America’s Trade Policy of the Absurd

Jeff Faux
Saturday, October 1, 2011

Saving middle-class America will require a radically different conception of trade and the national interest.
Jeff Faux | February 7, 2011  The American Prospect

For three decades, both Democratic and Republican administrations have been making trade deals with elites of other countries that favor the interests of multinational investors over the interests of American producers and workers. U.S.-based banks and corporations get access to cheap labor and to the financial systems of other nations. In return, U.S. workers are exposed to competition from countries where wages are suppressed (Mexico) or where government runs effective industrial policies (Germany) or both (China).

As a result, a chronic trade deficit has made us the world’s largest debtor, undercut the bargaining power of the working middle class, and hollowed out U.S. manufacturing. Because our labor markets are integrated, the damage has spread to virtually every industry, occupation, and region. Real wages and benefits have stagnated even as the value of what Americans produce keeps rising. Two-tier wage systems, off-the-books employment, and disappearing pensions make the prospects for younger workers even worse.

Not to worry, soothed the politicians and pundits: Let the foreigners make the old stuff, we Americans will get the clean, green industry jobs dreaming up and designing new products. So as their parents were downsized, many young Americans took out loans to get educated for the new high-tech service economy. But it turns out that in the new deregulated global market, anything that can be done with a computer can be offshored to India, China, and other places where first-rate technical workers get paid a fraction of American wages. For the past eight years, the U.S. has been running a trade deficit in high technology, which was supposed to be our international comparative advantage and economic salvation.

Despite this sorry record, our governing class remains dedicated to the same formula–the organization of trade on terms that serve elites and destroy the American working middle class. Election time, of course, brings out the ritual pledges to restore the American dream. “We cannot rebuild this economy on the same pile of sand,” said the newly elected Barack Obama in April 2009, after a campaign in which he promised a new trade agenda. But nothing has changed. He reneged on his commitment to renegotiate the North American Free Trade Agreement and to make labor rights and environmental protection as important as investor protections. He also closed the NAFTA-style trade deal with South Korea basically the way George W. Bush had negotiated it.

Even the policy rhetoric remains the same: peevish complaints that China and other nations aren’t playing fair; oversold but underfunded education and infrastructure investment programs; and fatuous lectures on free trade. The chapter on globalization in Obama’s 2010 economic report could have been lifted from George W. Bush’s.

The president did announce a goal of doubling American exports in five years. But his “plan” was a rehash of ongoing programs and the appointment of an advisory committee dominated by the same multinational corporations that have dictated U.S. trade policy for the last 30 years. Moreover, the president was silent on the question of imports–which grow much faster than exports with each new trade deal. It is the difference between the two that undercuts U.S. jobs. Currently, we sell 6,000 cars to South Korea–which sells us 500,000. Doubling our exports without reducing our imports is hardly likely to create the thousands of autoworker jobs that Obama claims will materialize from the new trade deal.

The president’s economists know this. But the multinational corporations and their associated think tanks and consulting firms are hostile to any policy that would limit access to the U.S. market for imports–even as a bargaining chip. From Wall Street’s perspective, our trade policies are a great success. U.S. labor costs are down, profits from offshoring are up, and America’s financial elite have a growing investment in the foreign countries that are eating our economic lunch. From the perspective of America’s global elite, what’s not to like?

The cruel joke is that this is the crowd that is presumed by the press and the politicians to represent the interests of the American people. John Chambers, the CEO of Cisco Systems, puts millions of dollars into a state-of-the-art research facility in India and says that his goal is to become a “Chinese company,” but his company still gets to influence elections, lobby Congress, and otherwise drive U.S. trade policy. Cisco, says the Roberts Supreme Court, is a U.S. company, no matter what flag it flies.

Globalization is arguably inevitable, but there are alternatives to our present policies of the absurd. Dissenting political leaders, economists, and businesspeople have over the years advocated a commonsense “high wage” path to global trade balance. There are differences over the details, but the general thrust of a trade agenda that worked for Americans would include the following steps:


  • Stop the hemorrhaging. Give the Chinese 30 days to stop artificially suppressing the value of their currency, which pumps up their trade surplus to us. If they refuse, impose an across-the-board tariff on their imports. As suggested by super-investor Warren Buffett, reduce imports by creating a temporary auction for licenses to import into the U.S. Freeze negotiations on all new trade deals until the U.S. government has a clear strategy to achieve trade balance.
  • Commit to a 10-year comprehensive development policy of adequate investments in infrastructure, human resources, and green technologies. Tax incentives for investing overseas should be repealed and government aid denied to research and development projects not tied to domestic production of goods and services.
  • Reorganize government to make the goal of trade policy national redevelopment, rather than more trade agreements. Shut the revolving doors between trade officials and the multinationals.
  • Engage the rest of the world in a serious effort to integrate the global economy with social rules that produce broadly shared economic growth in national economies, including financial regulation, workers’ rights, and environmental standards.

In Washington’s current political climate, this agenda seems unrealistic. But anything less comprehensive will not solve the problem. And we have little time. The consumer-credit bubbles of the last 20 years postponed the decline in U.S. living standards. That game is over. Without a dramatic shift in U.S. trade policies, the unregulated global labor market will force Americans to balance their trade with the rest of the world by dramatically shrinking their real wages.

Progressives can still make this issue theirs. The electorate is fed up. Just before the 2010 election, a Wall Street Journal poll reported that Americans thought free trade had harmed rather than helped the country, by 53 percent to 17 percent.
But apart from a few brave souls in the Congress, Democrats remain cowed–running for cover when the corporate media levels the charge of “protectionism.”

When the middle class faces a serious economic threat, it can as easily move right as it can move left. According to the same Journal poll, Tea Party supporters had an even higher (61 percent) negative view of free trade. So if those who might shape rational, internationally sensitive trade policies that work for American workers cannot lead, voters may well find solace in irrational jingoism and reactionary politics. The stakes could not be higher.

Jeff Faux is a distinguished fellow at the Economic Policy Institute, which he founded. He is currently writing a book on America’s future