Putting Things in Perspective: Bernie Sanders, Trade, and Poor Countries’ Access to U.S. Markets
Research and Policy Director, Economic Policy Institute
On Wednesday, Zack Beauchamp updated a piece he had written a while back that claimed Bernie Sanders’ trade agenda could prove ruinous to the world’s poorest people. I think Beauchamp really overstates this, for a couple of reasons.
First, only an expansive reading of some of Sanders’ rhetorical excesses would lead one to think he would pursue policies that radically restricted the access to U.S. markets currently enjoyed by our poorer trading partners’ exports. It is not an uncommon reaction to criticisms of today’s global trade regime to assume that this market access would clearly be significantly reduced if this status quo were overturned, but that’s far from obvious.
Second, the evidence marshalled on behalf of trade liberalization’s positive benefits for development is entirely about the benefits of unilateral, domestic liberalization. That is, the benefits a country gains from cutting its own tariffs, and not about the ease of access that they have to the U.S. market. This evidence is completely silent on the benefits of access to the U.S. market. Economic theory teaches that the benefits of unilateral liberalization completely dwarf those of market access, and there is not much evidence to suggest that this theory is wrong.
So, first: Does Sanders really think the United States should not “be trading very much at all with countries where wages are lower than its own,” as Beauchamp says? That seems unlikely. The quote from Sanders that leads to this claim is:
“You have to have standards,” the senator said. “And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States.”
This is, to be fair to Beauchamp, not the most coherent statement by Sanders. But it’s clear what he means in the context of historical debates over globalization. A common call from the labor-left is that the global trade system should require countries receiving the most liberal market access to adhere to basic minimal labor (not wage, I’m guessing Sanders misspoke here) and environmental standards. These standards usually are process standards—adherence to the International Labour Organization’s core labor standards, which call for workers’ rights to associate and bargain collectively as well as their right to be free from forced labor, child labor, and discrimination. Labor standards very rarely refer to globally binding common minimum wages or compensation standards. The logic of calling for process standards rather than outcome standards is that wage differences between countries can be a valid and just basis for trade, but only if they reflect differences in productivity between countries and not the suppression of labor rights.
The other evidence Beauchamp cites for Sanders’ alleged desire to wall off the United States from low-wage imports is promises on his website to “reverse” trade agreements like the North American Free Trade Agreement (NAFTA) and the Central American Free Trade Agreement (CAFTA) and Permanent Normal Trading Relations (PNTR) with China. Beauchamp characterizes this as Sanders threatening to “reverse decades of trade liberalization.”
But we should be clear that the trade liberalization undertaken even since 1980 (before NAFTA) is marginal compared to what came before. And you don’t have to believe me on this on this claim. A study in a book published by the Peterson Institute for international Economics claimed to find utterly enormous benefits from trade liberalization over the past 60 years. The benefits were huge—$9,000 per American household—and frankly pretty implausible. But the benefits identified in the post-1982 period constituted just 0.1 percent of the total benefits. So, even according to this extremely pro-liberalization study, Sanders could erase decades (34 years’ worth, precisely) of “trade liberalization” (the period that saw the creation of the WTO, NAFTA, CAFTA, the Korea-U.S. free trade agreement, PNRT with China and China’s entry into the WTO and many others) and yet leave 99.9 percent of the increase in U.S. market access granted to other countries’ exports since World War II untouched. It is hard to see this as cataclysmic for the (admirable!) cause of maximizing this access.
And for the general cause of maximizing U.S. market access for poorer countries, it’s likely even a lot better than this. The key here is that the distinction between “trade liberalization” and “access to the U.S. market” needs a lot more attention. Would “rolling back trade agreements” automatically reduce access to the U.S. market for poorer countries? Not necessarily. Agreements like NAFTA are not just exercises in providing costless access to U.S. markets.
For example, recent trade agreements have universally required that U.S. trading partners adopt intellectual property standards that benefit U.S. pharmaceutical, software, and entertainment companies. These provisions impose real costs on foreign (often poor) consumers by raising the prices they pay for drugs, computers, and entertainment. They also, by definition, constitute a heavy price for the greater access to the U.S. market obtained in these trade agreements. One could easily imagine a world where this market access was granted at a lower price than is provided today. For example, making more liberal U.S. market access contingent on meeting minimal labor and environmental standards—instead of being contingent on these poorer countries spending scarce domestic resources becoming bill collectors for drug, software, and movie companies—would be a huge win for poorer countries’ ability to export to the United States. And this latter (lower) price for market access would make trade agreements fairer to workers in all countries, and is arguably consistent with Sanders’ view of trade.
Second, regardless of what Sanders really wants to do, doesn’t the economic evidence show that the current rules governing globalization have provided such huge benefits in global poverty reduction that it would be foolhardy to tinker with them at all? Not really.
It is true that rapid development in emerging economies in recent decades has pulled billions out of poverty. This is obviously a great thing. It is also true that many of these gains have occurred in countries that have liberalized their economies, including their foreign trade regimes. Beauchamp highlights a figure from a 2008 paper showing that growth rates jump following an episode of liberalization. The size of the causal effect of trade liberalization on economic growth is a hugely contested issue in empirical economics, but we’ll take this study as given for now. The important thing to note about it, however, is that its results only measure the growth effect of unilateral, domestic liberalization. That is, they measure when (say) China decides to reduce its own tariffs, not when the tariffs of its trading partners are reduced. So, the growth acceleration documented in this data is driven entirely by countries own decisions, and not by market access granted by trading partners. This is, by the way, entirely consistent with economic theory—in mainstream trade theory the benefits of “free trade” are dominated by the benefits of importing cheaper goods, and the benefits of expanded exports are very minor. And the ability to import cheaper goods is entirely at the discretion of our trading partners and not contingent on any decisions we make about market access.
Am I so convinced by this theory that says U.S. market access is nearly irrelevant to a country’s growth prospects that I would never worry about the effects of severely restricting it? No, I think there’s interesting speculative evidence that other countries’ ability to sell in the U.S. market can spur favorable growth outcomes. But this evidence is speculative, and we have granted market access to many countries (Mexico, say) that have not seen a jump in growth subsequently, so it is not a general phenomenon.
In the end, I just don’t think that Sanders (or anybody else in the Presidential race, except maybe Trump) is seriously talking about moving to a trade regime that unconditionally chokes off market access to the world’s poorer countries. And I’m much less worried about talk of fundamentally changing today’s globalization rules of the game—I don’t assume that any such change would automatically mean raising the price to developing countries of access to the U.S. market. Yes, this status quo does provide access to U.S. markets, but at the price of indulging the government-granted monopoly power of U.S. firms in key industries. Surely we can do better than this, both by American workers and by the world’s poorest.
Maybe I’m wrong and Sanders really is envisioning prohibitive tariffs across-the-board always and everywhere. But except for some awkward phrasings here and there there’s no real reason to think so. Reversing recent decades’ trade agreements would actually do very little mechanically to restrict U.S. market access, and, this access is often hugely oversold in the role it has played in development successes.
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This has been reposted from the Economic Policy Institute.
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Photo by Gage Skidmore on Flickr.
