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Editor's
Note: Gov. Baliles delivered this speech to the
Richmond Export-Import Club on May 26.
I want to thank the Richmond Export Import Club for inviting me here today to make a few observations about the state of trade today and some of the challenges that I see in the days ahead.
At its basic level, trade involves the exchange of goods and services in the marketplace of buyers and sellers. Increasingly, trade is political and often determines the shape and size of that marketplace as well as the number of buyers and sellers.
Trade was a major issue in the Democratic presidential primaries earlier this year, and it is shaping up to be a major issue in the November election. Its importance will be magnified by the fact that the candidates will be under enormous pressure to address trade issues in key battleground states like Ohio, Michigan and Pennsylvania. The course the debate will take is made unpredictable by the fact that the President campaigned in 2000, and is campaigning this year, as a free-trader, but has often governed as a protectionist; while Senator Kerry has voted as a free trader through much of his Senate career but is using rhetoric that sounds increasingly like trade restriction.
Of course, political pressure is rarely -- if ever -- conducive to a constructive debate on trade. So, for those of us in favor of trade expansion, these next six months will be a test of patience in many ways. Lou Dobbs will continue to assault trade on his nightly CNN program, trying to pass anti-trade rhetoric off as fact. There will be overly simplistic “answers” offered to problems that may or may not exist. Many trees will be felled in the quest to explain to people why trade is, at best, a necessary evil that we must overcome -- or is, at worst, simply evil.
We should anticipate hearing a lot of things that will make us cringe in the next five and a half months.
But rather than let ourselves feel uncomfortable with the inevitable rhetoric or be put on the defensive, we ought to use the upcoming campaign, and its attention on trade, to educate people about its importance. Someone told me I’d be preaching to the choir today. I realize that. And, I must admit, it is sometimes refreshing to give a speech to an audience that one knows in advance will be receptive to the message.
But it is important for those of us in this room -- to whom trade is important -- to take our places in the choir loft and sing out. We must realize that, even in the best of times, the public is ambivalent about trade. And, as we know, a political campaign in which trade will be a major issue is not likely to be the best of times.
I am glad to be speaking to a group called the “Export Import Club,” for in the name of your organization you capture both an important fact about trade, and an important reason why people are so unsure about it.
I know almost no one who opposes, as a general rule, the export of American-made products. Oh, there are a few exceptions largely related to the sale of items with a national security component. But overall, most people are in favor of sales, of exports.
It’s a little harder to find people strongly in favor of imports. It’s not difficult to find people who buy imports, don’t get me wrong. Just go out to the parking lot and you’ll find several. But, as a general rule, members of Congress don’t get letters from their constituents extolling the virtues of imports.
Yet, isn’t that the very definition of trade? You produce and sell your goods and services to customers all over the world. In this way, you increase the markets for, and visibility of, your products. At the same time, you use your income to purchase goods and services that you need and want. The very fact that you can, in a sense, scour the globe for those products is a good thing, isn’t it? Especially when, unlike some modern day Marco Polo, you can do your globetrotting right here in Richmond?
But this is not the way most people see it. They hear every month, when the government’s economic growth statistics are published, that exports help drive growth, but that imports restrain growth. This has been accepted and reported as fact, although it has no basis in reality.
Even worse, those of us who favor trade expansion rarely talk about the two sides of the equation. Too often, we focus solely on exports, even overselling their value in order to gain political support for some new trade agreement or a trade expansion program. We almost never talk about imports. And when someone who wants to restrict trade comes along with a picture of a shuttered factory and says we must cut off imports, we become defensive.
About the only exceptions consist of professional economists who can cite all the evidence chapter and verse. But no economist ever won a political argument, and trade is a political issue.
So, while your name recognizes the nature of trade, the truth is that trade advocates too often focus only on the export side. It reminds me of a story of a shortstop who went deep into the hole, made a fabulous backhand play but then threw the ball well over the first baseman’s head, allowing the winning run to score. As he came to the dugout, he said to his manager “Did you see that backhanded play?” To which his manager, who was more focused on the throwing error that lost the game, replied: “Next time, don’t make half a great play.”
Ladies and gentlemen, in this political year, when trade will come under assault and when it will be difficult to make arguments about even relatively uncontroversial trade issues, let’s not make “half a great play.” Let’s not be defensive. Let’s make the effort to promote trade -- exports, imports, and investments. Let’s use the opportunity that this year’s political focus on trade will provide.
While it will be occasionally discouraging to make the pro-trade case in this political year, we ought to bear in mind some important context. The fact is that through much of American history -- and certainly through the entirety of our first 150 years -- attempts to contain and manage international trade were a fixture on the American political landscape. Tariffs were almost always a major issue in national political campaigns, dominating the time and attention of presidents, Congresses and political leaders.
