Image: China plant
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Employees work at a garment factory which provides Original Equipment Manufacturing (OEM) for US and European companies on June 24, 2008 in Hangzhou of Zhejiang Province, China.
By Writer
updated 8/4/2008 6:14:19 PM ET 2008-08-04T22:14:19

This election cycle, is presenting a weekly series assessing issues and controversies that the next president will confront.

This week, we examine the benefits and harm caused by increased American trade with China, Mexico and other countries.

Why it's a problem
In 1993, Ross Perot warned against the “giant sucking sound” of American jobs being outsourced overseas.

His criticism was focused on the North American Free Trade Agreement between the U.S., Canada and Mexico — a deal that would take effect the next year.

Al Gore, vice president at the time, teasingly responded by giving Perot a photograph to hang on his office wall.

The photo was of Reed Smoot and Willis Hawley. Their protectionist Smoot-Hawley tariff has long been criticized by historians for further isolating the United States during the Great Depression.

Sixteen years after the Perot-Gore debate, economists generally agree that free trade has benefited the American economy, while labor unions insist that it's cost Americans jobs and led to global worker exploitation.

In a 2006 study, the Economic Policy Institute reported that NAFTA had cost the United States roughly 1 million jobs. The EPI is a non-profit organization that is partly funded by labor unions and focuses its research on the effect of trade on American workers.

Video: Obama versus Clinton on trade A study released last week by EPI found that free trade with China alone has led to a loss of more than 2.3 million jobs since 2001, the same year China became a member of the World Trade Organization. 

Some voters, particularly in Pennsylvania, Michigan, and other manufacturing states, frequently cite the connection between imported goods and the disappearance of manufacturing jobs in their states. 

In a poll conducted last month by the Pew Research Center, 80 percent of respondents said that the global economy has influence over the U.S. economy.

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Of those who thought it did, 63 percent said it was negative.

The political tide seems to be running against those who want to lower trade barriers.

In 2006, voters ousted 37 free trade proponents in Congress, and thus helped the Democrats’ win control of both chambers for the first time since NAFTA's passage.

The benefits of lowering trade barriers
But voters may be misreading their own self interest when they vote against those who promote more international trade.

Increased trade has benefited Americans through lower prices for consumer goods, better product choices, and higher incomes for workers employed by export-oriented firms, according to Gary Hufbauer and Paul Grieco of the Peterson Institute, a international economics think tank.

Those benefits, they argue in a Washington Post op-ed, are vast, but spread out amongst all American consumers — so, they may be harder to appreciate.

Workers hurt by low-wage competition exist in smaller, concentrated groups. But their plights are often more vivid and highly publicized.

And John Frisbie, president of the U.S.-China Business Council, said the EPI study claiming jobs lost due to trade with China is flawed. It “assumes that every product imported from China would have been made in the United States otherwise,” Frisbie said.

“Much of what we import from China is replacing imports from other countries, not products we make in the United States today,” he said.

Video: McCain talks trade in Colombia

Where the candidates stand
Sen. John McCain, a self-described “unapologetic supporter of NAFTA,” has been a proponent of free trade. 

“The biggest problem is not so much what’s happened with free trade, but our inability to adjust to a new world economy,” McCain told voters at an April campaign event in Ohio.

According to his campaign Web site, McCain would “overhaul unemployment insurance and make it a program for retraining, relocating and assisting workers who have lost a job.”

The Arizona senator has been a vocal supporter of the free trade agreement with Colombia that has been stalled in Congress. 

Before traveling to Mexico and Colombia in July, McCain said he realized that, given America's economic downtown, it would be hard to sell voters on yet another free trade deal.

“I have to convince them the consequences of protectionism and isolationism could be damaging to their future,” McCain said.

Video: McCain addresses La Raza Sen. Barack Obama’s position is more complex. 

The Illinois senator has supported trade deals with Peru and Oman. 

But he opposes the Colombia Free Trade Agreement and the Central American Free Trade Agreement that extended free trade to the Dominican Republic and a other Central American countries in 2005.

He has also said that he would consider renegotiating NAFTA to include tighter environmental and labor standards.

Yet, in September of 2007, Obama said, “I believe that America’s free market has been the engine of America’s great progress.”

And despite voting against CAFTA, Obama wrote in his most recent book that, “CAFTA was probably a net plus for the U.S. economy.”

Some of Obama’s key supporters are union members, who are strong advocates of overhauling the country’s trade policy to level the playing field for U.S. industries. 

In Michigan, for example, Obama recently named the former head of political campaigns for the AFL-CIO as the head of his campaign in that state. 

His candidacy has been endorsed by many labor groups, including the Service Employees International Union, the Teamsters union, and the AFL-CIO.  But he is also being advised by economists known for their free trade stance, including former Treasury Secretary Robert Rubin.

How they have voted
McCain has consistently voted in support of free trade agreements. 

He voted for CAFTA and NAFTA and for increased trade with Oman, Singapore, Chile, China, Vietnam, and the Andean nations. He voted to expand trade with third world countries and, in 1997, to renew the “fast track” system that gave then-President Clinton the power to quickly negotiate free trade deals like NAFTA. 

In 2002, he voted to make trade agreements exempt from amendments by Congress. 

McCain voted against a 1995 bill to impose trade sanctions on Japan. He also voted to kill a bill that would have imposed sanctions on China if the country failed to revalue its currency.

During his time in the Senate, Obama’s voting record on trade has been much shorter.

Obama also voted for the free trade agreement with Oman, but voted against CAFTA. He supported imposing sanctions on China for currency manipulation.

Unanswered Questions
Obama has said he would work to renegotiate NAFTA, but has not said what he would be prepared to offer to Canada and Mexico in return for tougher labor and environmental standards. 

Canada’s prime minister, in a statement that the Canadian press considered to be a hint about U.S. access to Canadian oil, warned that reopening NAFTA would be a “mistake.”

And while Main Street wants answers on the issue of job losses, Wall Street wants to know what the candidates would do about the country’s enormous and rapidly growing trade deficit.

“It is a long-term problem, it won’t be solved overnight,” said Charles Pearson, professor emeritus of international finance at Johns Hopkins University. “But one would like to at least know what their views are.”

Evolution and shifts in position
Neither of the candidates has had significant shifts in position, though Obama did recently suggest to Fortune Magazine that his rhetoric during the primary season may have been “overheated.” 

His tone on NAFTA has softened slightly since he won the Democratic primaries, but not enough to suggest a major shift.

Surprises for the new president
This week’s collapse of global trade talks in the international forum called the Doha Round is a foreshadowing just one sticky choice the next president will have to make. 

In an interview with Reuters, European Union trade chief Peter Mandelson blamed the United States for Doha’s failure because American negotiators demanded increased market access for agricultural exports in return for cutting farm subsidies. 

Agricultural interests in the United States have long been a stumbling block when it comes to free trade, since most foreign governments oppose the way that the Congress protects American farmers and agribusinesses.

In 2005, 58 senators signed a letter to President Bush, asking him not to offer to cut subsidies during the Doha talks. Obama signed the letter, while McCain, whose dislike of farm subsidies is well known, did not.

In future talks, a President McCain or President Obama is sure to encounter similar requests for compromise on farm interests.

And while McCain may find his support of free trade a liability during the election season at home, his opposition to farm subsidies would put him in a much better position than Obama to negotiate with the rest of the world.

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