David Coates

Trade Deals and the Importance of Political Gridlock

For a political capital renowned for gridlock, there are times when Washington DC looks poised for too much action rather than for too little. This is one such time.

Moves seem well underway in the Republican-controlled Senate to fast-track the vote on fast-tracking – maybe as early as this coming Tuesday – a move that will then open the way to a vote on the TPP trade deal in which the Obama Administration is now investing such a large quantity of its own rapidly diminishing political capital.

That would be a pity, since the arguments for not passing the proposed trade deal continue to be worthy of long and slow consideration.

I

Those opposed to the Trans-Pacific Trade Agreement have generally built their case around four main arguments. They have objected to the lack of transparency in the negotiations preceding the agreement, and the continued absence of details on what it now contains.1 They have looked back at previous major trade deals, seen the American job losses and lax labor standards associated with them, and worried that the job losses associated with this new agreement will be equally large and permanent.2 They have watched the lobbying by corporate interests around a trade agreement that looks to many of its critics like “NAFTA on steroids” – less a trade deal than a set of protocols that free big companies from public regulation3 – and have been angered by the Administration’s apparently privileging of those corporate concerns over the equivalent concerns of organized labor.4 And they have been struck by the speed with which the Republican-controlled Congress is willing to move on trade legislation, when refusing to move equally quickly (or indeed to move at all) on legislation that many Democrats feel is far more likely to protect American jobs and sustain American economic growth – legislation on infrastructure investment, energy-conservation, or even TAA compensation for workers adversely affected by trade deals.

The big problem with those kinds of arguments is that they are immediately vulnerable to counter-arguments of equal force.

The Administration is adamant that transparency will damage US interests during the negotiating process itself, and is anyway willing to brief legislators in confidence if that will reassure them.5 The TPP is actually being signed with 11 other economies, many of which provide their workers with wages and working conditions that match/exceed those prevalent in the United States.6 Where they do not, some of them at least already operate free-trade treaties with the US, so that no new negative pressures on US wages and job security can be expected from that source. The Administration is in any case adamant that this time, unlike with NAFTA, labor and environmental controls will be fully implemented.7 The TPP agreement is being hawked by its keenest supporters as a way of breaking down barriers to the entry of US-made goods into growing markets – not least in Japan – that are still informally but effectively protected,8 and as a way of defending the intellectual property rights (and hence future competitiveness) of major US corporations from which ultimately we will all benefit. And as for the timing issue, well – so the counter-argument goes – just as soon as a TAA agreement is already passed, why should fast-tracking not go forward, the better to speed the growth of US jobs and prosperity promised by the advocates of the agreement?

Giving the relative power of arguments on both sides of the current debate, it is perhaps not surprising to see a presidential candidate like Hillary Clinton trying to have it both ways: supporting the agreement in principle but not its fast tracking now. She wants the President to listen more to Nancy Pelosi: so perhaps we should take her advice. Nancy Pelosi surprised many people by blocking the Administration’s trade policy in the House. Why and how she did it tells us a lot about the nature of the anti-TPP position inside the current Democratic Party, and it tells us even more about the limits of that position.

II

The Pelosi speech9 in the House contained an eloquent defense of the threats of unregulated trade to both the financial security of American workers and to the environment in which they – and everyone else – will have to live. Nancy Pelosi used both arguments to make the case for caution and delay. But her speech started with something entirely other: a brief but heart-felt defense of global trade.

We all understand,” she said, “we live in a global economy. Some of us, as I do, represent cities built on trade – the city of San Francisco. I grew up in a city where the famous clipper ships brought products to and from our shores in Baltimore, Maryland. It’s a great, exciting prospect of expanding markets for our products and having US global leadership.”

In other words, Nancy Pelosi bought entirely into the two governing assumptions currently framing the debate in Washington around the TPP. The first governing assumption is that trade agreements which reduce barriers to the export of US goods and to the US import of foreign-made products are in both the immediate and long-term interests of the American economy and its workers. The second is that free trade serves those interests precisely because the US remains the strongest economy in the world, able to offer “global leadership,” and therefore needs to be able to get its goods into other markets, the better to increase employment and prosperity back home. They are governing assumptions that were repeated time and again by advocates of fast-tracking on both sides of the aisle in the debate in the House last week.

There is however, one major problem with these two governing assumptions. The problem is that they simply aren’t true. They used to be, but they aren’t any longer. And because they aren’t, a romanticized view of Baltimore’s past has no place in a proper conversation about Baltimore’s (and America’s) present and future. And because they aren’t, a trade policy that is good for Nancy Pelosi’s constituents – benefitting as some of them do from the employment generated by the movement of container ships in and out of west-coast ports – is not necessarily good for the rest of us. Why? Because our lives are more directly affected by what is inside the containers than by the processing of the containers themselves. What comes in are consumer goods made abroad that once were made here. What goes out, to China at least, are agricultural products, scrap metal and waste paper. Foreign goods come in and American jobs go out.

