In this election cycle, the politics of trade have surfaced as a major issue, and the usual establishment position—more “free” trade agreements are always in our interest—held by both sides, is seriously on the ropes. I’ve tried to tap this opportunity to explain the nuances as I see them:
–Do not conflate globalization and trade agreements. The former is a both here to stay and a potential force for good if it is shaped by smart policies representative of all stakeholders. The latter has been largely co-opted by a narrow, unrepresentative group of corporate stakeholders.
–The idea that more trade is always win-win for everybody is unquestionably wrong in theory and practice.
–Selling trade deals as job creators is a fabrication inconsistent with theory and evidence. Oftentimes, such tactics are just a stalking horse for geopolitical goals.
–The idea that the benefits of trade are diffuse and the costs narrow is also wrong. While some groups and communities feel the costs much more acutely, they are widespread among non-college educated workers.
–Expanded trade carries many potential benefits, both for consumers here and those in emerging economies who can raise their living standards through trade with wealthy economies. But the fact that the US has steadily run economically significant trade deficits since the 1970s is a symptom of imbalanced trade that hurts and distorts growth. Moreover, this imbalance is not benign but is the result of currency manipulation, mercantilist practices fueled by savings gluts, the dollar as the dominant reserve currency, and an unwillingness of US policymakers to do much about any of the above.
–It is essential that we develop a new set of trade policies that reflect all of these insights. Trump’s 45 percent tariffs ain’t it. An end to the current spate of trade agreements, like TPP, is a start, but it is only that. We must better manage globalization from the perspective of working people as opposed to corporate and political elites.
I’ve not read a better history of the evolution of all of the above than this one by Clyde Prestowitz, in the current issue of Washington Monthly. Prestowitz has a lot going for him: he’s a long-time DC insider on trade policy, having sat at many important negotiating tables over the years. He knows the economics and where the theories have gone right and wrong, and he’s got his feet solidly planted in the reality of how imbalanced trade has hurt real people.
Prestowitz covers every one of the issues I raise, including the folly of Trump’s “solutions” in this space. His ideas for a new set of policies involve a much more interventionist stance, pushing back on currency management, beggar-thy-neighbor export-led strategies, dumping of commodities (e.g., Chinese steel), and excessive trade surpluses, which are all sound. I thought he went off a bit here: “[The new trade policy agenda] needs to have as its central aim the replacement of the U.S.’s unilateral role as buyer of last resort with new arrangements that accomplish the same goal of providing demand, especially at moments when global recessions loom, but in a more equitable and sustainable way,” but only in that I don’t see a way to do that which doesn’t exacerbate the imbalances that have hurt us for decades.
That’s a minor critique in a must-read essay. We can’t prescribe the most effective cure without an accurate diagnosis, which is precisely what we have here.