Edward Alden, CFR's Bernard L. Schwartz senior fellow and director of the Renewing America publication series, discusses how the past four decades of U.S. trade and economic policy left many Americans behind in the global economy, and what the next administration might do to address this trend, as part of CFR's Academic Conference Call series.
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IRINA FASKIANOS: Good afternoon from New York, and welcome to the CFR Academic Conference Call Series. I’m Irina Faskianos, vice president for the national program and outreach here at CFR. Today’s call is on the record and the audio and transcript will be on our website at CFR.org if you would like to share it with your colleagues or classmates.
We’re delighted to have Edward Alden with us to talk about U.S. trade policy. Mr. Alden is the Bernard Schwartz senior fellow at CFR, specializing in U.S. economic competitiveness. He is also the director of CFR’s Renewing America publication series, and is a contributor to CFR’s Renewing America blog. He is the author or the new book, “Failure to Adjust: How Americans got Left Behind in the Global Economy,” and served as a project co-director of the 2011 CFR-sponsored Independent Task Force on U.S. Trade and Investment Policy. Prior to coming to CFR, Mr. Alden was the Washington bureau chief for The Financial Times. And you can you follow him on Twitter at @EdwardAlden.
Ted, thanks very much for being with us today. We appreciate it. I thought we could begin, in light of the book that you just published, to talk about why has the political consensus in support of trade liberalization collapsed in the United States?
ALDEN: Thank you, Irina. And it’s great to be here with all of you.
When I started working on this book some years ago, I certainly could not have anticipated what happened last month. But I think in retrospect, I was writing a book about why Donald Trump would win the 2016 election and would win it in the Rust Belt states. And the people who would put him over the top were precisely those who felt like they had been left behind in the global economy. So let me just do a kind of quick introduction to this, and then I’m going to be delighted to take questions.
So, you know, I think a lot of you have learned in either your introductory political science classes or introductory economics classes about the theory of free trade and why it’s good for all countries and why it’s good for most people. And I think a lot of that is very true. And it used to be that American political leaders very firmly believed that as well. Let me just throw out a couple of factoids. So Congress in 1962, at the request of President John F. Kennedy passed the Trade Expansion Act, which led to what were called the Kennedy round negotiations of the GATT, the biggest trade deal of its kind ever done up to the time.
The most powerful supporters of Kennedy in wanting to see greater trade liberalization were the labor unions. George Meany, the president of the AFL-CIO, said that foreign trade policy should be a liberal one, aimed at more trade, not less, on the grounds that more trade means more prosperity and more jobs. Liberal trade Meany argued, quote, “would contribute to the growth of employment and the improvement of living standards at home and abroad.” So labor unions in 1962 very clearly thought free trade was going to be a great thing for the United States and for their members.
A second factoid. If you look at the congressional vote on the Tokyo round of the GATT agreement—that was the round of international trade negotiations that followed the Kennedy round—when it was put before the Congress in 1979, the U.S. Senate voted 90 to 4—nine-zero to four—in favor of that trade agreement. And the House voted 395 to 7 in favor of that trade agreement. So Americans used to really love trade, right up through the level of their union and political leaders, not to mention business leaders who have long been enthusiastic about it.
Since 1979, what we have seen is a rather precipitous decline in congressional support for trade. So if you look at the North American Free Trade Agreement—the worst trade agreement ever signed, according to our President-elect Donald Trump—when that went before the Congress in 1993, the vote was far closer. So even though President Bill Clinton, a Democrat, was supporting it, a majority of his own party voted against the NAFTA. The vote ended up being 61-38 in the Senate and a rather narrow 234 to 200 in the House.
By the time you get to the 2000s, President Bush had to—the Congress had to hold the vote open on his request for fast-track trade negotiation—they held the vote open for an hour in order to persuade the last couple of Republicans to support it in his agreement with Central America. The Central American Free Trade Agreement, known as CAFTA, passed by a single vote after—and I watched all this in the Congress at the time—some of the most aggressive arm-twisting by the Congressional Republican leadership that I had ever seen.
So this breakdown has been a long time coming. And I’ll just give you kind of three quick reasons why, and then we—and then we can open it up for a discussion. The first reason is just growing competition in the manufacturing sector. You know, if you go back to the 1960s, when George Meany and the labor unions thought trade was a great thing, 25 percent of American workers were in the manufacturing sector, a lot of them at rather well-paid, union jobs. And since that time, we have seen the growth of competition from everywhere in the world.
It started, of course, with the recovery of Germany and Japan after the Second World War, went onto the newly industrializing countries of Asia—the Taiwans and the Koreas and the Singapores and the so-called tigers. And then, of course, you know, over the last 15, 20 years, we’ve seen the rise of China. Employment in U.S. manufacturing has dropped from, as I say, 25 percent in the early 60s to about 8 percent today. And, you know, a lot of that can be explained by automation and technology. But the reality on the ground for a lot of people was that these were good paying, secure jobs for people with modest levels of education. So their disappearance has had a real impact. So growing competition in manufacturing, reason number one for the breakdown.
