Whatever Happened to the “Giant Sucking Sound”?

Is U.S. Business Overregulated?The 2008 Presidential campaign has been underway for months (some say years), but economics and global trade are not getting the top headlines and sound bites. Although it takes some digging to discern the candidates’ positions, the Democrats have generally supported free trade and fiscal responsibility, although the campaign of John Edwards has somewhat strangely attacked free trade agreements while Hillary Clinton, Barack Obama and the leading Republican candidates seem to support them. On October 27, Mr. Edwards issued a very critical statement on the proposed bilateral free trade agreement with Peru (which is similar to the North American Free Trade Agreement or NAFTA); however, it was approved a week later by the House Ways and Means Committee.

Free trade has been kicked around in the Americas since debate began on NAFTA well before it came into operation on January 1, 1994. Some of you may remember 1992 Presidential third-party candidate Ross Perot’s prediction of a “giant sucking sound” of jobs leaving the U.S. for Mexico, where the labor cost has been significantly lower. Although Perot clearly touched a nerve (he received 18.9% of the popular vote but no electoral votes), his forecast of massive job losses were wrong. In fact, trade and employment has increased significantly among the three participating countries (the U.S., Mexico and Canada), although specific industries have lost jobs (e.g., textile, apparel). The debate about free trade in the Americas is now fairly quiet, and the Clinton and G.W. Bush Administrations have strongly urged the extension of NAFTA to other developed countries such as Chile, Brazil and perhaps, Argentina.

Because of Mexico’s unwillingness to extend NAFTA until progress is made on normalizing immigration, the U.S. has developed bilateral trade agreements with Western Hemisphere countries, including Chile, Colombia and Panama, as well as the Peruvian agreement noted above. (Note: the U.S. has also entered into such arrangements with Australia, Bahrain, Israel, Jordan, Malaysia, Morocco, Malaysia, Singapore and the UAE.) The jobs issue that became a centerpiece of the 1992 election seems to have vanished. As a nation, we are at full employment (typically 4.5% of American workers are unemployed in any reporting period but currently 4.7%), with nearly 5% annualized growth in workers’ output per hour and a five quarter record of positive growth in real wages (that is, inflation adjusted).

No candidate has made American competitiveness and global trade major campaign issues. Regardless, we need to hear about these concerns and what the next President will be doing to change the regulatory system that is strangling American business.

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