• Background: Economic theory and trade agreements
• Debate: Democrats and republicans on Trade
• Country Comparison:
• Recent Legislation: TAA, intl labor concerns from Dems

Background

• Economic theory predicts that trade will be mutually beneficial to all participants when countries specializes in the goods and services each is comparatively more efficient in producing. Developing countries tend to have fewer regulations (i.e. lower wages, poor labor standards or loose environmental standards), which often (but not always) brings down the costs for companies that operate in these countries. Companies may move jobs from the developed world to countries with, for example, lower wages, to save on production costs.
• Trade policy comes in the form of trade agreements that give the participants greater access to each other's domestic markets. These agreements involve lowering barriers to trade, which include tariffs on imports or subsidies on locally produced items. Policy makers' perception of the costs and benefits of free trade determine which kind of trade agreements and domestic policies they are likely to support.

Debate

• Critics of free trade point these patterns as flaws in the free trade model. Actual trade patterns for developed countries do not follow the comparative advantage theory, but show that most trade flows between equally developed partners. For example, Canada is the United States' biggest trading partner (Source: The Economist). Economists generally agree that multilateral trade (3+ countries) is far more beneficial than bilateral (2+ countries) or regional (multilateral, within a specific region). Regional and bilateral agreements inherently challenges free trade by excluding other countries. They also come with complicated "rules of origin" that often discourages commerce.
• In the 1990s, the Democrats and President Clinton were enthusiastic about opening American markets to foreign trade partners with Uruguay round, the North American Free-Trade Agreement (NAFTA), and promoting China's trade status as most-favored-nation. Today's democrats try to appear skeptical of free trade. Many have opposed free trade agreements and have sought to strengthen assistance to local producers, thus restricting market access for foreign products. The issue that has largely shaped the Democrats' current position on trade is health care. In the 1990s, most people had some form of health care coverage. Today, 47 million Americans are uninsured and with rising health care costs, the fear among Americans is spreading. Many Americans are tepid about trade because they see it as a way for American companies to export jobs to places like India, even higher-skilled jobs. If they lose their job, they lose their health insurance.
• Republicans have been more sympathetic to business on the issue of trade. Businesses want access to the most profitable markets and therefore tend to favor policy that reduces the limitations on trade. The Bush Administration is known for trying to win over the American steel industry by imposing tariffs on steel imports in the beginning of his first term. Since then, the administration has taken huge strides to secure bilateral and multilateral trade agreements (U.S.-Oman, CAFTA, U.S.-Chili) and to negotiate an agreement in the W.T.O. Doha round. President Bush also advocated lowering subsidies to American agricultural producers by reforming the Farm Bill.
• The following points are often raised in regard to issues of outsourcing: Americans used to have the same concerns about Japan's high skilled labor force in the early 1990s but the only industry that has suffered catastrophically has been the automobile industry. Now American consumers have gained a wider variety and competition has raised the standards for vehicles. Also, the companies that stay in the U.S. have long since automated the processes that other American companies may move to China to employ lower-skilled and cheaper labor (i.e. manufacturing).

Country Comparison

• Trade distortions are not unique to the U.S.

Recent Legislation

• Current Democrats have supported a government program that provides trade-adjustment assistance (TAA) for American workers displaced by outsourcing. Many have tried to increase trade barriers through the use of subsidies and insisting that higher labor and environmental standards for trading partners are incorporated into any agreement.
• In March 2007, Democrats insisted that the labor standards of the International Labor Organization be written into the renewal of a trade agreement between the US and Latin American countries that was previously signed but is set to expire.
• Also in March 2007, Democrats announced countervailing tariffs on paper from China to offset indirect subsidies producers get from the government. Democrats have been the biggest proponents of strengthening America's Farm Bill that provides billions of dollars in subsidies to farmers who could otherwise not compete with farmers in places like Africa.