Panama and Protectionism

The Senate Finance Committee held a hearing today to discuss creating a NAFTA-like free trade agreement with Panama. As with every political issue, it has its opponents. But given the specifics concerning the U.S.'s current trade situation with Panama, this agreement seems like kind of a no-brainer.

The age-old protectionist argument against free-trade agreements was given by Thea Mei Lee, policy director of the AFL-CIO, at the hearing:

As long as we continue to run trade deficits on the order of five percent of GDP, the arguments that we need more trade liberalization to succeed in the global economy ring hollow - especially to our members, who have seen too many jobs go offshore while their wages and benefits stagnate.

Really? Because fellow panelists James Owens, Chairman and CEO, of Caterpillar and Mr. Sam Carney, President-Elect of the National Pork Producers Council who represent manufacturing and farming - the two industries supposedly hit hardest from free trade - both testified in favor of the agreement. They support the agreement because it will better facilitate the export of their products, produced by the hands of U.S. workers, to Panama.

Committee chairman Senator Max Baucus (D-Mont.) also supports the agreement. He did a good job of explaining why a free trade agreement with Panama in particular will benefit the U.S. and its workers:

The Panama agreement also provides new opportunities for American farmers, ranchers, and businesses. Panama already exports most of its goods to the United States duty-free under our trade preference programs. This trade agreement will level the playing field. It would provide the same duty-free treatment to our industrial and agriculture exports to Panama.

This agreement will, for example, immediately eliminate all duties on more than half of our agricultural exports to Panama. That includes high-quality American beef from states like Montana.

This agreement will also immediately eliminate tariffs on 80 percent of U.S. industrial exports to Panama.

The agreement provides U.S. manufacturers and farmers the opportunity to be more competitive when exporting goods to Panama. In other words, it would create U.S. jobs, not destroy them. Meanwhile, Panama will gain very little from the agreement, other than more U.S. imports, as most of its exports to the U.S. are already duty free.

That's why the National Association for Manufacturers also supports the agreement. I spoke to Frank Vargo, one of their trade experts, who is very frustrated that some people are convinced that free trade agreements cause the loss of U.S. jobs. He was kind enough to provide the following graph, based on Bureau of Labor Statistics, which shows manufacturing jobs falling before and growing after NAFTA was put into place.

He also says that the U.S.'s massive trade deficit (which the AFL-CIO complained about above) is mostly due to trade with non-free trade agreement countries like China and Japan. Of that deficit, the portion resulting from free trade partners is a small part, according to Vargo.

One big question mark in the free trade discussion is where the Obama administration stands. While its position is clear on many issues, trade is not one of them. But if today's committee hearing creates some momentum to get a Panama free-trade agreement through Congress, we may find out where the president stands soon enough.