- The Washington Times - Sunday, February 10, 2008

ANALYSIS/OPINION:

Election years are never kind to free trade. Despite free trade’s broad based gains to consumers, it is just too easy for politicians to point out the alleged harm, and too complicated to express the benefit.

In this election cycle, we have seen in both parties the rise of populism and protectionism. The success of John Edwards in Iowa and the rise of Mike Huckabee in the primary contests is further evidence of a real fear in America of globalization, trade and the new world that it brings in. Gov. Huckabee has noted that he does not want U.S. manufacturing to come from Europe and Asia, and its food from China.

Despite their rhetoric, neither man sees himself as a populist or protectionist. However, both view the world in stark zero sum terms, where if one country wins, another loses. Ultimately, theirs is the world of protectionism and mercantilism, and the policies that resulted in global conflict during the first half of the 20th century.

Then there are those who claim to be free traders, but who also say trade must be fair. But fairness is in the eye of the beholder. Many Democrats have suggested “fair” means labor and environmental standards must be attached to agreements. But this detracts from the comparative advantage of developing countries and misunderstands how the global economy works.

In these changing times, it is vital the candidates recognize how the global economy really works. While free trade has led to unprecedented growth in the last 60 years, an increasingly interconnected world means the restrictions and barriers within a country’s borders are just as important as those at its borders. Over the last 20 years, U.S. companies have increasingly made more money selling their goods and services overseas than they do domestically. With the financial crisis unfolding around us, their continued profitability and viability — and therefore the strength of the market and security of our pensions and economy — depend on these U.S. firms’ continued success in overseas markets.

If countries engage in forms of protectionism that distort markets and limit U.S. firms from succeeding even after they enter the market, or if foreign firms are artificially advantaged by their governments with better access into U.S. markets than their ordinary business prowess would entitle them, that is a problem that a 21st century international economic policy must address. This policy needs to deal with the existence of two opposing economic models that are doing battle on the global stage.

The first model stresses economic freedom and individual actions and is based on free trade, competitive markets, and protection of property rights. At its core, it is based on the belief that the individual can be unleashed to create wealth for all. It celebrates and enforces the intellectual property rights of research-based industries and does not denigrate them, because it understands that intellectual property derives from the property right itself.

The second model is based on collective or government action and its core is protectionism, mercantilism and the notion it is up to governments to steer market outcomes.

The first model made America the dominant global economic power. By submerging the rights of the individual, the second model generally destroys the economy and delivers ever more power to government control.

While trade and technology do lead to economic dislocations, the creative destruction of market forces has benefited America. Protectionism is not the answer. A much better approach is to recognize that genuinely free trade lifts the global economy and to develop policies based on this fact:

• If Americans are to benefit in the new economy, we will need to ensure that our children are educated and skilled to compete — which will mean a much greater focus on math and sciences.

• Second, for American businesses to remain competitive, government intervention in the global economy must be minimized and we must defend U.S. firms from the actions of foreign governments that artificially distort their markets.

• Third, the hidden costs of doing business must be addressed, including the rising cost of health care. Allowing doctors and patients to be more closely connected and giving incentives for the forces of competition to drive costs down will ultimately produce lower costs and more choice for patients.

There is no reason American firms and workers should not benefit immensely from this changing world. Throughout recent economic history, it is America with its vision of limited government and individual empowerment that has benefited the most.

But we are at a pivotal moment. We can either look up to the hope of this new world, or we can listen to the voices of fear and protection.

Americans have always believed in individual freedom because we are a self-reliant people who have faith in our God-given talents. It is vital for our future that, whoever becomes our president, he or she leads by understanding and spreading this message of hope and not fear.

Shanker Singham is chairman of the International Roundtable on Trade and Competition Policy and author of a “General Theory of Trade and Competition” (Cameron, May 2007). He is a partner with global law firm of Squire Sanders & Dempsey, L.L.P.


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