Co-authored by Cyrus Jabbari, USC student and researcher
Super Tuesday was greeted with the unexpected outcomes of Donald Trump and Bernie Sanders in their respective party's primaries.
While the ostentatious circus peanut promises to "Make America Great Again" and the retirement home Mr. Wacky Waving Inflatable Arm Flailing Tube Man promises voters "A Future to Believe In," both of their campaigns are rooted in misguided economic populism, in regards to free trade.
Both candidates lambast "disastrous" trade deals negotiated by "stupid politicians," scapegoating NAFTA for the dearth of American manufacturing jobs and stagnating middle-class wages. They also shift this blame to the Trans-Pacific Partnership (TPP).
The Debate
The TPP is the largest regional trade accord in history, including the U.S., Canada, Peru, Chile, Japan, Australia, New Zealand, Singapore, Malaysia, Brunei and Vietnam. These 12 Pacific-rim countries with varying economies carry an annual GDP of nearly $28 trillion, representing about 40 percent of global GDP and one-third of world trade.
The trade ministers of each participating country agreed to this deal in October, but this remains a contentious issue in Congress.
Supporters assert the pact will be a boon for all countries involved. The New York Times reports the deal will reduce tariffs and quota, promote the exchange of data between member countries and impose environmental, labor and intellectual property standards to developing countries, allowing the U.S. the opportunity to be a global leader in 21st global economic development.
Furthermore, the exclusion of China from this agreement allows the U.S. to set the parameters of trade and economic development to an increasingly important region, especially as China increases its military presence in the South China Sea. The deal is structured to allow China, and other non-participating nations to subsequently join.
The World Bank estimates, "Annual income gains generated by the TPP by 2030 will be $131 billion for the United States and $492 billion for the world." It will also boost exports by $357 million in the same period.
Meanwhile, detractors label the pact as a giveaway to big business, exacerbating further exportation of manufacturing jobs to low-wage nations.
Opponents also point to free trade with China and its damage to the American economy. China is a unique case because of its unprecedented size and rapid pace entering the global economy. TPP won't be as radical, because it merely enhances trade with existing, developed trading partners.
Populism Misconceptions
Sanders and Trump have generated populist enthusiasm by turning previous trade deals, specifically NAFTA, into electoral punching bags for America's economic woes. While previous trade deals have partly contributed to job loss and income inequality, these trends have existed in America since the dawn of "Reaganomics."
The Economic Policy Institute attributes CEOs taking larger pay cuts, the failure to increase the minimum wage, declining union density, the erosion of collective bargaining, the worsening of labor practices (in regards to providing employees paid sick, maternity and paternity leave and paid vacation), increased costs of healthcare, and financial deregulation as contributors to wage stagnation and income inequality in the U.S.
Council of Foreign Relations contributor Edward Alden writes:
"Evidence should produce some soul-searching about the causes of this country's declining competitiveness. The list is discouragingly long: crumbling infrastructure, inadequate educational performance, stifling regulation, and a cumbersome tax system... With the rapid growth of middle classes abroad, trade should be an opportunity for the United States to sell into growing markets, increasing opportunities and wages for many Americans here at home."
Wharton management professor Mauro Guillen stated:
Had NAFTA not been signed, "the jobs would probably have gone to China or somewhere else; most jobs have relocated to China. The U.S. had a trade deficit with Mexico of $54 billion [in 2013], but with China, it was [a deficit of] $318 billion, so the [U.S.] deficit is five times bigger with China than with Mexico. In other words, you would calculate, maybe for every job we have lost in the U.S. to Mexico, five [jobs] were lost to China."
In addition to devastating right-wing economic policies in the name of conservative demigod Ronald Reagan, the rapid development of technology is also partly responsible for job loss and decreasing wages in the U.S.
Erik Brynjolfsson, MIT economics professor, illustrates the blessing and burden technology has placed on our economy:
"It's the great paradox of our era. Productivity is at record levels, innovation has never been faster, and yet at the same time, we have a falling median income and we have fewer jobs. People are falling behind because technology is advancing so fast and our skills and organizations aren't keeping up."
The White House has also predicted that automation will threaten many menial labor jobs in the U.S. as well.
Essentially, poor domestic economic policy, globalization and advancements in technology have all played a role in America's plodding economy. Condemning trade deals as the sole culprit of poor job prospects is equivalent to examining our economic history through the perspective and scope of a toilet paper tube.
America stands to gain from free trade, allowing us to specialize in areas where we have a competitive advantage, such as primary goods, advanced manufacturing and services, while shipping obsolete labor-intensive manufacturing jobs to low-income countries, allowing them to develop into stronger economies.
This, in turn, gives America access to more diverse selection of, and less expensive, goods while increased prosperity of other countries will open up new markets for U.S. products, therefore, boosting demand and producing more jobs in the long run.
Arun M. Kumar, Director General of the U.S. and Foreign Commercial Service, notes the benefits for small and medium-sized businesses.
"The Agreement provides for more efficient and transparent customs procedures, advance rulings on how a product will be treated to prevent surprises at the border, and provisions that enable expedited shipping and reduced paperwork... Large companies have the resources to clear bureaucratic hurdles, but small ones do not have that luxury."
