Some of the 2008 Presidential candidates have very different records of supporting free trade. To see a comparison of career voting records of Senators McCain (88%) and Obama (36%) on free trade policy see Cato Institute’s useful rating scale at its Center for Trade Policy Studies.
The generalization that less restricted voluntary trade policy is better than more restricted trade is as close as one can get to a near unanimously supported principle in the economic way of thinking. Even liberal, Nobel Prize winning economists like Paul Krugman favor less restricted trade. See for example Krugman’s “Globalization and Globaloney”, including his essay “In Praise of Cheap Labor: Bad Jobs at Bad Wages Are Better than No Jobs” in his book The Accidental Theorist.
And one of the better books on the basic facts and arguments supporting international free trade is Jagdish Bhagwati’s In Defense of Globalization.
What does Catholic social doctrine say about “free trade” and globalization? Chapter 7 of The Compendium of the Social Doctrine of the Church supports trade with moral qualifications.
364. “Trade represents a fundamental component of international economic relations, making a decisive contribution to the specialization in certain types of production and to the economic growth of different countries. Today more than ever, international trade — if properly oriented — promotes development and can create new employment possibilities and provide useful resources. The Church’s social doctrine has time and again called attention to aberrations in the system of international trade, which often, owing to protectionist policies, discriminates against products coming from poorer countries and hinders the growth of industrial activity in and the transfer of technology to these countries. The continuing deterioration in terms of the exchange of raw materials and the widening of the gap between rich and poor countries has prompted the social Magisterium to point out the importance of ethical criteria that should form the basis of international economic relations: the pursuit of the common good and the universal destination of goods; equity in trade relationships; and attention to the rights and needs of the poor in policies concerning trade and international cooperation. Otherwise, “the poor nations remain ever poor while the rich ones become still richer”.
Cardinal Renato Martino, president of the Pontifical Council for Justice and Peace, remarked in 2007 that “We must not demonize globalization: It can represent a great opportunity, on the condition that it is oriented truly to global solidarity and social justice, in the perspective of the universal common good of the united family of peoples.”
Notice both the reference to the potential good of international trade as well as to the distortions of protectionist policies. It seems some in the U.S. Congress, however, are choosing to ignore both sound economic thinking and Church teaching by tilting toward a more protectionist perspective.
One example will suffice. Ohio Senator Sherrod Brown is quoted in the Congressional Record on February 7, 2008 as saying “Free Trade is a dangerous myth—a false idol. Trade has never been free…. Today’s free trade agreements are ripe with rules, rules that are clearly producing the wrong results for our Nation—deficits, job loss, dangerous imports, and compromised manufacturing capabilities…. I am proud to join with Senator Dorgan of North Dakota, who has been a leader on trade policy….His bill establishes concrete benchmarks for trade bills. It is a common sense idea, a prescription for U.S. success in a global trade arena that will help us bring back the manufacturing base in this country.”
Let’s just look at two of the Senator’s negatives which he attaches to free trade; deficits and job loss. First, trade deficits as reported in our Current Account balances will likely shrink if the value of the U.S. dollar decreases against other currencies. This makes foreign imports more expensive here and our exports cheaper abroad. Our current account deficit was $811.5 billion in 2006 (See p. 37 and Table 1).
So is this current account deficit good or bad economic news? The answer is neither. Trade figures can be misleading. If we have a current account deficit but a capital account surplus is that bad? Would it be better to have a current account surplus and a capital account deficit? Depends. The ability to produce quality and affordable goods and services that both domestic citizens and trading partners want is a better indication of the health of a national economy. By that measure there is no trade crisis facing the United States.
As for job losses, it is true trade can have adverse employment effects on the domestic labor market. However, that is as useful as it is inevitable in a dynamic, open, and free economy. The alternative is to “bring back the manufacturing base”, whatever that means. It could mean whatever U.S. Senators wanted it to mean I suppose. Bring back the horse and buggy industry! The jobless rate in the U.S., despite recent recessionary signs, is 6.5% (November 2008). This compares to unemployment rates that exceeded 7% in 1992 and is close to the 6% unemployment of 2003. Cyclical unemployment is a waste of economic resources and an assault on human dignity, but unemployment remains relatively low as of early November 2008, despite decades of increasing trade volume.
Less restricted, voluntary trade, as the St. Thomas Lesson of Apostles & Markets demonstrates, increases the consumption possibilities of a national economy beyond what its production possibilities could support without trade. Most economists support less restricted trade because it encourages more efficient use of resources. And Catholic social doctrine recognizes its potential for serving the common good.
Hopefully the U.S. Congress and the newly elected President will remember these perspectives on trade in considering current and future agreements.
