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Obama's Path Forward, or Bush's NAFTA for 'Nam?

Last night, President Obama's State of the Union speech touched on trade matters. Specifically, he said:

We need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.

We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. And that’s why we will continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea, Panama, and Colombia.

According to Reuters:

Daniel Price, a lawyer at Sidley Austin and former White House adviser to George W. Bush, said many would be "puzzled" by Obama's failure to explicitly urge approval of the deals and instead only call for stronger trade ties.

Indeed, corporations have been pushing hard to get Obama to explicitly call in SOTU for completion of the WTO Doha Round in the sorry state in which it exists today, and to pass Bush-negotiated FTAs with Panama, Colombia and Korea, and to adopt Bush-initiated financial service deregulation talks with Asia.

Obviously, they lost on that count. Still, it was surprising that Obama didn't reference his fair trade campaign commitments - especially given the appeal of that issue across the aisle, as shown in recent polls. But Obama's careful phrasing leaves open the possibility that, rather than adopting Bush's trade policies as his own, and pass NAFTA for 'Nam, Obama can push for a different kind of trade model, and try out this new model with our trading partners in Asia and Latin America.

The politics and policy of the latter are what makes the most sense. We lay out some of the way Obama could carve this path forward in our comments on the proposed Asia trade deal (Trans-Pacific Partnership):

The TPP negotiations would be the first entered into by the new administration. For that reason, they provide the opportunity for the administration to translate into action President Obama’s campaign commitments to reform the past U.S. trade agreement model so that pacts can deliver benefits to more people, and so that the various problems he identified with the past model’s foreign investor, procurement, import safety, service-sector, procurement and other provisions are remedied. Indeed, TPP negotiations could be used to correct these problems with respect to past Clinton and Bush administration-negotiated U.S. “Free Trade Agreements” (FTAs) with Australia, Chile, Peru and Singapore.

There were some great comments also posted from Rep. Mike Michaud (D-Maine) and our friends in the National Farmers Union, AFL-CIO, Friends of the Earth, Citizens Trade Campaign, Oregon Fair Trade Campaign and the Teamsters.

Finally, Obama's export promise is a step in the right direction, given our overwhelming trade deficit, and a decline in exports of 19 percent last year. However, by our calculations, a doubling of exports would imply a 15 percent annual export growth rate, sustained over the next five years. That's almost double the annual average from 2004-08. Moreover, if imports grow at their 2004-08, we would still be left with a trade deficit by 2014. That means that we need a trade policy (I dunno... like the TRADE Act) that commits to looking at both sides of our trade balance ledger.

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Minnesota: New Front in Fight for Public Interest, Eh?!

Minnesota is moving to encourage renewable energy by slapping a tariff on coal energy produced in North Dakota, and challenging the global economic order in the process.Carbon-tax

And so opens another front in a much larger battle for the legal and policy space to enact common sense public interest regulations and curb the corporate profit crusade. It's a fight that's vital to the creation of a economic model that averts climate catastrophe and provides dignified living for workers.

Penalizing unsustainable or unethical products, or supporting sustainable and ethical ones, is seen by public interest groups across the globe as a key tool for improving labor conditions and environmental standards. But free-market fundamentalists have long insisted that 'similar' products, in this case electricity, must be treated 'similarly'.

Disgracefully, substantial differences in the ways a product is made are purposefully erased for policy-makers so corporations can hunt for cheaper inputs and thus higher profits. A toy made by a toxic-pollution dumping factory vs. a clean factory? Same. Clothes made with slave labor vs. union labor? Same. Energy generated in a way that fuels climate change vs. renewable energy? Its all the same under corporate free-market logic.

But the corporate types have been winning. They've gotten their faulty logic inscribed in our global trade pacts like NAFTA and the WTO, which provide harsh penalties for transgressions. In so doing they've been able to use the bogeyman of trade sanctions to stifle innovative, quality of life-improving policy tools.

Continue reading "Minnesota: New Front in Fight for Public Interest, Eh?!" »

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Obama Blocking Transparency at WTO?

