The Trade Debate We Need

An anxiety bordering on panic is unnerving America’s economic elites as political support for "free trade" dwindles, along with declining earnings. While mainstream economists have long contended that trade had minimal effects on wages, prestigious defectors such as Alan Blinder and Paul Samuelson have lately concluded otherwise. It turns out that the popular concerns are rooted in reality.

The elite response has been divided. One the one hand, most of the regime’s defenders continue to treat trade mainly as a problem of voter ignorance and politician posturing. Defenders speak as if the main goal is to preserve the current trade rules, rather than to assure that an open economy delivers broadly shared prosperity. A means has mutated into an end.

The New York Times regularly runs trade editorials with all the sophistication of the first day of an Economics 101 course, circa 1970. The shriller Washington Post, in an editorial titled "Drop Dead, Colombia," describes the proposed Colombia pact as "a no-brainer -- especially at a time of rising U.S. joblessness." But who believes that a bit more trade with tiny Colombia will seriously spur U.S. jobs?

The Times concedes that lagging worker pay and job loss are real problems but repeats the canard that trade is a trivial cause. By contrast, Blinder’s articles in this magazine and Foreign Affairs note that for every job that trade displaces directly, it undercuts wages in many others by the tacit threat of relocating. The Times insists that the cure is more education. However, as MIT economist Frank Levy, another respected moderate, recently observed, the only group with average income gains since 2000 is holders of advanced degrees. The remedy for reduced worker bargaining power, said Levy, is not for everyone to get a law degree or MBA.

In its support of the Colombia pact, the Post mocked the argument against rewarding a nation where union organizers are regularly murdered. "Actually, in 2006, union members were slightly less likely than the average Colombian to be murdered," the Post explained. "But the human rights issue has served as cover for many Democrats whose true objections are to free trade itself."

Now, however, another high-profile globalizer is having second thoughts. In two important columns in the Financial Times, former Treasury Secretary Lawrence Summers reprimanded those who merely repeat conventional assumptions about trade, adding: "There are reasons to think that economic success abroad will be more problematic for American workers in the future." In his April 27 column, Summers wrote that "the global economy encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered." His May 5 sequel declared that trade agreements should not promote competition to reduce taxes, or undercut social or labor rights, adding, "There has not been enough serious consideration of the alternative -- global co-operation to raise standards."

Larry Summers! Is this an epic conversion, or just more subtle damage-control? We await details of Summer’s efforts to influence actual policy.

In fairness, details are also thin in the presidential debates. The Democratic candidates have criticized NAFTA, the Colombia deal, and China’s currency manipulation but haven’t quite offered a comprehensive critique of the current trading system or a coherent alternative—thus lending credence to editorials about pandering. The deeper debate is not about "trade" but about the rules of the current trade regime. Every recent trade deal has expanded global property rights while undercutting the offsetting social rights that progressives struggled to obtain throughout the 20th century.

A separate problem is that successive American presidents have given foreign nations’ mercantilist practices a free pass as long as corporations can benefit by relocating operations overseas. And while domestic policy can compensate for some dislocations of trade, it takes heroic public commitment. As I have noted elsewhere, Denmark, a successful trading nation, spends 4.5 percent of its gross domestic product on retraining, job creation, and wage support—that would be $600 billion a year in the United States -- and Denmark’s government and unions work systematically to ensure that all jobs pay a living wage.

The Times urges candidates to "remind workers of trade’s benefits." But trade benefits have been advertised ad nauseam. Instead, the presidential debate needs to educate voters about the real trade issue -- how to defend and expand a mixed economy of broad prosperity as capitalism becomes increasingly global.The elite response has been divided. One the one hand, most of the regime’s defenders continue to treat trade mainly as a problem of voter ignorance and politician posturing. Defenders speak as if the main goal is to preserve the current trade rules, rather than to assure that an open economy delivers broadly shared prosperity. A means has mutated into an end.

The New York Times regularly runs trade editorials with all the sophistication of the first day of an economics 101 course, circa 1970. The shriller Washington Post, in an editorial titled "Drop Dead, Colombia," describes the proposed Colombia pact as "a no-brainer -- especially at a time of rising U.S. joblessness." But who believes that a bit more trade with tiny Colombia will seriously spur U.S. jobs?

The Times concedes that lagging worker pay and job loss are real problems but repeats the canard that trade is a trivial cause. By contrast, Blinder’s articles in this magazine and Foreign Affairs note that for every job that trade displaces directly, it undercuts wages in many others by the tacit threat of relocating. The Times insists that the cure is more education. However, as MIT economist Frank Levy, another respected moderate, recently observed, the only group with average income gains since 2000 is holders of advanced degrees. The remedy for reduced worker bargaining power, said Levy, is not for everyone to get a law degree or MBA.

In its support of the Colombia pact, the Post mocked the argument against rewarding a nation where union organizers are regularly murdered. "Actually, in 2006, union members were slightly less likely than the average Colombian to be murdered," the Post explained. "But the human rights issue has served as cover for many Democrats whose true objections are to free trade itself."

Now, however, another high-profile globalizer is having second thoughts. In two important columns in the Financial Times, former Treasury Secretary Lawrence Summers reprimanded those who merely repeat conventional assumptions about trade, adding: "There are reasons to think that economic success abroad will be more problematic for American workers in the future." In his April 27 column, Summers wrote that "the global economy encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered." His May 5 sequel declared that trade agreements should not promote competition to reduce taxes, or undercut social or labor rights, adding, "There has not been enough serious consideration of the alternative -- global co-operation to raise standards."

Larry Summers! Is this an epic conversion, or just more subtle damage-control? We await details of Summer’s efforts to influence actual policy.

In fairness, details are also thin in the presidential debates. The Democratic candidates have criticized NAFTA, the Colombia deal, and China’s currency manipulation but haven’t quite offered a comprehensive critique of the current trading system or a coherent alternative -- thus lending credence to editorials about pandering. The deeper debate is not about "trade" but about the rules of the current trade regime. Every recent trade deal has expanded global property rights while undercutting the offsetting social rights that progressives struggled to obtain throughout the 20th century.

A separate problem is that successive American presidents have given foreign nations’ mercantilist practices a free pass as long as corporations can benefit by relocating operations overseas. And while domestic policy can compensate for some dislocations of trade, it takes heroic public commitment. As I have noted elsewhere, Denmark, a successful trading nation, spends 4.5 percent of its gross domestic product on retraining, job creation, and wage support—that would be $600 billion a year in the United States -- and Denmark’s government and unions work systematically to ensure that all jobs pay a living wage.

The Times urges candidates to "remind workers of trade’s benefits." But trade benefits have been advertised ad nauseam. Instead, the presidential debate needs to educate voters about the real trade issue -- how to defend and expand a mixed economy of broad prosperity as capitalism becomes increasingly global.

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