Reason number two, growing U.S. trade with developing countries. So if we look at the debates in Congress, agreements between the United States and lower-wage nations—be they Mexico for the NAFTA or the Central American countries, or Colombia—have always been the most controversial because of fears that lower wages and weaker regulatory standards in these countries would provide an irresistible magnet for investment by U.S. multinational companies. You know, Donald Trump didn’t discover this. Ross Perot ran a powerful third-party candidacy of 1992 talking about the great giant sucking sound of U.S. jobs going to Mexico as a result of NAFTA.
We can talk about the truth of these fears. I think some of the concerns about NAFTA are definitely overstated. But what we can say with confidence is that these agreements are not popular in the United States. I mean, the U.S.-Canada Free Trade Agreement of the late 1980s passed the Congress with scarcely a peep. It was very controversial with Canada, but I was a no-brainer here. To take another example, the U.S. Free Trade Agreement with Australia, which was enacted in 2005, passed by 314 by 109 votes. But as I said, the CAFTA got through by one vote and the NAFTA vote was very narrow. So these agreements with lower wage countries are particularly controversial.
And then the final reason, I think, for the—for the breakdown in support, and this is a big focus of my book—is the failure of adjustment assistance and other social safety net programs. I mean, to a greater extent than almost any other country—any other advanced country in the world, Americans who lose their jobs are very much on their own. You know, if you look at the Trade Adjustment Assistance Program, it was created in 1962, part of that same Kennedy Expansion Act. And Kennedy was quite articulate on the subject. He said, look, you know, we can’t pursue a policy of free trade, which we believe to be in the broad interests of the nation, but then expect a small portion of the population—those who will lose jobs to import competition—to pay the whole price.
And so he argued for generous government support, not just for the individuals but for affected communities where, you know, factories might disappear and dry up the primary source of employment in that community. But the program was basically stillborn. In the first six years after it was created, there were 25 petitions to the federal government for assistance, thousands of workers who were looking for help from Washington. Every single one got rejected by the federal government. The criteria were so narrow. They said, well, you haven’t proved that you actually lost your job as the result of a concession that the United States made in the trade agreement.
I have another example about a big Magnavox Television components factory in Tennessee, where it went out of business in the 1970s because of competition from lower-cost Japanese imports. Then the workers went to the federal government and said, look, we need help, we lost our jobs to trade. The federal government said, well, no, actually, the way the law is written you have to show that you lost your job as the result of an import of a like product. And we’ve seen this huge increase in television sets from Japan, but you’re making components. So even though the components from the Magnavox factory were going into U.S. televisions and U.S. television producers were going out of business because of Japanese competition, those workers at the Magnavox plant didn’t qualify. And there are a lot of examples like that.
If you look in the United States—if you compare it to all the other rich countries in the OECD, we spend less on helping our workers adjust than any other economy in the OECD, the 34 wealthy countries—any other economy except for Mexico and Chile. So that’s not very good company. If you look at Denmark or Germany, countries like that, they spend, you know, five, 10, 20 times as much as the United States does helping workers who lose their jobs for a variety of reasons, not just import competition.
So I think you put all those together, and what you have had is declining public support and declining congressional support for trade. Even as, you know, you look at public opinion surveys, people understand the good things that trade begins to the United States, the public is still fairly divided. But all of this came together in the kind of perfect storm this year that saw Trump win Wisconsin, and Michigan, and Ohio, and Pennsylvania, and North Carolina, and be on his way to becoming our next president.
So I will stop there, Irina. And I’d be delighted to take questions.
FASKIANOS: Ted, thank you very much. Let’s open up to the group for questions, please.
OPERATOR: At this time we will open the floor for questions.
(Gives queuing instructions.)
And our first question comes from the University of Oregon.
Q: Hello, Ted. Philip Romero here. Great to hear your voice. And I’m always breath-taken by the range of your expertise. I presided over a session where you talked about immigration about 10 years ago, and now you’re onto something completely different.
My questions is really about the theme of your book, which I’ve ordered but haven’t read yet. Those who tend to defend free trade pacts will point out that there’s been a very low caseload of Trade Adjustment Assistance cases. And I infer that you would argue that’s not an accident, that quite often the procedures are so cumbersome or the rules are so restrictive that very few people can qualify. But can you just talk a little bit more about whether the limited number of Trade Adjustment Assistance—limited amount of Trade Adjustment Assistance really implicates the effectiveness of free trade and the cost of free trade at all?
ALDEN: Yeah. Thanks. So I think that’s a very good question. And, by the way, I was just watching the—a movie about Steve Prefontaine over the weekend, so that’s about the University—he was my older brother’s running hero, so a great start.
Q: (Laughs.) What do you know? It’s the mutual admiration society here.
ALDEN: Yeah, yeah. (Laughs.)
So, on Trade Adjustment Assistance, I think the truth is it’s just the wrong model, and it’s always been the wrong model. In fact, President Nixon proposed a much broader program back in the early 1970s. Barack Obama has proposed a much broader program. The truth is, it’s often very difficult to know why individuals lose their jobs. You know, if you try to look at the big loss of manufacturing jobs in the 2000s in the face of Chinese import competition—and there was a big loss. We went from about 17 million U.S. manufacturing jobs to about 11 million.
