Fort Report: Trade

Warren Buffett recently commented that Central America grows bananas better than we do in Nebraska. He has a point. Our state has many unique agricultural advantages; bananas are not one of them. People in different areas of the world cultivate different talents, possess different resources, and create unique items that can benefit others. Connecting persons in a system of fair economic exchange can expand the wellbeing of many peoples.

This is called trade theory, in academic terms. It sounds good on paper. But theories rarely translate to perfect outcomes. In the real world, free trade does not exist. Some countries cheat, manipulating their currencies to make exports cheaper. They subsidize certain businesses to create rigged systems and an uneven playing field. They do not employ the same standards for protecting the environment, worker safety, and consumer products. The United States has a substantially open economy, along with reasonable environmental and labor standards. In trade terms, this can often put us at a disadvantage.

America continues to struggle with an anemic economic recovery. Income inequality is climbing, and opportunity inequality prevents many persons from working hard to get ahead. From downward social mobility to stagnant wages and an increased cost of living, many American families are confronting serious financial challenges. The reasons for these difficulties are myriad, including social fracturing and the decline of small business--the space where most new jobs are created. Trade arguably can provide benefits to us, but we should take a close look at whether the dynamics of trade contributed to the decline of certain sectors in the marketplace, namely manufacturing.

The United States once took great pride as a global leader in manufacturing, building and exporting cars, appliances, and other goods around the world. Not too long ago one major American retailer advertised that the majority of its products were proudly "Made in the USA." The company no longer runs that advertisement. Finding a non-"Made in China" label is not as easy as in decades past. Significant portions of our manufacturing architecture--along with many jobs--have traveled overseas. In spite of some positive trends like reshoring, our current economy is fraught with a feeling that the deck is stacked against smaller players in favor of large transnational corporations and conglomerates.

On the other hand, Nebraska has certainly benefited from free trade arrangements. From 2004 to 2013, trade-related employment grew 3.8 times the rate of our total statewide employment. We exported $9.9 billion in goods and $2.1 billion in services in 2013--and we remain America's seventh largest agricultural exporter. Smaller businesses constitute 83% of exporters. Our farmers and livestock producers compete very well. We create products that are needed on the world stage, helping fight poverty and feeding the hungry. Trade can also strengthen our state through vibrant cultural programs, with many of our social institutions receiving international visitors.

But there is no one size fits all trade policy in America. Let's look at an example. Three years ago we signed a trade deal with South Korea. Before the deal, our trade deficit with that country was $2.4 billion. Now it's $13.3 billion. A member of President Obama's Council of Economic Advisers told me that these troubling numbers result from a declining South Korean economy, which has weaker import demand, and that they should improve over time. No one has explained how much time. It is unlikely that other countries sign trade deals with America to decrease their competitiveness with our country. In the global marketplace, not everyone wins all the time, and not every sector in a given country stands to gain. There are winners and losers, and this is a painful reality.

Trade is all the rage in Washington these days, especially given a proposal to "fast track" a trans-Asian Pacific trade arrangement. Importantly, the legislation aims to set trade standards among 12 countries, including Japan and Australia, to counter China's growing influence. Although the argument is reasonable, Congress must scrutinize whether these standards will be enforced in countries with problematic human rights records, such as Vietnam. This is a complex agreement that goes way beyond tariffs and quotas to encompass many other rules and regulations. Any trade negotiation must avoid a situation similar to the one we faced with China, which for years manipulated its currency to our detriment, and which continues to run an economy where state subsidies are the norm, contributing to corrupt and unfair competition.

Supporters of fast track trade want to minimize Congressional involvement in trade deals. The fight now is over how to appropriately include Congress in overseeing any negotiation. I have suggested that trade negotiations should be phased so that Congress can review developments at intervals, appropriately assessing strengths and weaknesses and proposing improvements. That idea has been rejected. But the answer to fast track should be: "slow down."

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