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Who’s Afraid Of Free Trade?

Both this issue’s cover story on Gillette and our feature on the delicate future of U.S. trade relations with Japan …

Both this issue’s cover story on Gillette and our feature on the delicate future of U.S. trade relations with Japan highlight how much an interdependent world economy is taken for granted today. More than 70 percent of Gillette’s revenue and profits come from outside the U.S., and the ranks of other U.S. transnationals with at least 50 percent of non-U.S.-derived earnings are growing each year.

Nonetheless, there is a growing paradox. Amid increasing globalization of business and economic activity, there is a rising tide of isolationism. To a degree, such a tendency is understandable after a long Cold War in which foreign affairs dominated political life. A return to domestic priorities is one thing, but Pat Buchanan’s protectionist rhetoric is mining deep sympathy. Buchanan is not likely to become president, much less the Republican nominee, but his message is being enthusiastically received-and putting other contenders on the defensive.

Few can compete with the TV-presenter oratory of Buchanan, who would have the U.S. cancel NAFTA; withdraw from the World Trade Organization; and impose a 10 percent tariff on Japanese goods, a 20 percent tariff on Chinese goods, and a “social tariff” on all goods produced by cheap labor in emerging markets. Buchanan, once an ardent free trader when he was a speechwriter in the first Reagan administration, knows better. Yet he is joined by isolationists on the left such as President Clinton’s Secretary of Labor, Robert Reich. Reich, who excoriates companies for transferring production to “foreign workers at low wages,” would like to see a second Clinton administration punitively tax companies that lay off American workers. In other words, both the populist left and right want to mug free trade.

As Murray Weidenbaum, chairman of the Center for the Study of American Business, said in a speech last November, “isolationism amid globalization is simply unachievable.” Total trade turnover as a percent of GDP has doubled over the last several decades. U.S. firms are world leaders in many important industries, ranking first in revenue in aerospace, apparel, beverages, chemicals, computers, food, motor vehicles, paper products, petroleum, pharmaceuticals, cosmetics, and photographic and scientific equipment. Particularly significant, Weidenbaum points out, is that U.S. exports of high-technology products steadily exceed our high-tech imports. “There is no need to take the low road of economic isolationism to deal with foreign competition,” argues the former chairman of the President’s Council of Economic Advisors from 1980 to 1984. “Instead we should take the necessary actions that make American business and labor more competitive. These ingredients are well-known: tax reform, regulatory reform, and a modern labor policy.”

The problem is that most politicians preaching about the virtues of a free and open trading system are seen as bloodless and boring. Even workers at companies such as Caterpillar and Boeing, which depend upon international contracts, see their jobs threatened. Yet, according to the U.S. Department of Commerce, every $1 billion of exports supports about 20,000 jobs. In 1994, more than 3 million new jobs-twice as many as in 1985-depended on exports to Asia alone. The notion that the U.S. has to fear foreign producers is not true. The U.S. remains the world’s richest and most productive economy. With less than 5 percent of the world’s total population, it produces a quarter of the world’s total output of goods and services. The fortunes of particular industries ebb and flow-as they always have-but, contrary to Reich and Buchanan’s view of the world, it is not deindustrializing.

It’s an open question as to which, if any, of the presidential contenders will take the high road in defending an open world trading system. Certainly, business leaders should point out that present and future jobs-America‘s economic future, in fact hinge on keeping trade as free as possible.

About JP Donlon

JP Donlon
JP Donlon is the Editor-in-Chief of Chief Executive magazine.