Trump and Bernie are both right: ‘Free trade’ is killing us

April 13, 2016
A closed factory is seen in Sandusky, Ohio November 1, 2012. President Barack Obama and Republican Mitt Romney went back on the attack on Thursday, breaking a storm-induced campaign truce to hit the road and pound home their closing messages in the final stretch of a tight battle for the White House. REUTERS/Eric Thayer (UNITED STATES - Tags: POLITICS ELECTIONS USA PRESIDENTIAL ELECTION) - RTR39W36

A closed factory in Sandusky, Ohio, November 1, 2012. REUTERS/Eric Thayer

Trade has been central to the 2016 presidential political debate, from Donald Trump threatening 45 percent tariffs on Chinese imports to Senator Bernie Sanders (I-Vt.) pressuring former Secretary of State Hillary Clinton to oppose President Barack Obama’s Trans-Pacific Partnership deal, the pact she earlier celebrated as the “gold standard” for trade accords.

It is becoming clear how ruinous U.S. global trade and tax policies have been. Yes, Americans have benefited from the lower prices and increasing variety of imported goods. But the nation has been running unprecedented trade deficits, now at about $500 billion a year, or 3 percent of gross domestic product.

The United States lost an estimated 2.4 million jobs to China trade alone from 1990 to 2010 while running the largest trade deficits with that country in recorded history. As companies moved good jobs to countries, like China, with low wages and scant environmental or consumer protections, entire communities in the United States were savaged. Economists estimate trade with low-wage countries has lowered blue-collar workers’ wages about $1,800 a year. Displaced workers lose incomes, homes, marriages, hope — and suffer through stunningly slow adjustments, often to lower-income jobs.

Factory employees are seen working in the plant of General Motors in the city of Silao, in the state of Guanajuato, Mexico in this November 25, 2008 file photo. The specter of bankruptcy hanging over automakers in Detroit is also stoking fears in Mexico, whose car industry is heavily dependent on the U.S. Economy. Mexico was the world's 10th-biggest car producer in 2007, building cars for most of the world's top car makers, but exports are slackening as the United States goes through its worst financial crisis since the Great Depression. To match feature AUTOS/MEXICO   REUTERS/Henry Romero/Files (MEXICO)

Factory employees working in a General Motors plant in Silao, in the state of Guanajuato, Mexico, November 25, 2008. REUTERS/Files

The benefits of trade accords have flowed largely to corporate balance sheets, to investors and to high-level executives. Workers, meanwhile, have suffered a loss of wages, security and power.

So what would a new U.S. trade policy look like? First, it would break with the current template of trade accords by abandoning the Trans-Pacific Partnership, which is pending ratification, and suspending negotiations on the Trans-Atlantic Trade and Investment Partnership, or TTIP, now underway.

The new trade policy would be based on a different set of principles. Trade should be seen as a means, not an end, as Dani Rodrik, a professor of international political economy at Harvard’s John F. Kennedy School, argues. Washington should seek a trading system that would enable the United States, and other nations, to pursue their own values.

A sensible system would allow countries to protect their social arrangements, including workers’ rights and environmental laws. Congress would regain authority to set clear objectives for trade accords, to decide what could be included in negotiations and to have access to the negotiations while they are underway. Fast-track trade authority, which allows the president to negotiate in secret and forces Congress to vote up or down without the ability to amend, would be repealed.

The substance of trade discussions would also change radically. Instead of detailed negotiations about enforcing drug companies’ patents, for example, a new focus would be on pressing issues that affect working people. Raising and harmonizing taxation of global corporations, while shutting down tax havens and coordinating enforcement efforts, would be a centerpiece, as the Panama Papers tax-dodging scandal justifies. Pushing to place a global price on carbon emissions to counter climate change would be a first priority. Empowering countries to retaliate against currency manipulation would be central.

