Subsidies, Trade, Agriculture and Security

Rising global food prices have created some interesting dynamics in recent trade discussions. In the past, agricultural subsidies and import/export tariffs have been a sticking point in any negotiations. One reason for this is that many countries wish to protect their agriculture industry due to security concerns. If world agricultural product prices are low, many industrialized countries cannot compete on the world market. Their producers are threatened with failure. So, the governments of those highly developed economies typically subsidize their farmers in some fashion so that they can remain in business and thus keep agriculture viable.

With high food prices, the subsidies are not as necessary to maintain viability for famers in advanced economies. They can compete with low-cost producers such as Brazil. This provides the opportunity for those governments to offer a cut in farm subsidies in exchange for things like reduced import tariffs for manufactured goods in countries that have erected barriers to protect their industry for reasons similar to industrialized countries protecting agriculture.

Ultimately, the most efficient way to allocate the world's resources is with a completely open, free market. This of course would necessitate that the world's governments all feel safe enough from their neighbors to believe that dropping protective barriers is prudent. Those barriers are like an economic stockade or fort. Just as a country seeks to protect itself militarily, it must protect itself economically.

In the last 30 years, the U.S. has exposed itself economically, yet has maintained its world preeminence in some respects, by its military power. Countries fear to take economic retaliation on the U.S. because of the potential for an overwhelming military response. Our dependence on foreign oil has weakened our position. We now are at extreme risk due to our high dependence on foreign sources of petroleum. Have we stretched our military capacity to the point that the military threat is less likely to offset that economic threat?

We must achieve energy self-sufficiency. We also must remain vigilant to maintain our food security. The greatest strength of our country is our economic system. It is also our greatest point of vulnerability. If we are hostage to foreign sources of energy -- or, through exposing our agricultural sector to extreme market vulnerability by eliminating a system of price subsidies -- we offer ourselves to the mercy of our enemies.

Free Trade and Relationships

Like it or not, free trade is the cornerstone of our economic system. Each community, each region, each country has a competitive advantage in the production of a particular good or service. In order to have the most efficient utilization of labor, capital and materials, we must allow those competitive advantages to develop within the marketplace.

When obstructionist policies are erected by governments in the form of trade barriers, we create inefficiencies. Occasionally they are necessary due to national security issues. Usually they are erected to protect special interest groups.

Recently, the Democrats in the Senate and House saw fit to kill a Free Trade Agreement with Colombia. The result is higher prices on some goods and services to Americans and less profit for some U.S. businesses who would have a competitive advantage for selling products to Colombia. It is a case where the greater benefits of the agreement would have gone to the U.S. because of import taxes and restrictions on the Colombian end of the agreement.

Colombia has become one of the few good relationships that the U.S. has developed in Latin America in recent years. We have poured many dollars into aiding them in their war against the drug cartels. We need to strengthen that relationship.

We also need to strengthen our relationship with our nearest neighbor to the south. President Bush has attempted to strengthen those ties but it has been difficult. Much of that difficulty lies in the economic unrest within Mexico which drives their citizens to seek employment north of the border (usually illegally). Strengthening the Mexican economy is in our best interest.

I applaud Senator McCain for reaching out to both the Colombian and Mexican governments. As we approach the fall elections we must keep in mind that relationships with our friends to the south are critical to our own future economic and political stability. On the other hand, Obama would like to withdraw from the North American Free Trade Agreement as punitive action against Mexico on immigration. So, McCain would "reach out" while Obama would seek to punish. It is clear to me that Senator McCain is working in our best interests while Obama's actions would only further damage our relationship and rather than aiding the immigration problem, would exacerbate it by the damage to the Mexican economy.