“Trade, Labor, And Politics”: Whatever They May Say, Politicians Who Espouse Rigid Free-Market Ideology Are Not On Your Side
There are a lot of things about the 2016 election that nobody saw coming, and one of them is that international trade policy is likely to be a major issue in the presidential campaign. What’s more, the positions of the parties will be the reverse of what you might have expected: Republicans, who claim to stand for free markets, are likely to nominate a crude protectionist, leaving Democrats, with their skepticism about untrammeled markets, as the de facto defenders of relatively open trade.
But this isn’t as peculiar a development as it seems. Rhetorical claims aside, Republicans have long tended in practice to be more protectionist than Democrats. And there’s a reason for that difference. It’s true that globalization puts downward pressure on the wages of many workers — but progressives can offer a variety of responses to that pressure, whereas on the right, protectionism is all they’ve got.
When I say that Republicans have been more protectionist than Democrats, I’m not talking about the distant past, about the high-tariff policies of the Gilded Age; I’m talking about modern Republican presidents, like Ronald Reagan and George W. Bush. Reagan, after all, imposed an import quota on automobiles that ended up costing consumers billions of dollars. And Mr. Bush imposed tariffs on steel that were in clear violation of international agreements, only to back down after the European Union threatened to impose retaliatory sanctions.
Actually, the latter episode should be an object lesson for anyone talking tough about trade. The Bush administration suffered from a bad case of superpower delusion, a belief that America could dictate events throughout the world. The falseness of that belief was most spectacularly demonstrated by the debacle in Iraq. But the reckoning came even sooner on trade, an area where other players, Europe in particular, have just as much power as we do.
Nor is the threat of retaliation the only factor that should deter any hard protectionist turn. There’s also the collateral damage such a turn would inflict on poor countries. It’s probably bad politics to talk right now about what a trade war would do to, say, Bangladesh. But any responsible future president would have to think hard about such matters.
Then again, we might be talking about President Trump.
But back to the broader issue of how to help workers pressured by the global economy.
Serious economic analysis has never supported the Panglossian view of trade as win-win for everyone that is popular in elite circles: growing trade can indeed hurt many people, and for the past few decades globalization has probably been, on net, a depressing force for the majority of U.S. workers.
But protectionism isn’t the only way to fight that downward pressure. In fact, many of the bad things we associate with globalization in America were political choices, not necessary consequences — and they didn’t happen in other advanced countries, even though those countries faced the same global forces we did.
Consider, for example, the case of Denmark, which Bernie Sanders famously held up as a role model. As a member of the European Union, Denmark is subject to the same global trade agreements as we are — and while it doesn’t have a free-trade agreement with Mexico, there are plenty of low-wage workers in eastern and southern Europe. Yet Denmark has much lower inequality than we do. Why?
Part of the answer is that workers in Denmark, two-thirds of whom are unionized, still have a lot of bargaining power. If U.S. corporations were able to use the threat of imports to smash unions, it was only because our political environment supported union-busting. Even Canada, right next door, has seen nothing like the union collapse that took place here.
And the rest of the answer is that Denmark (and, to a lesser extent, Canada) has a much stronger social safety net than we do. In America, we’re constantly told that global competition means that we can’t even afford even the safety net we have; strange to say, other rich countries don’t seem to have that problem.
What all this means, as I said, is that the Democratic nominee won’t have to engage in saber-rattling over trade. She (yes, it’s still overwhelmingly likely to be Hillary Clinton) will, rightly, express skepticism about future trade deals, but she will be able to address the problems of working families without engaging in irresponsible trash talk about the world trade system. The Republican nominee won’t.
And there’s a lesson here that goes beyond this election. If you’re generally a supporter of open world markets — which you should be, mainly because market access is so important to poor countries — you need to know that whatever they may say, politicians who espouse rigid free-market ideology are not on your side.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 28, 2016
“Nobody Wins A Trade War”: Donald Trump And Bernie Sanders Are Promoting Dangerous Protectionism
As different as Donald Trump and independent Vermont Sen. Bernie Sanders are, they have one important policy goal in common. It’s a dangerous goal, one that elites in both parties must counter, before a new public consensus is formed and grave damage is done to the economy.
Both Trump and Sanders are, at their heart, protectionists. They both believe in tariffs and other obstacles to prevent foreign-made goods from competing with American-made goods, and keep foreign worker salaries from driving down Americans’ pay. Trump is the most direct and vocal about it, calling for tariffs as high as 45 percent against China. Sanders has yet to call for a specific tariff, but he’s called for repealing the North American Free Trade Agreement with Canada and Mexico. Eliminating NAFTA would restore tariffs that ranged up to 25 percent and lead to other measures that hinder trade between countries.
At first glance, it seems like a great idea to raise tariffs to protect American workers from globalization. But nearly all economists say that protectionism is a beast that will gore us if set loose. Protectionist measures by the U.S. will lead to reprisals by other countries and the tit-for-tat escalation of tariffs in a trade war will likely lead to a global depression (as it did in the 1930s). And even when protectionism is successful in boosting wages, it boosts consumer prices even faster, so most workers are no better off.
All this is generally accepted by leaders and advisers in both the Democratic and Republican parties. But the downside of protectionism is complicated and not well understood by the public, whereas the call for tariffs and border-closings (Trump’s Mexican wall) is simple and emotionally resonant. Hence the problem: In political communications, it’s well known that if a falsehood is not promptly and effectively countered by respected senior public figures, it tends to become accepted as true by the public at large, regardless of the damage it may cause.
This time, the public will not accept that so-called free trade alone will restore rising standards of living and breathe new life into the American dream. Most working Americans, all except those at the top, have seen their standard of living erode over the past 30 years, and “trust me” is no longer an adequate response. That’s why insider candidates – former Secretary of State Hillary Clinton, former Florida Gov. Jeb Bush and others associated with the failed status quo – are doing poorly, and outsider candidates are drawing far more support than expected.
