Tonelson: Democratic trade plan needs more work

Like other economic populists, I had high expectations that our new Congress would take a harder line on trade policy to protect American jobs. Alan Tonelson, a economist with the U.S. Business and Industry Council Educational Foundation, has analyzed the Democratic Congressional trade policy and found it lacking. Tonelson suggests that Democrats are still more likely than Republicans to reform our self-destructive trade policies but the new majority Congressional leadership is far from having the correct approach to dealing with the trade deficit. Half-hearted symbolism and feel-good policies that give the appearance of aiding residents of developing countries will do nothing to protect American jobs.

Democrats' Trade Plan Needs More Work
Alan Tonelson
American Economic Alert

Wednesday, April 04, 2007

After several re-readings of the new House Democratic trade plan, I’m still thoroughly confused by the policy proposals developed by Ways and Means Committee trade czars Charles Rangel (D-NY) and Sander Levin (D-MI), and endorsed by the House Democratic caucus. With a handful of exceptions, their prescriptions look either downright contrary to or utterly irrelevant to the goal of changing trade flows to benefit U.S. producers and their employees significantly.

In fairness, no one should rush to judgment of “A New Trade Policy for America.” In the first place, the plan is awfully general in nature. Only one page long, it’s little more than a wish list that leaves open nearly every major question concerning how actually to devise a trade policy that finally benefits domestic American manufacturing, service, and agricultural businesses.

Admittedly though, it’s hard to spell out how to reverse more than 30 years of destructive trade and economic policies in a single page. In addition, the exact intent behind the document is unclear, despite its modest substance. No one is calling the plan a take-it-or-leave-it proposition, and no one is calling it a simple opening gambit in a protracted negotiation between the House Democrats and the Bush Administration.

Even less clear is the outcome desired by Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) – who will decisively influence the final result. In fact, these leaders may not yet know themselves – because trade policy is not one of their leading priorities. Yet given these unknowns, plus the confusion bound to result from posturing and grandstanding by individual Members on both sides of the trade/jobs/outsourcing issue, it is still important to understand how risky tactically and how conceptually deficient a starting point

“A New Trade Policy” seems to be – either for evaluating the string of recently completed or nearly completed trade agreements or for judging the president’s upcoming request for renewed Fast Track trade negotiating authority.It’s entirely possible that what really counts in this document is a handful of ideas that the White House, the outsourcing lobby, and its hired hands in Congress could view as outright deal-killers.

Some trade critics sound confident (confidentially, of course) that their opponents will dig in over these issues even if it dooms to defeat the upcoming trade agreements or Fast Track renewal.If this is the Democratic strategy, however, it could be too clever by half.

For example, “A New Trade Policy” clearly calls for making vital medicines more readily available to impoverished third world populations by granting low-cost third world drug companies more access to the formulas and other intellectual property of their U.S. and other rich-country competitors.

Totally unacceptable to the huge and powerful American pharmaceutical industry, right? Not exactly. Big Pharma not only has long feared suffering a public relations disaster on this issue, but also won’t or can’t explain effectively that, without strong intellectual property protection, drug discovery efforts, which will benefit all of humanity, will grind to a halt. As a result, the pharmaceutical industry has rolled over on this issue before and could well again.

Similarly, the multinationals may actually agree to Democratic environmental proposals that look like an effort to gain Congressional approval of the Kyoto global warming treaty through the back door. A growing number of these firms already are sporting more green than New York City cops on St. Patrick’s Day.

More worrisome, the outsourcers’ camp may finally wise up and acknowledge that even if the Democrats’ proposals on improving worker rights and conditions in the third world – which have loomed so large in the trade policy debate for so long – are strengthened considerably, not one is even remotely fully enforceable. Therefore, the outsourcers can safely support them after all, without worrying about the implications for their overseas factories.

Most Democrats and their constituencies have focused so tightly on workers’ rights issues that they’ll have few credible objections left if their adversaries “Just Say Yes” to such provisions.

