New Free Trade Bulletins

March 31, 2008
FREE TRADE BULLETIN

Worried about a Recession? Don’t Blame Free Trade
by Daniel Griswold

WASHINGTON--Contrary to political rhetoric, free trade does not cause economic downturns, but in fact it has helped ensure that recessions are “mercifully shorter, shallower, and less frequent” than in past decades, according to a Free Trade Bulletin released by the Cato Institute.

Increased foreign trade and investment has helped bring about what economists call “The Great Moderation.” A trend that began to appear in the mid-1980s, The Great Moderation has seen recessions become milder and less frequent. The Cato study finds that the U.S. economy was in recession 21 percent of the time from 1945 through 1982 compared to 5 percent in the more globalized era since then. This decreased volatility has not come at the expense of overall growth. Annual real GDP growth has been the same over the past 25 years that have experienced The Great Moderation as the 25 previous years that did not.

The author, Daniel Griswold, concludes: “For the U.S. economy as a whole, the era of globalization has brought healthy long-term growth and a moderation of the business cycle. Expansions are longer if less spectacular than in eras past, and downturns are mercifully shorter, shallower, and less frequent. Moderation of the business cycle in recent decades is something to be thankful for, and expanding trade and globalization deserve a share of the credit.”

This paper can be found here.

March 14, 2008
FREE TRADE BULLETIN

No Need to Panic about Foreign Sovereign Investment
by Daniel Ikenson

"Sovereign Wealth Fund" investment, like all foreign investment, benefits the U.S. economy in myriad ways. Accordingly, it should be treated like all foreign investment: welcomed, but also subject to laws and regulations that could block proposed deals that are found to pose risks to U.S. national security, finds a new Cato Institute report.

Daniel Ikenson, associate director of Cato's Center for Trade Policy Studies writes, “Whether controlling or passive, direct or portfolio, sovereign or private, foreign investment in the United States should be welcomed with the presumption that it will be mutually beneficial. Its presence reduces the cost of capital to businesses and the cost of credit to consumers...”

Ikenson acknowledges that SWFs present unique concerns, but none that warrant categorical prohibitions, or new laws or regulations.

The study, titled "Nothing to Fear But Fearmongers Themselves: A Look at the Sovereign Wealth Fund Debate," points out that despite recent growth in their number and size, at $3 trillion, aggregate SWF assets constitute only "a tiny sliver of the $190 trillion stock of global financial assets or the $62 trillion managed by private institutional investors." Further, despite projected absolute growth in SWF assets, growth in overall global asset values will ensure that SWFs remain a very small percentage of the total.

For a PDF version of the new Free Trade Bulletin No. 33 please click here.

February 7, 2008
FREE TRADE BULLETIN

A U.S.-Colombia Free Trade Agreement: Strengthening Democracy and Progress in Latin America
by Daniel Griswold and Juan Carlos Hidalgo

In a new Free Trade Bulletin, Daniel Griswold and Juan Carlos Hidalgo argue that Congress’s approval of the U.S.-Colombia free trade agreement is vital for supporting market democracy in the Andean region. “The free trade agreement with Colombia was designed to both strengthen civil society in Colombia and also to open economic opportunities for U.S. producers to sell to the country’s 44 million upwardly mobile, American-friendly consumers,” explain the authors.

The agreement has faced strong opposition from some Democrats who say it should not be signed until Colombia succeeds in tackling violence, including that directed toward union leaders. Organized labor in the United States, in particular the AFL-CIO, a key constituency of the Democratic Party, has made defeating the agreement a major political goal.

“Rejecting a free-trade agreement with Colombia because of lingering violence in that country would be an irresponsible mistake by Congress,” write the authors. Violence has fallen dramatically since President Uribe took office in 2002. It would also be unfair to the country that has seen great improvement in safety, security, and economic opportunity for Colombians thanks to Uribe’s policies.

The authors conclude: “Approving a free trade agreement with Colombia is about supporting a market democracy in a region where liberal values are under attack. It is about being a reliable partner in turbulent times. It is also about building long-lasting institutions for economic prosperity and democracy for millions of Colombians.”

For a PDF version of the new Free Trade Bulletin No. 32 please click here.