US presidential candidates present risky trade policies

US presidential candidates present risky trade policies
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There is a clear political risk presented by the significant support for candidates decrying current US trade policy. If the unemployed and underemployed attribute their misfortune to free trade pacts, they could support isolationist initiatives that run counter to US and global well-being.

While the candidates campaigning for the US presidency have varied positions on US trade policy, most fail to present coherent plans. Nor do they discuss any of the advantages of free trade. As a minimum, one can offer the argument that free trade interdependency helps curb interstate conflict.

The original, progressive intent of free trade seems to have been lost in these discussions. The GATT was created after WWII to prevent future competition in protective tariffs like those of the inter-war years. Tariffs deepened the Great Depression and contributed to the rise of fascism. It was thought that unencumbered trade, based on the absolute or comparative advantages of each state, could lead to fair and efficient use of resources and enhance global economic growth. The WTO was provided with enforcement authority in the defence of this regime.

The irony is that we have a skewed distribution of wealth today in a pattern similar to that preceding the Great Depression. The post-1996 free trade regime has been progressive in reducing economic inequality between countries while increasing it within countries. It follows that FDI in developing countries has created opportunities for professionals and manual workers alike, but managers or engineers are compensated at a much higher rate than assembly line workers. This is not surprising, since FDI is often predicated upon cheap labour.

There has been little political space for candidates to discuss free trade objectively.  Trump and Sanders have framed free trade as the enemy of American workers. This idea now has popular support. Even Hillary Clinton has reversed her stance on the TPP in an apparent attempt to compete with Sanders.

Here is a breakdown of where each of the candidates stand on free trade.

 

Cruz: Favors free trade and free markets

Ted Cruz supports free trade agreements as consistent with his general support for free market solutions. At the same time, he has reversed his initial support for giving fast track negotiating authority to the president. His support for the TPP was undermined by a bipartisan deal that linked support for the TPP to support for the Export-Import bank. Cruz saw the EXIM bank’s high risk loans supporting American exports as corporate welfare. He thought the function could be provided by private lenders and no doubt at higher interest rates.

Kasich: International trade is an economic and strategic advantage

John Kasich supports free trade agreements. He supports the TPP, not only for economic reasons, but because it creates a link between the US and Asian member states, who seek to avoid Chinese economic hegemony. While in Congress, he also supported NAFTA and the creation of the WTO. If elected he would reform the US International Trade Commission and other US agencies to expedite company complaints of unfair trade practices. He would also favor new negotiations to expand protections against currency manipulation, cyber-attacks, and intellectual property theft.

Trump: Global politics is a zero-sum game

Donald Trump has only recently become a bit more specific in his foreign policy positions. His “America First” stance sees global politics and economics as a massive zero sum game, and America’s large trade deficits as exploitation. He also frames American security arrangements like NATO, the Japanese-U.S. Security Agreement, and trade with Saudi Arabia primarily in economic terms, without realizing the strategic gains of these arrangements.

He wants to use access to American markets as a bargaining chip to get better deals with China. He would stop US oil purchases and remove US military protection of Saudi Arabia, unless the Saudis either commit troops to fight against ISIS, or pay for U.S. troops to fight. Trump also opposes the TPP as exploitative and said that if it’s approved, Congress should pass separate legislation imposing sanctions on countries manipulating currency values. This last position echoes John Kasich and Hillary Clinton.

Clinton: Supportive of free trade, but not unconditionally

Hillary Clinton has supported free trade agreements since NAFTA. However, she did express some reservations and subsequently voted against CAFTA while also calling for a “time out” on trade agreements. She has called on China to improve its environmental protection, labour conditions and currency manipulation, contending that China has the same responsibilities as all WTO members. While Secretary of State she supported the TPP and called it the “gold standard” of trade agreements. More recently she reversed her support for the TPP, claiming that it did not offer enough safeguards for American workers.

Sanders: Free trade entails loss of American jobs

During his time in the House and Senate, Bernie Sanders has voted against every free trade agreement. He has provided data supporting the massive loss of American factories and jobs. He specifies that granting “most favoured nation”-status to China in 1999 and its subsequent normalization with PNTR alone has resulted in the loss of 3 million American jobs. He currently favours extending trade restrictions for Burma and tying any trade liberalization to democratic reform.

Future risks and the global trade regime

If the election of either Sanders or Trump would curb free trade, it could severely disrupt global market patterns. It could lead to devaluation of infrastructure created by FDI, and also result in higher consumer prices. This is hardly the economic relief sought by their supporters. Trump would be particularly likely to challenge the status quo, since he has been forthright in wanting to establish new tariffs on goods from states he believes are exploiting the U.S. This would result in complaints against the US at the WTO. By contrast Cruz, Kasich, and Clinton may seek changes consistent with fairness to US interests, but would likely support the basic global trade regime.

It is necessary for the candidates to propose firm alternatives

Political stability will demand change. Doing nothing might lead to mass movements on both the right and the left, given the support for Trump and Sanders. The candidates who support free trade should substantiate their stances with evidence and suggest reforms. John Kasich has already gone this route. Ted Cruz should explain why he generally supports free trade and detail what he means by a “better deal” than the current TPP.

Instead of disowning her history with free trade, Hillary Clinton should advance detailed proposals that take advantage of the TPP’s flexibility for renegotiation. Labour protections should be first among these.

Sanders could break new ground by advancing collective bargaining and basic labour rights globally. Truly international unions like those advanced by labor leaders in response to 1990s globalization could become a reality. Minimum wages could be tied to each country’s PPP. Wages in less developed countries would still be lower than those in the U.S., but location, worker’s experience, and other factors could sometimes even the score. Moreover, with better wages and conditions the income gap within countries could be reduced globally. This could preserve the advantages of free trade while reducing costs to labour. More progressive taxation could do some of the rest.

Categories: North America, Politics

About Author

Lawrence Katzenstein

Lawrence Katzenstein has taught at the University of New Orleans and the University of Minnesota. Through an affiliation with the Humphrey Institute he was one of the trainers for the initial Chinese WTO delegation. He has been an exchange professor at the Consolidated Universities of Shandong Province and an embedded social scientist with the U.S. Army in Iraq. He earned a B.A. in political science from CCNY and an M.A. and Ph.D in political science from Rutgers University. While at the University of Minnesota he also completed a teaching post doc in International Business.