The U.S. Senate is today expected to pass a measure granting President Obama the Fast-Track authority he has been seeking. Yet, it's very much a pyrrhic victory for the President since the final measure will reach his desk without Trade Adjustment Assistance. The Senate measure relied heavily on support from the GOP, most of whom are opposed to TAA, and many of whom have spent the better part of Obama's presidency opposing nearly everything he puts on the table. Only 13 Senate Democrats supported the bill, one the President had invested considerable time personally lobbying lawmakers.
Two other trade-related measures will be considered later this week, including Trade Adjustment Assistance, likely to be attached to an extension of a trade preferences measure for Africa. As noted below, TAA was considered separately from Fast-Track because Congressional Leadership thought it would be easier to thread together different coalitions in support of each (itself a sign of the modern challenges of trade liberalization). We'll see if this was wise, since TAA was historically seen as a way of "purchasing" additional openness by compensating the "losers" from liberalization.
This face-saving "compromise"in the Senate reinforces the challenges of contemporary trade liberalization and the strange coalitions that need to be put together to make it work. Making sense of it all requires one to tap their inner contortionist.....
Remember,..... this fight is just about authorizing negotiations. A huge fight remains if and when the President seeks Congressional approval of what he's done..... Buckle up!!!!
The U.S. House of Representatives today extended the period of time under which it would consider Trade Adjustment Assistance, a key piece of a package of legislative initiatives that would facilitate the completion of several U.S. trade policy initiatives, including the Trans Pacific Partnership (TPP). The extension is a face-saving measure designed to buy time after a decisive rejection (302-126) of the Trade Adjustment Assistance measure. It was a stunning rebuke of President Obama's trade policy agenda, largely by members of his own party, including House Minority Leader, Nancy Pelosi, who oppose the President's agenda.
It was all supposed to go very differently. Republicans, many of whom still generally support trade liberalization, but oppose Obama on nearly everything else, would get behind an earlier Trade Promotion Authority (see earlier post on how this works) measure while Democrats, most of whom are trade skeptics, would get behind Trade Adjustment Assistance meant to compensate domestic workers negatively impacted by liberalization. Everyone would get a little something, harmony would reign, and the United States could retain its credibility where trade policy leadership was concerned.
Not so fast!
Battle of Winners and Losers
Trade liberalization has never been an easy sell. Indeed, as I noted in an earlier blog post (March 2014) on the topic of trade, most of human history has been characterized by the protection of domestic markets from foreign goods; a forms of economic discrimination not infrequently tinged with a heavy dose of xenophobia. It has only been since the late 19th Century that we've seen a period of increasing levels of economic openness-- interrupted, of course, by two world wars.
To most, the reduction of various barriers to trade seems like a unilateral opening of your domestic market to lots of cheap foreign stuff. Moreover, one of the central problems for proponents of trade liberalization is that the benefits of liberalization-- although larger than the inefficiencies of protection-- are diffuse, spread throughout an economy, while the negative adjustment highly visible and concentrated. In other words, trade liberalization creates winners and losers. The "winners" are most obviously consumers who benefit from lower prices, but also include those employed in export-oriented sectors that have enhanced market-access to sell their products abroad in the wake of liberalization.
By contrast, the "losers" are often in concentrated sectors where where the liberalization of markets exposes them to stiff foreign competition. The "adjustment" process sometimes comes in the form of closed factories or financial pressure on individual sectors as more efficient foreign producers take domestic market share.
The problem is that "winners" and "losers" are wildly different groups where the politics of trade liberalization are concerned. Consumer groups and diverse export sector firms are unlikely to organize rallies in front of the White House to promote trade. Indeed, even if the average consumer at Wal-mart or the local foreign auto dealer happens to notice a fall in prices, they are unlikely to attribute that price drop to trade liberalization. By contrast, when a domestic manufacturing facility closes due to foreign competition, there are typically a lot of unemployed, and newly motivated, workers willing to mobilize and make life miserable for any politician who dares speak of trade liberalization.
It is only the most skilled (and bravest) of politicians that can make the more sophisticated, and compelling, case in favor trade liberalization (see link). These days, few are willing to do so.
Obama Born-Again
Some of the skepticism about President Obama undoubtedly stems from Obama's sketchy bonafides as a free trader. Indeed, until the 2010 State of the Union Address, anti-trade activists probably thought they had a died-in-the-wool ally who would go slow on trade. Recall this exchange between Obama and Clinton back in 2008.
Yet, part of Obama's transformation from anti-trade skeptic to a free trader is directly connected to the office he holds. Presidents have come to cherish their practical control over trade policy as part of their larger chest of foreign policy tools. Indeed, in all of this, one can see many of the historical tensions within the U.S. system over policy control, particularly in foreign affairs-- all of which were largely by design. It is interesting revisit Hillary Clinton's views on trade from 2008 in light of her campaign for the White House in 2016. Hillary Clinton has thus far hedged her bets on trade as the race for 2016 advances, offering highly qualified support for Obama's recent efforts. It was strange to hear Clinton's 2008 populism about renegotiating the NAFTA given how much political capital her husband spent getting it through Congress in 1994. However, where ever she positions herself during her 2016 run, I would bet the farm that if Hillary Clinton becomes president, she will have have a religious re-conversion to trade liberalization simply because it's such a powerful set of foreign policy tools for a president to wield.
