Free Trade Agreements in Asia, Good or Bad?

Ever since Bill Clinton put his presidential seal on NAFTA back in 1994, the media occasionally revisits the topic.  The usual parade of nominal experts will march past our television screens delving into the pros and cons of the agreement.  Of course we can't do without the local reporter's interview with a former union worker whose job in the textile industry was shipped across the southern border into Mexico. We might also hear from a prominent environmentalist reflecting on how the use of pesticides by Mexican farmers put our nation's food supply at risk or the pro-immigrant community organizer who is concerned over the exploitation of Mexican workers in the makeshift sweatshops that have popped up to satisfy the demand for cheap exports to the US.

Fortunately, there will be plenty of time to anatomize the agreement that has been in place for well over a decade with another blog.  I've only mentioned NAFTA as I was reminded of it during all the coverage of President Obama's recent trip to the Asian continent. Our President has made pit-stops in India, Indonesia and is currently in Seoul, South Korea for the G20 summit.  He will also make a stop in Japan later this week and a few other countries before the tour is over.  His focus at all the stops thus far has been to weaken restrictions and open up trade doors for American ventures into emerging Asian markets.

All this makes sense of course after the electoral "shellacking" that Obama's party experienced during the mid-term elections. It is obvious that the calls for more jobs and more growth are still fresh on his mind as he appears to be putting forth a good faith effort to respond to his fellow countrymen.  This evening the conservative press has jumped all over the story that the administration as failed to seal a trade deal with South Korea. The sealing of this deal was expected to coincide with Obama's visit with Prime Minister Lee Myung-Bak today in Seoul.  Of course, this is a blatant attempt by journalist to magnify any perceived weakness in Obama's international influence after the setbacks at home.  Everyone knows that a deal will be finalized, at least in practice, if not by law (a trade deal would require US Congressional approval) in a relatively short amount of time.

The real question is; Would a free trade agreement with Asia help our weakened economy? In my humble opinion the answer is; Yes! And I'll give you my reasons. First, it is hard to quantify exactly how much existing trade agreements like NAFTA have helped our economy.  Some of the best efforts at measuring its effects (like Congressional Budget Office reports) show that the results are not as enthusiastic as the proponents of these agreements would like to admit. That is not necessarily a bad thing since one could at least make the argument that NAFTA was not a horrible idea like many of it's detractors claim.  Even modest reports indicate that, minus a few specific industries like textile, for the most part, NAFTA was beneficial to our overall economy. Again, I don't want to get into specifics about NAFTA, but I need the comparison to make my point that trade agreements aren't bad but the question remains; Are they good?

The second reason is that dozens of trade agreements already in place between Asian nations will make the Asian Bloc the world's largest economic bloc at some point over the next five years. It will be larger than NAFTA and the European Union as well. This means that unless we put a tap into that Asian keg of trade goodies we will find ourselves sipping light beer (or Canadian Moonshine) and stale bar nuts on the unemployment lines back home.

A third reason is that over the years, as Asian economies have taken on many of the manufacturing jobs that moved away from industrialized nations in the west, they have created and expanding middle class.  In countries like India and China. Combined, that new middle class is about 600 million members strong. As we have learned in our economy, consumption is driven by a large middle class.  Asian governments are very much aware of this and have taken great measures to ensure that their middle class consumes home grown products by minimizing their consumption of foreign exports resulting in the enormous trade deficits that are now all over the news.

Tapping into that Asian middle class will prove crucial to creating or maintaining jobs in the US. Companies like Ford here in the US have already made public comments about how important it will be to their businesses to gain access to the Asian marketplace. McDonald's, KFC, and other restaurant chains have found enormous success in Asia which proves that Asian consumers have a growing appetite for western commerce.

Even if Obama can secure a significant trade agreement, let's be real. We're probably not going to see a flood of old GM plants suddenly spring back to life. In fact the US will probably have to lift some of our own tariffs on Asian imports like the current 35% tariff on cheap tires and radials from China.  This of course will invite stiff opposition from the big labor unions, and smaller auto supplier businesses that are already feeling the economic crunch due to the near collapse of the auto industry in Detroit.

Obama will surely face some setbacks....correction! Obama has already faced some setbacks.  As I am writing this blog, news about the President's failure in gathering the support of other G20 countries to push China to boost its currency value has surfaced.  Again, no surprise here.  China is well aware of it own mass and displacement in the global economy.  They have been more willing to flex their muscle as of late. For example, they recently banned the shipment of rare minerals used by Japanese computer chip manufacturers over some minor territorial dispute.  Not to mention the most of these G20 countries now see feasibility in bridging the gap of economic prowess with the United States, even if they have to hitch their wagons to China's for now.

Lastly, I believe the most important reason to support the President as he seeks these trade agreements is that it's pro-business.  Most of his policies, like tax hikes, Health Insurance requirements, financial reform, are mostly anti-business.  Now he is seeking to open up new markets in pursuit of creating jobs back home.  The reality is that with his fiscal policy, the Federal Reserve's monetary policy, and the all the stimulus initiatives have failed to spark job growth. Therefore, foreign policy is quite honestly, the next option on the list.

"...kicking a man while he is down".

I am surprised that conservative media and even more surprised that the liberal media has been critical of the timeliness of this recent trip overseas.  Some have even questioned whether or not the enormous cost of the trip is justifiable in the face of all the economic trouble back home and the talk of reducing government spending.

In this case, I think everyone should support his efforts and avoid the temptation of "kicking a man while he is down".  Even if his attempts at seeking pro-business and free market opportunities seem tardy, they are, after all, a subliminal admission that his prior positions were not serviceable. Whether his effort spurs the growth of a small industry or only creates a few thousand American jobs, it is a step in right direction. The roadblocks Obama has already encountered in Korea and the G20 summit should serve to galvanize the opposition to facilitate policy creation that will fortify our international economic presence. It surely should not to politicized into ammunition to be used in 2012.