(What’s Left of) Our Economy: Which Democrats are Serious and Un-Serious About Trade Overhaul?

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AFL-CIO, Bernie Sanders, Canada, Charles Schumer, currency manipulation, Debbie Dingell, Democrats, dispute resolution, Elizabeth Warren, environmental standards, labor standards, Mexico, NAFTA, North American Free Trade Agreement, Politico, Richard Neal, Robert Lighthizer, Rosa deLauro, rules of origin, Thea Lee, Trade, Trump, U.S. Trade Representative, unions, Wilbur Ross, William Pascrell, {What's Left of) Our Economy

Usually, paying attention to instances of politicians and other public figures getting up on their soapboxes is a waste of time. Yesterday served up an exception: a press conference held by House Democrats in reaction to President Trump’s official decision to open talks to renegotiate the North American Free Trade Agreement (NAFTA). The statements recorded in this Politico account offer some evidence as to which leaders on America’s Left are willing to work with the administration on trade policies that can help the working class voters Democrats still profess to champion, and those who will remain content to sit on the sidelines and take partisan potshots.

Reportedly, all of the House members who spoke at the event “said…they feared Trump would make only modest changes to NAFTA after blasting it as an economic disaster throughout last year’s presidential campaign.” The basis for these worries? The letter sent yesterday by new U.S. Trade Representative Robert Lighthizer to Congressional leaders announcing the administration’s intention to open NAFTA talks with the two other signatories, Canada and Mexico. According to these House Democrats and some other trade critics, the document apparently was “short on details,” which many claimed indicated Trump’s intention simply to “tweak” rather than comprehensively overhaul the agreement.

All else equal, wondering about the president’s real intentions is anything but unreasonable. His personality, after all, is mercurial, and one of his major trade initiatives to date – the negotiations begun with Beijing following February’s summit with Chinese leader XiJinping – has legitimately disappointed advocates of the major course change he pledged during the campaign. (The other major trade initiative, scrapping the Trans-Pacific Partnership trade agreement, kept a leading campaign promise to the letter.) Moreover, the Lighthizer letter is indeed short on specifics.

But none of the participants in the press conference seems to have noticed that in previous statements –including reportedly to leading Democratic lawmakers, top Trump officials have emphasized the need for dramatic NAFTA changes.

For example, Commerce Secretary Wilbur Ross has described as high NAFTA-related priorities greatly tightening the pact’s rules of origin in order to incentivize more non-NAFTA manufacturing investment inside the free trade zone, and restructuring a dispute-resolution system that gives each signatory an equal vote even though the United States represents more than 85 percent of North America’s total economic output. Reinforcing this point was the Lighthizer letter’s contention that “establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of these agreements and should be improved in the context of NAFTA.”

Meanwhile, Lighthizer reportedly has told Senators that the administration is thinking of adding to NAFTA rules that would prohibit currency manipulation – a move that would set a valuable precedent for future trade deals. In addition, his letter mentioned the need to improve NAFTA’s labor and environmental protections. In my view, they’re largely unenforceable. But they’ve been a prime focus of Democratic Party trade policy positions for decades.

So given that background, it seems fair at this point to finger Connecticut’s Rosa deLauro, New Jersey’s Bill Pascrell, and Massachusetts’ Richard Neal as grandstanders. The former stressed the “tweaking” allegation. The latter two charged that “It was clear from the start that the administration was only interested in working with the Congressional Republican leadership in drafting this notice [the Lighthizer letter].”

I’d also include in this group several key Senate Democrats, including Leader Charles Schumer of New York, former presidential candidate Bernie Sanders of New York, and Elizabeth Warren of Massachusetts. They voted against Lighthizer’s confirmation despite his decades-long record of fighting predatory foreign trade practices both as Deputy U.S. Trade Representative during the Reagan administration, and as a trade lawyer representing domestic American producers.

More temperate in their judgments were Michigan’s Debbie Dingell, and the AFL-CIO’s Thea Lee. The former stated that she was “investing the time to understand where the consensus is.” The latter said, “We enter every negotiation in a good faith state of mind and we expect a lot from our government. Certainly candidate Trump made a lot of promises about fixing flawed trade agreements and looking out for American workers and good jobs, so we will hold him and his administration to that promise.”

I can’t think of a more reasonable position for politicians and other supporters of a movement that still styles itself as the “party of the common man [and woman].”

(What’s Left of) Our Economy: Progress from Progressives on Trade

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America First, developed countries, developing countries, environmental standards, Financial Crisis, GATT, General Agreement on Tariffs and Trade, George W. Bush, Global Imbalances, Global Trade Watch, globalization, Hillary Clinton, Jared Bernstein, labor standards, Lori Wallach, multinational companies, NAFTA, national treatment, non-discrimination, North American Free Trade Agreement, offshoring, progressives, Public Citizen, The American Prospect, TPP, Trade, Trans-Pacific Partnership, World Trade Organization, WTO, {What's Left of) Our Economy

Ever since the debate over NAFTA (the North American Free Trade Agreement) more than twenty years ago turned trade policy into a nationally contentious issue, the American left has provided the overwhelming share of the political money and muscle aimed at creating urgently needed course corrections. So it’s great to see important signs that progressives have finally started touting two ideas that realistically could make a significant difference.

The evidence can be found in an article coming up in The American Prospect by Jared Bernstein, former top economist to Vice President Biden, and Lori Wallach of Public Citizen’s Global Trade Watch. To be sure, the article does dwell overlong on proposals that left-of-center figures have been making for decades, and that hold little, if any, promise of turning trade agreements and related policy decisions into engines of domestic growth.