The best estimates come from the, you know, work of David Autor at MIT and Gordon Hanson at UC San Diego and others, are that, you know, maybe 20 percent of those job losses were trade related. The others were automation/technology related in one way or another. But, you know, to the worker who loses his job, it doesn’t really matter a whole lot. And in some ways, I see them as sort of, you know, flipsides of the coin, right? You know, you may in the face of import competition—a company may have no choice but to go out of business. But if it wants to stay in business, it’s going to have to automate and become more efficient and cut its payroll so it can produce goods at a lower cost to compete with the lower cost imports.
So trying to determine whether that job was loss of trade or loss of technology is kind of a fool’s game. And one of the reasons that TAA numbers are so low is it’s very hard to prove that to the satisfaction of the government. And I think what we really need in this country are broader retraining programs that are available to people, regardless of the reason for the job loss. We need increasingly lifelong education, because a lot of the good jobs for people with modest education levels have disappeared. And so, you know, we’re living in a world in which you constantly need to be retraining and upskilling.
You know, my colleague Bob Litan has talked about things like wage insurance to help people who must take lower-wage jobs or, you know, low-cost funds to allow people to go back to school. So there are a lot of options for this that have never been implemented. You know, the Europeans have their own whole set of economic troubles, but they do a heck of a lot better on these issues of helping displaced workers than we do.
Q: Just a quick clarifying question. And I gather those kinds of government-subsidized insurance retraining programs should be pretty much unconditional—you lose a job, you become eligible for them. You don’t have to prove any particular eligibility. Is that about right?
ALDEN: That would be my argument. That would be my argument, yeah.
ALDEN: And, you know, if you look at implementation, just quickly, I think a lot of this should be done much more at state and local levels, and in conjunction with the private sector because, you know, they know where the demand is going to be. We’ve gotten into this very weird situation in this country where you have a lot of people who’ve lost jobs, who are looking for work. Even with the low headline unemployment rate, labor participation is way down. And yet you have companies saying they can’t find the skilled workers they need. So there’s a big mismatch. There’s a—it seems to me there’s a lot of low-hanging fruit there in terms of matching up kind of federal funds with, you know, state, local, and corporate initiatives to try to identify, you know, these are the folks we need, these are the skills we need. And I argue for that in my book.
Q: Great. Thank you.
FASKIANOS: Thank you, next question.
OPERATOR: Our next—
FASKIANOS: Go ahead.
OPERATOR: Our next question comes from Babson College.
Q: Hi. This is Celia (sp) from Babson College.
You mentioned that when—well, going back, watching the debates Trump absolutely blasted NAFTA. And you mentioned that a lot of the times it’s stated that Mexico received a lot of American jobs as a result of NAFTA. And you said that the problems with NAFTA might be overstated. I was wondering if you could elaborate on that.
ALDEN: Yeah, I’d be happy to. And great to hear from Babson. You know, the last caller mentioned my immigration work. I have a good friend, Lachminar Yanagante (ph), who is a graduate of Babson College, and ran afoul of a whole bunch of post-9/11 immigration restrictions. So he’s a proud Babson graduate.
So the problem I have with Trump’s arguments about NAFTA is that, you know, I think if you look—we are in a world of global supply chains. More and more companies are doing business globally. They’re breaking up the production of products across different nations. I mean, the classic example in North America is the auto industry, in which, you know, a vehicle assembled in Michigan, you know, might have a steering column from Canada, might have, you know, electronics that come from France, it might have, you know, wheel assemblies from Mexico. It’s got parts from all over the world. Now, this is just the way modern trade operates.
And so the question—the question I have is, given that, what are the ways to structure trade to bring maximum advantages to the United States? And I really think that the focus there should be investment and employment in the United States. And I think governments have often not kept an eye on that. So I am worried about offshoring. I am worried about outsourcing. I think we should be fighting to keep investment in the United States. But when you’re talking about NAFTA, very often, you know, you see businesses in Mexico that are using very high percentages of American content. You know, the average American content in a manufacturing import from Mexico is almost 40 percent.
So, you know, the final assembly may be going on in Mexico, often in that border region in the—in the Macheador (ph) plant. But there’s a lot of U.S. input that is going into those products. And so a lot of jobs are being created in the United States because of the Mexican production. So if you’re in a world where we’re trying to complete with China—and China’s use of American components is far lower, in the neighborhood of sort of 6, 7 percent. So an import from China is kind of more directly displacing investment and employment in the United States than an import from Mexico. And if you’re trying to complete in a global economy, I think there are some natural advantages to having kind of a low-wage neighbor where some of the labor-intensive assembly work can be done, and some of the higher value-added work gets done in the United States or Canada.
So I think NAFTA’s awfully wrongly targeted. You know, I’m much more worried about what’s happened since China joined the WTO than I am about NAFTA. So I think sometimes it has been the wrong target. And that’s not even discussing, you know, the various political and diplomatic benefits of NAFTA, which I think were good for U.S.-Mexico relations, I think they were good for political stability in Mexico. My colleague Shannon O’Neil knows all this stuff far better than I do, and wrote an excellent book about it a few years ago. But I think there’s that whole set of issues as well. So thank you for the question.
FASKIANOS: Thank you. Next question.
OPERATOR: Our next question comes from the University of Southern Mississippi.
Q: Hi. Thank you for talking with us today.
