The United States concluded into its first bilateral free-trade agreement, with Israel, in 1986. Since that time, it has entered into some 20 other such agreements, most notably the North American Free Trade Agreement (NAFTA) with Mexico and Canada in 1993. Yet as Congress debates fast-track Trade Promotion Authority (TPA) legislation and the pending Trans-Pacific Partnership (TPP) with Asia, the debate feels stuck in a time warp.
With many areas of public policy, time tends to soften the edges of political controversy and raise the quality of public debate. The Nixon-era Clean Air Act remains controversial, for example, but almost no one argues that surface ozone and particulates are good for you. There are big questions about proper regulations and standards, but not much disagreement than clean air is better than dirty air. Social Security and Medicare were both roundly denounced when they were introduced, but now the debate is a much narrower one on costs and benefits. Yet with trade, it seems impossible to approach a sensible middle ground. Supporters promise jobs-a-plenty and a consumer cornucopia, while opponents warn of jobless stagnation, rising inequality and eroding standards.
I have watched the trade debate for more than two decades now, and I’m still not sure I have a firm handle on exactly what has gone wrong. But I’m pretty certain that the answer involves some combination of the following.
The Sins of the Fathers: When President Bill Clinton decided to support NAFTA, which was mostly negotiated by his Republican predecessor George Bush, it was not at all clear that he could get it through a Democratic Congress. Yet failure, which would have damaged relations with our two close hemispheric allies, was unthinkable. And so he did what politicians – and he was a very good one – often do: he promised the moon. I believe that, on-balance, NAFTA has been good for the United States, and in particular has encouraged needed political and economic reforms in Mexico. But many of the administration’s promises were flat-out wrong: where Clinton had promised a growing trade surplus and declining illegal immigration from Mexico, precisely the opposite happened over the decade following the pact (though both numbers are now moving in the right direction).
The same story played out when Clinton was fighting in 2000 for the congressional votes needed to admit China to the World Trade Organization (WTO). The president of the U.S.-China Business Council, a coalition of American companies doing business with China, went so far as to predict that “[o]pening China’s markets to U.S. products and services under this agreement is the biggest single step we can take to reduce America’s growing trade deficit with China, a problem we have faced for a decade.” President Clinton, noting that China would have to dismantle a range of trade barriers while the U.S. would need to do little, called it “a hundred to nothing deal for America when it comes to the economic consequences.” As with NAFTA, those predictions were flat-out wrong – the U.S. trade deficit with China soared and, while the United States has benefited in many ways from growing trade with China – including the boom in smart phones and inexpensive solar panels -- there were indeed huge economic consequences that followed for the United States, including the loss of many manufacturing jobs.
The result of such over-promising has been that many in Congress, particularly Democrats, remain deeply skeptical of whatever the Obama administration now promises on trade. The trust gap is so large that even measures that are obviously good for the United States – like new trading rules with Japan that might finally loosen that country’s web of protectionist barriers – are still highly controversial.
Whose Preferences? Trade agreements are about the rules of doing business across borders. As such, business speaks with a very loud voice. Commentators like Joseph Stiglitz pretend to have discovered a “secret corporate takeover of trade.” Clearly, they weren’t paying close attention. I spent nearly a month in Geneva in November and December 1993 as a reporter covering the end of the Uruguay Round negotiations that created the World Trade Organization (WTO), and the corporate lobbyists owned the place. The U.S. negotiators would go talk with the European Union or the Japanese or the Canadians, share all their notes with the corporate lobbyists, and go back and do it again. There is no question this was undue influence, but it’s been the case in trade agreements for decades. Part of the problem is that the companies are the only ones that understand their own businesses in enough detail to know what provisions in trade agreements actually make a material difference, and the negotiators have no choice but to consult with them. But it also means that issues like long patent protection for drugs – which are clearly in the interests of the pharmaceutical companies but not necessarily in the interests of patients – made their way into trade agreements simply because the corporations wanted them there.
The process has actually opened up considerably since then – labor unions and the environmentalists and consumer advocates are now on the advisory groups for the U.S. Trade Representative’s Office and can see the negotiating texts just like the corporate lobbyists. But the process is still far too closed and secretive. And there’s no need for it. As part of the U.S.-European Union negotiations on a new Trans-Atlantic Trade and Investment Partnership (TTIP), for example, the European Commission has promised to publish on its website all of its negotiating positions and the actual legal language of its proposals.
It’s (Not) All About the Exports: Politicians (and 18th-century mercantilists) love exports. Every time there’s a trade agreement, administration officials are quick to trot out the claim that “every $1 billion of exports creates X American jobs.” The “X” keeps changing because of investments in technology and rising productivity. During the NAFTA debate, each $1 billion of exports was said to create 12,086 jobs; today it’s just 5,210. But the focus on exports alone makes two mistakes: first, it ignores the many benefits Americans get from lower-cost and often higher-quality imported goods; and secondly, in a world of global supply chains, it ignores the gains that U.S. companies realize from lower cost intermediate inputs, like the steel for cars, that are assembled into finished products. I applaud President Obama’s gutsy decision to go pitch the TPP deal at Nike headquarters in Oregon. Nike does not make athletic shoes in the United States (it imports them from Vietnam, China and other places in Asia), and does little exporting. But it employs 26,000 Americans. many of them in an array of well-paid design and marketing jobs, and has helped transform the humble sneaker into a lucrative consumer commodity. The economic gains for the United States are obvious – even without the exports.
Winner-Take-All Politics: If I had to pick a single reason for the degraded quality of our trade debate, it is the relentless refusal by the supporters of freer trade to acknowledge that trade creates both winners and losers. This is not at all in question among economists. The classic theories of trade conclude that trade makes all countries better off by allowing specialization that increases scale and boosts productivity. But they also acknowledge that there are winners and losers; some jobs will be lost to imports, and some wages will be cut because the work can be done more cheaply overseas. The argument in favor of freer trade, and it’s a powerful one, is that the aggregate benefits outweigh the costs. But success in a more competitive global economy requires a commitment to help the losers as well – through job retraining, income assistance, targeted subsidies and other measures that soften the blow. Most European countries do these things, and support for free trade in Europe (with the exception of France) remains higher than in the United States. In this country, the most ardent supporters of free trade are also the ones most opposed to measures that would help more Americans prosper from freer trade.
An honest debate over the TPP would acknowledge these challenges, and see the administration and Congress working together both to advance freer trade and to ensure that as many Americans as possible are the beneficiaries. Instead, both proponents and opponents are again trotting out competing half-truths, and trying to bludgeon their way to victory. I have watched this happen on every trade vote for more than two decades. I’m still hoping for something better.