The Folly of a Free Trade Pact with Central America

The Bush administration is hailing its new planned Central American Free Trade Agreement as a “cutting edge” trade deal that will “expand U.S. opportunities in an important regional market.” Instead, CAFTA shows that U.S. trade policy has become completely divorced from the main needs of the U.S. economy, U.S. manufacturers, and American workers.

New markets for American products would indeed greatly benefit a U.S. economy still fragile after three sluggish years and a manufacturing sector that remains severely depressed. But the idea that the five Central American signatories of CAFTA can become these new markets doesn´t pass the laugh test.

El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica are not only among the world´s poorest countries, they´re among its smallest economies as well. Measured by their ability to buy U.S. products, their combined economic output totaled only $62 billion, according to the latest (2002) data. That´s less than the output of Orlando, Fla. or Bergen County, N.J.

The collective economies of the five Central American CAFTA countries are also half the size of San Diego and Phoenix. And U.S. Trade Representative Robert Zoellick´s decision to tack the Dominican Republic onto CAFTA doesn´t help much. Adding its $23.2 billion economy to the Central American 5 creates a total market still smaller than the economies of the metropolitan areas of Tampa-St. Petersburg, Fla., San Jose, Cal., and St. Louis, Mo. ($87.5 billion, $88.3 billion, and $92.2 billion, respectively).

How in the world can economies this small, filled with people so poor, be important markets for U.S. exports, and growth engines for the $10 trillion U.S. economy?

Recent experience, however, teaches that poor, tiny countries can become major suppliers for the U.S. market, especially if CAFTA-like trade deals attract export-oriented investment seeking penny-wage workforces lacking the right to press for decent pay and working conditions. For example, from 1996 to 2003, U.S. goods imports from the six countries in question rose by nearly 63 percent, to $16.862 billion. U.S. goods exports to these countries increased by a seemingly healthy 51 percent during this period. But many of these shipments consisted of fabric sent to Central America for sewing once done in the United States, then returned to America to be sold as final products.

Essentially, U.S. companies are exporting to Central America the materials for garment production work that used to be done in U.S. factories. The results? No new final markets for U.S.-made products, the loss of tens of thousands of working-class American jobs, and higher U.S. trade deficits and international debts. At a time when manufacturing employment is feeble, U.S. debts are nearing alarming levels, and the dollar´s future strength consequently is in doubt, these are the last outcomes America needs.

The CAFTA countries won´t benefit from the new deal, either. The U.S. market for the labor-intensive goods they need to specialize in is already saturated with the imports of all the other third world countries and regions that have recently expanded trade with America – notably China. As no less than the U.S. International Trade Commission has recently reported, when global apparel quotas are removed in January, 2005, the Central Americans will face even more competitive pressure from China and its virtually endless supply of cheap labor.

The Bush administration could help workers in the United States and at least some third world regions if it would limit overall imports by setting some trade liberalization priorities. That way, the main trade liberalization benefits for third worlders could be channeled to countries of special interest – like our hemispheric neighbors in Central America or Mexico or the Caribbean.

But the White House has so far refused, and once the quotas come off, its message to Central America will undoubtedly be the same as its recent message to African exporters worried about Chinese competition: That´s your problem.

To revive its manufacturing sector and all the economic and national security benefits it generates, the United States urgently needs a new set of trade policies. Defeating the misguided Central American Free Trade Agreement is the place to start.

Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

Look it up yourself....anyone who's studied this issue knows the fedgov has been assisting corp's to move mfg. offshore for years....even lame 60 Minutes covered it a few years ago. And while you at it tell me how beneficial it is to our economy when so much mfg. is moved offshore, the jobs that evaporate and how they use our tax $ to make it all possible.

Geez, 60 million more people = higher employment....what a profound observation.

You said millions of jobs lost. So you admit that jobs grew?

Geez, 60 million more people = larger GDP....what an incomplete observation.

You said the GDP was larger because the population grew. GDP doubled. Can you explain the disconnect between population growth and GDP growth?

Do you even grasp logic?

all I've done is laid out facts regarding the destructive effects these idiotic free trade policies have had on this country. Huge increases of debt at all levels,

I'll agree that govt should cut AID and OPIC and about 50% of the rest of govt spending, but where is the connection between government overspending and free trade?

