CAFTA Post-Mortem

by Russ Roberts on July 29, 2005

in Trade

CAFTA has passed the House two nights ago, 217-215.  Is that vote close enough for you?  The WSJ reports today (sr) on the implications for future trade agreements.  There’s also a story on what was promised in exchange for recalcitrant members’ votes:

Gary Hufbauer of the Institute for International
Economics worries that by trading so many concessions for votes on
Cafta, President Bush raised the cost for future deals. "The price was
very high for such a small agreement," Mr. Hufbauer says. "Each time
you do this, you have more claimants, and Doha could generate a record
number of claimants that would make its passage all the tougher," he
says, referring to the latest global round of trade negotiations in
Qatar.

But here’s the good news.  These trade agreements are not really free trade agreements, anyway.  (See my skepticism about CAFTA here.  See my relative optimism about CAFTA here and here.  The latter post has been updated to include a response from the critic of CAFTA I was criticizing.)

While I think CAFTA is basically a step in the right direction, there are two large costs to these types of deals.  The first is the bureaucratization of markets—the absurd negotiations over how little sugar we can allow in and all the side agreements on labor regulations and environmental restrictions.  The second cost is subtler—to sell these deals to Congress and the American people, the President and his henchpeople become mercantilists—they falsely argue that the benefits of the agreement and the increase in exports to Central America and all the jobs that will be created.  In this Alice-In-Wonderland world of pseudo-economics, exports are good and imports are bad.

So maybe it is time for the President (and future Presidents) to get less done in the near future and more done down the road.  Instead of trying to create free trade agreements with various countries and regions where we offer to open our markets (an alleged cost to the US) in  return for their opening their markets (an alleged benefit), maybe the President should take a different tack.  Argue for opening US markets unilaterally without creating a bureacracy around a specific negotiated agreement. 

Presidents will find it hard to make the case for opening our borders unilaterally to foreign products—the educational well has been poisoned by all the previous mercantilist rhetoric that has argued that exports are good and imports are bad.  I suspect George Bush and his predecessors who invoked that rhetoric know better.  Now, with CAFTA barely passing, maybe the political calculus will push Presidents to return to their role of representing all Americans rather than special interests such as sugar and steel.

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