Besides manufacturing, are there any new specific foreign industries that the United States should be aware of competitively?
ALDEN: There is—you know, the fastest-growing component of international trade are the services industries of various source. And it’s a huge grab-bag category, sort of it’s hard to get your head around for that reason. So, you know, a lot of internet companies are services of one sort or another, providing internet services. Telecommunications is both hardware and services. You know, architectural design, banking and financial services. These are the fastest—I mean, they’re still a small portion of total global trade. I mean, you know, something like 80 percent of global trade is still in manufactured goods. But the services component is growing very rapidly.
And by and large, that’s a very good news story for the United States. We run a big deficit in manufactured goods, but we run a significant and growing surplus in these services exports. So it really would be an area that is rightly considered a comparative advantage for the United States. One of the reasons that I was—I guess I have to put this in past tense now—a supporter of the Trans-Pacific Partnership agreement, which Donald Trump has said he will pull the United States out of—there were excellent provisions in there on services trade, which would have helped these advantages.
There were provisions on the free movement of digital information. You know, a chapter on digital trade which is tremendously good for U.S. companies—you know, not just Facebook and Google, but, you know, IBM, eBay, a lot of other companies. You know, we have world leaders in that sector. And the TPP rules would have really helped those companies and, I think as a result, created a lot jobs in the United States. There are international negotiations going on right now called the Trade in Services Agreement, the TiSA, which would also—negotiations are still underway—but would also help liberalize trade in services.
So I think for the United States that’s really the most promising area of the future. If you’re really interested in it, I would look at the work of Brad Jensen of Georgetown University’s McDonough School and the Peterson Institute. He’s done the most sort of sophisticated research on the service industry and future prospects. And you know, often when you think of services—I say it’s this grab-bag category—you know, we think of low-wage retail work or hotels or whatever. But a lot of the tradeable portions are business services, which actually create a lot of good-paying jobs. So I think that’s increasingly going to be the future for the United States in trade. But, you know, if we pull out of TPP, then we’ve just tied one hand behind our back.
Q: Thank you.
FASKIANOS: Thank you. Next question.
OPERATOR: Our next question comes from Daniel Morgan Academy.
Q: Hi. This is Patrick (sp) at Daniel Morgan Academy.
I just had a question about the Transatlantic Trade Partnership, and some of the details that you alluded to in one of your CFR articles that I read earlier. It talks about the EU being the largest trade partner with the United States, with doing over 1 trillion dollars annually in trade with the United States. One of the major concerns with the EU becoming—accepting the rules and regulations, and something the United States would not budge on, as you outlined, was the food standards of the United States.
As it is now, a large market of U.S. food market is really affected by GMOs and genetically modified—you know, genetically modified as well as additives. Is there a huge lobbying group from the food industry in Congress trying to block this legislation? Is that really where this comes at a head? Because it would seem, just from seeing the EU’s food standards, that they have far better quality foods that are less genetically modified and less over-engineered. And it still seems to work. Like, as far as their economy is concerned, and distribution chains. You know, is it Congress being held up by these food industries themselves, preventing us from kind of finding common ground to open up this trade agreement?
ALDEN: Yeah, thank you. That’s a—it’s a good question. Just, you know, to be clear on the timing, this is not—there’s no agreement yet. These are negotiations that have been underway between the United States and Europe for, you know, kind of two and a half years now. So there’s nothing before the Congress. The issue you raise is one of the issues that has made it very difficult to move forward.
The European public is very suspicious of a variety of things in the way the United States produces its food. GMOs is one. There’s much more resistance in Europe to the use of genetically modified seeds in agriculture, whereas the use is widespread in the United States. You know, another example that gets cited is chlorinated chicken. You know, the chicken that we buy from the supermarkets is washed in a very, very light chlorine bath to try to eliminate, you know, parasites and other infectious—they don’t do that in Europe. And they think that’s kind of disgusting.
And so there’s a—you know, there’s fairly strong European public lobby to resist any effort to move towards harmonization with U.S. standards. And then conversely, as you say, in the United States, there’s a pretty strong lobby from the agricultural industry and, you know, the food, chemical industry—the Pfizers of the world—excuse me—not Pfizer—Monsantos of the world, and others to try to push the Europeans to accept food made to our standards.
We don’t know yet how this is going to come out. What has happened in trade agreements over the years is the early versions, pretty much all you were doing was lowing tariffs, which are the taxes charged on import. And those were relatively easy. You know, we’ll lower our tariff on footwear if you lower your tariff on aircraft, or whatever. More and more these agreements now are trying to get into these more subtle barriers to commerce, a lot of which have to do with regulatory standards.
And I think there are places where you see regulatory standards used very clearly as a barrier to trade. China is a classic example. China imposes lots of regulations intended to benefit its companies and hurt foreign companies. But there are other areas where regulatory differences really, I think, have to be respected and accepted. You know, publics want different things in different areas. And I think that is a legitimate sort of difference.
So U.S. and Europe are trying to negotiate this out. At the moment, I am not very optimistic that they’re going to reach an agreement. You know, there are differences on that and other issues. And with the United Kingdom how pulling out—or saying it’s going to pull out of the European Union, that is just going to consume very single trade negotiator on that side of the water for the next two years. So I think prospects for this agreement being concluded are fairly minimal at the moment.
