NEWS ANALYSIS : Is Free Trade Good? It Depends on Who’s Talking

Family income is stagnant or declining, big companies are laying off tens of thousands of workers, and the gap between goods entering and leaving the United States yawns ever wider, creating a record $174-billion trade deficit.

The villain, says Republican presidential hopeful Patrick J. Buchanan, is free trade. No, says rival candidate Steve Forbes, trade is part of the solution.

It’s an argument so potent that it sweeps across party lines--pitting Democrats against Democrats and Republicans against Republicans. Protectionist appeals clearly get through to many workers who fear losing their jobs, and polls show that Buchanan’s stand on trade is the single biggest reason for his win in the New Hampshire primary.

But polls also indicate that Buchanan’s trade ideas cost him badly this week in the Dakotas, where farmers depend on exports to provide markets for their wheat. And in South Carolina, which votes Saturday, free trader Sen. Bob Dole (R-Kan.) opened his campaign by heading to a BMW auto factory, making the point that trade ties with other nations now generate many jobs in the United States.

The debate over trade has clearly become the San Andreas Fault of the Republican presidential contest. But how accurate are the arguments being made? Has free trade hurt or helped Americans?

Economists are divided. Most, however, believe free trade is helping the economy more than hurting it, and they back up their opinions with other statistics--those not mentioned in the doomsday campaign rhetoric--that show a host of benefits and promising trends.

The government’s annual report on the trade balance has provided the fodder for the campaign debate in South Carolina. Before a shuttered textile factory in Clearwater, Buchanan said this week that “the vast majority of middle Americans are seeing their standard of living going down. There are losers in these trade deals.”

Spitting out the acronyms of international economics like a curse, he says he would pull the United States out of NAFTA and GATT (the North American Free Trade Agreement and the General Agreement on Tariffs and Trade, which has been superseded by the World Trade Organization).

Japan? As far as Buchanan is concerned, it would sell nothing in this country without a 10% tariff assessed at the border. Never mind that, for example, 200,000 U.S. jobs are tied to making cars for Japanese-owned auto plants here that make extensive use of imported parts.

China? Make the tariff 20%, Buchanan says, as punishment for human rights violations.

Suppose Buchanan is elected and he puts his trade proposals into effect. What would be the result?

Buchanan says American industry and workers will thrive when free of unfair foreign competition.

Jeffrey E. Garten, dean of the Yale University School of Management and before that the Clinton administration’s undersecretary of commerce for international affairs, counters by arguing that an across-the-board tariff is unworkable for several reasons:

* The price increases it would impose on imported products would be passed along to American consumers, and domestic competitors would take advantage of that price increase to boost their own prices. That would pose a risk of inflation.

* It would generate retaliatory tariffs on U.S. exports, making them less competitive abroad, leading to U.S. job losses and raising the prospects of a tit-for-tat trade war.

* Products can be shipped via third countries to circumvent duties anyway.

Indeed, Buchanan’s ideas make free traders, and a vast majority of established economists, cringe. Few believe that restricting the nation’s imports would do anything other than send the global economy into a downward spiral, and they point to trade wars as a major cause of the Great Depression.

There is no question that an unprecedented number of Americans have lost or been forced to switch jobs in recent years. And it does little good for the textile worker who loses a job in South Carolina to know that free trade has made it easier for Boeing to build airplanes in Washington state that Malaysia will buy to carry the finished cloth back to the United States.

But Buchanan and others point to a series of depressing statistics.

In 1980, the broadest measure of U.S. trade abroad showed that the United States exported $2.3 billion more than it imported. That surplus has disappeared, replaced by a deficit in the vicinity of $150 billion.

Over roughly that same period, real hourly wages have dropped about 15% for the three-quarters of American workers who do not have a college degree--the pool of voters that polls show is most attracted to Buchanan’s economic prescriptions.

“There is an emerging consensus that trade has contributed to the wage inequality in the United States in the 1980s and 1990s. College-educated workers have barely held on and everyone else had the floor fall out,” said Thea Lee, an economist with the Economic Policy Institute, a liberal policy research group long critical of free trade.

More recently, from 1988 through the end of 1995, the number of U.S. production jobs in manufacturing industries has fallen 5.3%.

Free traders acknowledge those realities but cite other trends and causes. The reason for the decline in jobs in many industries lies more with technological advances than with foreign competition, they say. Technology has increased productivity and made the American workplace more efficient than any other, so it can do more with fewer people.

Those efficiencies increase exports, they say, creating not just more jobs but better-paying jobs.

As for the trade deficit--$111 billion when the nation’s surplus in services is considered--Garten said that “it may sound large in terms of the overall number, but it’s not even on the radar screen in an economy that is over $7 trillion” in total worth.

U.S. Trade Representative Mickey Kantor, who helped put through the NAFTA and GATT accords, has other numbers: He notes that the United States enjoyed its greatest growth ever in merchandise sales to other countries last year. Of the 1.5 million jobs he said were created in the U.S. economy last year, 500,000 were linked to exports.

Across the economy, 12 million jobs, or 10% of the work force, are supported by exports, according to Kantor’s office.

Those arguments, however, have much less sway in the political arena than in the world of economic debate. As Lee notes, “Every time a plant closes to move to another country . . . it reinforces Pat Buchanan’s message that globalization hurts rather than helps.”