General Motors Willow Run Powertrain plant is seen in Ypsilanti, Michigan June 2, 2009. GM said Monday it would permanently close more plants, including the historic Willow Run plant, and idle three others to trim production and labor costs under bankruptcy protection.    REUTERS/Rebecca Cook  (UNITED STATES TRANSPORT BUSINESS EMPLOYMENT)

General Motors Willow Run Powertrain plant in Ypsilanti, Michigan, June 2, 2009. Demolition of the buildings began in late 2013. REUTERS/Rebecca Cook

One initiative, suggested by Dean Baker, director of the Center for Economic Policy Research, would remove barriers that protect the inflated earnings of doctors, dentists and lawyers. If trained doctors and dentists from abroad were allowed to practice in the United States, he estimates savings of about $90 billion a year, or roughly $300 a person annually.

International negotiations might also create a global fund to pay for public, direct financing of medical research, with the results staying in the public domain. In the United States, Baker estimates, lower drug costs would likely save $360 billion a year, or 2 percent of GDP, about $1,100 a person a year. That is a far higher benefit than even advocates say would be produced from the TPP deal.

A thoughtful and comprehensive alternative trade policy has been put forth by the Congressional Progressive Caucus, the largest caucus in the House of Representatives with more than 70 members. The plan calls for a goal of more — but balanced — trade. The president could announce that the United States plans to move to roughly balanced trade by the end of five years. That would put countries with a trade surplus on notice that they must increase domestic demand and decrease reliance on export-led growth. It would also put global corporations on notice that if they want access to U.S. markets, they had better invest in the United States.

A closed factory is seen in Sandusky, Ohio November 1, 2012. President Barack Obama and Republican Mitt Romney went back on the attack on Thursday, breaking a storm-induced campaign truce to hit the road and pound home their closing messages in the final stretch of a tight battle for the White House. Obama has a somewhat easier path to 270 electoral votes than Romney, fueled primarily by a small but steady lead in the vital battleground of Ohio - a crucial piece of any winning scenario for either candidate - and slight leads in Wisconsin, Iowa and Nevada. Obama plans to visit Ohio on each of the last four days of the campaign, and plans two more trips to Wisconsin and Iowa.  REUTERS/Eric Thayer (UNITED STATES - Tags: POLITICS ELECTIONS USA PRESIDENTIAL ELECTION)

A closed factory in Sandusky, Ohio, November 1, 2012. REUTERS/Eric Thayer

The call for more balanced trade was embraced by the world’s 20 leading economies (the G-20) after the financial collapse in 2009. But the consensus didn’t survive efforts by Germany and China to export their way out of the crisis.

Balanced trade could be produced, as Warren Buffet once proposed, with a system of trade vouchers that would give companies the right to import a stated amount of goods, with that amount adjusted to get closer and closer to projected export totals each year. Or each major county that Washington trades with could be given a limit on the deficits the United States will abide. That would put pressure on these trading partners to increase imports, reduce exports or pay fines that can serve as de facto tariffs.

Second, the proposed plan details steps to enforce labor rights, human rights, and consumer and environmental protections. It would also protect countries’ right to promulgate higher standards, if desired. It would require that trade accords secure affordable access to essential medicines, which would curb drug companies’ efforts to extend patent protections.

Third, the progressive plan mandates that trade accords respect “nationhood rights.” To do this, it would repeal the Investor State Dispute Settlement system, which would force global investors to rely on national legal systems. If global corporations are concerned about corrupt local systems, they can self-insure or invest elsewhere. It would also expand and defend “Buy America” government procurement policies. Taxpayers should be able to demand that their taxes go to support jobs in America — not jobs across the world.

Fourth, the plan would work to accomplish in fact what free traders argue for in theory: That the winners from global trade compensate the losers. Displaced American workers would gain assistance under an expanded Trade Adjustment Assistance Act; they would receive extended unemployment benefits and wage insurance if they were forced to take lower-paying jobs. New initiatives would provide targeted assistance to communities hit by plant closings. In Denmark and Germany, where workers earn higher wages than in the United States, far more resources are devoted to sophisticated training and placement programs to ensure that workers are not victimized by the trading system.

