U.S. economy needs free trade

American officials are currently negotiating a free-trade deal known as the Trans-Pacific Partnership with their counterparts in Japan and 11 other Pacific Rim countries. If successful, the benefits to American consumers and producers would be significant. By some estimates, an agreement could grow the U.S. economy by $77 billion a year by 2025 — and by similar amounts for our trading partners.

Given the continued weak state of the U.S. and global economies, passing the TPP should be a no-brainer. Some members of Congress disagree, however. Rep. Sander M. Levin, D-Royal Oak, the ranking Democrat on the House committee overseeing U.S. trade policy, is pushing for an alternative approach — so-called “managed trade.” Levin and his allies are threatening to deprive U.S. consumers and producers of the benefits of the TPP unless the Big Three American automakers — Ford, General Motors, and Chrysler — are given special treatment.

Under their managed-trade proposal, the current 2.5 percent tariff on imported Japanese cars and 25 percent tariff on imported Japanese trucks must remain in place. His proposal would also allow the Big Three to determine whether U.S. tariffs are ever reduced or eliminated. Of course, there’s little chance that any company would ever give the green light to lower prices for their competitors.

Worse, managed-trade advocates would rather lose all the benefits the TPP can offer to American consumers and producers to protect these anti-trade barriers. They claim that managed trade is an intelligent way to ensure that American firms and workers benefit from trade deals with other nations. But the precepts of managed trade run contrary to decades of established practice, whereby market-based rules and the individual decisions of millions of consumers determine whether a product succeeds or fails.

Managed trade simply places the welfare of special interests ahead of the general interest. It empowers the government to pick economic winners and losers by dictating specific — but arbitrary — outcomes, such as the level of market share achieved by certain producers. Levin and his managed-trade allies erroneously contend that government intervention is needed to ensure fairness. In reality, current managed-trade efforts are simply stacking the deck in favor of certain automakers.

Protected by the government-created pricing advantage, the producers of protected goods and services — in this case, American cars — are insulated from having to compete on the basis of quality and price. Without a vibrant and competitive market, domestic consumers suffer, as prices for protected goods continue to rise despite stagnating product innovation and quality. Managed trade therefore sacrifices consumer preferences to protect the interests of politically connected producers.

Instead of attempting to manage foreign trade and dictate what consumers should buy, the United States should embrace the opportunities offered by the Trans-Pacific Partnership — and other free-trade deals like it.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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