The Federalist papers portrayed the regulation of international commerce in almost war-like terms; taking into account that the growing economic potential of the new American nation would be seen as threatening by other powers.
The new biography of Alexander Hamilton talks about his efforts to protect American industry from foreign competition. You may have already heard the trade story of how President Lincoln decided not to purchase rail equipment for the transcontinental railroad from Great Britain, even though the equipment was cheaper and of higher quality. As the story goes, he is supposed to have said “If we purchase … from Britain we shall have the equipment and they shall have the money, whereas if we purchase it here we shall have the equipment and the money.” It is a safe bet that this story will be repeated by political candidates all over the country many times before November.
William McKinley, as an Ohio congressman, sponsored tariff legislation in 1890 which led almost directly to the Depression of 1893. Yet, McKinley scarcely paid a penalty at the polls; he was subsequently elected Governor of Ohio and to two terms as President of the United States.
In addition, we have had such prominent American statesmen as Daniel Webster and Herbert Hoover argue that trade had to be restricted, because there was no way the U.S. worker could compete with lower paid workers elsewhere.
And then, of course, there was the most famous trade legislation of all time, the Smoot-Hawley tariffs, which most observers agree lengthened and deepened the Great Depression in this country. Smoot-Hawley was in no way an aberration -- it was the unfortunate culmination of decades of political pressure and precedent.
It took a decade and a half of depression and world war to finally shake America from its obsession with trade restriction and to put our country foursquare behind a major international effort to liberalize trade when we led other nations in the creation of the General Agreement on Tariffs and Trade in the late 1940’s. There were seven GATT Rounds, the most recent of which resulted in the creation of the World Trade Organization. Over the next half century, merchandise exports worldwide grew by an average of 6 percent annually and total world trade grew by a factor of fourteen.
There have also been several free trade agreements concluded in the past half century, with the European Union being the largest and most important. Perhaps more famous, or for some infamous, is the North American Free Trade Agreement (NAFTA), which was enacted in 1993. What has been the result of all this trade expansion? Well, only the creation of the largest and greatest middle class the world has ever known, the kind of economic growth, advancement and opportunity that could scarcely have been imagined a half century ago.
Over the past 30 years, international trade has proven to be a major engine of worldwide economic growth. Each one percent increase in the size of the global economy during over that span has been accompanied by a two percent increase in the value of world trade.
U.S. exports to Mexico, for example, have risen by a factor of two-and-a-half since NAFTA was enacted, while Virginia’s exports to Mexico have risen at an even greater rate. U.S. exports to China have risen by 76 percent in the past three years. In the first two months of this year, exports to China rose by 39 percent over the same two months a year earlier.
These trends are mirrored in Virginia. Over the seven months from July 1, 2003 through January 31, 2004, Virginia’s cargo trade with Northeast Asia -- including China, Japan, and Korea -- grew 15.3 percent. During the same period, cargo volume into Virginia’s ports from India grew 38.5 percent, leaving port competitors like Baltimore and New York in the distance. The Virginia Inland Port’s volume, for example, was up 84.6 percent in the first two months of this year as compared to the same period last year. Need I remind you that these trade numbers reflect imports as well as exports?
Of course, you might not expect to be reading banner headlines about these facts in your papers -- or in campaign press releases -- any time soon. Because, regardless of the evidence to the contrary, it is too easy to do a negative trade story or make a speech blaming trade for whatever ails the American economy.
It is too easy to complain about a trade deficit with China, even though China’s overall worldwide trade is in balance and, by sucking in imports from other Asian nations, it is helping keep the region (and important U.S. markets) afloat economically.
It is too easy to do a negative story on outsourcing, even though more jobs are created in the United States economy by foreign investments (call it insourcing) than are being outsourced. Indeed, the United States is the world’s leading destination for cross border investment in information technology, financial, communications and other business services. According to the CATO Institute, for every dollar sent abroad for information technology services by Americans in 2002, the world sent three dollars to the United States.
It is too easy to do a story on the perceived unfairness of the WTO when they rule against U.S. cotton subsidies, even though most of the subsidies go to a relative handful of individuals or companies at the expense of consumers throughout the United States and of the economies of poorer countries around the world. Indeed, it can be argued that the WTO has been beneficial for the American cotton farmers, the best example being what has happened since China joined the WTO: US. cotton exports to China increased from $46 million in 2000 to $733 million in 2003 and $428 million in just the first two months of this year.
It is too easy to do a story on the perceived loss of sovereignty at the WTO when the United States loses a case, even though the U.S. has won, or settled favorably, twice as many cases as we have lost.
