The Wrong Way to Contrast With Trump on Trade

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A container ship on the Delaware River in Philadelphia

Open: The Progressive Case for Free Trade, Immigration, and Global Capital
By Kimberly Clausing
Harvard University Press

Ever hear a Democratic politician evaluate Donald Trump’s trade policy? I defy anyone to sum up the objections.

It’s quite unlike, say, tax cuts for the wealthy. We’re against them, he’s for them. The inhumanity of his immigration policies is not ambiguous. Yet on trade, your average, reasonably well-informed voter is as foggy on the issues as Trump.

Trump seems to think our trade deficit makes the nation less wealthy, which is nonsensical. But there are real impacts from the trade deficit for the replacement of manufacturing jobs by jobs in the service sector. Middle-class workers are suspicious of trade for this reason, and they’re not wrong. So Trump’s simplistic focus on the volume of the trade deficit and the implied impact on the composition of employment (“our factories”) is powerful politics.

Criticism of free-trade dogma has been traditionally avoided in genteel conversation. Critics were typically painted as antediluvian know-nothings enthralled by dark populist visions. On the right, this may now be a badge of honor.

Perhaps in the belief that there is more hope for the left, we have a new effort to make trade kosher for progressives, in the form of a book by professor Kimberly Clausing of Reed College: Open: The Progressive Case for Free Trade, Immigration, and Global Capital. She wants to present a respectable alternative to the barbaric yawps of “populists like Bernie Sanders and Donald Trump.” It’s a deeply flawed analysis that should invite thinking about what a Democratic response to trade should look like.

 

The Political Strategy of Free-Traders

Clausing’s basic gambit is to intermingle straw-man targets with more difficult sales pitches. We are regaled with the drawbacks of an utter lack of trade, on the strength of textbook recapitulations of the theory of comparative advantage. Economic sanctions are analogized to weapons of mass destruction.

These bogeymen should impress nobody. No progressive disputes that trade under the right conditions can be beneficial. Nor does anyone on the left favor tariffs for their own sake. The delusions of “Fortress America” autarchy are confined to the right.

We are also regaled with the glories of immigration. The labor movement made common cause with its burgeoning immigrant constituency years ago. We all know who is most exercised by immigrants, and it’s not the left.

To demonstrate that she is on our side, Clausing opens with an account of the growth of inequality and wage stagnation. She might have credited a few of the economists associated with The American Prospect at its founding, such as Barry Bluestone, Bennett Harrison, and Lester Thurow, for sounding the alarm decades ago. But in this case and all others, Clausing offers no acknowledgments of the more informed critics of free-trade dogma, nor of conventional economic nostrums in general.

Even so, there is a joker in her deck of inequality slides. She is at pains to discount trade as the main cause of inequality and wage stagnation, insisting that the real culprit is technology. Workers’ earnings have suffered, Clausing claims, because their lack of skills prevents them from attaining the increased levels of productivity that would empower them to command higher wages. They are susceptible to being replaced by machines.

There are two problems with this story. One is that the role of technology displacing well-paying jobs is contested empirically. Second, why hasn’t this powerful technology growth also lifted wages? In fact, the link between productivity growth and wages is also contested (full disclosure: by a coterie of researchers in my former place of employment, the Economic Policy Institute).

The dubious policy implication is that advances in educational attainment, surely a good thing in the eyes of all Democrats, can serve as a cure for the reduced rewards of work. But the likelihood that education could boost productivity is scant consolation for the failure of wage growth to reflect productivity growth.

Clausing also attributes the slow growth of labor force participation to the aging of the population. Aging is certainly a relevant factor in labor force trends, but it is not necessarily the dominant one. For one thing, the decline of labor force participation, or failure to grow, is visible in pre-retirement age brackets.

What’s missing is the question of power. Clausing cites labor’s bargaining power dutifully but downplays it, compared to her favored explanations. She also tends to characterize the imbalance in political power toward the wealthy as an outcome of inequality, rather than simultaneously cause and effect. If she acknowledged the causal side, she would have to look more closely at the regulation of markets, not just their aftereffects, typified by Jacob Hacker’s ingenious formulation of “pre-distribution.”

