As the Trump Administration has recognized, trade involves a larger question consuming most countries: what kind of policy can make “it possible for most citizens, including those without college educations, to access the middle class through stable, well-paying jobs”?
Trickle-Down Trade
The Administration, however, can’t achieve this goal, because its trade policy is but an extension of its domestic economic policy – a trickle-down strategy where the primary goal is to benefit business, while workers get whatever crumbs business chooses to send their way. In an era of widening income inequality, where the stock market is completely out of sync with the real economy, that isn’t much.
China
Perhaps the clearest evidence of the Administration’s focus on business, rather than workers, is the negotiations with the Chinese Communist Party. The Administration used the Section 301 statute to launch an investigation into CCP practices, ultimately leading to the imposition of tariffs. The Section 301 statute allows the President to address labor abuses. This Administration, however, did not invoke the labor provision; instead, it invoked a provision on intellectual property protection.
The purpose of the investigation is to compel the CCP to do a better job of protecting intellectual property rights. That is, of course, good for American businesses that offshore to the PRC, because it increases their profits. Indeed, if the CCP actually reforms its behavior, the PRC becomes an even safer place to offshore.
That isn’t a policy focused on generating jobs for American workers. Is there a trickle-down benefit to workers back home? Maybe, if these companies are able to increase profits. But given the business community’s penchant for spending profits on share buybacks and executive compensation, the “workers” most likely to benefit are those in the C-Suite.
The Administration has pointed out that the tariffs on imports from the PRC facilitate the return of manufacturing to the United States. But the tariffs don’t require it. Manufacturing is just as likely – perhaps more likely – simply to move to Vietnam, or Malaysia, or Mexico. In an era in which we have learned the value of supply chain diversification, these changes should not be dismissed. They may even benefit some workers. But the notion that they are designed to benefit American workers isn’t accurate.
Nafta 2.0
The new NAFTA is also invoked as a pro-worker undertaking. But the signature pro-worker aspect of the new deal wasn’t what the Administration negotiated with Canada and Mexico – it was what Senators Brown and Wyden proposed, and Speaker Pelosi secured: a novel enforcement regime that focuses on factory compliance with labor laws. The Administration opposed the proposal and only relented after it became clear Speaker Pelosi had no intention of putting the deal on the House Floor until those provisions were in it. The AFL-CIO and United Steel Workers were supportive of the final deal — and endorsed Joe Biden. One thing the Administration can claim credit for in the new NAFTA is the “the Labor Value Content rule” as part of its reforms to the automotive rules of origin. The Labor Value Content rule in the agreement itself is inscrutable, but the general idea is to create some sort of minimum wage for auto workers. The Department of Labor has published an interim rule that tells the real story: auto producers in the United States essentially already comply.
And about those auto rules of origin: what evidence is there that they are any stronger, in real terms, than the ones that came before? The regional value content percentage is higher – 75%, rather than 62.5% — but the Administration stripped out the “tracing” rules that required specific components to be made in the region, replacing them with “core parts rules.” Many of us were concerned early on that these “new and improved” rules were optical rather than real, and these concerns have only grown over time. And now the Administration fesses up: with respect to the the “impact of the USMCA’s automotive {rule of origin} requirements . . . . USTR indicated that automobile manufacturers would have at most minor changes to meet the USMCA rules . . . .” The United Auto Workers endorsed Joe Biden.
Enforcement
The Administration also promised to bring labor disputes. It hasn’t. Even though an AFL-CIO petition against Colombia has been pending since before the current Administration was sworn in. This point was made during a Ways and Means Trade Subcommittee hearing a year ago.
WTO Reform
What about WTO reform? The Administration has been right to extend prior administrations’ exasperation with the dispute settlement system. Proposed reforms on subsidies to deal with the CCP are interesting, though the CCP has already rejected them. But where are the proposals to address labor? Why isn’t the United States advocating the basic labor rules that GATT signatories agreed to in 1948? That Congress instructed the Executive Branch to include in the GATT in 1974? Isn’t the best way to help workers to help workers?
It’s Not Just About Trade
But even if we assume for argument’s sake that the Administration’s trade policy has been good for workers, there’s a more important point that is lost when the focus is solely on trade: Trade can’t be good for American workers if domestic policy is bad for American workers.
Union Busting
So, what has the Administration done for American workers here at home? This brief from the Economic Policy Institute suggests an agenda designed to execute the Chamber of Commerce’s wish list. Grounded in the degradation of worker power, it is a typical manifestation of trickle-down economic policy. But it isn’t just a question of executing the Chamber’s agenda: the Administration is apparently hostile to unionization of the federal workforce itself.
