Tuesday, February 5, 2008

Trade policy & the 2008 Presidential campaign

Few presidential campaigns have been won or lost on the candidate’s trade policy position, but one thing is clear: U.S. trade policy may look very different depending on who sits in the White House. In honor of Super Tuesday, I’ll delve briefly into the candidates’ posture on trade. Sadly, I will limit my comments to the Democratic candidates for two reasons: the 1st, very simply, is time (I have to prepare for class tomorrow). 2d, as a Democrat I am personally more interested in the Democratic candidates’ positions. We Dems have long viewed trade as both a blessing and a curse—and Democratic trade policy reflects that push-me-pull-you sensibility. Fairly articulating the Democratic candidates’ position provides more of a challenge for a (modified) free trader like me.
Ever since Adam Smith (middle right) and David Ricardo (left) alerted us to free trade’s benefits, economists have been nearly uniform in their support. But the idea that trade between England and Portugal benefits both countries (Ricardo’s famous example), while true, tells us little about the inevitable economic dislocation within England and Portugal. In other words, in a mythical world in which the two countries can produce computers and bottled water but England can produce computers more cheaply and Portugal is more efficient in bottled water what should they do? It will always make sense for England to produce computers and import its bottled water from Portugal, while Portugal will do well to import its computers and focus production on water, thus creating win-win in the aggregate for both sides. But what happens to the workers and producers of bottled water in England and would-be computer makers in Portugal? Democrats have traditionally focused on the half-empty glass of the workers, while Republicans tout the half-full glass of business. That is a gross generalization to be sure; no elected official—Democrat and Republican alike—wants to deliver the news to furniture producers in North Carolina or assembly-line workers in Michigan (and now software engineers in Silicon Valley) that their job has fled abroad as a result of trade, but that it is all “for the greater good” (see here for a call to reconsider traditional free trade dogma in the face of outsourcing and here for a rebuttal). No matter their political stripe, Democrats and Republicans have adopted “protectionist” measures that shield domestic jobs and inefficient producers from international competition.
So what would the trade policy of an Obama or Clinton Presidency look like?
Barack Obama (left) advocates “fair trade,” a term that easily encompasses both good and evil. Broadly speaking, Obama pledges to “fight for a trade policy that opens up foreign markets to support good American jobs.” He favors updating the much ballyhooed but poorly-funded Transition Assistance Program for displaced workers whose jobs have been outsourced overseas. Transition assistance is meant to educate and retrain such workers, and Obama promises to create flexible education accounts and provide retraining for those in vulnerable sectors even before they lose their jobs. Obama also favors adopting sound labor and environmental policies as part of the package of rights and obligations negotiated in trade agreements. More ominously, Obama “believes that NAFTA and its potential were oversold to the American people.” He promises to work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.
Few would quarrel with Obama’s basic position. Who wouldn’t want all of the benefits of free trade without any of the attendant challenges? But opening up to free trade inevitably brings both reward and retribution. Many of us will experience some of the significant ill-effects of free trade. I would like to see Obama adopt a more robust Transition Assistance Program that gives workers both adequate time and resources to adjust to trade competition (read: the program needs more money!). I’m also troubled that Obama has said little about the current WTO negotiations—the so-called “Development Round.” The Development Round is historic in focus; it is meant to at last address some of the inequalities poor countries have faced on the road to development through trade. Right now, the round is moribund—although there are hopeful signs of a re-birth. We need American leadership, both on substance and vision. I for one would like to know more of what a President Obama might do to bring the negotiations to a fruitful close.
Finally, I dislike the vague reference to a broken NAFTA that needs significant overhaul. In the age of an ever-expanding European Union, I cannot imagine it would be to America’s economic benefit to jettison NAFTA (although I don’t believe Obama is advocating that). Obama says leaving out labor and environmental standards from NAFTA was a mistake. In truth, NAFTA was the first agreement to ever link trade with workers rights in a major way. Yes, it is true that the North American Agreement on Labor Cooperation (NAALC) was a “side agreement” (negotiated by the Clinton Administration), and the signatories for the most part pledged to enforce their own labor standards (instead of creating a whole range of new “core” standards). But the agreement adopted basic standards on a range of issues, including a prohibition on forced labor, and protections for women and children. Ditto for environmental policy. We can talk about whether the enforcement mechanisms under NAALC (and the environmental agreement) are adequate, but it is simply wrong to suggest that labor and environmental standards were somehow overlooked in NAFTA.
Hillary Clinton (right) advocates "smart trade," a term which she has defined as championing "labor rights, the environment, and our economic standing in the world." She pledges to appoint a trade enforcement officer and double the enforcement staff at the office of the United States Trade Representative to ensure our trade partners are living up to their agreements. She also promises to review every trade agreement to ensure that it is delivering benefits to American workers. Finally, Candidate Clinton promises to expand the Trade Adjustment Assistance program so that workers negatively affected by the global economy get the help they need. Clinton's trade policy presents more of a known commodity, which can both help and hurt her. On NAFTA, for example, Senator Clinton has distanced herself from the pro-NAFTA position adopted by First Lady Clinton based on her assessment that NAFTA hurts workers (a position her own husband has said is “wrong”). Obama has characterized the change as yet one more example of a “flip-flop”, and a Washington Post editorial decries it as “opportunism,” claiming “there’s little chance that her position reflects any deeply held principle.” In truth, Hillary Clinton’s current position stands in marked contrast to President Bill Clinton’s trade policy. Bill Clinton had to fight against his parties own powerful constituencies (the trade unions for one) as well as Big Business—who did not want an agreement “bogged down” with labor and environmental standards—to successfully pass NAFTA. Hillary Clinton, despite voting in support of a number of bilateral free trade agreements in the Senate (Singapore and Chile, for example), has called for a “time out” on further trade agreements. While her position is likely to play well with rank-and-file Democrats, it comes with significant costs—economic and otherwise. The trade merry-go-round is simply not going to stop turning while we try to make up our minds.


Anne McCrady said...

Both Democratic candidates offer to balance Free Trade with a concern for American workers, not just American (read multi-national) corporations. While we have yet to see exactly what that means from either of them, we can know that government policy in the areas of trade and otherwise will not just serve to concentrate wealth, as it does now.

Marjorie Florestal said...


Thanks for your comment. It is the eternal struggle isn't it? How do we get the wealth benefits generated by trade out to the masses? I for one am appalled at how poorly we manage to do so in the United States. In my international trade and development law class, we spend quite some time dealing with this question. My students argue that it is for developing countries to institute domestic policies to discourage wealth concentration. If we do such a poor job here, given our experience and democratic processes, are we really surprised that developing countries too fall down on the job? Amy Chua's World on Fire predicts dire consequences for those of us who fail to get a handle on this issue.

stephanie said...

After reading your blog, I've made up my mind not to vote for a Democrat. My family has been torn apart because of NAFTA. I was searching for the answer to see how Mrs. Clinton and Mr. Obama planned to fix this ill that has helped to push us into a recession. Your article has helped to show me the that neither candidate plans to fix it. How can Americans afford to buy American cars without the income to buy food? Neither candidate has said, anything to address the Mexican made cars that used to be built in the United States. General Motors.
Thanks this article really opened my eyes. I will vote for Huckabee if he makes it and if not I will vote for McCain.