Wednesday, November 21, 2007

Iowa Voters Jittery on Trade Policy

Iowa voters are shifting toward protectionism on trade, as this Wall Street Journal article indicates, reporting from Waterloo, Iowa:

At a John Deere plant here, bright green tractors bound for Brazil, Russia and China roll off assembly lines. Global demand for tractors is good, and that's been good for Waterloo.

Yet over the last couple of years, workers and voters in this blue-collar manufacturing outpost -- and throughout Iowa -- have grown decidedly downbeat about globalization. Trade has become such a hot subject that Democratic presidential candidates seeking support in Iowa's influential Jan. 3 caucuses are turning into trade skeptics, and the issue is splitting traditionally free-trade Republicans.

Iowa's ambivalence is all the more remarkable because the state is on the whole a big winner from global trade. "Iowa, as much as any other state, is on the plus side of the ledger," says James Leach, a 30-year Republican congressman from Iowa who now runs Harvard University's Institute of Politics. "It would be highly ironic if pro-protectionist candidates prevailed in the Iowa caucuses." Trade wasn't always such a high priority: In the 2004 Iowa caucus, Richard Gephardt, the most outspoken Democrat on the issue, attracted so few votes he subsequently pulled out of the race.

As the 2008 presidential election approaches, anti-trade sentiment is percolating across America. It is particularly strong in places like Ohio, where foreign competition has decimated jobs. The latest Wall Street Journal/NBC News poll conducted earlier this month found that 60% of voters nationwide agreed with the statement that "foreign trade has been bad for the U.S. economy."

Iowa's anxiety stems from a mix of factors, many of which are also at play in other Midwestern swing states. By many measures, the global economy has been good for the state. Boosted by the ethanol and biofuels craze and surging demand for crops and farm equipment world-wide, Iowa's exports are up 77% over the past four years versus 50% nationally. The state's unemployment rate hovers around 3.7%, below the national 4.6% average.

But the past couple of decades have seen a steady decline in once-prized factory jobs, from a high of 252,700 in 1999 to 231,000 today. Just this year, Iowa lost about 1,800 jobs when appliance-maker Maytag, now owned by Whirlpool Corp., shuttered its plant in its home town of Newton. (The jobs moved to Ohio, but foreign competition was a key reason Maytag was acquired by Whirlpool.) Wages haven't kept pace with inflation, and employers here, as elsewhere, have been paring health and retirement benefits.

Many Iowans blame their difficulties on global trade. A Los Angeles Times/Bloomberg poll of Iowa Democrats conducted in September found that by 42% to 33% they favored a candidate who believes trade pacts hurt the U.S. economy over one who believes they benefit the economy; Republicans were evenly split at 39%. (The balance said they didn't know or hadn't a preference.)

The article notes that the Democratic presidential hopefuls are pandering to these trade fears:

On a recent Tuesday, the crowd at Des Moines Area Community College bursts into loud and sustained applause when Mr. Obama vows to make sure "that globalization is not just working for multinational companies."

In Cedar Rapids, workers nod as former Sen. John Edwards tells them that "the negative effects from globalization are rippling through the economy." In perhaps the most telling development, Democratic front-runner Mrs. Clinton says the North American Free Trade Agreement -- which her husband pushed through Congress -- has "serious shortcomings."
It's hard to shake the sense that American worked have struggled amid increasing global economic interdependence. Unfortunately, while Democratic proposals for "fair trade" policies stressing labor and environmental standards might play well in Peoria (or Waterloo), such a shift would mark a dangerous turn away from the centrist pro-integration trade policies of the Bill Clinton adminstration in the 1990s.

A recent article in Foreign Affairs, "
A New Deal for Globalization," made a troubling case for an interventionist approach to trade adjustment, focusing on establishing redistributive payroll tax policies in exchange for "saving" American support of trade openness.

The Democrats are also joined by many Republicans,
who have grown increasingly skeptical of free trade policies. Together the concerns of voters all around may be creating a perfect storm for the dismantling of the post-World War II trade consensus in the U.S.

The implications of a protectionist, redistributive turn on trade policy are far reaching. As Carla A. Hills, a former U.S. Trade Representative during the G.H.W. Bush administration, noted in
a 2005 Foreign Affairs article:

The U.S. experience since World War II proves that increased economic interdependence boosts economic growth and encourages political stability. For more than 50 years, under both Democratic and Republican administrations, the United States has led the world in opening markets. To that end, the United States worked to establish a series of international organizations, including the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)....

The results to date have been spectacular. World trade has exploded and standards of living have soared at home and abroad. Economist Gary Hufbauer, in a comprehensive study published this year by the Institute of International Economics, calculates that 50 years of globalization has made the United States richer by $1 trillion per year (measured in 2003 dollars), or about $9,000 added wealth per year for the average U.S. household. Developing countries have also gained from globalization. On average, poor countries that have opened their markets to trade and investment have grown five times faster than those that kept their markets closed. Studies conducted by World Bank economist David Dollar show that globalization has raised 375 million people out of extreme poverty over the past 20 years.

And the benefits have not been only economic. As governments liberalize their trade regimes, they often liberalize their political regimes. Adherence to a set of trade rules encourages transparency, the rule of law, and a respect for property that contribute to increased stability. Without U.S. leadership...the world would look very different today.
Candidates of both parties may find it hard to resist the protectionist persuasion, and the outcome of these trends may be one of the most important consequences of the 2008 presidential election.