Trade Policy and the American Worker:

[amborin]

Trade policy and the American worker

Jeff Faux Andrea Orr
May 3, 2010

“Globalization is dramatically disconnecting the relationship between American corporate employers and their employees,” says Jeff Faux, EPI founding president and distinguished fellow. Faux has written extensively about the ways so-called free trade agreements have benefitted the world’s largest corporations at the expense of the average worker, and shown how the winners and losers of trade agreements line up not along national borders, but according to their economic status. In 2006 Faux published the book The Global Class War, and co-authored EPI’s paper, Revisiting NAFTA, where he argued that 1993’s North American Free Trade Agreement (NAFTA) had served to “protect the interests of large corporate investors, while undercutting workers’ rights.” With growing concern over China’s trade policy again putting world trade and globalization in the spotlight, Faux spoke about U.S. trade around the world and outlined how many U.S. trade policies had undermined the American economy.


Q. A recent EPI report shows that China’s trade policy -- and its currency manipulation in particular -- has cost millions of American jobs. However in The Global Class War and other publications, you are critical of U.S. trade policy as well. How has our domestic trade policy also been a factor in the loss of jobs and the depression of wages in the United States?

Faux: In 2000 the United States government opened up the U.S. market to China by granting it what used to be called “Most Favored Nation” trade status, on a permanent basis. In exchange, the Chinese loosened restrictions on U.S. investment in China. It was one of a series of so-called “free trade” agreements negotiated by both Republicans and Democrats over the last 30 years that effectively gave other countries a free pass to flood American markets with low-priced goods and services produced under conditions we would not tolerate here. The results lost jobs, lower wages, chronic trade deficits, and a huge and growing foreign debt—should have been no surprise.

snip

.......Meanwhile the Chinese government was subsidizing new sectors, protecting their industries from foreign competition, and demanding that U.S. companies doing business there share their technology. Now, contrary to what the free-traders confidently predicted, we are running a chronic trade deficit with China in high-tech products. Most American workers are not climbing up the global job ladder, they are falling behind.

Q. So it was a case of naïve economic analysis?

Faux: For some. But I think for most politicians economic theory conveniently rationalized their support of the interests of corporate CEOs over their workers. Remember, over the last 30 years, the share of campaign contributions representing big business has grown dramatically -- as has the number of ex-administration officials and members of Congress who go to work for corporations as employees, consultants, and lobbyists.

Q. Why would American business corporations support policies that would undercut the American economy?

Faux: Because globalization is dramatically disconnecting the relationship between American corporate employers and their employees. There has always been conflict over the shares of the benefits of worker productivity going to profits and wages. But until recently, you could assume that both workers and businesses had a common interest in producing in America. As companies became multinational, whether they actually produced in America was irrelevant to their investors and top managers. The boss might be an American by birth and culture, but he or she no longer identified the future of the company with the future of America. They were paid to invest where the cost of labor and environmental regulation was cheapest.

Corporate leaders have not been shy about admitting this. In 1995, the head of Ford Motor Co. observed that “Ford is not an American company.” A decade later, the CEO of Cisco Systems -- a poster-child company for U.S. technology -- explained the company’s corporate strategy this way: “What we are trying to do is outline an entire strategy of becoming a Chinese company."

This reality has not yet seeped into our political consciousness. When the CEOs of these multinationals or their lobbyists walk into the White House or the office of a member of Congress or hold a press conference to rail against “protectionism,” the media often assumes that they are representing American interests. Those days are over.

snip

When the recent trade deal with Peru was signed, that country’s president told the U.S. Chamber of Commerce, "Come and open your factories in my country so we can sell your own products back to the U.S." This is not what Adam Smith, David Ricardo, and the classical advocates of free trade had in mind...................... Led by multinational corporate interests, American policy makers pushed American workers into a brutally competitive market that resembles not so much the future, but the past: the 19th century dog-eat-dog robber baron era.

snip

............... the owners and managers of global corporations have more in common with each other than with workers who happen to share their nationality. The experience of the North American Free Trade Agreement since its implementation in 1994 illustrates the point. Every so often a poll is taken in all three countries -- the United States, Mexico, and Canada. They ask the respective publics which countries they think “won” economically from NAFTA and which “lost.” Typically, the people of each country say workers in the other two nations gained and workers in their country lost................... the U.S. and Canadian leaders who negotiated NAFTA refused to include labor and environmental protections in the treaty. The Mexican government is notorious for encouraging employers to suppress wages and deny the right to organize. But protections were not left out of the agreement because the Mexicans didn’t want them. They were left out because U.S. and Canadian businesses didn’t want these protections.

Again, the outcome was perfectly predictable. American and Canadian workers are losing jobs and income, and Mexican workers can’t make enough to support their families. But the top managers and owners of U.S. and Canadian companies are gaining profits because they can now get cheaper labor. And the top managers and owners of Mexican companies are getting the outsourcing contracts. As the Mexican analyst Jorge Castanada -- who later became that country’s foreign minister -- wrote at the time, NAFTA was “an agreement for the rich and powerful in the United States, Mexico, and Canada, an agreement effectively excluding ordinary people in all three societies.”

