Free Trade is Still the Better Deal For Americans, Says Former U.S. Trade Representative

By Allison Rizzolo

Ambassador Susan S. Schwab (left) discusses the past, present and future of free trade with National Public Radio's Robert Siegel at the Maxwell School/ Public Agenda Policy Breakfast.

Susan S. Schwab believes in free trade, and she says it's for this simple reason: Ninety-five percent of the world's consumers live outside the borders of the United States, a fact that, she says, "a lot of Americans… and some members of Congress don't realize."

It is essential that we not close our doors to foreign trade during the current economic crisis, according to Schwab, the former United States Trade Representative. Unfortunately, Schwab told attendees at the latest Maxwell School/ Public Agenda Policy Breakfast Series, on April 8 in New York, pressure is growing to pull back and impose more trade barriers.

Schwab, who served in the Bush administration from 2003 to 2009, expressed particular concern over the "Buy American" rider in the economic stimulus bill, a provision that bars most use of foreign steel and iron in projects using stimulus money. Schwab sees the rider as indicative of a return to protectionism and likens it to the Smoot-Hawley Tariff Act of the 1930s, which, she says, "arguably prolonged and deepened the Great Depression."

"It is easier," Schwab says, "to point to the other guy, or the other country, or the other group of people as the source of one's own frustration." Our instincts may lean towards protectionism, but Schwab says this is not the way out of this economic crisis, noting that, "countries that opened their markets in the 1990s grew three times faster than countries who kept their markets closed… Even in the current environment, you take a look at countries that have governments that have the greatest stranglehold over their economies, and they're doing much worse than the rest of us."

Robert Siegel of National Public Radio, moderator of the series, initiated his own negotiation with Schwab by asking, "what is wrong, in a moment of dire national crisis, with people looking out for their own, and will that care for one's own workers trump an interest in free trade?"

"The concern," Schwab says, "is reflective of a broader concern that looking after your own workers ends up trumping the potential for a speedy recovery." The United States, Schwab says, "remains by far the largest manufacturer in the world…. We are also the third largest exporter of manufactured goods." For this reason, says Schwab, "we have a lot at stake in keeping our foreign markets open, and you don't get foreign markets open by closing your own market." And keeping foreign markets open is particularly important when, she says "much of global economic growth is outside of our borders."

"Even before the current economic crisis," Schwab says, "the World Bank was estimating that over half of the global economic growth was going to come from global markets. Now that number is much, much higher. So [if] those are the consumers who are going to be buying more, who's going to be selling to them?"

For this reason, Schwab sees the "Buy American" rider as troublesome, and in some ways indicative of a larger public trend.

"I think we have seen serious and very worrisome deterioration in the respect for, the rationale for free trade," she said. In the past, Schwab says, "it used to be that a 'yes' vote [in Congress] on a trade agreement was the default vote, and that you had to explain to your constituents why you were voting 'no' on a trade agreement… Now the default vote seems to be a 'no' vote."

According to Schwab, "There are protectionist riders that have always been put in pieces of legislation, but I think fundamentally most of the world's leaders, and maybe this is an 'elite' position, recognize that you not only hurt yourself—meaning every single consumer in your society, but you also hurt your own producers and your own workers by pretending that by putting up walls, you are going to become more competitive."

Schwab said one problem was that advocates of free trade "dropped the ball" in the controversy over NAFTA, the North American Free Trade Agreement between the United States, Canada and Mexico.
"I think what happened with NAFTA debate is it was 'demagogued' during the (1992 presidential) campaign…as a matter of trade politics, it is always easier to demagogue free trade than it is to defend it, and always has been," Schwab said. "There was no active defense [of free trade], and therefore, over a period of years, politicians increasingly succumbed to, even free trade politicians, just keeping their mouth shut."

Schwab later turns to trade issues in the headlines. While she does express concern that some retrenchment is going on with the Chinese economy, Schwab points to this past summer's round of World Trade Organization negotiations, saying, "China was at the table as a key negotiator with as much responsibility for getting the agreement done as the United States or the [European Union]." While China wants "to be at the table…when they get there have a little sorting out to do about their roles and responsibility." Recently, Schwab says, China "has recognized, as we all have, that we are inextricably linked through trade, through finance."

The inability of the U.S. to ratify a pending trade deal with South Korea may be a good example of what could happen, Schwab said. Others, such as the European Union, Australia and New Zealand, are pursuing their own deals with South Korea. "We could find ourselves not only not having this preferential access to the Korean market because the Congress hasn't passed that [free trade agreement], but having our competitors having preferential access to the Korean market, locking us out," she said.

So, does Schwab think the Obama administration is a protectionist one? "The jury's out," she says. She notes that, "given all [the administration has] on their plate, they kind of wish trade would go away for a couple of years." However, Schwab says the current administration has a unique advantage Schwab never had: "I believe this administration has an opportunity to have a dialogue that I could never have, or to deliver a conversation and start moving the needle on trade policy in a positive direction that I could never have with the Bush administration."

She later said, "I like to think that this president and this administration knows what, quote, 'the right thing to do' on trade is." In all, she remains positive. "If you're a trade negotiator," Schwab quips, "you have to be an optimist."

Allison Rizzolo is an intern at Public Agenda.