As Battle Over NAFTA 2.0 Heats Up, New Report Documents 25 Years of NAFTA's Disproportionate Damage to U.S. Latino and Mexican Working People

With the signing of the renegotiated North American Free Trade Agreement (NAFTA) on Nov. 30 as the migrant crisis at the border escalates, the Labor Council for Latin American Advancement (LCLAA) and Public Citizen’s Global Trade Watch released a timely analysis of the North American Free Trade Agreement’s (NAFTA) disproportionate damage to U.S. Latinos and Mexican workers, and whether the NAFTA 2.0 deal would stop it.

“While President Trump’s manipulation of grievances over trade and immigration brought him to power, absent from his worldview is the reality that NAFTA was developed by and for multinational corporations seeking to pay workers less and has hurt both U.S. and Mexican workers,” said Hector Sanchez, executive director of LCLAA at a Press Club event today. “Indeed, NAFTA’s destruction of millions of Mexican small farmers’ livelihoods and the pact’s race-to-the-bottom wage incentives have pushed many in Mexico to search for work outside their home country.”


Titled “Fracaso: NAFTA’s Disproportionate Damage to U.S. Latino and Mexican Working People,” the report’s findings upend President Donald Trump’s xenophobic NAFTA narrative that blames Mexican workers for harming U.S. workers. The report’s analysis of the NAFTA 2.0 text in the context of the ongoing NAFTA-related damage to Mexican and U.S. workers alike spotlights why further improvements are necessary before a final NAFTA 2.0 deal can achieve broad support in Congress next year. The report was produced through a partnership that united LCLAA’s decades of advocacy for Latinos and Public Citizen’s decades of analysis of trade pacts and their impacts.

“NAFTA not only didn’t deliver on its proponents’ rosy promises of more jobs and higher wages, but its ongoing damage ended decades of bipartisan congressional consensus in favor of trade pacts,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “For a final NAFTA 2.0 package to get through Congress next year, the signed deal will need more work so its labor standards are subject to swift and certain enforcement and the other improvements are made to stop NAFTA’s ongoing job outsourcing, downward pressure on wages and environmental damage.”

The data on NAFTA’s disproportionately negative effect on both Mexican and U.S. working people undermine Trump’s nationalist critique while also spotlighting why more-of-the-same neoliberal NAFTA policies are equally unacceptable. Among the report’s findings:

  • Government-certified NAFTA job loss has been greatest in regions where the U.S. Latino population is concentrated. The 15 states where 85 percent of Latinos reside account for nearly half (46 percent) of total NAFTA job loss certified under just the narrow Trade Adjustment Assistance program.
  • Latino workers were disproportionately represented in the light manufacturing industries hit hardest by the outsourcing NAFTA incentivized. Latinos lost 138,000 jobs in the apparel and textile sector and 123,000 jobs in the U.S. electronics industry during the NAFTA era.
  • As NAFTA eliminated U.S. manufacturing jobs, the related wage stagnation for workers without college educations across all industries hit Latinos asymmetrically. Rather than the Latino-white pay gap closing, it increased during the NAFTA years.
  • For Mexican workers, increased investment and trade with the United States failed to translate into per capita income growth or rising wages in Mexico. Annual per capita income grew less than 2 percent in the first seven years of NAFTA and less than 1 percent thereafter.
  • Real average annual wages have declined in Mexico under NAFTA. According to analysis by Bank of America/Merrill Lynch, manufacturing wages in Mexico are now 40 percent lower than in China. Prior to NAFTA, Mexican auto wages were five times lower than in the United States. Today, even as U.S. wages have stagnated, Mexican auto wages are nine times lower
  • NAFTA devastated Mexico’s rural sector. Amid a NAFTA-spurred influx of subsidized U.S. corn, about 2 million Mexicans engaged in farming and related work lost their livelihoods.
  • With millions of Mexicans displaced from rural communities competing for the hundreds of thousands of new manufacturing jobs outsourced from the United States, and a lack of independent unions in Mexico to bargain for better wages, employers could keep wages reprehensibly low. Overall, in real terms average annual Mexican wages are down 2 percent and the minimum wage down 14 percent from pre-NAFTA levels.
  • As NAFTA destroyed Mexican livelihoods and displaced millions in rural Mexico, it became a powerful push factor for migration. From 1993, the year before NAFTA, to 2000, annual immigration from Mexico increased from 370,000 to 770,000. With annual immigration on the rise, the total number of undocumented immigrants from Mexico living in the United States increased from about 2.9 million in 1995 to 4.5 million in 2000 to 6.9 million by 2007 when the financial crisis limited job opportunities and slowed migration rates.
  • Nearly 28,000 small- and medium-sized Mexican businesses were destroyed in NAFTA’s first four years alone, spurring the El Barzon movement of formerly middle-class Mexican entrepreneurs protesting NAFTA. Losses included many retail, food processing and light manufacturing firms that were displaced by NAFTA’s new opening for U.S. big-box retailers that sold goods imported from Asia.

This report makes clear that neither status-quo neoliberalism nor Trump’s anti-Mexico nationalism is in the interest of working people in the United States or Mexico.

“Tens of millions of Mexican and U.S. Latino workers have been hurt by NAFTA – from the factory worker in El Paso, Texas, who lost her livelihood making blue jeans after the apparel industry moved to Mexico to take advantage of low wages, to the Mexican farmer in Chiapas who can barely make ends meet as the prices paid for his corn plummeted after subsidized U.S. corn flowed into Mexican markets after NAFTA,” said Yanira Merina, national president of LCLAA. “It is the future of these workers, their families and their communities that will be determined by whether there is a new NAFTA deal that can raise wages and replace NAFTA’s race to the bottom with fair trade.”

“NAFTA 2.0 labor enforcement must be greatly strengthened,” said Guillermo Perez, labor educator at the United Steelworkers and president of the Pittsburgh LCLAA. “It is in the interest of workers in all three countries to ensure that Mexico adopts strong workers’ rights provisions and monitors and enforces their implementation. Workers in Mexico must be able to form labor organizations and collectively bargain for better wages and working conditions to stop downward pressure on wages in Canada and the United States.”

“Trade agreements like NAFTA, which are not fair and leave workers in the U.S., Canada and Mexico out in the cold, have caused immense pain and disruption in the lives of everyday working people in all three countries. The NAFTA 2.0 that was signed will not stop the wage suppression in Mexico and the related outsourcing from the U.S. and Canada. Our future, the future of manufacturing and the future of workers’ lives depends on getting trade policy right,” said Dora Cervantes, general secretary-treasurer at the International Association of Machinists & Aerospace Workers.

The full report is available here.

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Transitions at Eyes on Trade

This blog post is a farewell of sorts.  After three years, today is my last day at Public Citizen.  In a couple weeks, I’ll be continuing to push for a more just trade model over at Sierra Club’s climate and trade program as senior policy advisor. Eyes on Trade, of course, will still be here in the good hands of my colleagues at Global Trade Watch. 

It has been a treat to have this space to amplify the call of many for a new trade model, document the damage wrought by our existing trade deals abroad and at home, fact-check dubious economic projections and predictable spin jobs for pending trade deals, spotlight the threats those deals pose to our health/environment/economy/democracy, and witness the growth of the largest, most diverse coalition ever to oppose an expansion of the trade status quo.  

I started working on trade when I realized that three lawyers in an investor-state tribunal could trump basic tenets of democracy and rule against health and environmental protections for which many of us have fought.  When I saw how a particular model of trade has contributed to the growing gulf between the rich and the rest of us.  When I realized that multinational corporations could obtain special protections that restrict consumers' access to life-saving medicines and still get away with calling it "free trade."  

Of course, one need not work on trade to know about trade.  It is little wonder that majorities of Republicans, Democrats and independents alike oppose the status quo trade pact model.  More than two decades of NAFTA, the WTO and NAFTA expansion pacts have contributed to surging U.S. trade deficits, widespread job loss, a flood of agricultural imports, downward pressure on middle-class wages and unprecedented levels of income inequality.  Behind the aggregate data lie shuttered factories, lost livelihoods and struggling communities.

These outcomes directly contradict the rosy promises made by corporate interests to sell these controversial deals to a skeptical U.S. Congress and public.  They also contradict President Obama’s stated economic agenda to revive U.S. manufacturing, boost middle-class wages and tackle inequality – an agenda that the TPP would undermine.  The Obama administration’s push for yet another NAFTA expansion deal casts a blind eye to the damaging legacy of the current trade model.

With opinion polls showing that the U.S. public is painfully aware of this legacy, the administration’s TPP push faces stiff opposition in the halls of Congress and the court of public opinion.  Turning a blind eye to the lived realities of the status quo trade model is unlikely to prove a winning strategy. 

And with that, at the risk of making this my shortest blog post to date (a perhaps not difficult feat), I bid you adieu.  It has been an honor to work with Public Citizen, and to work alongside many of you in pushing for a fair trade policy.  I look forward to continuing to do so from my new post. 

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Obama vs. Obama: The State of the Union's Self-Defeating Trade Pitch

In his State of the Union address tonight, President Obama called for job creation, reduced income inequality, more affordable healthcare and better regulation of Wall Street. 

He also called for Fast Tracking the Trans-Pacific Partnership (TPP) – a controversial “trade” deal that would undermine all of the above.

Here's a side-by-side analysis of how Obama's push to Fast Track the TPP contradicts his own State of the Union agenda:

Obama’s Agenda

The TPP’s Counter-Agenda

Income Inequality: “Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?”

An “economy where only a few of us do spectacularly well” is actually the projected outcome of the TPP. A recent study finds that the TPP would spell a pay cut for all but the richest 10 percent of U.S. workers by exacerbating U.S. income inequality, just as past trade deals have done

Manufacturing revival: “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.”

The TPP would give manufacturing firms a reason to offshore jobs to Vietnam, not bring them back from China. The TPP would expand NAFTA’s special protections for firms that offshore American manufacturing, including to Vietnam, where minimum wages are a fraction of those paid in China. Since NAFTA, we have endured a net loss of more than 57,000 U.S. manufacturing facilities and nearly 5 million manufacturing jobs.

American jobs: “So no one knows for certain which industries will generate the jobs of the future. But we do know we want them here in America.”


TPP rules would gut the popular Buy American preferences that require government-purchased goods to be made here in America, preventing us from recycling our tax dollars back into our economy to create U.S. jobs.

Exports: “Today, our businesses export more than ever, and exporters tend to pay their workers higher wages.”

Those who wish for more exports should wish for a different trade agenda. U.S. exports to countries that are part of TPP-like deals have actually grown slower than exports to the rest of the world, according to government data. Under the Korea deal that literally served as the template for the TPP, U.S. exports have actually fallen.

Small businesses: “21st century businesses, including small businesses, need to sell more American products overseas.”

Small businesses have endured declining exports and export shares under pacts serving as the model for the TPP. Small businesses suffered a steeper downfall in exports than large firms under the Korea trade pact, and small businesses’ export share has declined under NAFTA.

Economic growth: “Maintaining the conditions for growth and competitiveness. This is where America needs to go.”

An official U.S. government study finds that the economic growth we could expect from the TPP is precisely zero, while economists like Paul Krugman have scoffed at the deal’s economic significance.

Middle class wages: “Of course, nothing helps families make ends meet like higher wages.”

The TPP would put downward pressure on middle class wages, just as NAFTA has, by offshoring the jobs of decently-paid American manufacturing workers and forcing them to compete for lower-paying, non-offshoreable jobs.

Legacy of past trade deals: “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.”

Past trade deals have resulted in massive trade deficits and job loss not because the pacts’ rules have been broken, but because of the rules themselves. The TPP would double down on NAFTA’s rules – the opposite of Obama’s promise to renegotiate the unpopular pact – by expanding NAFTA’s offshoring incentives, limits on food safety standards, restrictions on financial regulation and other threats to American workers and consumers.

Affordable medicines: “…middle-class economics means helping working families feel more secure in a world of constant change. That means helping folks afford …health care…”

The TPP would directly contradict Obama’s efforts to reduce U.S. healthcare costs by expanding monopoly patent protections that jack up medicine prices and by imposing restrictions on the U.S. government’s ability to negotiate or mandate lower drug prices for taxpayer-funded programs like Medicare and Medicaid.

Wall Street regulation: “We believed that sensible regulations could prevent another crisis…Today, we have new tools to stop taxpayer-funded bailouts, and a new consumer watchdog to protect us from predatory lending and abusive credit card practices…We can’t put the security of families at risk by…unraveling the new rules on Wall Street…”

Senator Warren has warned that the TPP could help banks unravel the new rules on Wall Street by prohibiting bans on risky financial products and “too big to fail” safeguards while empowering foreign banks to “sue” the U.S. government over new financial regulations.

Internet freedom: “I intend to protect a free and open internet…”

The TPP includes rules that implicate net neutrality and that would require Internet service providers to police our Internet activity – rules similar to those in the Stop Online Piracy Act (SOPA) that was rejected as a threat to Internet freedom.

National interests: “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?”

With the TPP, multinational corporations want to write the rules that would put our workers at a disadvantage and undermine our national interests. TPP rules, written behind closed doors under the advisement of hundreds of official corporate advisers, would provide benefits for firms that offshore American jobs, help pharmaceutical corporations expand monopoly patent protections that drive up medicine prices, give banks new tools to roll back Wall Street regulations, and empower foreign firms to “sue” the U.S. government over health and environmental policies. Why would we let that happen? 

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Obama’s Legacy: Middle-Class Jobs, Affordable Medicine and Financial Stability, or Fast-Tracked Trade Agreements – But Not Both

New Report ‘Prosperity Undermined’ Fact Checks Administration, Corporate Lobbyists and GOP Leadership With 20 Years of Data on Jobs, Economy

Fast Tracked trade deals have exacerbated the income inequality crisis, pushed good American jobs overseas, driven down U.S. wages, exploded the trade deficit and diminished small businesses’ share of U.S. exports, a new report from Public Citizen’s Global Trade Watch shows. The report, “Prosperity Undermined,”compiles and analyzes 20 years of trade and economic data to show that the arguments again being made in favor of providing the Obama administration with Fast Track trade authority have repeatedly proved false.

President Barack Obama is expected to push Fast Track for the Trans-Pacific Partnership (TPP). The pact, initiated by George W. Bush, literally replicates most of the job-offshoring incentives and wage-crunching terms found in the North American Free Trade Agreement (NAFTA) and would roll back Obama administration achievements on health, financial regulation and more. 

“It’s not surprising that Democrats and Republicans alike are speaking out against Fast Track because it cuts Congress out of shaping trade pacts that most Americans believe cost jobs while empowering the president to sign and enter into secret deals before Congress approves them,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “In their speeches and commentary, the administration, corporate interests and GOP leadership disregard the real, detrimental impacts that previous fast tracked trade deals – which serve as the model for the Trans-Pacific Partnership – have had on America’s middle class over the past 20 years.”

With unprecedented unity among Democratic members of Congress, there will be a handful of Democratic House votes in favor of Fast Track. Last year, seven of 201 House Democrats  supported Fast Track legislation. Meanwhile, a sizable bloc of GOP House members oppose Fast Track, which would grant the president extensive new executive powers and delegate away core congressional constitutional authorities.

The new report shows a 20-year record of massive U.S. trade deficits, American job losses and wage suppression. More specifically, data show that:

  • Trade Deficits Have Exploded: U.S. trade deficits have grown more than 440 percent with Fast Tracked U.S. FTA countries since the pacts were implemented, but declined 16 percent with non-FTA countries during the relevant period. Since Fast Track was used to enact NAFTA and the World Trade Organization, the U.S. goods trade deficit has more than quadrupled, from $216 billion to $870 billion. Small businesses’ share of U.S. exports has declined, while U.S. export growth to countries that are not FTA partners has exceeded U.S. export growth to FTA partners by 30 percent over the past decade.  ‘
  • Good American Jobs Were Destroyed: Nearly 5 million U.S. manufacturing jobs – one in four – were lost since the Fast Tracking of NAFTA and various NAFTA-expansion deals. Since NAFTA, more than 845,000 U.S. workers have been certified under just one narrow U.S. Department of Labor (DOL) program for Americans who have lost their jobs due to imports from Canada and Mexico and offshored factories to those countries.
  • U.S. Wages Have Stagnated, Inequality Soared: Three of every five manufacturing workers who lose jobs to trade and find reemployment take pay cuts, with one in three losing greater than 20 percent, according to DOL data. Overall, U.S. wages have barely increased in real terms since 1974 – the year that Fast Track was first enacted – while American worker productivity has doubled. Since Fast Track’s enactment, the share of national income captured by the richest 10 percent of Americans has shot up 51 percent, while that captured by the richest 1 percent has skyrocketed 146 percent. Study after study has revealed an academic consensus that status quo trade has contributed to today’s unprecedented rise in income inequality.
  • Food Exports Flat, Imports Soared: Under NAFTA and the WTO, U.S. food exports have stagnated while food imports have doubled. The average annual U.S. agricultural deficit with Canada and Mexico under NAFTA’s first two decades reached $975 million, almost three times the pre-NAFTA level. Approximately 170,000 small U.S. family farms have gone under since NAFTA and WTO took effect.
  • Damaging Results of Obama’s “New and Improved” Korea Trade Deal: Since the Obama administration used Fast Track to push a trade agreement with Korea, the U.S. trade deficit with Korea has grown 50 percent – which equates to 50,000 more American jobs lost. The U.S. had a $3 billion monthly trade deficit with Korea in October 2014 – the highest monthly U.S. goods trade deficit with the country on record. After the Korea FTA went into effect, U.S. small businesses’ exports to Korea declined more sharply than large firms’ exports, falling 14 percent.

“Big dollars for big corporations and special interests calling the shots – that’s what the American people hear when only the country’s top corporate lobbyists are shaping America’s trade agreements,” said Wallach. “With such high stakes, we cannot let the Fast Track process lock Congress and the public out of negotiations that will have lasting impacts on the livelihoods, rights and freedoms of American families, workers and businesses.”

Read the report.          

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Obama Laments Inequality, Calls for Another Inequality-Spurring Trade Deal

Yesterday President Obama, speaking to a room full of corporate executives, tried to downplay the contribution of corporate-pushed trade deals to the historic rise in U.S. income inequality.  