Q: Thank you.
FASKIANOS: Thank you. Next question.
OPERATOR: Our next question comes from Syracuse University.
Q: Hi. This is Mary Lovely from the Maxwell School.
Really enjoyed your book and the talk today. I have a question about the failure of sort of the pro-trade lobby to any influence in the last election. In particular, the failure of those who gained from production fragmentation to have a voice. We, in the academic community and in the journalistic community, often cite Autor, Gordon Hanson, and their various offspring. But there is no other relevant cite on the side of those in the service sector or those who are capital owners who have gained because of production fragmentation and the opening up of China. Can you speak to that failure of support for freer trade in the last election?
ALDEN: I think that the corporate sector got caught off-guard. I think—I think they got complacent in various ways. So, you know, if you’ve read the book, I sort of try to tell the history of corporate lobbying on this, going back to the early 1970s and the Burke-Hartke Act. And the—you know, the corporations really got mobilized around making the public case for free trade and global production and why this would be a good thing for their companies and for the United States. And for a lot of years they kept winning these narrow victories. You know, they eked out the victory on NAFTA. They eked out the victory on CAFTA. They were able to get Trade Promotion Authority through. And there was always this kind of narrow coalition that was good enough.
And I think the companies got complacent. They thought they could pull it off one more time with the Trans-Pacific Partnership. You know, they were probably reassured by public opinion polls. You know, the public as a whole is not anti-trade. In fact, the Democratic Party is surprisingly pro-trade. The Republicans have become the more skeptical of the two parties. And I think they thought they had just enough support to keep moving forward. And they really did caught off-guard. You know, I think that they made—they made some tactical mistakes. I do think they made a tactical mistake in not paying more attention to investing in the United States and nurturing the U.S. as an investment location.
If you look at the work of Michael Porter and others at the Harvard Business School, they’ve made a strong argument that this really is in the interest of the U.S. corporate sector. And I think too many of the CEOs kind of bought the we’re global companies we just happen to be headquartered in the United States. That’s a mistake, right? You know, if they’re having problems in China, which government is going to fight for them. The U.S. government is the only government that’s going to fight for them. And now I think in a Trump administration they’re not going to have the U.S. government fighting for them anymore.
I think the other mistake they made was not mobilizing their workforce. We had Jeff Immelt, the chief executive from General Electric, here at the Council a couple of months ago. And he was talking about how much they do to mobilize their workforce, show them that their jobs depend on trade, get them to write to members of Congress. Very few companies did that. Just a quick prediction, because I think we’re going to see a rolling back on trade in this administration. I think suddenly the employees for these companies whose jobs depend on trade are going to find a voice. And instead of just hearing from those who get hurt by trade, we’re going to hear from the winners of trade a lot more. So I think you’re going to see some changes in the nature of the public debate over the next couple of years.
Q: Thank you.
FASKIANOS: Thank you. Next question.
OPERATOR: Our next question comes from the University of Connecticut.
Q: Hi. How’re you doing? Thanks for taking the time to speak to us today.
I have two questions. One, how likely do you think it is that Donald Trump will be able to carry out all his international policies that he said he’s going to take? I mean, politicians are pretty infamous for saying, yeah, I’m going to do X, Y, and Z, and just not doing anything. I mean, granted they don’t have all the power. So it’s not always all their fault. And then, two, what are your thoughts on the minimum wage debate going on in America right now in terms of raising it to 15 (dollars) an hour? Can you just speak on that briefly? Thank you.
ALDEN: Yeah, excellent, thank you. So first question I know better than the second one. The first question is that the president’s powers on trade are very substantial. Gary Hufbauer at the Peterson Institute a couple of months ago did a very good paper looking at the ability of a president to impose tariffs on imports from Mexico, or China, or anywhere else if he chose to do so. That would be challenged under World Trade Organization rules over some period of time, you know, if you just arbitrarily slapped a, you know, 35 percent tariffs on Chinese imports. Over time the United States would lose, but, you know, it’s a question of whether a Trump administration would listen to that.
And more to the point, I think there’s a tremendous amount of power to threaten. That the U.S. president can quite credibly threaten to foreign governments: Look, if you don’t, you know, change the terms of our trade relationship I have the power to whack you. And so that threat is a real one. There are, of course, enormous potential consequences. Other countries could hit back. And the Chinese almost certainly would. And that would hurt U.S. exports. And so suddenly you have U.S. companies who are hurt by that screaming and yelling.
I think you’d see governors get into the game saying, look, you’re hurting this company from my state that’s exporting to China and can’t do it anymore. So there would absolutely be political pushback. But if you just look at the ability of the American president, using existing statutes, to restrict trade, it’s pretty significant. And so that’s, you know, why I think all of us are going to be watching very, very closely for what this administration does and how aggressive it is in terms of using the statutory power.
The minimum wage debate is an interesting one. I am still making up my mind on it. You know, one of the things that we have seen—my book is really an argument about how the United States should do better in the traded sectors of the economy. And a lot of that’s manufacturing. But of course, most of our economy is not in the traded sectors. It’s in, you know, domestic work of some sort or another—you know, hotels, restaurants, retail, health care—you know, all the sectors that are not really traded across national boundaries.
