The article below is based in current events today, aimed at our hemisphere, but also summarizes nicely the main benefits of free trade, what I call freedom to trade - a basic economic freedom. Key points:
1) "There are a billion new consumers that are going to join the middle class in Asia over the next 10 years. We have to have access to them." In other words, with free trade, whatever you invent or innovate or design or build or just source and sell, the larger the market you can sell into the more return you can earn for your effort.
2) 'access to imports is a key contributor to high U.S. living standards'. Freedom to buy from far away means the freedom to make the best possible purchase transactions available. Besides standard of living, this is a key component in competitiveness.
3) Trade war escalations: "If the U.S. puts up new trade barriers to China and attaches "buy American" provisions to federal spending—as the Obama administration did in 2009 and now wants to do again—other countries are likely to feel justified in moving to protect their own domestic markets." As with the leadup to the Great Depression, protectionism at home leads to other countries doing the same, and trade wars destroy economies, commerce and wealth.
The Case for Free-Trade Leadership WSJ
Mexico's growth in investment and trade, both imports and exports, shows the benefits of open borders.
By MARY ANASTASIA O'GRADY
'There are a billion new consumers that are going to join the middle class in Asia over the next 10 years. We have to have access to them."
That was General Electric CEO Jeff Immelt on CNBC Thursday responding to a question about the Senate's 79-19 vote last week to advance a bill that would punish China with antidumping duties if it does not strengthen the yuan.
Bipartisan Washington, as indicated by that vote, is itching to launch a trade war with China. Mr. Immelt warned against it: "Make no mistake. The U.S. will do better if we have a good strong positive engagement with China. I was there last week. It is still growing eight to ten percent. We need to have access to China for our exports."
Too bad President Obama didn't say that.
There is no such thing as a good moment to close markets, but this would seem to be an especially inauspicious time, just as Asians are climbing up the economic ladder, to introduce a policy that is likely to generate reciprocal penalties against U.S. exporters.
But that is only one reason the Senate bill is dumb. The chief reason is that access to imports is a key contributor to high U.S. living standards and American export competitiveness.
A third factor, less often recognized, has to do with the need for U.S. leadership in reaching wider geopolitical goals. If the U.S. puts up new trade barriers to China and attaches "buy American" provisions to federal spending—as the Obama administration did in 2009 and now wants to do again—other countries are likely to feel justified in moving to protect their own domestic markets.
The unintended consequences of a U.S. shift toward protectionism are not hard to predict. Brazil is already loudly complaining about pressure on local industry due to currency weakness abroad—meaning the U.S. dollar. In September it raised duties on some auto imports by 30 percentage points.
Closer to home, Mexico remains vulnerable to internal protectionist forces. Amazingly, the country has stuck to a liberal trade agenda in recent years despite the impact on exports from the 2009 U.S. recession and strong competition from China. But a World Trade Organization commitment it made in 2008 to lift all antidumping duties on some 1,500 Chinese goods this December is stirring up protectionist sentiment. Presidential and legislative elections slated for July will give nationalist populists an opportunity to strike.
The Bombardier manufacturing facility in Queretaro, Mexico
Sensational press coverage of Mexico's narco-violence has obscured the exciting story of the changing economic landscape brought on by openness. In an October economic analysis of the economy, the Spanish bank BBVA says that in 2010 Mexico was among the top 10 destinations in the world for foreign direct investment, which grew almost 22%.
BBVA found that the "main attraction" for that capital was Mexico's "platform" as an exporter of manufactured goods (over $246 billion in 2010) but also as an importer of manufactured goods ($250 billion). Those figures, BBVA said, "place Mexico as one of the economies most open to foreign trade and with the greatest trade activity internationally."
This has allowed Mexico to move up the food chain as a producer. One fascinating development is its evolving role in the global aerospace industry. Using data from the Boston Consulting Group, BBVA found that "in the aerospace category, [Mexico] is the main recipient [in the world] of FDI."
Baja California is home to 52 of the 232 aerospace companies in Mexico today and 40% of the industry's work force. Honeywell and Gulfstream are two household names that have facilities there. In Chihuahua, Cessna manufactures aircraft wiring sets (called harnesses) and ships them to Kansas for airplane assembly while Bell Helicopter manufactures cabins for commercial units. Jalisco is also an aerospace hotspot, with projects "in place," according to the Mexican-government publication Negocios, for "producing engine components, wiring harnesses, cables, landing system components and heat exchangers." By attracting the Canadian firm Bombardier in 2006, the state of Queretaro has pulled in a host of suppliers. A total of 50 local and foreign firms employ 4,800 workers in what is now "recognized as the strongest Mexican aerospace cluster," Negocios reports.
Increasing labor costs in China, and Mexico's low transportation and logistic costs for the Western Hemisphere, its available human capital, and its respect for intellectual-property rights are all conspiring to attract investors. But none of it would be happening without the opening to foreign trade and investment.
It is true that Mexico has not grown fast enough to satisfy its young population. But that's because Mexican competitiveness needs work. Crucial sectors like telecommunications, electricity and oil have to be deregulated to lower costs; and further opening to competitors like China is necessary.
This will entail tough domestic political battles which, if won, will make Mexico a stronger, wealthier democracy and a better U.S. neighbor. A new wave of protectionist thinking out of Washington is not going to be helpful to market liberals who are trying to stay the course.