“Trade wars are good, and easy to win,” tweeted Donald Trump when he threatened to slap tariffs on China and other nations he accused of “assaulting our country” last month.
Stock traders were spooked as China promised to retaliate. Commentators across the political spectrum warned of job losses, price increases, economic peril, and trade wars.
Progressives like Ohio Senator Sherrod Brown and Elizabeth Warren showed more sense, praising Trump for challenging China’s mercantilist policies, as did Conor Lamb, the surprise Democratic victor in the House special election in Pennsylvania.
Just because Trump denounces our “lousy trade deals” doesn’t mean Democrats have to defend them.
In fact, a majority of House Democrats has led the opposition to our corporate trade policies. Democrats torpedoed Obama’s Trans Pacific Partnership, long before Trump became president. They’ve demanded the renegotiation of NAFTA, and the Korean Free Trade Accord.
Postures and Policies
Trump’s challenges to our trade policies are long overdue. The problem is he and his crew have yet to define a sensible alternative. On China, Trump’s posturing is likely to produce more theater than fireworks. Trump targeted "Made in China 2025," the nation's ten-year strategy to develop higher-value exports, when he announced his tariffs, but the Chinese aren’t about to negotiate away their basic mercantilist economic strategy.
China’s threatened retaliatory tariffs – targeting products Americans grow in rural areas, like soybeans and pork – show they know where Trump country is. Wall Street is already raising alarms. American companies, particularly those with supply chains dependent on China, including Apple and Walmart, will push hard for business as usual.
It is now reported that Trump may instruct aides to find a way to negotiate the U.S. back in to the TPP, showing once more that he isn't serious. The Chinese are likely to offer showy concessions, to allow Trump to save face. They’ll even invite him to Beijing and roll out the red carpet, complete with a military parade. But, as Zhu Guangyao, vice minister of finance boasted in response to Trump’s tariffs, “China has never succumbed to external pressure.” The Chinese leaders will continue to pursue their ambitious plans to dominate the industries of the future.
Straight Talk
What’s needed now is a fundamental debate: not about China’s strategy, but about our own. Our globalization strategy, defined by and for global corporations and banks, has savaged working people, as the wealthy cleaned up.
Best estimates suggest the “China shock” alone – the result of running the largest deficits with one country in the history of the world – caused the loss of 2.4 million U.S. jobs between 1999 and 2011. And the effect was much broader. Companies used the threat of moving abroad to bludgeon workers into accepting cuts in wages and benefits.
Corporate globalization has allowed capital to run a race to the bottom on labor rights, environmental and consumer protections.
The defense of corporate globalization, as free-trade advocate Paul Krugman belatedly admitted, has been “basically dishonest,” featuring “false claims of inevitability, scare tactics (protectionism causes depressions), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects.”
Whose Free Trade?
In fact, free-trade agreements, increasingly, have little to do with free trade. Tariffs were relatively low before NAFTA and its successors. Trade agreements consist of thousands of pages formalizing deals forged between powerful interests.
Multinational banks and drug companies made out like bandits. Corporations gained their own closed legal tribunals. Trade accords increasingly focus not on tariffs, but internal rules – on investment guarantees, subsidies, health and safety, and intellectual property rights.
The classic economic case for free trade holds that while there will be winners and losers, the net benefits are so great that the winners can compensate the losers. But the deals enshrined in these agreements are about political power, not economic theory.
Corporate globalization empowered the few, and they have largely scorned the losers. The masters of the universe thought of themselves as cosmopolitan, global citizens – until their bets went bad and their frauds were exposed. Then they called on government to bail them out.
Our callous globalization strategy contributed directly to the rising incidence of divorce and suicides, the spreading opioid epidemic, declining life expectancy, extreme inequality and Trump’s election victory.
Truly Progressive Strategy
A progressive trade strategy would renegotiate treaties to protect the ability of countries to develop their own social contracts. The Congressional Progressive Caucus's principles for the NAFTA renegotiations offer a sensible guide to what this might look like.
