An Opportunity On Trade

By Steven Pearlstein
Wednesday, March 28, 2007

We're at a crucial moment in U.S. trade policy.

Facing widespread public skepticism about the benefits of trade and facing the expiration of presidential authority to negotiate new trade agreements, a Republican president and business interests have reluctantly concluded that they need to make major policy concessions to win back the support of free-trade Democrats.

With business backing, the White House has agreed to put enforceable international labor and environmental standards into the treaties to ensure that other countries don't gain competitive advantage by crushing unions or bulldozing all the rain forests.

More significantly, it is prepared to talk about adding billions of dollars each year to an expanded unemployment insurance regime and trade adjustment assistance programs to create an effective safety net for American workers hurt by globalization.

This ought to be the holy grail of Democratic economic policy, an urgently needed update to American capitalism and a powerful achievement Democrats could take to voters in the 2008 elections. But just when they were on the cusp of achieving this victory, Democrats yesterday decided to overplay their hand, demanding even tougher enforcement of labor and environmental standards, not only abroad but at home.

At the center of these negotiations is Charlie Rangel, the Democratic chairman of the House Ways and Means Committee, a liberal with strong pro-trade leanings. Unlike his Republican predecessor, Bill Thomas, who treated him like a car-park attendant, Rangel set out from the beginning to build bipartisan backing for a new trade agenda. And he's drawn into the conversation not only Susan Schwab, the U.S. trade representative, but also the White House, the Treasury and the Business Roundtable.

The outline of a Rangel-brokered deal began to take shape over the past few weeks.

In the first phase, the House would approve free-trade treaties already negotiated with Colombia, Panama and Peru and one nearing completion with South Korea, in exchange for stronger labor and environmental requirements. These approvals would represent a show of faith on both sides and serve as a down payment on a much broader agenda that would include renewing the president's authority to negotiate new treaties while expanding the range of services and benefits to people who lose their jobs.

In the past few days, however, as Rangel began to shop his grand bargain around, Democrats with strong labor backing pushed back. Although organized labor has always touted working and environmental standards as its litmus tests for fair trade, in reality these issues have been political cover for its protectionist leanings. The real threat to American jobs, and American wages, isn't that developing countries pollute their environment and oppress their workers, although they sometimes do -- it's that even the best-paid workers in many of the best-behaved countries earn a fraction of the wages of American workers. The concessions on labor and the environment offered informally by Schwab and the Business Roundtable threatened to expose labor's political ruse.

So now Democrats have upped the ante. As I read the trade manifesto issued yesterday by the House Democratic caucus, it's not enough that other countries agree to accept international labor standards and commit themselves to enforcement -- now the United States could be challenged on whether it lives up to the standards, which many believe we do not. Similar language would require all parties to enforce international environment protocols, which some see as a back-door way of imposing the Kyoto global-warming treaty's requirements on the United States.

These are nothing more than political poison pills that will deter progress on the more important trade agenda, which is to make sure that some of the economic benefits of trade and globalization -- estimated at $1 trillion a year -- are used to cushion the blow to workers who are hurt.

What would such a safety net entail? It's not all that hard to figure out, thanks in part to work done by the Peterson Institute for International Economics and the Hamilton Project at the Brookings Institution.

Surely, the first step involves beefing up unemployment insurance, a patchwork of state programs that helps only 37 percent of jobless workers and replaces, on average, only 36 percent of the income lost through unemployment. In today's world, where job loss is a reality facing many workers, an effective program would cover all workers, offering benefits equal to at least 50 percent of income for at least one year.

A safety net would also include wage insurance that replaces income lost when a worker who loses a job is forced to take another job at lower pay. It needs to include subsidized health insurance, like the refundable tax credit already offered under the current trade adjustment assistance program. There needs to be money for training programs, particularly those run by community colleges, that have a good record in meeting the skill requirements of local employers.

How much would all this cost? A ballpark guess is somewhere around $20 billion a year. Surely, some of it could come from raising the amount of income subject to unemployment tax, which now averages about $12,000 and in many states hasn't changed in decades. And as Howard Rosen of the Peterson Institute has suggested, the rest could come from the $18 billion or so the United States collects in import tariffs each year, an appropriate pool of money for such purposes.

There is nothing complicated about all this -- the government is doing most of these things in a limited way already. They would go a long way toward allaying fears about globalization by making Americans more economically secure. And they are things the White House and the business community are willing to support as the price of continuing down the path toward more open trade.

There's a deal waiting to be made here, and Charlie Rangel is the guy to make it. The only question is whether the Democrats are sensible enough to let him.

© 2007 The Washington Post Company