Reuters is reporting that the U.S. has blocked the WTO from even looking into the compatibility of the bank bailouts with WTO rules:

At a meeting of the WTO's trade policy review body, the United States and Japan blocked proposals for future WTO analyses of trade measures to cover fiscal measures such as bailouts, according to an official who attended the meeting...

The WTO's regular protectionism reports, introduced in response to the financial crisis, have focused on conventional trade measures such as tariff increases and anti-dumping duties.

The call to include bailouts and stimulus packages was led by Argentina, backed by Ecuador, Cuba, Brazil, India and China.

These trade policy reviews are for transparency purposes only, and do not mean that the WTO is prohibiting countries from taking a certain course of action. As we've noted, the WTO limits on both domestic financial policy are expansive, and were developed by AIG, Citigroup, Larry Summers and Timothy Geithner. Might this latest move be an attempt to paper over their role in the WTO financial deregulation push? After all, if the WTO secretariat were to report that controversial policies like the bailouts were WTO violations, we'd have to fess up to the fact that a lot of popular proposals - like bans on risky financial products, or limitations on unlimited capital mobility - are also in conflict with various trade pact rules.

The U.S. has a sad history of pressuring developing nations to refrain from adopting policies that could prevent the deaths of millions (see here and here). Developing nations are going to see it as more than a little hypocritical that the U.S. doesn't even want to talk openly about its bailouts, which are also opposed by most Americans.

Unfortunately, this latest move in Geneva deals another blow against Obama's promise of greater transparency in the trade policy review making process, and a continuation of putting the big banks first.

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Panama Still Dragging Its Feet on Tax Haven Policies

The global financial crisis and subsequent G20 meetings have spurred a multilateral effort to eliminate tax havens and share taxation information among countries, according to a new report released by the OECD.
"In 2009, more progress toward full effective exchange of information has been made than in the past decade," the 30-nation Western economic think tank said in a report issued Tuesday. Jeffrey Owens, head of the OECD's Tax Center, told reporters at a briefing that by the end of 2009, 195 countries had signed tax agreements, up from just 23 the year before.
It seems that a true global consensus against tax havens has developed. There are a few stubborn holdouts, however:
Still, eight countries have no tax agreements to date, Owens noted, saying the OECD is working on bringing them into the fold.
These countries are Liberia, Nauru, Belize, Niue, Guatemala, the Philippines, Vanuatu, and Panama, though the OECD did not list Guatemala and the Philippines as tax havens like the others.  Despite the OECD’s effects to bring Panama “into the fold”, as recently as October 2009 Panama explicitly refused to sign a tax information exchange agreement (TIEA) that the U.S. Treasury has demanded (see Inside U.S. Trade Oct. 23, 2009).

It is puzzling, then, that some in the Obama administration believe that the Bush-era Panama FTA should be the next trade agreement put to a vote in Congress, according to an Inside U.S. Trade article published today (subscription only).  Supporters of the Panama FTA in the administration said things could go one of two ways:

If the administration is demanding that the tax issue be addressed in a tax treaty, it would be complicated matter, both because it would be politically hard for Panama to accept and because it is not clear when the Treasury Department would find the time to conduct the negotiations, they said. But if the U.S. settled for addressing the tax issue in a letter that pledged Panama would live up to its obligations in the Organization for Economic Cooperation and Development, it would be easier to achieve, one business source said.
The tax treaty route would be a real improvement (if, for instance, Panama agreed to an automatic tax information exchange agreement); the “letter” would mean zero change from the status quo.  The OECD already lists Panama as one of the “jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented”, so Panama’s “pledge” would mean nothing more than what it has already said it is going to do…eventually…when it feels like it.  For more background on Panama’s tax haven policies, see our report here.
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Senate Supermajorities, Filibusters and Worker Rights

Labor activist Thomas Geoghegan recently had a piece in the New York Times that rightly decries how current filibuster practices are imposing supermajority requirements on non-treaty legislation like health care reform.

