Alexander Hamilton's Revenge
Last week I outlined
what was basically a humanitarian argument against CAFTA, the new and still-pending free trade agreement with Central America. The fact that the agreement passes up an opportunity to raise labor standards in Central America—or at least to give native workers
that opportunity, if they so choose—is terrible, and wholly unnecessary. But there's also a strategic argument against CAFTA, part of a larger strategic argument against regional "free trade areas" in general—namely, that these things are aiding a resurgence in global mercantilism.
Free trade areas, of course, promote free trade and lower tariffs within
the bloc. But they also tend to compete with each other, becoming more protectionist against rival blocs. Not via tariffs, of course, but through internally consistent rules, regulations and subsidies. We're already starting to see this in the EU—it's massive farm subsidies, it's regulation of biotechnology, trying to hamper the U.S. by exporting its regulations, etc.
Meanwhile, East Asian countries, led by China, are talking
about creating their own regional trading bloc. Finance ministers abroad are understandably quite worried that an expansion of NAFTA will give Latin American countries preferential access to U.S. markets. Malaysian Prime Minister Mahathir has proposed the East Asian Economic Caucus to counter the threat from opposing trade blocs, and the "ASEAN plus three" (i.e. plus China, Japan, South Korea) framework is slowly gaining acceptance. Now obviously, this plan might well be scuttled by Japan's emerging hawkishness and nationalist rhetoric, along with growing tensions
between Japan and both China and South Korea. Nevertheless, key former ministers, like Kazuo Ogura, who is currently president of the Japan Foundation, have called for a "united Asia" that can check America. If Japan feels that it is being excluded from markets in both Europe and the Americas, it could very conceivably embrace the Chinese/ASEAN vision of a regional Asian trading bloc.
Looking south of the border, leftist governments in South America have fairly clearly been drifting towards inter-continental cooperation at the expense of merging with the United States under an expanded NAFTA framework. It wouldn't be entirely surprising to see MERCOSUR emerge
as a counterweight to the free trade area up north.
In itself, the rise of trade regionalism doesn't seem like such a bad thing, although it certainly appears that the United States would enjoy worse terms of trade than it does now. Looking at the statistics
, yes, it's true that neighbors Canada and Mexico are our largest trading partners (taking in about 30 percent of all exports), but about half of all U.S. exports still go to Europe and East Asia. The rise of "blocs" in both regions would not bode well at all. Further down the road, the rise of competing trade and economic blocs could well lead to military rivalries, and threaten world peace or stability.
Is there a way out of this mercantilist "bloc" race? I have no idea. Some days it seems inevitable, though the Japanese bull in the, uh, China shop seems to be sinking any hopes of an integrated East Asian trade area. The alternative, it seems to me, would be for the U.S. to push for a genuinely global reduction of tariffs via the WTO. Of course, that re-raises the issue posed at the beginning of this post: are labor standards, environmental protections, sensible patent agreements, etc. best achieved through the WTO, or through regional and bilateral agreements? The other question is whether regional trade agreements are valuable enough as a foreign policy tool—as they might be in the Middle East—to overcome any larger and somewhat abstract worries about the rise of mercantilism. I don't know. But they're questions worth asking.