Stan Sorscher Archive

In 2016, Donald Trump’s trade message was very simple: the North American Free Trade Agreement (NAFTA) was the worst trade deal ever negotiated. He has renegotiated NAFTA, rebranding the deal as the United States-Mexico-Canada Agreement (USMCA). We never quite understood his objection to the original NAFTA, and we don’t understand how USMCA fixes it. You need to squint to see the difference between NAFTA and its replacement.

“I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me,” Trump has said. His gut instinct said NAFTA was bad. Unfortunately, gut instinct is typically simplistic, often impulsive, and by definition not strategic or coherent.

We need to think of our domestic policy and trade policy together. Tariffs, like trade deals, make sense only as tools within a larger coherent strategy. Trade policy should reinforce the principles in our domestic policy. If trade policy is not working, it’s a fair bet that our underlying domestic policies aren’t either.

Since 1980, the prevailing political message has been, “Markets will solve all our problems. Government is the problem.”

The term for this is neoliberalism. “Neo” means new. In the language of economics, “liberal” means “liberated” or free from regulation. Neoliberalism “frees” markets by shrinking government, dismantling social programs, and cutting investment in education and research-and-development.

Many of our biggest problems — climate change, growing income inequality, health care, food safety, and workplace safety — are textbook market failures. Neoliberalism responds with its universal prescription — make business succeed and well-being will trickle down to the rest of us.

Earlier this year, trade experts explained to two audiences in Seattle how workers should adjust to the global economy. Workers displaced by global competition could learn computer skills and move to Boston, San Francisco, and Seattle.

One of the experts expressed disappointment at her failure in reassuring workers that our free-trade approach to globalization made us better off.

At a third meeting a few weeks later, two trade experts from Mexico said their country’s biggest problem was inequality. One, an economist, said he was “agnostic” about whether free trade made inequality in Mexico better or worse.

The level of faith regarding that question is probably stronger among the million Mexican farmers displaced from their homes by imports of U.S. corn, whose wages have gone down under globalization.

Let me take a short diversion.

A friend of mine knows that I grew up in Flint, Mich. She planned to drive through Flint, and asked me how she could catch a moment of the Flint experience. I recommended Angelo’s Coney Island at Franklin and Davison Road, which is actually in Wikipedia. Angelo retired long ago, and the current restaurant is not the Angelo’s I remember growing up.

My father’s office and a dry cleaning store were just up Davison Road, although both are gone now. Kitty-corner from Angelo’s, was Gil-Roy Hardware. That building is empty now. Across the street, the Franklin Pharmacy is also empty. A little west on Davison Road, the old Brown funeral home building is fire-damaged, and grass is growing up through the parking lot.

Zillow says my very nice childhood home sold in 2003 for $152,000. Zillow recently listed that house and others in good condition on that block at $39,000. Growing up, Flint had four big public high schools. One is enough now.

I told my friend she should see the historic General Motors factory on Hamilton and Industrial Avenue, where autoworkers staged the first sit-down strike. I sent her a picture of the site from Google Earth. The factory and Industrial Avenue are an open field, overgrown with tall grass.

SEATTLE (PAI)--We pay too much attention to GOP President Donald Trump’s tariffs. We’ve missed the point of what China is doing, and what we want.

When he was president, and before, Ronald Reagan told us that markets are good, government is bad, and we should let free markets solve all our problems. Winners will prosper, and gains will trickle down to workers and communities.

At the global level, this meant free trade policy that blurs national boundaries, and merges or integrates our economy into the global economy. This approach shifts power in favor of global corporations, while reducing policy space for governments, workers, communities, and the environment.

We pay too much attention to President Trump’s tariffs. We’ve missed the point of what China is doing, and what we want.

Ronald Reagan told us that markets are good, government is bad, and we should let free markets solve all our problems. Winners will prosper, and gains will trickle down to workers and communities.

At the global level, this meant free trade policy that blurs national boundaries, and merges or integrates our economy into the global economy. This approach shifts power in favor of global corporations, while reducing policy space for governments, workers, communities, and the environment.

China has never accepted our free-trade free-market model. Zhang Xiangchen, China’s ambassador to the WTO, made this clear a few days ago.

In the 2016 election, Hillary Clinton, Bernie Sanders, and Donald Trump all recognized that workers and communities have lost trustin the NAFTA approach to globalization. They all said we should manage globalization differently.

Over the last few months, Canada, Mexico and the U.S. have had seven meetings to renegotiate NAFTA. To understand the renegotiations, we should know what was wrong with the original NAFTA, and what we want in a new one.

I’m 100 percent in favor of trade. I don’t think I’ve ever met anyone opposed to trade. We take pride when we export software, airplanes, apples, and wheat. That’s never been the issue.