Ironically, treaties have now been effectively stripped of their supermajority requirements. The Constitution empowers Congress to regulate foreign commerce, and requires that treaties be approved by a Senate supermajority. According to the Federalist Paper 75, this was to ensure popular legitimacy of international instruments that would operate as domestic laws. Yet, the controversial 2005 Central America Free Trade Agreement - which the founders would likely have considered a treaty - passed by only two House votes. The process on this and similar deals was rushed through Congress via the Fast Track mechanism (itself receiving only one vote in the House in 2001), which limits debate and gives expansive powers to the executive to design and sign trade agreements.

Public policy will continue to face a legitimacy crisis if pro-worker legislation is perpetually blocked, while anti-worker trade deals skate through Congress.

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Latvia - what happens when the crazies run economic policy

My buddy and former boss Mark Weisbrot has gone on a trip to Riga, Latvia, and was he found was not pretty. According to his column for the UK's Guardian newspaper, there's massive unemployment, crashing GDP, and what the IMF and the country's basically libertarian government wants to do is go harder, faster, stronger in the same lunatic direction.

What's really tragic is that, even if Latvian reformers were to gain the upper hand, they would be limited from reversing deregulation by the country's expansive WTO financial services commitments. According to a study by the IMF, Latvia - along with most former Eastern Bloc countries - rank among the highest in terms of the depth of their WTO financial services commitments, which include shackles from imposing limits on bank size and more. What's worse, is that as a result of the country's accession to the EU, it will be bound by the Understanding on Commitments in Financial Services - an even more extreme deregulation document that binds the US and other rich nations.

Yet another sad case in point of the folly of the WTO getting in the business of propping up the banksters.

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Road Trip!

It looks like U.S. Trade Representative Ron Kirk will be tourinLoaded vang the country in a series of meetings this year.  He’ll tout the benefits of trade agreements generally, but he’ll focus on the Trans-Pacific Partnership (TPP) since its first negotiating session is slated for mid-March of this year. The potential TPP countries now include Vietnam, Australia, Peru, Chile, Singapore, Brunei, and New Zealand, though more countries might join the negotiations soon.

According to Inside U.S. Trade (subscription only), even big business is skeptical of the tour’s mission:

[T]wo business sources said they doubted a series of meetings across the country would do much to sway the public perception of trade.

The meetings should be a two-way street, however, if Kirk follows through on his promise to incorporate feedback from these meetings in the process of developing negotiating objectives for the TPP.  The Office of the USTR has said officially that they are still in the early stages of developing negotiating objectives, but the Bush administration’s trade model is still lurking under the surface:

Private-sector sources this week speculated that the negotiating objectives identified by the Bush administration in 2008 for the TPP Agreement may serve as a basis for the current administration, both because the objectives are so broad and because those original objectives were developed by career officials still in place at USTR.

These previously defined negotiating objectives include all the nasty provisions that we’ve seen in previous agreements like NAFTA and CAFTA such as intellectual property rules, financial services, foreign investor rights, and government procurement.  Right now the inclusion of these inappropriate issues in the TPP is a wide open question. Greater congressional involvement in the negotiating process could help ensure that we are negotiating for an agreement with higher standards.

(Thanks to Flickr user Focx for the image)

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Google It - Under Korea FTA, China Holds Your Data Privacy Future

If the Korea FTA is passed, get ready to have your private financial data handled in China.

What am I talking about? The Bush-negotiated U.S.-Korea "free trade agreement" (FTA), more than other bilateral agreements, has been justified for its explicit role in pushing financial services liberalization (read: deregulation).

According to the Bush administration’s U.S. Trade Representative’s office, “The Financial Services Chapter of the United States- South Korea Free Trade Agreement (“KORUS FTA”) is a groundbreaking achievement, providing more extensive provisions related to financial services than ever before included in a U.S. FTA.”  Citigroup’s Laura Lane, corporate co-chair of the U.S.-Korea FTA Business Coalition, stated that “it is the best financial services chapter negotiated in a free trade agreement to date.”

