The old Democratic trade paradigm is collapsing. Good riddance.
May it never darken our towels again
For the two decades after the collapse of the Soviet Union, elite pundits worshiped free trade with a reverence bordering on the comical. As New York Times columnist Thomas Friedman declared in 2006, "I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative [sic]. I didn’t even know what was in it. I just knew two words: free trade." That was about the intellectual level of neoliberalism at its moment of peak political hegemony.
But things have changed a lot. The shine has come off so-called "free trade," and Democratic presidential candidate Elizabeth Warren is now proposing a bold overhaul of how the U.S. conducts its trade negotiations. It's only a matter of time before the old trade paradigm dies an ignoble and well-deserved death.
Dan Drezner, an international politics professor at Tufts and a Brookings Institute fellow, provides a good view of the crumbling neoliberal consensus in a recent Washington Post column. He savages Warren's plan, calling it a "terrible, horrible, no good, very bad trade program" that "would actually be more protectionist in its effects than Trump’s, something that I did not think was possible."
But Drezner is talking through his hat. For starters, it is ridiculous to characterize Warren's plan as protectionist. Its major focus is on changing the way trade deals are made, especially who is involved. As my colleague Jeff Spross details, she would replace the current wildly business-slanted negotiation process with one that is carried out in the open, and prioritizes "labor rights, human rights, environmental protection, combating climate change, heading off international tax avoidance." (As an aside, Paul Krugman is flagrantly incorrect to assert that the current "fast track" trade negotiation process, which largely cuts Congress out of the process in favor of corporate elites and the executive branch, was created by FDR. It's a product of President Nixon and the 1974 Trade Act.)
Critically, Warren would also include the welfare of other countries as part of the considerations. As she writes, "millions of people in our trading-partner countries don’t gain the benefits of higher standards — and companies can easily pad their profits by shifting American jobs to countries where they can pay workers next to nothing and pollute the air and water freely." Half the point here is to raise the living standards of U.S. trading partners — unlike NAFTA, for example, which harmed both American workers through deindustrialization and Mexican ones by trapping them in a low-wage, non-union export paradigm. We can call Trump protectionist because he is trying to win a trade war by harming the rest of the world (though his efforts have been so haphazard and uncoordinated that it seems to be harming everyone, America included), but Warren is far more internationalist.
Drezner further argues that Warren's approach would "sabotage any set of negotiations" because conducting negotiations in public would "scare off partners who prefer to negotiate quietly before introducing a final draft." Involving Congress would just "stymie the ratification of any deal even further." The contempt for democracy here is palpable. By Drezner's lights, neither the voting rabble nor their elected representatives have any place in trade deals. Yet somehow the world economy survived — indeed, performed considerably better — in the years before fast track and secret deals larded up with corporate goodies were the trade policy norm.
Indeed, a great many of the stipulations in recent trade agreements have nothing whatsoever to do with trade as such, or even undermine it. Investor-state dispute settlement (ISDS) courts, which have been built into thousands of trade agreements over the years, are at bottom a rigged private legal system for international corporations where they can do things like sue nations for cutting into their profits with environmental regulation. Meanwhile, protections for patents and copyright are a bald infringement of trade — a requirement foreign countries enforce America's government-granted monopolies on movies, drugs, and so on. Perhaps that is defensible sometimes, but not when it means stymieing Nelson Mandela's plan to import cheap HIV/AIDS drugs in order to protect the profits of American drug companies.
Conversely, it's easily possible that under a more egalitarian framework, trade might actually increase in some sectors. Requirements for better labor conditions would increase the income of the working class in foreign countries, and one thing those people would likely buy with that money is more U.S. imports. Incidentally, the U.S. does tons of trade with countries — like those in the E.U., which constitutes our largest trading partner — without a formal trade agreement.
But by far the largest holes in Drezner's analysis have to do with taxes and climate change. Both are gigantic problems — as economist Gabriel Zucman has calculated, rich people around the world have squirrelled about $7.6 trillion away in offshore accounts to avoid taxation, while climate change threatens human society. Both require international coordination to fix, because both are inherently international problems. Warren would refuse trade deals with countries that won't coordinate their tax regimes (to prevent beggar-thy-neighbor tax havens), and levy a border carbon tax (to prevent companies from profiting by moving production to countries where greenhouse gas emissions aren't regulated). As Zucman writes, this is "long overdue."
Drezner doesn't mention tax avoidance once, and the sum total of his climate change comments reads as follows: "don’t get me started on her border adjustment tax for carbon." Yes, it sure would be inconvenient if he had to get started explaining why Warren's eminently sensible approach to the biggest problem facing America and the world is no good!
At any rate, this isn't the first time we've had this same debate. Indeed, as John Maynard Keynes wrote in a 1933 essay, for most of the 19th century free trade was also an object of gormless fetish worship, with similarly poor results. And as Spross points out, Warren has some distance to go to fully flesh out what to do regarding the dollar's status as reserve currency, which lets America run a continual trade deficit but also saps domestic production. But it's a strong start — if we just shake off the last remnants of neoliberal brain poisoning, we can figure out the rest of it.