And, you know, if you look historically, these traded sectors were sort of the engine in terms of wages, you know, the high wages that the auto workers got paid or the steel workers got paid, I think kind of helped lift everybody else up to some extent. Well, a lot of those jobs have disappeared, the unions are weaker. So you don’t have that kind of engine. So you can make an argument for wanting to do that artificially I these non-traded sectors through a higher minimum wage.
The Australians have done that. And you know, it has hurt their traded sectors—a lot of which are in natural, you know, products, so raw materials. But it’s helped, you know, lift the wages of the person at Starbucks and others, so there’s kind of more money to go around. So I think there is a credible argument to be made. I am more partial to things like the Earned Income Tax Credit. But I think we are all struggling in this country to figure out how to create more jobs that pay a living wage. And jobs that occur at minimum wage do not pay a living wage. And so clearly something needs to be done about that, either to create more jobs where the employers are willing to pay people more, or to use artificial means, like a mandated higher minimum wage, to try to get it there.
Q: Thank you.
FASKIANOS: Thank you. Next question.
(Gives queuing instructions.)
And our next question comes from Seton Hall University.
Q: Thank you very much for your time and for allowing us to know more about your book and international trade.
My question is, do you think that the cost of education in the U.S. can be related to this failure of the adjustment assistance? I’m asking you this question because I have actually a family member who was affected by globalization. And one of the reasons why she wasn’t able to move out of manufacturing labor job was because she wasn’t able to actually go to school after she lost her job. She actually tried to, but it was just really expensive for her. And one of the things that I came out with from that is that even, like, you know, it can be a little bit hard for people who want to get educated and move from industry because of that. I just want to know your opinion about that, and if you think that’s related to the feelings of all these people who are left behind after globalization.
ALDEN: My answer is absolutely, yeah. I mean, we—you know, we know that one of the consequences of globalization has been that it’s become much harder for people with high school educations or less to make a decent living. And it’s just kind of simple supply and demand, right? Suddenly these people are now in competition with hundreds of millions of people from around the world with similar skill levels who are doing—willing to do the same work for much lower wages. So, you know, classic economic theory predicted this. So none of this should have been a surprise.
And in one of the obviously—perhaps the most obvious response is upskilling of one sort or another—you know, either getting people into community college training programs, or getting them into university because we know university grads generally are doing much better than those with high school educations. You know, if you can go even farther you’re better off. But this is expensive. We know, you know, university education in the United States is terribly expensive.
And so, you know, how do you make education affordable for more people, so—you know, the example you gave of your relative—you know, they can move from a manufacturing career to some other career. So there are lots of things that have been discussed. You know, Sanders argued for free or low-cost tuition. That’s one way to go. My CFR colleague Bob Litan has put forward the idea of lifetime career loan accounts, which are, you know, essentially interest-free loans to allow people to go back to school, whether community college or university or other.
You know, student loans are expensive in this country, even with—you know, with some federal subsidy you’re looking at a terrible burden. The student loan burden has been growing and growing and growing. So I think we need a whole new set of policies that really make it as easy as possible for people in all stages of their career—not just when they’re young, but in all stages of their career—to go back and get the education they need to make themselves more employable and to earn higher wages. And we just do not do that systematically in this country. So, yes, that’s an excellent question. And I absolutely agree with you that this is part of the solution.
FASKIANOS: Thank you. Next question.
OPERATOR: Our next question comes from Rutgers Law School.
Q: Hi. My question has to do with unions, and kind of a related question. In Germany, I know that employee board representation is always really important. Do you think there’s any credibility to the idea that union—the concept of unions, as it has been known in the U.S.—should kind of move towards advocating for more employee board representation? Thank you.
ALDEN: Yeah, you know, I do not know enough about the German structure to know whether that would solve the problem. But, you know, I do think—and there’s a whole chapter in my book that kind of looks at this—that the impact on unions has been one of the most dramatic and, for me, one of the most negative consequences of globalization. I mean, I think it’s—you know, it’s clear obviously that in the 1970s there were a lot of union members who were probably overpaid. And there was going to need to be some kind of adjustment to keep those industries competitive.
But instead what we’ve seen is a kind of systematic crushing of the labor unions in the United States. Some of it as a result of right-to-work laws in the Southern states. You know, generally unfavorable laws for labor organizing. I spent a lot of years as a reporter and a student in Canada. It’s far easier to organize and maintain a labor union in Canada. And, you know, I think that has an impact directly on people’s pocketbooks. As I say, I think these union jobs, you know, sort of help raise wages for a lot of people across the economy. We really haven’t found a substitute for that.
But it also actually I think has practical impacts in terms of our competitiveness. You look, for instance, at the decline of apprenticeships. I mean, in Germany apprenticeships are a major road to well-paid employment. Lots and lots of young people enter these company apprentice programs. And they are organized and administered by the trade unions. And that used to be the case in the United States too, that the trade unions were directly involved in apprenticeships and training. And because the trade unions have largely been emasculated, they don’t do that anymore. So it has an effect on the skillset.
You know, I think we need to find—I don’t know what the right formulation is, but we need to find something to bring that role back into our economy. Maybe not our traditional trade unions, but some one form of worker representation. So thanks for the question.