Indeed, the deal includes everything that's not to like about other Bush-negotiated FTAs, and then some. Like the WTO, CAFTA or the Peru FTA, the Korea FTA commits its signatory countries to refrain from limiting the size of financial institutions, banning toxic derivatives, or controlling destabilizing capital flights and floods. And it also includes similar "prudential measures" language which fails to protect financial stability measures.

But the Korea FTA doesn't stop there. In March 2006, prior to the formal U.S.-Korea negotiations, the Coalition of Service Industries (CSI) stated that one of its primary objectives in the negotiation related to data processing services:

“Korean laws make it difficult for foreign companies to outsource and offshore activities. These laws often relate to privacy (private data protection law and real name law). Under the Protection and Use of Credit Information Law and its Presidential Decree, foreign companies operating in Korea are prohibited from transferring any customer data whatsoever out of Korea, even for the purposes of processing data to their own affiliates. In addition, as a result of the revision of the Insurance Business Act in May 2003, it is mandatory for insurance companies to maintain in-house the basic human and non-human resources, including IT systems, necessary for insurance business. These restrictions seriously undermine the government’s goal of making Korea into a financial ‘hub’ by significantly increasing the cost of operating in Korea. These regulations should be modified to permit companies to follow their global operating models for outsourcing and offshoring provided they have existing practices to protect consumer information.”

This gripe was echoed in the USTR’s 2009 National Trade Estimate report:

“Korea’s strict data privacy rules require financial services providers to locate their servers physically in Korea, thus hampering foreign providers’ ability to take advantage of economies of scale in the region to perform data processing in their daily business activity.”

Corporations demanded, and corporations got. A brand spanking new provision was incorporated into the Korea FTA that reads:

"Transfer of Information: Each Party shall allow a financial institution of the other Party to transfer information in electronic or other form, into and out of its territory, for data processing where such processing is required in the institution’s ordinary course of business."

The text goes on to say that "The Parties recognize the benefits of allowing a financial institution in a Party's territory to perform certain functions at its head office or affiliates located inside or outside the Party’s territory."

Now, CSI is demanding the new Korea FTA provisions be considered the new template for financial services chapters, and be incorporated into future trade deals.

What does this mean for average Americans? This (and related provisions on data transfers in the Korea FTA) goes clearly counter to the demands in the TRADE Act to fix our own offshore privacy laws, so that white collar data jobs can be created and preserved here at home. As research by Alan Blinder and now White House economist Jared Bernstein has shown, data-related jobs are among those most vulnerable to offshoring. And the U.S. currently has weak to non-existent regimes in place to preserve those jobs.

The issue was controversial during the negotiations. According to the Korea Times from 2006,

“Korea's finance-related laws ban foreign financial service companies from remitting personal information of domestic customers to overseas markets. ... There had been a case in which U.S. Citibank's Korean operation was accused of transferring credit information of its Korean customers to its regional headquarters in Asia. The issue, however, is likely to be a bone of contention during the fourth round of FTA talks between Korea and the U.S. on Cheju Island opened yesterday for a five-day run. Once the U.S. demand is met, Korean financial firms in the United States can get private financial information on American companies, analysts said.”

Under the Korea FTA, Citigroup would not only get to transfer Americans' financial data to and from Korea, but transfer this information from Korea to its other offices in the region, like China, which has recently come under fire for cyberattacks and censorship, to the point where Google is considering pulling out of the country. The same would go for Korean banks like Woori Financial, which operates in China and the U.S. Indeed, financial institutions could send data processing to wherever white collar labor is cheapest, not necessarily where it is most safely handled.

To top it all off, Korean-domiciled investors will get rights to challenge U.S. regulations for taxpayer-funded cash compensation in an FTA-established tribunal that operates outside of the U.S. court system. If Woori America Bank built a business model around transferring its clients info to and from China and Korea and the U.S., it is not hard to imagine them launching a case against future regulations that hampered that flow.

