CAFTA: Trade Diversion

With hat tip to Brad Setser, Edmund Andrews reports:

Mr. Hayes, a Republican whose district in North Carolina has lost thousands of textile jobs in the last four years, had defied President Bush and House Republican leaders by voting against the Central American Free Trade Agreement, or Cafta. But the House speaker, J. Dennis Hastert, told him they needed his vote anyway. If he switched from “nay” to “aye,” Mr. Hayes recounted, Mr. Hastert promised to push for whatever steps he felt were necessary to restrict imports of Chinese clothing, which has been flooding into the United States in recent months.

Let’s imagine that Speaker Hastert delivers on this implied promise to retain high tariffs on Chinese textile imports as we lower tariffs on imports from Central America. If so, we may have a case of what Jacob Viner called trade-diverting effects. While I am an advocate of free trade, there were lots of reasons to oppose the log-rolling that was just passed in the House.

Update: Brad DeLong has more on why we should stop saying George W. Bush is for free trade.