The Tortuous Road to Free Trade

 

The Euro–South Korea Free Trade Agreement took effect on July 1, 2011, only eight months after the Agreement was approved by legislators of both countries. By contrast, the U.S.–South Korea Free Trade Agreement was first signed on June 30, 2007, and was held up by opposition from congressional Democrats, unions, and environmental organizations. Free trade agreements with Panama and Colombia were also held back in the face of congressional opposition. Since the time these deals were entered into, numerous bilateral trade agreements have been signed by countries around the globe. The only free trade agreement approved by the U.S. Congress since the end of 2007 was with Peru.

As senator, and during his campaign for presidency, President Barack Obama expressed his skepticism of free trade generally and his opposition to the proposed agreements with South Korea, Panama, and Colombia. As president, one of his first actions was to disallow the entry of Mexican trucks into the United States, a violation of NAFTA, which was recently reversed. However, faced with a slow economic recovery and intractable unemployment, the president has embraced free trade and has supported the long-stalled agreements, with modifications for additional environmental and labor standards. This change in policy was strongly supported by all his economic advisors, business leaders, and most economists.

After being assured of congressional support of the stalled agreements, the president announced that he would not submit them without concurrent renewal also of the Trade Adjustment Assistance Program. This last-minute demand threatens the trade agreements, which virtually all economists view as desirable for new job creation and increased exports.

 

It is interesting to contrast the president’s attitude to free trade with that of his Democratic predecessor, President Bill Clinton. During his presidency, Clinton concluded several important trade deals, including free trade agreements with Cambodia, Singapore, Mexico/Canada (NAFTA), a landmark agreement for China to enter the World Trade Organization, and actively supported commercial liberalization efforts in other nations. Clinton’s trade policies followed the classical theory of free trade: that lower tariffs would result in lower prices, greater exports, a stronger economy, and alleviation of poverty throughout the world. Despite the rhetoric, President Obama’s actions are anti-trade. The clear risk is that the United States will be left behind in a globalized world whose economic underpinnings rely on supportive trade policies.

Alfred A. Lagan

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Alfred Lagan is the founder and chairman of Congress Asset Management Company, a respected investment management firm in Boston, MA. Prior to starting Congress in 1985, he held senior investment positions in several financial services firms. Mr. Lagan holds an MBA from New York University with distinction, and a BA in economics from Iona College. He was born in New York City of Irish immigrant parents, and served four years in the Navy.

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