Trade has been central to the 2016 presidential political debate, from Donald Trump threatening 45 percent tariffs on Chinese imports to Senator Bernie Sanders (I-Vt.) pressuring former Secretary of State Hillary Clinton to oppose President Barack Obama's Trans-Pacific Partnership deal, the pact she earlier celebrated as the "gold standard" for trade accords. (Reuters Photo/Brian Snyder)

Trump and Bernie Are Both Right: 'Free Trade' is Killing Us


APRIL 16, 2016

Trade has been central to the 2016 presidential political debate, from Donald Trump threatening 45 percent tariffs on Chinese imports to Senator Bernie Sanders (I-Vt.) pressuring former Secretary of State Hillary Clinton to oppose President Barack Obama's Trans-Pacific Partnership deal, the pact she earlier celebrated as the "gold standard" for trade accords.

It is becoming clear how ruinous US global trade and tax policies have been. Yes, Americans have benefited from the lower prices and increasing variety of imported goods. But the nation has been running unprecedented trade deficits, now at about $500 billion a year, or 3 percent of gross domestic product.

The United States lost an estimated 2.4 million jobs to China trade alone from 1990 to 2010 while running the largest trade deficits with that country in recorded history. As companies moved good jobs to countries, like China, with low wages and scant environmental or consumer protections, entire communities in the United States were savaged. Economists estimate trade with low-wage countries has lowered blue-collar workers' wages about $1,800 a year. Displaced workers lose incomes, homes, marriages, hope - and suffer through stunningly slow adjustments, often to lower-income jobs.

The benefits of trade accords have flowed largely to corporate balance sheets, to investors and to high-level executives. Workers, meanwhile, have suffered a loss of wages, security and power.

So what would a new U.S. trade policy look like? First, it would break with the current template of trade accords by abandoning the Trans-Pacific Partnership, which is pending ratification, and suspending negotiations on the Trans-Atlantic Trade and Investment Partnership, or TTIP, now underway.

The new trade policy would be based on a different set of principles. Trade should be seen as a means, not an end, as Dani Rodrik, a professor of international political economy at Harvard's John F. Kennedy School, argues. Washington should seek a trading system that would enable the United States, and other nations, to pursue their own values.

A sensible system would allow countries to protect their social arrangements, including workers' rights and environmental laws. Congress would regain authority to set clear objectives for trade accords, to decide what could be included in negotiations and to have access to the negotiations while they are underway. Fast-track trade authority, which allows the president to negotiate in secret and forces Congress to vote up or down without the ability to amend, would be repealed.

The substance of trade discussions would also change radically. Instead of detailed negotiations about enforcing drug companies' patents, for example, a new focus would be on pressing issues that affect working people. Raising and harmonizing taxation of global corporations, while shutting down tax havens and coordinating enforcement efforts, would be a centerpiece, as the Panama Papers tax-dodging scandal justifies. Pushing to place a global price on carbon emissions to counter climate change would be a first priority. Empowering countries to retaliate against currency manipulation would be central.

One initiative, suggested by Dean Baker, director of the Center for Economic Policy Research, would remove barriers that protect the inflated earnings of doctors, dentists and lawyers. If trained doctors and dentists from abroad were allowed to practice in the United States, he estimates savings of about $90 billion a year, or roughly $300 a person annually.

International negotiations might also create a global fund to pay for public, direct financing of medical research, with the results staying in the public domain. In the United States, Baker estimates, lower drug costs would likely save $360 billion a year, or 2 percent of GDP, about $1,100 a person a year. That is a far higher benefit than even advocates say would be produced from the TPP deal.

A thoughtful and comprehensive alternative trade policy has been put forth by the Congressional Progressive Caucus, the largest caucus in the House of Representatives with more than 70 members. The plan calls for a goal of more - but balanced - trade. The president could announce that the United States plans to move to roughly balanced trade by the end of five years. That would put countries with a trade surplus on notice that they must increase domestic demand and decrease reliance on export-led growth. It would also put global corporations on notice that if they want access to US markets, they had better invest in the United States.

The call for more balanced trade was embraced by the world's 20 leading economies (the G-20) after the financial collapse in 2009. But the consensus didn't survive efforts by Germany and China to export their way out of the crisis.

Balanced trade could be produced, as Warren Buffet once proposed, with a system of trade vouchers that would give companies the right to import a stated amount of goods, with that amount adjusted to get closer and closer to projected export totals each year. Or each major county that Washington trades with could be given a limit on the deficits the United States will abide. That would put pressure on these trading partners to increase imports, reduce exports or pay fines that can serve as de facto tariffs.

Second, the proposed plan details steps to enforce labor rights, human rights, and consumer and environmental protections. It would also protect countries' right to promulgate higher standards, if desired. It would require that trade accords secure affordable access to essential medicines, which would curb drug companies' efforts to extend patent protections.

Third, the progressive plan mandates that trade accords respect "nationhood rights." To do this, it would repeal the Investor State Dispute Settlement system, which would force global investors to rely on national legal systems. If global corporations are concerned about corrupt local systems, they can self-insure or invest elsewhere. It would also expand and defend "Buy America" government procurement policies. Taxpayers should be able to demand that their taxes go to support jobs in America - not jobs across the world.

Fourth, the plan would work to accomplish in fact what free traders argue for in theory: That the winners from global trade compensate the losers. Displaced American workers would gain assistance under an expanded Trade Adjustment Assistance Act; they would receive extended unemployment benefits and wage insurance if they were forced to take lower-paying jobs. New initiatives would provide targeted assistance to communities hit by plant closings. In Denmark and Germany, where workers earn higher wages than in the United States, far more resources are devoted to sophisticated training and placement programs to ensure that workers are not victimized by the trading system.

More balanced trade would also benefit from a clear industrial strategy, one focused on capturing the lead in inventing, building and marketing the essential products of the green industrial revolution, which has already begun to sweep the world.

Proponents of Washington's current system paint the choice as one between free trade and protectionism. But current trade accords aren't creating free trade; they are enforcing selective protection for special interests. Ruinous US deficits aren't an inevitable result of globalization, but the intended result of corporate trade and tax policies.

Sanders and Trump have helped expose the folly of America's current course. Our trading policies are classic examples of rules rigged to benefit the few. Economists increasingly accept that they contribute directly to our increasingly extreme inequality, as workers lose ground and CEOs clean up. The Congressional Progressive Caucus proposal shows that sensible alternatives are possible.

America's current plight is a question of politics and power, not fate.