Even more tightly boxed in are most of the hard-core Democratic trade critics in Congress and in the non-government organization (NGO) world. They could easily find themselves in the unenviable position of having to explain to the vastly more numerous centrist or more apathetic Congressional Democrats exactly why labor language supported by both their leadership and many Republicans doesn’t cut the mustard. Even dicier for them is the argument that, although the labor and environmental provisions are good enough for the Peru, Panama, and possibly Colombia Free Trade Agreements, they aren’t strong enough to merit renewal of Fast Track negotiating authority.

Aside from these tactical considerations, serious substantive flaws riddle “A New Trade Policy” as well. For example, the document strongly supports three of the worst examples of outsourcing-focused trade deals of the last decade – the agreements with four Andean narcotics-producing countries in South America, with sub-Saharan Africa, and with Haiti.

The stated pretext for these trade deals was that by aiding third world regions with trade breaks, we were in effect preventing the growth of extremist forces and thereby strengthening U.S. national security – which, of course, was one of the Bush administration’s main selling points for Fast Track renewal five years ago in the wake of 9/11. Yet these three trade agreements typify virtually everything wrong with U.S. trade policy from NAFTA forward.

The trade model embodied in all these deals involved targeting penny-wage countries and regions far too poor to provide consumer markets for U.S.-made goods and services, but entirely capable of flooding the U.S. market with labor-intensive goods. Yet because many other low-income nations have received expanded access to the American consumer – including more potent competitors, the intended beneficiaries of the three aforementioned trade deals have gained little or nothing from trade liberalization.

To add insult to injury, these deals tend to be so sloppily written that they allow Chinese and other companies from mercantilist Asian countries to use loopholes to capture most of the gains. If Democrats really want U.S. trade policy to benefit needy countries, they’ll call for clear geopolitical priorities to be set and for hard choices to be made in doling out trade breaks..

Just as misguided is “A New Trade Policy’s” call for more effective U.S. diplomacy in the currently stalled Doha Round of world trade talks. Instead, these negotiations, conducted under World Trade Organization’s auspices, need to be completely overhauled. The Doha Round’s mandate explicitly aims at channeling most of the benefits of trade liberalization to developing countries.

The interests of America’s domestic manufactures, farmers, and working families literally aren’t even on the screen. It falls to the Democrats, since the Bush administration won’t act, to put them there.Unless the U.S. government declares that accepting the Doha framework was completely mistaken, and that it must be replaced by one based on full reciprocity, developing countries simply won’t agree to meaningful market-opening. Yet how can this happen unless the Democrats, with their majorities in both house of Congress, take the lead and force the hand of the Bush administration?

By the same token, the Democrats need to make clear that the WTO’s one-country-one-vote governance and dispute-resolution procedures are utterly unacceptable, and must be replaced by rules reflecting the real balance of economic power in today’s world. Without the Democrats’s injecting some realism into the process – which “A New Trade Policy” fails to do, any Doha agreement will turn into yet another engine of deficit expansion, and job and production exporting.

Just as important, already dangerous global economic imbalances will be worsened, and the world brought that much closer to an economic crack-up – which will hurt most of all developing countries, about which the Democrats profess to be concerned.

Other provisions of the Democrats’ trade guidelines suffer from a bewildering confidence in policy tools that proved their ineffectiveness long ago. Why, for example, bother to “press for immediate [emphasis in original] Administration action” against Asian currency manipulation? The White House has made unmistakably clear its determination to engage in chit-chat diplomacy while American manufacturing continues to get clobbered. If the Democrats don’t understand by now that swift, concerted action by the House and Senate is the answer, when will the light go on?

The call to break down foreign trade barriers by filing lots of new WTO cases, meanwhile, springs from a view of the trade body just as unrealistic as the Bush Administration’s – i.e., that this Clinton-era creation is like an American court of law, where all parties to a dispute can be assured of getting a fair shake from impartial magistrates. The Democrats must recognize the WTO for what it is: a politically-motivated, anti-American body, whose membership desperately needs to wrack up trade surpluses with the United States to keep their own economies growing. Without such recognition, the multilateral portions of the Democrats’ trade agenda will remain recipes for futility.

