CAFTA Passes, Trade Deficit Drops

By July 30, 2005General

You know, usually in Washington you have to wait years to see any cause and effect relationship between legislation and reality. That is, once legislation passes it takes years to work its way through the pipe. But not this time.

We have long said that CAFTA would be great for exports. The AFL-CIO, for its part, has threatened retribution against the 15 Democrats who had the temerity to vote for jobs and growth (more on that in the days ahead). We said yesterday that maybe they oughta wait and see if there’s a “giant sucking sound” before they take revenge against anyone.

Well, whaddaya know? Yesterday — only one day after CAFTA’s passage — the Commerce Department reported the largest drop in the trade deficit in 50 years. Unbelievable. Just as we predicted.

OK, let’s be serious for a moment. It is fortuitous that these two things happened within a day of one another, but it does help make the point. CAFTA was about free trade. The trade deficit drops in two ways: by decreasing imports or by increasing exports. We prefer the latter, as we manufacturers export $60b a year — more than 12 times that of agriculture. In the last quarter, exports rose by almost 13% and imports fell by 2%, resulting in the largest contribution to GDP growth from trade in ten years. Clearly the leveling dollar is having an effect. The more trade the better, open markets are the way to go.

Somewhere, Lou Dobbs is crying in his beer.