Common Sense About The Economy

by David Trumbull

October 5, 2007

Twenty years ago this week the United States and Canada finalized a free trade agreement (FTA) between these North American neighbors. It was only the second free trade agreement the U.S. was party to—the first was the U.S.-Israel FTA which went into effect in 1985. It would lead, in 1994, to the North American Free Trade Agreement, or NAFTA, which abolished tariffs and other barriers to the free flow of goods among the U.S., Mexico, and Canada.

The Canadian and Mexican agreements marked the beginning of a new regime in Washington, with both major parties pushing for more and more bilateral and regional FTAs. Here’s a brief chronology:

• U.S.-Jordan FTA (2001)

• U.S.-Singapore FTA (2004)

• U.S.-Chile FTA (2004)

• U.S.-Australia FTA (2005)

• U.S.-Morocco FTA (2006)

• CAFTA-DR, a free trade agreement among U.S., Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua (2006)

• U.S.-Bahrain FTA (2006)

• U.S.-Oman FTA (signed into law 2006 but not yet implemented)

FTAs have been negotiated with Peru, Panama, Colombia, and South Korea and may come up for congressional votes as early as this fall. Our government has also begun negotiations on FTAs with Ecuador, Malaysia, the South African Customs Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland), Thailand, and the United Arab Emirates.

In addition to these agreements, the policy of the U.S. is to further reduce our tariffs—already among the lowest in the world—as part of the ongoing “Doha Round” of international trade talks.

Elimination of U.S. import duties has been going on for 90 years. There was a brief reversal in the late 1920s when a Republican congress and president brought tariffs back up near their 19th century levels, but the Democrats undid that starting in the 1930s.

Students of American history know that tariffs were the largest source of federal revenue from the 1790s until World War I. That’s when the income tax became, as it is now, the principle source of funding our over-bloated bureaucracy. Through the 19th century the tariff protected American industry (and, therefore, the American worker). Since we were blessed with ample natural resources and a large labor force America could produce most everything she needed internally, making the tariff, in effect, a voluntary tax that could be avoided by spurning foreign imports. Under that American System we quickly passed the British, who practiced free trade, to become the most prosperous nation.

Now both parties in Washington are totally in the grip of free-trade ideologues who believe that we should get all our goods and services from workers in other nations (or from illegal aliens within our borders); rely on an intrusive and abusive system of direct taxation; and pay for the whole thing through personal and public indebtedness. Common sense tells us that we cannot borrow our way to prosperity. Sadly for our future, none of the leading presidential candidates in either party seems to have common sense.

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