from those institutions if it won't meet its obligations and responsibilities? Failure to comply would put at risk the economic growth that has buoyed the Chinese state. But, if China would prefer to pursue its own path, if it sees the extant rules as incommensurate with its national interest, it will not be willing to pay the price of WTO compliance.

The suit filed by the US against China signals that the US is ready to test Chinese intentions. All eyes will be on China to see if it complies with the institutional processes and any adverse ruling. If it does, the policy of engagement will be justified. If not, however, expect to see increased confrontation and suspicion of Chinese intentions. My guess is that China will comply. There's simply too much at stake for China to prefer being a revisionist state that seeks to undermine the status quo.

The Manama Dialogue: Asia's Role in the Persian Gulf

Sorry for the delays in blogging the Manama Dialogue...there seems to be some problems in getting governments to approve the release of the transcripts of their officials. But, I now have a few more addresses....

Speaking on Asia's role in the Persian Gulf was H.E. Mr. M.K. Narayanan, National Security Advisor to the Prime Minister of India and H.E. Mr. Sun Bigan, China's Special Envoy to the Middle East. The full texts of their speeches can be found here and here respectively. Unfortunately, the speeches seem to be plagued by what I have previously identified as the Immutable Law of Speeches by Public Officials: the fact that the more important and higher up in government the speaker, the less meaningful the speech. Both of these speeches are long in vague generalizations, but short in concrete suggestions for solving the serious security problems. My guess is that the most interesting work at the Manama Dialogue is happening off-the-record at dinners, over drinks, and between plenary sessions. Note that there are also break-out groups, which are not being made part of the public record.

Mr. Narayanan makes a few interesting points, perhaps the most interesting of which is:

There are other issues as well which demand close attention. Any calibration of effort to create stable conditions cannot, for instance, ignore the role of Iran. India has long-standing ties with Iran. It is an important trade partner, apart from providing for India’s access to Central Asia. Like any other nation, Iran has its security concerns and perceptions; these need to be suitably addressed. Regional security quite clearly requires that there is a dialogue between the concerned parties in this regard. Non-engagement cannot be the basis of a long-term strategy.

India and Iran have long shared dissatisfaction at the exclusion from the parents' table, each feeling itself to be ignored and underappreciated by the most powerful players on the international stage. This has contributed to a synchronization of many mutual interests, including nuclear proliferation. The US and the West has long tried to get India to participate in ramping up pressure on Iran, which India has refused to do. The comments by Narayanan indicate that India will continue to press for direct negotiation, as well as an acknowledgement of Iran's legitimate security concerns. India's own proliferation makes it unlikely that India would support sanctions or punishments on Iran. Here, India's interests diverge from those of most of the relevant actors in the Gulf.

Narayanan does express very strong support for the stabilization efforts in Afghanistan, which is not surprising a stable and secure Afghanistan provides a check on India's major concern, Pakistan. Narayanan stated that:

Taliban’s incursions into Southern Afghanistan have been made possible by the existence of support structures across the border from Afghanistan. Any destabilization of the moderate and democratic Afghan Government would have incalculable long-term consequences, not only for Afghanistan but for almost all countries in the region, including India, and also Central Asia. It could, in turn, also have a domino effect with extremist and fundamentalist elements gaining the upper hand, endangering peace and stability along a very wide arc. This could have incalculable global consequences. Thus, the international community has a vital stake in ensuring that Afghanistan never again becomes a safe haven for extremist and fundamentalist forces.

Note the not-so-subtle accusation of Pakistani support for the Taliban. This is an issue of vital importance for India, and an area where pressure can be placed on India to, perhaps, join international efforts to deal with Iran. It does point out why Afghanistan is so critical for global security, and why NATO's effort there must not fail.

