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Features > May 7, 2007

Making Trade Work for Everyone (cont’d)

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Global currency exchange rates, especially the undervalued Chinese currency, also make a big difference, according to Baker and trade economist Robert Scott of the Economic Policy Institute (EPI). “We cut deals,” Scott says, “then countries devalue, and that wipes out everything.” For example, with the Chinese rembini undervalued, Chinese goods are artificially cheap, contributing to China’s huge trade surplus and the record $764 billion United States trade deficit last year.

At the same time, the overvalued dollar makes American products more expensive on the world market. If the dollar declines in value, U.S. exports should be more competitive. But because U.S. multinational corporations have moved so much of their production overseas, the United States has lost some of its ability to take advantage of a weaker dollar. Simply lowering the value of the dollar will not quickly restore America’s exports. Indeed, the dollar’s value has declined sharply for three years, but the trade deficit has continued to soar. The trade deficit could be reduced by greatly constricting the American economy, but the payback for years of trade deficits will pinch hard.

A new political direction on trade would likely lead to a “strategic pause” in pursuit of free trade agreements, which has been advocated by Jeff Faux, distinguished fellow at the EPI. During that pause, the country could evaluate the successes and failures of the past decades, then decide how to move forward, possibly renegotiating past trade agreements according to a different model for the global economy.

False advertising

The momentum for new agreements is fed by relentless projections of the financial gains from trade liberalization. But the economic gains are much smaller for the world economy than free trade apologists have argued. Moreover, the distribution of those gains is skewed. Free traders argue that the vast majority of Americans gain from free trade through lower prices, even if a few people are hit hard by job losses. But the losers from free trade are numerous, and little is done in the United States to compensate or to help any of them.

For example, rather than NAFTA being a win-win-win for Mexico, Canada and the United States, wages of workers in all three countries have stagnated since it was implemented. A study from the New School for Social Research, harshly critical of the models used to estimate trade gains, concluded that full liberalization of world trade would add so little that it “is equivalent to a rounding error in a $44 trillion world economy.” Faux argues that even these studies, by focusing on trade alone, fail to account for both the damage caused by U.S. investment and technology flowing overseas, and the erosion of workers’ bargaining power at home.

The rich, in any case, capture most of the gains from globalization. Academic studies typically conclude that trade accounts for 20 to 40 percent of the recent increase in inequality in the United States. Even the International Monetary Fund found that “labor globalization has negatively affected the share of income going to labor in the advanced economies.” EPI economist Josh Bivens calculates that the median household in the United States was $1,500 poorer in 2005 than it would have been if trade had remained at the 1979 level, even taking into account cheaper prices. Most people, not just the displaced textile or auto workers, are poorer as a result of globalization.

Broadly based and progressively financed policies like national health insurance and better public pensions would help all families hurt by globalization. But workers who lose their jobs permanently—whether from globalization or technology—deserve additional targeted help. Existing programs are narrowly conceived—excluding workers who produce services or most parts suppliers indirectly hit by plant closings. And they are even more narrowly administered: The Bush administration’s Labor Department denies trade adjustment aid to three-fourths of those workers lucky enough to be certified as eligible. What’s more, the programs are stingy and force people quickly into poorly paid jobs.

The United States needs more generous income support and extended training programs, as well as strengthened unemployment insurance, which now covers less than 40 percent of the unemployed and offers pay replacement rates among the lowest in the industrial world.

But current proposals for wage insurance, which would typically pay half the difference between a displaced worker’s old and new jobs, would push workers quickly into inferior jobs with little prospect of creating new skills and better jobs that both workers and the national economy need.

In order to make globalization work for working Americans, Faux argues for policies that make the American economy more competitive (such as promoting manufacturing and investing in research and technology development), strengthen labor unions, expand social benefits, revise NAFTA and negotiate new rules for global trade. Harvard political economy professor Dani Rodrik argues that national governments need more power to craft their own responses to global markets, and that future WTO talks should focus not on further liberalization but on giving both rich and poor nations “policy space” to respond to their citizens’ needs.

It’s possible that the champions of globalization have no interest in serving the needs of citizens. “They never intended it to be good for American workers,” says the Steelworkers’ Gerard. “They intended it to be good for Wall Street and American financiers. The rich have gotten richer, and the rest of us have taken it on the chin.”

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David Moberg, a senior editor of In These Times, has been on the staff of the magazine since it began publishing. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. Recently he has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.

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    There’s NOTHING “free” about free trade as it is currently practiced. It is nothing more than a plan to enrich already wealthy elites around the world. Sure, there are the basic economic priciples of comparative advantage and Pareto optimality, but these textbook theories do not come to fruition in reality. Free trade is nothing but a scheme that makes it easier for corporations to find cheaper labor and lax enforcement of environmental standards usually under the protection of an authoritarian regime. No modern economy got that way DUE to free trade, most had protective tariffs and other governemental intervention (like Japan, for example) during their development.

    One good thing about free trade though, is that it is actually helping to unite the Democratic Party. Many of the newly-elected “Blue Dogs” ran as ANTI-free traders joining their more progressive brethren.

    Posted by lams712 on May 7, 2007 at 9:20 AM

    lams,

    Don’t get too excited about the Democrats — they are united and have been united on free trade for decades. They are united with Republicans, Wall Street and Big Business and listen only to lobbyists and forked-tongue economists.

    “The November elections—when 37 House and Senate seats changed from “free trade” to “fair trade”—created a Democratic majority that needed to stake out a new position on trade.” is just semantics. There will be talk of tariffs (Currently China taxes our goods at 25% and we tax them at 2.5%.) hearings and a load of BS leading up to the election. We’ll hear about how CEOs are making too much. Workers are weighed down with premiums, etc. Then, like Social Security and Medicare it will be buried once again.