More balanced trade would also benefit from a clear industrial strategy, one focused on capturing the lead in inventing, building and marketing the essential products of the green industrial revolution, which has already begun to sweep the world.

Proponents of Washington’s current system paint the choice as one between free trade and protectionism. But current trade accords aren’t creating free trade; they are enforcing selective protection for special interests. Ruinous U.S. deficits aren’t an inevitable result of globalization, but the intended result of corporate trade and tax policies.

Sanders and Trump have helped expose the folly of America’s current course.  Our trading policies are classic examples of rules rigged to benefit the few.  Economists increasingly accept that they contribute directly to our increasingly extreme inequality, as workers lose ground and CEOs clean up.  The Congressional Progressive Caucus proposal shows that sensible alternatives are possible.

America’s current plight is a question of politics and power, not fate.

14 comments

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someday humans will wake up and find the world is run by corporations. Laws are made for corporate benefit. Trade agreements are for corporate benefit. The few symbiotic humans that benefit are corporatists.

Old school economics that teaches free trade benefits everyone is just corporate propaganda. Just ask middle America about their benefits – yes their sneakers cost a little less but Nike profits quite a bit more. And don’t forget the Americans that have seen jobs flee this country all in the name of free trade – think again – all in the name of corporate profits and corporate power.

Nothing will stop this train wreck until the political power of democracy is divorced from the political power of corporations. At this stage of human development, I’d much prefer to see separation of corporation and state than separation of church and state.

Posted by michaelryan | Report as abusive

There is a great deal of hyperbole in this article and the proposed agenda would be a disaster for the American economy,in terms of loss of efficiency, as would the vague and unenforceable proposals suggested (such as forcing other countries to increase their domestic demand). And the “good jobs” in China are performed by poorly educated factory girls; the U.S. cannot hold on to such low skilled jobs that can be performed more efficiently (cheaply) in China, Mexico, and elsewhere. Unless,of course, we want to subsidize them.
The author also doesn’t mention that bilateral trade agreements are multiplying globally and if the U.S. stands on the sidelines, our workers and corporations will pay the price. He also fails to note that manufacturing jobs have declined in every industrial country, including China. Despite the continuing decline in manufacturing employment in the U.S., output continues to rise. Automation is the more important factor here, not trade.
But blame the GOP and conservatives for their unwillingness to support those workers whose jobs are lost to trade. U.S. labor market policies are inept and underfunded because of them.

Posted by Cassiopian | Report as abusive

With corruption legalized as “lobbying”, current form of extreme polarization at the expense of middle-class, is imminent – drawing the workings of the nation to the likes of a third-world status burdened with $19T debt and $100T+ unfunded cumulative liabilities.

While government has become a puppet at the hands of the establishment-corrupt, FED just makes this worse.

Public is mostly aware of this for quite some time and hence their resonance with the courage and clarity of both – Trump and Sanders as hopefuls, to bring the much needed self-correction in the interest of the nation, security of public and the future of the next-generation.

Posted by Mottjr | Report as abusive

Trade deficits are not really a bad thing in this case. Because the U.S. has a free floating currency, any trade deficit is automatically offset by an equal and opposite financial inflow and any trade surplus is offset by financial outflows. So under our currency regime, we have no real reason to care whether we run a deficit or a surplus.

Posted by Sewblon | Report as abusive

Excellent article.

I hope that soon the American government can become for the people and by the people.

Posted by kjazza | Report as abusive

Trade is controlled by the rich and their idea of trade is paying Chinese and other Asians, Mexicans etc. $1 an hour to make their cell phones and TV’s etc. while the rich get richer.

Posted by UgoneHearMe | Report as abusive

“accomplish in fact what free traders argue for in theory: That the winners from global trade compensate the losers.”