Mr. Bigan's speech was even less substantive than was Mr. Narayanan's. However, given China's recent forays into Africa, the Persian Gulf represents an excellent opportunity for China to continue to extend its influence and balance the US and the West. Thus, perhaps the most important part of Bigan's address was:

In order to build a harmonious Gulf, we must be committed to promoting economic and social development of the region. Development is a precondition to eradicate the destabilizing factors of regional security, and an important basis and the guarantee of peace and stability. Sustained peace is impossible without sustained development. We support the Gulf countries to strengthen regional economic cooperation, and to endeavor to set up an open, fair and regulated multilateral trading system, so as to realize mutual benefit and win-win results with other economies. We also support the Gulf countries to choose a model of development that adapts their own historical traditions, cultural characters and development levels. We believe that sustained and sound economic and social development will provide a solid basis for the regional security.

Again, we see a strong argument for globalization. China has learned, perhaps more than any other country, of the power of economic reform and openness. This may herald a drive for China to increase its presence in and connections to the Persian Gulf. But more importantly, it entrenches the need for economic liberalization, which cannot help but produce, albeit slowly, political liberalization.

Manama Dialogue: Keynote Address

The Manama Dialogue opened last night in Bahrain, with a keynote address from HRH Prince Muqrin Bin Abdulaziz Al Saud, Chief of General Intelligence, Saudi Arabia. The full text of his remarks can be found here.

The Prince made several points worthy of comment. First:

The fact that Israel is having nuclear weapons is the most dangerous threat against the Gulf security for both the near and the middle future. Consequently, some countries in the region took part in the competition for having nuclear weapons, as this is currently witnessed. It may be unanimously agreed that the spread of mass destruction weapons in the region will make the security issues more complicated in the whole region. It will rather give the right for the countries in the region to adopt policies and to make alliances with the countries of nuclear technology. It will also stimulate moderate countries in the region which adopts policies for eliminating mass destruction weapons, to make nuclear programs (whether concealed or declared) aiming at creating military balance in the region in order to defend their interests, gains and beliefs.

We believe that most of the problems in the region, their consequences of political attitudes and the increase of the terrorists’ acts, are closely related to the Middle East’s first issue, the Palestinian issue which will have a constant impact in the whole region since it has serious effects upon the international security and stability. This is in case this issue remains unsolved.

In view of the aforesaid, the international powers, that are concerned in this issue, are asked to perform there role impartially so as to find suitable solutions that would create peaceful coexistence among the countries in the region including Israel. Such coexistence should be based upon justice and equality in accordance with the Arabian Peace Initiative adopted in Beirut Summit in 2002. This will guarantee a fair solution for the Arab – Israeli conflict.

Two things are wrapped up here: First, the issue of the proliferation of nuclear weapons in the Middle East/Persian Gulf; and second, the Israel-Palestine conflict. Of course, if these are the two most pressing issues of Persian Gulf security, and if NW proliferation is "the most dangerous threat against the Gulf security for both the near and the middle future" then why is Israel not attending this summit? It is absurd to not invite the country that is believed to be the primary security concern, particularly when the likely solutions to those concerns are going to be negotations, not confrontation. This points out the gap between the rhetoric coming out of these countries with the political realities.

Israel has long been an attractive and useful whipping point for the authoritarian regimes of the Middle East and Persian Gulf. This is not to deny that there are serious political concerns or that Israel is never at fault or to blame. But Israel is most definitely not, on either dimension identified by Prince Muqrin (I apologize if I am violating some protocol with such a reference...I've never had to refer to royalty before), the primary threat to the region.

Israel developed nuclear weapons sometime in the late 1960s and there has been little to no proliferation pressure on its neighbors since. In fact, it was Israel's acquisition of nuclear weapons that finally convinced Egyptian President Anwar Sadat that a military victory by Arab armies was impossible, which directly led to the Camp David Peace Accords.

Prince Muqrin insinuates that the current proliferation crisis in Iran is a response by Iran to Israel's nuclear capability. But this makes no sense. Israel has never, except in the context of the current crisis, threatened Iran. In fact, quite the contrary, with Iran President Mahmoud Ahmadinejad repeatedly threatening to destroy Israel. Rather, Iran's desire for nuclear weapons is much more a response to US hegemony. The international community has, in the wake of two US-Iraq wars, learned that no state can become a regional power unless it can challenge the US, and no state can stand up to the US without a nuclear weapon.

