Savings for Consumers, Savings for Our Country : Yes on NAFTA: Cutting protectionist tariffs would lower the price on a wealth of common items, from brooms to melons.
The increasingly bitter debate over the North American Free Trade Agreement marks a decisive watershed in American economic history: Will we keep expanding our leadership role in building a global system of free trade and investment, or will we retreat into a fear of competition and attempt to construct an inward-looking, self-reliant economy?
The one element consistently absent in the debate over NAFTA is what it means to free trade’s most important constituency group: the American consumer.
A simple but neglected rule of economics is that free trade helps a country by providing its citizens with the variety of products that allows them to receive the best value for their purchases. The key is competition, which induces low prices but also provides consumer choice. American living standards are the highest in the world due in part to the effects of low prices and wide choice.
The World Bank’s estimates of purchasing power constantly put the United States at the head of the pack. Although trailing the Japanese in some measures of total product per person, we have a much higher standard of living because our markets are more open than those in Japan. For instance, rice is six times more expensive in Japan than in the United States; long-distance phone calls are much cheaper here; even consumer electronic equipment is cheaper in New York than in Tokyo.
Despite our largely open market and attractive domestic prices, there are pockets of protectionism that keep prices of some consumer goods much higher than they would otherwise be. High tariffs, quota schemes (both voluntary and mandatory) and threats of trade actions combine to put a lid on imports and keep prices artificially high. Tobacco, clothing, glassware, brooms, shoes, sugar, peanuts and automobiles are a few of the items whose domestic prices are kept artificially high by restraint on imports. It’s not surprising that opposition to NAFTA and other trade-opening measures comes frequently from these industries and their labor unions.
The costs of such protection are largely hidden and are passed on to the consumer in terms of higher prices. The effect on overall productivity, however, can be gleaned from estimates of the costs per job saved by protective measures. One study in the 1980s estimated that every job saved in the U.S. textile, auto and steel industries by import quotas costs $144,000 in 1990 dollars. A 1984 Brookings study estimated that each auto job saved by Japanese voluntary restraints on exports cost Americans $165,000; a later International Trade Commission study upped the estimate to $193,000. Sugar quotas more than double domestic prices at a cost of more than $100,000 per grower.
NAFTA would not erase all of these added costs to consumers, but it would help. It would enlarge the free-trade area in these and other protected goods; the increased competition would put pressure on prices while enlarging consumer choice. Some of the affected goods: household glassware, with current tariffs as high as 38%, brooms (32%), rubber shoes (65%), cantaloupes (35%), canned tuna (35%) and orange juice (26%).
More important, of course, NAFTA would expand opportunities for dynamic U.S. industries like telecommunications, computers and auto parts, and for efficient U.S. producers of grains, meat and dairy products, fruit and processed foods.
On the other hand, defeating NAFTA would signal that we are not serious about expanding free trade elsewhere in the world. Why would any serious nation continue the Uruguay Round negotiations on trade liberalization when the U.S. Congress will second-guess the President’s negotiators and prefer to protect declining industries rather than help dynamic ones? In fact, it may be a good strategy for foreign nations to let the United States indulge in protecting its weak industriesand penalizing its consumers, because this is a sure way to lessen our competitiveness. So, when Ross Perot, Lane Kirkland or Jerry Brown talks about losing jobs to Mexico (itself a wrongheaded argument), we should ask three questions: How much does it cost the American consumer to save each job? Do we really want to base the American economy on jobs in non-competitive industries like broom-making? Andhow much is added to the price of the product by protecting domestic producers?
The giant whooshing sound we will hear if NAFTA is defeated is the collective groan of 260 million American consumers who are forced to pay higher prices for basic products, and who must do so to featherbed inefficient and inherently low value-added industries like broom-making and producing motel ashtrays.
