Free trade touted as economic cure

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WASHINGTON – Free trade remains the cornerstone of U.S. economic success and the main tool for expanding global prosperity, said Treasury Secretary Henry Paulson.
But the United States must redouble its efforts to demonstrate the benefits of trade worldwide and make it clear that retreating to economic isolationism would mean “lower standards of living in the United States and for hundreds of millions of people around the world,” he said.
Addressing doubts. Speaking before the Economic Club of Washington March 1, Paulson acknowledged that dislocation and anxiety caused by a rapidly growing and changing economy create doubts about the gains free trade brings.
He cautioned that “making trade a scapegoat only breeds support for protectionist policies that will make us worse off” and called protectionist sentiments expressed by some lawmakers from both major U.S. political parties and their constituencies a “worrisome trend.”
According to a recent study by the Pew Research Center, only one-third of Americans think free-trade agreements benefit the U.S. economy; close to half believe such agreements have a negative impact on wages and employment.
Paulson said that the large U.S. trade deficit viewed by some critics as evidence of misguided U.S. trade policy is not a sign of economic weakness.
Trade dynamics. The trade deficit and the associated capital flows reflect the dynamism of the U.S. economy that creates a strong demand for imports, while major U.S. trading partners have relatively lower levels of consumption and less need to import goods, he said.
“Narrowing the trade deficit without harming our economy requires a reversal in the underlying causes,” Paulson said.
He said that this reversal will take some time to play out. But he cited record-high U.S. exports in the fourth quarter of 2006 as a hopeful sign of a new trend.
Paulson said Congress should focus on helping workers who are displaced by trade rather than trying to raise import barriers.
While discussing the many advantages of free trade for Americans, Paulson said that the United States has a special role in expanding economic opportunity and prosperity around the world.
American burden. “This is both a moral issue and a practical issue,” he said.
Paulson said countries that are more open economically and better integrated with the global community contribute to stability, security and peace.
He called on Congress to approve free-trade agreements with Peru and Colombia, once the administration submits them for approval, and renew the Andean Trade Preference Act, which established duty-free benefits for Colombia, Peru, Ecuador and Bolivia.
The act expires in June.
Under pressure from congressional Democrats, the administration has been trying to enhance labor and environmental provisions in the trade deals it already has signed with Colombia and Peru.
Ripple effect. But Paulson cast the issue in a longer perspective: as nations grow wealthier as a result of free trade, he said, they are more likely to adopt stricter environmental and labor standards, which make their social environments more similar to those of developed economies.

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