Furthermore, while many countries repeatedly point to the Palestinian problem as the key to resolving larger regional issues, I'm very skeptical of such a claim. I am on the record stating that Israel needs to do more enable a negotiated settlement. However, while it may be true that the "Arab street" (which includes Iran, a non-Arab country...maybe it should the "Muslim Street?") cares deeply about the Palestinians, there is little evidence that the regimes are willing to pay anything more than lip service to the cause. Historically, Arab solidarity has been little more than a strategically-driven pipe dream, and there has been little effort to advance the process or ease the misery of the Palestinians. Concern for the Palestinian cause is a useful way for the region's leaders to deflect public attention and anger from their own shortcomings, and provides a important outlet for the frustrations of their peoples. But there has been very little political pressure or incentive coming from these regimes for any kind of serious settlement. For example, where is the pressure on Hamas to recognize Israel?
Such a step could be vitally important in transforming the political dynamic.

Again, if Israel is so vitally important and threatening to the region, then at the very least, Israel should be invited to such an event as this. Its absence indicates the supremacy of politics over policy.

The second noteworthy comment by Prince Muqrin is:

Other factors of threat against security in our region are the issue of non-employment, and the foreign labours. Non-employment in the Gulf countries is in constant increase. It is a factor of instability that affects the security of the region’s countries. As the number of the untrained foreign labours who enter legally to our countries is getting more and more, in addition to such labours who enter illegally, then there will be serious economic, political, security and social effects. Illegal labours make labour camps in the gulf countries with the purpose of getting illegal profits. So, if this problem is not solved by the cooperation of the countries of origin of those labours, this will aggravate the security and social problems and the damages are to be incurred by the countries of the region, especially, the Gulf countries.

Now here the Prince is, I believe, right on. Globalization is the key to the economic development and success of these countries. Most of the countries have little economic productivity outside of oil, with Jordan being a notable exception. A state's economy needs to be broad-based, resting on many different sectors. For too long, the oil-based regimes of the Middle East and Persian Gulf have counted on oil revenues to buoy their economies and countries as a whole, but that will no longer suffice. These countries must be, and are, as evidenced by the large numbers of Middle East and Gulf countries in the WTO, willing to open their economies to international trade in order to develop their own domestic production.

However, such openness will not be easy. Free trade always produces short-term dislocations, as capital moves to its most efficient uses. Furthermore, increased openness to trade also producues increased openness to outside cultural influences, which could exacerbate some of problems that currently exist between Islam and the Western countries. Finally, economic reform demands and produces political reform. How far will these non-democratic regimes be willing to go and how much power will they be willing to give up to improve economic and living conditions for their people?

This may, in fact, be the most important question for Gulf security. Economic and political opportunity are some of the strongest predictors of peace and stability in international politics. As more countries move to improve the domestic conditions within and the political structures that control, the more likely it will be that security concerns can be resolved through negotiation and cooperation, rather than competition.

More On The New Congress And Free Trade

Yesterday, the House of Representatives failed to approve Vietnam's permanent normal trade relations, which is a pre-condition for Vietnam's entry into the World Trade Organization, by a vote of 228-161. Because the vote was held on the "suspension calendar," it required a 2/3 majority to pass, and the bill will likely pass when re-voted on during normal proceedings later this week.

What's disturbing is that the bill, which Democratic leaders had referred to as a "slam dunk," was so widely opposed by Democrats. While Republicans voted 2-1 for giving Vietnam PNTR, Democrats split almost evenly on the issue. As I blogged about yesterday, the prospects of anti-trade Democrats scuttling international free trade is bad for many MANY reasons. It's bad for the domestic economy, it's bad for developing countries, it's bad for the poor here and abroad. But it's also bad on larger issues as well. Free trade and the international economy is a critical element of the logic of the democratic peace, and manifests itself in, for example, the current policy of engagement with China. Free trade is critical for institutionalizing international relationships, which helps states escape the anarchic pressures of the international system that creates security dilemmas, arms races, and raises tensions. Free trade is a vital asset of soft power. Free trade is so important to so many aspects of national and international security that undermining it could be said to be, without exaggeration, disastrous.