The political class talk to each other far more than they talk to the rest of us; but just because something is regularly repeated in Washington, it doesn’t by that process become true: particularly when, as in this case, it couldn’t be more wrong.

III

To the advocates of untrammeled free-trade, the Democrats ought to be saying four important and different things. They ought to be saying

The US economy is no longer the strongest in the world; and because it is not, public policy should be designed to slow down and reverse American de-industrialization rather than to speed the global flow of goods, most of which are no longer made here. Once the leading creditor nation in the capitalist bloc, the US is now the world’s greater debtor nation, with a trade deficit with communist China, for example, of over $300 billion a year.10 From what we know of the details of the TPP agreement, the domestic de-industrialization that has generated those trade deficits is likely to continue if the agreement becomes law. Bernie Sanders put it this way: “As a result of NAFTA, the US lost 700,000 jobs. As a result of Permanent Normal trade Relations with China, the US lost over 2.7 million jobs. As a result of the Korea Free Trade Agreement, the US has lost 70,000 jobs. The TPP would make matters worse by providing special benefits to firms that offshore jobs and by reducing the risks associated with operating in low-wage countries.”11 The scholarly research to support Sanders’ figures is readily available if people are willing to look.12

There is no automatic unity of interests between large American corporations and the American economy as a whole. On the contrary, under existing trade rules, large corporations too often profit by outsourcing production and employment, the better to access cheaper sources of labor abroad and/or to bring their production closer to growing overseas markets. In the process, their employment practices extract the center out of the American labor market, leaving behind a domestic economy that is increasingly polarized between low-paid service workers and a privileged elite of high-paid professionals and senior executives. Even more deregulated trade will not correct that drift. It is much likely to intensify the widely-noted “Wal-Mart” effect: that pressure on suppliers that forces them out to cheaper labor sites, eroding US employment and wages as it does so, leaving more and more US consumers so income-deleted that they can only afford to shop at the very box stores generating the original pressures!13

By focusing on the advantages of lower tariffs abroad, US trade negotiators too often surrender our best bargaining lever – namely the vital role that US consumers play in enhancing employment and prosperity in overseas economies that export to survive. Imagine for a moment what would happen if American markets suddenly closed their doors to Chinese goods. China’s economy (and its society and politics) would be thrown into chaos. Which is why our trade policy should be directed to making those exporting to us raise their wages and working conditions to/beyond those prevalent here at home rather than, as now, making deals that drag American wages and conditions down to existing Asian ones.

All of which points to the central fallacy in the free trade argument: namely that the reduction of barriers to trade will automatically trigger a generalized race-to-the-top across the global economy as a whole, not least by raising living standards in both the exporting and the importing country. No, it will not. With global economic development so uneven, and with wages and working conditions so different between developing and developed countries, trade between each – unless rigorously regulated through agreed labor codes – will fuel an ever-developing race-to-the-bottom. If generalized prosperity is what trade negotiators (and their political masters) want, it is managed trade – not free trade – that must be the order of the day.

Recalling free trade in Baltimore in the years of America’s economic dominance will not bring that dominance back. If we want it back, as we surely do, trade policy will need to change. Free trade is not an end in itself. It is simply one means to an end; and the end to which it is currently taking us is not one to which, if we are sensible, we ought to be going.

IV

Of course, whenever the case for managed trade is made, the first push-back is normally about costs. If the federal government is really diligent in insisting on high environmental and labor standards, import costs will rise, and American consumers – especially those on low incomes – will suffer. To which the answer has to be: yes, they will, unless new and tougher trade rules are accompanied by extra income support for low-paid and unemployed workers: a higher minimum wage, more generous earned income tax credits, more generous food stamps and so on, paid for by progressive taxation on highly-paid individuals and on large corporations. It is corporate capital that is de-industrializing America, and it is corporate capital that needs to bear the costs of beginning to reverse that de-industrialization. Particularly when the research evidence is increasingly clear that “the promotion of better worker rights around the world could contribute to smaller external imbalances without impeding international trade flows.”14

The other push-back is normally about markets: that Asia in particular (and the EU when that trade deal comes into political view again) are growth points in the global economy from which America cuts itself off only at its own peril.15 To which the answer has to be: that unless US wages and employment can be internally strengthened again, no amount of trade with more dynamic areas abroad will cross-compensate for the dwindling quality of consumption and life here at home;. And that in any case, the US is unique among advanced industrial economies on how little it still depends for its living standards on trade with countries abroad.16 “Made in the USA” is the growth dynamic we need to develop again, and one that is within our grasp. Trade deals with strong and fully-enforced labor and environmental controls can help move us in that direction.17 Trade deals without them most certainly will not.