The central question is, “who gets the gains from globalization?” The purpose of an economy is to raise living standards. Trade, more than most public policies, creates winners and losers.

The winners under NAFTA have done very well — global companies and investors who can move production to low-wage countries. But when workers, communities, and the environment are squeezed into decline, we are probably going in the wrong direction.

The recent tariffs on steel and aluminum have been characterized as trade war. This is weird, because countries often enforce trade rules with targeted tariffs and sanctions, and markets adjust. What’s the real issue?

In the orthodoxy of free trade, tariffs are heresy. Any tariff suggests that the neoliberal free trade approach has failed and government intervention is required. Also, if we protect steel, then the “protectionist barbarians” all rush in and want import restrictions, too.

This begs the question, “Why have rules for globalization at all, if we won’t enforce them?”

 

“[free] trade ... can cause net losses under certain conditions. The gains from having cheaper goods and more exports could be more than offset by loss of local businesses, job retrenchments and stagnant wages.”

“We should no longer buy the statistically strained arguments about [free trade policies] delivering growth and jobs. The evidence just isn’t there, a fact not lost on those campaigning for president.”

How do you tell if the 12-country Trans-Pacific Partnership (TPP) is a good deal or a bad one?

Consider the recent climate summit agreement in Paris. Nearly 200 countries negotiated the deal, more or less in public for the world to see.

All signatory countries wanted a sustainable planet where their citizens could prosper.

The climate change deal in Paris is not air-tight. Still, it is a significant political, social and moral commitment by leaders of most countries in the world to do better.

TPP defines bad rules for globalization. It sets up skewed power relationships for dealing with climate change, inequality and many other important public policies.

Congress is responsible for managing major government policies year-by-year, as our experience and goals evolve. How does that work in the case of huge trade deals like the Trans-Pacific partnership (TPP)?

In the American political tradition, elected officials hold hearings, request studies, speak to constituents, take public comments, try experiments at the state and local level, and periodically face voters to work out what we want for Medicare, tax policy, education, defense and all other major policy areas.

With trade, not so much. TPP was negotiated in secret, under the influence of corporate advisors, and is largely set in stone for generations. Or is it?

Our negotiators insist TPP cannot be modified and must be voted, as is. Others see it as a "living" agreement once it is passed.

The recently released text establishes roughly 20 committees to manage trade in agriculture, government procurement, the Internet, food safety, financial regulation, and other topics covered in the deal. Some committees have narrow authority, but others have open-ended scope, such as the Committee on Trade in Goods which will "...undertak[e] any additional work that the Commission may assign to it."

In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn't sure what the insight was. I have my own answer.

Figure 1. Something happened in the mid-70's

The economist talked of the figure as a sort of treasure map, which would lead us to the insight. "X" marks the spot. Dig here.

This figure tells three stories. First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.

The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70's to de-couple wages from productivity gains.

The third message is that workers' wages - accounting for inflation and all the lower prices from cheap imported goods - would be double what they are now, if workers still took their share of gains in productivity.

The other day, President Obama spoke to 100 top CEOs from the Business Roundtable. He was asked about two huge new trade deals, favored by global companies, known as TPP and TTIP. The President taunted critics of our failing trade policy, telling them, "Stop fighting the last war."

That sounds patronizing. Is it true that companies trying to manufacture in America, workers, communities and environmentalists need the President to explain their interests to them, as if 25 years of lived experience with NAFTA-style trade deals haven't been sufficiently clear?

My job depends on trade. I'm 100 percent in favor of trade.

By the same token, we can have good trade policies that raise living standards, or bad trade policies that deindustrialize our economy and distort social and political power relationships.

Figure 1. What people hear, when you say "trade deal."

Two cases in point: the "Trans-Pacific Partnership" (TPP) and the "Trans-Atlantic Trade and Investment Partnership" (TTIP). Both are variations on NAFTA, a vigorously oversold agreement with Canada and Mexico.

Figure 2. Twelve Pacific Rim countries currently negotiating in the Trans-Pacific Partnership

Journalist William Greider explains the origin and intent of one particularly troubling feature of the NAFTA model. NAFTA's legal process helps global companies enforce certain provisions in the agreement. In full jargon, it is called "investor-state dispute settlement," or ISDS.

We understand how the US Constitution establishes our legal framework. The Constitution and Bill of Rights were specifically written to protect individuals from tyranny, and balance public interests with private interests. Our courts settle legal disputes by applying Constitutional principles.

NAFTA, as a legal framework, creates a parallel structure at the global level. However, NAFTA and similar deals have a very different design goal. They prioritize corporate investor rights, while pushing public interests to the side.