Obama knew his audience -- corporate representatives eager to expand the status quo trade model by Fast Tracking through Congress the controversial Trans-Pacific Partnership (TPP) are probably keen to deny that this model has been exacerbating inequality.  

But such denial defies a consensus position among economists that recent trade flows have indeed contributed to today's yawning gap between rich and poor -- the only debate is how big of a role status quo trade has played.  

It also defies U.S. public opinion -- in a recent Pew poll, a mere 17 percent of the U.S. public thought that trade has boosted U.S. wages, while 45 percent, across the political spectrum, saw trade as contributing to falling wages for U.S. workers.

Obama acknowledged yesterday that TPP proponents will have a tough time arguing that this time is different -- that reviving Fast Track authority in attempt to push through Congress another more-of-the-same trade pact would not fuel further inequality growth. Fast Track was the Nixon-created maneuver that allowed the executive branch to railroad through Congress controversial, inequality-spurring pacts like the North American Free Trade Agreement (NAFTA) by negotiating and signing the pacts before Congress got an expedited, no-amendments, limited-debate vote.  A study by the Center for Economic and Policy Research finds that were the TPP to be Fast Tracked through Congress, all but the wealthiest among us would lose more to inequality increases than we would gain in cheaper goods, spelling a pay cut for 90 percent of U.S. workers.

Recognizing the unpopularity of Fast Track and the TPP, Obama told the business executives: “There are folks in my own party and in my own constituency that have legitimate complaints about some of the trend lines of inequality, but are barking up the wrong tree when it comes to opposing TPP, and I’m going to have to make that argument.”

Having to make that argument is not an enviable position -- it requires explaining away decades of evidence that Fast-Tracked deals have fostered greater U.S. income inequality.  Here's a sampling of that evidence:

U.S. Wages Stagnate, Despite Doubled Worker Productivity

  • Trade agreement investor privileges promote offshoring of production from the United States to low-wage nations. Today’s “trade” agreements contain various investor privileges that reduce many of the risks and costs previously associated with relocating production from developed countries to low-wage developing countries. Thus, many imports now entering the United States come from companies originally located in the United States and other wealthy countries that have moved production to low-wage countries. For instance, nearly half of China’s exports are now produced by foreign enterprises, not Chinese firms. Underlying this trend is what the Horizon Project called the “growing divergence between the national interests of the United States and the interests of many U.S. multinational corporations which, if given their druthers, seem tempted to offshore almost everything but consumption.” American workers effectively are now competing in a globalized labor market where some poor nations’ workers earn less than 10 cents per hour.
  • Manufacturing workers displaced by trade have taken significant pay cuts. The United States has lost millions of manufacturing jobs during the Fast Track era, but overall unemployment has been largely stable (excluding recessions) as new low-paying service sector jobs have been created. Proponents of status quo trade raise the quantity of jobs to claim that Fast Tracked deals have not hurt U.S. workers. But what they do not mention is that the quality of jobs available, and the wages most U.S. workers can earn, have been degraded. According to the U.S. Bureau of Labor Statistics, about three out of every five displaced manufacturing workers who were rehired in 2014 experienced a wage reduction. About one out of every three displaced manufacturing workers took a pay cut of greater than 20 percent. For the average manufacturing worker earning more than $47,000 per year, this meant an annual loss of at least $10,000.
  • Trade policy holds back wages even of jobs that can’t be offshored. Economists have known for more than 70 years that all workers with similar skill levels – not just manufacturing workers – will face downward wage pressure when U.S. trade policy creates a selective form of “free trade” in goods that non-professional workers produce. When workers in manufacturing are displaced and seek new jobs, they add to the supply of U.S. workers available for non-offshorable, non-professional jobs in hospitality, retail, health care and more. As increasing numbers of American workers, displaced from better-paying jobs by current trade policies, have joined the glut of workers competing for these non-offshorable jobs, real wages have actually been declining in these growing sectors
  • The bargaining power of American workers has been eroded by threats of offshoring. In the past, American workers represented by unions were able to bargain for their fair share of economic gains generated by productivity increases. But the investor protections in today’s trade agreements, by facilitating the offshoring of production, alter the power dynamic between workers and their employers. For instance, a study for the North American Commission on Labor Cooperation – the body established in the labor side agreement of NAFTA – showed that after passage of NAFTA, as many as 62 percent of U.S. union drives faced employer threats to relocate abroad, and the factory shut-down rate following successful union certifications tripled.
  • Even accounting for Americans’ access to cheaper imported goods, the current trade model’s downward pressure on wages outweighs those gains, making most Americans net losers.  Trade theory states that while those specific workers who lose their jobs due to imports may suffer, the vast majority of us gain from trade “liberalization” because we can buy cheaper imported goods. But when the non-partisan Center for Economic and Policy Research (CEPR) applied the actual data to the trade theory, they discovered that when you compare the lower prices of cheaper goods to the income lost from low-wage competition under current policies, the trade-related losses in wages hitting the vast majority of American workers outweigh the gains in cheaper goods from trade. U.S. workers without college degrees (63 percent of the workforce) have lost an amount equal to 12.2 percent of their wages, even after accounting for the benefits of cheaper goods. That means a net loss of more than $3,400 per year for a worker earning the median annual wage of $28,000.

Income Inequality Increases in America

  • The inequality between rich and poor in America has jumped to levels not seen since the robber baron era. The richest 10 percent of Americans are now taking more than half of the economic pie, while the top 1 percent is taking more than one fifth. Wealthy individuals’ share of national income was stable for the first several decades after World War II, but shot up 51 percent for the richest 10 percent and 146 percent for the richest 1 percent between 1974 and 2012 – the Fast Track era. Is there a connection to trade policy?
  • Longstanding economic theory states that trade will increase income inequality in developed countries. In the 1990s a spate of economic studies put the theory to the test, resulting in an academic consensus that trade flows had indeed contributed to rising U.S. income inequality. The pro-“free trade” Peterson Institute for International Economics (PIIE), for example, found that nearly 40 percent of the increase in U.S. wage inequality was attributable to U.S. trade flows. In 2013, when the Economic Policy Institute (EPI) updated an oft-cited 1990s model estimate of trade’s impact on U.S. income inequality, it found that using the model’s own conservative assumptions, one third of the increase in U.S. income inequality from 1973 to 2011 – the Fast Track era – was due to trade with low-wage countries. The role of trade escalated rapidly from 1995 to 2011 – a period marked by a series of Fast-Tracked “free trade” deals – EPI found that 93 percent of the rise in income inequality during this period resulted from trade flows. Expressed in dollar terms, EPI estimates that trade’s inequality-exacerbating impact spelled a $1,761 loss in wages in 2011 for the average full-time U.S. worker without a college degree.
  • Changes in technology or education levels do not fully account for American wage pressures. Some have argued that advances in computer technology explain why less technologically-literate American workers have been left behind, asserting that more education – rather than a different trade policy – is how America will prosper in the future. While more education and skills are desirable for many reasons, these goals alone will not solve the problems of growing inequality. First, as documented in a Federal Reserve Bank paper, inequality started rising as systematic U.S. trade deficits emerged, in the early Fast Track period, far before most workers reported using computers on the job. Second, college-educated workers have seen their wage growth stagnate, even in technologically sophisticated fields like engineering. Thus, addressing trade policy, not only better educating American workers, will be an essential part of tackling rising income inequality.
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Let’s Just Pretend We Didn’t Offshore Manufacturing

Is an iPhone made in China and exported to Europe a U.S. export?

Is an Apple executive a manufacturing worker?

Yes, and yes.  At least those could become the answers if a new proposal afoot among some in the administration is allowed to take effect.  Federal agencies grouped under the bland-sounding Economic Classification Policy Committee (ECPC) are proposing to radically redefine U.S. manufacturing and trade statistics. 

Under the proposal, U.S. firms that have offshored their production abroad – like Apple – would become “factoryless goods” manufacturers.  The foreign factories that actually manufacture the goods – like the notorious iPhone-producing Foxconn factories in China – would no longer be manufacturers, but “service” providers for the rebranded “manufacturing” firms like Apple.

It appears the administration has been reading Orwell

But the problem with this proposed redefinition is not merely that it offends common sense.  The “factoryless goods” proposal would deceptively deflate the size of reported, but not actual, U.S. manufacturing trade deficits, while artificially inflating the number of U.S. manufacturing jobs overnight.

While some details of the proposal remain open-ended, one thing is clear: this maneuver would obscure the erosion of U.S. manufacturing.  It would disguise the mass-offshoring of U.S. middle-class factory jobs incentivized by NAFTA-style trade deals.  It would undermine efforts to change the unfair trade and other policies that have led to such decline.  

To boost U.S. manufacturing jobs and production, we need to switch our policies, not our numbers.

The ECPC is accepting comments on their “factoryless goods” proposal until July 21.  If you’d care to offer your thoughts, click here.

The 3 Big Distortions of the "Factoryless Goods" Proposal

1.  The proposal would result in a fabricated reduction of the U.S. manufacturing trade deficit by rebranding imports of U.S. manufactured goods as “services” imports, according to recent explanations offered by officials of ECPC member agencies.  The redefinition would not affect all U.S. trade statistics, but it would distort some of the most widely-reported numbers (those calculated on a balance of payments basis), misleading the public and policymakers alike.

Take, for example, a scenario in which Apple ships iPhone parts to China to be assembled in a Foxconn factory and then sent back to the United States to be sold here.  Currently, the value of the imported iPhone minus the lesser value of the exported parts counts as a net U.S. import of a manufactured good.  This reflects the fact that Apple offshored its iPhone manufacturing to China.

But under the ECPC proposal, Foxconn, now called a “manufacturing services provider,” would not be described as having manufactured the iPhones but as having provided services to Apple.  As a result, the net U.S. import of manufactured goods resulting from Apple’s decision to offshore would be reduced. In its place would be an import of Foxconn’s factory “services.”

2.  The proposal would treat some goods exported by foreign factories as U.S. manufactured exports.  Take a scenario in which Apple ships iPhone parts to China that are assembled by Foxconn and then shipped to the European Union (EU).  Currently, Apple’s export of parts to China counts as the only U.S. export in this scenario. 

But the ECPC proposal, according to officials of ECPC member agencies, would instead count China’s export of the fully-assembled iPhones to the EU, less the cost of any imported parts, as a “U.S. manufactured goods export.”

The absurd logic of this rebranding is that while China manufactured and exported the iPhones, they count as U.S. manufactured exports because they were under the control of a U.S. brand.  This Orwellian proposal would spell an artificial increase in U.S. manufactured exports (on a balance of payments basis), further belying the real U.S. manufacturing trade deficit.

 3.  The proposal would spur a disingenuous, overnight increase in the number of U.S. “manufacturing” jobs as white-collar employees in firms like Apple – now rebranded as “factoryless goods producers” – would suddenly be counted as “manufacturing” workers. 

This change would also create a false increase in manufacturing wages, as many of the newly-counted “manufacturing” jobs would be designers, programmers and brand managers at “factoryless goods producers” like Apple. 

Reported U.S. manufacturing output would also abruptly and errantly jump, as revenues from firms like Apple would be lumped in with the output of actual manufacturers. 

This proposal defies common sense.  It would dramatically distort U.S. trade, labor and gross domestic product statistics.  Goods manufactured abroad and imported into the United States are not something other than manufactured goods imports.  Goods exported from foreign factories do not become “U.S. exports” when they are produced for U.S. brands.  And jobs in which workers spend zero time actually manufacturing anything are not “manufacturing jobs.”  

The offshoring of U.S. manufacturing under years of unfair trade policies cannot be undone with a data trick.  The hoped-for “renaissance” of U.S. manufacturing will come through new policymaking informed by accurate data, not politically convenient distortions.  

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Fact-checking Froman: The Top 10 Myths Used by Obama’s Top Trade Official

U.S. Trade Representative Michael Froman tried in a speech yesterday to defend the Obama administration’s beleaguered trade policy agenda: the controversial Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA) pacts and an unpopular push to Fast Track those sweeping deals through Congress.  The list of those publicly opposing the Fast Track push includes most House Democrats, a sizeable bloc of House Republicans, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid, and 62% of the U.S. voting public

In attempt to justify the administration’s polemical pacts, Froman resorted to some statements of dubious veracity, ranging from half-truths to outright mistruths.  To set the record straight, here are the top 10 Froman fables, followed by inconvenient facts that undercut his assertions and help explain the widespread opposition to TPP, TAFTA, and Fast Track.

1. Access to affordable medicines

  • Froman:  “[In TPP] we’re working to find better ways to foster affordable access to medicines…” 

2. Income inequality

  • Froman:  “Our trade policy is a major lever for encouraging investment here at home in manufacturing, agriculture and services, creating more high-paying jobs and combating wage stagnation and income inequality.”
  • Fact:  First, study after study has shown no correlation between a country’s willingness to sign on to TPP-style pacts and its ability to attract foreign investment, casting doubt on Froman’s promise of a job-creating investment influx.  But more importantly, Froman opted to ignore a big part of why U.S. workers are currently enduring such acute levels of “wage stagnation and income inequality.”  He did not mention the academic consensus that status quo U.S. trade policy, which the TPP would expand, has contributed significantly to the historic rise in U.S. income inequality.  The only debate has been the extent of trade’s inequality-exacerbating impact.  A recent study estimates that trade flows have been responsible for more than 90% of the rise in income inequality occurring since 1995, a period characterized by trade pacts that have incentivized the offshoring of decently-paid U.S. jobs and forced U.S. workers to compete with poorly-paid workers abroad.  How can the TPP, a proposed expansion of the trade policies that have exacerbated inequality, now be expected to ameliorate inequality? 

3. Internet freedom

  • Froman:  “I’ve heard some critics suggest that TPP is in some way related to SOPA [the Stop Online Piracy Act].  Don’t believe it.  It just isn’t true….”
  • Fact:  Froman’s attempt to assuage fears of a TPP-provided backdoor to SOPA-like limits on Internet freedom would be more convincing if a) he offered details beyond “it just isn’t true,” or b) if his statement didn’t directly contradict leaked TPP texts.  A November leak of the draft TPP intellectual property chapter revealed, for example, that the U.S. is proposing draconian copyright liability rules for Internet service providers that, like SOPA, threaten to curtail Internet users’ free speech.  Indeed, while nearly all other TPP countries have agreed to a proposed provision to limit Internet service providers’ liability, the United States is one of two countries to oppose such flexibility.

4. Corporate trade advisors

  • Froman:  “Our cleared advisors do include representatives from the private sector… [but] they [also] include representatives from every major labor union, public health groups…environmental groups…as well as development NGOs...” 
  • Froman:  “I’m pleased to announce that we are upgrading our advisory system to provide a new forum for experts on issues like public health, development and consumer safety.  A new Public Interest Trade Advisory Committee, or PTAC, will join the Labor Advisory Committee and the Trade and Environment Policy Advisory Committees to provide cross-cutting platforms for input in the negotiations.”
  • Fact:  Froman’s announcement of a new “public interest” committee – a response to the outcry over the vast imbalance of this corporate-dominated advisory system – offers too little, too late. Amid a slew of advisory committees exclusively devoted to narrow industry interests, the “public interest” now gets a single committee?  And how much influence will this committee have in changing the many core TPP provisions that threaten the public interest, now that the administration hopes to conclude TPP negotiations, which have been going on for four years, in the coming months?  Proposed as a TPP afterthought, this new committee comes across as window-dressing, not a genuine restructuring of a system that gives corporations insider access to an otherwise closed trade negotiation process.

5. Fast Track

  • Froman:  Fast Track is “the mechanism by which Congress has worked with every administration since 1974 to define its marching orders on what to negotiate…”  We can use Fast Track to “require[] future administrations to require labor, environmental and innovation and access to medicines [standards]…”
  • Fact:  Under Fast Track, Congress has not given the administration “marching orders” so much as marching suggestions.  Though Congress inserted non-binding “negotiating objectives” for U.S. pacts into past Fast Track bills – a model replicated in the unpopular current legislation to revive Fast Track for the TPP and TAFTA – Democratic and GOP presidents alike have historically ignored negotiating objectives included in Fast Track.  For example, Froman stated that Fast Track could be used to require particular labor standards.  But while the 1988 Fast Track used for the North American Free Trade Agreement (NAFTA) and the establishment of the World Trade Organization (WTO) included a negotiating objective on labor standards, neither pact included such terms.  The history shows that Fast-Tracked pacts that ignore Congress’ priorities can still be signed by the president (locking in the agreements’ contents) before being sent to Congress for an expedited, ex-post vote in which amendments are prohibited and debate is restricted. 

6. Currency manipulation

  • Froman:  In response to a question of whether currency manipulation is being addressed in the TPP: “We take the issue of exchange rates or currency manipulation very seriously as a matter of policy…”
  • Fact:  U.S. TPP negotiators have not even initiated negotiations on the inclusion of binding disciplines on currency manipulation, much less secured other countries’ commitment to those disciplines.  The U.S. inaction on currency in the TPP contrasts with letters signed by 230 Representatives (a majority) and 60 Senators (a supermajority) demanding the inclusion of currency manipulation disciplines in the TPP.  Unless U.S. negotiators take currency manipulation more “seriously,” the TPP may be dead on arrival in the U.S. Congress. 

7. Labor rights

  • Froman:  “In TPP we’re seeking to include disciplines requiring adherence to fundamental labor rights, including the right to organize and to collectively bargain, protections from child and forced labor and employment discrimination.” 
  • Fact:  The TPP includes Vietnam, a country that bans independent unions.  And Vietnam was recently red-listed by the Department of Labor as one of just four countries that use both child labor and forced labor in apparel production.  While Froman acknowledged such “serious challenges,” he did not explain how they would be resolved.  Is Vietnam going to change its fundamental labor laws so as to allow independent unions?  Is the government going to revamp its enforcement mechanisms so as to eliminate the country’s widespread child and forced labor?  Barring such sweeping changes, will the U.S. still sign on to a TPP that includes Vietnam?  