They call for enforceable protections for environmental and core labor standards, which incidentally would require repealing U.S. "right to work" laws, and eliminate the private tribunal system for investors.
The extended monopoly protections for drug companies should also be eliminated. Enforceable provisions that penalize currency manipulation are essential. Trade accords should not undermine domestic health and safety laws.
Progressive Globalization
Trump’s revision of the United States' free trade deal with South Korea gave modest relief to steel and truck markets, but failed to address any of the structural issues.
A real progressive strategy would go far beyond simply renegotiating trade deals. As Harvard’s Dani Rodrik has detailed, the current trade accords are less about tariffs than about protecting powerful interests – particularly big banks, multinational corporations and the drug companies.
A revised globalization policy would challenge those interests – beginning with a focus on breaking up the big banks, going after high tech and digital monopolies, and limiting the privileges accorded the drug companies. It would also feature a global effort to close tax havens and crack down on tax avoidance.
A progressive globalization strategy would also break with neoliberal market fundamentalism at home. Led by Bill Clinton’s New Democrats, the Wall Street wing of the Democratic Party championed corporate globalization, deregulation, balanced budgets, and rolling back social insurance.
“The era of big government is over,” Clinton famously declared, getting it exactly wrong.
Extending Protections
A progressive policy would extend, rather than roll back, social insurance. A modern-day Economic Bill of Rights – a job guarantee, the right to health care, public education through college, a living wage and a secure retirement – becomes more essential in the velocity of global competition.
The voice of workers must be strengthened through labor law reforms, the end to right to work, and co-determination arrangements that involve workers in corporate strategy.
The U.S. also needs to pursue the public investment and planning vital to competing in a global economy. Obama’s chief economic advisor, Larry Summers, literally banned use of the term “industrial policy.” Yet the U.S. sustains stealth industrial policies – support of the military-industrial complex is a prime example – that propel its leading export industries.
Mercantilism Unchained
Trump touts “Buy America, Hire America” policies in stump speeches. In practice, his administration slights vital public investment. His much-advertised infrastructure plan has been shelved. Investments in science and technology are being slashed. Coherent policies to boost the cutting edge industries of the future – renewable energy and energy efficiency, robotics, biotechnology– are nowhere to be seen.
The contrast with mercantilist China is stark. "Made in China 2025" isn’t simply a rhetorical device to encourage people to"Buy China." China has identified key advanced manufacturing industries - such as robotics and semiconductors - that it plans to dominate by 2025.
China plans to employ the full range of its mercantilist policies to achieve its goal: acquiring foreign companies, forcing foreign companies into Chinese partnership, stealing technology, subsidizing publicly owned companies, targeting foreign markets, coordinating public and private investment and more.
The question is how the U.S. will respond. China’s mercantilist policies aren’t much different from the policies the U.S. pursued as it developed. Alexander Hamilton’s stunning Report on Manufactures helped guide the Republic in its first years.
America’s early commitment to public education gave it the advantage of an educated population. Abraham Lincoln, a Republican, built the railroads and founded the land grant colleges, as part of the “the internal improvements” he argued were vital to the emerging industrial nation.
In 1944, as the end of World War II was in sight, Roosevelt promised an Economic Bill of Rights for all. Eisenhower built the interstate highways and sustained the policies that subsidized the growth of the suburbs. Now, the U.S. has to be clear about its strategy to sustain an economy that works for working people. That requires both an expanded social contract and a modern industrial policy.
Trump’s pugnacious indictment of the lies and hypocrisies of our global trade strategies is long overdue. His tariffs open the debate. His negotiators will seek to cut marginally better deals, as they did in the Korean negotiations.
But Trump's administration stands in the way of the fundamental reforms needed to make the U.S. economy work for working people. Progressives need to use this moment to show Americans there are alternatives.
