In an effort to “show the country that [they] are the party on the side of working people,” as their Senate leader, Chuck Schumer, put it, the Democrats have unveiled a new agenda, entitled “Better Deal,” which addresses, among other things, one of their political Achilles’ heels: their position on international trade.
Their description of the problem with our trade policy gets a lot right. “For too long,” their white paper notes, “corporations have dictated how trade deals and foreign acquisitions are negotiated and the American worker has been left without a seat at the table.” They also correctly note the lack of transparency in past trade-negotiation processes and provide some worthwhile policy recommendations to begin to address these problems.
If they’re serious about making trade deals work better for low- and middle-income Americans, however—not to mention for low- and middle-income people in other countries—the Democrats’ proposal, while a good start, still needs work.
The needle you want to thread when it comes to trade policy is to ensure a better distribution of the gains from trade flows without unnecessarily distorting those flows. The increase of global trade from 25 percent of global GDP to 60 percent over the past 50 years reveals a fundamental expansion of global supply chains that has yielded many important benefits, both here and abroad. But the rules of the road by which we trade have increasingly channeled those benefits toward profits and away from paychecks, and that needs to be corrected.
One good idea in the Democrats’ Better Deal plan calls for a new, independent trade prosecutor who would investigate countries and companies that violate trade agreements by blocking our agricultural exports or reneging on “labor and environmental commitments.” It’s true that we already have an executive agency—the United States Trade Representative—responsible for precisely such oversight, and that even if USTR drops the ball, the purpose of the World Trade Organization is to enforce agreements among its 164 member countries. But the USTR has long fallen victim to corporate capture, and the WTO is a sclerotic organization that often takes years to adjudicate anything.
Also warranted is the Democrats’ call for “duties to be assessed against countries that manipulate their currencies,” or countries that lower the value of their currencies relative to the dollar to boost their trade balance with the United States in ways that can lead to job losses here. In their essential new book on this problem, economists Joe Gagnon and Fred Bergsten argue that a 10 percent increase in the value of the dollar against the currencies of our trading partners worsens our trade balance by about $300 billion. “Such changes,” they write, “can [reduce] U.S. GDP by as much as 1 to 2 percent, depending on the state of the economy and the macroeconomic response.” They stress that “every $1 billion of trade links to roughly 6,000 jobs.” Our trade negotiators have long shied away from addressing this problem with enforceable rules against currency manipulation in trade deals, and it’s good to see Democrats taking a firm stand in favor of changing that.
The Better Deal also includes some useful ideas on standards for direct federal spending and government contracts. While it’s important for the government to have options if it can’t find competitively priced, domestically made materials for a project, other countries procure a far lower percentage of their materials from the United States than the United States procures from them. That’s why it’s reasonable to have stronger “Buy American” standards, especially during recessions. Tying such provisions to downturns avoids the prospect of stimulus funds, such as steel purchases for infrastructure, being spent on imports.
However, aspects of the Democrats’ proposal need work. The paper conflates the outsourcing of jobs with corporate inversions, which occur when companies relocate their headquarters for tax purposes but without necessarily changing any of their real economic activity. The remedy the Democrats propose for this tax avoidance problem is “a tax credit of up to 20 percent of the cost of relocating production and jobs back to the U.S.” But such a tax credit is more likely to provide a windfall for companies that would have engaged in these behaviors anyway than to substantially reduce outsourcing. The correct solution to the inversion problem is direct anti-inversion rules, and when it comes to the outsourcing problem, enforceable labor and environmental standards in other countries are more likely to help than race-to-the-bottom tax policy. Such standards, which the Democrats do at least recommend in Mexico, would also ensure that the benefits from trade accrue to those historically left behind.
Importantly, the white paper sidesteps a critical discussion about one of the biggest impediments to decent labor and environmental standards, a provision known as the investor-state dispute settlement, or ISDS.
By lifting the rights of foreign firms and their investors above those of sovereign governments, ISDS rules are the poster child for the corporate capture in international trade agreements. Under ISDS, corporate investors can sue national governments in international tribunals, whose proceedings are not fully public, when they believe governments have violated the commercial interests guaranteed to them in trade agreements like NAFTA. Those “violations” may include sovereign U.S. laws (federal, state or local) that protect workers or the environment. The tribunals, staffed by three private-sector attorneys, can make governments compensate companies with taxpayer dollars not just for actual losses, but also for theoretical future profits an investor might have accumulated.
The Better Deal plan leaves ISDS in place. Instead of getting rid of it, it recommends that the process of drafting trade deals become more open and representative, and that companies that have used ISDS to anti-social ends be banned from sitting at the drafting table. The USTR, the paper argues, should “be revamped to represent a broad swath of interest [sic] and limit the current influence of multinational corporations. … USTR trade advisory committees should be led by businesses and organizations that support strong labor, environmental, and public health standards in trade agreements, and have not used or sought to use the investor-state dispute settlement mechanisms to undermine U.S. sovereignty or regulatory standards.”
It’s unclear what advantage inviting ostensibly magnanimous corporations to the table and hoping that they never sue has over just banning the ISDS process altogether.
Sunlight being the best antiseptic, simply making the process by which we write trade agreements more transparent would result in more democratic, representative outcomes. The Better Deal plan has some good ideas in this space, such as making USTR staff hold town halls in ten different states before finalizing a NAFTA re-write, but there isn’t enough substance behind the rhetoric. A truly transparent process would eliminate the existing, non-representative advisory committee system, make all proposed texts and draft texts of trade agreements publicly available, and allow input “through the on-the-record public process established under the Administrative Procedure Act to formulate positions, obtain comment on draft texts through negotiations, and seek comment on proposed final texts.” It would get rid of the Fast Track legislative process (wherein once the president has negotiated a trade agreement, Congress has limited opportunity to debate the agreement and cannot add amendments), which currently closes deals before people can learn what’s in them.
The ideas in the trade component of the “Better Deal” reveal that Democrats understand the need to address the downsides of the current trading regime. In that spirit, they’ve offered some solid first steps along the path to a much more representative process and system of international trade. Now it’s up to the rest of us to pay close attention to the details and hold policymakers accountable for building on this good start.