Things are likely going to get worse when the newly-elected nationalistic illiberal Democrats take their seats. Will President Bush expend his precious (and limited) political capital to advance free trade? Not likely, given the other issues on his plate. However, none of those issues, Iraq included, are likely as important to the economic health of this country, the international system, and international peace and stability as free trade. A Democratic Congress must not be allowed to block the spread of trade.

What Do Patrick Buchanan And The New Democratic Congress Have In Common?

Answer: An antipathy towards free trade.

As Buchanan makes clear here, he remains a staunch opponent for free trade, disguising his economic philosophy with a flag of patriotic nationalism. He asks:

But if the free-trade era is over, what will succeed it?

A new era of economic nationalism. The new Congress will demand restoration of its traditional power to help in shaping trade policy. When the U.S. trade deficit for 2006 comes in this February, it will hit $800 billion, pouring more fuel on the fire.

A rising spirit of nationalism is evident everywhere in this election, not simply in the economic realm. Americans are weary of sacrificing their soldier-sons for Iraqi democracy. They are weary of shelling out foreign aid to regimes that endlessly hector America at the United Nations. They are tired of sacrificing the interests of American workers on the altar of an abstraction called the Global Economy. They are fed up with allies long on advice and short on assistance.

Other leaders in other lands look out for what they think is best for their nations and people. Abstractions such as globalism and free trade take a back seat when national interests are involved.

We are entered upon a new era, a nationalist era, and it will not be long before the voices of that era begin to be heard.

Free trade was, in a sense, the "stealth" issue of the recent elections, as it received little public attention and yet is perhaps the foreign policy issue on which Congress can have the most effect. And while few candidates made trade their main issue, there is a lot of evidence that many of the new Congresspeople share Buchanan's opposition to free trade. For example, Jacob Weisberg writes in Slate:

Many of the Democrats who recaptured seats held by Republicans have been described as moderates or social conservatives, who will be out of synch with Speaker-to-be Nancy Pelosi. The better term, with props to Fareed Zakaria, is probably illiberal Democrats. Most of those who reclaimed Republican seats ran hard against free trade, globalization, and any sort of moderate immigration policy. That these Democrats won makes it likely that others will take up their reactionary call. Some of the newcomers may even be foolish enough to try to govern on the basis of their misguided theory.

...An even harder-edged nationalism defined many of the critical House races, where Democrats called for a moratorium on trade agreements, for canceling existing ones, or, in some cases, for slapping protective trade tariffs on China. These candidates also lumped illegal immigrants together with terrorists and demanded fencing and militarization of the Mexican border. In Pennsylvania, Democratic challengers Chris Carney and Patrick Murphy defeated Republican incumbents by accusing them of destroying good jobs by voting for the Central American Free Trade Agreement and being soft on illegal immigration. "Fair trade" candidates also won back formerly Republican seats in Ohio, Indiana, Iowa, North Carolina, and Wisconsin. Jerry McNerney, who defeated 14-year Republican incumbent Richard Pombo in California, says on his Web site: "I am deeply worried about the way this nation is plunging head-long into the global economy without a plan or a national consensus."

Sebastian Mallaby of the Washington Post echoes Weisberg's fears on trade, writing:

During their long years in the wilderness, Democrats lashed out against trade and globalization, even though denying the economic case for trade is like pretending that tax cuts pay for themselves. Now that they have won Congress, the Democrats must prove that they are more than the mirror image of their opponents. This means reviving the pro-market centrism of the Clinton era -- a spirit that lives on in the form of the Hamilton Project.

...During the recent congressional campaign, Democratic candidates mostly had the right diagnosis and the wrong prescriptions. They saw that middle-class and poor Americans have not experienced wage gains during the past five years of growth, and they saw that families are one health crisis away from financial hardship. But the Democrats' remedies -- bashing Wal-Mart, railing against globalization -- offered little more than symbolism for the poor and middle class while promising damage to the economy.

Why is trade is a critical issue? Because protectionism, even when garbed with the much nicer "fair trade" moniker, can create devasting economic inefficiencies. For example, Walter Williams points out:

The Washington-based Institute for International Economics has assembled data that might help with the answer. Tariffs and quotas on imported sugar saved 2,261 jobs during the 1990s. As a result of those restrictions, the average household pays $21 more per year for sugar. The total cost, nationally, sums to $826,000 for each job saved. Trade restrictions on luggage saved 226 jobs and cost consumers $1.2 million in higher prices for each job saved. Restrictions on apparel and textiles saved 168,786 jobs at a cost of nearly $200,000 for each job saved....

