Wasington, D.C. -- (ReleaseWire) -- 05/20/2015 --DAWN BENNETT: Don Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the George Mason University's Mercatus Center, where he specializes in globalization and trade, law and economics, and anti-trust economics. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia. He recently published an article titled "The Benefits of Free Trade: Addressing Key Myths," where he asserts that free trade increases prosperity for Americans and that's where I want to start today. Don, welcome to Financial Myth Busting.
DON BOUDREAUX: I'm happy to be here.
BENNETT: Four out of five American voters—Republicans, Democrats and independents alike—believe in the philosophy "Buy American," because "Buy American" creates U.S. jobs by recycling U.S. dollars back into our economy. Wouldn't the proposed Trans-Pacific Partnership damage "Buy American" and result in the loss of U.S. jobs?
BOUDREAUX: No. Look, first of all, the proposed TPP rules, we don't even know what they are. They still are rather mysterious. But if this trade agreement is like the typical trade agreement in the past, it won't be perfect, but it will make trade freer. Whenever trade is made freer, American consumers have more freedom to spend their money as they see fit, and they typically exercise that freedom by buying more imports from abroad. Now that's what people fear. They say, 'Oh, when Americans buy more imports from abroad, that's sending jobs overseas.' That's only half the story. That's where people go wrong. It is true that when Americans buy, say, more Japanese cars, that might mean fewer jobs in the auto industry, but the Japanese get those dollars and we have to ask, what do they do with them? They either spend them in America or they invest them in America, both of which activities create jobs in other industries in the United States. There's nothing in economics that has been studied more thoroughly than the consequences of international trade. There is zero evidence that increased freedom of trade reduces overall the level of employment or makes people poor; it's quite the opposite. Trade improves our economic wellbeing over time. That conclusion is shared by nearly all economists. That doesn't necessarily make it right, but it does give you some idea about how strong the conclusion is among people who specialize in studying these matters.
BENNETT: Right. So why isn't the TPP more transparent? Why do we know so little about really what's in there?
BOUDREAUX: The tag for your show says that it's where what politics and economics meet. This is a political thing. The very fact that the vast majority of Americans don't understand the benefits of free trade and they get upset when it looks like trade is going to be made free, that means that representatives in Congress who represent parochial groups, that represent different regions and different states, they're going to respond to the interest groups back home and start nit-picking at the programs. So Congress, understanding this, makes this deal, makes this political deal with the administration-- by the way, it's not just the Obama administration. TPP, in one form or another, goes back to Franklin Roosevelt; Republicans and Democrats. And the benefit of it, in my view, is that it allows the US administration, to negotiate in peace with foreign governments towards freer trade, without having the constant nit-picking of special interest groups back home. Now, it doesn't become law just because the President signs it. All the fast track authority does, is allow the President to negotiate these trade agreements without being nit-picked as it goes along. Then the thing comes back to Congress, and Congress has an up or down vote; they get to vote on it, they get to read what's in there. So, you know, politics is a dirty business; it's got a lot of mess. And I believe overall the benefit of keeping the special interest group hands out of the thing as it's being negotiated outweigh the costs of that. Because at the end of the day, nothing is going to be ratified unless all members of Congress who wish to, and are able to, read it, do so and vote on it one way or the other, depending upon what they read in the actual agreement.
BENNETT: The TPP seems to have made for some really peculiar bedfellows. Most of the Congressional Republicans are actually supporting President Obama on this, and these are the same Republicans that vehemently opposed his every initiative for the past six and a half years. And against the TPP are most, but not all, Congressional Democrats, and virtually all the trade unions and all the environmental groups. What do you think is going on here, why the strange alliances?
BOUDREAUX: Well, it must be said that there are some Republicans who do oppose it, too. It's a bizarre arrangement. I don't know fully why President Obama has come out so strongly in favor of it. I'm glad he did, again, assuming this thing is in fact a document that moves us towards freer trade, which I support. The Democrats on the left, they have never been in favor of free trade. Any kind of freedom of economic activity, they have knee-jerk reactions against. So it's easy to explain why Elizabeth Warren and Maxine Waters and people like that oppose it. There are populist Republicans, such as Lindsey Graham of South Carolina, who worry about jobs—for some reason, they go, 'Well, free trade's going to decrease the number of jobs in our economy.' They don't understand the way trade works. The President, regardless of party and regardless of ideology, is the one official in the United States that is elected not by region, but is elected by the whole country. So that official has the most strong incentive of any elected official in the United States government to take a bird's eye view, look at the whole economy rather than regional parts of the economy. So the President naturally tends to favor free trade more so than does the typical Congressional representative, which is why fast track authority, in one form or another, has been given to the President and why it's worked reasonably well over the past 80 years. I don't know what goes on in the halls of Congress; I'm sure there's a lot of horse trading, there's a lot of stuff we don't know, there's a lot of political scores to be settled. But I think that in this case, Obama rightly sees that TPP is a good trade deal for the American people. It probably gives him some strategic leverage with China, regarding national security issues. I read about this, I don't know the details. But you have, again, the populist Republicans, and then more so, the progressive Democrats, which just instinctively dislike anything that makes the economy freer, and so they oppose it. In the case of the progressive Democrats, they are also largely beholden to labor unions, and labor unions historically oppose free trade, so they just naturally align themselves with their labor union affiliates.