For example, there’s the usual call for truly enforceable labor and environmental standards in trade deals – even though adequately inspecting enormous third world national manufacturing complexes is a logistically impossible task. Worse, the offshoring lobby and its minions in Congress and the Executive Branch have already twice used the tactic of making cosmetic changes along these lines in trade agreements to call progressives’ bluff: during the George W. Bush administration in deals with agreements with Panama and Peru; and in President Obama’s Trans-Pacific Partnership (TPP).

Don’t think Democratic presidential candidate Hillary Clinton doesn’t recognize how successful this ploy has been in persuading fence-sitting Congressional Democrats to fall in line behind new trade deals.

Judging from the Bernstein-Wallach piece, moreover, the American left still believes that no hard choices need be made in trade and broader globalization strategy, and that with their proposed reforms, growing international commerce can become a win-win for first and third world workers alike around the world. As I’ve recently written, positive sum outcomes for developed and developing country workforces are possible – if, for instance, NAFTA was turned into a genuine western hemisphere trade bloc, as its leading founders once suggested they intended.

On a global basis, though, the surplus of developing country workers earning pauper wages (both in absolute terms and in relative terms in sectors like advanced manufacturing and high tech services) ensures that for decades the third world will remain much more important as a low-wage and low-regulation production site than as a source of new consumer demand. And as long as that situation holds, astronomical growth-, job-, and wage-killing trade deficits in the United States will be inevitable. Also inevitable will be the buildup of enormous international economic imbalances like those that set the stage for the last financial crisis.

But the most encouraging aspect of the Bernstein-Wallach article was indeed encouraging: The authors argued that not all prospective U.S. trade partners should be treated equally – because they differ in crucial respects. Ever since the current global trading system began taking shape in the immediate aftermath of World War II, one of its biggest weaknesses – and one posing special problems for a relatively open economy like America’s – has been its insistence (largely at Washington’s behest, to be sure) on the principles of non-discrimination and national treatment.

In other words, regardless of how open or closed they are, or how wealthy or impoverished, the United States needed to deal equally with all countries belonging to the old General Agreement on Tariffs and Trade (GATT) and to the newer World Trade Organization (WTO). During the early post-war decades, these requirements legally forced American leaders to open their markets as much, say, to relatively open Britain as to hermetically sealed Japan, and to treat identically in the American market businesses from wildly varying countries.

When the end of the Cold War encouraged third world population giants like China and Mexico to introduce selected free market reforms and join the global economy, the option of mass production offshoring was created for multinational companies. As a result, these GATT and then WTO principles prompted the U.S. leaders influenced by these companies to expand trade whether or not the target countries could become significant net consumers, and thus create reasonably balanced trade flows and their economic benefits.

Bernstein and Wallach don’t favor discrimination on grounds like these. (That’s not surprising, since this practice would undercut their positive-sum first-third world trade optimism.) But they do urge selecting

“trade partners based on their countries’ records of compliance with the terms of past trade agreements, international labor and environmental standards, and human rights and other criteria. [The article makes clear that records of currency manipulation would be among them.] While no country has a perfect track record, there is a well-understood continuum of compliance, and known bad actors should be barred from the negotiating table until they’ve made proven, effective efforts to begin cleaning up their acts.”

That’s a start – and a potential wedge.

It’s also heartening to see Bernstein and Wallach emphasize “rewarding those who play by the rules” by creating and enforcing meaningful rules of origin in trade deals. As they rightly note, without such provisions, countries that have not signed various trade deals can still benefit from them because multinationals and other companies will be free to import into member countries goods largely made outside the new trade zone. That’s great of course for businesses seeking the great possible sourcing flexibility. But these practices inevitably render meaningless most of the rest of the given agreement.

And most encouraging of all – although the authors don’t mention this – an American trade policy (robustly) incorporating these features would be in violation of WTO rules. Free of a straitjacket that mandates policy uniformity in a highly diverse world, Washington would be free to choose another globalization lodestar – one that makes far more sense for a country with incomparable market power, potential for self-sufficiency, and thus unilateral leverage. A lodestar like “America First.”

Our So-Called Foreign Policy: An Empty Obama UN Farewell

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assimilation, education, geopolitics, global integration, globalization, international law, international norms, Islam, labor standards, Middle East, Muslims, Obama, Our So-Called Foreign Policy, radical Islam, reeducation, refugees, skills, sovereignty, TPP, Trade, trade enforcement, training, Trans-Pacific Partnership, UN, United Nations

National leaders’ speeches to each year’ UN General Assembly – even those by American presidents – are rarely more than meaningless boilerplate or cynical bloviating. But President Obama’s address to the organization yesterday – as with some of its predecessors – is worth examining in detail both because it was his last, and because Mr. Obama clearly views such occasions as opportunities to push U.S. and international public opinion in fundamentally new directions where they urgently need to head.

In yesterday’s case, the president saw his mission as justifying his belief that Americans in particular need to reject temptations to turn inward from the world’s troubles, and more completely embrace forces that inexorably are tightening international integration economically and even in term of national security.

To be fair to Mr. Obama, he sought to offer “broad strokes those areas where I believe we must do better together” rather than “a detailed policy blueprint.” But even given this caveat, what’s most striking is how many of the big, tough questions he (eloquently) dodges.

Here’s the president’s main premise and conclusion:

“…I believe that at this moment we all face a choice. We can choose to press forward with a better model of cooperation and integration. Or we can retreat into a world sharply divided, and ultimately in conflict, along age-old lines of nation and tribe and race and religion.

“I want to suggest to you today that we must go forward, and not backward. I believe that as imperfect as they are, the principles of open markets and accountable governance, of democracy and human rights and international law that we have forged remain the firmest foundation for human progress in this century.”

This passage makes clear that Mr. Obama doesn’t buy my thesis that the United States is geopolitically secure and economically self-sufficient enough in reality and potential to thrive however chaotic the rest of the world. Nor does he believe the converse – that the security and prosperity the nation has enjoyed throughout its history has first and foremost stemmed from its own location, and from its ability to capitalize on its inherent advantages and strengths, not from cooperating or integrating with the rest of the world.

