RALEIGH – With President Bush scheduled to visit Gaston County on Friday to promote the Central American Free Trade Agreement, I guess that now might be a good time to administer this little quiz on geography and economics.
First, name the Central American countries that border the People’s Republic of China.
Second, name the year when China first became America’s largest Central-American trading partner.
Stumped? Then count yourself lucky. You may well have the requisite knowledge to debate the pros and cons of CAFTA in a sensible manner. That is, you recognize that China is not located on a narrow strip of land to our south.
There is little question that free trade confers net economic benefits in virtually all circumstances. This is a fundamental economic truth known to thoughtful students of the discipline for more than two centuries. If producers in another country can make and sell a good cheaper than producers in your own country can, you are better off buying the foreign-made good and the using the savings to purchase other goods you desire, or else invest the savings in the capital necessary to produce and market the goods your country is still better at making.
In fact, the irresistible logic of free trade is even niftier than that. Let’s say that Americans can make widgets better and less expensively than, say, Salvadorans can. But let’s further say that Americans are also better at producing woodgets, indeed they are even better at producing woodgets than they are at producing widgets. It can then make sense to let the Salvadorans produce and sell widgets to America, because scarce American capital and labor is better employed at producing woodgets. That’s called comparative advantage, and given unfettered markets it strongly benefits American producers and consumers as a whole.
Of course, trade does not have indistinguishable affects on all parties. There are specific companies and individuals that lose sales to imports. In North Carolina, it is obvious that increasing imports of products traditionally made here – including apparel and some furniture and textiles – have driven longtime manufacturing enterprises in the state to downsize, move elsewhere, or shut down.
After NAFTA was passed in the mid-1990s, some North Carolina manufacturers shed jobs or went away. The total number of manufacturing jobs declined significantly, as did the percentage of North Carolinians employed in the sector. Of course, these declines were also occurring before the passage of NAFTA, and in many if not most instances the increased trade with Canada and Mexico engendered by NAFTA had little to do with the trend.
On balance, NAFTA improved the American economy. As Daniella Markheim of the Heritage Foundation noted recently, the U.S. added nearly 18 million new jobs from 1993 to 2003, and exports to Mexico and Canada rose from $134 billion to $251 billion during the period. On balance, NAFTA conferred net benefits on the North Carolina economy, too, which prospered during most of the period.
What it did not accomplish, at least as much as some hoped, was to fend off Chinese competition to North American firms in sectors such as textiles and furniture. The point is that China’s success is not a consequence of NAFTA, and it would not be further accentuated by CAFTA. As before, many American manufacturers hope that CAFTA will help their competitive position vis-à-vis China by fostering closer, less-taxed ties with their Central American business partners.
Trade barriers are taxes. Cutting taxes helps the economy. I trust President Bush will point this out.
Hood is president of the John Locke Foundation.