House OKs CAFTA by Two Votes

The House of Representatives approved the Central American Free Trade Agreement [CAFTA] on Wednesday by a vote of 217-215. Normally, only Senate approval of a treaty is needed under the constitution (which OKed CAFTA last month), but because this had implications for American law, the lower house got its say. A lot of heat and little light was generated by the debate, and in the end, 27 members of the president’s party voted against it while 15 Democrats supported it. The facts are even more confusing.

With the addition of the CAFTA nations (the Dominican Republic, Costa Rica, Nicaragua, Honduras, El Salvador and Guatemala), the US now has free trade deals with 13 nations (Canada and Mexico under NAFTA, as well as bilateral deals with Singapore, Chile, Australia, Jordan and Israel). With the exceptions of Singapore and Australia, the US runs a trade deficit with each and every one of them.

The argument for free trade in the CAFTA zone is straight from a high school textbook. The US already lets in about 77% of goods from these places without a tariff while American exporters are socked with 160% tariffs when shipping to these nations. Free trade will give the US access to these markets and move the trade picture toward equilibrium. Like most things in high school texts, this oversimplification results in plain error.

The NAFTA Experience (which is not a musical group) proves this point. In 1994, the US still had a trade surplus with Mexico of $1.3 billion, while the trade deficit with Canada was $14 billion. Ten years of NAFTA later, the deficit with Mexico is $45 billion, and the one with Canada is $66.5 billion. American exports went up, but imports went up faster. While the CAFTA nations run surpluses measured in the tens or hundreds of millions, they are likely to increase as America business shifts operations to these countries when it makes business sense.

The fact is that free trade is inevitable because that’s where the money is. But there are many ways to get there, and some do less damage to the US economy than others. Big Bang free trade deals, where all tariffs and such are dropped at midnight on a given date, tend to harm both economies with massive dislocations in some industries. Negotiations that deal with the nuts and bolts of each industry are nerve-wracking and tediously slow, but they tend not to make the poor poorer.

There is, of course, some good news in all of this. Thirty years from now, when the dust has settled, American trade with the CAFTA nations will be greater than it is today, and some people will benefit greatly. And for now, if the annual US trade deficit with these nations should double or triple, it will still be less than the monthly deficit the US is running with the communist regime in Red China.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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