FASKIANOS: Thank you. Next question.
OPERATOR: (Gives queuing instructions.)
Our next question comes from National Defense University.
Q: Good afternoon. Our question is actually a follow-up on the Trade Adjustment Assistance discussion. Is that law still on the books? And is it funded? Who manages it? And what would some strategies be to make that a more effective closing of the loop in the globalization employment picture?
ALDEN: The answer is yes, the law is still on the books. I mean, what ended up happening is that Trade Adjustment Assistance essentially became a bargaining chip in congressional debates over trade liberalization. So what you would get is the president would want authority to go out and negotiate new trade agreements, what used to be known as fast-track authority, now known as trade-promotion authority. And Democrats generally were wary of that, partly because of their ties to the labor unions. They didn’t necessarily want to support presidents, even their own presidents like Bill Clinton or Barack Obama. And one of the ways to try to build some Democratic support in the Congress was through the Trade Adjustment Assistance Program, to say there’s going to be help for trade-displaced workers.
So the program has kind of ebbed and flowed. It became fairly substantial in the late 1970s under the Carter administration. Reagan really whacked it back. It grew a bit again under Clinton, shrunk a big again under Bush, grew a bit again Obama. So it’s still there, but it only covers a tiny fraction of the workforce. We have another paper that I was part of here as part of a collection called, “How America Stacks Up,” that was published at the beginning of this year that looks in detail at the different retraining schemes. And most Americans who lose their job are covered under something called the Workforce Investment Act, which is a much less generous program.
And what we argued in that paper, and I would say what the Obama administration argued, was that these really ought to be consolidated, that we should have comprehensive assistance and training programs for workers who lose their jobs for whatever reason, that the real focus should be on, you know, the topic of the last question, which is retraining and upskilling to allow people to move into better sorts of jobs. I mean, there are people who will not benefit from think. You know, your sort of characteristic 55-year-old steel worker is probably not going to be retrained for a career that pays similarly. And you have think about other strategies there. You know, wage insurance is one, to just top up their income at lower paid jobs for some period of time.
You know, what happens now is a lot of them end up on Social Security Disability, which is essentially a welfare program, until they’re—you know, they reach the age of 65 or 67 to qualify for regular Social Security. So we just handled this very badly. There are lots of ideas out there. I am not, you know, the expert on labor retraining. But I think there’s very broad agreement that what we need are more comprehensive programs that help people, regardless of the cause of job loss.
Q: Thank you.
FASKIANOS: Thank you. Next question.
OPERATOR: We currently have no further questions in queue.
FASKIANOS: Then I will ask you one, Ted. Can you talk a little bit more about your recommendations for education and retraining, and what might be, or should be, the role of colleges and universities?
ALDEN: Well, you know, I mean, the main—the main thing I kind of argue for is trying to align programs more closely with market need. I think the—you know, the retraining—and this—you know, this is not necessarily something that universities should be involved in. I’m a sort of believer in a broad university education. I don’t think every university program ought to be job-training oriented. But you know, if you’re talking about someone who was working in the manufacturing sector who loses their job is looking to get retrained for work, then you really do have to very focused on what the market needs, where the job opportunities are.
You know, some of the best programs have been close collaborations between companies and community colleges. If you look at Volkswagen in Tennessee, where they have invested heavily, there are, you know, specific training programs at the community colleges to develop the skills that Volkswagen needs and, you know, essentially people who graduate from that program are more or less guaranteed employment at Volkswagen when they graduate. There have been similar programs set up in Detroit recently. Dan Gilbert has been quite active in similar sorts of programs at Wayne State University there.
So you know, I think—you know, I’m not a believer in kind of big top-down federal programs in these areas. I really think a lot of this needs to be administered locally, even if money should be coming from Washington. A lot of it should be administered locally, and very much in consultation with a lot of the big employers in these areas. So I think that’s likely to be far more successful than the way we’ve done it in the past.
FASKIANOS: All right. Thank you. Next question.
OPERATOR: Our next question comes from Fordham University.
Q: Hi. My name is Luther Blake (sp). And I’m a student in the international political economy and development program here.
And we were talking earlier with our director about the breakdown of TPP, and how that may in the future give China more influence in Southeast Asia. And I just wondered if you could talk a little bit about that.
ALDEN: Yeah. Thank you. Good question. The answer is, yeah, very clearly it will. In fact, it already has. If you—if you look at the APEC summit that was held in Peru last week, that President Obama attended—this is the Asia Pacific Economic Cooperation forum, which is group where you have basically all the Pacific rim countries, that was formed about 30 years ago or so. You had all of the countries that were kind of partners in the Trans-Pacific Partnership—you know, Australia, New Zealand, and Singapore, and others—all talking to the Chinese about alternative trade arrangements.
The Chinese are leading an effort called—(coughs)—excuse me, I’m getting over a little bit of a cold here—leading an effort called the Regional Comprehensive Economic Partnership, or RCEP, which is essentially a tariff-cutting exercise. It doesn’t have all the elaborate rules that the TPP has. And the Chinese have gone and said to the all the TPP countries, look, you know, become more active in RCEP. We want you as part of our trade arrangement. So there’s no question it strengthens China’s hand economically in the region.
