Follow-Up Thoughts on KORUS and Free Trade

After writing my previous post on the United States-South Korea Free Trade Agreement (KORUS), I realized that a bit more needs to be said about KORUS, free trade agreements, and Roger Bybee's "Funnel for Exploitation" article in order to do justice to the complexity of these issues.

According to the U.S. Trade Representative's Office, the provisions of the KORUS FTA stipulate:

• 95% of bilateral trade in consumer and industrial products would be duty-free within a 5 year time frame
• South Korea lowers tariffs and non-tariff barriers on U.S. automobiles, manufactures, and agriculture.
• Increased export opportunities for U.S. service-based firms in sectors such as finance, health care, telecommunications, and education.

The cumulative result can lead to gains that (at the very least) increase U.S. export volume from $10 billion to $11 billion. The South Koreans, in turn, could gain from a more efficient allocation of resources to its most productive sectors.

But Mr. Bybee doesn't really care about the specifics of the KORUS FTA, does he? If you read the article closely enough, you realize that the particular group of activists that the article speaks for isn't concerned about the nitty-gritty details -- these activists operate on a fundamental rejection of free trade and globalization. The reasons are varied, but they all stem from a latent fear: the fear of needing to adapt and compete in a global economy.

It may be a bit trite to say that there's nothing to fear but fear itself, because the pain felt by workers in traditional blue-collar industries is very real. But on a broader level, it's important to understand that jobs in these industries are not coming back -- that other countries now have a comparative advantage in those industries. Rather than to try to preserve the low-skilled manufacturing jobs that are getting outsourced to developing countries, it makes a lot more sense to focus on export industries where we have a comparative advantage: high-tech machinery, financial services, education etc.

Think of it this way: Don't fight Schumpeter's gales of creative destruction (a catch-all term for job creation and destruction via the forces behind globalization). Compete in the global economy by utilizing it to your advantage. Redirect the blows of creative destruction with economic aikido. That's the type of mindset that workers and policymakers facing a free trade regime should adopt.

One final point: activists like Mr. Bybee who (explicitly or implicitly) claim that we need protectionist policies to weather a recession should go back to their history textbooks and read up on the 1930 Smoot-Hawley Tariff, which was passed during the Great Depression. No self-respecting economist -- or educated person, for that matter -- would argue that workers were helped by the era's protectionist policies. In fact all studies indicate that it exacerbated the Great Depression.