However, the unfortunate reality is low-wage workers will lose out to a certain extent. They will benefit from Trade Adjustment Assistance (TAA) programs that have helped displaced workers in the manufacturing and textile industries in the past, and now service industries. Best case scenario for these workers: the government subsidizes these industries - but these require Congressional approval.
It's more likely the U.S. government will place these workers on TAA and focus on industries that modernize and streamline our economy, giving the U.S. a comparative trade advantage in specialized sectors and create new jobs. This is essentially the long-term goal of free trade agreements.
An Imperfect Partnership
The TPP isn't without its flaws either. Voters shouldn't be angered at the prospect of liberalized trade, but should be concerned about the potential environmental impacts caused by Investor-State Dispute Settlements (ISDS) and intellectual property provisions.
Democratic Massachusetts Senator Elizabeth Warren summarizes how the ISDS can undermine American sovereignty:
"ISDS would allow foreign companies to challenge U.S. laws -- and potentially to pick up huge payouts from taxpayers -- without ever stepping foot in a U.S. court. Here's how it would work. Imagine that the United States bans a toxic chemical that is often added to gasoline because of its health and environmental consequences. If a foreign company that makes the toxic chemical opposes the law, it would normally have to challenge it in a U.S. court. But with ISDS, the company could skip the U.S. courts and go before an international panel of arbitrators. If the company won, the ruling couldn't be challenged in U.S. courts, and the arbitration panel could require American taxpayers to cough up millions -- and even billions -- of dollars in damages."
Also, current intellectual property and patent laws in the U.S. defend big pharmaceutical companies' sales revenues of medicine by preventing the production of a generic version of a certain drug for 12 years after its initial market release.
As a result, low-income individuals in industrialized countries and many in less developed economies will have significantly limited access to affordable medicine.
The Big Picture
The world is becoming increasingly globalized and technology is rendering low-skill labor industries obsolete. The timing of previous free trade deals came during seismic shifts in trade and production. There are many factors contributing to job loss in America, but our economy, much like the rest of the world, is experiencing growing pains as it adapts to a constantly changing international market.
The godfather of free market capitalism, Adam Smith, wrote in his influential book "The Wealth of Nations":
"Individuals and countries should specialize in producing things in which they have a comparative advantage and then trade with other countries that specialize in something else. This trade is mutually beneficial."
But the Donald doesn't share this sentiment:
"I'm sick of always reading about outsourcing. Why aren't we talking about 'onshoring'? We need to bring manufacturing jobs back home where they belong. Onshoring, or 'repatriation,' is a way for us to take back the jobs China is stealing. We know that China's wages are increasing. Also, China lacks certain natural resources that we have in abundance. If we exploit those two key facts, we can begin making the case to companies that they should bring their manufacturing facilities home to America."
Despite this statement coming from a man who manufactures his ties in China and once employed undocumented Polish workers, it appears Mr. Trump has a zero-sum view of economics -- the U.S. only gains if everyone else loses.
He only wants to pursue free trade if it results in a net surplus for America, which is impossible for the world's largest economy.
The economic developments of the past century immediately dispel this notion. Countries that opened themselves up to trade (the U.S. and Singapore) thrived, while countries that insulated themselves (Argentina, India and China until recently) stagnated.
FeeltheBern.org states Bernie's stance on trade:
"The top priority of any trade deal should be to help American workers. Unfortunately, as Bernie has warned year after year, American trade policy over the last 30 years has done just the opposite. Multinational corporations - who have helped to write most of these trade deals - have benefited greatly while millions of American jobs have been shipped overseas."
While Sanders's intentions are more noble and rational, as he favors free trade that prioritizes the interests of American workers, his perspective is shortsighted. The emergence of China, technology, deeper globalization with low-wage countries, disastrous domestic economic policies and the lack of investment to modernize the American economy have all factored into the decline of the middle class and a plodding economy.
American workers have a right to be frustrated with the current state of the economy; they have been left behind in the corporate race to the bottom. Economic populism is appealing, as it paints a clear picture of a recession culprit, but that image gets muddled once other global and domestic dynamics are considered.
Sanders and Trump are trying to allure disillusioned workers with campaign promises to preserve some short-term jobs, but free trade will benefit America in the long run while the rest of the world continues to advance.
Unfortunately, there are adverse short-term effects, most notably displaced workers winding up in lower paying jobs. Rather than oppose free trade, we should be pushing the government to make smart investments in growing sectors in the economy in which the U.S. can gain competitive advantages (like renewable energy and information technology) and job training, so workers can adapt, learn new skills and find a way to be competitive in the job market.
Keeping these labor jobs decelerates the modernization of the American economy and reduces incentives to gain the most valuable skills on the global market. Even if this transition is generational, free trade has panned out in the past, leaving workers and consumers wealthier.
If we turn our backs to free trade, it services current workers at the expense of future workers and the long-term development of both the American and global economy.
Is the TPP perfect? No. We should be pushing our politicians to revise the Investor-State Dispute Settlements and intellectual property provisions to be more favorable to consumers.
Is free trade bad? No. It's been costly because of a dysfunctional federal government unable to adapt to the demands of the modern global economy, and a major political party committed to solving 21st century problems with 1980s solutions, in hopes to preserve a romanticized past.
If the U.S. wants to maintain its status as a global hegemon, dictate the guidelines for international trade and economic development, and modernize its economy, free trade is an essential part of this process, and we the people need to push our politicians to seriously address our lingering structural economic flaws.