from Renewing America

Failure to Adjust: How Americans Got Left Behind in the Global Economy

November 2, 2016

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I am delighted to announce the publication of my new book, Failure to Adjust: How Americans Got Left Behind in the Global Economy, which is the product of nearly four years of research and a quarter century spent as a reporter and policy analyst covering the ups and downs of America's trade policies. As my friend and former reporting colleague Bruce Stokes of the Pew Research Institute said recently, for those of us who have labored in the obscure details of U.S. trade negotiations for decades, it has been astonishing to see trade become one of the hot-button issues of the 2016 presidential election. It is even more astonishing to see a Republican presidential candidate running on an openly protectionist platform, and to see a Democratic internationalist like Hillary Clinton running away from her record on trade.

What went wrong? The short answer is that, while the U.S. government was busy building the rules that unleashed the hyper-competitive global economy in which we live today, it did far too little to help Americans succeed and prosper in that economy. As a result, far too many have been left behind, especially working class men. To take just one of many possible statistics, even before the Great Recession hit the typical American male in his thirties was earning significantly less than his father did a generation before.

What surprised me about the research I did for the book is that none of this should have been a surprise. The title of the book is taken from a memo written to President Richard Nixon in 1971 by Peter G. Peterson, whom Nixon had just appointed as the first director of the White House Council on International Economic Policy. (Full disclosure—Peterson went on to become the co-founder of the private equity Blackstone Group, and has been a generous donor to many policy research organizations, including the Council on Foreign Relations where I work.) In that 50-page memo, Peterson warned that rising international competition—then from Germany and Japan—was a brewing storm that the U.S. government needed to ready its citizens to weather. While he was a firm believer in the benefits of open trade to America and to the world, he told the president that the livelihoods of many Americans would be threatened. The accelerated economic competition, he wrote, "poses adjustment policy problems which simply cannot be ignored." Failure to adjust would be "paid for in abnormal unemployment and wasted opportunity." While the U.S. economy would eventually adapt, he said, the failure to help Americans adjust would "leave long periods when the transition is painful beyond endurance."

Yet ignore it was exactly what Washington did. Take just one example. In 1962, President John F. Kennedy persuaded the Congress to create the Trade Adjustment Assistance program to offer topped-up unemployment benefits, intensive re-training, and relocation assistance to workers who lost their jobs to import competition. Kennedy said that, while lowering tariffs on imports was in the national interest, "those injured by that competition should not be required to bear the full brunt of the impact." Yet in the first six years of the program, while 25 petitions were filed covering thousands of workers, the government rejected every one. It was no coincidence that organized labor, which had enthusiastically supported Kennedy's 1962 Trade Expansion Act on the grounds that it would open new markets for U.S. exports, had by the end of the decade turned hard against trade liberalization. And after decades of losses, including the fight over the North American Free Trade Agreement (NAFTA), the labor unions are now on the cusp of defeating President Obama's Trans-Pacific Partnership (TPP) trade deal with much of Asia, which would be a crippling setback for U.S. economic policy and diplomacy in the region.

I argue in the book that "the problem is not globalization itself.... The problem has been the domestic political response to globalization, which in too many ways has been deeply irresponsible. A central task of any government is to provide the tools to help people to adjust and succeed in the face of economic change, but the story of the last half century has instead been the failure by governments to ease that adjustment."

This is a story with several parts. While I think that many of the global trade rules negotiated by the United States have been good ones, enforcement has been lax and spotty. The fact that China was permitted to subsidize its steel industry to the point where it now produces more steel than every other major country combined is only one of dozens of similar cases. Where the United States has challenged China—for example in a 2006 case the U.S. brought to World Trade Organization (WTO) over discriminatory tariffs on exports of U.S.-made auto parts, the decisions have taken far too long. By the time the ruling came down in 2009, all of the major North American parts producers had built factories in China and were making parts there instead.

The U.S. helped write rules through the International Monetary Fund (IMF) to prevent countries from artificially under-valuing their currencies to gain export advantage. Yet it has happened again and again, from Japan in the 1970s and 1980s to China in the 2000s, with no effective response. U.S. corporate tax rules, as demonstrated in the recent stories about tax avoidance by companies like Apple and Starbucks, have encouraged U.S. multinationals to move both jobs and profits overseas. And policies to make the United States a more competitive business location—from infrastructure investment to apprenticeships to skills training to investment promotion—have too often been neglected.

When I began research on the book, Donald Trump was hosting The Apprentice, and Hillary Clinton was the secretary of state helping to negotiate what she called the "gold standard" TPP. I could not have anticipated that the events I was researching would come to a head this year and precipitate a collapse of the U.S. consensus in favor of trade liberalization. For the next president, rebuilding public support for a new approach to trade will be a daunting challenge.

My book explains how we got here, and offers some recommendations for how we might move forward on a set of trade and investment policies that benefits more Americans and finally takes seriously the adjustment challenges that were recognized more than 40 years ago. I hope you will have a look, and engage with me in an important conversation on the future of America's economic leadership in the world.

This post was originally published on LinkedIn.

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