Even Mainstream Economists Starting to Admit that “Free Trade Agreements” Hurt the American Worker

Trump and Sanders have whipped up a lot of popular support by opposing “free trade” agreements.

But it’s not just politics and populist sentiment … mainstream economists are starting to reconsider their blind adherence to the dogma that more globalization and bigger free trade agreement are always good.

UC Berkeley Economics professor Robert Reich – Bill Clinton’s Secretary of Labor – wrote last month:

Suppose that by enacting a particular law we’d increase the U.S. Gross Domestic Product. But almost all that growth would go to the richest 1 percent.

The rest of us could buy some products cheaper than before. But those gains would be offset by losses of jobs and wages.

This is pretty much what “free trade” has brought us over the last two decades.

I used to believe in trade agreements. That was before the wages of most Americans stagnated and a relative few at the top captured just about all the economic gains.

Recent trade agreements have been wins for big corporations and Wall Street, along with their executives and major shareholders.

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But those deals haven’t been wins for most Americans.

The fact is, trade agreements are no longer really about trade.

Indeed, while it’s falsely called a “trade agreement”, only 5 out of 29 of the Trans Pacific Partnership’s chapters have anything to do with trade.  And conservatives point out that even the 5 chapters on trade do not promote free trade.

Reich continues:

Worldwide tariffs are already low. Big American corporations no longer make many products in the United States for export abroad.

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Google, Apple, Uber, Facebook, Walmart, McDonalds, Microsoft, and Pfizer, for example, are making huge profits all over the world.

But those profits don’t depend on American labor – apart from a tiny group of managers, designers, and researchers in the U.S.

To the extent big American-based corporations any longer make stuff for export, they make most of it abroad and then export it from there, for sale all over the world – including for sale back here in the United States.

The Apple iPhone is assembled in China from components made in Japan, Singapore, and a half-dozen other locales. The only things coming from the U.S. are designs and instructions from a handful of engineers and managers in California.

Apple even stows most of its profits outside the U.S. so it doesn’t have to pay American taxes on them. [Background.]

This is why big American companies are less interested than they once were in opening other countries to goods exported from the United States and made by American workers.

They’re more interested in making sure other countries don’t run off with their patented designs and trademarks. Or restrict where they can put and shift their profits.

In fact, today’s “trade agreements” should really be called “global corporate agreements” because they’re mostly about protecting the assets and profits of these global corporations rather than increasing American jobs and wages. The deals don’t even guard against currency manipulation by other nations.

According to Economic Policy Institute, the North American Free Trade Act cost U.S. workers almost 700,000 jobs, thereby pushing down American wages.

Since the passage of the Korea–U.S. Free Trade Agreement, America’s trade deficit with Korea has grown more than 80 percent, equivalent to a loss of more than 70,000 additional U.S. jobs.

The U.S. goods trade deficit with China increased $23.9 billion last year, to $342.6 billion. Again, the ultimate result has been to keep U.S. wages down.

The old-style trade agreements of the 1960s and 1970s increased worldwide demand for products made by American workers, and thereby helped push up American wages.

The new-style global corporate agreements mainly enhance corporate and financial profits, and push down wages.

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Global deals like the Trans Pacific Partnership will boost the profits of Wall Street and big corporations, and make the richest 1 percent even richer.

But they’ll bust the rest of America.

Similarly, the New York Times reports:

Were the experts wrong about the benefits of trade for the American economy?

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Voters’ anger and frustration, driven in part by relentless globalization and technological change … is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

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The angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs.

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In a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets.

They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year.

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs.

“These results should cause us to rethink the short- and medium-run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.”

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The case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued.

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The new evidence from trade suggests American policy makers cannot continue to impose all the pain on the nation’s blue-collar workers if they are not going to provide a stronger safety net.

That might have been justified if the distributional costs of trade were indeed small and short-lived. But now that we know they are big and persistent, it looks unconscionable.

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