The president’s contention that “the world is too small for us to simply be able to build a wall and prevent it from affecting our own societies” rings true for most countries – even assuming that he doesn’t really think that this stark choice is the only alternative to complete openness to global developments and commerce and populations and authority, however promising or threatening. But he seems oblivious to America’s “exceptionalism” geopolitically and economically.

Even if I’m wrong, however, and even accepting Mr. Obama’s “broad strokes” objectives, this lengthy presidential address gives national leaders and their citizens almost no useful insights on how countries can achieve his goals. Here are just two examples:

The president recognizes the need to make the global economy “work better for all people and not just for those at the top.” But given the trade deals he himself has sought, how can worker rights be strengthened “so they can organize into independent unions and earn a living wage”? The president insisted again that his Pacific Rim trade deal points the way. But as I’ve noted, the immense scale of factory complexes even in smallish third world countries like Vietnam makes the necessary outside monitoring and enforcement impossible.

Similarly, no one can argue with Mr. Obama’s recommendation to invest “in our people — their skills, their education, their capacity to take an idea and turn it into a business.” But as I documented more than a decade ago in my The Race to the Bottom, governments the world over, including in the very low-wage developing world, recognize the importance of improving their populations’ skill and education levels. In addition, multinational corporations can make workers productive even in these very low-income countries – and continue paying them peanuts compared with wages in more developed countries. Why should anyone expect his recommendation to give workers in America a leg up?

It’s easy to sympathize with the president’s call “to open our hearts and do more to help refugees who are desperate for a home.” Who in principle is opposed to aiding “men and women and children who, through no fault of their own, have had to flee everything that they know, everything that they love,…”?

But as Mr. Obama indirectly admitted, many of these refugees come from a part of the world where “religion leads us to persecute those of another faith…[to] jail or beat people who are gay…[and to] prevent girls from going to school….” He also described the Middle East as a place where too often the “public space” is narrowed “to the mosque.”

It was encouraging to see him recognize the legitimacy – though perhaps not the necessity – of insisting “that refugees who come to our countries have to do more to adapt to the customs and conventions of the communities that are now providing them a home.” But is he blithely assuming success? And it was less encouraging to see him ignore the excruciatingly difficult challenge of adequately vetting migrants from war-torn and chaotic countries.

Finally, on the political side of integration, the president seems to lack the courage of his convictions. For despite his high regard for international law, and support for America “giving up some freedom of action” and “binding ourselves to international rules,” he also specified that these were long-term objectives – presumably with little relevance in the here and now. Indeed, Mr. Obama also argued that, even way down the road, the United States wouldn’t be “giving up our ability to protect ourselves or pursue our core interests….”

So it sounds like he’d relegate even future international law-obeying to situations that really don’t matter. Which is fine. But how that gets us to a more secure world is anyone’s guess.

It’s true that Mr. Obama will be leaving office soon, and that his thoughts no longer matter critically. But at the same time, American leaders have been speaking in these lofty globalist terms for decades. If the president is indeed right about global integration and the future, what a shame that he didn’t make more progress in bringing these ideas down to earth.

Making News: New Op-Ed Says U.S. Trade Strategy Flawed from the Get-Go

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enforcement, environmental standards, free trade deals, labor standards, Lifezette.com, Making News, non-tariff barriers, tariffs, TPP, Trade, Trans-Pacific Partnership, unilateralism

I’m pleased to report that my latest op-ed article has just been posted this morning on Lifezette.com – which analyzes a new U.S. government report on the likely economic impact of President Obama’s Pacific Rim trade deal. The piece explains that this study makes clear not only the dangers posed by this Trans-Pacific Partnership (TPP) to America’s growth and employment performance, but why the nation’s standard goal of negotiating terms of trade with more protectionist economic powers is completely misguided.

I hope that this piece spurs major debate both on the TPP and on the potential – and indeed the superiority – of unilateralism as a new basis for America’s global trade strategy. What do you folks think?

(What’s Left of) Our Economy: Obama’s TPP Case is Staler than Ever

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ADB, AIIB, APEC, Asia Pacific Economic Cooperation, Asian Development Bank, Asian Infrastructure Investment Bank, China, environmental standards, export-led growth, exports, Free Trade Area of the Asia Pacific, FTAAP, Japan, labor standards, NAFTA, North American Free Trade Agreement, Obama, RCEP, Regional Comprehensive Economic Partnership, SOEs, state-owned enterprises, TPP, Trade, Trans-Pacific Parternship, World Bank, {What's Left of) Our Economy

Maybe President Obama believes that repeating even the most laughably off-base contentions endlessly will make them true? Or convincing? It’s hard to look at his new Washington Post op-ed urging passage of his Pacific Rim trade deal and conclude anything else. The article makes clearer than ever that the Trans-Pacific Partnership (TPP) makes sense for the United States only if Americans ignore everything known about the agreement itself, about U.S. trade with the eleven other signatories, and about the region’s economics and commerce.

The President’s fraudulent case for TPP starts with his first claim – that “some of our greatest economic opportunities abroad are in the Asia-Pacific region.” Trouble is, as I’ve noted, the only truly fast growers on the list of TPP countries are economies like Vietnam and Malaysia, whose growth depends on not only exporting, but on amassing large trade surpluses. They lack both the capabilities and the intention of becoming significant net buyers of U.S.-origin goods and services. Compared with the United States, most of the other TPP countries are growth laggards.

Similarly, Mr. Obama’s description of the proposed TPP zone as representing a whopping 40 percent of the global economy ignores how the American economy represents more than 60 percent of total TPP area output. Moreover, the United States already has negotiated trade deals with many of the largest signatories, notably Australia, Canada, and Mexico. So Americans have long reaped nearly all of whatever benefits the President argues will result from this exercise in trade expansion.