8. Environmental protection

  • Froman:  “We’re asking our trading partners to commit to effectively enforce environmental laws…”
  • Fact:  While Froman touted several provisions in the draft TPP environment chapter as requiring enforcement of domestic environmental laws, he didn’t mention the draft TPP investment chapter that would empower foreign corporations to directly challenge those laws before international tribunals if they felt the laws undermined their expected future profits.  Corporations have been increasingly using these extreme “investor-state” provisions under existing U.S. “free trade” agreements (FTAs) to attack domestic environmental policies, including a moratorium on fracking, renewable energy programs, and requirements to clean up oil pollution and industrial toxins.  Tribunals comprised of three private attorneys have already ordered taxpayers to pay hundreds of millions to foreign firms for such safeguards, arguing that they violate sweeping FTA-granted investor privileges.  Froman’s call for countries to enforce their environmental laws sounds hollow under a TPP that would simultaneously empower corporations to “sue” countries for said enforcement.

9. TPP secrecy

  • Froman:  “Let me make one thing absolutely clear: any member of Congress can see the negotiating text anytime they request it.”
  • Fact:  For three full years negotiations, members of Congress were not able to see the bracketed negotiating text of the TPP, a deal that would rewrite broad swaths of domestic U.S. policies.  Only after mounting outcry among members of Congress and the public about this astounding degree of secrecy did the administration begin sharing the negotiating text with members of Congress last June.  Even so, the administration still only provides TPP text access under restrictive terms for many members of Congress, such as requiring that technical staff not be present and forbidding the member of Congress from taking detailed notes or keeping a copy of the text.  Meanwhile, the U.S. public remains shut out, with the Obama administration refusing to make public any part of the TPP negotiating text.  Such secrecy falls short of the standard of transparency exhibited by the Bush administration, which published online the full negotiating text of the last similarly sweeping U.S. pact (the Free Trade Area of the Americas). 

10. Exports under FTAs

  • Froman:  “Under President Obama, U.S. exports have increased by 50%...”  “Today the post-crisis surge in exports we experienced over the last few years is beginning to recede.  And that’s why we’re working to open markets in the Asia-Pacific and in Europe...”
  • Fact:  U.S. exports grew by a grand total of 0% last year under the current “trade” pact model.   The year before that, they grew by 2%.  Most of the export growth Froman cites came early in Obama’s tenure as a predictable rebound from the global recession that followed the 2007-2008 financial crisis.  At the abysmal export growth rate seen since then, we will not reach Obama’s stated goal to double 2009’s exports until 2054, 40 years behind schedule.  Froman ironically uses this export growth drop-off to argue for more-of-the-same trade policy (e.g. the TPP and TAFTA).  The data simply does not support the oft-parroted pitch that we need TPP-style FTAs to boost exports.  Indeed, the overall growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 30 percent over the last decade.  That’s not a solid basis from which to argue, in the name of exports, for yet another FTA. 
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Obama Mexico Visit Spotlights 20-Year Legacy of Job Loss from NAFTA, the Pact on Which Obama’s TPP Is Modeled

New Public Citizen Report Catalogs the Negative NAFTA Outcomes That Are Fueling Opposition to Obama Push to Fast Track TPP

The 20-year record of job loss and trade deficits from the North American Free Trade Agreement (NAFTA) is haunting President Barack Obama’s efforts to obtain special trade authority to fast track the Trans-Pacific Partnership (TPP), said Public Citizen as it released a new report that comprehensively documents NAFTA’s outcomes. Next week’s presidential trip to Mexico for a long-scheduled “Three Amigos” U.S.-Mexico-Canada summit will raise public attention to NAFTA, on which the TPP is modeled, which is not good news for Obama’s push for the TPP and Fast Track.

Numerous polls show that opposition to NAFTA is among few issues that unite Americans across partisan and regional divides. Public ire about NAFTA’s legacy of job loss and policymakers’ concerns about two decades of huge NAFTA trade deficits have plagued the administration’s efforts to obtain Fast Track trade authority for the TPP. The TPP would expand the NAFTA model to more nations, including ultra-low-wage Vietnam. In the U.S. House of Representatives, most Democrats and a bloc of GOP have indicated opposition to Fast Track, as has Senate Majority Leader Harry Reid (D-Nev.).

Public Citizen’s new report, "NAFTA’s 20-Year Legacy and the Fate of the Trans-Pacific Partnership", compiles government data on NAFTA outcomes to detail the empirical record underlying the public and policymaker sentiment. It also shows that warnings issued by NAFTA boosters that a failure to pass NAFTA would result in foreign policy crises – rising Mexican migration and a neighboring nation devolving into a troubled narco-state – actually came to fruition in part because of NAFTA provisions that destroyed millions of rural Mexican livelihoods.

“Outside of corporate boardrooms and D.C. think tanks, Americans view NAFTA as a symbol of job loss and a cancer on the middle class,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “If you are a president battling to overcome bipartisan congressional skepticism about giving you special trade authority to fast track a massive 12-nation NAFTA expansion, it is really not helpful to be visiting Mexico for a summit of NAFTA-nation leaders.”

The Public Citizen report shows that not only did projections and promises made by NAFTA proponents not materialize, but many results are exactly the opposite. Such outcomes include a staggering $177 billion U.S. trade deficit with NAFTA partners Mexico and Canada, one million net U.S. jobs lost in NAFTA’s first decade alone, slower U.S. manufacturing and services export growth to Mexico and Canada, a doubling of immigration from Mexico, larger agricultural trade deficits with Mexico and Canada, and more than $360 million paid to corporations after “investor-state” tribunal attacks on, and rollbacks of, domestic public interest policies.

“The data have disproved the promises of more jobs and better wages, so bizarrely now NAFTA defenders argue the pact was a success because it expanded the volume of U.S. trade with the two countries without mentioning that this resulted in a 556 percent increase in our trade deficit with those countries, with a flood of new NAFTA imports wiping out hundreds of thousands of American jobs,” said Wallach.

The study tracks specific promises made by U.S. corporations like Chrysler, GE and Caterpillar to create specific numbers of American jobs if NAFTA was approved, and reveals government data showing that instead, they fired U.S. workers and moved operations to Mexico.

“The White House and the corporate lobby sold NAFTA with promises of export growth and job creation, but the actual data show the projections were at best wrong,” said Wallach. “The gulf between the gains promised for NAFTA and the damage that ensued means that the public and policymakers are not buying the same sales pitch now being made for theTPP and Fast Track.”

The report also documents how post-NAFTA trade and investment trends have contributed to middle-class pay cuts, which in turn contributed to growing income inequality; how since NAFTA, U.S. trade deficit growth with Mexico and Canada has been 50 percent higher than with countries not party to a U.S. Free Trade Agreement, and how U.S. manufacturing and services exports to Canada and Mexico have grown at less than half the pre-NAFTA rate.

Among the study’s findings:

  • Rather than creating in any year the 200,000 net jobs per year promised by former President Bill Clinton on the basis of Peterson Institute for International Economics projections, job loss from NAFTA began rapidly:
    • American manufacturing jobs were lost as U.S. firms used NAFTA’s foreign investor privileges to relocate production to Mexico, and as a new flood of NAFTA imports swamped gains in exports, creating a massive new trade deficit that equated to an estimated net loss of one million U.S. jobs by 2004. A small pre-NAFTA U.S. trade surplus of $2.5 billion with Mexico turned into a huge new deficit, and a pre-NAFTA $29.6 billion deficit with Canada exploded. The 2013 NAFTA deficit was $177 billion, representing a more than six-fold increase in the NAFTA deficit.
    • More than 845,000 specific U.S. workers, most in the manufacturing sector, have been certified for Trade Adjustment Assistance (TAA) since NAFTA because they lost their jobs due to offshoring to, or imports from, Canada and Mexico.The TAA program is narrow, covering only a subset of jobs lost at manufacturing facilities, and is difficult to qualify for. Thus, the TAA numbers significantly undercount NAFTA job loss. A TAA database searchable by congressional district, sector and more is available here.
    • According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.  
    • As increasing numbers of workers displaced from manufacturing jobs have joined those competing for non-offshorable, low-skill jobs in sectors such as hospitality and food service, real wages have also fallen in these sectors under NAFTA. The resulting downward pressure on middle-class wages has fueled recent growth in income inequality.
  • Scores of environmental and health laws have been challenged in foreign tribunals through NAFTA’s controversial investor-state dispute resolution system. More than $360 million in compensation to investors has been extracted from NAFTA governments via “investor-state” tribunal challenges against toxics bans, land-use rules, water and forestry policies, and more. More than $12.4 billion is pending in such NAFTA claims, including challenges of medicine patent policies, a fracking moratorium and a renewable energy program.
  • The average annual U.S. agricultural trade deficit with Mexico and Canada in NAFTA’s first two decades reached $975 million, almost three times the pre-NAFTA level. U.S. beef imports from Mexico and Canada, for example, have risen 133 percent. Over the past decade,  total U.S. food exports to Mexico and Canada have actually fallen slightly while U.S. food imports from Mexico and Canada have more than doubled. This stands in stark contrast to projections that NAFTA would allow U.S. farmers to export their way to newfound wealth and farm income stability. Despite a 239 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal U.S. price of food in the United States has jumped 67 percent since NAFTA.
  • The reductions in consumer goods prices that have materialized have not been sufficient to offset the losses to wages under NAFTA; U.S. workers without college degrees (63 percent of the workforce) likely have lost a net amount equal to 12.2 percent of their wages even after accounting for gains from cheaper goods.This net loss means a loss of more than $3,300 per year for a worker earning the median annual wage of $27,500.
  • The export of subsidized U.S. corn did increase under NAFTA’s first decade, destroying the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture. The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.
  • Facing displacement, rising prices and stagnant wages, more than half the Mexican population, and more than 60 percent of the rural population, still falls below the poverty line, despite the promises that NAFTA would bring broad prosperity to Mexicans. Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods than on the day that NAFTA took effect. Despite promises that NAFTA would benefit Mexican consumers by granting access to cheaper imported products, the cost of basic consumer goods in Mexico has risen to seven times the pre-NAFTA level, while the minimum wage stands at only four times the pre-NAFTA level. Though the price paid to Mexican farmers for corn plummeted after NAFTA, the deregulated retail price of tortillas – Mexico’s staple food – shot up 279 percent in the pact’s first 10 years.

“Given NAFTA’s damaging outcomes, few of the corporations or think tanks that sold it as a boon for all of us in the 1990s like to talk about it, but the reality is that their promises failed, the opposite occurred and millions of people were severely harmed and now this legacy is derailing President Obama’s misguided push to expand NAFTA through the TPP,” said Wallach.

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Studies Reveal Consensus: Trade Flows during “Free Trade” Era Have Exacerbated U.S. Income Inequality

Recent Studies: Trade’s Contribution to Inequality Has Increased since the 1990s and Is Likely to Increase Further

Tonight President Obama is expected to address two linked subjects in his State of the Union address: the historic rise in U.S. income inequality and a trade policy agenda that threatens to exacerbate inequality. As we've repeatedly pointed out, Obama cannot have it both ways: he cannot propose to close the yawning income gap while pushing to Fast Track through Congress a controversial Trans-Pacific Partnership (TPP) "free trade" deal that would widen the gap. The TPP would expand the status quo "free trade" model that study after study has found to be an increasingly significant contributor to U.S. income inequality.

As unfair trade deals have been Fast Tracked into law, U.S. income inequality has jumped to levels not seen since the robber baron era. Today, the richest 10 percent of the U.S. is taking over half of the economic pie, while the top 1 percent is taking more than one fifth. Wealthy individuals’ share of national income was stable for the first several decades after World War II. But that share has shot up 51 percent for the richest 10 percent and 146 percent for the richest 1 percent since the passage of Fast Track in 1974, a time period characterized by a series of unfair trade deals. The income share of the richest 10 percent escalated particularly abruptly after the 1994 enactment of the North American Free Trade Agreement (NAFTA), as indicated in the graph below.

Trade and Income Inequality
Since 1941 standard economic theory has held that trade liberalization will contribute to greater income inequality in developed countries like the United States. In the early 1990s, as U.S. income inequality soared amid the enactment of U.S. “free trade” deals, a spate of economic studies put the theory to the test, aiming to determine the relative contribution of trade flows to the rise in U.S. income inequality. The result was an academic consensus that trade flows had, in fact, contributed to rising U.S. income inequality. The only debate was the extent of the blame to be placed on trade, with most studies estimating that between 10 and 40 percent of the rise in inequality during the 1980s and early 1990s stemmed from trade flows.

More recent studies have concluded that trade’s role in exacerbating U.S. income inequality has likely grown since the 1990s, as U.S. imports from lower-wage countries, and U.S. job offshoring to those countries, have grown dramatically, impacting an increasing swath of middle-class jobs. Further, an array of studies now project future increases in the offshoring of U.S. jobs, suggesting that even under current U.S. trade policy, trade flows will soon be responsible for an even greater share of rising U.S income inequality. Attempts to Fast Track through Congress controversial deals like the TPP, which would incentivize further offshoring, would only exacerbate the historically high degree of U.S. income inequality.


Recent studies examining trade’s current and projected future contribution to U.S. income inequality:


Rising Income Inequality: Technology, or Trade and Financial Globalization?

Florence Jaumotte, Subir Lall, and Chris Papageorgiou;  International Monetary Fund;  September 30, 2009

The International Monetary Fund authors find that the rise in income inequality from 1981-2003 in 20 developed countries, including the United States, is primarily attributable to trade and financial globalization trends. They conclude that globalization’s contribution to inequality has outweighed the role of technological advancement: “Among developed countries…the adverse impact of globalization is somewhat larger than that of technological progress” (p. 19).


Trade and Wages, Reconsidered

Paul Krugman;  The Brookings Institution;  Spring 2008

In a Brookings Institution study, Nobel-winning economist Paul Krugman finds that trade flows likely now account for an even greater degree of U.S. income inequality than that found in a series of studies from the early 1990s, which had already concluded that trade liberalization had a negative, but modest, impact on income inequality in developed countries like the United States. In particular, Krugman notes that U.S. manufacturing imports from low-wage developing countries have grown dramatically in the last two decades, suggesting that the role of trade flows in spurring U.S. income inequality growth is “considerably larger” than before (p. 106).  Krugman concludes, “…there has been a dramatic increase in manufactured imports from developing countries since the early 1990s. And it is probably true that this increase has been a force for greater inequality in the United States and other developed countries” (p. 134).


Globalization, American Wages, and Inequality: Past, Present, and Future

Josh Bivens;  Economic Policy Institute;  September 6, 2007

In this study Josh Bivens of the Economic Policy Institute updates an early-1990s model estimate of the impact of trade flows on U.S. income inequality and finds that, using the model’s own conservative assumptions, the degree of U.S. income inequality attributable to trade with lower-wage countries increased more than 40 percent from 1995 to 2006. In addition, Bivens cites an array of recent economic studies that project that the offshoring of U.S. jobs will increase under current trade policy, suggesting a substantial rise in the impact of trade flows on U.S. income inequality. For example, Princeton economist and former Council of Economic Advisors member Alan Blinder estimates that about one in every four U.S. jobs, including higher-paying service-sector jobs, could be offshored in the foreseeable future. While such studies differ in the projected extent of future U.S. job offshoreability, all imply an increase in the impact of trade flows on U.S. income inequality. Bivens finds that the range of projections for increased offshoring suggest a further 72 to 262 percent increase in U.S. income inequality attributable to trade with lower-wage countries, compared to the level seen in 2006. Bivens concludes, “The potential level of redistribution caused by offshoring is vast, and, so should be the policy response” (p. 8).

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On Eve of State of the Union Address, Powerful Message from Obama’s Base about Fast Track for the Trans-Pacific Partnership: Don’t Even Think About It

Prepare for a State of the Union oddity: Democratic members of Congress sitting in silence while Republicans rise to cheer President Obama’s call for Congress to grant him new powers.

A letter released today signed by a stunning array of more than 550 Democratic base organizations reiterates the perverse situation. Despite widespread opposition from congressional Democrats, Obama is expected to call on Congress to delegate Fast Track authority to him. The extraordinary trade authority, which Congress has refused to grant for 15 of the past 20 years, would suspend normal congressional procedures for consideration of the controversial Trans-Pacific Partnership (TPP), which Obama hopes to sign soon.  

Today’s letter is signed by a veritable who’s who of the organizations that worked their tails off to elect Obama and/or who provide his policy initiatives the support to pass: from MoveOn and CREDO to the AFL-CIO, SEIU, AFSCME, UAW, Teamsters, Carpenters, United Steelworkers, American Federation of Teachers, and the Communications Workers of America to the Sierra Club,, and Greenpeace to the National Farmers Union, National Consumers League, Public Citizen and TransAfrica – and the policy shops of the Presbyterians, Methodists, Episcopalians and numerous Catholic orders. The letter is notable for the number of signatory organizations that have not been involved in past “trade” fights.

This gets to the major policy collision that only adds to the incongruity of the political situation: the TPP would worsen income inequality. Yup, the main theme of Obama’s SOTU has been widely advertised to be his battle against growing American income inequality. But economists of all stripes agree that U.S. trade policy has been a major contributor to growing inequality. A study by the Peterson Institute for International Economics, which supports the TPP, has estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends.

The latest – and stunning – addition to that chorus: Clinton Labor Secretary Robert Reich, who yesterday urged his massive Facebook following to battle Fast Track and TPP, which he called NAFTA-on-steroids.  “[T]his massive deal [TPP] would further erode the jobs and wages of working and middle-class Americans while delivering its biggest gains to corporate executives and shareholders.” 

Today’s letter, organized by the Citizens Trade Campaign, shows the political muscle behind the campaign to make sure TPP is not Fast Tracked: “After decades of devastating job loss, attacks on environmental and health laws and floods of unsafe imported food under our past trade agreements, America must chart a new course on trade policy. To accomplish this, a new form of trade authority is needed that ensures Congress and the public play a much more meaningful role in determining the contents of U.S. trade agreements...”

And, don’t expect ALL of the GOP to stand and cheer Fast Track. Already several dozen Republican House members have announced their opposition to new Fast Track powers for Obama. A conservative grassroots campaign is gearing up against Fast Track and TPP. 

What could unite the A-Z of the Democratic base and conservative grassroots activists? Um, could be the 20 devastating years of NAFTA damage experienced by American workers and communities across the political spectrum. Fast Tracking NAFTA-on-steroids is a hard sell after NAFTA fueled an explosion of the U.S. trade deficit with Mexico and Canada to $181 billion by 2012, resulting in a net American loss of one million jobs. And it is not news that NAFTA increased income inequality by transforming the composition of jobs available to the 63 percent of American workers without college degrees from higher wage manufacturing to low-wage service sector.

