A Trade Deal at What Cost?

A Trade Deal at What Cost?

So what gives with the American people? Don’t they realize, as my colleague Charles Krauthammer argued last week, “that free trade is advantageous to both sides”?

The sides to which Krauthammer referred, of course, are nations. But perhaps those who’ve experienced such free-trade consequences as factory closings and lower-paying jobs are thinking about two entirely different sides — capital and labor. Trade promoters cite David Ricardo’s 200-year-old assessments of trade’s benefits to nations, but skeptics can mine a rich vein of mainstream economics that demonstrates how trade deals can, and frequently do, benefit major investors at workers’ expense.

As a letter to The Post noted this week, future Nobel laureate Paul Samuelson wrote in 1955 that, under free trade, “national product would go up, but the relative and absolute share of labor might go down.” More pointedly still, another Nobel laureate, Bertil Ohlin, showed that as a result of trade, a nation’s workers could see their wages decline even if none of them lost their jobs.

Samuelson and Ohlin have been proved right. Increased trade with lower-wage nations over the past 30 years has resulted in both massive offshoring of manufacturing and wage decline for most U.S. workers. As economists David Autor, David Dorn and Gordon Hanson have demonstrated, Chinese import competition has lowered wages not just for displaced manufacturing workers in this country but also, on average, for all workers in their midst.

When advocates make the case for Congress expanding free trade with Pacific Rim nations by passing the “fast-track bill” currently before it, they cite the U.S. industries that the deal will benefit. A recent Wall Street Journal editorial, for instance, acknowledges that, while U.S. exports to South Korea have hardly increased since we signed a trade accord with that nation in 2011, our service-sector growth there has been substantial. Our international law firms can now practice there, the Journal proclaims, and “American investors can now own telecom operations in that country.”

A great deal for international lawyers and investors — two groups of embattled U.S. proletarians who clearly needed our government’s help.

For other American workers, not so great. The treaty was promoted as benefiting the U.S. auto industry, but since its enactment Korean auto imports to the United States have boomed while sales of U.S.-made cars to South Korea remain all but nonexistent.

Is it any wonder, then, that virtually the entire base of the Democratic Party opposes the Trans-Pacific Partnership (TPP) and the fast-track bill that would ease its enactment? From coast to coast, Democrats are doing their damnedest to raise the very wages that globalized capital has depressed. On Tuesday, the Los Angeles City Council voted to raise the hourly minimum wage there to $15, while voters in Philadelphia’s Democratic mayoral primary made former councilman Jim Kenney, who campaigned to raise that city’s minimum to $15 as well, the upset victor.

Trade deals such as the TPP have contributed to economic inequality, so why President Obama should expect a party increasingly dedicated to diminishing that inequality to turn around and support the trade pact is a mystery with which future historians will have to grapple.

Those historians will surely note, however, that as the crucial fast-track votes neared, the Obama administration no longer argued that the need for the trade deal was primarily economic. Rather, it is pressing the case that the accord will create a strong counterweight to China’s power by strengthening the links between the United States and China’s neighbors.

In this, there’s no small irony. Of all the developments that led to the increase in China’s power and the diminution of ours, the one that definitively did both was Congress’s enactment of permanent normal trade relations with China in 2000. That led to a flood of U.S. companies shuttering their domestic plants and shifting production to China. When Beijing insisted that the price of doing business there was the transfer of proprietary high-technology techniques to China, many of those companies complied.

So a trade deal benefiting U.S. investors at the expense of U.S. workers created the rise in Chinese power, and now, we’re told, a trade deal benefiting U.S. investors at the expense of U.S. workers will help us keep Chinese power in check.

The rise of an authoritarian world power such as China, make no mistake, is a genuine problem. But so is the rise of a small U.S. investor class at the expense of most other Americans, and enacting the TPP will exacerbate the latter problem without doing much at all about the former. Not until we can create some parity between the two sides of the American equation — labor and capital — should we invoke David Ricardo and follow his nostrums for trade.


This has been reposted from The Washington Post.