Why Democrats’ “Free Trade” Love Affair Is Over

Aug. 30, 2023

And why that’s a good thing

[For those unfamiliar with the author, Robert Reich, check out the bio-note at the bottom.

          - Gene McGuckin]

President Biden is making a break with decades of free trade deals and embarking on an industrial policy designed to revive American manufacturing.

This has caused consternation among some of my former colleagues from the Clinton and Obama administrations.

For example, former Treasury Secretary Lawrence Summers last month called the president’s thinking “increasingly dangerous” and expressed concern about what he termed “manufacturing-centered economic nationalism that is increasingly being put forth as a general principle to guide policy.”

Well, this veteran of the Clinton administration is delighted by what Biden is doing.

Clinton and Obama thought globalization inevitable and bought into the textbook view that trade benefits all parties. “Globalization is not something we can hold off or turn off,” Clinton explained to the media. “It is the economic equivalent of a force of nature, like wind or water.”

But “globalization” is not a force of nature. How it works and whom it benefits or harms depend on specific, negotiated rules about which assets will be protected and which will not.

In most trade deals, the assets of American corporations (including intellectual property) have been protected. If another nation adopts strict climate regulations that reduce the value of U.S. energy assets in that country, the country must compensate the American firms. Wall Street has been granted free rein to move financial assets into and out of our trading partners.

But the jobs and wages of American workers have not been protected. Why shouldn’t American corporations that profit from trade be required to compensate American workers for job losses due to trade?

The age-old economic doctrine of “comparative advantage” assumes that more trade is good for all nations because each trading partner specializes in what it does best. But what if a country’s comparative advantage comes in allowing its workers to labor under dangerous or exploitative conditions?

Why shouldn’t America’s trading partners be required to have the same level of worker safety as in the United States or give their own workers the same rights to organize unions?

Globalization doesn’t answer these sorts of questions. Instead, the rules that emerge from trade negotiations reflect domestic politics and power.

The Clinton administration lobbied hard for NAFTA. In the end, Congress ratified it, with more Republican than Democratic votes. Additional trade agreements followed, along with the creation of the World Trade Organization (WTO) and opening trade relations with China, which joined the WTO in 2001.

Robert Reich

Trade rose from 19 percent of the U.S. economy in 1989 to 31 percent in 2011, according to the World Bank. (By 2021, following Trump’s trade war with China and the pandemic, trade’s share of the U.S. economy had drifted down to 25 percent.)

These trade deals have benefited corporations, big investors, executives, Wall Street traders, and other professionals.

The pharmaceutical industry has gotten extended drug patents in Mexico, China, and elsewhere. Wall Street banks and investment firms have made sure they can move capital into and out of these countries despite local banking laws. American oil companies can seek compensation if a country adopts new environmental standards that hurt their bottom lines.

The stock market responded favorably. In 1993, when Clinton took office, the Dow-Jones Industrial Average peaked at 3,799. By the time he left office in 2001, it had topped 11,000.

Middle- and working-class Americans benefited from these deals as consumers — gaining access to lower-priced goods from China, Mexico, and other countries where wages were lower than in the United States.

But the trade deals also caused millions of American jobs to be lost, and the wages of millions of Americans to stagnate or decline. Between 2000 and 2017, a total of 5.5 million manufacturing jobs vanished. Automation accounted for about half of the loss. Imports, mostly from China, the other half.

You can trace a direct line from these trade deals and the subsequent job losses to the rise of Donald Trump in 2016.

Economists have estimated that, if America had imported half of what China exported to us during these years, four key states — Michigan, Wisconsin, Pennsylvania, and North Carolina — would have swung Democratic, delivering the presidency to Hillary Clinton.

Whether globalization is good or bad depends on who gets most of its benefits and who pays most of its costs. For too long, American workers have paid substantially.

The Biden administration is changing this. I say, it’s about time.