Trade War

In "Why Populists Need To Re-think Trade," James K. Galbraith calls on populists to adjust their assumptions and priorities when it comes to trade policy, and adopt a "reality-based" view. In "Breaking the Consensus (Finally)," Jeff Faux offers a different take, arguing that it's good policy as well as good politics to focus on revamping the rules of the global economy. Here, the two engage each other directly:


Jeff Faux

First, let's get the politics straight. The divisions among Democrats over trade during the last two decades have not been initiated by the populists, but by those who have carried the water for Wall Street. As the chair of American Express exultingly put it, Bill Clinton drove NAFTA home "over the dead bodies" of his two prime constituents, labor and the environmentalists. Then came the WTO, opening to China, and scores of similar deals. Today, "centrist" Democrats are pushing Congress to pass Bush's newest pacts with Colombia, Peru, Panama, and Korea. Anyone worried that Democrats are "talking obsessively" about trade ought to be dumping on Robert Rubin and Max Baucus, not Byron Dorgan and Sherrod Brown.

The fundamental problem is, as Jamie puts it, "globalization itself," which I interpret to mean the cross-border integration of markets. Jamie, however, addresses it as if it were just a matter of trade among separate sovereign economies. Among other things, his analysis ignores the enormous expansion of political and economic power in the hands of those who own and manage internationally mobile capital.

U.S. trade policies of the last two decades did not create globalization. But they accelerated and promoted it -- pushing American workers into a world of brutal competition for which they were not prepared and for which the American government had no strategy. We are not Sweden. For Americans, as distinct from corporations with American names, competing in this new world required a dramatic new set of policies for investment, regulation, and social protection. It also required that trade policies be managed to adjust to the erosion of older American comparative advantages.

Instead, we steadily de-regulated the international sector of our economy by giving transnational investors extraordinary privileges and increasing their bargaining power over labor and the public sector. As a result, American corporations' increased mobility has allowed them to further undercut the New Deal social contract and put Jamie's hope of turning the United States into Sweden further into the future than ever.

Trade agreements not important? Then why does the American business class spend so much financial and political capital to get them? Surely, it's not because this crowd is dedicated to providing the poor with cheap underwear.

As the NAFTA experience demonstrates, it is not just the American social contract that is being undermined. The growing gap between U.S. worker productivity and real wages is being reproduced in both Mexico and Canada. NAFTA was in fact a weapon provided by American elites to their Mexican partners for what Jamie correctly calls a "vicious class war." In Canada, the ability of capitalists to threaten to move to the more laissez-faire United States has been undermining its social democracy -- among other things, substantially shrinking social spending as a share of GDP.

The global minimum wage is a straw man -- not on anyone's agenda. But the case for applying enforceable core labor rights to international trade is the same as the case for applying them to trade at home. No need for independent trade unions, writes Jamie. After all, Chinese workers' real income has risen over the last 30 years without them. The same could have been said, of course, about American workers in the depth of the Great Depression.

Most descriptions of the Chinese low-wage labor market are odds with Jamie's rosy picture. Readers should check out the thorough documentation of worker repression in last year's AFL-CIO submission to the U.S. Trade Representative, including a Chinese Labor Ministry report that the nominal wages of Chinese production workers had remained "virtually frozen" over the previous decade and fell 30 percent in real terms. Wage repression in China has also undercut workers in the smaller countries of Asia.

In Colombia, over a thousand trade unionists have been murdered for attempting to bargain collectively. Approval of the pending trade agreement would be a reward -- and further incentive -- for using violence to keep down labor costs. Does Jamie really think that the answer is "anti-sweat shop" campaigns?

According to Jamie, our skyrocketing trade/current account deficit is "splendid." It's caused by a mysterious desire among other countries to waste their money buying U.S. Treasuries. Therefore, we can make up the difference between what we earn and what we spend by giving them "a note and a promise to pay interest, down the road." How lucky for us that our financiers are such dolts. It could all collapse, he acknowledges. But don't worry, because nothing can be done.

The trade deficit is not just a financial problem. It is both a symptom and a cause of the steadily eroding competitiveness of the US economy. Fifteen years ago, free-trade Democrats assured American workers that they'd surely prosper if they, or their children at least, went to college and got technical training. But the off-shoring of manufacturing was followed by the off-shoring of technology, which was followed by the off-shoring of high-paid services. Our answer to those 30-year-olds with a degree in computer engineering and college debt who are now training Indians to do their job in India: Sorry about that. How about becoming a manicurist?

Jamie and I both want our country's economy to be more like Sweden's. But Democrats consistently fail to use their leverage to bring American businesses to the table. If Bill Clinton had demanded their support for national health insurance in exchange for NAFTA and his balanced budget, we might at least have been able to save the five percent of our GDP we are pouring down the drain of a dysfunctional health care system. Today, we have less leverage, since so many are busy shifting their operations to other countries.