To prevent a protectionist insurgency from wrecking the economy, the candidates who represent mainstream economic thinking need to do better. They need to offer more than a reminder of the Smoot-Hawley Tariff Act of 1930. Unfortunately neither party is well positioned to do this. Clinton has the albatross of NAFTA hung firmly around her neck, since her husband championed it while president. And until very recently, she’s been a strong supporter of the latest proposed trade treaty, the Trans-Pacific Partnership – which is pushed by President Barack Obama and supported by a wide range of Democrat-aligned pundits.
At the same time, those in the Republican mainstream have either ignored stagnant wages, or they’ve blamed them on excessive taxes and red tape. That has convinced enough voters to date. But Americans have been tugging on their boot straps for several decades now without effect, and they are not inclined to believe that if they only tug a little longer or a little harder they will be themselves lifted up. Just as Clinton is not well positioned to be credible on this issue, neither is former Massachusetts Gov. Mitt Romney, who has made much of his fortune by eliminating American jobs. The public senses this. That’s part of the reason Romney’s broadside against Trump had so little effect.
If Democrat and Republican elites intend to stave off a wave of protectionism, it’s time for some serious public discussion of alternatives that can meaningfully help ordinary working Americans and their families. The possibilities fall into three categories: The first involves investments that boost American productivity directly, like education and infrastructure. The second category requires steps that boost American incomes directly like radically expanding the earned income tax credit or strengthening unions. The third category involves measures that reduce what workers have to pay out-of-pocket in order to live, so that stagnant wages go further. These measures include tax-shifting (reducing the employee share of the payroll tax, for example), making higher education free (as it is in of the developed countries we compete against) and government-matching of employee contributions to retirement plans, so employees don’t need to save as much of their income.
Most of these ideas are anathema to conservatives, and many are considered outside the range of legitimate ideas that serious Democratic thought leaders can safely discuss in public. But a trade war and the jingoism that goes with it might be even more distasteful and is almost certainly more damaging. It’s time for elites of both parties to begin discussing the undiscussable, if for no other reason than to avoid worse.
By: David Brodwin, Cofounder and Board Member of American Sustainable Business Council; U. S. News and World Report, March 14, 2016
“Trade And Tribulation”: Protectionists Almost Always Exaggerate The Adverse Effects Of Trade Liberalization
Why did Bernie Sanders win a narrow victory in Michigan, when polls showed Hillary Clinton with a huge lead? Nobody really knows, but there’s a lot of speculation that Mr. Sanders may have gained traction by hammering on the evils of trade agreements. Meanwhile, Donald Trump, while directing most of his fire against immigrants, has also been bashing the supposedly unfair trading practices of China and other nations.
So, has the protectionist moment finally arrived? Maybe, maybe not: There are other possible explanations for Michigan, and free-traders have repeatedly cried wolf about protectionist waves that never materialized. Still, this time could be different. And if protectionism really is becoming an important political force, how should reasonable people — economists and others — respond?
To make sense of the debate over trade, there are three things you need to know.
The first is that we have gotten to where we are — a largely free-trade world — through a generations-long process of international diplomacy, going all the way back to F.D.R. This process combines a series of quid pro quos — I’ll open my markets if you open yours — with rules to prevent backsliding.
The second is that protectionists almost always exaggerate the adverse effects of trade liberalization. Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. Trade deficits have been an important cause of the decline in U.S. manufacturing employment since 2000, but that decline began much earlier. And even our trade deficits are mainly a result of factors other than trade policy, like a strong dollar buoyed by global capital looking for a safe haven.
And yes, Mr. Sanders is demagoguing the issue, for example with a Twitter post linking the decline of Detroit, which began in the 1960s and has had very little to do with trade liberalization, to “Hillary Clinton’s free-trade policies.”
That said, not all free-trade advocates are paragons of intellectual honesty. In fact, the elite case for ever-freer trade, the one that the public hears, is largely a scam. That’s true even if you exclude the most egregious nonsense, like Mitt Romney’s claim that protectionism causes recessions. What you hear, all too often, are claims that trade is an engine of job creation, that trade agreements will have big payoffs in terms of economic growth and that they are good for everyone.
Yet what the models of international trade used by real experts say is that, in general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle the overall gains mean that the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.
Why, then, did we ever pursue these agreements? A large part of the answer is foreign policy: Global trade agreements from the 1940s to the 1980s were used to bind democratic nations together during the Cold War, Nafta was used to reward and encourage Mexican reformers, and so on.
And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now. Are they saying that we should rip up America’s international agreements? Have they thought about what that would do to our credibility and standing in the world?
What I find myself thinking about, in particular, is climate change — an all-important issue we can’t confront effectively unless all major nations participate in a joint effort, with last year’s Paris agreement just the beginning. How is that going to work if America shows itself to be a nation that reneges on its deals?
The most a progressive can responsibly call for, I’d argue, is a standstill on further deals, or at least a presumption that proposed deals are guilty unless proved innocent.
The hard question to deal with here is the Trans-Pacific Partnership, which the Obama administration has negotiated but Congress hasn’t yet approved. (I consider myself a soft opponent: It’s not the devil’s work, but I really wish President Obama hadn’t gone there.) People I respect in the administration say that it should be considered an existing deal that should stand; I’d argue that there’s a lot less U.S. credibility at stake than they claim.
The larger point in this election season is, however, that politicians should be honest and realistic about trade, rather than taking cheap shots. Striking poses is easy; figuring out what we can and should do is a lot harder. But you know, that’s a would-be president’s job.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 11, 2016
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