The Era of Free Trade Might Be Over. That’s a Good Thing.

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FOR decades, free-trade agreements, called F.T.A.s, have been one of the most solid planks in the platform of economic elites and establishment politicians. True, the occasional political candidate like Ross Perot argued against one deal or another and even President Obama ran on “renegotiating” the North American Free Trade Agreement, but once elected, presidents of both parties sought and ratified trade deals with a wide variety of countries.

[Jared Bernstein| March 14, 2016 |The New York Times]

Those days may well be over. What changed?

For one thing, the economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword. The defense of globalization rests on viewing Americans primarily as consumers, not workers, based on the assumption that we care more about low prices than about low wages.

It is unquestionable that expanded trade has vastly increased the supply of goods and services and has thus contributed to lower costs for consumers. But basic trade theory connects prices to wages, and in the United States, globalization is widely accepted as a contributor to both wage stagnation and the growth in inequality. For example, the real wage for blue-collar manufacturing workers in the United States is essentially unchanged over the past 35 years, while productivity in the sector is up more than 200 percent.

We should no longer buy the statistically strained arguments about F.T.A.s delivering growth and jobs. The evidence just isn’t there, a fact not lost on those campaigning for president.

Second, various countries with whom we compete have historically managed their currencies to gain a price advantage (i.e., they keep their currency low to boost their exports to us and suppress ours to them), and this has long been a source of our persistently large trade deficits.

Third, the F.T.A. process has been captured by investors and corporate interests. According to The Washington Post, 85 percent of the members of the outside committees advising the administration on the proposed Trans-Pacific Partnership were from private businesses and trade associations (the rest were from labor unions, NGOs, academics and other levels of government).

No wonder the selling of trade deals has become such a challenge. If we’re really at the end of the F.T.A. era, what does that mean for trade, policy and economics over the next few years?

First and foremost, don’t conflate trade with trade agreements. They’re not at all synonymous. Over the last 50 years, our trade volume as a share of gross domestic product has climbed steadily, tripling to 30 percent from 10 percent, regardless of whether we were signing F.T.A.s.

F.T.A.s, on the other hand, are just the rules of the road: technical arrangements between trading partners. As Hillary Clinton noted in a recent speech at a Michigan factory, “Even if the United States never signs another trade deal, globalization isn’t going away.” Success in trade has much more to do with comparative advantage (who’s particularly productive making what goods), exchange rates and the quality of supply chains than with trade agreements. We won’t trade less because we’re not signing the next F.T.A.

That said, the absence of new F.T.A.s is an opportunity to refocus our trade policy on workers and more balanced trade. Besides the loss of public trust, cramped F.T.A. negotiations have blocked us from taking necessary steps against currency manipulation and have diminished our focus on policies that could rebuild the manufacturing sector.

At this point in the argument, chin-stroking pundits will tell you the “hard truth” that those manufacturing jobs we lost are not coming back. They’re right, but that’s beside the point. The question is not whether we can go backward, but could there be a more vibrant manufacturing future here? Can we, for example, build supply chains such that we don’t just design the new goods the world demands, but instead of outsourcing their production, produce them here?

The manufacturing expert Mark Muro writes about many industries that tap our comparative advantage integrating software and hardware, including electric cars, robotics and the “Internet of things” (the interaction of smart machines and networks), alongside technologically upgraded old industries like autos and industrial machinery.

So we should welcome the end of the era of F.T.A.s, which had long devolved into handshakes between corporate and investor interests on both sides of the border, allowing little voice for working people. With such noise behind us, we might be ready to foster the next generation of advanced production and help our exporters fight back against currency manipulators. That would be more productive than fighting tooth and nail over the next big trade deal.

 

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