What Obama Got Wrong In His State of the Union Remarks On Trade

Dave Johnson

The President briefly spoke about trade in his State of the Union speech. He admitted that “past trade deals haven’t always lived up to the hype” but then he called for doing more of the same. He called for Trade Promotion Authority (TPA) — “Fast Track” — to pass the Trans-Pacific Partnership (TPP).

Here is what President Obama said about trade (from pre-released transcript):

21st century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world’s fastest-growing region. That would put our workers and businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but fair.

Look, I’m the first one to admit that past trade deals haven’t always lived up to the hype, and that’s why we’ve gone after countries that break the rules at our expense. But ninety-five percent of the world’s customers live outside our borders, and we can’t close ourselves off from those opportunities. More than half of manufacturing executives have said they’re actively looking at bringing jobs back from China. Let’s give them one more reason to get it done.

But…

1) Exports are good for an economy, but exports and imports must be balanced. While our exports are up, our imports are up even more. This is why we have an enormous, humongous trade deficit. When imports are greater than exports it means jobs, factories and if the imbalance continues eventually the necessary pieces of industry ecosystems are lost. Our trade deficit is enormous and our trade has been out of balance since the 1970s.

Here is Paul Krugman, writing at his blog Monday,

The immediate problem facing much of the world is inadequate demand and the threat of deflation. Would trade liberalization help on that front? No, not at all. True, to the extent that trade becomes easier, world exports would rise, which is a net plus for demand. But world imports would rise by exactly the same amount, which is a net minus. Or to put it a bit differently, trade liberalization would change the composition of world expenditure, with each country spending more on foreign goods and less on its own, but there’s no reason to think it would raise total spending; so this is not a short-term economic boost.

Krugman also points out that current trade tariffs and protections are low, so a “trade” deal doesn’t really remove imposing barriers. He suspects that groups representing the giant multinationals, like the Chamber of Commerce, are really pushing this deal because it rigs the system in their favor and “will yield them a lot of monopoly rents.” Which leads to Obama’s next argument.

2) This idea that “we” should “write the rules” to “level the playing field” is interesting. Yes, China would like to write rules of trade in its favor. But it doesn’t follow from this that we should allow the giant multinational to write the rules in ways that rig the system against everyone but them. And this is exactly what TPP does. TPP is being negotiated in secret with participation of corporate representatives while representatives of labor, consumer, democracy, human rights, women’s, environmental and other “stakeholder” groups are kept away from the table. Only a small part of TPP is about “trade” at all, while parts of it elevate corporate rights above the rights of citizens in democracies to make their own laws. (For example tobacco companies can sue governments for profit-loss from anti-smoking campaigns. Under similar “trade” agreements this is already happening.)

And speaking of rigging the system …

3) Trade Promotion Authority (TPA) hardly “protects American workers.” Also known as “Fast Track,” TPA essentially pre-approves trade agreements before anyone even sees them. TPA pre-rigs the approval process by forcing an up-or-down vote with no amendments allowed within 90 days of anyone even seeing the agreement for the first time. This means the public doesn’t have time to fully comprehend what is in the agreement and rally opposition if opposition is warranted. Fast Track shifts the public and press focus to “will they kill the whole agreement” rather than on what is actually in the agreement. (This is how they were able to push Wall Street deregulation through the last “Citibank Budget” deal.)

4) There is nothing in past or upcoming trade agreements that will incentivize bringing manufacturing and other jobs back to the US, which the President promised. On the contrary, TPP includes Vietnam which boasts a minimum wage of 30 cents per hour and has a terrible record on labor rights. This tells us what we need to know about the incentives for manufacturers to bring jobs back.

5) One of the biggest factors in American job loss is currency manipulation, but TPP does not address currency manipulation. (TPP is being negotiated in secret but leaks and other indications tell us that there is nothing to address currency manipulation.) Jared Bernstein wrote about this in a January 9 NY Times op-ed, How to Stop Currency Manipulation, saying,

“… there’s one thing the administration can do that will both win over some opponents and address one of the biggest issues in global trade: add a chapter on currency manipulation.

