I received an invitation to the “Thinking Big, Thinking Forward” conference, billed as a conference on America’s economic future, to be held in Washington, D.C. on February 11th. The conference is sponsored by a consortium of “think tanks” including The American Prospect, the Demos World Policy Institute, the Economic Policy Institute and the Institute for America’s Future.
I admit that I had never heard of “Demos” before, so I paid a visit to their web site and quickly came across the linked paper titled Trading Up: Win-Win Solutions to Raise Global Living Standards and Ensure the Success of American Workers.
This paper espouses the “fair trade” aproach to international trade that’s favored by Obama and his incoming administration. To summarize, this approach would include labor standards and environmental protection in trade agreements, improving the standard of living for workers in foreign countries while supposedly leveling the playing field for American manufacturing.
This is the same tired, worn-out approach that has helped to guarantee an enormous trade deficit and loss of manufacturing jobs for the past three decades. It’s a never-ending cycle of negotiations, baby steps forward, backtracking, followed by more threats and negotiations – all while our trade deficit expands and kills off more American manufacturing. It places our trade policy in the hands of our trading partners, making us totally reliant on their promises to negotiate in good faith and to comply with agreements – promises that are never kept. And it ignores the reality that, even in situations where the “playing field” has been “leveled” in this manner, the results are no different. Take Japan and Germany as just two examples. Nowhere are labor standards higher and nowhere is environmental protection taken more seriously. Yet, when expressed in per capita terms (divided by the population), our trade deficit in manufactured goods with Japan is four times worse than China, while Germany’s is almost three times as bad. Sure, advancing labor standards and environmental protections benefits the foreign workers but this also translates into making them and their industries much more productive and efficient, which only enhances their competitive position. That’s not to say that it shouldn’t be done, but that it’s no way to combat a trade deficit and loss of jobs.
But then Demos goes further by promoting the liberalization of trade with poor nations, eliminating tariffs on their products and helping them to spur export growth. This is exactly the approach employed by the World Trade Organization, enforcing protectionism in favor of poor and developing countries (and it includes two thirds of its member states in that category) while demanding that the United States drop all trade barriers. The result is predictable – more job losses and a bigger trade deficit for the United States.
These approaches have consistently failed to restore a balance of trade for the U.S. because they fail to account for the biggest driving force of all behind the trade deficit – the disparity in population density between the U.S. and so many of these trading partners.
Mr. Obama seems to be an intelligent, open-minded, results-oriented individual who has consistently championed the cause of the middle class and has acknowledged the damage done to the manufacturing sector of our economy by the trade deficit. So how long will he be patient with this approach? Is he willing to wait four years, eight years, ten or even twenty to see results? He’d better be willing to wait even longer, since this approach has yielded a string of annual trade deficits now thirty-three years long. Doing the same thing harder won’t change the results. To expect different results with the same approach is Einstein’s definition of insanity.
Raise labor standards and environmental protections around the world? Great! Let’s do it! But don’t expect it to make one iota of difference in the trade deficit. We need to scrap the failed experiment in unfettered free trade – an experiment that, in only six decades since the signing of GATT in 1947, has completely destroyed the wealth and industrial might that America built up over the first 171 years of our history through the use of tariffs to assure a balance of trade. We’ve now tried both approaches and the difference in results couldn’t be more stark. It’s time to return to the tried and proven trade policies that helped make this nation great.