A lot is at stake for those in the sugar industry, workers and bosses. They dedicate huge resources to pressure Congress into enacting trade restrictions. But how many of us consumers will devote the same resources to unseat a congressman who voted for sugar restrictions that forced us to pay $21 more for the sugar our family uses? It's the problem of visible beneficiaries of trade restrictions, sugar workers and sugar bosses, gaining at the expense of invisible victims -- sugar consumers. We might think of it as congressional price-gouging.

It gets worse. Not only is protectionism an unabashed economic loser, it also most hurts the very people the Democratics typically claim as their constituents. From Edward Gresser's Toughest on the Poor in the Nov/Dec issue of Foreign Affairs:

Tariff policy, without any deliberate intent, has evolved into something astonishingly tough on the poor. Young single mothers buying cheap clothes and shoes now pay tariff rates five to ten times higher than middle-class or rich families pay in elite stores. Very poor countries such as Cambodia or Bangladesh face tariffs 15 times those applied to wealthy nations and oil exporters.

Last year, the U.S. Customs Service collected $18.6 billion in tariff revenue on $1.1 trillion in goods imports -- meaning the effective U.S. tariff rate is 1.6 percent. But the low overall average masks something more troubling. Tariffs on industrial imports are not just low but extremely
low. For expensive consumer goods such as cars, appliances, and televisions, rates are also generally low and are further reduced in practice by trade agreements with Mexico and Canada. But for light consumer goods, the story is different. Tariffs on these products (with a few
exceptions, such as toys and furniture) remain at levels other industries last saw in the 1960s and 1970s: for instance, 8.7 percent for cutlery and tableware, 13.8 percent for suitcases and handbags, 10 percent for bicycles, and 11.4 percent for shoes and clothes, the largest category of consumer imports for the United States. In effect, the United States now has two tariff systems.
One, for low- tech consumer goods, has an average rate of 10.5 percent. The other, for everything else, has an average rate of 0.8 percent.

Cheap sneakers valued at $3 or less per pair carry tariffs of 48 percent (a rate, incidentally, far above that of any product on the administration’s steel list). Virtually none of these shoes is made in the United States. Last year, the United States imported 16 million pairs of these sneakers, at a total cost of $35 million. Thus the average price at the border was $2.20 per pair. The Treasury Department then collected $17 million in tariffs, adding another $1.06 per pair to the buyers’ cost. The extra dollar and change is then magnified by retail markups of around 40 percent and state sales taxes of about 5 percent to raise the final consumer price of the sneakers from about $3.25 (without tariffs) to $4.80 per pair (with tariffs).

Such tariff-based overpricing exists, though at less dramatic levels, in store aisles stocking baby clothes, T-shirts, silverware, and other typical family products. Because it is most pronounced on the cheapest shoes and clothes, its effect falls most heavily on single-parent families.
Incomes for these families are very low: at an average of about $25,100 per year, they are about 40 percent of a typical two-parent family’s income. But single-parent families face shoe and clothing bills nearly as high as those of wealthier families. In total, the average singleparent
family spends nearly $2,000 a year on clothes and shoes. Depending on the mix of purchases, as much as $400 of this total may simply be price inflation due to tariffs. Budgets for other tariffed goods, though smaller, are still a larger expense relative to income for poor families than for rich families. And so single-parent families lose much more of their income to tariffs than do other
families.