And, then there is the inconvenient mess of Obama’s only major trade deal to date, the U.S.-Korea Free Trade Agreement. That deal was premised on the same NAFTA model as TPP. In his 2011 SOTU, Obama promised the pact would expand U.S. exports to Korea.  In the pact’s first year, exports dropped ten percent, imports soared and the U.S. trade deficit with Korea grew 37 percent, equating to a net loss of approximately 40,000 more U.S. jobs.

Will President Obama choose to mount what will need to be a massive campaign to overcome widespread opposition to Fast Track authority for the Trans-Pacific Partnership? And probably fail even so?

Or, will he choose to focus his efforts on reducing income inequality for millions of Americans?

It remains to be seen what his legacy will be. But one thing is clear: President Obama can’t have it both ways.

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Obama's State of the Union Dilemma: Pushing Fast Track for TPP Would Increase Income Inequality

Article by Lori Wallach, director of Public Citizen's Global Trade Watch, published in The Huffington Post on January 24, 2013

In his upcoming State of the Union speech, President Barack Obama is expected to prioritize what is emerging as his legacy issue: combatting America's growing wealth inequality. Expect him to promote policies to create new middle-class jobs, especially in manufacturing, and counter the erosion of wages now undermining workers economy-wide.

But in the speech, Obama is also expected to highlight several major trade initiatives, including his priority Trans-Pacific Partnership (TPP) deal, a massive pact with 11 Asian and Latin American nations that Obama hopes to sign quickly. The business lobby is at full tilt pushing Obama to use the SOTU to call on Congress to pass Fast Track trade authority for the TPP.

The thing is that economists of all stripes agree that U.S. trade policy has been one of the major contributors to growing U.S. income inequality.

There really is no disagreement about that -- the only debate is about the degree of the effect. A study published by the Peterson Institute for International Economics -- an early supporter of the North American Free Trade Agreement (NAFTA) on which TPP is modeled -- estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends. Other studies have posited greater and lesser contributions.

The TPP would replicate and expand to additional countries the trade agreement model established in the NAFTA. Twenty years of evidence of NAFTA's contribution to U.S. income inequality has become a major problem for Obama's push to get Congress to provide Fast Track authority for the massive TPP deal, described as NAFTA on steroids.

Not a single House Democrat would sponsor the legislation submitted two weeks ago to establish Fast Track. Last week, 17 Senate Democrats made their feelings known in letters to Majority Leader Harry Reid (D-Nev.). And last November, 151 House Democrats signed a letter saying they oppose Fast Track, arguing that lawmakers have been cut out of negotiations.

Congressional opposition to more-of-the-same trade deals has intensified as Obama's past SOTU trade promises have fallen flat. In contrast to Obama's 2011 SOTU promise that his only major past trade deal, the U.S.-Korea Free Trade Agreement, would boost exports, in the agreement's first year, U.S. exports to Korea fell 10 percent, imports from Korea rose and the U.S. trade deficit with Korea exploded by 37 percent. This equates to a net loss of approximately 40,000 U.S. jobs.

The drop in exports to Korea added to last year's sluggish overall two percent U.S. export growth rate. Given current trends, the U.S. will not achieve the president's export-doubling plan until 2032 -- 18 years behind the 2014 deadline Obama set in his 2010 State of the Union speech.

This follows on the recent 20th anniversary of NAFTA, which fueled an explosion of the U.S. trade deficit with Mexico and Canada to $181 billion by 2012, resulting in a net American loss of one million jobs. (The net job loss figure is derived from the U.S. government methodology employed to calculate the employment effects of trade flows.)

U.S. government data show that the average annual growth of our trade deficit has been 45 percent higher with Mexico and Canada than with countries that are not party to a NAFTA-style pact. U.S. manufacturing exports have grown at less than half the rate to Mexico and Canada since NAFTA than in the years before it. Before NAFTA, the U.S. had a small trade surplus with Mexico and a modest deficit with Canada.

While many focus on the number of U.S. jobs lost from NAFTA and similar pacts, the most significant effect has been a fundamental alteration in the composition of jobs available to the 63 percent of American workers without a college degree. And this has had a direct impact on income inequality.

Trade pact investment rules remove many of the risks otherwise associated with sending jobs offshore to where labor costs are drastically cheaper. The United States has lost millions of manufacturing jobs during the 20 years of NAFTA and decade-plus since Congress approved China's entry to the World Trade Organization. As a result, the wages most U.S. workers can earn have been severely degraded even as overall unemployment has been largely stable (excluding the Great Recession) as new low-paying service sector jobs have been created.

According to the U.S. Bureau of Labor Statistics, two of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them more than 20 percent. The list compiled by the Department of Labor's Trade Adjustment Assistance program of more than 845,000 specific American jobs lost to NAFTA and similar pacts reads like the funeral program for the middle class.

The implications for growing income inequality are broad. It is not only those American workers who lost a job to NAFTA or China trade who face downward wage pressure; as increasing numbers of workers displaced from manufacturing jobs joined the glut of workers competing for non-offshorable, low-skill jobs in sectors such as food service and retail, real wages have fallen in these growing sectors as well.

The U.S. government data is striking: The shift in employment from high-paying manufacturing jobs to low-paying service jobs has contributed to overall wage stagnation. The average U.S. wage has grown less than one percent annually in real terms since NAFTA was enacted even as worker productivity has risen more than three times. Since the January 1, 1994, implementation of NAFTA, the share of national income collected by the richest 10 percent has risen by 24 percent, while the top 1 percent's share has shot up by 58 percent.

Offshoring of American jobs is rapidly moving up the skills ladder, expanding the income inequality effect. Alan S. Blinder, a former Federal Reserve vice chair, Princeton economist and NAFTA supporter, says that one out of every four American jobs could be offshored in the foreseeable future. A study he co-authored found that the most offshorable industry is finance and insurance, not manufacturing. According to Binder's study, American workers with a four-year college degree and an annual salary above $75,000 are among those most vulnerable to having their jobs offshored.

The grandfather of modern free trade economics, Paul Samuelson, published a startling 2004 academic paper in the Journal of Economic Perspectives that shows mathematically how the offshoring of higher-paid jobs to low-wage countries can cause U.S. workers to lose more from reduced wages than they gain from cheaper imported goods. Trade theory states that while those specific workers who lose their jobs due to imports may suffer, the vast majority of us gain from trade "liberalization" because we can buy cheaper imported goods. Except, as job offshoring has moved up the wage level, this is no longer necessarily true.

When the Center for Economic and Policy Research applied the actual data to the trade theory, they discovered that when one compares the lower prices of cheaper goods to the income lost from low-wage competition under our current policy, the trade-related losses in wages hitting the vast majority of American workers outweigh the gains in cheaper priced goods from trade. U.S. workers without college degrees (the vast majority) lost an amount equal to 12.2 percent of their wages, so for a worker earning $25,000 a year, the loss would be more than $3,000 per year.

The 20-year record of NAFTA shows that deals like the Trans-Pacific Partnership would contribute to income inequality as more middle-class jobs are lost. Either Obama can prioritize a battle against income inequality or he can push more NAFTA-style trade agreements and the trade authority to railroad them through Congress, but he cannot do both.

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Study: "Trade" Deal Would Mean a Pay Cut for 90% of U.S. Workers

The verdict is in: most U.S. workers would see wage losses as a result of the Trans-Pacific Partnership (TPP), a sweeping U.S. "free trade" deal under negotiation with 11 Pacific Rim countries.  That's the conclusion of a report just released by the non-partisan Center for Economic and Policy Research (CEPR).  

TPP's corporate proponents have tried to sell the NAFTA-style deal to the U.S. public and policymakers by claiming that it will result in gains for the U.S. economy.  They often cite a study from the Peterson Institute for International Economics that used sweeping assumptions to project a tiny benefit from the TPP. We brought that study down to size back in January, showing that, even if one accepts the pro-TPP authors' litany of optimistic assumptions, the much-touted "benefit" from the TPP would amount to an extra quarter per person per day

As this week's CEPR report points out, the pro-TPP study projected a meager 0.13 percent increase to U.S. gross domestic product (GDP) by 2025 if the controversial TPP would be signed, passed, and implemented.  By comparison, economists have estimated that Apple's iPhone 5 contributed a 0.25 - 0.5 percent increase to U.S. GDP.  

That is, the TPP's total contribution to the U.S. economy is expected, by TPP proponents, to be about one half to one fourth of the contribution of the latest iPhone version. 

Well, you might say, a nearly invisible blip in GDP is better than no blip in GDP.  (You might say this if you ignore the host of dubious assumptions used to project said blip, and ignore the TPP's expected threats to medicines affordability, environmental protections, food safety, Internet freedom, and financial stability.) 

But what would such a paltry GDP rise mean for your pocket?  Answering that requires taking into account the increase in income inequality that typically results from such "free trade" deals.  The author of the CEPR report, economist David Rosnick, explains, "There are winners and losers from trade, and research has shown that trade contributes to inequality. In fact, it would take only a very small contribution to inequality due to trade to wipe out all of the gains that most workers would get from this agreement."  Rosnick then uses the empirical evidence on the trade-inequality relationship and shows that even taking the most conservative estimate of trade's contribution to inequality (that trade is responsible for just 10% of the rise in inequality), the losses from projected TPP-produced inequality indeed would "wipe out" the tiny projected gains for the median U.S. worker.

That is, as a result of the TPP, the median U.S. income would fall. It would not just fall in comparison to the incomes of the wealthy (which would rise). It would fall in absolute terms, forcing middle-class U.S. workers to take home less in 2025 than they earn today. 

Such wage losses would afflict most U.S. workers.  Rosnick shows that if we assume that trade has contributed just 15% of the recent rise in inequality (a still conservative estimate), then the TPP would mean wage losses for all but the richest 10% of U.S. workers.  So if you're making less than $87,000 per year (the current 90th percentile wage), the TPP would mean a pay cut.  And if you're making more than $87,000 per year, you may still be a tad concerned about how the deal could jeopardize the safety of your food, threaten clean water protections, roll back Wall Street reforms, etc. 

Click here for the disturbing report from CEPR

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A Fast Track to Greater Inequality?

President Obama is thankfully talking again about the yawning inequality in the U.S.  In an interview with the New York Times late last month, he said that the ever-widening gap in income is "not a future that we should accept." Unfortunately, it's the future that his trade negotiators are promoting. 

While Obama denounces inequality, the Obama administration is rushing to conclude talks on the Trans-Pacific Partnership (TPP), a sweeping commercial pact with 11 Pacific Rim countries that implicates everything from the cost of our medicines to the safety of our food. The TPP also threatens to further widen the gap between rich and poor, as emphasized by economist Nancy Folbre in a New York Times piece this week, by perpetuating the inequality-spurring history of unfair trade deals spelled out below.

Obama recently implied that unfair trade "sends a lot of jobs overseas." When the jobs being offshored are primarily those of workers in the middle and lower income brackets, as has been true under the last couple decades of TPP-like deals, middle-class wages stagnate as upper-class incomes climb. The result: increased income inequality.  

But Obama seems to miss this connection.  Just last week, in his economic speech in Chattanooga, Tennessee, he praised the Korea Free Trade Agreement (under which exports have been falling) and vowed to get authority from Congress to sign more such deals.  Obama's top trade official, Michael Froman, has confirmed that Obama would like to Fast Track deals like the TPP through Congress. Fast Track was an extreme and rarely-used maneuver that empowered executive branch negotiators, advised by large corporations, to ram through unfair trade deals like the TPP by unilaterally negotiating and signing the deals before sending them to Congress for an expedited, no-amendments, limited-debate vote. Apparently, Obama would like more of the same.

Stopping Fast Track would go far toward stopping the TPP.  And halting the TPP would go far toward halting the upward march of income inequality.  Unfair trade deals have been a steady drumbeat in that march:   

As unfair trade deals have been Fast Tracked into law, U.S. income inequality has jumped to levels not seen since the robber baron era. Today, the richest 10 percent of the U.S. is taking nearly half of the economic pie, while the top 1 percent is taking one fifth. Wealthy individuals’ share of national income was stable for the first several decades after World War II. But that share has shot up 45 percent for the richest 10 percent and 117 percent for the richest 1 percent since the passage of Fast Track in 1974, a time period characterized by a series of unfair trade deals. The income share of the richest 10 percent escalated particularly abruptly after the 1994 enactment of the North American Free Trade Agreement (NAFTA). See the graph below. 

The median family has been losing about as much to trade-induced inequality as to taxes. Longstanding economic theory predicts that trade will increase income inequality in developed countries. In the 1990s, the pro-NAFTA Peterson Institute for International Economics (PIIE) sought to quantify the effect of trade policy on U.S. income inequality, and found that nearly 40 percent of the increase in inequality was attributable to U.S. trade policy. When the Economic Policy Institute (EPI) updated the PIIE figures, it found that the median U.S. family lost about $2,300 per year (in today’s dollars) from the burden of rising inequality due to trade. The wage losses from trade each year for the median family are on par with the median household’s income tax burden. EPI projects that, if current trade policies and trends continue, all wage gains made since 1979 by workers without a four-year college degree (65 percent of the U.S. workforce) could be erased.

Changes in technology or education levels do not fully account for U.S. wage pressures. Some have argued that advances in computer technology explain why less technologically-literate U.S. workers have been left behind, asserting that more education – rather than a different trade policy – is how to end income inequality. While more education and skills are desirable for many reasons, these goals alone will not solve the problems of growing inequality. First, as documented in a Federal Reserve Bank paper, inequality started rising as systematic U.S. trade deficits emerged, in the early Fast Track period, far before most workers reported using computers on the job. Second, college-educated workers have also seen their wage growth stagnate, even in technologically sophisticated fields like engineering. Thus, rectifying unfair trade policy, not only better educating U.S. workers, will be an essential part of tackling rising income inequality.

Trade and Inequality

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Obama Hints at Unfair Trade as a Cause of Stagnant Wages

In his economic speech at Knox College yesterday, President Obama acknowledged the role of unfair trade in stagnant wages and growing inequality:

In the period after World War II, a growing middle class was the engine of our prosperity...But over time that engine began to stall, and a lot of folks here saw it...Global competition sends a lot of jobs overseas. It became harder for unions to fight for the middle class...And so what happened was that the link between higher productivity and people's wages and salaries was broken...So the income of the top 1 percent nearly quadrupled from 1979 to 2007, but the typical family's incomes barely budged.

That's all true.  Despite a doubling of U.S. workers' productivity, real median wages hover at 1979 levels.  What does unfair trade have to do with this?  We spell it all out in our synopsis of the economic impacts of the offshoring-prone "free trade" era, enabled by the undemocratic power grab known as Fast Track, which is ironically now supported by Obama's own administration. Here are some critical excerpts: 

Trade agreement investor privileges promote offshoring of production from the United States to low-wage nations. In the past, trade competition came from imports of products made by foreign companies operating in their home countries. But today’s “trade” agreements contain various investor privileges that reduce many of the risks and costs previously associated with relocating production from developed countries to low-wage developing countries. Thus, many imports now entering the United States come from companies originally located in the United States and other wealthy countries that have moved production to low-wage countries. For instance, over half of China’s exports are now produced by foreign enterprises, not Chinese firms.  American workers effectively are now competing in a globalized labor market where some poor nations’ workers earn less than 25 cents per hour.  

The bargaining power of American workers has been eroded by threats of offshoring. In the past, American workers represented by unions were able to bargain for their fair share of economic gains generated by productivity increases.  But the investor protections in today’s trade agreements, by facilitating the offshoring of production, alter the power dynamic between workers and their employers. For instance, a study for the North American Commission on Labor Cooperation – the body established in the NAFTA labor side agreement – showed that after passage of NAFTA, as many as 62 percent of U.S. union drives faced employer threats to relocate abroad, and the factory shut-down rate following successful union certifications tripled.

About 7 million American manufacturing jobs – over 1 out of 3 – were lost during the Fast Track era. The U.S. manufacturing sector has long been a source of innovation, productivity, growth and good jobs.  By 2012, the United States had less than 12 million manufacturing jobs left – about 6.6 million fewer than in 1974 before Fast Track was first established,  with less than nine percent of the American workforce in manufacturing for the first time in modern history.  

Displaced manufacturing workers have been forced to take lower-paid service jobs. Trade policy affects the quality of jobs available, not the aggregate quantity. And the job quality (i.e. wage level) available has been degraded by the mass erosion of manufacturing. According to the Bureau of Labor Statistics, two out of every five displaced manufacturing workers who were rehired in 2012 experienced a wage reduction of greater than 20 percent. Most took a pay cut in lower-paid service jobs (the graph below indicates how lower-paid service jobs have replaced higher-paid manufacturing jobs).

Trade policy holds back wages even of jobs that can’t be offshored. When workers in manufacturing are displaced and seek new jobs, they add to the supply of U.S. workers available for non-offshorable, non-professional jobs in construction, health care, hospitality and more. The Bureau of Labor Statistics has projected that some of the U.S. economy’s fastest job growth in the coming decades will occur in such low-skill occupations. But as increasing numbers of American workers, displaced from better-paying jobs by current trade policies, have joined the glut of workers competing for these non-offshorable jobs, real wages have remained stagnant in these growing sectors.  

And that, in a nutshell, is how Pres. Obama got from "Global competition sends a lot of jobs overseas" to "the typical family's incomes barely budged." Unfair trade deals, built for offshoring, reduced workers' bargaining power, forced displaced manufacturing workers to take big pay cuts, and contributed to the overall glut of workers competing for lower-wage jobs. Now if only his trade negotiators would spot the unfair trade link and stop pushing more offshoring-prone "free trade" deals.  


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Korea trade deficit balloons under NAFTA-style deal

Last October, President Obama and House Republicans teamed up to pass a NAFTA-style deal with Korea, even though the government's own projections showed it would increase the U.S. trade deficit.

That deal ended up going into effect on March 15 of of this year (despite many Koreans' opposition to the rights given multinationals under the pact, not to mention the opposition of many here at home).

We now have the first full month of data on the deal, and it's not looking good.

The deal, sold as a way to increase job-creating U.S. exports, actually saw job-displacing imports rise much more quickly in its first full month. As Inside U.S. Trade reports,

The U.S. trade deficit in goods with South Korea tripled during the first full month the U.S.-Korea free trade agreement was in force, amid a slight decrease in the overall U.S. goods and services deficit that month, according to April trade data released last week by the Commerce Department. The bilateral FTA went into effect on March 15.