When I see some logic I'll be sure to grasp it.....but at least we're in agreement on AID, illegal immigration, etc. that's a start. My point is before the free trade nonsense started this country was in much, much better shape in terms of overall debt and the numbers bear me out. From the Fed's own figures: corporate debt: '83=1 trillion....'03=5 trillion, personal debt: '83=shade under 2T....'03=just under 10T, fedgov debt 1T to 7T in same time frame.

Why the huge increase in debt?...to me it's a simple case of mfg. creates true wealth and when we sacrificed the wealth generating aspects of mfg. and turned towards services this economy turned into a big poker game with the chips constantly moving around the table. If certain folks were down on their luck for a while, all they did was borrow to stay in game or try to become a bigger player....happened to untold corporations and individuals. In the case of the fedgov, it's obvious they've created a giant welfare bubble and slowly inflated it over the last 20 yrs. with more bureaucrats, more Americans and illegals placed on the rolls, troops in almost 100 countries, etc. Obviously our flawed free trade policy has not been the sole cause of our debt problems but it has played a very significant role in our demise.

My point is before the free trade nonsense started this country was in much, much better shape in terms of overall debt and the numbers bear me out. From the Fed's own figures: corporate debt: '83=1 trillion....'03=5 trillion, personal debt: '83=shade under 2T....'03=just under 10T, fedgov debt 1T to 7T in same time frame.

Logical Fallacy #1: Post Hoc Ergo Propter Hoc

That means "After this, therefore, because of it"

You could find millions of things that got better or worse since 1983 that you can't logically prove occured because of free trade.

How's this one? The USSR ruled all of Eastern Europe in 1983 and now they rule none of it. Must be because of free trade. I weighed 150 pounds in 1983 and now I weigh 190. Damn that free trade.

You say we were in better shape before free trade but GDP doubled in real dollars.

You know why debt increased? People and the government borrow too much.

I guess I should have realized already that you're part of the "everything just happens by accident" crowd that sees no linkage to the impact on a community when predatory foreign competition causes a local factory to close down....taking with it numerous blue and white collar jobs as well as local service jobs in stores, restaurants, etc.

It should've been obvious to me that when people lose jobs and communities lose tax revenues, borrowing has to increase because they now have too much time on their hands and need something to keep them occupied. Add to that the funds needed for retraining those who want to work as well as new additions to the welfare rolls for those that don't, it's just blatantly obvious that things just happened to turn out that way and there couldn't possibly be any other contributing factors......damn, could've knocked me over with a feather.

Anyway, that's how I interpret your approach to this whole mess and all I can tell you is to feel free to believe what you wish in free trade la-la land I'll continue to live in the real world hoping someday to acquire the same accidental, simplistic view of the world that you've mastered.

17-"So, let me get this straight. They might take our dollars and never buy anything from us?"

You mean you figured it out. Until the Euro, the US dollar was THE world currency, and can be used directly, anywhere in the world. In fact, most countries in the world post prices in major places in US dollars (hotels, cars, rentals, etc). In fact, several countries use US dollars as their own currencies.

There are Trillions of US dollars floating around the world which never reach our shores and never will.

Only gold is as easily fungible universally.

18 - "There were plenty of chicken littles that were up in arms about having a free trade deal with a developing country (Mexico) in the NAFTA, and they have been proven wrong. They are still wrong."

So, turning a US trade surplus with Mexico of $2 billion into a trade deficit of $17 billion is a great idea?

Duh!!

5 - "Oh, where to begin? So, this will cost American jobs because this work will now be done in Central America? But it won't help Central America because the market is already saturated?

So, how about a little consistency? If it hurts the U.S., it must help Central America. And wouldn't you prefer we traded with struggling Central American democracies instead of China?"

Trade what to these central countries, stuff we are buying from china?

Lets just send your work to central america to be processed, and save on your labor costs.

Sounds good to me.

44-"Toddsterpatriot"

The only 2 countries I was ever in during my 15 years overseas and 10 times around the world, living and/or working or traveling in over 60 countries, where the US dollar was not accepted as easily as local currency was India in the 70's, and South Vietnam in the 60's, where during the war the US military made it illegal and they printed a military 'script' which was only convertible to US dollars on leaving the country.

