Getting free trade right

Globalization is inevitable and nothing about the presidential campaign changed that.

Ever since merchants first moved among human settlements, people have exchanged goods, blended cultures and specialized to create wealth, but trade also creates winners and losers. Donald Trump has seized on an enduring truth: whether America or any nation wins or loses depends on how well it manages the process.

Negotiating NAFTA and the bilateral agreement permitting China to join the World Trade Organization, Ottawa, Mexico City and Beijing were not looking out for American businesses and workers — that was Washington’s job and it didn’t do it very well.

Thanks to a $380 billion annual trade deficit with Mexico and China, communities in Pennsylvania, the Midwest and elsewhere are beset by shuttered factories and decay. Economic growth has slowed to less than 2 percent, and our national and state governments lack resources to adequately maintain the military, schools and infrastructure.

However, history teaches nations that turn away from global commerce, as did imperial China, risk stagnation and decay.

In Europe, Brexit is not a xenophobic impulse but a sensible reaction to the failure of European Union institutions to deliver a vibrant continental economy and the military resources and political consensus to secure EU borders and defend against terrorism.

Illustration on free trade in light of China by Alexander Hunter/The Washington Times

With one foot in the EU and the other out (it kept the pound instead of adopting the euro), the U.K. emerged from the financial crisis more agile and resilient than its continental partners. It has a more service based economy — dependent on finance and technology — than even the United States. Geographic proximity and ocean shipping costs no longer govern with whom it should have the strongest economic ties.

The U.K. now becomes a natural partner for the United States and NAFTA. As it renegotiates access to the EU, it will seek to maintain relationships with nations with whom the EU already has free trade — including Mexico and Canada.

As the Trump administration seeks to negotiate a better balance of opportunities with Mexico inside NAFTA, it should recognize the potential to quickly bring Britain into the circle. It shares with us and Canada more in terms of legal institutions and economic regulation than any other large trading partner, and trade with the U.K. is not bedeviled by the same mercantilist impulses that characterize relations with the rest of Europe or Asia.

As Europe has stagnated, Southeast Asia, China and India have emerged as the most dynamic region for growth and opportunity. Sagely, Theresa May is seeking a trade deal with India. However, neither the U.K. nor the United States should trade with Asia with the same “free market mentality” that undergirds our free trade agreements with Australia or Canada.

Removing tariffs, establishing rules for service providers and investors to gain fair access and then letting market forces sort competition won’t work in Asia. Those economies do not conform to the norms of free market economics and will always have important roles for governments in directing investment, subsidizing industries and managing trade.

Getting China to quit manipulating its currency — by imposing a 45 percent tariff to bring it to the negotiating table — and then demanding other Asian nations do the same would help level the playing field for American businesses and workers. However, whatever unfair practices trade agreements remove, Asian governments will invent new devices to corrupt commerce to their advantage.

The only real solution is to require trade to be balanced with China and the Asian participants of a Trans-Pacific Partnership in return for access to the U.S. market.

The TPP negotiated by President Obama but not ratified by Congress may be deeply flawed — for example, it does not adequately address currency manipulation. However, if the Trump administration simply discards it, China will conclude a regional economic cooperation arrangement that excludes the United States and establishes norms for government conduct even more hostile to American interests.

Abandoning the TPP would undermine the pivot of U.S. military resources to Asia to counter Beijing’s militarization of the South China Sea. With the geographically important Philippines realigning toward China, Australia and Japan would be isolated and eventually could be impelled to make bad bargains with Beijing.

The United States cannot abandon free trade but it must get a lot more realistic about what it means and how it pursues

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.

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