U.S. Moves Forward on Free Trade

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Fisher Investments) -- Since the Senate began debating legislation to impose new import duties on Chinese goods on Monday, much has been made of the possibility of resurgent protectionism in the U.S. However, free trade took a big step forward Wednesday, when the House of Representatives Ways and Means Committee advanced three long-dormant free trade agreements to the full House. All the FTAs are expected to pass next week.

Economically, this bifurcated policy (for free trade on one hand, against it on the other) makes little sense. (Then again, protectionism altogether doesn't make a great deal of economic sense in our view.) But politics is a world in which economic sense is, well, hard to locate sometimes. And in politics, how you appear to your base is key. So it could very well be the debate over China is political cover for senators -- knowing full well it's unlikely to pass the House. This permits them to vote in favor of the administration's renegotiated (and long-stalled) FTAs while appearing "balanced" on trade to their bases.

If these deals -- bilateral trade agreements with South Korea, Panama and Colombia -- are ratified as expected, it would wrap up years of uncertainty and false starts since they were signed in 2006 and 2007. They've faced obstacles from both parties in Congress and the current administration. The most recent came this past May, when President Obama announced he would finally submit the deals to Congress, provided Congress agreed to renew the controversial Trade Adjustment Assistance Program.

Created nearly 50 years ago, this program provides retraining and other federal benefits to workers whose jobs were moved offshore (or, perhaps more likely, made redundant by technological and productivity gains). A core plank in the Democratic platform, it risked becoming a victim of budget cuts due to opposition from House Republicans; tethering Trade Adjustment Assistance to the free trade deals, which have strong House support, increased its chances of passing. This is but one example of how these trade pacts have been treated as political currency.

Last month, the Senate passed a pared-back Trade Adjustment Assistance Program, and House leaders said they agreed to its terms in principle, which cleared the way for the president to submit the three trade pacts to Congress. If all goes as the administration hopes, the agreements will be ratified in time for a formal signing ceremony to take place with South Korean President Lee Myung Bak's state visit next week -- a fitting, poignant coda.

Ratification would be far from a merely symbolic victory: these agreements have tangible economic benefits. For example, the White House estimates they would increase U.S. exports by $13 billion annually. Interestingly, many South Korean, Panamanian and Colombian goods have been duty free in the U.S., but our exports to those nations have faced significant barriers, from tariffs to South Korea's ban on American beef. These trade pacts level the playing field for American producers. U.S. service providers will also gain greater inroads in those countries. And freeing trade with these nations will increase imports -- giving American consumers greater choice -- and lower the price of some goods already available here.

These trade pacts also improve the U.S.'s place at the global trade table. In its most recent report on the ease of doing business in different countries, the World Bank ranked the U.S. at 20th place in terms of international trade. The UK, Germany and South Korea are but a few of the countries ranked higher, and trade in these nations has only gotten freer since the June 2010 data forming the basis of the World Bank's report. This summer alone, while American politicians dithered, China inked a 70-billion-euros trade deal with Germany and a 1.4-billion-euro pact with the UK. Free trade deals between the EU and South Korea and Canada and Colombia also took effect.

As trade in other countries gets freer while the U.S. stalls, it becomes a less attractive trading partner. The EU/South Korea and Canada/Colombia deals put this comparative disadvantage in sharp relief: Until the U.S.'s trade pacts take effect, South Korea and Colombia have incentives to trade with Europe and Canada instead. That's a lot of economic activity potentially bypassing the U.S.

It appears likely to us politicians will ultimately put their dalliances with protectionism aside and instead make trade freer. But the road to an economically sensible position is a long, twisty one when you're inside the Beltway.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.