The U.S. goods trade deficit with South Korea grew to $1.8 billion in April, with imports totaling roughly $5.5 billion compared to exports of $3.7 billion. That was a larger bilateral deficit than the $0.6 billion recorded in March, where imports totaled $4.8 billion and exports were $4.2 billion. In April 2011, the U.S. goods deficit with Korea was $1 billion.

On auto trade, the bilateral deficit with South Korea climbed to $1.65 billion in April from $1.45 billion the previous month. While U.S. exports of autos and auto parts stayed the same over both months at roughly $100 million, imports from Korea rose to $1.76 billion in April from $1.56 billion the previous month. The data were released June 8.

While it's difficult to draw too many conclusions from a single month of data, rest assurred that workers concerned about offshoring of jobs and trade displacement are going to be watching these numbers closely for many months and years to come. If the trade deficit (in autos and more generally) continues to climb, it will be very difficult for policymakers to sell more NAFTAs (like the proposed TPP) to an already skeptical public.

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Pushing Obama on Latest Class Snuggle

Protest 7 Today, workers’ rights and fair trade advocates gathered at Lafayette Square in Washington, D.C. ahead of President Obama's address to the Chamber of Commerce. They urged President Obama to defend American jobs and oppose NAFTA style “free trade” agreements such as the Korea FTA. Groups represented included the National Nurses United/California Nurses Association (NNU) and ThinkProgress, among others. Donna Smith of NNU stated, “the Chamber of Commerce represents Wall Street and corporate greed, not working people. It encourages employers to roll back rights and living standards for working people. It promotes the outsourcing of U.S. jobs, and spends hundreds of millions of dollars at home to influence Congress to achieve tax breaks for big business and block reforms for working people.” Some of those present also voiced their distaste with President Obama’s support for the to Korea trade deal, which stands in stark contrast with his campaign promises on trade. 

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Follow the Climate Reality Tour!

DSC01484 We’re pleased to unveil an exciting new project: the Climate Reality Tour.

You may have caught an earlier post, but in case you didn't, let's fill you in The Climate Reality Tour is a movement-building road trip to promote global economic policies that are fair for workers and shift away from the climate- and job-destroying status quo. The destination? The United Nations Climate Negotiations in Cancun in late November. And to bring home the sustainability point, we decided to go by bike. Yep, by bike!

With the world in the grips of overlapping global crises – food, economic/financial and climate – the stakes are high indeed. To save the planet requires confronting these crises simultaneously, and that means overcoming the false jobs vs. environment trade-off. In truth, corporations benefit from exploiting both while human beings and the earth suffer.

But this requires political will and resolve far beyond what we’ve seen from either political party, and even many leading civil society organizations. At Public Citizen, we’ve long believed our unsustainable global economic order, as etched in the tomes of the WTO and NAFTA-type trade deals, unfairly pits workers and ecosystems against one another. We’ve decried how the status quo sanctifies the rights or multinational corporations to exploit and destroy – even above the democratic rights of a people determine their own economic and eological futures.

Continue reading "Follow the Climate Reality Tour!" »

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From Building Cars to Packing Meat

When the Bush administration tried to sell the Panama and Colombia FTAs, it argued that the FTAs would simply make our trade relationship a two-way street with these countries since they already enjoy greater access to the U.S. market through trade preference programs.  (And we have still seen rising deficits with the CAFTA countries even though much of their exports fell under preference programs before CAFTA was implemented). South Korea, though, does not enjoy any preferential market access, so if the FTA were to be implemented as-is and the trade barriers come down, we will most likely see a tremendous surge of imports.

To get a hint of the possible jobs impact of the Korea FTA, we’ll dive more deeply into that U.S. International Trade Commission (USITC) study that we mentioned a few weeks ago. 

The USITC study indicates that jobs will likely be lost in many high-wage industries, including auto manufacturing and electronics manufacturing. The table below displays the USITC’s estimates of impact of the Korea FTA upon employment and the trade deficit in a few sectors of the U.S. economy, available in Tables 2.3 and 2.4 of the report. The USITC gives employment changes in percent terms rather than in numbers of jobs, so to make the loss more tangible we’ve computed the job loss numbers based on the USITC percent change estimates and sector employment data from the Bureau of Labor Statistics

  USITC Korea FTA estimates

According to the USITC study, the auto manufacturing industry may lose about 1,750 workers due to the Korea FTA.*  The average hourly earnings of workers in the auto industry was $23.61 in 2008, which was 9.2 percent greater than the average hourly earnings of all workers employed in the private sector ($21.62). The average hourly earnings of workers in the electronic equipment manufacturing industry, projected to lose about 5,000 workers, was $30.38 in 2008, which was 40.5 percent greater than the average hourly earnings of all workers employed in the private sector.

As the table shows, large rises in the trade deficit in these sectors are driving the employment loss, totaling up to almost $1.7 billion for motor vehicles and parts, other transportation equipment, and electronic equipment alone. Interestingly, the USITC predicted that there would be an absolute decline in the total value of exports in some manufacturing sectors, not just a worsening of the balance. For example, total U.S. exports of electronic equipment are expected to decline by up to $381 million due to the implementation of the Korea FTA (see Table 2.3 in the study).

Continue reading "From Building Cars to Packing Meat" »

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No Labor Rights Protections Harm Exports, Too

Sandylevin Representative Sander Levin, Chairperson of the House Ways and Mean Committee, last week gave a speech at the National Press Club where he discussed the problems with the Colombia FTA, among other things.  As is well documented, the lack of strong labor rights protections in trade agreements promotes the export of dirt cheap goods (made with dirt cheap labor) to the U.S. from our FTA partners, which suppresses wages and destroys jobs in the United States.  Rep. Levin, though, examined a less-discussed consequence of weak worker protections:  low wages hurt the U.S. on the export side of the equation, too, since workers in our FTA partner countries are not paid enough to purchase U.S.-made goods, so our exports suffer.

At the National Press Club, Levin said:

I want to say a word about Colombia….With Colombia and this was the battle we had over CAFTA. Latin American countries in too many cases, essentially, have these deep disparities in terms of income and opportunity. You can't grow middle classes under those circumstances. Middle classes are the ones who buy our goods basically.

So there's a basic point in worker rights and environmental issues, worker rights, it's not because anybody is standing up for any particular interest group in this country. We're standing up for our businesses and workers and for the workers in other countries who need to be part of the mix in order to buy our goods….

I went onto Colombia myself as I did when I went to China myself, went to the CAFTA countries myself to see firsthand what the conditions were.

I met with people who work in the sugar industry. There, essentially workers are totally deprived of their ability to be participants and have a say. They've set up these so-called cooperatives that are essentially dummy outfits and workers go from cooperative to cooperative being paid for by some entity, unable to be able to be a major part of the economy. That has to be fixed for their good and our good.

I fully understand the importance of opening up the Colombian market. I fully understand that for our workers, our businesses and workers. But we need to have trade agreements that essentially reflect our values and in the case of workers, basic international labor values.

Rep. Levin is right to be deeply concerned about the inequality in Colombia.  According to the CIA, Colombia has the 9th highest Gini index in the world. (The Gini index is the most commonly used measure of the gap between the rich and the poor.  It is a number between 0 and 100, with higher numbers indicating greater inequality.)  And the inequality is getting worse over time – in 1996 Colombia’s Gini index was 53.8, but by 2008 it had jumped to 58.5.  In comparison, the United States, which ranks as the 42nd most unequal society, has a Gini index of 45.0.

Another way of looking at inequality in Colombia is the share of income that goes to the poorest 10 percent of the population and the richest 10 percent of the population.  In Colombia, the poorest 10 percent earn only 0.8 percent of all income, while the richest 10 percent earn 45.0 percent of all income. 

By not protecting workers’ rights and allowing the violent suppression of unions, the government of Colombia has allowed its society to become incredibly unequal, preventing the development of a middle class that could buy U.S. goods and boost our economy. 

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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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U.N. Report Shows Global Wages Falling

On Nov. 3 the U.N. agency on labor, the International Labor Organization (ILO), released a 15-page report finding that real wages fell in countries around the world, including the U.S. and some other wealthy nations, raising questions about whether workers are sharing in any global economic recovery.

The report included data from 35 countries, and found that monthly wages have fallen almost 2 percent in the U.S. since January 2009. The ILO found that inflation-adjusted wage growth fell sharply around the world in 2008 to 1.4 percent, down from 4.3 percent in 2007, and wages continued to fall in a number of countries in 2009.

This continuing drop in real wages around the world illustrates the need for trade policies and agreements that protect workers’ rights and prevent a further “race to the bottom” in global wages. Fair traders have long warned that trade agreements such as NAFTA, CAFTA, and other NAFTA-type trade agreements would deflate wages and threaten workers’ rights. The ILO’s report on the drop in real wages for workers in the global economy is disturbing and makes a strong case for renegotiating these pacts and preventing new trade agreements based on the flawed NAFTA model.
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Krugman Wins Nobel!

Paul Krugman, the famous NYT columnist and Princeton economics professor, has been awarded the Nobel Prize in Economics for his work on trade theory.

Krugman is an interesting character in the world of trade politics. In the late 1970s and 80s, he producedKrugman_2 rigorous academic work that indicated that trade could increase inequality, and that countries could benefit from adopting active competitiveness policies. But like all good mainstream economists, he thought that dwelling on these implications was a dangerous obsession. As Bob Kuttner wrote in 2002,

Having cautiously embraced this view, Krugman almost immediately (and prudently) distanced himself from its implications. His early writings warned that even though gains from industrial targeting and strategic trade policy were in principle possible, it was not at all clear that governments would act wisely in their pursuit of strategic advantage. And there was the usual risk that each nation's strategic efforts would degenerate into "beggar-my-neighbor trade policies" and even trade war... By the late 1980s, Krugman was railing against advocates of strategic trade and industrial policy, as dangerous opportunists and frauds.


Krugman's methodology, which yielded relatively low estimates of trade's effect on inequality, was later taken up by the pro-NAFTA Institute for International Economics for further estimations. They found that nearly 40 percent of the ballooning of U.S. inequality was attributable to U.S. trade policy. (The folks at CEPR have a useful 2001 summary of both Krugman and IIE.) The Economic Policy Institute used this work in 2007 to find that the average American family lost $2,000 a year from the burden of rising inequality due to trade - an amount that outweighs the median income tax.

In the 1990s through the early 00's, Krugman joined many Democratic Party-affiliated economists in taking every opportunity to ridicule a global-justice movement that had drawn inspiration from his work, for instance slamming my former CEPR and Public Citizen colleague Bob Naiman as "Seattle Man."

In recent years, Krugman has appeared to grow more comfortable with progressives, coauthoring some work with CEPR economist Dean Baker and showing up at EPI events. In an NYT column from last year, Krugman said that trade is now even “a bigger factor than it was” at the time of his early work in explaining skyrocketing inequality. And he noted that the easy fixes proposed by all too many in Washington are off the mark:

Realistically, however, labor standards won’t do all that much for American workers. No matter how free third-world workers are to organize, they’re still going to be paid very little, and trade will continue to place pressure on U.S. wages...

By all means, let’s have strong labor standards in our pending trade agreements, and let’s approach proposals for new agreements with an appropriate degree of skepticism. But if Democrats really want to help American workers, they’ll have to do it with a pro-labor policy that relies on better tools than trade policy. Universal health care, paid for by taxing the economy’s winners, would be a good place to start.

And that is where most economists - including many progressive ones - stop. As with the 1990s debate, too many policy wonks don't really care to engage with the main arguments advanced by the global-justice movement: that neoliberal institutions are harmful to democracy and are not really about trade promotion, but deregulation. That's why even health-care advocates should care about WTO rules that limit the kinds of domestic health-care reforms we can pursue, as we show in a recent report.

In closing, I was riveted by Krugman's academic work as a grad student (Harvard's Ed Glaeser even makes his students memorize his equations). His NYT columns provide biweekly grist for progressives. And more than many economists, he has been willing to entertain ideas and research outside of the accepted neoclassical dogmas. This is an exciting Nobel choice, and we look forward to seeing how Krugman's views on trade policy continue to evolve in the years to come.

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Free Traitors

Chris Hayes writes in the New Republican on the growing trade revisionist movement in mainstream economicsland, and notes:

It's not just workers in the importing sector that suffer the wage cut" when forced toTraitor1_2 compete with foreign workers, says Bivens. "It's everyone that looks like them. Landscapers don't get replaced by imports, but their wages are depressed by having to compete with laid-off apparel workers." ...

Just how much the losers have lost is a matter of debate, but most economists agree that the wealth gained from free trade has been redistributed upward, toward the skilled, and that low-skilled workers have suffered the most. They also agree that, as a portion of the total U.S. economy, the overall net benefit of NAFTA and other free-trade deals is too small to find with even the most powerful econometric microscope. What you're left with is a small gain in the nation's net income and a strong, lasting depression of wages that hits exactly the kinds of unskilled workers who had already been falling further and further behind.

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Obama Advisor on What's So Cool About Free Trade

(Disclosure: Global Trade Watch has no preference among the candidates.)

Obama campaign staffer Jason Furman has a piece out in the Harvard Law & Policy Review that touches on trade. (It came out in the summer edition, but I just saw it.) You may remember the decision to hire Furman caused a bit of a stink a few months ago. Here's what he and co-author Jason Bordoff, in a piece mostly about tax policy, have to sez:

The Growing Protectionist Backlash

The U.S. economy has become increasingly integrated with the rest of the world over the past twenty years, due to advances in technology and transportation. The result has been greater flows across borders of goods, services, capital, people, and ideas. In 2007, the sum of exports and imports amounted to 29% of GDP, up from 19% in 1979.

Concomitant with this rise in global economic integration in recent years has been a protectionist drift among Americans and their representatives. Trade deals have stalled in Congress, most notably one with South Korea, and Congress allowed the President’s trade promotion authority to expire last summer. Voters, meanwhile, are becoming more skeptical of the benefits of trade. According to a recent Pew Research Center poll, the share of Americans who believe that trade is good for their country has plunged from 78% in 2002 to 59% in 2007, the lowest proportion among the forty-seven countries included in the survey. This concern is not limited to Democrats: a Wall Street Journal poll in the fall of 2007 found that Republican voters were skeptical of free trade by an almost two-to-one margin (59% versus 32%).

Beyond free trade, protectionist sentiment is likely to be fueled further by increased foreign direct investment in the United States. Voters and policymakers alike expressed outrage when the Chinese energy firm CNOOC tried to purchase the U.S.-based Unocal, and similarly when Dubai Ports World tried to purchase operations at six U.S. ports. Such concerns are likely to be exacerbated in the coming years as the sovereign wealth funds of some foreign nations increasingly seek investment opportunities in the
United States.

The Promise of Global Economic Integration

The growing protectionist backlash against global economic integration is a serious threat to our economic well-being. Greater openness has greatly benefited the U.S. economy—even though it admittedly can precipitate concentrated harm to workers in particular industries and communities. For example, one study found that trade provided an aggregate benefit to the U.S. economy of $1 trillion per year. Free trade allows people to specialize in the goods and services they produce with the most comparative efficiency— the classic idea of “comparative advantage”—while also allowing producers and consumers to benefit from economies of scale. In doing so, free trade leads to increased productivity and GDP growth, which ultimately are necessary to raise standards of living and provide the resources needed to address costly challenges such as health care and climate change. For consumers, free trade also promotes competition, which introduces new low-priced goods and services and constrains markups on existing goods and services. For workers, free trade may be associated with competitive labor markets that can sustain lower rates of unemployment without triggering inflation.

Closely linked to greater trade are greater international capital flows, which have grown even more quickly than trade volumes in recent decades. American firms are leaders in financial services, and financial openness allows U.S. investors to find new and more productive investment opportunities abroad and permits foreigners to invest in the United States. America’s large budget deficit and low private savings would have had much more serious consequences were it not for America’s open capital account, which allows substantial foreign investment to help maintain America’s production. Moreover, open trade has been beneficial for the United States recently because, as the economy has slowed and the dollar has weakened, a rising share of economic growth has come from exports.

Finally, globalization is a benefit not only to the United States, but also to the rest of the world—particularly the developing world. Trade is driving economic growth throughout the world, lifting hundreds of millions of people out of poverty, and has proven far more effective at doing so than has traditional development aid. Openness to trade and investment can facilitate growth, and growth and poverty reduction go hand in hand. Even for those countries trapped in a cycle of poverty, one leading scholar argues that what is needed more than increased foreign aid is increased market access for the “bottom billion” to the economies of the rest of the world.

Here's what Senator Obama had to say about the Korea trade deal that the Jasons reference:

Obama, who has made criticism of free-trade pacts a staple of his campaign, called the accord between the two nations ``badly flawed.''

``In the interests of cultivating bipartisan cooperation on trade policy, I urge you not to send this agreement forward to the Congress,'' Obama wrote in a letter to Bush released today. Instead of pushing the agreement, the U.S. trade office should use existing laws to challenge ``barriers to U.S. exports,'' Obama said.

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Corporate America Wins with Trade!

This is quite the impressive jam by the Oregon Fair Trade Campaign (ORFTC)...

They do a great job of cutting straight to the heart of the the Consumer Electronics Association's silly-ness. US exports grow faster on average with countries when we have no NAFTA-style trade pact. The Colombia FTA can do nothing but wreak more havoc on the US economy and job market. We've already lost more than 3 million good manufacturing jobs since NAFTA, with the electronics industry itself having dealt its fair share of pink-slips. Now they go around highlighting the few jobs their members have not yet sent overseas as a reason to keep paving the way for them by passing unfair trade deals! Do they really expect a "thank you" from the American worker?

The truth is that the Fat Cat CEOs who stand to gain from FTAs would simply love another round of trade deals to make sure they can ship out the rest of the jobs wherever they please, whenever they please. As long as they can escape progressive, pro-worker regulation that ensures shared prosperity and sustainability, they'll be supporting any and every trade deal, no matter how horrendous the abuses of the regimes themselves or the abuses of their paramilitary allies.

Hats off to the Oregon Fair Trade Campaign for this one. World-class spoofing, indeed! My favorite is the part where they slam the bus as being too "low-brow" a mode of transport. Kudos.

