Free Love

Story Highlights:

• Free trade allows exporters access to global markets and gives consumers more choices.
• There is resistance in Congress, and among some Presidential hopefuls, to the Colombia Free Trade Agreement.
• Much of this resistance is likely political, and though risks exist, won't likely lead to harmful protectionism.

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Free trade, unlike a certain open-minded social experiment of the '60s, is a wholesome, healthy way for markets to interact. Though free trade has many naysayers—namely folks interested in protecting some narrow industry in their home nation (and the politicians who want their votes)—reality proves there are huge gains to free trade. Even China, long an anti-free trade stalwart, is coming to the party, announcing today its first free trade agreement with a developed nation.

China, New Zealand Sign Trade Deal
By Tini Tran, Associated Press, Chicago Tribune

As we've seen from the past 200 years, countries practicing freer trade flourish compared to protectionist nations. Free trade allows exporters access to foreign demand, while allowing consumers access to more, cheaper and better goods. As a result, free trade tends to encourage economic growth while helping to keep a lid on inflation.

But if this is so, why is the Colombia Free Trade Agreement, en route to Congress this week, being met with resistance?

Smoot-Chavez
Staff, The Wall Street Journal
https://www.wsj.com/articles/SB120751299198893191

If you do the math, it seems this should be a shoo-in. The Act only slightly eases restrictions for Colombian goods bound for the US (90% of Columbian exports to America are already duty-free) while removing many of the high tariffs Colombia currently imposes on US imports. But the Act has been decried by Presidential hopefuls and many in Congress. What gives?

Look no further than your calendar—it's an election year, and an exceedingly goofy one with one party's candidate still undecided. We've seen this before, of course—candidates from both parties pander to their audience. They say one thing in manufacturing-dependent, import-sensitive Ohio and Michigan, and quite another in Texas, where NAFTA is actually very popular. Politicians tend to, ahem, not be completely honest about their views as a whole, but particularly so in an election year. In other words, the headwinds against the Colombian deal amount to politics as usual.

But there can be implications to politics as usual, especially when politics overwhelm common sense. For example, there could be substantial ramifications if the current posturing fuels a protectionist backlash. Look at Smoot-Hawley! This nasty protectionist tariff was enacted during the hysteria following the stock market crash of 1929, despite the private criticism of many in Congress, and likely added years to the Great Depression.

Of course, we think today's world bears little resemblance to the 1930s. And while there's no accounting for what gets said in an election year, most campaign promises (or threats, depending on your viewpoint) turn out to be empty rhetoric, thankfully not leading to meaningful legislation. So we're confident (and sincerely hope) cooler heads will prevail. After all, no matter who's president next year, they won't want to jeopardize a second term by committing economic hara-kiri by curtailing free trade. Another example of the wonderful benefits of free trade?

Why Have Burglaries Declined?
By Tyler Cowen, marginalrevoloutin.com
https://www.marginalrevolution.com/marginalrevolution/2008/03/why-have-burgla.html

Fewer burglaries. Seriously! Perhaps that's a bit far-fetched, but what's not to love about cheaper flat screen TVs?