Kelly Cunningham, Economist and Senior Fellow
Thursday, December 6, 2007
Free trade boils down to the very simple concept of people being free to exchange something of value for something else of value. The benefits flow when both seller and buyer are satisfied, and maximum economic efficiency and overall productivity is achieved for all involved. One can show through math and logical deduction that this equilibrium leads to the most efficient distribution of resources, but that is a dry and somewhat esoteric concept.
In contrast, the cost of trade – the dislocation of jobs a free economy undergoes in the “creative destruction” that characterizes capitalism – frequently are stark and sometimes more readily apparent. Commentators can spin compelling narratives around closed factories and unemployed workers, but have a difficult time putting into a news story information about the productivity gains and downward pressures on prices or the new and often better jobs created by free trade.
So it is not surprising that, as presidential politics once again heats up, we are starting to hear the drum beat for greater restrictions on trade and the alleged downsides of a globalized economy. John Edwards opposed a new trade pact with Peru in spite of the fact the agreement’s standards were negotiated by House Democrats Charlie Rangel and Sander Levin and endorsed by the AFL-CIO. Hillary Clinton promises to re-evaluate all existing trade agreements and to pressure nations to adopt domestic policies more pleasing to the U.S. On the GOP side, some of the candidates have also adopted anti-trade rhetoric. For example, Mike Huckabee writes on his web site that he believes in free trade, but it has to be “fair trade”. “We are losing jobs because of an unlevel, unfair trading arena that has to be fixed.”
There is a real risk for San Diego in these attacks on free trade. The amount of international trade passing through the San Diego customs district has grown considerably over the past several decades. In the 14 years since the North American Free Trade Agreement (NAFTA) was signed, San Diego’s international trade has more than quadrupled. Between 2003 and 2006, San Diego exports to Mexico climbed from $4.3 billion to $15.7 billion, while imports soared from $5.3 billion to $26.5 billion. Growth in international trade passing through San Diego isn’t just from Mexico. Last year Japan, Germany, China, South Korea, and England accounted for several billions of dollars in trade through San Diego as trade with these countries significantly ballooned as well. Furthermore, this data does not include the significant value of international services, which from our border region is immense.
Just to the north, the Ports of Long Beach and Los Angeles are among the world’s busiest and the value of goods moving through them since 1990 has more than tripled. The Los Angeles Economic Development Corporation estimates that 485,000 jobs in the greater Southern California area were the direct result of international trade during 2006.
San Diego companies, and the workers they employ, have been real winners in free trade. The most impressive example for San Diego is home grown, international Fortune 500 corporation QUALCOMM. Last week, for example, QUALCOMM announced subscribers to TATA Teleservices, one of India’s leading telecom service providers, made 30 million downloads enabled by the company’s BREW technologies. The same day, on the other side of the world, QUALCOMM also announced the European launch of its GlobalTRACS® equipment management solution.
Solar Turbines, one of San Diego’s largest manufactures, exports more than 70 percent of its products and is one of the 50 largest exporters in the United States. Thousands of San Diegans work at international companies such as Kyocera, SONY, BAE, and Sanyo. Although there may be some communities that have suffered as certain industries increasingly moved towards a more globalized economy, San Diego is decidedly NOT one of them.
At a time when the U.S. dollar has sunk to historical lows that make trading with the U.S. a bargain, there has never been a better time to buy U.S. goods and services, and to invest in America. Implementing barriers to this trade now could not come at a worse time for the U.S. or for the world.