    “...rather than NAFTA being a win-win-win for Mexico, Canada and the United States, wages of workers in all three countries have stagnated since it was implemented.”

    I have written to congress, unions, financial publications since NAFTA was up for a vote in 1993 — nobody gives a damn.

    NAFTA was initiated by Bush the First and pushed through by Clinton.  The American Jobs Creation Act of 2004 was a PR bipartisan boondoggle, creating jobs without regard to Americans and placating European complaints about US gov. subsidies.

    The real meaning of free trade is the freeing of transnational corporations from U.S. restrictions protecting our workers — ESHA, EPA, minimum wage, and a whole load of pension and health care benefits. 401(k) plans were instituted for corporations NOT workers.

    A few in congress have tried to raise the issue but it goes nowhere — too many powerful people are many huge fortunes the way it is.

    For fair trade we would need to require foreign imports to be made under U.S. type restrictions, the insurance and pharmaceutical industries to be completely overhauled, and prevent the conflicts of interest so prevalent with corporate directors who give each other fortunes at the expense of shareholders and citizens.

    Instead we’ll continue to gamble U.S. lives with uninspected food, counterfeit drugs and other goods which took decades to assure safety. Continue to exploit cheap labor here and in their home countries. For a few dollars or even a few cents off prices we are endangering the health and safety of millions of people.

    I have yet to hear any candidate in either party seriously address these problems. I doubt if many at the top in government are even aware of just how bad is becoming.

    Posted by whattheheck on May 7, 2007 at 10:27 AM

    whattheheck:

    You are absolutely correct in your critique of the Democrats. What I was saying is that many of the newly elected “blue dogs” are now actually against free trade joining the progressives against deals like NAFTA. Of course, there are still too many Dems on the side of corporations rather than the people, including much of the Democratic leadership.
    I agree with everything you have said regarding “free” trade. In 1993 I was a college student arguing with my economics professor over whether or not NAFTA would lead to more jobs and higher wages. I wish I could tell him to his face “I TOLD YOU SO” in light of the fact that wages in all three NAFTA countries have been stagnating for 14 years now. (I still got an “A” in the econ. class even though the professor disagreed with me).

    “I have yet to hear any candidate in either party seriously address these problems. I doubt if many at the top in government are even aware of just how bad is becoming”

    I think John Edwards and Dennis Kucinich are the only ones even making free trade an issue.

    The mainstream media though, is what has really let the people down. It seems that both “liberal” and conservative outlets either portray free trade as something only positive or they don’t discuss trade issues at all.

    Posted by lams712 on May 7, 2007 at 1:09 PM

    lams,

    I never had an econ class, but forty years in business gives a pretty good idea of what is workable. When NAFTA was first proposed I suspected it was another case of our elected people swallowing what the experts said with no thinking on their part. That or worse yet, they realized it was good for their contributing base and screw the rest of us. Probably some of each.

    In the mid 1980s a client whose company was buying fasteners from Asia told me he saw them dumping plating solution out the back door into a rice paddy — think of how many people this must have effected in twenty years just to make a few cents more on a package of screws.

    I have read about a dozen books related to globalization. Perhaps the most disturbing is, “Who Will Tell the People?” by Richard Grieder. Mexicans who come here to do the dirty work at cheap wages are still better off than those who work for some U.S. corporations in their home country.

    I know many people who have been adversely affected by the offshoring — some are now luckily retired like me, but others have a long stressful time ahead. I have two sons in their forties, one has lost his job twice so far and the other had two people let go last week leaving the whole office on edge. They know the statistical work they do could go to India any time.

    I really have little hope this will change. Lou Dobbs has been reporting on the selling of the U.S. middle class for a couple of years, but I have yet to learn of any affect other than to give folks a chance to vent.

    At one time I thought when the unions started getting pinched there would be a backlash — not so.

    It looks a lot like the way the holocaust developed, just segment by segment over a long enough time that organized resistance was way too little and too late.

    Moberg calls for more training. Training to do what? We can’t all go into nursing. My neighbor’s daughter was let go after 19 years with a company and retrained to computers. After two years as a temp she was finally hired full time with benefits. Within a year the company was sold and left town, but not before she was fired again.

    I switched to computers at age 52 and managed to work to age 67 when my last client left.

    The problem is at the top with our economic policies favoring the big guys with the big bucks. Unless there is a major reversal and emphasis on safety, health and a genuine concern for all people there will be sad times ahead.

    Posted by whattheheck on May 7, 2007 at 2:34 PM

    The Chamber of Commerce is the biggest pro-Free Trade Lobbying body in Washington.  The Chamber of Commerce promotes fast track legislation which will push through at least the last pending 4 trade deals.  The Chamber of Commerce responds to multinational, national, regional, and local business interests. They are one of the largest lobbying groups, along with the NRA, in DC.  Our seemingly benign local Chambers are undermining the people, the jobs, the economy of not only USA wokers but workers worldwide.  Perhaps its time we acknowledge the power of local Chambers of Commerce and scrutinize their actions on legislation.  What does the Chamber of Commerce have to do with global trade?  Perhaps the Chamber has as much influence on Free Trade as the Democrats and the unions.  Quite honestly, what is the Chamber of Commerce’s policy on Free Trade, NAFTA, DR-NAFTA, CAFTA?

    Posted by Wethepeople on May 7, 2007 at 5:41 PM

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