TCS Daily

The Real Benedict Arnolds

By James K. Glassman - March 11, 2004 12:00 AM

Sen. John Kerry is fond of calling CEOs who employ foreigners "Benedict Arnolds," after the despicable Revolutionary War turncoat.

But look at H.J. Heinz & Co., the family business of Kerry and his wife Teresa. Of the 79 factories that the food-processor owns, 57 (a felicitous number!) are overseas. According to its website, Heinz is making ketchup, pizza crust, baby cereal and other edibles in such countries as Poland, Venezuela, Botswana, China, Thailand and India.

Put hypocrisy aside. The traitors to American interests aren't CEOs seeking to boost profits that ultimately lead to more hiring at home. The real Benedict Arnolds are Kerry and his colleagues in Congress, like Sens. Hillary Clinton (D-NY) and Jon Corzine (D-NJ), who understand enough economics to know that outsourcing is trade and that trade -- as David Ricardo figured out 200 years ago and as Hillary's husband articulated in the 1990s -- benefits both parties.

Imagine if U.S. computer companies were forced to make all their components at home. The cost of computers would be higher, so U.S. business could not enhance productivity, grow and hire workers. Plus, U.S. computer makers would be priced out of the market and forced to fire workers.

So far, legislation backed by Clinton, Corzine and the rest has been fairly benign. But they have fanned the flames of protectionist anger, and the fire is raging out of control. One result could be a reversal of the global movement toward open trade, which has been a boon to America.

This is a good time to remember the 1930 Smoot-Hawley Act, which touched off a tariff war that cut global trade by more than two-thirds in five years. Smoot-Hawley, in the view of many economists, intensified and prolonged -- and perhaps even caused -- the Great Depression.

But there's a more immediate way that the outsourcing hysteria hurts American interests: It is antagonizing India, one of our most important allies.

Indians are angry and bewildered by what's happening here. India had been the world's most prominent example of autarky, a backward policy of protectionism. Partly because of pressure from the United States -- and partly from observing the economic success of smaller countries like Singapore and South Korea -- India has eased that policy in recent years.

Imports and exports have soared, and India's growth rate has doubled to 8 percent. The world's largest democracy, with a population of one billion, is getting more prosperous, creating what could ultimately become the best market in the world for American goods and services.

Meanwhile, India has been critical to American foreign policy. The war against terror forced us to lavish aid on India's arch-rival, Pakistan, and a nuclear war between the two countries over disputed Kashmir seemed possible. But peace is now closer, and despite provocations, India has proven a steadfast ally.

Now, many Indians feel they are the scapegoats for America's cyclical economic downturn in what they see as a racist campaign. Isn't this the way trade works? "On the one hand you talk about opening up our markets. On the other, you want to ban ...outsourcing," said India's deputy prime minister.

In fact, the business processes (or BP) work that Indians do for companies worldwide is a "good thing," as Gregory Mankiw, the head of President Bush's Council of Economic Advisors had the temerity to say, like the little boy who couldn't help but speak the truth while his elders were telling lies. ("This simple restatement of the logic of liberal trade brought derision down on Mr. Mankiw's head," wrote The Economist. And from, among others, Corzine, the former CEO of Goldman, Sachs!)

As the BP sector waxes, India becomes a bigger market for "Dell personal computers, Cisco switches, and Avaya telecommunications equipment," writes Rafiq Dossani of Stanford in Outlook, an Indian magazine.

It would be understandable if the Indians threw up their hands and said: "Fine! We're going back to our mercantilist ways, and forget about cooperating on foreign policy."

Yes, trade does cause some hardship, which the U.S. must address through job retraining and aid for displaced workers. But constraints on trade cause much more pain, threatening to poison our relations with key allies and plunge the world into another depression. That is no exaggeration.

Patricia Hewitt, the British trade secretary, recently accused U.S. politicians with "playing politics with people's jobs and prosperity." It's worse. At a time when leaders should be educating Americans about the benefits of trade, Kerry, Clinton and the others are putting America in peril.

James K. Glassman recently wrote for TCS about Alan Greenspan.


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