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Morales rising: Evo win margin jumps 15% on record of stopping NAFTA-WTO expansion; reasserting control over natural resources

Bolivia’s President Evo Morales was returned to office last week following a controversial ‘recall referendum’ pushed by rightwing political opponents with a landslide victory of 68%.  Morales, the first indigenous president of Bolivia, won by 53% when initially elected in late 2005. The recall vote increased the majority of Morales and his Movement Towards Socialism (MAS) party by nearly 15%.

Morales’ landslide victory exposed the marginality of a vocal bloc of right-wing separatists in the country’s gas and oil-rich regions. Their goal – to get things back to pre-Morales days when a small elite controlled the revenues from the country’s massive energy resources and farm land. And they are desperate to derail Morales' planned constitutional and social reforms, including regaining control of the country’s oil and gas resources and land redistribution for one of the world’s erstwhile poorest nations.

The right wing had two related strategies: breaking the oil-producing lowland regions away from the rest of the country and taking the national oil revenues with and um...throwing Morales out of office. The first avenue is unconstitutional (although that has not stopped them from repeatedly trying) but now they’ve just gotten whomped on Plan B to un-elect Morales.

Media reports of the past week have largely focused on predictions that the defeated right wing would continue to attack Morales despite the massive vote of public confidence, since four key separatist opponents of Morales were also, as expected (and detailed in a report by WOLA here), returned to their regional posts. The significance of Morales’ rising support levels have largely been swept under the carpet: When Morales was elected in late 2005, his 53 victory was by far the largest in the country’s history, making him the first Bolivian leader able to claim an absolute majority. Two years later, his support has grown by a further 15%.

Such numbers suggest widespread support among Bolivia’s indigenous majority and beyond for the approach Morales has adopted to redistribute wealth and resources (as detailed in a recent report by CEPR)

Morales’ campaign for social and economic justice extends beyond Bolivia when the country participates in international negotiations. For instance, when the WTO recently held an invitation-only mini-ministerial for a select 30 countries, Morales’ issued a powerful statement. He said what many excluded developing country leaders were thinking about the attempt to steamroller through a Doha Round WTO expansion most poor countries oppose:

“The WTO negotiations have turned into a fight by developed countries to open markets in developing countries to favor their big companies…The poorest countries will be the main losers. The economic projections of a potential WTO agreement, carried out even by the World Bank, indicate that the cumulative costs of the loss in employment, the restrictions to national policymaking and the loss in tariff revenues will be greater than the “gains” from the “Development Round”.

After seven years, the WTO round is anchored in the past and out of date with the most important phenomena we are currently living: the food crisis, the energy crisis, climate change and the elimination of cultural diversity. The world is being led to believe that an agreement is needed to resolve the global agenda and this agreement does not correspond to that reality. Its bases are not appropriate to resist this new global agenda,” Morales said in a statement

ahead of the talks.

It is just this sort of clarity and principled defense of the interests of his country’s majority poor population that makes the right wing in Bolivia – and in the United States – obsessed with attacking Morales. With Morales and his social change projects facing continued challenges from corporate interests - both domestic and foreign - as well-argued in this CounterPunch essay, the struggle is far from over.

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The Punditocracy: Speaking for the Wretched of the Earth

For those of us who get dizzy listening to the circular logic of the paragons of Punditocracy (especially of the capital P variety), Roger Bybee's (Fairness and Accuracy in Reporting) excellent historical round-up of Fareed Zakaria's noxious views on trade and globalization issues offers a welcome breath of cold, clean facts  after some pretty serious doses of post-Doha death vertigo from the 'powers that be'...

Fareed Zakaria, now the highly influential editor of Newsweek International, author of The Post-American World, and host of Fareed Zakaria GPS, constructed a landmark of unintended irony when he regally pronounced that “the downtrodden beg to differ” with protesters of corporate globalization (Foreign Affairs, 12/13/99).

Those who demonstrated against the World Trade Organization at the famous “battle of Seattle” in 1999, he asserted, were displaying the hubris of the “rich and privileged,” who were delivering “a familiar plea for the downtrodden of the world” by challenging the WTO’s promotion of sweatshops and environmental degradation in the impoverished Third World.

In other words, Zakaria denounced the arrogance of those who presume to advocate for the world’s poor—while appointing himself, the son of a prominent Indian attorney and politician, as the poor’s spokesperson. “There’s just one problem: The downtrodden beg to differ,” Zakaria declared.

In his eyes, the Third World’s poor eagerly welcome Western investment on any terms as a vast improvement over their current misery. Microscopic wages, long hours and heartless management in sweatshops, along with befouled air and water, might seem horrific to wealthy Westerners, but are gratefully welcomed by the desperate people of nations like Mexico, China and India. “In fact, if the demonstrators’ demands were met, the effect would be to crush the hopes of much poorer Third World workers,” he declared (12/13/99)...

On globalization, Zakaria zealously denounces opponents of corporate-determined trade agreements as seeking to impose utopian rules for the global economy that are widely rejected, especially by the most wretched of the earth....

Zakaria’s “anti-democratic” and “minority” accusations invert reality in...critical ways....

A recent multinational Chicago Council/ poll (released 4/25/07) found majorities in most poor nations insisting that globalization be accompanied by global standards to prevent a “race to the bottom.”

“Strong majorities in developing nations around the world support requiring signatories of trade agreements to meet minimum labor and environmental standards,” the survey concluded, citing data from China, India, Thailand, the Philippines, Argentina and Mexico. “Nine in 10 Americans also support such protections for workers and the environment.”

Elites in Third World nations, in contrast, staunchly opposed such standards, the study noted:

The leaders of less developed nations have generally opposed including language mandating minimum standards for working conditions and environmental protections in trade deals, arguing that such rules are protectionist and would undermine their ability to compete in major markets such as Europe and the United States.

“It has often been assumed that when leaders of developing countries argue against including labor or environmental standards in trade agreements, they represent the wishes of their people,” added Steven Kull, director of WorldPublic “However, it appears that these publics would like to see the international community put pressure on their governments to raise their standards.”

These findings directly contradict Zakaria’s simplistic worldview that the free-trade agenda of America’s political and business elite reflects overwhelming public sentiment in both poorer nations and the U.S.

And, closer to home (and to the other salient topic of the day - the upcoming November polls - about which Zakaria is busy confusing the American electorate daily), Bybee reminds us of the ultimate price yet to be paid by those candidates who forget that the people actually know what's going on...

While elites across the globe support unregulated globalization, majorities in both the U.S. and poorer nations essentially seek to restructure globalization so that it benefits everyone—as signified by the flipping of 37 congressional seats in the 2006 mid-term elections from “free trade” advocates to supporters of “fair trade” (Global Trade Watch, 12/13/06)."

Gotta love it when the real elites try to carve their niches by claiming to speak for the poorest of the poor. Frantz Fanon must be spinning in his grave!

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Book Reco: The Predator State (and Sister Souljah moments?)

James K. Galbraith is an advisor to the Obama campaign, a University of Texas professor of economics, and son of famous JFK advisor John Galbraith. He has a new book out called "The Predator State," and it is well worth a read.

51yvzrqy1wl_ss500_ The primary goal of the book is not to talk politics, but to talk ideas. Like a lot of books over the last few years, "The Predator State" dissects the work of neo-liberals. Their packet of ideas, in Galbraith's reading, was to cut taxes, end inflation, and free the markets. While the original Reagan acolytes came to power on the appeal of ideas like "freedom", latter day Bushites have largely abandoned any serious commitment to them. Now, it is only so-called "liberals" who largely accept these ideas as the starting point for discussion.

Galbraith's criticisms of supply-side economics are many. How can we believe that markets are perfect, and also believe that there's insufficient savings? If we believe government should not intervene in markets, why is there such widespread support for the independence of the Federal Reserve, a government entity that sets prices? Why do we attribute many ideas to Adam Smith and David Ricardo that they never uttered? Are markets really that perfect if they reward failed capitalists at Enron and elsewhere? Small bore ideas from universal pre-K to job training receive targeted criticism: this is much too little for Galbraith, who wants liberals to - in the wake of Katrina and climate chaos - embrace his big ideas of economic planning.       

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Who will play that funky music in our electoral future?

(Disclosure: Global Trade Watch has no preference among the candidates.)

We don't get into election analysis here beyond the trade issue. But a couple of months ago, my hometown pride swelled as the extra long primary season took candidates into parts of the country like my home Kentucky that rarely figure into national politics.

That was a few months ago. Given the way things have turned out in Appalachian states, however, I now hear the daily quips about from East Coast "liberal" friends, acquaintances and "fr-enemies" that range B00000drbv01lzzzzzzz_2 from ridicule to vitriol about the "backwater's" 15 minutes of fame. There has been a "discovery of the other among us" - the white working class (WWC) - as I get to hear any number of jokes about incest and hicks. Some politicos are choosing to pathologize the WWC, while some suggest than even the whiteys know not the full depth of backwardness that is within them. (And, btw, all the candidates need to leave the amateur sociology to the pros.)

Some of the more sophisticated analysts have taken to asking whether the WWC is even needed for electoral purposes anymore. Alan Abramowitz and Ruy Teixeira have written a paper entitled "The Decline of the White Working Class and the Rise of a Mass Upper Middle Class." This is a useful companion piece to Ruy's 2000 book with Joel Rogers entitled "America's Forgotten Majority: Why the White Working Class Still Matters." They look at the work of Larry Bartels and Thomas Frank, and offer some commentary on an emerging GOP strategy to attract WWC voters authored by Ross Douthat and Reihan Salam. Among the main findings of the more recent paper:

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The End of Francis Fukuyama?

Interesting piece in the FT on the role of trade in the elections:

Two months ago most analysts discounted the bulk of the anti-trade rhetoric coming from the Democratic presidential race as easy to wriggle out of. But as the race has got tighter and the economy has become an even greater concern to voters, Barack Obama and Hillary Clinton have become steadily more specific in their pledges...

“The specificity is unprecedented. The longer this process goes on, the more promises these candidates make,” says Christopher Wenk, senior director for international policy at the US Chamber of Commerce, which has been lobbying for further trade liberalisation. “Hopefully . . . they can wiggle their way out.”...

Francis Fukuyama, author of The End of History, which many took as a lodestar of the Clintonite 1990s, says the two candidates are only giving voice to much deeper shifts in US political attitudes during the past few years.

“There is a structural change going on,” he says. “American politics goes through generational swings and most of the electorate believes the pendulum has swung too far in a laissez-faire direction in the last two decades. No successful candidate can ignore that.”

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Redundant trade, Larry Summers, NAFTA

This piece in the Times featured an issue that we will be doing a report on soon: redundant trade.

Cod caught off Norway is shipped to China to be turned into filets, then shipped back to Norway for sale. Argentine lemons fill supermarket shelves on the Citrus Coast of Spain, as local lemons rot on the ground. Half of Europe’s peas are grown and packaged in Kenya...

Increasingly efficient global transport networks make it practical to bring food before it spoils from distant places where labor costs are lower. And the penetration of mega-markets in nations from China to Mexico with supply and distribution chains that gird the globe — like Wal-Mart, Carrefour and Tesco — has accelerated the trend.

But the movable feast comes at a cost: pollution — especially carbon dioxide, the main global warming gas — from transporting the food.

Under longstanding trade agreements, fuel for international freight carried by sea and air is not taxed. Now, many economists, environmental advocates and politicians say it is time to make shippers and shoppers pay for the pollution, through taxes or other measures.

“We’re shifting goods around the world in a way that looks really bizarre,” said Paul Watkiss, an Oxford University economist who wrote a recent European Union report on food imports.

He noted that Britain, for example, imports — and exports — 15,000 tons of waffles a year, and similarly exchanges 20 tons of bottled water with Australia. More important, Mr. Watkiss said, “we are not paying the environmental cost of all that travel.”

Larry Summers had a must-read piece in the FT:

growth in the global economy encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered. As one prominent chief executive put it in Davos this year: “We will be fine however America does but I hope for its sake that it will cut taxes and reduce regulation and put more pressure on young people to study in the ways that are necessary for it to be able to keep competing successfully.”

The chief executive was sincere and he captured an important truth. Even as globalisation increases inequality and insecurity, it is constantly and often legitimately invoked as an argument against the viability of progressive taxation, support for labour unions, strong regulation and substantial production of public goods that mitigate its adverse impacts.

In a world where Americans can legitimately doubt whether the success of the global economy is good for them, it will be increasingly difficult to mobilise support for economic internationalism.

And Lori makes a point in the WSJ that a lotta folks have been missing:

Regardless of the ebb and flow of concern over free trade, some globalization critics say the dangers to the accord are real.

Next year's North American summit would be "an opportune time for a President Obama or a President Clinton to follow through on their pledge to renegotiate," said Lori Wallach, director of Public Citizen's Global Trade Watch division. She said either leader would be "under enormous pressure to make some changes in those agreements," in part because of the potential impact on domestic-policy priorities such as addressing climate change or the health-care crisis.

"The real issue that could threaten [Nafta] isn't politics, but the agreement's actual outcomes," not just for workers in the U.S. but also in Mexico in particular, she said. "People don't have a problem with trade -- it's this version of the rules."

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Inefficiency of redistribution

Dean Baker, in his new lecture on trade and inequality, raises an interesting point:

Most of the supporters of the current trade agenda, and especially the more liberal supporters of this agenda, do make a point of advocating redistribution from winners to losers, so that in principle at least everyone can gain from trade. As noted, this redistribution usually takes the form of retraining or readjustment assistance for workers who can demonstrate that they directly lost their jobs due to trade. Although, it has never really appeared as a serious proposition in political debate, in principle it would be possible to tax away enough of the gains from the winners to compensate all the people who lose from trade...

Most forms of trade readjustment assistance are relatively small items in the federal budget. For example, the 2008 appropriation for trade adjustment assistance is less than $200 million, approximately 0.006 percent of the federal budget.

By contrast, suppose that trade had the effect of lowering the wages of the bottom 70 percent of the wage distribution by an average of 2.0 percent, a relatively conservative estimate of the impact of trade on inequality. In this case, the amount of money that would have to redistributed from higher income people to low wage workers would be close to $50 billion annually, or 1.6 percent of the federal budget. This would be a qualitatively larger sum to raise in taxes, which perhaps explains the reason that no politician has championed this effort to date.

There is a second more fundamental point that needs to be addressed in assessing such large redistributions from the standpoint of trade policy. The argument for trade liberalization depends primarily on the claim that it increases economic efficiency. However, any revenue that is raised to pay for compensation from winners to losers will require taxes. These taxes will themselves be distortionary. While it is easy to say that the distortions that result from the taxes necessary to fund a $200 million job retraining program will not create enough distortions to offset the gains from trade liberalization, it is far from obvious that this is true if it’s necessary to raise $50 billion to redistribute to the losers from trade...

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New(ish) intelligence on trade

When Congress is in recess, it's always a good time to catch up on some of the academic and think-tank writings on globalization. Hey, it's definitely more interesting than the horse-race among the 2008 candidates for president, now in it's second year.

  • Bruce Campbell of the Canadian Centre for Policy Alternatives takes a look at the corporations operating in Canada that pushed for the Canada-U.S. FTA in 1988, which paved the way for NAFTA in 1993. (Here in the U.S., the Canada FTA counted among its supporters: John McCain (and Biden and Dodd), and had among its opponents Duncan Hunter and Bill Richardson (in a rare fair trade vote).) Campbell finds that, despite the promises of these companies at the time, they have actually reduced their number of employees by 20 percent, while increasing revenues by nearly 130 percent. (CEOs have also seen their pay relative to workers more than double since 1988, during which time workers' wages have not budged in inflation adjusted terms.
  • Ann Helwege and Melissa Birch from the Global Development and Environment Institute at Tufts University take a look at Latin America under neoliberalism, and find that the claims that poverty has been reduced are highly suspect. Namely, once you exclude Mexico and pre-96 Brazil (and even these are contested), most major economies in Latin America have seen rising or stagnant poverty. Moreover, as they point out, no one should be getting a cookie for modest poverty reduction even where it may have occurred: the lives of folks making $2.01 a day versus those making $1.99 a day are broadly comparable and desperate, even though $2.01 is considered above the poverty line. Moreover, if income is increasing (which it nearly always does), we ought to see poverty decline. The rate of improvement is what matters. In some of these cases where poverty has actually increased (in some cases while income has increased), we have a major problem.
  • Josh Bivens at the Economic Policy Institute summarizes some of his recent work looking at claims of benefits from trade from major trade boosters, and finds them sorely wanting. The point made by Josh and in related work is that, if we're going to pursue a trade policy that contributes to massive stagnation of incomes of the majority, the chattering classes should at least expect to see a massive increase in national income. As Josh shows, a high growth figure from trade is questionable. So on both normative and positive analytical grounds, the status quo is pretty unattractive.
  • Nancy Birdsall at the Center for Global Development does a fairly comprehensive mainstream literature review for the case that high levels of inequality can actually hinder growth, primarily through creating or interacting with failed markets and institutions.

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Rain on the scarecrow as the border blockaded

January 3rd, you know what that means? Only 40 more days until the Dee-Cee presidential primary vote! I can't wait! D.C. has always had a unique role in the nation for our role in the presidential primary process. Sure, there's SOMETHING happening in Iowa today, but it's not until a candidate wins the D.C. primary that they're truly considered anointed.

In all seriousness, voting in America's last inland colony is not today's top news. No, just wanted to remind everyone about the Iowa Fair Trade Campaign's excellent web resource on the candidates' positions on trade, available here.

There's been a lot of paeans to corn ethanol during this season, and with good reason: Iowa's farmers are taking it on the nose. As we've written before,

While the volume of U.S. corn and soybean exported increased as predicted by NAFTA’s proponents, the prices received by American farmers declined to the lowest levels in recent memory. While American farmers received $12.64 per bushel of soybeans (in inflation-adjusted terms) when the NAFTA predecessor Canada FTA went into place in 1988, that price halved to $6.30 by 2006. In inflation-adjusted dollars, farmers received $4.29 a bushel for corn in 1995, the year the WTO went into effect and a year after NAFTA went into effect. But a decade later in 2005, the bushel price was at a low of $2.06, and only started increasing with the recent ethanol boom  – a development that is threatened with derailment as Brazil and other agricultural exporters plot WTO challenges against U.S. corn ethanol subsidies. 