As the cynical catchphrase goes, under NAFTA, governments can do "whatever they want," to protect the environment, labor rights, human rights, public health, prudent financial regulation, and internet freedom (for instance), as long as they pay corporations for any lost profit -- including potential profit for activities that have not even occurred, yet!

Greider sketches the history of this question in America. In 1905, a corporate-friendly Supreme Court held that employers' rights outweighed public interest. That Court struck down laws setting a 10-hour day(!) and workplace safety rules. In the 30's, the Supreme Court reversed this interpretation, and recognized the legitimate role of government regulation in the public interest.

During the '30s, corporate interests were pushed back in a political struggle. The widespread economic suffering of that time discredited the idea of unregulated capitalism. New policies brought in a system of controls and regulations for banking and workplace safety. We introduced unemployment insurance, bank deposit insurance, and other familiar policies to prevent the huge market failures of the Great Depression.

NAFTA was negotiated in the early 90's. With NAFTA, corporate interests could draft a new global legal system on a clean sheet of paper. Battles lost in the 30's could be won quietly at the global level in the 90's.

NAFTA set up rules favoring global corporations, and shadowy trade tribunals to enforce those rules.

In practice, these tribunals can compel outcomes favorable to global corporations, in spite of decisions made through our domestic legislative process, or courts -- including the Supreme Court.

Trade tribunals are not courts. They don't have judges. Trade lawyers render decisions. They are not accountable to any political body. The proceedings are secret. Complaints are brought by corporations; all defendants are countries. Decisions reflect global investor rights, as written into NAFTA-style trade deals. Since public interest and public good are subordinated in the trade deals, people and the planet take a distant second place in decisions rendered by the trade tribunals.

In this system, foreign corporations have greater rights than domestic corporations. Of course, in the global economy, any large company can create a token presence offshore, and use that entity to seek damages in a trade tribunal. Any corporation with money and nerve can challenge a national law or court. Over 500 such ISDS cases have been filed, and the number is growing rapidly.

Greider interviewed a lead NAFTA negotiator who explained that it was his clear intention to rewrite the history of investor rights.

As for anyone troubled by the intrusions on US sovereignty, he said, "My only advice is, get over it. " ... the architects of NAFTA knew exactly what they were creating. "The parties did not stumble into this," he said. "This was a carefully crafted definition [of investor rights]."

In Greider's article, Georgetown law professor Robert Stumberg sharpens this point.

NAFTA's investor protections "are based on a long-term strategy, carefully thought out by business, with many study groups and law firms involved in developing them. This is about limiting the authority of government -- that is its central importance."

NAFTA, TPP, TTIP and other NAFTA-style deals are not "trade agreements." They are moral, social, political and economic documents -- with governing authority similar to our Constitution. One difference, of course, is that the Constitution never mentions corporations -- not even once. In contrast, these bad trade deals establish legal and social standards heavily biased in favor of investors.

In the '90s, NAFTA advocates enjoyed a presumption of trust. We trusted that public interest and moral values were an effective counterweight to global corporate power. Skeptics of NAFTA had the burden of proof.

Twenty years after NAFTA, we can look back and measure decades of glowing promises against our lived experience. Public trust is shifting. Now, negotiators for TPP and TTIP have the burden of proof.

Consider this: The web of NAFTA-style trade deals is a system, specifically designed to shift power in favor of global corporations. This is a system designed to work for the 1% and to subordinate the interests of most of the people we know. These deals are purposefully designed to determine how life will be organized in 2050.

Nobel laureate economist Joseph Stiglitz calls this trade policy "global governance without global government."

This system is doing exactly what it was designed to do.

If TPP, TTIP and other bad trade deals go into effect, they will lock in global standards for generations, with no practical process to modify, amend or repeal them.

Investor-state dispute settlement is a really good reason to oppose TPP and TTIP. We should rethink the entire premise for ISDS.

The last thing we should do is ratify TPP and TTIP, elevating ISDS to a global norm for generations.

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This has been reposted from The Huffington Post.

Many economists and policy-makers struggle to explain growing inequality and the erosion of the middle class.

Nobel laureate economist Paul Krugman has a simple explanation, “…corporations use their growing monopoly power to raise prices without passing the gains on to their employees.”

The top 1% take 93% of all new gains created in our economy.

They divide gains that way – because they can!

The NAFTA model has failed.

When NAFTA (the North American Free Trade Agreement) took effect 20 years ago, we were promised mutual gain.

To be clear, everyone I know wants good trade policies that raise living standards at home and abroad. The question is not trade versus protectionism. It's good trade policy versus bad trade policy.

NAFTA and numerous subsequent trade deals perform very well for investors and global businesses, while leaving most workers and communities at a disadvantage.

Since NAFTA, our trade deficits totaled over $8 trillion. We've lost millions of good manufacturing jobs and de-industrialized our economy.