No more credible is Mr. Obama’s insistence that the TPP will benefit America by enabling the United States to influence writing the rules that govern regional commerce rather than permitting Chinese-led arrangements shape this environment.

After all, as critics like Republican presidential front-runner Donald Trump has pointed out, China already stands to gain from the TPP, thanks to loose origin requirements that permit free or freer trade of goods with high levels of content from non-TPP countries. And since China for decades has been a key node in the multinational production chains that bind together so many Asian economies, much of this non-TPP content will obviously be Chinese.

Further, nothing could be clearer than the determination of the TPP countries to avoid making either-or choices when it comes to rule-writing exercises for East Asian commerce. No less than six TPP signatories – including Australia and New Zealand – have signed up to participate in the Asian Infrastructure Investment Bank (AIIB) that China set up recently in part as a TPP counterweight. And although the largest by far non-U.S. TPP signatory, Japan, has so far declined to bandwagon, the Asian Development Bank (ADB) that it has traditionally co-dominated has started working actively with the AIIB. So has the World Bank.

These last two developments, by the way, mean that the United States has also decided to work with the Chinese initiative rather than continuing to oppose it, since Washington plays a major role in both institutions.

And what about the Chinese-initiated regional trade agreements about which Mr. Obama expressed so much alarm? The Regional Comprehensive Economic Partnership singled out by the president has already attracted seven TPP signatories – including Japan, along with Australia and New Zealand.

Interestingly, Mr. Obama didn’t mention a second Chinese regional trade scheme – a Free Trade Area of the Asia Pacific (FTAAP). Maybe that’s because he’s decided to cooperate with Beijing on this front, too, at least to the extent that he approved a study of the proposal under the auspices of the Asia Pacific Economic Cooperation (APEC) process in which Washington participates.

Finally, the president’s belief that the TPP will greatly boost U.S. exports through enforceable new rules remains a monument to delusion. As I’ve explained, enforcing labor and environmental standards would require an army of American officials to inspect hundreds of thousands of facilities in low-income countries like Vietnam and Malaysia. Who’s going to pay for these personnel? And that’s not even including the vast manufacturing complex that’s been created in Mexico since it joined a North American Free Trade Agreement (NAFTA) more than twenty years ago, and in which evidence abounds such provisions remain overwhelmingly ineffective.  (Hence, largely, the president’s insistence that “this time, it will be different” in TPP.)  

As for the state-owned enterprises (SOEs) whose trade-distorting activities TPP will supposedly curb, how will U.S. officials gain access to these notoriously secretive constructs and their financial records? Moreover, since low (at best) labor and environmental standards along with opaque SOEs are keys to competitiveness throughout Asia, why would the region’s TPP signatories give Washington the power to weaken these arrangements through dispute-resolution hearings?

President Obama writes that the alternative to Congress passing the TPP is “building walls to isolate ourselves from the global economy.” That’s the most pernicious trade policy and TPP myth of all. The real alternative is developing trade policies based on global economic realities, not his own fantasies about the power of mere pen strokes.

(What’s Left of) Our Economy: Thomas Friedman’s Trump Trade Column Must be a Hack Job

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China, Donald Trump, environmental standards, labor standards, monitoring and enforcement, state-owned enterprises, The New York Times, Thomas Friedman, TPP, Trade, trade agreements, Trans-Pacific Partnership, {What's Left of) Our Economy

Thomas Friedman’s email account must have been hacked! Assuming the New York Times columnist doesn’t walk his offerings over to the paper’s editorial page office, what else could explain the appearance last night of an essay on trade under his byline so chock full of embarrassing mistakes and stale canards?

True, the column had a characteristically clever, Friedman-like premise: Republican presidential front-runner Donald Trump shouldn’t be criticizing President Obama’s Trans-Pacific Partnership (TPP) trade agreement because it contains exactly the kinds of tough-minded provisions that the champion deal-maker would insist on himself. Unfortunately, whoever really wrote the article revealed such ignorance that identity theft must have been committed.

To start, the impostor assumed that passages in a treaty’s text are remotely likely to change facts on the ground. But anyone as knowledgeable about trade policy as Friedman – who covered the beat for The Times in the 1990s – must realize that monitoring and enforcing rules on the books has never been a remotely strong suit of the U.S. government.

A big part of the reason is logistical.  As I’ve noted repeatedly, manufacturing complexes even in smallish developing countries like TPP signatory Vietnam are so vast that making provisions like new labor rights and environmental protections actually stick is impossible even for a superpower. Indeed, Washington struggles even to enforce such rules in the United States.

Another big reason has to do with the secretive nature of Asian governments like those in Vietnam and other TPP signatories such as Japan and Malaysia. Although the Pacific Rim trade pact does seek to curb the ways that these bureaucracies distort trade flows, anyone as familiar with the region as Friedman surely realizes that these regimes put few of their biggest decisions in writing, and make even fewer of them public. So as has long been the case, American officials will be hard-pressed even to identify violations of the new TPP provisions, let alone combat them effectively.

It’s also hard to imagine that the real Friedman would simply parrot the Obama administration talking point that TPP will greatly benefit Americans by eliminating tariffs in 18,000 product categories. How could he not have seen the documentation provided by Public Citizen (and refuted by exactly no one) that the United States doesn’t even sell overseas more than half of these products, and that its exports in most of the rest are miniscule?

And it’s positively inconceivable that the genuine Thomas Friedman would have claimed that “if we walk away from the TPP all our friends in the Pacific will just sign up for China’s R.C.E.P., or Regional Comprehensive Economic Partnership, which will set trade rules in Asia….” He obviously would have known that six of the ten other TPP countries are clearly hedging their bets by signing on to the Chinese initiative, too. These including the biggest by far (Japan and Australia), along with Malaysia, New Zealand, Singapore, Vietnam.

