THE BLOG
01/20/2015 01:28 pm ET Updated Mar 22, 2015

SOTU Schizophrenia: Middle-Class Jobs vs. Fast Track and TPP

Tonight's State of the Union speech will spotlight a core conflict in the Obama presidency that will shape his legacy: either Obama will be the president whose initiatives to address income inequality and wage stagnation helped rebuild America's middle class, or he will prioritize a trade agenda that will offshore more good-paying jobs, destroy what is left of the American manufacturing sector, increase income inequality and speed the demise of America's middle class. He cannot do both.

Instead of delivering on Obama's campaign promises to create a new American trade policy that would benefit more Americans, the Obama administration has replicated and expanded on the old trade pact model. It includes provisions that make it easier for corporations to send our job overseas and, in the case of the proposed Trans-Pacific Partnership (TPP), terms that would undermine U.S. wages by making Americans compete with Vietnamese workers making 56 cents per hour.

The past deals that serve as the template for Obama's pacts have been so damaging that supporters of his 2011 Korea Free Trade Agreement (FTA) and of the 1990s North American Free Trade Agreement (NAFTA) now oppose Obama's massive TPP and the fast-track authority that would allow him to sign the deal before Congress thoroughly reviews and approves its contents.

Former Clinton Labor Secretary and NAFTA booster Robert Reich is calling for fast track and the TPP, which he calls a corporate Trojan horse, to be defeated. Paul Krugman recently warned about what lurks within the TPP, after initially cautioning about the pact. He joins pro-free-trade economists like Jeffrey Sachs and Joseph Stiglitz in warning about the TPP's threats.

How could we be repeating the fast-track approach even after the resulting pacts have been so devastating? Chronic, unsustainable trade deficits, the net loss of more than 5 million U.S. manufacturing jobs and 37,000 manufacturing facilities, flat median wages despite significant productivity gains -- all of this has contributed significantly to the highest levels of income inequality since the 1920s.

Consider this: U.S. trade deficits have grown more than 440 percent with fast-tracked U.S. FTA countries since the pacts were implemented but declined 16 percent with non-FTA countries during the relevant period. Since fast track was used to enact NAFTA and the World Trade Organization, the U.S. goods trade deficit has more than quadrupled, from $216 billion to $870 billion. U.S. export growth to countries that are not FTA partners has exceeded U.S. export growth to FTA partners by 30 percent over the past decade.

Nearly 5 million U.S. manufacturing jobs -- one in four -- were lost since the fast tracking of NAFTA and various NAFTA-expansion deals. More than 845,000 U.S. workers have been certified as having lost jobs to NAFTA under just one narrow U.S. Department of Labor (DOL) program. And three of every five manufacturing workers who lose jobs to trade and find reemployment take pay cuts. One in three loses greater than 20 percent, according to DOL data.

Overall, U.S. wages have barely increased in real terms since 1974 -- the year fast track was first enacted -- while U.S. worker productivity has doubled. Study after study has revealed an academic consensus that status quo trade has contributed to the unprecedented rise in income inequality.

The most recent trade deal with Korea (which is the template for the TPP) has hurt, not helped, U.S. jobs and exports. In just the first two years of this fast-tracked pact, the U.S. trade deficit with Korea has grown 50 percent -- which equates to 50,000 more American jobs lost to bad trade policy. Trade data just released by the Census Bureau shows the problem is getting worse: The U.S. had a $2.8-billion monthly trade deficit with Korea in November, the highest monthly U.S. goods trade deficit with Korea on record. And, after this deal went into effect, U.S. small businesses' exports to Korea declined sharply, falling 14 percent.

Given the economic failure of these agreements, Obama will likely repeat the usual tactic of trying to change the subject to putative foreign policy imperatives for the pacts. But decades of such claims have also been contradicted by the outcomes, as we documented in a report. While scaremongering about China may attract attention, the notion that the TPP is a solution to a rising China is absurd, if only because China has been invited to join TPP.

And there is the unprecedented opposition to fast track and the TPP from small business, Internet freedom, faith, seniors, consumer and other groups never before engaged on "trade." That's because the secrecy of the process allowed the 500 official trade advisors mainly representing large corporate interests to slip in terms that would kill the "buy American" policies on which small business rely, gut key consumer and environmental safeguards, raise medicine prices for seniors, flood us with unsafe imported food, and undermine Internet freedom. Indeed, only five of the TPP's 29 chapters cover trade issues.

What's not in the TPP has also generated ire. Conservative Arthur Laffer, Vice President Biden's former economic advisor Jared Bernstein, the pro-TPP Peterson Institute for International Economics and many others have warned of the consequences of not including terms that protect the United States from currency manipulation, and 230 representatives and 60 senators have demanded currency manipulation protection terms.

All this boils down to unprecedented unity among Democratic base groups and Democratic members of Congress against fast track that the White House seeks to break with what it is calling an "all administration" effort. Currently there is at most a handful of Democratic House votes for fast track. Last year seven of 201 House members supported the fast-track bill that Senate Finance Committee Chair Hatch says he will be reintroducing, and three of them retired. This is not surprising. President Clinton had 20 House Democrats support his fast-track quest, which was voted down in 1998 with 171 Democratic and 71 GOP noes. In 2002, Bush got 21 Democratic yes votes in the House on fast track.

At the same time, the Republicans are deeply divided on giving President Obama fast-track authority, with a bloc of Republican House members opposing a grant of expansive new executive powers to Obama by formally delegating swaths of Congress' constitutional authorities. The Chamber of Commerce is ramping up a major push on the GOP.

This political situation suggests that the cure for Obama's SOTU schizophrenia is a version of "bipartisanship" that is the antithesis of what the Chamber of Commerce celebrates. Rather than the GOP congressional leadership sidling up to President Obama to create new opportunities for Wall Street, congressional Democrats and GOP alike must stand up for Main Street and middle-class jobs, oppose fast track and turn our failed trade policy around.