Still, since Jamie doesn't think trade agreements matter anyway, I invite him to join me in advocating a pause or freeze on any new deals until the corporate guys agree to a serious strategy to restore the bargaining power and competitiveness to working Americans.

How about it, Jamie? What's to lose?


James K. Galbraith

How about a freeze on new trade agreements? Sure. Absolutely. And let's roll back CAFTA and stop the headlong opening of Mexico's corn market, as well.

But I don't expect those steps would make any difference to trade with China or anywhere else, nor to the living standards of American workers, nor to their job prospects. And I would urge Jeff not to claim that they will.

Did I write that there was no need for independent trade unions? No, I said the opposite. All decent people stand with Colombia's unions. But China poses a puzzle, as I wrote. Do you penalize a country where real wages have risen, where the standard of ordinary life is far, far higher than it was a generation ago, even if that was achieved without independent trade unions?

(Incidentally, the Chinese assembly has a law in progress that would establish collective bargaining and otherwise strengthen unions. This project may possibly have roots in a paper I commissioned twelve years ago, on behalf of the State Planning Commission, from the Berkeley labor economist Michael Reich. I mention this to prove my seriousness. I have worked on economic policy inside China. And when I did, I spent time and money on the union cause.)

Jeff's first response to my statement that real wages have risen in China is to deny it. Then he distracts attention with a point about nominal wages, combined with a confusing comment about Chinese production workers generally--of whom there are many, for instance in the old industrial Northeast, whose industries do not export. However, the Chinese phenomenon is to have delivered rapidly rising real wages in the exporting regions. Anyone who has been there knows this. Anyone who says otherwise -- sorry to be unkind -- doesn't know what they're talking about.

Do I favor the "straw man" of a "global minimum wage"? Nope, and I didn't say so. Would I like America to be like Sweden? Actually, no, that wasn't my point. My point was that the economic principle, that egalitarian wage structures promote trade competitiveness, is well-established by the Scandinavian experience. This, too, is clear in my essay.

Readers will by now have mastered Jeff's method, which is not to attack what I wrote, but to attack his own caricature of what I wrote. Readers can work out on their own, I hope, how what I said about trade deficits and global finance differs from Jeff's version.

Turning to the offense, what's wrong with Jeff's approach to trade and trade policy? The problem, as I see it, is that Jeff would like to monopolize the pro-worker position in the great debate over trade with a fairy tale. It's a fairy tale in which the big bad American corporations ship jobs, to which American workers are entitled by natural right, to foreign concentration camps, where children and prisoners, hidden from view, toil away in misery and servitude.

As a political theme, this tale is powerful. And as Jeff makes clear in his first sentence, to him the politics are paramount.. But I am also interested in the day when trade unionists and pro-worker progressives actually return to government. I wrote my essay because effective policy cannot be based on a fairy tale.

Jeff's approach runs into trouble over policy. If you think globalization has already killed the economy, you can't also think that a program of deep change is possible – can you? We agree on much of that list in the back of his essay. Especially, we agree that a progressive platform must emphasize new checks on corporate power. But much of what Jeff proposes is vague or minor. Does he really think, for instance, that the "state and local technical assistance" would bring home jobs from China? The fact is, once Jeff gets through with killing trade agreements, he's worn out. Given his premise, there isn't much else he can say.

When challenged, Jeff has an unpleasant habit of raising the emotional temperature, reminding Americans repeatedly that the Chinese and Indians are taking "their jobs." But India, China and the rest of the world aren't going away. Nothing can stop Indian software engineers from drafting code, and sending it over here by satellite. American workers need a better answer than either "education" -- the DLC nostrum -- or "kill all the trade agreements" -- an equally dogmatic, equally ineffective remedy.

Jeff says that I should be directing my fire at Robert Rubin. I have already done that, most recently in an essay in The Nation on the Hamilton Project. I am also very glad to have Senators Dorgan and Brown, friends and allies on most things, in the Senate. But I would prefer that progressives formulate a reality-based policy. That policy should not entail an open commitment to everything shills and lobbyists call "free trade." It should not assume that the current financial structure will last forever. But neither should it concede that open trade and corporate power and trade deficits have, together, put the goal of a full employment in America out of reach.

Does America's trade deficit make full employment impossible? No! Full employment is perfectly possible, as the late 1990s proved. Can we create new jobs at high wages? Yes! Can we raise the minimum wage? Yes! Can we restore the voice and influence of unions in this country, for instance through the Employee Free Choice Act, even though they still haven't got free trade unions in China? Yes! Can we resume our role as the world's technical leader and research lab? Yes! Could we afford universal health insurance, better public schools, more stable and better services, protection against climate change? Yes!

Giving up the fairy tale might hurt politically, for a bit. But the sooner progressives move on, the more strongly we may influence the shape of government to come. And the better the chance, that such a government will succeed.

Who knows? That might even be good politics, in the end.

You may also like