The House passed a labor bill, the PRO Act, that includes a variety of provisions designed support workers’ right to organize. The White House panned it.
Health Care
How about issues that matter to the working class, like health care? In the middle of a global health crisis, the Administration continues its assault on the Affordable Care Act — without having anything ready to replace it, despite having had party control over both Houses for two years. Notably, then-Senator Obama opposed the U.S. trade deal with Central America in part because of the American health care system and other weaknesses in the social safety net.
This is a good time to recall another issue Speaker Pelosi fixed in the new NAFTA – the Administration’s insistence on using trade agreements to extend pharmaceutical monopolies. The industry was so determined to keep it that they recruited a former Obama trade official to push the Administration’s line. Pelosi pulled it anyway.
Dignity
Speaking of the pandemic, how are workers faring? Apparently the priority is sending them back to work, even if it compromises their health to do so. The only reason their health is a concern at all is that they might sue the companies they work for if they get sick. So the answer is not to protect the workers, but to protect the companies, by shielding them from liability. That’s not what people mean when they talk about the dignity of work.
Tax Cuts
How about the tax cuts? They didn’t spur a job-creating investment boom. In fact, the law continues to promote offshoring. The cuts did spur share buybacks, though, which is part of the reason companies need bailouts during the pandemic. More trickle-down economics.
Onshoring
Onshoring is a popular subject in light of COVID’s exposure of supply chain fragility. Here, too, the Administration has caved to the Chamber. This time, it’s to the Chamber’s objection to using the Defense Production Act, which would be a terrific vehicle for creating American jobs. Which is why unions support using it.
We Can’t Make the Opposite Mistake, Either
Those who support strengthening labor at home, though, face the risk of making the opposite mistake: believing that fixing domestic policy will resolve the problems that beset the working class without also fixing trade policy. The fundamentalists of free trade, as former free-trader John Maynard Keynes called them, have finally been forced to reckon with the fact that offshoring jobs offshores jobs, that the Tooth Fairy does not put better ones under the pillow, and that workers vote. The liberal free trade fundamentalist, aware that the backlash against trade policy is real, now focuses on domestic training programs as the solution. But the question is, train for what? If the anticompetitive orientation of the global trading system isn’t fixed, there won’t be jobs to train for. That is the risk of policies like Made in China 2025.
So if any of these domestic efforts are going to work for workers, if trade is going to work for workers, then the rules of trade must be fixed. The demise of the Havana Charter meant that the global trading system defaulted to the laissez-faire model, where returns to capital became the overarching priority. As we have previously discussed, this structure was turbocharged with the Trade Act of 1974, which turned the keys to trade policy over to multinational corporations.
What have we seen since then? From 1945 to 1975, wages and productivity were tied together. From 1975 onward, they haven’t been. That means that even when productivity increased 69.6% in the United States, wages only increased 11.6%. That is a 58% wage increase American workers never received. This wage suppression contributes to the problem that is the core of the new Klein/Pettis book: the global economic construct funnels money to the people least likely to spend it, and amidst poverty and inequality, we actually have a “savings glut.”
And so the multilateral trading system is little more than the global version of trickle-down economics that liberals claim to reject at home. Letting capital flow freely without protecting workers means that wages get arbitraged downward, exactly what the data show. That is not, as some continue to believe, what was intended. The founders of the system did not think that tariff liberalization was a path to perpetual peace. They knew capital needed disciplines or it would run amok.
We cannot be laissez-faire abroad and pro-worker at home. If we want to create a middle class not just here, but abroad, the global trading system must be reformed. Of what relevance is the fact that 95% of our customers are outside our borders if those customers have no purchasing power, thanks to a set of global trading rules that favors capital at the expense of labor? Let’s not forget who’s responsible for propagating that talking point: the Chamber.
We must address labor and environmental arbitrage, currency manipulation, and anticompetitive behavior. American workers can’t compete in a system that itself tolerates anticompetitiveness. Absent a focus on fair competition, not returns to capital, the same incentives that led jobs to be offshored in the first place will remain – and therefore any new jobs will remain at risk of meeting the same fate as the old jobs.
Workers First
An administration that will really make trade for work for workers is an administration that recognizes the true consequence of the interdependence resulting from globalization: trade policy and domestic policy are two sides of the same coin. If we don’t have a pro-worker policy at home, our workers will struggle to compete abroad. But if we don’t have a pro-worker policy abroad, nothing we do at home will make it possible for our workers to compete.
It’s time for us to make sure that our trade policy and our domestic policy work together for workers. That’s how you build a middle class not just here — but everywhere.
July 17, 2020