In other words, the real Thomas Friedman would never have written that a negotiator as good as Donald Trump would have okayed an agreement with this many gaping loopholes and other weaknesses. Let’s hope that the hacker(s) are caught before Friedman’s reputation takes on more water!

Im-Politic: Trump’s On-Target – & Detailed – China Trade Plan

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2016 election, China, currency manipulation, Democrats, Donald Trump, environmental standards, exports, forced technology transfer, Hillary Clinton, Im-Politic, imports, intellectual property theft, labor standards, Mainstream Media, Obama, offshoring, political classes, Republicans, special interests, subsidies, think tanks, TPP, Trade, Trans-Pacific Partnership, World Trade Organization, WTO, yuan

Boy, it’s hard to keep Donald Trump and his campaign for the GOP presidential nomination from dominating my posting. That’s because he remains the only presidential candidate recognizing the need to overhaul both the U.S. trade and immigration policies that have long been gutting the truly productive sectors of the American economy, and kneecapping wages and living standards for the nation’s working and middle classes.

Trump’s on-target priorities have once again been displayed in the new position paper he’s released on handling China – which is key to getting overall American trade policy right as well as getting much of U.S. national security policy right. Also evident from this paper – despite endless claims by the establishment-coddling Mainstream Media that Trump’s campaign is all sizzle and no steak, he’s once again outlined a series of impressively detailed policy positions.

And Trump’s China policies boast strong potential to put Hillary Clinton and other progressives who claim to champion American workers squarely on the spot. The Democratic presidential front-runner has said or posted nothing comparably specific on trade issues other than (for now?) opposing President Obama’s Trans-Pacific Partnership (TPP). Unless she ups this part of her game, independent voters are sure to take note.

Trump’s China plan starts off by correctly identifying the crux of America’s China problems right away. In the process, he’s sharpened his rhetoric and message. Rather than blame U.S. policy failures on simple “stupidity” on the part of American leaders, he points out that the nation’s economic approach to China has served the interests of “Wall Street insiders that want to move U.S. manufacturing and investment offshore,” not American workers. I’d have broadened that indictment to include most of the nation’s multinational manufacturing companies, but Trump valuably reminds voters that the biggest immediate obstacles to improving their economic prospects are Americans, not “foreigners.”

Trump also understands that many of China’s most harmful trade practices have nothing to do with the kinds of tariffs and quotas that for centuries dominated country’s efforts to keep domestic closed. Moreover, he focuses on the vast array of non-tariff barriers used by Beijing “to keep American companies out of China and to tilt the playing field in [its] favor.” These range from currency manipulation to rampant intellectual property theft to exports subsidies that clash with global trade law to forced technology transfer to “lax labor and environmental standards” that enable China’s “sweatshops [and] pollution havens [to steal] jobs from American workers.”

In addition, the Republican presidential hopeful gets the vital point that the damage done to the American economy by these Chinese practices can’t be ended without forcing China to face some consequences – namely, lost access to a U.S. market that China desperately needs in order to sustain growth and employment rates that can help keep its rulers in power. Trump does express some hope that such threats can lead China to “join the 21^st century.” But he also indicates that, until and unless this goal is achieved, it makes no sense to permit China “to trade with America.”

Trump’s China plan will be slammed by the offshoring-happy, China-coddling Mainstream Media – and surely by nearly all of the policy hacks staffing America’s offshorer-funded think tanks. And let’s not forget many of his fellow Republican candidates, whose campaigns are largely financed by these special interests.

But it will be especially interesting to see the reactions of Trump’s Democratic opponents and the rest of the nation’s liberal and progressive establishment. For most of Trump’s positions mirror those of the party’s mainstream – and can be found in numerous bills their legislators have introduced into Congress and voted for. Will they continue dismissing Trump a charlatan – and worse?

In fact, if Trump’s positions deserve criticism on any score, it’s that they’re too mainstream – and accordingly timid. For example, since, as Trump sees, the United States does enjoy such decisive leverage over China by dint of serving as “the world’s most important economy and consumer of goods,” there’s relatively little need for Washington to negotiate more effectively with Beijing. His positions are better presented as take-it-or-leave-it propositions, with market access turned off, or at least curbed, until strong evidence of China’s compliance is available.

Similarly, Trump is far too deferential to the World Trade Organization (WTO), whose creation spearheaded by the mercantile U.S. trade competitors and American offshoring interests precisely in order to prevent the defense of  U.S. economic interests in a timely, effective – i.e., unilateral – manner. At one point, his China paper (rightly) suggests that U.S. policy need not rely so heavily on the deliberations of “an international body.”

But he also (wrongly) suggests that Washington should continue to rely heavily on using the WTO to resolve its trade problems with China – an approach that is not only pitifully piecemeal, but that keeps an anti-American international kangaroo court in charge of most American international economic interests. If he’s serious about defending these interests – and restoring full American sovereignty – Trump needs to support establishing the United States as judge, jury, and court of appeals over all trade disputes, as well as over whatever enforcement issues arise from existing or future trade agreements.

Further, Trump appears to place excessive emphasis on China’s current currency manipulation. To be sure, there’s still strong evidence that the yuan remains substantially undervalued. It’s also not legitimately deniable that anti-currency manipulation tariffs would be an especially effective response to China’s trade predation. After all, China’s exchange-rate protectionism artificially cheapens the cost of everything produced in and traded by China. Therefore, these Chinese products (and services) receive price advantages over foreign competitors that have nothing to do with free trade or free markets. 

But it’s also undeniable that China’s currency policies have gotten much more complicated in recent months, as Beijing has needed to move to support the yuan in order to stem unprecedented capital flight. So for both political and substantive reasons, Trump would have been much better advised to treat currency manipulation as threat that is all too likely to reemerge if China’s economy keeps slowing, not as today’s leading danger. (The same of course holds for the Asian countries who have just negotiated President Obama’s Pacific Rim trade agreement.)

