The problem with the Trans-Pacific Partnership and, indeed, the way we conceptualize trade deals, is that they produce 20th-century accords that fail to fit the realities of the 21st.
In the mid-20th century, the United States traded with other nations from a position of almost unparalleled strength. Even if the countries we traded with were poorer than we were and their workers paid less than ours, the institutions we’d put in place to protect our workers’ interests and ensure a more egalitarian economy — unions, decent minimum wage standards, job-generating infrastructure projects — diminished the effects of low-wage competition.
In the current century, however, those institutions are tattered, if not gone altogether. For most Americans, job security has been undermined and earnings have either stagnated or declined. As U.S. corporations have moved their facilities abroad to take advantage of cheaper labor and higher profits, globalization has proved itself a boon to those who derive most of their income from investments. As the work of two eminent (and eminently centrist) economists has shown, however, it has imperiled the earnings of those who derive their income from work. Globalization has put more than 30 million such workers with offshorable jobs in competition with workers in other lands, Princeton economist (and former Federal Reserve vice chair) Alan Blinder has shown. The entry of China into the world economy — an entry spurred by Congress’s passage of Permanent Normal Trade Relations with that nation in 2000 — has reduced the incomes of U.S. workers, and not just in manufacturing, according to a study by MIT economist David Autor and his colleagues.
Despite the growing gap between investment income and work-derived income, however, trade pacts still are written with the explicit intent of protecting the interests of those who invest in foreign ventures (indeed, establishing a special investment-protection litigation process for them, outside the signatory nations’ judicial processes), while doing little to nothing to protect the interests of those who work here in the United States. For a number of years, the one such offset placed in or alongside trade accords has been Trade Adjustment Assistance, which funds retraining for workers who can show they lost their jobs as a direct consequence of a trade pact. On its own terms, the program has never been a stunning success: Most of the re-employed workers end up in jobs that pay less than the ones they lost. But the main problem with Trade Adjustment Assistance is that it does nothing for workers who keep their jobs but see their incomes erode as low-wage competition eats into their paychecks.
Those who defend our trade accords often argue that trade critics conflate the specific consequences of the pacts with the wage-reducing effects of overall globalization — and, indeed, it’s not easy to disaggregate them. That said, all our trade accords to date, including the proposed Trans-Pacific Partnership (as best we understand it, since its contents have not been made public), do far more to protect and promote the interests of investors than they do to shore up the interests of our workers. In the mid-20th century, when the institutions to protect workers’ interests were robust, that might have been excusable. In the 21st century, when nearly all income growth is going to the wealthiest sliver of Americans, who disproportionately derive their income from investments, it’s not.
Hillary Clinton and House Minority Leader Nancy Pelosi (D-Calif.) have each said they won’t support the “fast-track” legislation currently before the Senate unless the Trans-Pacific Partnership (whose enactment fast track will likely enable) is made more worker-friendly. Given the growing imbalances that characterize the 21st-century U.S. economy, a truly worker-friendly trade deal would have to include offsets that do far more for U.S. workers than Trade Adjustment Assistance. Such offsets should include raising the tax on investment income to the levels of income on work, funding job-creating infrastructure projects to counter the job loss that foreign competition characteristically entails, raising workers’ incomes through minimum-wage legislation and reforming labor laws so workers can opt to unionize without fear of being fired.
The German labor movement is an enthusiastic trade supporter because the domestic institutions that protect German workers and win them a decent share of corporate revenues are robust. Those who complain that U.S. unions reflexively oppose trade should realize that when trade deals genuinely help workers, labor will cheer them on.
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