But don't take my word for it... after all, there's a reason that John Cougar Mellencamp is a political figure on par with Oprah in Iowa.

The corn issue in Iowa is connected to the corn issue in Mexico, which has been a lot in the news recently. (See our fact sheet for more.) In particular, the final phasing in of NAFTA tariff cuts in Mexico happened, and folks in Mexico were none too happy about it. (video in spanish)

As we've written about before, Latino civil rights groups are calling attention to NAFTA-style policies, which are destroying the Mexican countryside, which has led to massive displacement of people towards the United States.

As the AP reported,

Mexico's Roman Catholic Church has warned that the changes could spark an exodus to the U.S.

"It is clear that many farmers will have a difficult time competing in the domestic market, and that could cause a large number of farmers to leave their farms," the archdiocese said in a statement issued on New Year's Day.

Dozens of farm activists in Ciudad Juarez blocked one lane of the border bridge leading into El Paso, Texas, to protest the unrestricted imports of U.S. corn, as part of a 36-hour demonstration that started in the first minutes of the New Year.

They had pledged not to allow any U.S. grain into the country...

"The open battle against NAFTA begins," read a banner headline in the daily La Jornada.

In Mexico City, activists announced plans to march through the capital and hold a nationwide conference on Jan. 14 to plan further protests.

"This is going to be a complicated year, and there will certainly be a lot of demonstrations," said Enrique Perez, a spokesman for the National Association of Farm Distributors, one of the groups organizing the marches.

Mexico, the birthplace of corn, obtained a 15-year protection for sensitive farm crops when NAFTA was negotiated in 1993. That protection period ran out on Jan. 1. Mexico still grows almost all of the corn consumed here by humans, but imports corn to feed animals.

Mexican politicians from all major parties agree that a NAFTA renegotiation needs to happen. An area where there might be some common ground with the candidates for president, many who are talking about doing something that sounds an awful lot like renegotiation of NAFTA.

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Numerology, lingerie, and a half-hearted post

Dean makes a funny about numerology and David Brooks today:

David Brooks' column is full of nonsense on trade this morning. The point is to propagandize on behalf of current trade policy, which is taking a beating in popular opinion as of late. Brooks includes a wide range of factors which are somehow supposed to imply that the current trade policy is good.

Just to to take a couple of my favorites, Brooks points out from 1991 to 2007 the trade deficit grew to $818 billion from $31 billion. "Yet, .... during that time the U.S. created 28 million jobs and the unemployment rate dipped to 4.6 percent from 6.8 percent."

Let's see, according to my calculator, the sun came up 5,840 times during this period. Therefore, by Brooks logic, trade must facilitate astronomical processes. For those familiar with economic theory, the expected impact of trade would be on wages, not the number of jobs. And most workers have seen very small wage gains over this 16 year period as the bulk of the benefits of productivity growth have gone to highly-paid workers.

Brooks also cites a study by Robert Lawrence and Martin Baily that purports to show that 90 percent of the jobs lost in manufacturing are due to domestic causes. I have no idea what this is supposed to show. A trade deficit of 6 percent of GDP (now closer 5 percent) corresponds to at least 3 million lost manufacturing jobs. Does it make any difference for anything in the world how these lost jobs are divided between the loss of existing jobs or the failure to create new jobs? It certainly doesn't matter for any economic theory with which I am familiar.

Brooks also extols the fact that the people in this country have lots of kids -- that's great if you like global warming, otherwise it doesn't seem like such a great thing. Perhaps the best line is that the United States "benefits from low levels of corruption." This is probably because actions like having a CEO wreck a company, and then get a hundred million dollar severance package, are perfectly legal.

Tasini talks sweatshop lingerie:

When you slip on your Victoria Secret garb, remember this: it comes to you partly due to the wonders of so-called "free trade." And, in particular, that little Victoria Secret garment (I guess "little" is redundant in this context) may even hail from Jordan--which was supposed to be the poster child for how one forges the "right" kind of so-called "free trade" deal. But,  instead, Victoria Secret exposes the exact fallacy of so-called "free trade."

Billy Bragg takes on the corporate power mongers, in another in our series of Top 10 Best Songs About Trade:

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Iowa and trade... it's the prices, stupid

The Wall Street Journal has a pretty fair front page story by Greg Hitt and Deborah Solomon this morning talking about the role that trade is playing in the Iowa caucuses. It shows how Clinton, Edwards, Huckabee, Obama and even John McCain are talking about fair trade policies in their appeals to voters. But many of the commentators don't get it:

Iowa's ambivalence is all the more remarkable because the state is on the whole a big winner from global trade. "Iowa, as much as any other state, is on the plus side of the ledger," says James Leach, a 30-year Republican congressman from Iowa who now runs Harvard University's Institute of Politics...

By many measures, the global economy has been good for the state. Boosted by the ethanol and biofuels craze and surging demand for crops and farm equipment world-wide, Iowa's exports are up 77% over the past four years versus 50% nationally. The state's unemployment rate hovers around 3.7%, below the national 4.6% average...

"It's unfortunate that the Democrats are willing to describe trade as part of the problem," says Robert Reich, President Clinton's labor secretary... "It's pandering to a misconception in the public. The truth is that trade is good for the U.S. but that some people are burdened by it far more than others."

That was your former elected farm state representative and labor secretary, folks - two people that should know about the price of corn, soybeans and labor. While the volume of U.S. corn and soybean exported increased as predicted by NAFTA’s proponents, the prices received by American farmers declined to the lowest levels in recent memory. While American farmers received $12.64 per bushel of soybeans (in inflation-adjusted terms) when the NAFTA predecessor Canada FTA went into place in 1988, that price halved to $6.30 by 2006. In inflation-adjusted dollars, farmers received $4.29 a bushel for corn in 1995, the year the WTO went into effect and a year after NAFTA went into effect. But a decade later in 2005, the bushel price was at a low of $2.06, and only started increasing with the recent ethanol boom  – a development that is threatened with derailment as Brazil and other agricultural exporters plot WTO challenges against U.S. corn ethanol subsidies. 

And average and median wages, as regular readers of Eyes on Trade know, have barely budged from their 1973 levels, despite a doubling of productivity. It's not a question of compensating a few losers. MOST people, who are wage earners, are net losers from our current trade policy. (The unemployment level, mentioned in the article, is pretty irrelevant, since that is driven by interest rates. It's the composition of jobs (i.e. manufacturing v. services) that is affected by trade.) Nobody serious says that trade does not play a major if not the leading role in this. So when Reich derides candidates that "are willing to describe trade as part of the problem," that's about the least they can do in their sometimes tenuous loyalty to reality. In fact, many quoted in the article say this:

  • Gene Sperling, adviser to Clinton: "Even those of us who are supportive of the open-market policies of the '90s to take seriously that the large inflow of workers from China and India digesting American jobs is placing downward pressure on wages."
  • Leo Hindery, advisor to Edwards: "My sense is that the families of Iowa have now concluded that the modest benefit to them from cheaper goods that flow through Wal-Mart have been overwhelmed by stagnating wages."

Besides these points, there was an odd comment that deserves flagging:

Most economists argue that changing technology is more to blame for the divergence of economic fortunes. Nonetheless, worker concerns are roiling the political landscape. "Everywhere you go you've got this widespread feeling, especially in the labor community, that all of the wage problems of the middle class are due to trade," says Austan Goolsbee, a University of Chicago economist advising Democratic candidate Sen. Barack Obama.

Actually, as a paper for the Federal Reserve Bank of Atlanta (no bastion of labor they) pointed out several years ago, the argument that skill-biased technological change (rather than other factors) is driving rising inequality is a pretty weak one, for among other reasons, because inequality began its rise in the late 1970s-early 1980s, while the workplace computer revolution didn't happen until the 1990s. That's just the most straightforward example; there are many more in the paper.

Oh, and for the record, and we'll be posting this on all election related posts:

Disclosure: Global Trade Watch has no preference among the candidates.

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Who says nothing good comes out of the Beltway?

Two groundbreaking new papers looking at our failed trade policy’s negative impact on American wages and inequality have been written by economist Josh Bivens and quietly released by the Economic Policy Institute (EPI). These papers brilliantly summarize half a century of economics research into the topic, and make fascinating projections of future increases in inequality if current trends continue. The papers expose what has been hidden in plain view: our trade policy is putting substantial downward pressure of all U.S. workers, yet policymakers are trying to push more NAFTA-style trade policy to Peru and beyond despite mounting evidence that it is bad for Americans.

Among the important conclusions of the paper, paraphrased by yours truly:

  • The most important negative impact of our trade policy is not the displacement of concentrated groups of workers in manufacturing, but rather the holding down of wages of 70 percent of the population – including those workers whose jobs have not been and/or cannot be offshored. This analysis takes into account the impact of savings from cheaper imported products, and is a NET effect.
  • The burden from trade policy-induced inequality now outweighs the burden from income taxes for the average American family. Specifically, the costs from current globalization policies for the median family have risen to $2,135 a year, while income tax costs are by comparison only $1,495. So if you’re concerned about high middle class taxes, you should be doubly concerned about our trade policy.
  • If current projections by mainstream economists of the number of offshorable service-sector jobs hold over the next 10-20 years, our trade policy could erase almost all of the wage gains made since 1979 for workers without a four-year college degree (70 percent of the workforce). Trade adjustment assistance – now being debated in Congress – would replace less than 0.2% of the potential income loss to domestic workers in this scenario. Yet, this is the only significant policy response to globalization being discussed on Capitol Hill, and it excludes the majority of workers harmed by our trade policy.
  • That much of this negative wage impact was already known by the early 1990s (in fact, since the 1940s), when policymakers were debating NAFTA and the WTO. Estimates produced by mainstream economists found that trade could account for 10-40% of the total rise in inequality that occurred in the 1980s and early 1990s. Many who were advocating for more-of-the-same trade policy often pointed out that trade did not account for a majority of the rise in inequality. But as the paper points out, it was still widely considered to be the largest single factor. (The paper notes: “This is true but uncomforting; a significant minority of a very large number is still a large number. To put it another way, if I threw myself into a chasm that was ‘only’ a fifth as deep as the Grand Canyon, I’d still be dead.”) In any case, the impact is shown to be much larger since NAFTA and the WTO went into effect over a decade ago.
  • That anytime a pundit or politician invokes the notion that our trade policy is a “win-win” proposal, they are at worst lying or misleading the public, and at best equating the considerable gains going to the top end of the income distribution with a scenario where the gains are widely shared (something that has not happened, and could not happen without massive tax increases on the wealthy and government redistribution of a magnitude that is not being at all discussed by leading presidential candidates of either party).

The main paper from early October can be found here, and a background technical paper from early September can be found here.

Continue reading "Who says nothing good comes out of the Beltway?" »

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Nobelists on trade, globalization

Leonid Hurwicz, Roger Myerson, and Eric Maskin were awarded the Nobel in Economics yesterday for their work in mechanism design theory. Alex Tabarrok at Marginal Revolution has a pretty good explanation of this work, and Maskin told the Times:

Mechanism design, Professor Maskin explained, can be thought of as the “reverse engineering part of economics.” The starting point, he said, is an outcome that is being sought, like a cleaner environment, a more equitable distribution of income or more technical innovation. Then, he added, one works to design a system that aligns private incentives with public goals.

One recent subject of Professor Maskin’s wide-ranging research has been on the value of software patents. He determined that software was a market where innovations tended to be sequential, in that they were built closely on the work of predecessors, and innovators could take many different paths to the same goal. In such markets, he said, patents might serve as a wall that inhibited innovation rather than stimulating progress.

What Maskin is writing about is the textbook theory of the value of free trade. It also complements work in the development economics literature about how "late developers" can adopt the technological advancements of rich countries, thus "leapfrogging" a stage of development. It should be noted that this is something that our current WTO- and NAFTA-enforced intellectual property protectionism regime sharply limits.

Maskin has also written recently on inequality and globalization:

Supporters of the anti-globalization movement argue that “globalization has dramatically increased inequality between and within nations” (Mazur, 2000), and in particular that it has marginalized the poor in developing countries and left behind the poorest countries. Meanwhile, more moderate mainstream politicians argue that the poor must invest in education to take advantage of globalization (Clinton, 2000). Such views are difficult to reconcile with a standard Heckscher-Ohlin trade model with two countries, two goods, and two factors (skilled and unskilled labor, or alternatively capital and labor) [which predicts that] inequality will rise in the rich country and fall in the poor country...

There are, however, at least two empirical problems with the Heckscher-Ohlin story. First, it predicts that bilateral trade will be greatest when factor endowments are most different, ceteris paribus (Vanek, 1968). There is little trade between advanced countries such as the U.S. and very poor countries such as Chad. A second problem with the Heckscher-Ohlin model is that evidence from examination of specific developing countries following trade liberalization and from cross-country studies does not suggest that trade liberalization generally reduces inequality in poor countries and in fact frequently suggests that trade liberalization can increase inequality...

We propose a model of production by workers of different skill-levels (Kremer and Maskin, 1997) that is consistent with 1) the small scale of trade between countries with very different factor endowments and 2) the possibility that globalization may increase inequality in both rich and poor countries.

Their model shows that it's possible that the least-skilled masses in poor countries will be totally marginalized under globalization, and that inequality can thus rise in both rich and poor countries. Maskin and co-author Michael Kremer conclude, "if people measure their status relative to others in their own society, then they will perceive inequality increasing. This analysis corresponds to the view of many anti-globalization protestors that globalization benefits elites in both rich and poor countries."

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Drinking, Dieting, Industrial Policy

As I recently noted, Ha-Joon Chang is coming out with a book very soon in the US - "Bad Samaritan: Rich Nations, Poor Policies and the threat to the developing world." The book has spawned a sharp debate over at the Financial Times over the desirability of active trade and industrial policies.

After having studied industrial policies myself, I remember being surprised to hear a presenter at the American Enterprise Institute say that "the arguments for industrial policy don't hold up to closer scrutiny." Granted, any argument for or against industrial policy has to be sensitive to local conditions (landlocked Chad is unlikely to build a successful shipbuilding industry, as Martin Wolf notes), so I didn't quite understand what the presenter was referring to... was the statement meant to discredit the boom years of Latin America in the 1960s, Korea in the 1970s, China in the 1990s? It couldn't have been to celebrate the experience of Latin America or Africa for the last quarter century - during which time practically no industrial policies were practiced (except in Chile, as I talk about here.), right?

So I have still been waiting for further clarification from orthodox economists about what is meant by this pooh-poohing of the lessons of history. Here are the arguments, summarized from the FT debate, with the quick and dirty response taken from Ha-Joon:

  • Orthodoxy: Dude, industrial policy is so 19th century. Sanity: Latin America, Asian, and Scandinavian development did not happen in the 19th century, dude.
  • Orthodoxy: Korea didn't use industrial policy (that's why it grew before the late 1970s), except when it did (that's why it didn't grow in the late 1970s, early 1980s). Sanity: That is so 1980s of you. Korea used industrial policy before, during, and after the period in question, and it grew the whole time, except when it didn't, and that was due to a little something called a world recession.
  • Orthodoxy: Free trade is the best! But if you practice free trade and you don't grow, blame it on on some other policy. Sanity: Where are we, Middle Earth?

The whole debate is worth a read, and it is not as idiotic in tone as I have made it seem. But the days when orthodox economists could shove facts under the rug for 20 years is gone, and you can tell it's causing some growing pains. To part, here are some choice Hajoonisms:

  • I feel like a man being accused of promoting a copious consumption of vodka when all I have done is to recommend moderate amount of red wine as a part of balanced diet.
  • It may be possible to dismiss the US as an "exception", but if there are another two dozen countries that have to be dismissed as "exceptions", then the theory has simply too many holes (the exercise reminds me of the pre-Copernican practice of drawing "epi-circles" in order to square evidence with geo-centrism).
  • I think it is wrong to dismiss one’s opponent’s theory by labelling them with negative words (‘nineteenth-century’). How would Alan feel if I described him and his colleagues as "defenders of free-trade theory that was so strongly advocated by American slave-owners and opium-trafficking British imperialists"?
  • I am a man whose book recommending the Mediterranean diet has been reviewed by a well-known anti-fat dietician, who unintentionally misrepresented me as praising beneficial qualities of all fats, when I had only praised olive oil. This was bad enough, but then a few other anti-fat dieticians read the review, go into a Pavlovian reaction on seeing the word, "fat", and accuse me of promoting excessive consumption of all fats, brandishing American obesity figures and Scottish heart-attack statistics. I regretfully have come to conclusion that I was absolutely right to say what I said at the end of chapter three in the book – "Trade is simply too important for economic development to be left to free trade economists".
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Ivory Tower Meets The Campaign Stump

Once, many of the issues we talk about on this blog were discussed mostly among Rust Belt labor unions or in street demonstrations. But tough questions are increasingly being asked in a variety of places, from the ivory tower to the campaign stump... and in both instances, the focus is on a change in the rules of globalization, rather than perpetuating the stale debate about whether "yes" or whether "no" on globalization. Witness Harvard's Dani Rodrik's new paper, articulating what he says is now the "new orthodoxy" on trade:

We can talk of a new conventional wisdom that has begun to emerge within multilateral institutions and among Northern academics. This new orthodoxy emphasizes that reaping the benefits of trade and financial globalization requires better domestic institutions, essentially improved safety nets in rich countries and improved governance in the poor countries.

Rodrik goes on to push this new orthodoxy further, articulating what he calls his "policy space" approach, allowing countries to negotiate around opting-in and opting-out more easily of international rules and schemes as their development and domestic needs merit. Citing the controversy around NAFTA's investor-state mechanism and the WTO's challenge of Europe's precautionary approach in consumer affairs, Rodrik poses the following challenge to the orthodoxy:

Globalization is a hot button issue in the advanced countries not just because it hits some people in their pocket book; it is controversial because it raises difficult questions about whether its outcomes are “right” or “fair.” That is why addressing the globalization backlash purely through compensation and income transfers is likely to fall short. Globalization also needs new rules that are more consistent with prevailing conceptions of procedural fairness.