Yet despite these flaws, Trump’s instincts on trade policy remain much sharper than those of the rest of the nation’s media/political establishment – not least of which entails his understanding that it won’t be possible to “make America great again” unless its trade policy becomes great again, too. And his new China trade blueprint shows that he grasps enough major policy details to make that goal reality.

(What’s Left of) Our Economy: The Text Showcases TPP’s Real Flaws

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China, currency manipulation, dispute resolution, enforcement, environmental standards, exports, imports, labor standards, Obama, protectionism, rules of origin, state-owned enterprises, TPP, Trade, Trade Deficits, trade surpluses, Trans-Pacific Partnership, Treasury Department, World Trade Organization, WTO, {What's Left of) Our Economy

The release this morning of the Trans-Pacific Partnership trade deal (TPP) text means that the Obama administration has kept at least one of its promises in connection with the Pacific Rim agreement: The public has gained the ability to review every single provision in detail within a month of the deal’s signing in Atlanta, Georgia.

Nonetheless, when it comes to evaluating the TPP, the devil is not in the details, and never has been – for all the sweat expended by government officials and industry lobbyists from the 12 signatory countries on even the most arcane aspects of rules of origin, tariff rates and elimination schedules, copyright protections, labor and environmental standards, and the like. All the while, there have been only been two remotely possible exceptions – the agreement’s provisions for dispute resolution, and for determining which goods will actually be eligible for the agreement’s trade breaks.

Re dispute resolution, which is obviously crucial to any agreement’s effectiveness but which has been generally ignored in the TPP debate, the text’s release simply confirms what has always been utterly predictable: This system mirrors the kangaroo court arrangements of the World Trade Organization (WTO) – whose creation has done virtually nothing to prevent the U.S. economy’s victimization from predatory foreign trade practices. As a result, the claim of President Obama and other supporters that the agreement will create a huge, increasingly integrated market governed by U.S.-friendly, free-market-oriented rules should be recognized as the most naive imaginable fantasy.

Re rules of origin, the text confirms numerous press reports that the TPP’s benefits will extend to many products whose content comes from outside the new trade zone – which makes a mockery of the notions that currently excluded countries like China need to join in order to enjoy TPP’s benefits, and that the agreement’s conclusion therefore creates powerful incentives for such non-signatories to adopt the TPP’s high standards,

The TPP dispute-resolution process unveiled in the text demonstrates that the vast majority of member states, whose prosperity depends heavily on maximizing net exports and thus racking up trade surpluses, will gain major new guarantees of unfettered access to America’s much more open market. As with the WTO, a crucial effect of the TPP – and raison d’etre – is to narrow greatly the United States’ internationally accepted legal authority to respond unilaterally to the types of mercantilism in which most TPP countries, notably gigantic Japan, specialize.

Moreover, as with the WTO, despite the paramount importance of the U.S. market, the TPP’s dispute-resolution and rule-making systems grant no special role for America. Even though its economy represents nearly two-thirds of the new total TPP market, its influence under the agreement is simply equal to that of much smaller, and indeed tiny, economies.

Worse, just as with the WTO, the TPP’s one-country/one-vote arrangement will enable the majority of the signatories to game the system and work cooperatively to further their joint goal of ensuring that the U.S. market remains much wider open to their goods and services than the reverse. In other words, like the WTO, and all other international organizations, the TPP will be fundamentally a political organization, not a legal-juridical arrangement, and America’s negotiating strategy has in effect defined its inevitable politics out of existence.

Consequently, whatever market-opening and playing-field language the TPP text contains, turning these words into significantly new, more equitable trade realities is a chimera. For the vast majority of TPP members will be determined – and empowered through their ability to interpret rules and influence verdicts – to ensure the opposite. These countries will be working overtime, and successfully, to prevent TPP dispute-resolution panels from handing down decisions against one that could serve as precedents against all of the others, and the larger organization from writing rules, that could be used to undermine their mercantile national economic structures and strategies.

Understanding the TPP’s protectionist-friendly structure in particular debunks U.S. claims that it will foster meaningful progress toward ending or even disciplining currency manipulation. According to the U.S. Treasury Department, an agreement on this practice among the twelve signatories – which, revealingly, isn’t even in the actual TPP text – “sets a new high standard on exchange rate policies and unfair currency practices for trade agreements.”

But believing this proposition amounts to believing that countries with long protectionist histories, like Japan and Malaysia, are OK with launching efforts that eventually will forever prevent them from using a device for creating decisive price advantages for all the goods they trade in markets around the world. What is it that is known about such economies that convinces anyone that such changes of heart have taken place?

In addition, the rules of origin laid out in the final text make clear that nothing could be easier for non-signatories, like China, to enjoy many crucial advantages of TPP membership. After all, thousands of manufactured goods will be eligible for duty-free or duty-lighter treatment in TPP markets even if most of their content comes from non-TPP members. Given the pervasive global reality of industrial supply chains passing through many countries both in the TPP and outside, this is a Pacific-sized loophole.

The text’s release also should remind Congress, the public, and the media that even if the TPP’s deck wasn’t organizationally stacked against the United States, its measures to prevent abuses of workers and the environment, and the operations of state-owned enterprises, from being used for competitive advantage, are utterly unenforceable from a simple logistical and administrative standpoint.

As I have repeatedly pointed out, the factory complexes of even relatively small TPP economies dwarf the capacity of the U.S. government to monitor their labor and environmental practices systematically. And in many TPP economies, the lines between public and private sector are blurry enough, and bureaucracies opaque and skilled enough at concealing information, to render wishful thinking any confidence that these systems can be transformed.