Finally, as indicated in the above discussion of the plan’s politics, the rest of “A New Trade Policy” continues the bad habit of confusing symbolism with substance. In line with every pronouncement from left-of-center trade critics since the NAFTA debate fifteen years ago, the Democratic plan insists on trade agreements that “raise standards of living” and thereby “create new markets for U.S. goods” by conditioning third world access to America’s economy to more genuinely enforced rights for workers.

Presumably, major pay increases would follow with concomitant purchases of U.S.-made goods and services.Unfortunately, however, even the “right kind” of U.S.-third world trade won’t create vast new consuming populations that will Buy American and thereby re-balance dangerously one-sided world trade flows.

The global labor market will be glutted for decades due to the sheer size of the developing countries’ populations and workforces, to their youthfulness, to their sky-high levels of un- and underemployment, and to the NAFTA-like trade deals that have been steadily making these workers available to global businesses. Strong downward pressure on wages everywhere is the inevitable result. The inclusion of feel-good wording in trade expansion deals won’t change the inexorable realities of the labor markets.

Soaring global worker supply will produce the same effects for highly productive and educated workers, too, though the inevitable market glitches will create periodic supply-demand mismatches and temporary wage spikes. In fact, even if all third world workers enjoyed Nordic-level rights to organize and bargain collectively and strike, the price of their labor would remain orders of magnitude cheaper than their counterparts in the lightly populated developed countries for the foreseeable future.

As a result, without much more fundamental trade policy changes, wage and pricing pressure would continue to disadvantage domestic American companies and their workers, and global economic imbalances would keep growing.The labor-standards approach is impossible to implement as well.

How, for instance, could these provisions possibly be enforced? How many zillion American officials would need to be dispatched to China and India and Vietnam and Pakistan and Bangladesh and Indonesia and Brazil and Mexico and scores of other countries to inspect how many zillion factories? How many more bureaucrats would have to read their reports, and catalogue and process violations, and litigate or arbitrate disputes and appeals?

Moreover, achieving these goals in the United States – a large but reasonably orderly country – has been difficult enough for Washington. How can it be feasible in the generally chaotic environments of developing countries? These problems, moreover, would be insuperable no matter what particular set of labor standards is used for trade agreements – ostensibly a major bone of contention between House Democrats and the administration at this point.

A House Democratic caucus genuinely determined to improve U.S. trade policy would understand that candor and realism are the best guides to action. The candor entails declaring front and center that:– The well-being of the United States, its citizens, and its producers – not foreign workers – is the paramount priority of American trade policy. A failure to bring global trade flows into sustainable balance soon increasingly risks economic disaster for rich and poor countries alike in the form of a crisis triggered by China and others bailing out of their dollar holdings.

The United States simply cannot bear much longer its current and unmanageable burden of global importer of last resort.– And the pace of economic progress in the developing world will need to proceed more slowly as the United States revamps its trade policies – unless these countries can adopt growth models that involve increasing domestic demand, or Japan and Europe start absorbing many more third world imports. The realism entails acknowledging that:– The United States will almost surely need to act unilaterally to safeguard its interests and re-stabilize the world economy – if only to kick-start meaningful multilateral cooperation; – Limiting foreign access to America’s own market is an inescapable part of the solution.

Such limits will be much easier to develop and implement than embarking on social engineering projects in – and requiring the cooperation of – the vast developing world; and – Time and energy should not be squandered devising – and certainly not negotiating – elaborate, legalistic criteria for imposing limits on trade. The United States must act quickly and forthrightly to protect its own interests.The Bush administration has proven that it is incapable of providing the necessary vision and leadership to ensure that globalization brings benefits to all Americans through higher standards of living.

“A New Trade Policy for America” reveals that the House Democrats have a long way to go as well. But of the two, the Democrats stand a better chance of formulating the policies that will get the country to that point – if they put aside their hobbyhorses and shift their focus to American producers and workers. http://americaneconomicalert.org