Clausing’s wonderment over the “puzzle” that wages in developing countries don’t go up more reveals perhaps too much. In her narrow, microeconomic reading, capital ought to flow toward locations where labor is cheap, driving up the demand for labor, and hence wages. The reality that union organizing can be hazardous to one’s health in such places does not seem to occur to her.

At the same time, she attributes the spectacular economic growth in recent decades of China and (to a lesser extent) India to uninhibited trade. The notion of an economy governed by the Chinese Communist Party demonstrating the glories of free trade needs no further comment.

 

What Is to Be Done

Is it OK for a government to impose regulations on a market, in the interests of labor standards, the environment, or other social concerns? All advanced industrial nations crossed this Rubicon a century ago. In the U.S., we protect workers from competition with six-year-old children, and not only out of a love for children.

Along with an interest in extending social values is the compelling benefit of achieving a more competitive setting in which home country manufacturing and its workers can prosper. The option of addressing “pre-distribution” is available in trade agreements, not just in domestic market regulation.

Corporatist trade deals have assumed a very different form, giving scant attention to social concerns and maximum emphasis to freedom of movement for capital (open borders!) and protection of intellectual property rights. This, above all, must be the target for Democratic attacks on the free-trade agenda.

In their initial campaigns for president, both Bill Clinton and Barack Obama offered rhetorical sympathy for concerns about trade agreements focused on corporate interests. Their conduct in office disappointed trade reformers and arguably helped set the stage for the Republican watershed victories in 1994, 2010, and 2016. That is why in the current campaign, promises from Joe Biden to ensure “labor has a seat at the table” can ring hollow. Labor may be invited to the party, but it may not be allowed past the velvet rope into the VIP section.

Nations at an earlier stage of economic development can justly point to our neglect of social concerns in our own economic history and suspect that trade proposals can be tilted against their legitimate interests. Some flexibility on our part is called for; agreements should result from negotiation, not bullying. The basic point still follows: Trade agreements may justifiably reflect national values and interests.

 

Summing Up

Clausing points to a limited reform agenda. It rests more on redistribution than “pre-distribution.” She suggests an expansion of refundable tax credits, resources for education, and the expansion of trade adjustment assistance.

Tax credits, while Clausing’s strong suit as a tax economist, are thin gruel for those displaced from well-paying jobs, especially as they depend on employment. Clausing also wants to repeal offshoring incentives in the Trump tax cuts, but there’s no evidence they made much of a difference. Education, if you can get more of it, is of limited salience, as discussed previously. Compensation for trade-related displacement is disparaged by workers as “burial insurance.” People would rather hold onto good jobs.

To compete with Trump on trade, Democrats need to stand for a trade regime that does not disadvantage U.S. workers by indulging inordinately low wages and lax environmental regulations among trade partners. Tariffs are a tactical weapon, purely a negotiating tool or a response to some kind of unfair trade, such as foreign firms dumping products below their own cost of production to eliminate competition. The overall objective should be more trade, not less, but where goods and the jobs that produce them flow in both directions in a more balanced fashion.

The Trump administration evinces little interest in competitive conditions as far as labor standards, the environment, or human rights are concerned. Their target seems to be literal export sales. For this reason, a Trump deal promises few obstacles to continued offshoring of production.

The usual preoccupation with U.S. intellectual property presents a different opportunity for Democrats. It is well known that patents and copyrights—what economists call a “rent”—divert resources (your money!) from more efficient uses.

The value of a drug patent rests in law, not in its cost of production (nor its cost of invention). A contraction of such rights would benefit consumers. A drug patent might run for 20 years. What would be so terrible if it was 15 years? A copyright for a dead author could be 70 or 120 years. Why so long? Postmortem incentives aren’t going to generate more literature or music. It would be consistent for the U.S. to de-emphasize such rights in trade negotiations, perhaps in exchange for some benefits.

Broadly speaking, technological progress, globalization, and economic growth are inextricably tied together. The result will be subjected to democratic governance, or it will govern us.

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