It’s equally fanciful to suppose that even the TPP’s minimalist origin rules can be effectively enforced, either. How many million American bureaucrats would be required to open how many containers of goods coming into U.S. ports to ensure compliance? And how many more would be needed to find out whether boxes of Chinese-produced goods marked “Made in Malaysia” or “Made in Japan” really are?

All along, the effort to negotiate the TPP, and the debate generated by the deal, have reflected the American delusion that signatures on a piece of paper prove that economies that have been largely closed and centrally commanded for decades have genuinely decided to mend their ways. It’s been a delusion shared by both agreement supporters (who contend that they’ve accomplished this aim) and opponents (who insist that this goal can be achieved with better language).

As a result, even the TPP’s defeat in Congress may not guarantee that American trade policy will get off its failed, export- and negotiations-obsessed track, and focus on what the United States has much more control over – access to its own one-of-a-kind market and the leverage it creates to establish more equitable and sustainable terms of trade unilaterally. But the right kind of TPP debate could still provide an invaluable learning opportunity – and start the process of turning America’s approach to trade into an engine of domestic growth and job creation, rather than of offshoring, higher trade deficits, and (even) slower recovery.      

(What’s Left of) Our Economy: Senate Fast Track Vote Reveals Widespread Trade Policy Cluelessness

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Congress, currency manipulation, fast track, House of Representatives, human trafficking, labor standards, Malaysia, Obama, Rob Portman, Robert Menendez, Senate, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, {What's Left of) Our Economy

With the Senate approving fast track negotiating authority for the president in the wee hours today, it’s an ideal time to take stock of where Mr. Obama’s trade agenda stands.

First, the fast track debate now heads to the House of Representatives, which has always been more resistant to the trade strategies pursued by America for at least two decades. Campaign finance dynamics largely explains why: Since Senate seats are state-wide offices, they’re much more expensive to win that House seats, and therefore big money is especially important. And America’s big money loves job- and growth-killing trade deals.

Second, largely as a result, just in terms of political score-keeping, the Senate’s endorsement is no big deal. In fact, the only real suspense came on a vote on a measure that would have required any trade deals submitted to Congress to contain enforceable disciplines on currency manipulation. It was defeated, but only by a 51-48 vote. At the same time, the details of this issue speak volumes about how un-seriously even well-intentioned American leaders handle trade issues.

As I’ve explained before, even the measure offered by Republican Senator Rob Portman of Ohio and his Democrat Debbie Stabenow of Michigan would have done nothing to solve this problem. Why not? There’s no global anti-currency manipulation consensus (and indeed, many countries are determined to either use it or retain the option). Moreover, future U.S. trade deals, such as the proposed Trans-Pacific Partnership (TPP) are likely to include majoritarian dispute-resolution systems just like their predecessors. Therefore, any American complaints filed under the new regimes can be expected to go exactly nowhere.

But let’s give supporters of the amendment the benefit of the doubt and just assume that they hadn’t had time to think this far ahead. This shortcoming could be entirely forgivable given how vehemently and for how long the opposition, led by President Obama and Congress’ Republican leaders, has rejected effective responses to currency manipulation. It would still be anything but clear why so many Portman-Stabenow backers wound up favoring the fast track bill once the currency provision went down – including Portman himself, who had warned colleagues that without his measure, “In one week, through currency exchanges, you can undo years of benefits in terms of reducing tariffs and non-tariff barriers in a trade agreement.”

Another example of how fundamentally inane the fast track debate has become concerns the economically tangential, but of course morally abhorrent, issue of human trafficking. The subject was injected into trade policy and politics by Democratic Senator Robert Menendez of New Jersey, who offered an amendment that would bar Congress from using fast track procedures for any trade deals with countries officially accused by Washington of egregious human trafficking records. TPP first-round member Malaysia falls into this category.

Even though the Obama administration regarded it as a TPP-killer, the Menendez measure passed the fast track- and offshoring-friendly Senate Finance Committee by a strong bipartisan 16-10 vote. Fast track supporters evidently were counting on weakening it enough to make it acceptable to the White House and to the Malays, but somehow the full-strength Menendez amendment survived and was included in the final trade legislation. It’s easy to see how fixing what fast track backers insist is a major problem could push the bill’s journey through Congress further into the intensifying 2016 presidential campaign cycle, and thus threaten its chances.

But the Malaysia trafficking fight is noteworthy in at least three other respects, too. First, it’s as vulnerable to nullification by TPP members as the Portman-Stabenow currency measure. Second, it’s also vulnerable to nullification by President Obama, who could in principle appease the Malaysians and others simply by certifying that their trafficking record has improved. But even if these two propositions were not true, the Malaysia ruckus reveals a third fast track and TPP-related complication that looks especially damaging to their supporters. For it belies sweeping claims by the president and his trade policy supporters that the TPP is creating high, enforceable standards in areas like labor rights and environmental protection.

If the president is right (and I’ve explained why, for separate reasons, he isn’t), then TPP will serve as “the most progressive trade deal in history” because its social and human rights and ecological and other requirements will be strong enough to require violators to change their ways – presumably by threatening them with the loss of trade preferences created by the agreement. But according to fast track backers, including the president, Malaysia is not only not preparing to clean up its human trafficking act. It’s threatening to torpedo the whole TPP if the measure survives. And judging by these expressed fears, it’s succeeding. If according to Mr. Obama, Malaysia feels free to resist a TPP rule on a practice that is in effect the toleration of slavery, why won’t other developing countries feel equally free to resist TPP rules in much more (legitimately) controversial areas, like appropriate levels of worker rights and environmental protection in developing countries?

