Wall Street Journal

OPINION

Free Trade Can Fight Terror

By EDWARD GRESSER and MARC DUNKELMAN

August 15, 2008; Page A15

When trade flares up as a political issue -- as it is likely to do in the presidential campaign this year -- one aspect of the debate is almost always neglected. There is a fierce competition among foreign countries to sell their products here, in the United States, the largest commercial market in the world.

Moreover, by opening up our market to Muslim countries, we could not only help American consumers, but also serve a larger strategic goal: that of boosting the economies which now produce large pools of unemployed, embittered youth. We can make trade an effective weapon against terrorism.

Our tariff regime puts many nations in the Middle East, whose young people are susceptible to the sirens of Islamic fundamentalism, at an unintended disadvantage. This works against our efforts to stamp out jihadism. Fortunately, the problem is easy to fix.

The U.S. buys about a fifth of all the goods and services traded world-wide -- importing $2.63 trillion worth of the world's products last year alone. Socks come in from the Caribbean, towels from Pakistan, cheese from France, and oil from Saudi Arabia.

But apart from oil, very little comes from the Muslim world. The 30 majority-Muslim states of the greater Middle East, from Morocco through Egypt to Pakistan and Central Asia, account for about 10% of the world's population. They provide about 1% of our manufactured imports, and an even smaller fraction of our farm imports.

The statistics hint at one of the least-studied but most ominous aspects of the modern global economy. Most of us frame the last quarter-century with narratives about globalization, the rise of China and the spread of the Internet. But for the Muslim countries of the Middle East, and their neighbors in Pakistan and Central Asia, it was a period of economic disaster rivaling our Great Depression.

Between 1980 and 2000, their share of world trade fell by 75%, and their share of investment fell even faster. The region's unemployment rate became the world's highest, rising to an average of 25% for young people. With the region's population rising by nearly a quarter-billion, the high unemployment rates mean a pool of perhaps 25 million jobless and sometimes hopeless young people, often easy targets for fundamentalists.

Will oil -- now selling at record prices -- put these legions to work? Historical experience is not promising. Oil can bring in money, but it also centralizes wealth and power. The effects mark a strong contrast with factory and farm exports, where revenue is spread more evenly through the working public.

Apart from gasoline, we rarely find consumer products from the Muslim world stocking our shelves (apart from the shirts and shoes trickling in from Turkey, Egypt and Pakistan). In part, that is because our tariff system makes life harder for developing countries. A Japanese car, for example, is subject to a mere 2.5% tariff, a Chinese TV 5%, and European medicines are subject to no import tax at all. Likewise, oil and natural gas get a nominal 0.1% tariff.

But tariffs on the items that are most important to developing economies are much higher. Clothes are subject to an import tax that averages 14.5% and can run as high as 32%. Luggage is taxed just as heavily. Shoe tariffs rise to 48%.

Trade pacts like the North American Free Trade Agreement, and preference programs like the African Growth and Opportunity Act, exempt many imported goods from those tariffs. Jamaica, Peru, Jordan, Kenya, Mexico and dozens of other nations export towels, clothes and luggage here duty-free, so American stores can sell their products at a lower price -- or a higher profit margin. Nice for them -- but not so attractive to the nations not privy to a special trade agreement with the U.S., and whose citizens compete with Jamaicans, Peruvians, Kenyans and Mexicans for factory jobs.

Towels, for example, are Pakistan's top export. Each container full of towels exported to the U.S. brings in enough income to employ about 500 Pakistanis. But while Pakistani towels are subject to a 7.5% tariff, competing towels from the Dominican Republic or Costa Rica -- both of which benefit from the Central American Free Trade Agreement -- come in duty-free.

Likewise, luggage made in Indonesia is subject to a tariff that can rise to 22%, but competes with tariff-free suitcases manufactured in Mexico. Lebanon, which exports preserved fruits and vegetables, must compete with similar duty-free items exported from Peru.

Sen. Maria Cantwell (D., Wash.) has taken a step toward fixing this problem, by introducing a bill, the Afghanistan and Pakistan Reconstruction Opportunity Zones Act of 2008, to waive tariffs on many goods from Afghanistan and Pakistan's frontier provinces. The next president should follow up with a broad, tariff-exemption initiative to help the Muslim world break its downwards spiral, revive trade and put its young people back to work.

Of course, a comprehensive solution to Middle East economic problems will require efforts to stamp out corruption, improve schooling and end political oppression. But few things could do more to combat terrorist recruitment than draining the pools of angry and unemployed youth that are spread across this region. Fixing American trade policy would be a good start.

Mr. Gresser is director of the Trade and Global Markets Project at the Progressive Policy Institute. Mr. Dunkelman is the vice president for strategy and communication at the Democratic Leadership Council.