Borosage is not only not persuasive, he’s not factual. Free traders don’t argue for this at all. When people are free to trade with each other, they both win when they trade (otherwise why would they voluntarily do so?). When they aren’t free to trade, they both suffer the opportunity cost of the inability to trade. The winners with protectionist trade, are the companies/industries that no longer have to compete on a level playing field with overseas producers.

The last time the US implemented higher tariffs via the Smoot Hawley Tariff Act in 1930, US GDP fell by nearly half within 3 years, and the law was repealed. https://en.wikipedia.org/wiki/Smoot-Hawl ey_Tariff_Act

What’s killing the US are high corporate taxes, which is leading companies to flee the US, and high tariffs. The reason Oreo manufacturing moved outside the US was to flee the highest corporate tax rate in the world, and the high US sugar tariffs which make producing Oreos much higher than elsewhere.

Instead of less government (which would have kept Oreo manufacturing here along with the jobs) Borosage argues for more government. Not only would we have to pay more in taxes for the bureaucracy, more taxes for imports, but we’d also lose the benefits of sending fiat money abroad for real products.

Posted by LibertyIsGood | Report as abusive

Most associate middle class job loss with factories ,however, thousands of highly educated computer jobs go overseas too. All middle class work, out to cheap higher educated Asian and India work forces. The middle class American worker is on his leg.

Posted by cheeze | Report as abusive

I am starting to ponder whether Obama’s exit plan is dealt in the Pacific Trade deal? I have always liked the way Obama kept himself, his style as president and most of the law’s he pushed for. But I feel like trade deals with other countries call his last year as president into question… I am sure HITLARY gave him exit advice on get rich after presidency.

Posted by ericguizzetti | Report as abusive

In the 1930’s Churchill warned the panzers were coming and we all know what happend!
Today there are economic panzers that are already here! Some not all,listed below.
1.economic concentration of wealth (=power*) in top 1%
2 meltdown of capitalist financial systems e.g.TARP
3 confusion/ignorance of free trade versus fair trade=job loss -social security underfunded
4 =power* laws protect the wealthy; most of their stealing is legalized.
That is why there are almost no jail times only financial penalties
Madoff was an easy conviction ;an exceptionally greedy man
Now let Trump and Sanders and Hillary tell us: of what are their panzer divisions are composed?
Frank Lipsky

Posted by ngc121629 | Report as abusive

The aim should be to benefit the employment and health of of long term US citizens. Negotiations in p[asst deals where held up by protecting farmers an industry that does not have many jobs most US workers want. Also protected in negotiations was patent rights of firms many producing overseas and with their high level US jobs going specially imported workers. In short special interests. The industries who should be looked after in such negotiations i are those providing the type jobs citizens want to citizens in large numbers.

Posted by SamuelReich | Report as abusive

As we have seen, global labor arbitrage and comparative advantage does not work, and does not make sense. As just one example, in the US a typical worker with family needs at least $1000 per month just to pay rent or mortgage, how can he or she possibly be expected to compete in wages with someone who only pays $150? Also, in almost every country the majority of workers will always be less than highly skilled through formal education, we need to take care of our own. In China, every patent and copyright that can possibly be illegally copied, faked or pirated is, thereby eliminating almost every trade advantage of our supposed high-tech economy. Since China was granted admission to the WTO in 2001, the US has lost on average over 50,000 manufacturing jobs PER MONTH, and nearly 60,000 major industrial facilities. This is all the more significant when realizing that each manufacturing job supports between 3 and 6 additional jobs in services, not to mention implications for the tax base and vastly increased outlays on social welfare programs for the unemployed. An accurate analysis of economic history will show that nations prosper and thrive, not due to unlimited free trade, but when trade is intelligently and responsibly managed by government that places the interests of its own citizens first.

Posted by wayout | Report as abusive

“Free trade” with state owned economies like The PRC or South Korea is mutually exclusive. “Free trade” and “state owned” will never, ever, work.

Posted by DemandSider | Report as abusive

Best article/column on the trade issue I have read yet. Thank you.

Posted by Jeff9207 | Report as abusive