One of the reasons that Japan and Australia and others wanted the—Vietnam—wanted the United States there is as a kind of economic counterweight to China. They want opportunities in the U.S. market. They want opportunities in the Chinese market. And they don’t really want—you know, President Obama talked about we don’t want the Chinese writing the rules. And there’s some truth to that. You know, these countries don’t really want China writing the rules. They would rather have an active United States role because they believe that the sorts of rules that are written in U.S.-led trade agreements are generally better for their economic interests than the kind of rules the Chinese will insist on.
But if the U.S. gets out of the game, which is what Donald Trump has said he’s going to do, then they really have no alternative but to look to China as the leader. So I think—I mean, I think that is a very consequential decision, and I think quite a negative one, not only for the United States but for its allies in Asia.
Q: Thank you.
FASKIANOS: Thanks. Next question.
OPERATOR: Our next question comes from the University of Southern California.
Q: Hi. Thank you for taking the time to speak with us.
I know you mentioned—you brought up Michigan a couple times. And I, myself, am from the metro Detroit area. So I’ve seen the effects of outsource of manufacturing jobs for people who worked for the car companies. And as a result of that, I’ve also seen how people have moved out of the city, schools have lost accreditation. So I was just wondering, like, what are—what do you think the future implications are for future generations? Because I know we’ve talked about people losing their jobs who currently have them, and trying to get reeducated. But what does this mean for people who haven’t even entered the workforce yet?
ALDEN: Yeah. I mean, I—you know, I wish—I wish I had the magic bullet for Detroit. And there are lot of good people working on trying to rescue Detroit. You know, the problem is you get into this downward cycle where companies leave and you lose a good portion of the tax base, and as a result the quality of public services, most troubling being public education, deteriorates dramatically. And Detroit has, unfortunately, some of the worst schools in the country. And they just have not been able to make tremendous progress on it.
You know, I think a lot of the mistakes were made years ago. I think that governments both at, you know, the state and local levels and at the federal level needed to recognize what was going on. I think they needed to push against the wind, to some extent, to try to encourage as much investment to remain as was feasible, but also to recognize that there simply was going to be a downsizing, right? You know, Detroit was built during the glory years of the U.S. auto industry. And as that industry employed less people the city was going to shrink and that that needed to be managed, you know, both in terms of the sort of physical infrastructure of the city, in terms of trying to attract new populations.
I mean, I’m a big believer in regionally targeted immigration strategies. The Canadians do this, to get people to live in miserably close places in Winnipeg—and no offense to anybody from Winnipeg. I love Winnipeg, but it’s very cold. I think we should have done that for Detroit, you know, to have immigration programs that really would have encouraged people to move into Detroit, so you didn’t have the abandoning of whole neighborhoods. And I think there should have been federal government help in terms of trying to locate and attract new investment for the city.
None of that was done. And there are—you know, there are good people trying to backfill now. You know, I mentioned Dan Gilbert, who’s kind of singlehandedly trying to remake downtown Detroit. And there are some good initiatives. But it’s very hard to recover when you’ve fallen as far as Detroit has.
FASKIANOS: Thank you. Next question.
OPERATOR: All right. The final question comes from the University of Southern Mississippi.
Q: Hi. This is Todd Barry again, from USM.
What do you think the next era is beyond the post-Washington consensus?
ALDEN: Wow. I don’t know. I’d probably make some big bets on the stock market if I knew that. You know, I think it is very clear that we are entering in an era of greater economic and political nationalism. You know, we’ve had this U.S.-led global order. And we can debate how good that’s been for the United States and for the world. But, you know, I think the United States by and large was a reasonably benign hegemon and willing to set up reasonably neutral rules on things like trade, even if sometimes its narrow economic interests may have been adversely affected.
I think we’re going to move into a different world, where the U.S. has a much narrower calculation of its own economic interests, and other countries are going to do the same. I mean, I think we’re seeing it with the Brexit from the European Union. And then, of course, this is overlaid with, you know, a lot of other issues that aren’t economic—you know, nationalism and ethnic identity and concerns about immigration. And so I think, unfortunately, we are moving into a more fragmented world.
And I think the question is, can the rules that have governed a lot of economic behavior under the Washington Consensus, can they be adapted successfully to respond to some of these new nationalist demands? Or does the whole system blow up, with potentially rather disastrous consequences? So I am not confident that I know the answer to that question. And I’m sure everyone on this call is going to be watching that pretty closely over the next few years.
FASKIANOS: Well, with that it is time to conclude this call. Ted Alden, thank you very much for your analysis, for the work that you’ve been doing over the years on these issues. I commend to all of you Ted’s book, and to follow his blog, Renewing America blog, as well as to follow him on Twitter at @EdwardAlden. So you should continue to follow what he has to say, because you obviously predicted what we are seeing now, Ted. So thank you.
This concludes our fall—
ALDEN: Thanks very much, Irina.
FASKIANOS: This concludes our Fall 2016 Academic Conference Call Series. Our next call will be in the winter semester. We will be sending the full lineup in the next couple of weeks. So in the meantime, I encourage you to follow CFR’s Academic Initiative on Twitter at @CFR_Academic for information on new CFR resources and upcoming events. Thank you for your participation this semester. Good luck with your exams. And enjoy the holiday break.