Free Trade at Risk in This Year's U.S. Campaign

Free Trade at Risk in This Year's U.S. Campaign

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A video posted on YouTube last month captured everything that working-class Americans fear about global trade. In the footage from a cellphone camera, an executive from Carrier, a division of United Technologies, addresses agitated employees at the company's Indiana plant, which employs 1,400 people making furnaces and other heating equipment.

"It became clear," the executive says, "that the best way to stay competitive and protect the business for long term is to move production from our facility in Indianapolis to Monterrey, Mexico." He is heard insisting that the move is simply a "business decision" necessary "to serve the extremely price-sensitive marketplace," but then is drowned out by the jeers.

The video, which has received nearly 4 million views, has become a symbol for the debate over trade in the U.S. presidential race. Republican front-runner Donald Trump was the first to highlight it, promising he would slap import tariffs on Mexican-made furnaces if the company goes ahead with its plan. "I'm going to tell the head of Carrier: 'I hope you enjoy your stay in Mexico, folks," he warned. "But every single unit that you make and send across our border, you're going to pay a 35% tax."

Trump has also threatened to impose 45% tariffs on all Chinese imports, threats that if carried out would blatantly violate the rules of the World Trade Organization (WTO). But fealty to WTO rules is not top of mind for America's presidential candidates this year.  Instead, trade has become a focus of anger for many voters who feel they are being left behind in the hyper-competitive global economy and want the candidates to figure out who to blame.

The 2016 campaign is increasingly looking like it will produce a radical change in the direction of U.S.-trade policy, one that could harm America's trading partners and weaken the global trading system that was built under U.S. leadership over the last half century.

For the first time in the post-World War II era, none of the leading presidential candidates is campaigning as a friend of free trade.  Both top Republicans - Trump and Senator Ted Cruz of Texas - and both leading Democrats - former Secretary of State Hillary Clinton and Senator Bernie Sanders of Vermont - have sharply criticized past U.S. trade deals, and oppose the not-yet-ratified Trans-Pacific Partnership (TPP) agreement.

In the event of a Trump versus Clinton election, which appears increasingly likely, the key voters will be in so-called Rust Belt states like Michigan, Pennsylvania, Ohio and Wisconsin, where trade competition has hurt many manufacturing industries.

Americans have been divided over trade for a long time, reflecting the reality that there are winners and losers. While California's Silicon Valley has prospered, for example, the steel and textile industries in the Midwest and South have not. And while U.S.-owned giants like Apple, Facebook and Boeing dominate the ranks of the world's most successful companies, wages for most Americans have been stagnant for decades.

Those anxieties have featured in campaigns before. In the 1992 election won by Bill Clinton, businessman Ross Perot ran a strong independent campaign largely in opposition to the pending North American Free Trade Agreement (NAFTA) with Mexico. In the 2008 campaign, Barack Obama was highly critical of NAFTA and of pending trade deals with Korea and others. Both times, the new presidents came around to support the traditional trade liberalization agenda. This time, Hillary Clinton would seem to have the easiest path to doing something similar.

But she is facing opponents peddling drastic responses. Trump has gone after three of the four largest U.S. largest trading partners - China and Japan over currency manipulation, and Mexico over its low wages. Sanders blames U.S. corporations for offshoring jobs, and has promised to re-write tax rules to make it prohibitively expensive for U.S. companies to invest overseas.

The debate is more about history than about the path forward. Trump's currency complaints, for example, sound dated at a time when China has been trying to bolster the yuan to slow capital flight. Japan's easy monetary policy has contributed to a weaker yen, but it looks an awful lot like U.S. monetary policy after the Great Recession. Mexico does have a lower wage advantage, but unlike U.S trade with China and Japan, U.S. imports from Mexico are roughly balanced by its exports. And Sanders complaints about offshoring come as the U.S. has regained its perch as the largest host of foreign direct investment in the world.

There are legitimate questions about fairness in the global trading system, but many of the problems angering voters are not caused by the cheating of other nations, but rather by the failures of their own government.

The U.S. has one of the weakest social safety nets in the developed world. Apprenticeship programs have dried up over the past decade. The U.S. invests just 0.1% of GDP in re-training workers who lose their jobs, less than one-sixth of the average in other wealthy countries. Americans who lose their jobs - to trade, to technology, or to changing consumer tastes - are mostly left to sink or swim on their own.

In Denmark, when a factory is shut the employees are guaranteed support at up to 90% of their previous wage while receiving new education and training to help them find good new jobs as quickly as possible.

But when the Carrier factory closes its doors next year, the employees know that no one will be riding to their rescue. It is not surprising that they - and much of the country with them - are angry. If only the candidates could tell them the truth about who is to blame.

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