Q. Is a similar trend playing out now in U.S.-China trade? How is the Chinese situation different?

As with Mexico, our economic policies with China have been dominated by U.S. multinational investors, not American workers.

snip

http://www.epi.org/analysis_and_opinion/entry/trade_policy_and_the_american_worker/

[Hello_Kitty]

1. Some race-to-the-bottomer cancelled out my rec. eom

[OhioChick]

2. K&R n/t

[Elwood P Dowd]

3. Check your inbox OC.

Everyone should save and post this article when the free trade/race to the bottom zealots show up here.

[pampango]

4. A make-the-world-go-awayer cancelled my unrec. jk. I recced it, but I like labels. Great article.

Particularly about the disconnecting between American corporations and their employees.

I posted this earlier today on an OP about Scandinavia.

"Through neutrality, Sweden was not forced through two post-World War rebuilding phases which the rest of Europe underwent. Sweden has achieved a high standard of living under a mixed system of high-tech markets and welfare benefits. Sweden has the second highest total tax revenue behind Denmark, as a share of the country's income. As of 2007, total tax revenue was 47.8% of GDP, down from 49.1% 2006."

Sweden's GINI is 23 it represents one of the most equitable distributions of income anywhere in the world. Their taxes are very high which is tied to their great social safety net.

http://en.wikipedia.org/wiki/Economy_of_Sweden
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"Sweden's trade policy is based on free trade. The Government's Statement on Trade Policy that was presented in the Riksdag on 4 March 2008 begins with phrase, "The world needs more, not less, free trade"."

"Three quarters of Sweden's trade is conducted in the EU internal market. The Government's ultimate aim is for Sweden to belong to the core of the EU and to be an active and constructive force in EU cooperation. Sweden is also the strongest voice for free trade in the EU. By strengthening cooperation with other countries that favour free trade, we can do even more for free trade than we can accomplish on our own."

"The best way of opening up trade globally is via multilateral agreements. This is also the only way of ensuring a fair, stable and predictable international trade system. (That would make FDR proud of his accomplishments in establishing a multilateral framework for promoting international trade after WWII.) Completing the current trade round - the Doha Round - in the World Trade Organisation (WTO) is therefore one of the most important priorities of the Government's trade policy."

"The Government welcomes globalisation and the fact that an increasing number of countries are part of the trade policy agenda. This means that completely new markets and opportunities are opening up for Swedish companies, and that an increasing number of people around the world can benefit from the wealth-creating forces that international trade entails."

http://www.sweden.gov.se/sb/d/3086/a/118563
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In Sweden, they trade with everyone and provide progressive support for their citizens. 3/4's of their trade is with free trade partners. That is true throughout Scandinavia and Europe in general.

I think the secret of their economic success and egalitarian income distribution lies mainly in the willingness of their people to tax themselves to ensure that everyone is taken care of. Americans aren't willing to do this - frontier, pull yourself up by your own bootstraps mentality here.

Our economic problems and horrendously inequitable income and wealth distribution (GINI - 46) aren't caused by trade ("free" or otherwise) since all the progressive countries in Europe, plus Canada and Australia trade to a much greater extent than we do. What we have to do (that progressive countries have already done) is tax ourselves (progressively, not in the current regressive manner) enough so that we can provide a decent social safety net including effective national health care, regulate corporations and the financial markets, and empower unions.

[amborin]

5. interesting; thanks for posting

Have you read 'the three worlds of welfare capitalism'?

otherwise, guess Sweden wants its corps to do well globally, such as Ikea.....

also, don't you think it's more than simply needing progressive taxation? free trade agreements are often corporate strategies to bypass nationally-based industrial unions; i believe free trade within the EU has led to its own set of issues, such as the 'polish plumber' syndrome, whereby the cheaper wage nations have undercut wages in the higher wage countries;

[pampango]

6. You're probably right. The "Polish plumber" syndrome is real as the UK immigration debate

in their election campaign proves.

My impression is that EU expansion into the poorer countries of central and eastern Europe is supported by progressives even though they realize it puts some pressure on wages in the higher wage countries. They seem to buy into the idea that improving life in the poorer parts of Europe will be good for the richer Europeans too in the long run. European history seems to have taught them that letting poverty and other problems fester on the continent can come back to bite you even if you try to wall it off in the short run.

Of course it's easier for these richer European progressives to accept the wage pressure that comes from letting poor people compete with them because they have excellent social safety nets and more of a sense that "we're all in this together" than is usually the case in the US. Oddly (at least to an American progressive) it is the far right parties (like the BNP and UKIP in the UK) who want to dismantle the EU so that immigration controls and trade tariffs can be reset against other Europeans and the progressives that want to expand the EU further into new countries.