In short, under Bush's Korea FTA, both consumer and white collar workers will take a hit. It couldn't come at a worse time, with concerns about both jobs and China's data practices at record levels. What's worse, it didn't have to be this way. In fact, the recently inked Korean trade deal with the European Union has better provisions, in deference to the EU's better rules on offshore data privacy.

Let's hope that President Obama's talk last year about the Korea FTA was just that. I can't imagine he would want to take up the Bush mantel on this one. And with a majority of House Democrats now supporting the TRADE Act, there is ample support for an alternative agenda which creates and preserves both good jobs and safety for your personal information.

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On His Way Out, Corzine Dismisses Public Call for New Direction on American Trade Policy, Vetoes Reform Bill

New Jersey Governor Rejects Bill Passed by State Legislature That Would Safeguard State's Regulatory Authority From Trade Agreements

CorzineNew Jersey Gov. Jon Corzine on Monday vetoed cutting-edge legislation that would have safeguarded job-creation programs, Buy America/Buy New Jersey procurement preferences and renewable source energy policies from being undermined by trade agreements. The Jobs, Trade and Democracy Act required a vote by the state Legislature before the state could be bound by federal government officials to conform state policies to the non-trade regulatory constraints imposed through certain trade agreements. The bill was designed to ensure that the practice and principles of American democracy, from federalism to checks and balances, are safeguarded in this era of globalization, Public Citizen said.

The New Jersey bill Corzine vetoed dovetails with the federal Trade Reform Accountability Development and Employment (TRADE) Act, which provides for improved state-federal consultation on trade agreement matters. That bipartisan legislation has 133 co-sponsors in the U.S. House of Representatives, including New Jersey congressional Reps. Robert Andrews, Rush Holt, Frank Pallone, Donald Payne, Steve Rothman and Chris Smith.

"Its hard to understand why Gov. Corzine would oppose the efforts of people in New Jersey as well as state and local officials nationwide who are demanding new accountability over federal trade negotiators so they do not negotiate away states abilities to create jobs using smart procurement policies and regulate health, energy and other services," said Lori Wallach, director of Public Citizens Global Trade Watch division. "How New Jersey chooses to spend its taxpayers dollars to pursue local economic development or design policies to make health care affordable should be decided by New Jersey citizens through their democratically elected Legislature with approval by their governor - not imposed top-down by foreign trade pacts."

The legislation (S. 1802), which passed the New Jersey General Assembly in May (61-13-3) and the state Senate in December (32-6), would have required state legislative approval of federal government requests in order for New Jersey to be bound to conform its policies to the non-tariff provisions of future trade agreements, including these agreements service sector, procurement and investment rules. Todays trade agreements have drastically expanded scopes, which include the imposition of new constraints on non-trade policies over which state and local governments traditionally have had jurisdiction, such as those affecting environmental protection, financial service regulation, land use and economic development, access to affordable healthcare and medicines, and more. State and local officials have increasingly become aware that todays trade agreements are invading the non-trade policy space reserved for state officials through an insidious sort of international pre-emption. Five other states - Hawaii, Maine, Maryland, Minnesota and Rhode Island - have recently enacted legislation similar to that which Corzine vetoed.

Continue reading "On His Way Out, Corzine Dismisses Public Call for New Direction on American Trade Policy, Vetoes Reform Bill" »

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Huge Trade Deficit Comes Back from the Dead

If anyone thought that the trend toward a favorable trade balance was here to stay, they were in for a rude awakening yesterday when the Commerce Department released the November trade deficit numbers.

Ship at port with jpeg

The trade deficit in November stood at $36.4 billion, almost ten percent greater than the trade deficit in October.  Earlier in 2009, lower consumer demand in the U.S. and a less expensive dollar gave us a temporary reprieve from our huge trade deficit, although we still didn’t break into a trade surplus this year.

Click here for a nifty graph from the Bureau of Economic analysis that examines the monthly trade deficit since 2000. Note that lower points on the graph indicate larger deficits.