… In a compelling argument for including a chapter in the Trans-Pacific Partnership to restrict currency manipulation, C. Fred Bergsten of the Peterson Institute for International Economics estimated that America’s trade deficit “has averaged $200 billion to $500 billion per year higher as a result of the manipulation” by the rest of the world, resulting in the loss of one million to five million jobs.

The loss of 1-5 million jobs to currency manipulation is a lot of jobs, yet this isn’t even in the agreement!

6) The President said that “past trade deals haven’t always lived up to the hype.” Please see last week’s post What You Need To Know When Obama Talks Trade for a breakdown of what has happened with previous trade agreements. Also see the Public Citizen report, Prosperity Undermined: Fast-Tracked Trade Agreements’ 20-Year Record of Massive U.S. Trade Deficits, American Job Loss and Wage Suppression for a more comprehensive look at what these trade agreements have cost US workers, our manufacturing ecosystem and our economy — just so that a few executives and billionaires can get even wealthier.

Boost Wages Or Trade Agreements — But Not Both

The President wants to address income inequality. But these trade agreements have been a major driver of income inequality. American worker wages have been frozen for decades as workers were threatened with their jobs being moved out of the country. A few at the top have pocketed this wage differential for themselves. Trade deals that pit American workers and the “costs” — higher wages, environmental protections, etc — of democracy against non-democracies where people don’t get good wages and the environment is not protected work against the President’s stated goals.

Josh Bivens writes at the Economic Policy Institute blog, Trade Agreements or Boosting Wages? We Can’t Do Both,

To put it plainly, if policymakers—including the President—are really serious about boosting wage growth for low and moderate-wage Americans, then the push to fast-track TPP and TTIP makes no sense.

… the most staid textbook models argue precisely that for a country like the United States, expanded trade should be expected to (yes) lift overall national incomes, but should redistribute so much from labor to capital owners, so that wages actually fall. …

Also see Obama vs. Obama: The State of the Union’s Self-Defeating Trade Pitch at the Eyes on Trade blog for “a side-by-side analysis of how Obama’s push to Fast Track the TPP contradicts his own State of the Union agenda.”

A Few Other Reactions

At a Wednesday press conference with Rep. Louise Slaughter (D-NY) and other House Democrats, Rep. Slaughter said, “The president said last night that previous trade deals had not lived up to the hype. That may be the understatement of the century. We will fight this tooth and nail, and I believe we are going to win.”

Also at the press conference, Rep. Pete DeFazio (D-OR) said, “Fast track is designed to embed into these so-called free trade agreements a bunch of things that are detrimental to the American public.”

Coalition for a Prosperous America (CPA) “The Coalition for a Prosperous America (CPA) advocates a new direction in trade policy focusing upon balanced trade, a comprehensive US competitiveness strategy, and producing more of what we consume here. We oppose Congress ratifying the past, wrongheaded trade strategy which produces trade deficits, job loss, and incentives to offshore manufacturing for re-import into the US.”

Alliance for American Manufacturing (AAM): “By ignoring the concerns of industry, workers, and majorities of the House and Senate, he’s not only putting the TPP at risk, he’s putting a whole lot of auto jobs in the US at risk, too.”

Communications Workers of America (CWA):

“…[W]e cannot stand with the President in his alliance with Republican Majority Leader Mitch McConnell, House Speaker John Boehner, the U.S. Chamber of Commerce and Business Roundtable to send more U.S. jobs offshore, undermine U.S. communities and weaken U.S. sovereignty under the guise of “free trade.” The Trans-Pacific Partnership (TPP) has much more to do with protecting the investment of multinational corporations and maneuvering around China than lowering trade barriers.

Public opposition to “fast track authority” and the TPP is strong, and growing more vocal everyday. Consumer groups, workers, environmentalists, people of faith, students and more have united to stop this attack on U.S. jobs and communities. Conservatives, who do not believe that nations should relinquish their sovereign power to secret tribunals, also are on board.

Over the past 20 years, millions of U.S. jobs have been lost. The jobs U.S. workers had been promised over those years of course never materialized. In fact, just two trade deals – NAFTA and the Korea Free Trade Agreement — have resulted in the loss of nearly 800,000 jobs. The promoters of the TPP are again promising job gains through growth in U.S. exports. But we can do the math. Any new jobs will be dwarfed by the flood of jobs that go offshore.

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