Fisher Investments Editorial Staff
Trade, Politics, Globalization

Freeing Trade

By, 10/04/2011

In what’s seemingly become a weekly routine, investors spent Monday digesting the weekend’s Greek chatter. This week’s version? News Greece won’t reach deficit reduction targets in 2011 and 2012, fresh budget cuts and continued negotiations over its latest aid tranche—all worth watching, though they don’t much alter Greece’s situation. More substantial news, in our view, came from the US, where the White House and Congress neared a deal on a plan to ratify free trade agreements (FTA) with South Korea, Colombia and Panama. House debate on all three, along with the Trade Adjustment Assistance (TAA) program, could begin this week. The goal is for these deals to be ratified before South Korea’s President makes a state visit this month, concluding years of domestic political bickering.

These FTAs have been stuck in limbo since their initial signing in 2006 and 2007. They’ve been opposed by Democrats (worried about American workers’ displacement and human rights in Colombia), Republicans (threatening to vote down the Korean deal unless Democrats agreed to pass the Panamanian and Colombian deals) and the current administration. And they’ve been renegotiated since their initial drafts. In May, the White House said it would submit all three pacts to Congress, provided House leaders agreed to renew the TAA, which extends federal support to workers presumably displaced by foreign competition. The Senate renewed a scaled-back TAA in September, and House Republicans have agreed in principle, seemingly clearing the way for Congress to ratify the FTAs.

The last sticking point appears to be the House’s voting agenda: The Obama administration is said to fear the House will pass the FTAs first, then amend the TAA before passing it—potentially resulting in a TAA too weak for Democratic senators. The order in which important trade agreements come up in Congress may seem like quibbling over minutiae, but hey, that’s politics.

Given how much politicking has surrounded these FTAs, one final scuffle isn’t surprising. But the fact that they’re moving (albeit slowly) is encouraging, and it seems ever likelier these deals finally get done—a positive for the US, considering the deals are estimated to increase US exports by $13 billion annually. The deals would also increase imports and services available in America (or lower the price of existing goods), providing consumers more choice and boosting total trade. US service providers would gain structural advantages in Korea, Panama and Colombia, fostering their competition with local outfits. And the US could begin overcoming the competitive disadvantages brought by the EU/South Korea and Colombia/Canada FTAs that took effect this summer.

Perhaps most importantly, ratified FTAs would be more evidence trade is getting freer globally, notwithstanding the Currency Exchange Rate Oversight Reform Act of 2011. Pending in the Senate, this would impose extra import duties on Chinese goods if China doesn’t allow the yuan to appreciate faster. As we discuss in detail here, this bill is likely another case of political grandstanding over China’s currency—especially considering similar legislation has regularly surfaced and stalled.

Certainly, US trade policy bears watching, and protectionist measures wouldn’t be great. But we’d argue what’s most important is whether the balance of global trade is trending freer. For now, it appears to be, and that these three long-languishing FTAs seem set to take effect is, in our view, a healthy step in the right direction.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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