The continuing irony surrounding the fate of fast track and TPP is that the Obama trade agenda is so misbegotten that it could well fail in the House without critics raising any of the above contradictions. But beyond the immediate future, they’re important because they make clear that even if many fast track opponents succeed in reshaping American trade policy to reflect their stated priorities, the resulting new agreements would damage the U.S. and world economies as much as their predecessors. Much more radical surgery on this policy front is needed. If fast track’s defeat doesn’t spotlight that need, American leaders will have missed an all-too-rare opportunity to help foster genuine, because sustainable, growth nationally and globally.

(What’s Left of) Our Economy: On Trade, Now What?

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currency manipulation, dispute resolution, environmental standards, fast track, Financial Crisis, free trade agreements, gross domestic product, labor standards, Obama, offshoring lobby, reciprocity, recovery, rule of law, Senate, Trade, trade enforcement, Trans-Pacific Partnership, transparency, U.S. Trade Representative, unilateralism, {What's Left of) Our Economy

Although yesterday’s Senate vote doesn’t mean that President Obama’s hopes for winning fast track trade negotiating are dead, this historically trade- (and offshoring-) friendly body’s decision to delay debate with a new presidential election cycle already heating up certainly dims the odds. Just as important, their Senate victory starts putting the onus on critics to propose a new U.S. trade strategy. Here are some of my ideas.

First, about the only true statement Mr. Obama has made during the debate over a measure that would prevent Congress from amending newly signed trade agreements is that the status quo on this policy front is unacceptable. To me, the most damning indictment of the current trade landscape is my finding that the portion of U.S. trade flows most influenced by trade deals and related policies has worsened greatly during this feeble economic recovery – and slowed real growth since the last recession.  Since that article was published, that growth toll has risen to nearly 20 percent.

The answer, however, isn’t doubling down on the kinds of treaties that have produced this policy disaster. Nor is it dressing up the current framework with Congressional directives to enforce higher labor and environmental standards at foreign factories. Too many well-intentioned trade critics in particular ignore the immense difficulties Washington has had adequately regulating in the United States. As I’ve repeatedly written, the notion that huge foreign factory complexes can be monitored more effectively doesn’t stand to reason.

I’m much more sympathetic to adding what are called strong, enforceable curbs on foreign currency manipulation to the list of Congress’ mandatory trade negotiating instructions to presidents, but even this idea faces a huge problem. Many of America’s prospective trade deal partners are determined to retain the right to undervalue their currencies to undersell U.S.-origin goods and services for reasons totally unrelated to free markets or underlying competitiveness. Therefore, unless the United States wins unprecedented voting power in the dispute-resolution systems created by new trade agreements, other parties to the deal will easily be able to reject even the best-founded American complaints.

These very weaknesses in the current trade policy models supported by both supporters of current deals (and to a fascinating extent by the critics) start pointing the way to a fundamentally new approach. So do the unmistakable realities that the U.S. market is by far the biggest prize of any trade negotiations; that it enjoys a matchless potential for economic self-sufficiency; and that even though rebounding trade deficits (especially those shaped by policy) are dragging on America’s weak-enough recovery, the U.S. economy has been a global out-performer lately. (Interestingly, preliminary figures have just revealed that the chronically troubled Eurozone expanded faster than America in the first quarter of this year, but the main reasons are improving European trade balances and worsening American deficits.)

As a result, Washington should scrap its commitment to traditional negotiations and the quest for new international deals as the basis for its trade policy. Since access to the American market is so uniquely valuable to most foreign economies, and since Washington has so much more capacity to enforce laws and regulations within the U.S. economy than without, U.S. leaders should focus instead on establishing the terms of doing business in America unilaterally. Foreign governments could certainly retaliate, although the chronically lopsided pattern of global trade can leave no doubt that they’d come out the worse in any resulting “trade war.” It’s far likelier that America’s competitors would, in essence, pay to play.

And here’s another reason that any overseas protests would be short-lived: Because the United States takes seriously values like the rule of law and transparency, an exclusively American-run system for enforcing domestic trade justice would give them a much fairer shake than their own governments often give their own companies and workers in their own economies.

This new approach need not destroy all employment opportunities at America’s trade negotiating agencies. Officials at the U.S. Trade Representative’s office could still find useful work devising deals based on genuine reciprocity. But because the main foreign trade barriers nowadays consist of practices developed and carried out by highly secretive foreign bureaucracies, making evidence painfully difficult to find, determining whether such reciprocity has been achieved would be up to Washington exclusively.

Ironically, many American trade policy critics can be expected to charge that this unilateralism would trample the sovereignty of countries all around the world. But nothing could be further from the truth. Any foreign governments finding the new policy unacceptable would be perfectly free to seek growth and employment and prosperity without utilizing American demand. Of course, the offshoring lobby and various avowed free market champions will angrily condemn the new approach as neanderthal protectionism. But it’s truer to private sector norms in one crucial respect. Rather than giving away for free an enormously valuable asset like the American market, this strategy would charge a price.

Since the new strategy would represent such a dramatic and disruptive policy revolution, it’s best to phase it in – the way current trade agreements phase in agreed-on reductions or elimination of many trade barriers. Economic actors certainly deserve time to adjust. In fact, here’s a possible compromise for the squeamish: Washington could continue seeking trade deals that establish various new rules and standards for U.S. and foreign economies. But America’s role in any dispute-resolution system should be proportionate to the size of its economy in any new free trade zone. So for President Obama’s proposed Pacific Rim trade deal (the Trans-Pacific Partnership), the United States would hold nearly two-thirds of the votes, because America’s gross domestic product equals that percentage of the prospective free trade zone’s economic output. Surely that’s more equitable than the standard one-country-one-vote approach.

These ideas are strong medicine, to be sure. But critics should keep in mind that the historic imbalances produced by America’s current trade strategy helped set the stage for last decade’s financial crisis and its dispiriting aftermath, and that even despite the slow U.S. and global recoveries, trade flows are becoming similarly lopsided again. I’m perfectly willing to acknowledge that superior approaches might be developed. But what have their creators been waiting for?