It is too easy to do a story on the loss of market share in commercial aircraft to Airbus even though half of the content of many Airbus planes is U.S. made, and several U.S. airlines -- Northwest, US Airways and JetBlue among them -- depend heavily on Airbus products. And, in fact, two-thirds of all Boeing-made planes are operated by non-U.S. airlines, a pretty amazing number when you think about it.
It is too easy to do an anti-NAFTA story, even though a repeal of NAFTA would result in increased Mexican tariff rates on U.S. exports and the re-imposition of domestic content requirements in Mexico that for decades restricted U.S. exports to that country.
It is too easy to do a story saying that the trade deficit harms growth, even though the trade deficit and economic growth figures over the past three decades show otherwise.
(Speaking of the trade deficit, a record monthly trade deficit was recently announced, which garnered lots of headlines. Buried deeply in the more well-written stories, you would learn that exports reached a new monthly record, and that the deficit was caused by rising oil prices and by the fact that retail sales are booming as the economy begins to recover. But who reads the jump page?)
And it is also easy to do a story on problems supposedly caused by free trade, even though most of the trade governed by these agreements remains less than fully free. It is true that tariffs and other barriers have come down, and rules have been established. And that is to the good. But trade remains beset by many restrictions. The North American Free Trade Agreement, after all, is two thousand pages long. The agreement establishing the WTO is nearly as long. Just how free can trade be if it is governed by two thousand pages worth of regulations?
If there are any economic ills to be ascribed to trade, perhaps the real problem is that trade is not free enough!!
The fact is that negative trade stories are too easy to write and film, and the positive case for trade expansion takes a degree of courage, persistence and patience that has not always been shown.
Take NAFTA for example. Whenever a U.S. company establishes a facility in Mexico some politician or commentator blames NAFTA. There is no mention of the fact that American companies were doing this before NAFTA was passed. There is rarely any mention of NAFTA’s impact in reducing Mexican tariff rates and removing non-tariff barriers such as domestic content requirements. There is very little discussion about the fact that Mexican laws and procedures are much more transparent now than before.
NAFTA has become the poster child for anti-trade activists in this country. I was surprised at how prominently anti-NAFTA rhetoric figured in the presidential primaries earlier this year. But can anyone explain how rolling back NAFTA, making it harder to sell in Mexico’s market, would benefit American workers?
How about the steel tariffs put into place a few years ago to protect the U.S. steel industry? The pro-tariff argument revolved around the use of such words as “illegal,” “unfair” and “dumped” to describe steel imports, even though the International Trade Commission never found that steel imports had violated any U.S. trade law. What they found was that the U.S. steel industry was ailing and that import relief in the form of tariffs could be imposed under U.S. trade law.
But it wouldn’t do to simply say in the pro-tariff commercials that the U.S. steel industry needs help in competing. The public had to be convinced that the industry’s woes were entirely the fault of foreign predators. And no one stepped forward to tell the truth, just as no one gets up to counter the anti-NAFTA argument. We are put on the defensive, and the anti-trade creed, somehow, becomes gospel truth.
I mentioned the WTO cotton case a little earlier. One of the more interesting articles about trade I’ve ever read appeared in the
Washington Post two weeks ago. The article talked about an economist from the University of California-Davis who had done some analytical work for the Brazilian government showing the harmful impact of agricultural subsidies on the world’s poorer nations. That subsidies in the rich nations harm people in poorer nations is a widely accepted and recognized fact. That an economist would do work on this should be rather unremarkable.
But when this economist’s work was cited in the WTO decision to declare U.S. cotton subsidies illegal, the reaction was swift. The Vice Chairman of the California Cotton Growers Association said that this economist had “…joined forces with the enemy…”. The President of the California Cotton Growers went even further:
“If this was governmental or military related, it might be called treason and court martial proceedings would be in order.”
Now, if being accused of treason doesn’t put one on the defensive, I don’t know what will. Do they want him hanged? What would his last words be? “I regret that I have but one life to give for sensible economic analysis?”
Even worse than being accused of treason -- at least in the academic world -- the cotton growers are going after the economist’s funding and that of his university.
We must, as a nation, do better in discussing these subjects. As leaders in the pro-trade community, there is a special responsibility on us to do better.
Now I admit that things used to be much easier. During my term in office, my decision to focus on trade during the second year of my term was greeted with yawns by many in the Capitol press corps. I suppose a certain amount of that should have been expected after a first year that included a special legislative session and a tax increase to pay for billions of dollars of transportation projects. But I initially had a hard time convincing the press that trade was an important matter and that Virginia had a large stake in increasing its ability to buy and sell in global markets.
