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THE MISSING ISSUES // The lesson: Trade is good

Sorry, but Ross Perot is wrong about trade. Unfortunately, a lot of people are paying attention to what he has to say.

And not just members of the Reform Party, either, but at least two others: Bill Clinton and Bob Dole.

You see, both Clinton and Dole know that, in a close presidential race, victory may go to the man who wins over the most Perot followers.

Perhaps this can explain why the 1996 Republican platform refers to the most recent trade deficit as "siphoning American wealth into the hands of foreigners." That's language Pat Buchanan, the Republicans' equivalent of Perot on trade, could have written.

So, from the Buchananites in the Republican Party to Big Labor in the Democratic Party, free trade gets pilloried while protectionism gets promoted.

Problem is, when protectionists win, consumers lose. That's because protectionism keeps out potential competitors, making higher prices and lower quality more likely.

But protectionists demur. They retort that, despite the consumer benefits from free trade, the overall effects are nonetheless negative.

In general, protectionist logic declares that sales and output by domestic firms would be higher if we protected those firms from unfair foreign competition.

And since the number of jobs is related to total output, stronger limits on trade would have helped protect American jobs and expand employment. This logic is quite simple, and quite simply wrong.

In fact, several observations clearly contradict it.

First, manufacturing jobs have not declined. Over the past 20 years, the number of jobs in manufacturing has held fairly steady.

In fact, the number of manufacturing jobs increased by 100,000 in 1995. This increase took place despite the fact that we also had a $175-billion merchandise trade deficit, one of our largest ever.

Second, trade deficits are not related to unemployment. While employment in manufacturing has held steady for two decades, overall employment has done even better.

The total number of non-farm jobs grew more than 50 percent from 1976 to today, largely because of significant growth in service industries.

In fact, the U.S. ran a $60-billion trade surplus in services last year. These service positions involved sales overseas (and at home) in telecommunications, finance and other high-tech industries, not "burger-flipping."

Third, incomes have grown steadily under high trade deficits.

While the trade deficits of the 1980s were some of the largest ever when expressed as a percentage of the total economy (gross domestic product), the 1980s were also years of significant income increases for the average family.

This does not, of course, mean that large trade deficits are the cause of an increase in family incomes. But it does indicate that trade deficits do not decrease family income, as protectionists claim.

Fourth, the amount of trade is what matters _ not whether there is a trade deficit or surplus.

The size of the U.S. trade deficit has little if anything to do with the sources of economic prosperity. But if this is true, does trade itself really matter? Do we need it to prosper?

The answer is yes.

While no single source accounts for our economic well-being, there is a definite, positive relationship between the level of trade and the total amount of goods and services enjoyed by the average American.

Over the past two decades, while trade has gone from accounting for 15 percent of our GDP in 1976 to over 26 percent today, per capita disposable income (adjusted for inflation) has risen from just under $13,800 to over $18,300 per year.

While this does not, of course, show trade to be the one and only factor affecting economic well-being, it does demonstrate that trade is an important part of a healthy and growing economy.

So, Mr. Perot, to sum up: trade deficits, neither good nor bad. Trade itself, good. Okay?

Wayne A. Leighton is a senior policy analyst at the Washington-based Citizens for a Sound Economy Foundation, which supports free trade.

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