Apr 15 2008

The politics of free trade vs. protectionism

Bush pushes Congress to vote on Colombia trade pact. – Apr. 14, 2008The image “http://welkerswikinomics.com/blog/wp-content/uploads/2008/04/gains-from-trade_2.jpeg” cannot be displayed, because it contains errors.

Click on the graphs for full-size versions

The benefits of trade, while visibly demonstrated by two basic economic models, the production possiblities curve and a simple supply/demand diagram, are not as straightforward when politics is involved. Case in point: the Bush administration has been trying to push through a free trade deal with Columbia, one of our key allies in a region ripe with anti-American sentiment. The White House views the trade deal as a win-win for the American economy:

The administration insisted the deal would be good for the United States economically because it would eliminate high barriers that U.S. exports to Colombia now face, while most Colombian products are already entering the United States duty-free under existing trade preference laws.

On the surface it appears the US has nothing to lose from extending trade relations with Columbia, since few if any American jobs will be lost by such a deal; so why are some Democrats resisting the trade deal?http://welkerswikinomics.com/blog/wp-content/uploads/2008/04/gains-from-trade_1.jpeg

In explaining their opposition, Democrats have cited the continued violence against organized labor in Colombia and differences with the administration over how to extend a program that helps U.S. workers displaced by foreign competition.

As is so often the case, what’s best for the economy does not seem to be what’s in the best interests of Americans. Our values extend, in some cases, beyond our pocketbooks. The White House argues that the US/Columbia free trade agreement only promises to increase demand for American products while doing little to affect domestic employment. The fact that most Columbian imports are already tariff-free probably confirms this. But the Democrats oppose this deal on the grounds that it would appear that America endorses the anti-labor activities of the Columbian governments.

Labor is a touchy political issue in America, where union membership among workers has fallen from around 40% in the 1950’s to around 13% today. As Columbia and other developing economies become integrated into the global economy, there is increasing pressure for governments to liberalize their domestic labor markets, weaken unions, lower wages in order to attract more investment from abroad, lower the costs of production, thus increase the quantity of their exports demanded abroad. Labor market flexibility and liberalization is certainly an important step in attracting investment and demand to developing countries, but if it comes at the expense of the well-being of the citizens of a poor country, then perhaps standing against such anti-labor actions is a just cause.

The free trade deal with Columbia poses more of a moral dilemma than an economic one. From America’s stand-point, it appears to be a win-win situation. But from the perspective of international labor standards, approving a trade deal with Columbia threatens to undermine another set of American values: those of human rights.

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Discussion questions:

  1. Why do you think the White House is so adamant about pushing through the trade deal with Columbia?
  2. Are the Democrats correct to oppose a deal that could create jobs in America while at the same time make more goods available to Columbian consumers at lower prices?
  3. Should America be trying to dictate the labor standards of its trading partners? Why or why not?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

4 responses so far

4 Responses to “The politics of free trade vs. protectionism”

  1. James Tsaoon 19 Apr 2008 at 12:56 pm

    A primary reason the U.S has a bad diplomatic relationship with the region around Columbia is the anti-labor actions that the governments of those countries endorses. Therefore, the Democrats are so opposed to the trade agreement because it gives a sense that the U.S is yielding to the Columbian government's anti-labor actions. In other words, it might seem like the U.S is giving up its morals for money.

  2. kxc.024on 28 Apr 2008 at 6:08 pm

    The White House is so adamant about pushing through the trade deal with Columbia because it would be another country where they can obtain cheap imports from. However, many have argued over whether or not engaging in free trade with Columbia is the right thing to do, due to their unsatisfactory labor conditions.

    I personally think that while labor conditions are extremely important, it is not always a realistic goal. When a lesser developed country is trying to stimulate its economy, it seems inevitable that cheap labor becomes part of the deal. Even developed countries (like the UK, USA, France) all had a period in history where the conditions for workers were not up to standard. Therefore, if the USA really wants to help the Columbians, they should probably engage in free trade with them and help boost up their economy, and thus their standard of living.

  3. kevinmaon 29 Apr 2008 at 6:02 pm

    They want free trade with Columbia because they can get cheap imports from them. However, it is more of a "moral dilemma" because of the "touchy" labor problems.

    I think they shouldn't have opposed it because if that was to pass it would have helped both U.S. and Columbia.

    America should not dictate labor standards.

  4. Emory Lamparskion 10 Mar 2012 at 5:50 am

    I am not rattling wonderful with English but I get hold this very easygoing to translate.