Economics

Bogotá Beginnings

Colombia and the US ushered in a new free trade era Tuesday—to relatively little fanfare. And given the trade pact took a whopping six years to negotiate and successfully pass through Congress’s hallowed halls, the relative shrug from the media’s somewhat understandable. Yet, any way we look at this, it’s a nice (though not massive) economic positive.

The day before the pact took effect, the Port of Long Beach began work on a $1.2 billion upgrade and expansion. A pretty good indicator the port expects to see an uptick in traffic (to put it mildly)—especially given the project isn’t expected to be finished until 2019 (meaning they don’t expect this to be any sort of short-term anomaly). Overall, the expansion will allow the port to double its capacity.

In fact, it didn’t even take full implementation of the trade agreement to increase the US’s trade with Colombia—which increased 19% last year as corporations likely began building supplier relationships in anticipation of the deal becoming reality (and, no doubt, aided by growing economies on each side).

Prior to its approval, some bemoaned another free trade agreement would ultimately hurt US jobs—the argument being the more we can fairly easily and cheaply import, the more likely we’re able to rely on foreign producers and the less we need domestic manufacturing and production, thereby resulting in plant closures and job losses. But we mustn’t overlook the significance of the business created purely by the act of trading.

And the Port of Long Beach is Exhibit A. Consider: Without the possibility of vastly increased Colombian trade, there’d be little (if any) need to upgrade and expand the port. Meaning none of those jobs planning, constructing and ultimately operating the port would be created. And once the trade volume does pick up as expected, there’s increased need for longshoremen to offload and reload boats, truck drivers to get those goods to their destinations across the US and bring back to the port all the goods the US will be able to export to Colombia duty free. And as domestic demand for those imported goods increases, there’s more need for stores to hire employees to sell those goods—on and on in one of capitalism’s many virtuous cycles. Not to mention the possibility other US ports may also ultimately require expansions, refurbishments, upgrades, etc. And don’t forget some variation of the same storyline is likely simultaneously playing out in Colombia redounding similar benefits on its citizens—producers and consumers alike.

None of this is to say there aren’t some short-term dislocations created, too. For example, as technology continues developing, maybe fewer total workers are needed to operate ports and on- and offload goods. But as we’ve discussedmany times, though that’s a source of interim discomfort, ultimately, the benefits likely vastly outweigh the negatives. And as discussed, even those same workers who may face dislocations recognize increased trade means more jobs in the long run. It seems folks are increasingly acknowledging creative destruction’s benefits, too. If that opens the way for future agreements to be reached in less than six years, all the better.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.