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ROUNDTABLE: U.S. Trade Policy under the Next President

By Sherman Katz, Susan Aaronson, Franklin Lavin, Thea Lee | May 27, 2008

Democratic presidential candidate Barack
Obama. Photo by Steve Jurvetson (CC).

Americans are telling pollsters that while they like the benefits of trade as consumers, they fear the costs of trade agreements as workers. Following on our earlier trade roundtable, Policy Innovations asked four trade specialists, How should U.S. trade policy evolve under the next presidential administration?

A New Deal is Needed
Sherman Katz

Director of Outreach, Peterson Institute for International Economics

Just as trade's share of economic activity has grown fivefold—from 5 percent to almost 25 percent of U.S. output of goods and services—so, too, the days are over when trade policy can be planned and executed without a clear relationship to the sinew of our national economic muscle. This is both an economic and political imperative. We will not have the votes and confidence of the American people to continue as the leading force for global trade liberalization unless and until that relationship is firmly established.

Moreover, no one can doubt any longer that our country establishes and executes a trade policy that benefits many, perhaps even most in our society. But it also accepts a responsibility—particularly when trade has become such an enormous force in our country—to help those who are hurt by that policy.

The next president should work on an urgent basis with Congress, including the leadership in both houses and the chairmen and ranking members of all relevant committees, to develop a group of measures to enhance America's capacity to compete abroad and to leave no doubt that the United States recognizes the workforce as its most important asset. Of course without the strong commitment of Congressional leaders and chairmen to prompt and effect action without regard to who gets the credit (or the blame), nothing will be possible.

The Peterson Institute for International Economics estimates that the annual benefits to the American economy from trade are $1 trillion, or about $10,000 per American family. And yet our total expenditures to help those who lose jobs to trade are less than $2 billion (or less than 0.2 percent). This is hardly an adequate exercise of our responsibility to those injured by our adoption of trade policies for the benefit of the greatest good. The merits of the case are unquestioned. The next president needs to make that case more forcefully, clearly, and explicitly than has been done in the past.



Rethink Trade Policy
Susan Ariel Aaronson

Associate Research Professor, George Washington University

Trade policy is not the only public policy that needs reworking to satisfy public concerns. The United States and other governments must reform a wide swath of public policies. Investors will go where the skills, infrastructure, and incentives are most attractive and most effective.

The next president must develop policies that ensure that employers continue to create jobs in the United States and that our schools prepare workers for the jobs of the future. Secondly, we must reform our tax system to reward companies that employ and train American workers. Third, energy and sustainability questions will also play a huge role in investment decisions. Governments that have effective energy policies are likely to attract more job-creating investment.

Fourth, trade policy must change too. Public concerns about trade are really concerns about inadequate governance—instances where our trade partners are unwilling or unable to adopt and enforce rules to protect workers, consumers, and the environment. Demanding such standards in bilateral agreements won't alter global market conditions or empower all workers.

Thus, the United States should work at the bilateral and the multilateral level to include language regarding political participation and due process rights in trade agreements, to enable workers to consistently and effectively advocate for their rights. The United States should also work with other countries to include a "no standards lowering clause," in the WTO, which would obligate governments to enforce their own labor, health, and environmental laws throughout their territories. It would also limit enforcement discretion: Governments would not be able to justify the failure to enforce laws based on claims of limited government resources.

Finally, we must change how we talk about trade agreements. Workers are unlikely to support trade agreements if they don't understand what these agreements do, why there are so many, and how these agreements may affect them. Trade agreements do not "free trade," they allow two or more nations with very different governance systems, funding, will, and expertise to find common ground on the many rules (from health and safety standards to procurement policies) that can affect trade flows. Trade agreements essentially regulate relations between countries. Because trade agreements are governance tools, students should learn about these regulations as part of civic education. Until and unless we rethink how we talk about trade and trade agreements, many Americans will perceive trade agreements as not in their interest.



Trade Policy Should Prioritize Growth
Franklin Lavin

Former Under Secretary of Commerce for International Trade

The dichotomy between the benefits of trade and the lack of political support for trade is one of the more striking paradoxes of our era. Although the beneficiaries of trade substantially outnumber the disadvantaged, the public perceives the opposite to be true, that trade creates more "losers" than "winners." This is somewhat understandable in that aggrieved constituencies tend to be more vocal and politically active than the constituencies that benefit. Additionally, there is a natural human predisposition to blame bad news on the "other" while at the same time arrogating to oneself full credit for good news. In other words, if a factory closes down, the workers and management are less likely to blame bad commercial decisions, or inflexible labor requirements, or slowness to adapt to new market conditions. Rather, these stakeholders are likely to state that the closure came about because of unfair competition. The latter charge might be true, but it is certainly exculpatory.

The next president should bare in mind two guiding principles. First, avoid the temptation of false populism, telling industrial workers their problems are the result of the "other." Not only is this intellectually dubious, but it raises false hopes. When every single transplant auto manufacturer in the United States is expanding while at the same time each of the "Big Three" is shrinking, we can tell there is something else going on besides unfair foreign competition. When many U.S. minimills are expanding while traditional integrated steel mills are struggling, we can tell there is something else besides foreign competition at work. When some states are adding manufacturing jobs and are at full employment, while other states are going through tough economic times, we can tell there are factors at work beyond foreign competition. So, intellectual honesty on the nature of competition would be a welcome first step.

Secondly, the next president must think through how to make the U.S. economy grow as rapidly as possible. If growth is up, we can work through a lot of the trade challenges. But in a flat economy we will have a much more difficult time grappling with those challenges. This suggests that thought be given to lower taxes, health costs, and flexible labor markets. Political leadership needs to realize that supposedly good ideas that have extra costs attached to them will only make the United States less competitive in the international market.



Trade Agreements Should be Reexamined
Thea Lee

Policy Director and Chief International Economist, AFL-CIO

The challenge we face in 2008 is not whether to engage in the global economy, but rather how to shape, sequence, and regulate globalization so we can enjoy the benefits, mitigate the problems, and fairly distribute both the costs and the benefits—here and around the world. This will involve reexamining (and possibly renegotiating) existing trade agreements, strengthening and effectively enforcing our trade laws, developing a coherent plan for reforming our imbalanced and unfair trade relationship with China, ensuring the safety of our imports, and addressing currency and international tax issues broadly. We need to ensure that any national solutions to reduce global emissions are coordinated internationally.

Negotiating new bilateral trade agreements or concluding the Doha Round at the WTO within the current framework should not be high priorities. Differential tariff barriers are not the main obstacle facing American exporters and manufacturers. Currency manipulation, illegal subsidies, and tax differentials all create competitive disadvantages for American-based producers, workers, and farmers, but our government has so far failed to use the leverage it has to address these obstacles effectively.

Before we move to accelerate the removal of remaining trade and investment barriers, we also need to make the necessary investments at home—in education, training, infrastructure, and research—to keep our companies and our workers fully equipped to engage in the global economy. Our government has failed to make these investments over the last decade, not least because our business elite has already disentangled itself—financially, emotionally, and politically—from American workers and communities, choosing instead to shift production overseas.


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Read More: Economy, Globalization, Jobs, Tax, Trade, United States, Americas

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