Watch for a Donnybrook Over Free Trade: “Lawmakers Unveil ‘Fast Track’ Bill for Trade Pacts”

Boeing Aircaft: The B-17

Boeing Aircraft: The B-17

Check out this story from the January 10th Wall Street Journal,  http://on.wsj.com/1adgua

This story hasn’t been exactly buried, but because it’s not reached the boiling point it, it falls on page two or in the business sections of all media, where its exposure is limited.

This version of the free trade story, published in the Wall Street Journal on January 10th, is about a new trade pact, still in (an advanced state of) negotiations, called the Trans Pacific Trade Agreement (TPTA).  It is a very high priority for the Obama Administration; the stuff of legacy.

Going back to the Clinton era,  free trade measures, like NAFTA, have brought together a coalition of Republicans and Democrats who are true believers in the economic and political benefits of free trade.  The foundation for free trade policies is threefold: (1) The efficiencies of “comparative advantage” among nations, with its roots in Classic Economic theory;  (2) The belief that trade among nations helps avoid war, and promotes peace among the traders;  and  (3) The lore around “Smoot-Hawley” protectionist tariffs causing the Great Depression, passed from one generation to the next.  Pretty powerful obstacles for anyone questioning free trade.

However, recent events, and political developments of the past several years, have dramatically changed the intellectual environment for free trade.  I’m not talking just about the rants of Lou Dobbs and Pat Buchanan.  Or Bernie Sanders attacks from the left. The splits here are different.  

Here are the situations which alter the political environment for TPTA, “fast tracking” (requiring trade agreements to be voted either up or down in congress), and free trade:

1) The face-off between Boeing and the Machinists Union, brought  “race to the bottom” to the fore in recent weeks.   Boeing management has worked for years to lower workers’ compensation and weaken the Machinists Union. It says those actions are necessary for the company to compete internationally.  Boeing won again in this latest round, though it wasn’t quite the rout the Union says it was.   Liberals weren’t the only folks mad about the recent Boeing affair.  Many conservatives are upset by the generous “tax preferences,” not available to all businesses in Washington State, that were given to Boeing, alongside the labor concessions, in order to keep jobs in the state.

2) “Free Trade” (and agreements like NAFTA) are blamed by many labor Democrats and, yes, also by a lot of Tea Party Populists, for stoking, if not inaugurating, the “race to the bottom.”  More economists are also coming to that view.

3) The rise of “income inequality” as a central, defining issue of our time for liberals and left leaning economists, with a boost from the President and the Pope.  Even Republicans, like Marco Rubio, acknowledge its importance, though disagree on how to solve it. 

4) A resurgence of distress over America’s chronic foreign trade deficits, and the role of “currency manipulations” by China and other trading partners in fostering that.   

All of these elements upset the normal collations that have defined politics in Washington for the last five years.  TPTA, and especially the “fast tracking” of trade bills,  will soon shake up Washington politics, along lines and outcomes which are hard to predict.  

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4 thoughts on “Watch for a Donnybrook Over Free Trade: “Lawmakers Unveil ‘Fast Track’ Bill for Trade Pacts”

  1. Rosemary Ryan

    I am among those who have become suspicious of free trade agreements, and am glad to see you calling attention to this. Ed Schultz (MSNBC) has been railing against the secrecy he sees in attempts to fast track authorizing legislation. I’d like to know more about the details and what the agreement would mean for us and everybody else.

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    1. Irv Lefberg

      I’ve said for a long time that a Nobel prize is awaiting economists who can provide a richer and more nuanced theory/framework for free trade. Also needed is solid, trusted information on what the effects have been — who are winners and losers Or how do each of us win in some ways and lose in others?. And what’s the net. Very hard to do thanks for your comment, Rosemary.

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  2. Alex MacLachlan

    Agreed, because agreements often have personal agendas inserted that mess up the theories. Democrat support for free trade seems to be in the benefit it gives to poor people in poor countries and GOP support seems to be in the lower manufacturing costs to US employers. Both premises undermine US blue collar workers’ jobs and salaries, with the GOP helping white collar US jobs managing the foreign labor and logistics. Dems are trying to mitigate the damage of their pro foreign poor workers stance to Labor Unions by pushing for immigration reform (amnesty). The theory being they can swell the ranks of dues paying new Union workers to replace all the jobs lost through free trade agreements and create millions of new Democrat voters at the same time. The GOP is left to oppose reform/amnesty knowing that stated intentions are usually contradicted by the language of the agreement and then the racial politics used against them poisons the last bit of hope for an agreement. I would like to see a North American Energy agreement instead. If the US, Canada, and Mexico could coordinate their energy assets and potential without environmental politics (not environmental protections) throwing a monkey wrench into every proposal, we could have the fastest growing mature economy in the World and lack of job growth wouldn’t even be a topic of discussion. Mexico needs a ton of modernization, Canada needs more pipelines going south instead of West to be shipped to China, and US companies need Federal lands to not be blocked by the political whims of environmental politics. It’s no coincidence that the states with robust energy production on private lands are the fastest growing with the lowest unemployment rates in the Union. These economics could be distributed throughout North America, reducing illegal immigration, increasing tax revenue, and lowering unemployment rates along the way. We wouldn’t need trade agreements because a growing middle class in Mexico would become a natural customer of our goods and services instead of a drain on our government resources. Cheap energy to our companies would have a similar effect as cheap foreign labor except the benefits would be more widely distributed. The point being, natural economic vitality is always a better choice than government manipulation. We should go back to trying that for a change.

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    1. Irv Lefberg Post author

      I like the direction your going in terms of energy agreements! I also agree that “free trade” agreements have have had policy objectives waay beyond just the classic ones that Ricardo talked about. i.e., Too much of “free trade” is motivated by (foreign) “nation building,” as you said. Some of it may have worked, much it didn’t. But even if some of it worked, it was at expense of US workers. Can’t recall whether I put this in my original post , but would love to see the following question on the PhD economics written exams at MIT, Harvard, Yale, Stanford: “Imagine that US withdrew from all free trade agreements and simply established (reiterated) the 50 state trading bloc consisting of USA (an immense and diverse trading bloc). In 250 words or less, what impact would that have on US economy, both short and long term? And what impact would it have internationally, both short and long term? That of course would be a play on the old joke about PhD written exams in the 1950 or 60s: Question: “Imagine the US was under a Soviet thermo nuclear attack. Im 250 words or less, describe the socio-economic impacts.” 🙂

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