Investor's Business Daily, September 13th, 2007
Globalization: As anxiety rises about a looming recession, one way to head it off is through free trade. Long a bulwark against recession, the U.S. has four free trade pacts waiting to help. Why is Congress dithering?
All eyes seem to be turned to the Federal Reserve for answers to soaring oil prices, the subprime crisis and rising joblessness worrying investors. Yet much of the U.S. economy is still intact due to something having little to do with the Fed.
That something is free trade. Free-trade deals since the 1994 North American Free Trade Agreement with Canada and Mexico, and a dozen other countries since, have helped buttress the U.S. economy from recession.
Why is that so? Exports diversify the economy and shield it from shocks, John Murphy, vice president of international affairs at the U.S. Chamber of Commerce told IBD.
"U.S. exports are growing 11% and imports are growing 4%," he noted. "The fact that we have such dynamic export growth at a time when the U.S. economy is slowing is very welcome."
Murphy said the past is instructive: "The last recession was mild because the world was no longer dependent on the U.S. as its only cylinder." Mexico's economy, he says, was able to resurrect itself fairly quickly after a severe peso devaluation in 1994 because of its free-trade pact with the U.S. and Canada.
The U.S. exports to free-trade countries at twice the rate of non-free-trade countries.
"If you consider that 95% of the world lives outside our borders," a U.S. Trade Representative's office told IBD, "and if you want to keep the economy growing, you need to reach the people in those markets. You can't do that if you're not implementing free-trade agreements."
With this going on, it's little wonder that export trade, especially with free-trade countries, is a high-wage, job-creating machine. In 2004, a fifth, or 31 million, of U.S. jobs were linked to exports, double the pre-NAFTA era, a 2007 Business Roundtable study found.
This may explain why free trade is now finding support in some unexpected places.
For example, mayors Antonio Villaraigosa of Los Angeles and Richard Daley of Chicago, both staunch Democrats, recently pleaded with Congress to pass free-trade pacts with the 128 million citizens of Korea, Colombia, Panama and Peru. Their cities will see gains of $20 billion if the deals go through.
If our representatives in Congress also can't see how these pacts help stave off recession, they deserve to be blamed if there is one.