Interestingly, none of what has just transpired in Congress with respect to President Obama's trade agenda is about inter-branch conflict. Instead, the attempted bargain between a Democratic president, a Republican controlled House, and skeptical Democrats, also represents a re-alignment of trade politics, the origins of which reside outside the United States.
Political Divides Deeper and More Complex
Many of you will recall the infamous "Battle in Seattle" at the November 1999 ministerial meeting of the World Trade Organization. The commonly held view is that the battle lines that formed outside the conference room were instrumental in bringing about the "failure" of that meeting to reach agreement. Yet, the battle lines outside were mere reflections of the deep divisions among the WTO's members about how best to proceed; the meeting had failed before it began.
Much of the angst over how to proceed at the 1999 ministerial stemmed from divisions between "rich" and "poor" countries over issues like labor and the environment. There have always been cleavages between import competing and export sectors over liberalization. However, a deeper set of divisions has also emerged as the topics for discussion in trade liberalization have reached further into basic questions of governance toward the end of the 1970s. Until then, most of what was considered in the context of multilateral trade liberalization was the reduction of numerical tariff barriers. Since then, however, border measures like tariffs have not been important impediments to trade flows. Instead, the main limitations on the trade in goods and services have been a bottomless pit of so-called "behind the border" measures (see WTO list of "trade topics") that are much more difficult to deal with because they entail basic governance-- regulatory power, subsidies, competition policy, investment and services, to name a few.
Workers and Trade Adjustment
One reason the defeat of Obama's trade legislation on Capitol Hill this week is so troubling is that it was over a component known as Trade Adjustment Assistance. The case for free trade and open markets might be compelling from an economic efficiency perspective, but the politics of trade liberalization have always been tricky; most specifically, what are we to do about the "losers?" How can the state pursue the widely distributed benefits of liberalization if the adjustment process for the "losers" is too great? In essence, how can the state "purchase" additional openness from the "losers." One mechanism-- at least in theory-- has always been to try and find ways to compensate the "losers" in the short run. When David Ricardo articulated the powerful case in favor of liberalization back in 1817, he acknowledged there would be "losers" (Ricardo called them "released workers"), but thought most would be quickly absorbed into expanding export sectors that were the clear "winners" from that same liberalization.
The intuition behind trade adjustment assistance is to speed up the process of absorption by providing financial support skills acquisition, education, and lengthier unemployment benefits while workers sought out new jobs. In the United States, trade adjustment assistance has since the 1960s been embedded in legislation authorizing U.S. presidents to engage in trade negotiations at all. Oddly, this week's action in the House of Representatives separated the two issues (authorization and adjustment assistance). The real debate, however, has always been over whether the adjustment assistance is robust enough to transform the "losers" into "winners." According to many House Democrats this week, the adjustment assistance proposals being proposed by the Obama Administration are not nearly enough.
One wonders whether adjustment assistance can ever be enough as the range of issues being considered in the context of liberalization expands, deepens, and conceivably touches far greater swaths of an economy than has hitherto been the case when simple tariff liberalization generated effects that were highly concentrated. In other words, Ricardo's "winners" will remain broadly based, but if questions of governance are increasingly the subject of most negotiations, will the "losers" also become more diffuse and broadly based as well?
Woe the Blue Collar Worker
Unfortunately, trade adjustment assistance is a band-aide on a much bigger problem for blue collar workers, many of whom have enjoyed outsized pay packages in inefficient industries buoyed by protectionist trade policies. As a group, blue collar workers in rich countries have not adapted well to the advent of a genuinely global labor force-- conditions generated, in part, by trade liberalization.
Postwar trade liberalization does not get the popular credit it deserves for improving the living standards of millions. Indeed, the successful completion of the Doha Round of the WTO would do far more for global poverty alleviation than all of the world's aide programs combined. Millions of people in what used to be called the developing world (especially in East Asia) have joined the ranks of the educated middle class. Millions more are now doing manufacturing tasks across the skills spectrum. We all compete in a genuinely global labor force, but low-skill, immobile, and poorly educated workers in developed countries are the most vulnerable. Trade liberalization is hardly the only cause of blue collar woes; rapid technological change is also important. However, economists have long noted that with the opening of trade comes an equalization of prices in the factors of production involved in that trade; wages in those sectors among them. Importantly, technological change is having an impact on a range of skilled workers once thought invulnerable to foreign wage pressures; back-office accounting work, medical test analyses, etc can now be done nearly anywhere.
This is part-in-parcel of a larger debate over the sources of wealth inequality, itself stoked by Thomas Piketty's 2014 book, Capital. (if you don't have time to read all 600pgs, Piketty's TED Talk is worth watching). We ought to think harder than we do about how we prepare labor forces for a 21st Century, post-Fordist economy in which knowledge and ideas are the "products" more and more of us make.
Bottom Line
This is all a long-winded way of saying that this week's narrow debates over trade on Capitol Hill are taking place in a period in which the politics of trade liberalization are arguably more difficult than ever. The case in favor of the broad-based benefits of liberalization remains compelling. But our ability to creatively cushion the impact of all this on the "losers" has not kept up. Trade adjustment assistance could be made robust enough to help those directly impacted by trade liberalization, but too much is being asked of adjustment assistance if we expect it to prepare national work forces to compete in a globally competitive economy.
That requires longer-term thinking that lays the foundation for the kind of continuous skills re-development, education, and basic research and development-- a worthy topic for a much lengthier blog post.
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