US trade policy

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Anger over the impact of international trade on jobs, wages, and opportunities was a major cause of Donald Trump’s election.

As the DEMOCRAT Party’s politicians and pundits search through the rubble of Hillary Clinton’s candidacy for clues to her stunning loss, they need to take an honest look at their own contribution. Bill Clinton and Barack Obama were the most prominent champions of corporate globalization. Because the DEMOCRAT Party has traditionally claimed to be the champion of the working class, it was the most vulnerable to feelings of betrayal.

Since the signing of the 1994 North American Free Trade Agreement (NAFTA) (conceived by Ronald Reagan, negotiated by George H. W. Bush, and sold to the Congress by Bill Clinton) the Washington policy class has relentlessly pursued ever more so-called free trade agreements.

Under pressure from multinational corporations, Republican and DEMOCRAT leaders have systematically traded away the income and job security of American workers in exchange for promoting the interests of American international investors.

Donald Trump hammered away at those trade deals and the arrogance of an establishment that cared more about its relationship with Wall Street and foreigners than with Americans whose lives were being wrecked by globalization. He attacked leaders of both parties.

Barack Obama predicted 70,000 new jobs from the bilateral U.S.–Korea Free Trade Agreement he signed in 2011. Four years later we had already lost 95,000.

It was only a matter of time before voters in the most affected states rebelled against the elites of both parties. There were enough of them in Michigan, Ohio, Pennsylvania, Wisconsin, and Iowa—many of whom had voted for Obama in the previous election—to carry Trump to the White House.

But the issue remains.

The root cause of the loss of jobs and industry to globalization goes deeper than the trade pacts.

It is inherent in economic policies that relentlessly open up American workers and their communities to brutal global competition for which they have not been prepared.

The result is that the costs to American workers of each cycle of expanded trade relentlessly exceed the benefits. This fundamental problem will not be resolved by better negotiations.

The trade policy of the last quarter century is now bankrupt, economically and politically.

This is the moment for America to go back to the drawing board and rethink strategies for competing in the global economy in ways that raise living standards for all.


https://www.epi.org/publication/u-s-trade-policy-time-to-start-over/
 
Promoters of trade agreements from NAFTA to the TPP have not honestly dealt with their critics. Instead of acknowledging the obvious failures, they they have stubbornly defended themselves by attacking opponents with irrelevant denunciations of “protectionism.”

The accusation is false and the argument irrelevant. Trade as a share of our economy was increasing way before NAFTAe.

Despite the labeling, NAFTA and the NAFTA-like deals that have followed agreements are not “free trade” agreements. Only six of 30 chapters of the TPP directly address questions of trade.

The rest lay down rules that protect the interests of multinational investors above those of workers, the environment, and human rights.

It is rife with restrictions on domestic policies—including restrictions on government policies to favor local procurement—that protect multinational corporate rights to future profits. To enforce those rights, the TPP would establish an Investor-State Dispute Settlement system by which corporate-affiliated judges can override the decisions of democratic governments.

These are not the rules that existed in 1886 or 1916—or any time before 1994.

The United States has always been a trading nation, but not a “free-trading” nation.

Until a quarter century ago trade policy—primarily the raising and lowering of tariffs—was an instrument of domestic economic development.

As the U.S. economy grew, so did its trade with the rest of the world. For the hundred years of America’s post–Civil War industrialization, America’s trade was in balance or in modest surplus, i.e., we paid for our imports with exports.

https://www.epi.org/publication/u-s-trade-policy-time-to-start-over/
 
After World War II, American producers emerged with a unique and temporary comparative advantage over foreign competitors. The U.S. government therefore became a champion of lower tariffs. The new policy was also a weapon in the Cold War; providing access to the huge U.S. market dwarfed whatever the Soviet Union could offer to countries for whose loyalties we were competing.

Inevitably, Europe and Japan recovered, taking back their own markets—and reaching into ours. In the late 1970s the United States began to run chronic trade deficits, a market signal that it was losing competitiveness. By 1979, real wages of U.S. workers began to stagnate, and then fall. With the collapse of the Soviet Union in the next decade, the geopolitical rationale for Cold War trade policies also disappeared.

At this point in history, American leaders should have adjusted the country’s policies to help its people cope with changing international conditions. But in the 1980s, business and financial institutions with global operations grew more dominant in Washington. Instead of helping working Americans regain the long-term trend of rising wages, pro-corporate domestic economic policies further weakened the bargaining power of labor vis-à-vis capital.

As did pro-corporate international economic policies. Beginning with NAFTA, U.S. trade policy made a radical and reactionary break with the past. In effect, it responded to the changing circumstances by allowing U.S. corporations to shed the economic and social responsibilities of being “American.”

Specifically, NAFTA freed U.S. corporations to produce in Mexico—where labor was cheap, regulations lax, and government officials more than happy to serve the interests of foreign investors—and to sell those products back in the United States. And as Jorge Castañeda, who later became Mexico’s foreign minister, put it, NAFTA was “an agreement for the rich and powerful in the United States, Mexico, and Canada, an agreement effectively excluding ordinary people in all three societies.


https://www.epi.org/publication/u-s-trade-policy-time-to-start-over/
 
NAFTA became the template for the neoliberal trade agreements that followed: the World Trade Organization in 1995, the PNTR (permanent normal trade relations) agreement with China in 2000, the CAFTA (the Central America Free Trade Agreement) in 2005, and the U.S.–Korea Free Trade Agreement in 2012.

NAFTA was the model for the TPP.

The central argument to Congress made by the promoters of NAFTA and the trade deals that followed was:

  • Because other countries had higher tariffs than the United States, reducing trade barriers would cause U.S. exports to rise faster than imports.
  • The annual trade deficits would therefore disappear.
  • As exports rose to equal if not exceed imports, U.S. jobs and wages would increase.
  • When NAFTA was passed, the United States was running a trade surplus with Mexico. President Bill Clinton promised that NAFTA would increase the surplus, creating 200,000 new American jobs in its first two years and a million jobs in five years. By 2010, deficits with Mexico had cost the United States 700,000 jobs.

NAFTA’s promoters conceded that they might have “oversold” its benefits, but argued that only the lowest paying jobs at the bottom of the skill ladder were being lost. And, anyway, they insisted, the benefits from cheaper goods made these Americans better off.

But “jobs at the bottom” were defined as those held by non-college graduates who represent two-thirds of the labor force! As economist Josh Bivens showed, in 2011 increased trade with low-wage countries lowered the annual real wages (which take the effect of lower consumer prices into account) of non-college graduates by $1800.

https://www.epi.org/publication/u-s-trade-policy-time-to-start-over/
 
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