59 - "So, we buy foreign goods and the sellers never buy American goods with their dollars. Sounds like we can print all the dollars (IOU's) we want and they'll never be redeemed.

And that's bad how? "

Well, for one thing, what it does mean is that they are buying up US corporations with some of their excess, and companies like Toyota, Nissan, BMW, BASF, and various chinese and mexican companies are now owning the means of production in this country, and they are sending their profits back to their home countries. So foreigners are grabbing hold of our economy and our politicians and therefor our government.

71 - "As for the FTAA, if it goes through there will be demands for a new constitution to govern the new superstate, as in the case of the EU. Now, do you really want to live under some new constitution that most likely have a strong UN influence?....that should be a no-brainer, isn't it? You need to study this issue very closely if you cherish your God given constitutional rights....and if you don't know those rights soon you'll have none!"

You are wasting your breath, fools like Todd can't think past tomorrow's sale at walmart where they can get a Chinese crockpot which was cheap, now it is more expensive than the old American made one, beause we no longer make them here.

And Mexicans (farmers?) lost jobs because cheaper American agricultural products were available? And the money saved wasn't beneficial to both countries? Millions of American farmers lost their jobs after mechanical reapers were invented.

Yes machines increase productivity --- but instead of inventing machines we're importing tons of cheap labor --- going the other direction. Millions of Mexican farmers went bankrupt after NAFTA was signed --- which is one reason for the millions coming over the border. I don't know if much money was saved and it's difficult to see the benefit --- here many people collected NAFTA-TAA for a few years and still don't have jobs. I doubt that government social spending on the combined welfare programs: TANF, Medicaid, food stamps, NAFTA-TAA, TAA, government housing, WIC and all the rest is down and recently states like California and Texas have great difficulty in balancing their budgets in spite of taxes at record rates.

We've never before seen the levels of desperation that we see now in Mexico --- hundreds willing to die trying to leave their homeland --- it was never so bad before NAFTA.

74 - "Employment is higher now than before these "idiotic free trade agreements".
Per capita GDP is higher.
Before you concern yourself with my ignorance you might want to get some facts yourself."

When are you going to pay the $81,000 you owe in funded and unfunded national debt, since the GDP is higher?

76 - "By gosh, I think you have it figured out....keep those fiat currency printing presses going....as long as there's plenty of paper and ink we have no worries....long live free trade!"

LOL (cry cry) - you got it, you figured out Toddsterpatriot's idea of how to have a great economy - devalue our dollar totally, sell off all our national assets to foreigners, give our constitution to Nicaragua, default on our debts, and then starve to death. Yes, he has it figured out.

85 - "When I see some logic I'll be sure to grasp it.....but at least we're in agreement on AID, illegal immigration, etc. that's a start. My point is before the free trade nonsense started this country was in much, much better shape in terms of overall debt and the numbers bear me out. From the Fed's own figures: corporate debt: '83=1 trillion....'03=5 trillion, personal debt: '83=shade under 2T....'03=just under 10T, fedgov debt 1T to 7T in same time frame.

Why the huge increase in debt?...to me it's a simple case of mfg. creates true wealth and when we sacrificed the wealth generating aspects of mfg. and turned towards services this economy turned into a big poker game with the chips constantly moving around the table. If certain folks were down on their luck for a while, all they did was borrow to stay in game or try to become a bigger player....happened to untold corporations and individuals. In the case of the fedgov, it's obvious they've created a giant welfare bubble and slowly inflated it over the last 20 yrs. with more bureaucrats, more Americans and illegals placed on the rolls, troops in almost 100 countries, etc. Obviously our flawed free trade policy has not been the sole cause of our debt problems but it has played a very significant role in our demise. "

Great summary.

86 - "You could find millions of things that got better or worse since 1983 that you can't logically prove occured because of free trade. "

What got better? Life was better in the 50's and 60's when everything was made here, and the father worked and earned enough to support a wife and family.

The only thing I can think of that actually is better these days is that now everybody can have air conditioning. Other than that, and computers and the internet, and medicine, and can't think of anything else which is 'better' than the those days.

Ah, they just had a note on TV - weather forcasting is now better, sometimes it actually does rain tomorrow when the weatherman/person predicts it.

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