Average tariffs on European exports to the United States -- primarily cars, power equipment, computers, and chemicals -- now barely exceed one percent. Developing countries such as Malaysia, which specialize in information-technology products, get rates just as low. So do natural- resource exporters such as Saudi Arabia and Nigeria. Middle-income exporters that ship a broader variety of goods, such as China, Thailand, and Brazil, face rates typically between two percent and four percent -- above average but still not exorbitant. The least-developed
Asian countries, however, take it on the chin. For Bangladesh, Cambodia, Nepal, Mongolia, and a few others, clothes make up 90 percent of all exports to the United States. So they face average tariff rates of 14.6 percent -- nearly 10 times the world average, and 15 times the rate for wealthy Western countries. Translated into real dollars, the disparities can be remarkable.
As Table 3 notes, the U.S. now collects more tariff revenue from Bangladeshi goods than from French goods, even though Bangladesh exports $2 billion in goods a year to the United States and France $30 billion. Cambodia’s exports to the United States total $900 million and
Singapore’s usually reach $15-$20 billion -- but the U.S. government collects nearly twice as much revenue from Cambodian goods as from Singaporean goods.

What explains the willingness to impose such massive economic costs on the poorest American citizens, the poorest developing countries, and the US and global economy as whole? Trade presents an exceedingly difficult collective action problem that makes those opposed to it much more political powerful than those in favor of free trade. Returning to the sugar example, each US citizen may be $21 more each year due to sugar trade, but that loss is disguised in hundreds or thousands of transactions containing sugar. However, the 2,261 people whose jobs were saved, and would be at risk from free trade have much more to lose. Their potential costs are concentrated and huge. Sugar workers will lobby much louder for protection that will the free traders.

It's still too early to predict that a Democratically-controlled Congress will scuttle free trade. Indeed, just recently leading Democrats declared that there would be no problem admitting Vietnam in to the WTO. But, free trade is far to important to this country, the international political and economic environments (let's not forget the Smoot-Hawley Tariff), and the country's and the world's poor to let it be undermined by economic and political nationalists. For those Democratic voters who did such a great job making your voices heard, don't drop the ball on this one.

Stopping the Sex Trade and Human Trafficking

Nicholas Kristof has another excellent piece in today's New York Times in which he shines a light on one of the world's more horrible, and underreported, problems: human trafficking and the illicit sex trade. Everyone should read this column. Some of the highlights:

In 2000, Congress passed landmark anti-trafficking legislation, backed by an unlikely coalition of evangelical Republicans and feminist Democrats. Even today, the Congressional leaders against trafficking include a conservative Republican, Senator Sam Brownback, and a liberal Democrat, Representative Carolyn Maloney.

But the heaviest lifting has been done by the State Department's tiny office on trafficking — for my money, one of the most effective units in the U.S. government. The office, led by a former Republican congressman, John Miller, is viewed with suspicion by some career diplomats who fear that simple-minded conservative nuts are mucking up relations with countries over a peripheral issue.

Yet Mr. Miller and his office wield their spotlight shrewdly. With firm backing from the White House (Mr. Bush made Mr. Miller an ambassador partly to help him in his bureaucratic battles), the office puts out an annual report that shames and bullies foreign governments into taking action against forced labor of all kinds.

Under pressure from the report, Cambodia prosecuted some traffickers (albeit while protecting brothels owned by government officials) and largely closed down the Svay Pak red-light district, where 10-year-olds used to be openly sold. Ecuador stepped up arrests of pimps and started a national public awareness campaign. Israel trained police to go after traffickers and worked with victims' home countries, like Belarus and Ukraine. And so on, country by country.

Some liberals object to the administration's requirement that aid groups declare their opposition to prostitution before they can get anti-trafficking funds. But in the past, without that requirement, U.S. funds occasionally went to groups promoting prostitution. And in any case, the requirement doesn't seem to have caused many problems on the ground (partly because aid groups sometimes dissemble to get money). In Zambia, India and Cambodia, I've seen U.S.-financed programs work closely with prostitutes and brothel owners when that is needed to get the job done.

Moreover, Ambassador Miller and his staff aren't squeamish prudes. Mr. Miller is sympathetic to the Swedish model: stop punishing prostitutes, but crack down on pimps and customers. He says that approach seems to have reduced more forced prostitution than just about any other strategy.

The backdrop is a ridiculously divisive debate among anti-trafficking activists about whether prostitution should be legalized. Whatever one thinks of that question, it's peripheral to the central challenge: vast numbers of underage girls are forced into brothels against their will, and many die of AIDS. On that crucial issue, Mr. Bush is leaving a legacy that he and America can be proud of.