The American Enterprise Institute Presents ... Free Trade Foreign Policy; How Trade Myths Impede a Key US Policy Tool (Spotlight‪)‬

For at least tour years, bilateral free trade agreements (FTAs) have been a battleground over which US trade skeptics and trade proponents have skirmished. While three such agreements--with South Korea, Colombia, and Panama--were condemned to a policy purgatory, the accord with Peru came into force in early 2009. That deal thus offers the best and most recent opportunity to separate the growing myths about FTAs from the more realistic benefits that such deals can offer to the United States. The Peru deal did not cast low-wage US workers into the streets, nor did it play any role in undermining the shaky global trading system. Instead, it helped solidify economic reforms that Peru had undertaken already, paved the way for Peru's formal integration into the world economy, drew investment into that country at a difficult time, and promised to cushion the blow when a one-time US antagonist ascended to the country's presidency. While Peru is not necessarily representative of all US FTA partners, these benefits are fairly common among developing countries, the most controversial partners. By projecting its economic insecurities onto these FTAs, the US polity has needlessly denied the country a vital foreign policy tool. Part of the problem in discussing the impact of trade agreements on the United States is that discourse is dominated by an antiquated view of what a trade agreement does. In this conception, we imagine a pair of countries who hitherto have used tariffs and quotas to shield domestic industries from imports. The trade agreement promises to tear down these barriers and let low-cost goods flow-back and forth. As it has for centuries, this prospect of liberalization stokes fears: how can a high-wage economy compete with a low-wage one? Will this spur a race-to-the bottom for labor or environmental standards? Will we be rewarding the partner country for practices we find objectionable?