FPI Bulletin: Boost U.S. Economy with Free Trade—Not Unilateral Tariffs

October 6, 2011

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From FPI Executive Director Jamie M. Fly and Policy Analyst Patrick Christy

At long last, President Obama has submitted pending free-trade agreements (FTAs) with Colombia, Panama, and South Korea for Congressional approval.  It’s about time.  

Originally negotiated under President George W. Bush, all three trade deals have sat in limbo for years due to opposition principally from Congressional Democrats and labor unions.  But after much delay and internal debate, President Obama revived the agreements, renegotiating provisions in each pact to mitigate the concerns of opponents.  Now that these FTAs are finally ready to move forward—Majority Leader Eric Cantor (R-VA) has already introduced legislation to approve the trade deals in the House of Representatives—Congress should pass them without delay.

These trade pacts will create American jobs and provide a much-needed boost to the economy, increasing annual exports by more than $13 billion.  As President Obama said in a recent statement, “These agreements will support tens of thousands of jobs across the country for workers making products stamped with three proud words:  Made in America.”  Lawmakers on both sides of the aisle have echoed these sentiments.

Passage of these FTAs will also strengthen strategic ties with three key American allies:

  • The South Korean agreement would expand the scope of ties with a country that has been formally allied with the United States since 1954.  South Korea already ranks as America’s 7th largest trading partner.  The pact would reiterate—both to friends and rivals in the Asia-Pacific—America’s long-term commitment to the region.
  • Colombia, Latin America’s oldest democracy, has been a stalwart supporter of representative government and the rule of law in a region all-too-often swayed by Leftist populists.  For a time Colombia seemed on the verge of becoming a failed narco state, but it has subsequently made dramatic improvements by battling corruption and addressing internal security concerns.  A long-term U.S. trade deal will further solidify relations with Colombia, one of the region’s fastest-growing economies.
  • Panama, a state slightly smaller than South Carolina, finds itself increasingly affected by Central America’s growing drug war.  The United States has an interest in thickening both economic and security relations with this small but strategically-located nation.

In addition, the White House has made clear that it will soon move forward with talks for the Trans-Pacific Partnership (TPP), a proposed regional free trade agreement in the Asia-Pacific.  If realized, this multilateral arrangement could not only increase trade ties throughout this rapidly growing region, but also further bolster U.S. exports and economic growth.  That said, movement on the TPP, as well as any future bilateral free-trade agreements, will require strong and focused leadership from both the President and Congress in the long term.

In the near term, however, the White House should begin by speaking out more forcefully against recent Senate legislation targeting China’s currency.  This week, 79 Senators—a mixture of Democrats and Republicans—voted to procedurally move forward with the Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619)The Senate’s up-or-down vote on the bill is expected imminently. 

Although this bill does not call out China by name, it would have the effect of unilaterally imposing tariffs on Chinese goods and products if Beijing fails to increase the value of its currency.  While China’s devalued currency is no doubt problematic, unilateral tariff legislation could create many more problems than it seeks solve.  Indeed, it could lead to serious retaliation from one of America’s largest trading partners. 

Speaker of the House John Boehner (R-OH) has shown leadership on this issue, despite the lack of clarity from the other end of Pennsylvania Avenue, recently saying:

“I’m concerned about the Chinese currency situation.  There’s been an awful lot of work done over the last seven or eight years to try to bring its valuation up, but I think it’s pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency…   This is well beyond, I think, what the Congress ought to be doing.  While I’ve got concerns about how the Chinese have dealt with their currency, I’m not sure this is the way to fix it.”

A reevaluation of the Yuan will not reduce China’s exports overnight.  To take a key example, China’s currency appreciated against the dollar by almost 30% from 2005 to 2008, yet Chinese exports were largely unaffected and continued to drive that country’s economic growth.  Instead, the United States should further encourage China to fundamentally reform its financial system, and focus more on growing domestic consumption.  In turn, this would lessen China’s dependence on exports for economic growth, and make U.S. exports more competitive around the world.

At a time when the U.S. economy is stagnating, Washington can take immediate steps that promote free trade and help improve America’s economic outlook.  Congress should start by putting aside unilateral tariff legislation that will likely cause much more harm than good, and instead focus on passing trade deals with Colombia, Panama, and South Korea that will create jobs and grow the economy.

Mission Statement

The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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