July 5, 2001
Review & Outlook
Big Labor's Big Wheels
President Bush wants to give Mexican trucks full access to U.S. highways, something they're clearly entitled to under the North American Free Trade Agreement. The roadblocks are special interests and a protectionist-minded Congress. Both will test not only Mr. Bush's resolve but also his leadership skills.
An economic slowdown is often dovetailed with a political effort to protect domestic industries -- usually through tariffs or import quotas or subsidies -- which in turn of course only worsens and prolongs the slowdown.
A tragic example is the Smoot-Hawley Tariff Act of 1930, signed into law by President Hoover eight months after the stock market crash of 1929. Hoover, as economic historians never tire of noting, ignored the warnings of economists and accepted the political arguments of a parochial interest group of that era. In the late 1920s it was farmers, whose labor-intensive industry was being displaced and marginalized by falling farm prices and better-paying jobs in the booming textiles industry.
The Smoot-Hawley tariff, like all tariffs simply a tax on international transactions, sought to allay farmers by raising the protective levy on agricultural goods and increasing domestic demand. The result? Reciprocal tariff barriers world-wide, global economic hardship during the 1930s and a domestic depression that was much deeper and more enduring than it needed to be.
We bring up this history lesson as President Bush faces his first trade spat, not because the current economic situation is at all similar to what Hoover faced. It isn't. But the special interest groups -- this time in the form of organized labor -- urging the President to put parochial industry concerns ahead of the nation's overall economic well-being sound all too familiar.
Last week, the House voted against allowing Mexican trucks to operate throughout the U.S., temporarily upsetting White House plans to fulfill a campaign promise and treaty obligation. Under Nafta, U.S. roads in the 48 contiguous states were to be open to Mexican trucks by 1998. Today the trucks are restricted to a zone that extends just 20 miles north of the border. To move goods beyond that point, they must be transferred to U.S. trucks. These treaty breaches are the work of the Teamsters and a Clinton Administration unwilling to stand up to them.
Though the obvious and misguided motive for Mexican truck restrictions is job protection -- both countries have experienced job increases since Nafta's passage -- trucking unions have for years cited safety concerns. Six years ago, when 54% of Mexican trucks failed U.S. inspections, the claim could be taken more seriously. But that figure has dropped steadily; last year it was 36% -- score one for proper incentives -- and is rapidly on pace to reach the U.S. truck-inspection failure rate of 24%.
Of course none of this sways opponents; "safety" is really just a cover for crude protectionist policies at Mexico's expense. Last Friday, U.S. Trade Representative Robert Zoellick said that opposition to efforts to expand free trade with Mexico were coming from "pressure groups who malign free trade and free markets in an attempt to advance a social agenda based on hyperbole and fear." How else to explain Teamster opposition? As recently as the late '90s, the American Trucking Association was searching for an additional 400,000 drivers. In 1997 alone the industry spent $750 million on recruiting.
President Bush to his credit has vowed to fight the protectionists, and there's still time to do that. The Senate has yet to consider the matter, and the White House says it will seek to reverse the House action when the bill goes to conference. Free and open trade with our neighbors to the south provides mutual political and economic benefits. Mr. Bush's challenge is to show that he's willing to protect the general interests of the nation from the narrow interests of Big Labor and its allies in Congress.
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