If anything during that time, there was a general feeling that there needed to be more trade, that the United States was not competitive in international markets, and that we were in danger of being left behind by countries such as Germany and Japan. An economist from
Deutsche Bank even suggested that it was time to begin selling Treasury Bonds denominated in yen. It was a relatively non-controversial matter to be discussing trade and trade promotion.
For example, when I was governor in the late 1980’s, I traveled to a school and a chocolate factory in the Waynesboro area. While there, I talked about the importance of the emerging global economy. With the help of my friends at the National Geographic Society, I used maps to show trade routes running to and from Virginia. The maps showed the location of foreign investments and the originating countries of the international tourists who visit the Commonwealth. I talked about the chocolate factory, and about how many of the ingredients of their products came from foreign lands and that the factory could not operate without international trade. It was a good visit, a good lesson for the kids, and it spawned generally positive coverage.
But can you imagine a political leader today going to a factory and extolling the benefits of trade and of imports?
There is no doubt the climate has changed over the 15 years since I left office, and the pro-trade argument has become a tougher sell, even as the role of trade in our economy, and the benefits we derive from trade, has grown. There is no Cold War to overwhelm other issues and dampen tensions between trading partners. Some observers predicted that after the September 11 attacks, the War on Terror would have that effect. But if anything, the War on Terror has only sharpened the political differences between trading partners and has heightened peoples’ sense that foreign influence on our economy -- through trade or investment or immigration -- may not be a good thing.
This year marks the 25th anniversary of Margaret Thatcher’s coming to power in Great Britain. Many years from now, when she is long gone from the scene, she will be remembered for having told the first President Bush, “This is no time to go wobbly” after the Iraqi invasion of Kuwait. Well, my friends, this is no time to go wobbly in the promotion of international commerce, in our Commonwealth and in our nation.
Virginia has depended on trade since the first settlers arrived in Jamestown in 1607 to establish their trading outpost. Our location, at the heart of the eastern seaboard, a day’s drive from half the population of the United States, is a major advantage and guarantees that trade will always play some large role in our economy.
The fact that we have not simply relied on our geographic good fortune, but have invested in our infrastructure and our education system, mean that we have the means to take advantage. We have invested in the ports at Hampton Roads and turned it into a world class facility. We have worked hard to bring most of the Commonwealth to within one stop of international air service and have made Dulles Airport a growing center for international aviation. We have made a major commitment to the education of our young people, and to Virginia’s system of higher education.
All of this might tempt us to believe that we have little to worry about here in Virginia when it comes to trade. But we must not forget that in this rapidly changing world, there are many of our fellow citizens who are uncertain, who yearn for the days when the American market was big enough to carry all our aspirations, the rest of the world lagged behind, and there was little competition to worry about. But we must deal with, and succeed in, the world as it exists. We must realize that opportunities in the global marketplace do not just fall into our lap, no matter how good our ports are, no matter how good our schools are, no matter how much we wish things would return to “normal.”
So, in this political year when trade will come under increasing scrutiny and attack, do not be defensive about the merits of international commerce. It is commerce, after all, that promotes growth and international commerce allows us greater opportunity to produce, buy and sell goods and services, thereby creating economic growth and new jobs.
Do not hesitate to defend trade against the nay sayers. Do not be reluctant to talk about the benefits of imports as well as exports. Do not be reticent to talk about the benefits of outward investment as well as inward investment.
Remember, Daniel Webster and Herbert Hoover were among those who believed -- as the voices of negativity do today -- that the U.S. economy could not compete in an increasingly globalized market.
I think we’ve done pretty well as a country since those gentlemen voiced loudly their opinions on the matter.
Cast a skeptical eye at calls for trade that is “free but fair.” For “fair” in this formulation often means trade that ensures sales for certain interests.
Look for examples of the good that international trade and investment have done in your own communities. Make sure your elected officials, at all levels, hear your voices.
Do not be complacent and fall into the trap of believing that a place like Virginia will always be supportive of trade. Remember, it was once taken for granted that we would not shirk our responsibility to invest in transportation and education, and we have paid a price for that approach.
You should not be discouraged at negative headlines or news reports.
If we do not press the case, who will? If no one makes the argument, it will be too easy for our political leaders to fall prey to the age-old fallacy that you can somehow expand trade and commerce by restricting it.
So, as you leave here, do not view the next 160 or so days with trepidation. View them as an opportunity to talk about the positive benefits of trade, and about the work we must do to compete. Remind people that similar warnings and fears about trade have been issued throughout our history and that those fears have proven to be wrong.
We should not let the latest replay of the age-old argument of free trade vs. protectionism divert the country from what must be our mission: to expand trade and promote growth and opportunity. The future of the country depends upon it.
-- June 7, 2004
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