DON'T TREAD ON FREE TRADE
What will the new year bring? An agreement between the White House and Congress to slash federal deficits for the rest of the century. Inflation will remain subdued, and since inflation powerfully influences the stock and bond markets, investors should enjoy decent returns. And, as our 1996 Industry Outlook makes clear (page 72), the U.S. economic expansion that began in 1991 should continue.
Of course, as in any forecast, a lot could go wrong. One particularly disturbing threat to continued growth lies with the virulent voices of economic reaction--protectionists such as Pat Buchanan and the rapidly expanding number of politicians who know better but make sympathetic noises to garner votes. The rallying cry of today's isolationists and their fellow travelers may be, "no more free-trade agreements"--not with Chile nor with anyone else. But what they are calling for, if heeded, would lead only to slower growth. Instead, policymakers should push hard for fewer trade barriers--and faster economic growth.
True enough, there are losers as well as winners from freer trade. But trade is not a zero-sum business. It's freer trade that helped slay the inflation dragon that terrorized the U.S. economy for much of the '70s and '80s. White-hot foreign competition is a key reason for disinflation fast becoming the norm in the once inflation-prone U.S. economy. Trade spurs growth by offering entrepreneurs and companies bigger markets. U.S. companies are getting more and more of their sales overseas. Perhaps most important, freer trade encourages the creation and spread of new technologies and commercial ideas. In sharp contrast, steep trade barriers can leave an economy stagnant. Look at Latin America for much of the period after World War II--or the former Soviet Union, for that matter.
Isolationists are far more powerful in Europe and Japan than they are in the U.S. Many developing nations are still maneuvering to boost exports while protecting their home market, too. It is more important than ever that the world's remaining superpower provide free-trade leadership. In the tumultuous period following the end of the cold war, the most important decision made by the Bush and Clinton Administrations and Congress was to continue the free-trade policies America has championed since 1945. This bet has paid enormous economic dividends in the 1990s. The bounty from trade and stronger economic ties among nations is plentiful indeed.