Europe

Wednesday, May 25, 2005 12:01 a.m.

Mary Poppins assured us that "a spoonful of sugar helps the medicine go down." But in Washington, a spoonful of sugar may be the poison that kills the economic opportunity of free trade between the United States and six nations in Central America and undermines the fundamental concept of international trade.

Throughout history the battle between free trade and protectionism has influenced the politics and the economics of virtually every nation. British protectionism in the late 1700s was one provocation of the American Revolution, by "cutting off our Trade with all Parts of the World," as the Declaration of Independence put it. The Smoot-Hawley tariffs of 1930 caused American exports to Europe to decline from $2.3 billion to $784 million--65%--and American imports from Europe to drop an even greater percentage, tipping America into the economic rubble of the Great Depression.

In the post-World War II years trade rebuilt the economies of France, Germany and Japan, and the U.S.-backed General Agreement on Tariffs and Trade helped rebuild global economic growth over half a century. The 1993 North American Free Trade Agreement created more than a million new jobs in America and our exports to Mexico more than doubled.

Looking at trade from emerging nations' perspective, the gains are even more extraordinary. The 2000 African Growth and Opportunity Act saw Madagascar's textile exports rise 120%, Malawi's and Nigeria's up 100% and South Africa's up 47%. Trade helps smaller nations that need economic help, as well as creating opportunity in larger nations. In short, nations with substantial trade enjoy higher rates of economic growth and higher personal incomes; trade helps people while protectionism hurts them.

But that doesn't mean that the economic choices of open markets and free trade are always supported by national governments or their citizens. Lenin once stated that he would rather have the Russian people starve than allow a private market in grain. The postwar British Labour party believed social justice could be achieved only through government ownership of the means of production. President Bush mistakenly imposed steel tariffs that raised steel prices so much that while 5,000 steel workers jobs were saved, 26,000 in jobs in steel-consuming industries vanished.

Today's Democratic Party is virulently protectionist. John Kerry promised to rethink Nafta, while John Edwards boasted that "I campaigned against Nafta. I voted against the Chilean trade agreement, against the Caribbean trade agreement, and against the Singapore trade agreement." And last week the House's New Democratic Coalition came out in opposition to current trade expansion efforts in Central America because, in the words of co-chairman Ellen Tauscher of California, "trade liberalization has not lived up to [its] rhetoric."

So the trade wars now focus on President Bush's effort to get Cafta--the Central American Free Trade Agreement--through Congress. Cafta would free up trade between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. And for the American economy, it would be a good step forward.

Presidents Reagan and Clinton granted these countries free-trade agreements that allow 80% of their goods and services and 99% of their agricultural products to enter the United States free of any duty. But American-made products exported into these countries still pay substantial tariffs, averaging from 2.3% to 10.1% in the six nations.

If ratified by the Congress, Cafta will level the playing field. Three quarters of the tariffs U.S. firms now pay would be eliminated immediately and the rest phased out. It would immediately save U.S. manufacturers $1 billion each year in foreign taxes. U.S. Trade Representative Rob Portman notes that American farm and manufacturing groups estimate American sales to Central America will annually increase by "$1.5 billion in farm products and $1 billion in manufactured goods" once it is fully in force. So Cafta would expand foreign markets for U.S. products and services and substantially increase job opportunities in America

Which brings us to that spoonful of sugar. The American sugar industry is so strongly advantaged by quotas, tariffs and subsidies that total sugar imports have declined by about a third since the 1990s. Cafta would allow additional sugar imports from the Central American nations totaling 107,000 metric tons in the first year. Annual U.S. sugar production is about 7.8 million metric tons, so the effect of Cafta is to raise sugar imports into America by about one day's sugar production, or as Mr. Portman puts it, "approximately one teaspoon of sugar per week per adult American."

That threat--a teaspoon of sugar a week--has caused the U.S. sugar lobby to focus its efforts on killing Cafta. And it may succeed. The U.S. government agreed not to free up the sugar market in the 2004 trade pact with Australia.

American sugar producers claim they are not against free trade. But only trade agreements approved by the World Trade Organization are acceptable to them; any trade agreements reached between America and other nations evidently are not.

American sugar imports would depress sugar prices, they say. Well, American sugar prices today are about three times the world market's, so some price reduction would be good for Americans, just as lower gasoline prices would be.

U.S. Sugar Corp.'s Senior Vice President Robert Coker believes that "bilateral and regional trade agreements are death by a thousand cuts." Such economic protectionism--no bilateral trade agreements allowed--is the good old-fashioned socialism that has failed millions of people for hundreds of years. Like Lenin, U.S. Sugar seems to think that Americans should suffer economically rather than have a free market in sugar.

So a spoonful of sugar may kill an opportunity for six Central American nations to strengthen their $33 billion annual bilateral trade with the United States, prevent an increase in America's export trade of more than $2 billion a year, and mean thousands of American men and women won't get jobs that otherwise would be available.

Poor Mary Poppins just wouldn't understand why a spoonful of sugar is an evil thing.
Mr. du Pont, a former governor of Delaware, is chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month.

Pete du Pont

Pete du Pont writes the "Outside the Box" column, which appears once a month on OpinionJournal. Mr. du Pont is policy chairman of the National Center for Policy Analysis, a Dallas-based think tank, and a director with the law firm Richards, Layton & Finger in Wilmington, Del.

Mr. du Pont has served as a Delaware state legislator and U.S. congressman. He was elected governor of Delaware in 1976 and re-elected in 1980. On Jan. 1, 2000, the Wilmington News Journal named Mr. du Pont one of the "100 Delawareans of the Century", citing his leadership accomplishments during his tenure as governor, particularly his efforts to reform government, cut taxes, and to make Delaware a leader in the financial-services industry. As governor he signed into law two income tax reduction measures, and balanced his state's budget eight out of eight years.

In 1988 Mr. du Pont was a candidate for the Republican presidential nomination, and in 1996 he co-founded and served as editor of IntellectualCapital.com, one of the first public-policy e-zines.

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