So, please Washington, continue – on this at least – to gridlock. We need a long and thoughtful national conversation about nation-building at home. We don’t need another quick-fix equivalent of NAFTA or CAFTA until a whole set of pressing domestic priorities have been addressed and rectified.

These arguments are developed more fully in

David Coates, Making the Progressive Case: Towards a Stronger US Economy.

New York: Continuum Books, 2011. 18

1 Robert Reich, The Largest, Most Disastrous Trade Deal You’ve Never Heard Of, posted on lternet.org January 6, 2015: available at http://www.alternet.org/robert-reich-largest-most-disastrous-trade-deal-youve-never-heard

2 Broken Promises: Decades of Failure to Enforce Labor Standards in Free Trade Agreements, prepared by the Staff of Senator Elizabeth Warren, 2015: available at http://www.warren.senate.gov/?p=press_release&id=819

3 Katrina vanden Heuvel, “Trans-Pacific Partnership treaty will help neither workers nor consumers,” The Washington Post, March 31, 2015: available at http://www.washingtonpost.com/opinions/trans-pacific-partnership-treaty-will-help-neither-workers-nor-consumers/2015/03/31/145e98ba-d727-11e4-ba28-f2a685dc7f89_story.html

4 David Nakamura, “AFL-CIO head sends angry letter to Obama on trade deal,” The Washington Post, June 10, 2015: available at http://www.washingtonpost.com/blogs/post-politics/wp/2015/06/10/afl-cio-head-sends-angry-letter-to-obama-on-trade-deal/

5 Ruth Marcus, “A bogus argument against the trade deal,” The Washington Post, May 19, 2015: available at http://www.washingtonpost.com/opinions/a-phony-argument/2015/05/19/85c3a026-fe4c-11e4-805c-c3f407e5a9e9_story.html

6 Charles Lane, “Trade measure is anything but a race to the bottom for U.S. producers,” The Washington Post, May 13, 2015: available at http://www.washingtonpost.com/opinions/trade-measure-is-anything-but-a-race-to-the-bottom-for-us-producers/2015/05/13/91fd9e40-f98e-11e4-9030-b4732caefe81_story.html

7 Greg Sargent, “Will massive Trans Pacific deal hurt American workers? Labor Secretary Thomas Perez pushes back,” The Washington Post, April 20, 2015: available at http://www.washingtonpost.com/blogs/plum-line/wp/2015/04/20/will-massive-trans-pacific-trade-deal-hurt-american-workers-labor-secretary-thomas-perez-pushes-back/

8 Joe Biden, ‘We cannot afford to stand on the sidelines of trade,” The Financial Times, February 27, 2014: available at http://www.ft.com/intl/cms/s/0/bde80c72-9fb0-11e3-b6c7-00144feab7de.html#axzz3dYl9NbJw

10 Dave Johnson, You Should be Afraid of the Trade Deficit, Not the Budget Deficit, posted on NationofChange March 10, 2014: available at http://ourfuture.org/20140306/you-should-be-afraid-of-the-trade-deficit-not-the-budget-deficit

12 Daron Acemoglu et al, Import Competition and the Great U.S. Employment Sag of the 200s. NBER Working Paper 20395, August 2014: available at http://www.nber.org/papers/w20395 Also Robert E. Scott, Just the Facts: Trade and Investment Deals Are Bad for Working Families, posted on the EPI Working Economics Blog, April 28, 2015: available at http://www.epi.org/blog/just-the-facts-trade-and-investment-deals-are-bad-for-working-families/

14 Christian E Weller, ‘Could international labour rights play a role in U.S. trade?” Cambridge Journal of Economics, volume 35 (2011), pp. 39-57

15 Fred Dew, Why Trade Matters in Four Maps, posted on Brookings>>>Now, September 3, 2014: available at http://www.brookings.edu/blogs/brookings-now/posts/2014/09/why-trade-matters

16 Evan Soltas, The U.S. Should Walk the Talk on Free Trade, posted on Bloomberg News November 20, 2012: available at http://www.bloomberg.com/news/articles/2012-11-19/the-u-s-should-walk-the-talk-on-free-trade

17 Progressive Caucus Releases Trade Principles that Put Workers First in Trade Agreements, March 6, 2015: available at http://cpc.grijalva.house.gov/hot-topics/progressive-caucus-releases-trade-principles-that-put-workers-first-in-trade-agreements1/ See also Adam S. Hersh & Jennifer Erickson, Progressive Pro-=Growth Principles for Trade and Competiveness. Washington DC: Center for American Progress, March 11, 2014: available at https://www.americanprogress.org/issues/economy/report/2014/03/11/85639/progressive-pro-growth-principles-for-trade-and-competitiveness/

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David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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