BENNETT: Is it possible that, if you peel back the layers of the TPP, you're going to find some type of corporate Trojan horse, disguised as free trade?
BOUDREAUX: Of course it's possible, and that would be bad.
BENNETT: Yes, and there's so little transparency about the agreement. Who is at the table crafting the TPP?
BOUDREAUX: Well again, this is an issue. I would be opposed to this kind of secrecy if the crafting of it resulted in final enactment, but again, you've got to look at the costs and benefits. The benefits of allowing negotiations to take place outside of the public eye means that you don't have this constant political interference in it. The cost, of course, is that it is more secretive. But that's offset by the fact that it doesn't become enacted until Congress votes on it, up or down. So it's not as if the administration can force anything on Congress that Congress doesn't want; the Congress gets to vote on it. It's a myth, there's a lot of talk out there as if this is not true, but it is true that Congress has the final say on it. The President does not have the final say on it. Congress can vote it down if the Congress doesn't like it. But yes, you're right. This is what politicians do. They're constantly playing a crony capitalist game. But let's realize that even if the negotiations were taking place in the Library of Congress, where everybody could go observe and it's completely in the open, corporate interests would be there too. In fact, they might be there in even greater numbers, trying to get their special privileges in. So we don't have the option of getting crony corporations, unfortunately, out of the negotiating business. They'll be there, one way or another.
BENNETT: I want you to listen to Obama speaking last week at the Nike headquarters in Beaverton, Oregon. He's talking about Vietnam, and how the TPP plans to raise its labor standards and allow unionization. I want to ask you a question about that. Take a listen:
OBAMA: So when you look at a country like Vietnam, under this agreement, Vietnam would actually, for the first time, have to raise its labor standards. It would have to set a minimum wage. It would have to pass safe workplace laws to protect its workers. It would even have to protect workers' freedom to form unions – for the very first time. That would make a difference.
BENNETT: Don, do you actually think that this trade deal maybe goes too far? If it requires a higher minimum wage for workers in Vietnam, laws requiring countries to let workers unionize, as well as a host of environmental regulations. I mean, does this make it almost like the US is trying to create law in foreign countries?
BOUDREAUX: Well, it could. And look, if it does that, then I'm opposed to it. If and when it comes out, if it does that, then I would hope it would be voted down. What I hear is that these stipulations are, in fact, not that stringent, that they're done a lot for political show but I don't know that for a fact—that's what I'm hearing. Politicians are all about fear, of course, and so Obama feels he has to say it in order to make up numbers in polls from his political left. But, to the extent that these things bite, to the extent that they have actual effect, I am opposed to it. The United States has no business dictating to foreign countries or to companies in foreign countries what their labor standards should be, what their minimum wages should be. That should be only the business of those foreign countries. In the past, when we were poor, we had poorer working standards. Our working standards improved as we got more wealthy. And we got more wealthy, in large part, because we traded. And those countries will become more wealthy if they trade more freely, and over the course of time, their labor standards and wages will rise. By refusing to trade with them now, because their labor standards are, by our standards, too poor, or because their minimum wages, by our standards, are too low, we commit these people to a longer time living in deeper poverty than they would have otherwise, if we were to trade with them freely.
BENNETT: Let's talk about the other countries, one of which, of course, is China. China initially liked the TPP until the US officials and the US rhetoric was rising. Now, after all that anti-China rhetoric the United States has deployed, China really is not a big fan of it. As a matter of fact, it wants to move on, and may not even want to participate. Are you hearing the same thing?
BOUDREAUX: I have heard the same thing, and it makes me wonder if some currency manipulation language is finding its way into the final document. This is, of course, language that Chuck Schumer and Lindsey Graham—among others, but they especially—are pushing. I hope that that's not the case. Freer trade with China, I believe, would be a great thing for Americans as well as for the Chinese. But because we don't know what the particular details are, I really can't speculate. But I have heard the same thing that you've heard, yes.
BENNETT: But doesn't an artificially weak Yuan actually help us?
BOUDREAUX: Yes, it does. I have my doubts about whether its artificially kept low, by the way. But if it were capped, that's just a gift to Americans. The Chinese are saying, 'We're going to subsidize your consumption, America.' And I don't know why we should turn that down. The people who suffer from that are ordinary Chinese, not us Americans.
BENNETT: The White House said it opposed including a rule in the TPP that would prevent participating nations from manipulating their currency.
BOUDREAUX: Right, and I hope that's true. I hope that they stick to keeping currency manipulation rules out of the TPP. But again, the fact that the Chinese, we hear, are going cooler on the agreement makes me wonder just what's finding its way into it. And I just speculate that it could be some currency manipulation rule, but I don't know that for a fact, and I certainly hope it's not true.
BENNETT: Don, what are the chief benefits, in your mind, that America stands to gain as a result of the TPP?
BOUDREAUX: We stand to gain greater access to a larger variety and lower prices of consumer goods. That makes the American standard of living rise. And our manufacturers and firms also gain access to lower priced inputs from abroad. That makes the industries in which we have an advantage here at home, the advantage grows, because we can get lower priced inputs, the tariffs on those inputs falls. But the great advantage of trade is always a higher standard of living, because consumers can spend their money more easily and get larger and better deals from abroad.
BENNETT: Don Boudreaux, thank you so much.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
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