In the last two months, Democratic Presidential candidates Hilary Clinton and Barak Obama fought over Ohio and Pennsylvania, states that suffer from manufacturing job losses. Both candidates resorted to trade-bashing tactics, which is “a time-honored tactic in Democratic race” because the Democratic Party relies heavily on labor unions for donations and votes. [1]
Clinton and Obama have made the following pledges: 1) renegotiate the North American Free Trade Agreements (NAFTA) incorporating more strict labor and environmental standards, 2) oppose pending FTA deals with Columbia and South Korea, and 3) punish China for intervening to artificially devalue their .
While it is well-known that there is a large gap between what a candidate promises during the race, and what the candidate actually does once elected into the Office, to me it seems like as the preliminary race intensifies, each candidate is taking the toughest stance possible against trade, making pledges from which he or she will find difficult to get away once elected. [2]
“Both have given themselves less wiggle room and boxed themselves in,'' said Claude Barfield, a trade expert at the American Enterprise Institute in Washington. “There are all kinds of ways when you're president to get out of campaign promises, but it's going to be tougher this time.” [1]
Both candidates have been trying best to walk the tight rope between free trade and protectionism. While there is no consensus on the net benefit of free trade, in general, economists agree that trade results in a social benefit for the society. Taking this positive view on trade, I take the opportunity to briefly explore the long-term implications of, in particular, a renegotiation of the NAFTA.
In my opinion, the renegotiation will be terribly inefficient, and bring about a significant economic loss because for one, counterparties will also want to reach renegotiate for better terms. The U.S. might end up compromising on its priority access to Canadian oil. Also, Mexico may end up winning more provisions on work visa. [1]
Another problem is tied with political economics. The renegotiation of the NAFTA would allow a small but better organized group in the population to exert influences on the trade policy. The resulting changes would benefit the workers, but most likely reduce the net social gains from the trade.
Lastly, if anything, exports will be hurt and trade balance will worsen. And a further increase in trade deficit is not the best thing the U.S. needs at this time of financial crisis. According to Robert Lawrence, a professor of international trade at Harvard University:
Our economy is being held up by export growth,'' Lawrence said. ``If ever there was a bad time to delay trade negotiations and market-opening measures, it's now.” [1]
[1] Matthew Benjamin and Mark Drajem, “Obama, Clinton Promises May Undo Bill Clinton's Trade Legacy,” http://www.bloomberg.com/apps/news?pid=20601087&sid=anqjPdbTszNk&refer=home
[2] Helene Cooper, “Democrats’ Third Rail: Free Trade,” http://www.nytimes.com/2007/08/12/weekinreview/12cooper.html?fta=y
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