(Thanks to Flikr user oneeighteen for the photo)

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New Year’s Resolutions for the Obama Administration

With a number of important and high profile trade battles to be fought this year that will have far-reaching impacts on the U.S economy and domestic policy, we thought we’d suggest some New Year’s resolutions for president Obama to adopt on U.S. trade policy.

These resolutions are solutions that the administration needs to commit to in 2010, based on what's likely to move in the trade sphere this year. They hold President Obama to his campaign promise to deliver trade policy reform, and they’ll also help to fix the economy and keep good jobs in America.

The resolutions are:

  1. Push to modify World Trade Organization (WTO) limitations on domestic financial services regulation, in light of the economic crisis. Go here for details.
  2. Conduct a comprehensive review of trade agreement policy as promised during the campaign
  3. Announce formal new trade agreement approach that brings trade pacts into congruence with the administration’s domestic priorities and goals
  4. Pass climate legislation with meaningful border equality measures
  5. Pass second major stimulus bill with robust Buy America provisions to create jobs
  6. Pass food safety bill with serious import safety protections
  7. Use the Trans-Pacific Partnership talks to devise a replacement for the NAFTA model; we either need a new way or no deal
  8. Renegotiate remaining Bush trade agreements with South Korea, Colombia, & Panama to fix NAFTA model problems and bring them in line with the TRADE Act.
  9. Give the WTO’s “Doha Round” agenda a much needed burial and develop a new agenda related today's challenges aimed at fixing WTO problems, from financial services deregulation to limits on climate crisis redress space
  10. Fight for a China trade policy that supports jobs and also ensures product and food safety for both countries

Obama has already resolved to do a lot of these, but just as with most New Year’s resolutions, he’s somewhat fallen off the wagon.  We’re here to help him resolve anew and stick to it!

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Americans Say NAFTA-style Agreements = Job Losses

(Disclaimer: Public Citizen has no preference among candidates for office)

A poll conducted by the Pew Research Center in November has found that the public holds deep misgivings about the WTO and trade agreements like NAFTA.

In an atmosphere of 10 percent unemployment, about 52 percent of those surveyed believe that "free trade" agreements lead to job losses, while only 13 percent believe that the agreements create jobs. The remainder of those surveyed didn't have an opinion, refused to answer, or thought trade agreements didn't affect employment.

Only 11 percent of respondents believed that free trade agreements make the wages of Americans higher, but 49 percent believed that trade agreements reduce American wages.

The survey also reveals quite a disconnect between the views of the foreign policy elite and the views of the public at large: 88 percent of the members of the Council on Foreign Relations believe that these trade agreements are a good thing for the United States, which is more than double the proportion of ordinary Americans who believe the same.

Another interesting finding in this poll is the degree of opposition to "free trade" agreements among Republicans and independents. About 36 percent of both Republicans and independents believe that trade agreements are a bad thing, which is a greater degree of opposition that even Democratic voters exhibit.

Democratic candidates for Congress must keep in mind that in order to prevail in the midterm elections they must retain the independent and Republican voters that they gained in 2008, so running on a fair trade platform can only help expand their appeal.

Read the report here

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Trade Theory Textbook Goes in the Trash

Peter Morici, Chief Economist at the U.S. International Trade Commission from 1993 to 1995 (those dark days of NAFTA implementation), has a new op-ed out today, entitled “Why Free Trade is Failing America”. A lot has changed since his tenure at the USITC. He's now a professor at the University of Maryland and he recognizes that the assumptions underpinning arguments for trade liberalization sometimes never hold true:

No economic policy could better serve Americans than genuine free trade but open trade policies are failing Americans.

Free trade is a compelling idea. Let each nation do more of what it does best, and specialization will raise productivity and incomes.

Americans are not sharing in those benefits because President Barack Obama, like President George W. Bush, permits China and others to cheat on the rules, unchallenged, to the detriment of the U.S. interests he was elected to champion…

Unfortunately, U.S. imports exceed exports by another $400 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, in which productivity is at least 50% lower. This slashes gross domestic product by about $200 billion, overwhelming the gains from trade, and requires workers displaced by imports to accept lower wages.

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