And this focus on a change of rules hit the political arena today, with a major policy speech by former Sen. John Edwards (D-N.C.).  See here. Among the important points, that thus far are only being articulated by Edwards among the top candidates:

  • For years now, Washington has been passing trade deal after trade deal that works great for multinational corporations, but not for working Americans. For example, NAFTA and the WTO provide unique rights for foreign companies whose profits are allegedly hurt by environmental and health regulations. These foreign companies have used them to demand compensation for laws against toxins, mad cow disease, and gambling - they have even sued the Canadian postal service for being a monopoly. Domestic companies would get laughed out of court if they tried this, but foreign investors can assert these special rights in secretive panels that operate outside our system of laws.
  • The trade policies of President Bush have devastated towns and communities all across America. But let's be clear about something - this isn't just his doing. For far too long, presidents from both parties have entered into trade agreements, agreements like NAFTA, promising that they would create millions of new jobs and enrich communities. Instead, too many of these agreements have cost us jobs and devastated many of our towns.

  • NAFTA was written by insiders in all three countries, and it served their interests - not the interests of regular workers. It included unprecedented rights for corporate investors, but no labor or environmental protections in its core text. And over the past 15 years, we have seen growing income inequality in the U.S., Mexico and Canada.

  • Today, our trade agreements are negotiated behind closed doors. The multinationals get their say, but when one goes to Congress it gets an up or down vote - no amendments are allowed. No wonder that corporations get unique protections, while workers don't benefit. That's wrong.

So, our movement has made real progress when things like Chapter 11, Fast Track and the precautionary principle are even being discussed by politicians and academics in the context of trade policy debates. And hopefully Edwards' raising of these issues will put pressure on the other candidates to follow suit. In the meantime, you can help turn the nice words into action by clicking here.

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Gene Sperling: "[trade adjustment] assistance is the pre-nup of public policy"

Live from Yearly Kos - Panel: What it Means to be a Progressive in a Global Economy with Thea Lee, Chief Economists, AFL-CIO, Austan Goolsbee, professor of economics at the University of Chicago graduate school of business and Gene Sperling, senior fellow for economic policy at the Council on Foreign Relations and the Center for American Progress and moderated by Andrei Cherney, founder and co-editor of Democracy: A Journal of Ideas.

As you may have guessed at first both Sperling and Goolsbee sputtered off the talking point that globalization is inevitable (WRONG/BESIDE THE POINT: of course we could change the rules if the political will existed) and that technology has at least been a cause of the economic insecurities workers in this country feel - and the cause of the loss of jobs, etc. Sperling said that we can not ignore the huge productivity gains and consumer benefits (click to read about the Center for Economic and Policy Research's research that proves the losses in wages far outweigh the gains).

Goolsbee and Sperling insisted that we must shift the focus to what to do now about the inevitable globalization. Some ideas: universal healthcare, energy independence which will drive down gas costs and trade adjustment assistance (though Sperling said he would not instruct a presidential candidate to talk about this first - because it's the equivalent to the "pre-nup of public policy" and to workers it's "a great idea for what I do after I lose my job and am scared to death").

But when the questioning started these guys were just out of answers. Sperling said apologetically that he admits "the final word was not in on globalization." Goolsbee, when asked about the investment rules, shrunk in his seat and said that "this really backfired." Sperling added that progressives should be against international agreements that undermine our domestic environmental and health policies.

Goolsbee continued, "when domestic regulations are challenged on a widescale" in trade tribunals and the US loses, "that will be the end [of these provisions in trade agreements]."

You heard it from him. Tell a friend, tell your elected officials - don't keep making more NAFTA-style agreements that contain these expanded investor rights provisions that even according to NAFTA-advocates have "really backfired."

More about this breakthrough panel and more panels at Yearly Kos to come...

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Bankers talk tough while they hide behind their mommy

Lou Uchitelle had a great piece over the weekend on the Return to the Gilded Age brought on by our current economic and trade policy, with a special focus on the very richest Americans like Citibank's Sanford Weill.

Pig_01_web These days, Mr. Weill and many of the nation’s very wealthy chief executives, entrepreneurs and financiers echo an earlier era — the Gilded Age before World War I — when powerful enterprises, dominated by men who grew immensely rich, ushered in the industrialization of the United States. The new titans often see themselves as pillars of a similarly prosperous and expansive age, one in which their successes and their philanthropy have made government less important than it once was.

“People can look at the last 25 years and say this is an incredibly unique period of time,” Mr. Weill said. “We didn’t rely on somebody else to build what we built, and we shouldn’t rely on somebody else to provide all the services our society needs.”

This is pretty tough talk for a guy whose titan status relied on having his buddies in the Clinton administration and Congress help him compete by changing U.S. laws to favor his group. The self-reliance myth is a total joke: corporations like Citibank rely on extensive government coddling. The latest instance of this? The provision in the government-negotiated Peru FTA that gives the green light to Citibank demands for taxpayer dollars if their "investment" in Peru's privatized social security system fails. Aren't we supposed to allow the free market to punish investors that make stupid investments? Oh, that's right: we don't have a free market; we have a market for the benefit of the rich with the coddling by the government, by any means necessary.

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Scheve and Slaughter move the trade debate forward

There's been some buzz about the recent piece by Kenneth Scheve and Matthew Slaughter in Foreign Affairs. Slaughter in particular served on Bush's Council of Economic Advisors, making his opinion particularly noteworthy. Among the highlights of their piece, which are major concessions to the fair trade side of the aisle:

  • "Less than four percent of workers were in educational groups that enjoyed increases in mean real money earnings from 2000 to 2005; mean real money earnings rose for workers with doctorates and professional graduate degrees and fell for all others. In contrast to in earlier decades, today it is not just those at the bottom of the skill ladder who are hurting. Even college graduates and workers with nonprofessional master's degrees saw their mean real money earnings decline. By some measures, inequality in the United States is greater today than at any time since the 1920s."
  • "The two most commonly proposed responses -- more investment in education and more trade adjustment assistance for dislocated workers -- are nowhere near adequate. Significant payoffs from educational investment will take decades to be realized, and trade adjustment assistance is too small and too narrowly targeted on specific industries to have much effect."

Mark and Dean have already gone through some of the few shortcomings of the piece at Huffington Post, worth a special read because of their recent work dissecting the productivity numbers (hint: even on productivity, the U.S. neoliberal economy is underperforming previous economic policy models). And we've already talked about how bogus the $500 billion trade benefit number is, which seems to serve as Scheve and Slaughter's primary evidence for maintaining much of the trade status quo.

But there are some other points worth making. Scheve/Slaughter want to save the current trade model, and they propose to do so by a massive boost and overhaul of the way we use the tax system to distribute income. It's true that there would probably be less anxiety about trade if we had European-style income redistribution mechanisms (i.e. strong unions, strong wage and labor market policies, socialized medicine, etc. - not that they're proposing these measures, they're talking about cutting taxes, which is a subject for a whole other post.) Not only that, but we'd probably be more competitive in international markets too.

But the real purpose of current trade policy is not necessarily to put downward pressure on U.S. wages, although that is a very important effect of trade that very much dominates the debate. The real purpose of current trade policy, in the words of the Bush administration's John Veroneau at a Washington think tank, is to serve as a "deregulatory tool," i.e. to compel the destruction of democratically-agreed policies and to chill the enactment of progressive policies in the future. So while progressives are thinking about what our big legislative fight is next week, corporations long ago started thinking about how they could put provisions in trade deals that could help them counter policies that a John Edwards administration - or an Evo Morales administration - might enact if progressives were ever able to catapult them into office.

Pielady It is that model that Scheve and Slaughter are out to save through the creation of income redistribution mechanisms that the elites can control from above, rather than waiting for discontent to bubble up into a democratic upheaval from below (that could demand not only a bigger share of the economic pie, but a bigger role in deciding what kind of pie we're going to be serving and how it's going to be baked.)

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Steelworker forum shows sharp differences on trade

Yesterday and today's Steelworker forum gave the Democratic candidates for president a chance to pronounce themselves on trade. Here are their statements, from strongest to weakest. Without clicking on the links, see if you can match the gender pronoun-less position with the candidate!

  1. "[The candidate] criticized, but not by name, other candidates who have either voted for or supported foreign trade agreements such as NAFTA, or who have proposed "fixing" those trade agreements to stem the loss of millions of American manufacturing jobs. "You can't fix NAFTA... You have to repeal it and start over." Any candidate not willing to take that position should not be taken seriously."

  2. "[The candidate] told the crowd that a priority for [the candidate's] administration would be to reform trade agreement like NAFTA. "The last thing we need are more trade agreements like NAFTA."

  3. "[The candidate] avoided discussion of the North American Free Trade Agreement, which [the candidate's spouse], former President [Wile E. Coyote], backed and which unions blame for the loss of jobs. [The candidate] promised to make sure trade agreement provisions are kept to ensure fair trade... Unlike fellow Democratic candidates... who spoke to the conference Thursday and took questions from the floor, [the candidate] left without participating in a question-and-answer session planned by the union.

In other candidate news, Wonkette had a pretty funny write up of the Clinton machine and trade over here, Mitt Romney continues to dodge any meaningful discussion of anything including trade, and frequently rumored candidate Wes Clark puts himself on the really wrong side of history by not only covertly endorsing NAFTA expansion to Panama, but actually writing a column about it.

Answers: a) Rep. Dennis Kucinich (D-Ohio); b) Former Sen. John Edwards (D-N.C.); c) Sen. Hillary Clinton (D-N.Y.).

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Deflating the $500 billion number

Since 2005, a lot of pundits have been throwing around the following number:

Harvard's Dani Rodrik, a long-standing globalization skeptic, argued recently that "closed markets may have been a fundamental problem during the 1950s and 1960s; it is hard to believe they still are." But this complacency is wrong. The Peterson Institute for International Economics calculates that the removal of remaining trade barriers would boost U.S. income by $500 billion a year. Whether or not you accept this particular number, there's no doubt further liberalization can unlock huge benefits.

As it turns out, this number is totally bogus, finds L. Josh Bivens of the Economic Policy Institute in a recent brief. Among Josh's findings:

  • The mainstream estimates done by the U.S. government and World Bank -- even in their most optimistic models, and Josh runs some numbers even more "optimistic" still -- find gains from trade that are less than 5 percent of the $500 billion figure found by Peterson.
  • The methodology that Peterson used "are premised overwhelmingly on the assumption that barriers to trade exist even when no explicit price or quantity restrictions on imports or foreign investment can be identified."
  • Finally, rather than relying on the trade theory that has been standard for over half a century that predicts the wage stagnation of the U.S. workforce that we have (in fact) seen over the period, Peterson examines "only those workers directly displaced by trade. This group generally never shows up in most trade theories, which assume full-employment always and everywhere. Displacement, in short, while a real-world problem, is decidedly not the biggest cause of income losses due to trade and trade liberalization. Rather, the largest cost from trade is the permanent and steady drag on the wages of all American workers whose education and skills resemble those displaced by trade. Waitresses, for example, do not generally lose their jobs due to trade, but their pay suffers as workers displaced from tradeable goods industries crowd into their labor market and bid down wages. Not acknowledging these wage costs is a very good way to minimize the total debit column in the balance sheet of globalization’s impact on American workers."
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Skill biased technological change too biasey these days

Back when me and my friends were but wee lads, during the good ol' Reagan years, middle class parents who had learned to accept being beaten by the man counseled their kids to skill up. "You're not going to be the bloke [uhh, I grew up in England??] that builds the widgets for the house, you're going to have to go high end, get some sweet design skills, and make the whole house."

If we needed any further evidence that this line of argument was but wishful thinking, that nothing is impossible in the land of magic wishes and corporate-run economies, that houses can float across borders, that the real issue is about POWER (i.e. not accepting the beat down), here yinz go:

FOUR years ago Henry Scott, a media consultant living in Manhattan, hired Sergio Guardia to design a weekend house on a wooded site in Kerhonkson, N.Y. Mr. Guardia, an architect who was born in Bolivia and trained at Harvard’s Graduate School of Design, came up with plans for a futuristic house set on thick steel beams cantilevered over a hillside.

The house, which was meant to feel like a capsule suspended in the woods, was perfect for the North Carolina-born Mr. Scott, who said he loves nature — when it’s behind glass. Because of allergies, he said, “I didn’t want to have a lawn to mow or bushes to prune.”

Mr. Scott responded enthusiastically to Mr. Guardia’s vision. But when they priced the house, he said, “there was no way I could afford it.” The steel supports (which ended up costing $47,000) were budget-busters, but they were essential to the design.

So Mr. Guardia, of the Manhattan firm of Guardia Architects, suggested having the wood parts of the house — the floors, doors, window frames and cabinetry — made in Santa Cruz, Bolivia, where his sister-in-law, Cecilia López, is an architect, and where labor costs are much lower than in the United States.

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Inequality is the new black

There have been dozens of stories on inequality in the mainstream press recently: some bad, some awful, some pretty good. It's clear that the burgeoning interest in this topic even among mainstream pundits is a clear sign that "the establishment" is working over time to explain this away and get the rhetorical upper hand, before somebody proposes something that could actually DO something about inequality and wage stagnation. (Even the good stories try to delineate the fault lines of the debate as the statesmen-like economic GOP-style conservatives, the statesmen-like economic Dem-style conservatives, and the rabidly unpredictable populists. Guess which option gets discredited?)

You have Roger Lowenstein of the New York Times, never one to let facts or analysis get in the way of a good story, who Dean dissects on the intellectual property point in greater detail at Beat the Press. But one of the things that annoyed me about this piece was this passage:

Why isn’t prosperity spreading more equally? The leading theory has been that a global, high-tech economy creates big winners and losers. That is surely part of it. But Europe has computers, too, so where are all of its billionaires? Countries like Sweden are more equal, but to some economists, they are probably too equal. There is a rough trade-off between equality and growth: if you try too hard to make everyone equal, you get fewer entrepreneurs, fewer Silicon Valleys and a lower standard of living.

Okay, so I'm the blogger here, but I think this passage is shockingly cavalier. First of all, the global economy creating winners and losers?? That's not "part of it." That's it! Especially if you consider those things that have directly to do with public policy choice (the number of workers effectively in competition with one another through trade, immigration and regulation) and also those things that are less directly about policy choice (high tech booms).

As for Scandinavia, I'm not advocating we wholesale import their social model, but it's difficult to argue that there's been much downside for the region from following its model. On low wage inequality, high collective bargaining coverage, low rates of incarceration, high life expectancy, controllable health care costs, high math and science literacy, high national income, high hourly labor productivity, and more, the Scandinavian countries have performance that meets or exceeds the U.S. level.

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Food for thought on trade, inequality

People in Philly cannot get groceries, because the grocery stores are too far away. In fact, whole swaths of the city consist of dilapidated buildings where people seem to have not a lot going on. Is this a story about lazy people, or is there more to it? Kudos to the Times for making the unmissed connection that points right back to our trade policies:

Depopulation and the loss of industrial jobs in recent decades have taken an especially harsh toll in this neighborhood. They left row houses abandoned or in disrepair, and vacant lots strewn with trash, broken whiskey pints and hypodermic needles. Progress Plaza, which was founded with great hopes in the 1960s by an association of black residents, fell on hard times. Even mom-and-pop stores are rare.

If there was any doubt that inequality is not the outcome of some sort of flat world magic, but is in fact a direct outcome of public and private CHOICES and the balance of social power, The Times had a piece on the growing gap between corporate honcho numero uno and corporate honcho numero dos that shows just how acute the income distribution crisis is getting. Eduardo Porter points out that it's pretty difficult to believe that this inequity could be the benign result of some sort of economic force of nature, a point which should be pretty obvious to anyone that's ever tried to ask for a raise and have your boss DECIDE to not give you one. Yesterday, high tech workers joined the fair trade fight; tomorrow, Rupert Murdoch's deputy?

Finally, you gotta love the Chinese government for telling it like it is. This from USA Today:

More than two months after the USA began a massive pet-food recall, since linked to contaminated ingredients imported from China, business and government officials in China are investigating what went wrong and promising improvement in a country where mass poisonings from tainted foods have been common. But they also say they're not the only ones who need to take more responsibility.

"Officials like me in the Chinese government can supervise the producers here, but U.S. companies doing business with Chinese companies must also be very clear about the standards they need, and don't just look for a cheap price," says Yuan Changxiang, a deputy director in the ministry responsible for inspecting imports and exports.

Jin Zemin, general manager of Shanghai Kaijin Bio-Tech, which specializes in wheat gluten, agrees. U.S. importers "want cheaper prices, but that can come at a cost," he says. "You should know exactly where the products you buy are coming from. Don't just look at the price."

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Wyoming signals change all over

Gary Trauner has the distinction of being an almost-Congressman, having come close to defeating six-term incumbent Barbara Cubin in 2006, and of being one of an estimated 400 Jews who live in Wyoming.


He also wrote How Free is Free Trade for the West? at and criticizes the corporate protectionism that is the basis of our current failed trade deals:

I find it interesting that free trade proponents argue that protecting workers or the environment or the rule of law limits the benefits of such agreements.  Yet, how many people are aware of the fact that NAFTA, the North American Free Trade Agreement, contains copyright and intellectual property profit protections for corporations, yet no real protections for the people or environment this Agreement will affect.  Amazingly, NAFTA also contains protections for foreign corporations that let these companies sue our government; they argue their case not in open court, but in secret panels in front of groups like the World Trade Organization, which then can award unlimited damages to these foreign companies paid for by the taxpayers of the United States.

When fair trade is a winning issue in Wyoming, which is by many measures one of the most conservative strongholds in the country, it's pretty clear that a departure from our current course of NAFTA-like policies is imminent.

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Not voiceless, but ignored in DC

Despite the fact that it might not be the deciding factor for Congress, we are of the opinion that the interest of people in "developing" countries in the trade policy that affects them - potentially negatively - is noteworthy... even newsworthy.

While USTR and others continue to tout the myth that the Doha Development Round will unquestionably benefit the peoples of developing nations, many informed citizens around the world are unconvinced that the expansion of "free trade" is going to solve their development problems.

And rightly so. So why can't they get a word in edgewise? The trade news waves have covered the upcoming visits of major political figures from Peru, Colombia, Europe - but have overlooked a bold statement from those who will likely bear the brunt of the policy decisions made on the Hill: 243 groups from 90 (ninety!) "developing" countries the world over have issued a joint letter to Congress (PDF) asking that they reject the myth (and Fast Track) and reevaluate the terms of this trade model.

Rather than attempting to "speak for" people in poor countries, perhaps a short pause to respectfully consider what they've demanded with their own voice?

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