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Wanted: A shift in U.S. trade policy to benefit middle class

October 05, 2016

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[Stephen Herzenberg| October 04, 2016 |Philly]

IT'S OLD NEWS that some Democrats are tone deaf on trade. Right now would be a pretty good time to get a hearing aid.

I had a front-row seat on that tone deafness in the first Clinton administration during its 1993 negotiation of the labor side agreement to the North American Free Trade Agreement (NAFTA).

Before this, I had examined trade in research on the auto industry, including at the U.S. Labor Department. This research documented the growth of northern Mexico as a low-wage production platform for export back to the United States. It made clear that Mexico's production wasn't limited to the low-wage, labor-intensive operations predicted by standard trade theory.

By the time George H.W. Bush announced his intention to negotiate NAFTA, Mexican auto and auto parts production had become another dagger in the heart of the Midwestern U.S. auto complex, following the earlier shift of jobs to the low-wage U.S. south and the rise of Japanese imports.

When NAFTA was announced, I argued that Bush's Labor Department should warn President Bush that NAFTA could be a political liability, opposed by a broad set of anxious Americans.

When that didn't work, I persuaded a Congressional staffer to request a study of U.S.-Mexico trade by the Office of Technology Assessment (OTA) and took a leave from the Department of Labor to help write that study.

OTA's "U.S.-Mexico Trade: Pulling Together or Pulling Apart" tried to reframe NAFTA as something other than a way to achieve gains from trade through each country specializing in what it does best. (Portugal makes wine, England makes wool, and everyone lives happily ever after.)

We argued that NAFTA was a symptom of an unprecedented economic integration between rich and poor countries. This integration had so far been unmanaged, with devastating consequences for workers and communities on both sides of the U.S.-Mexico border.

Our study proposed using NAFTA to manage integration better. This meant going beyond the wish list for U.S. multinational corporations in the Bush NAFTA - such as protections for intellectual property and U.S. foreign investment. Only with provisions that would lift wages on both sides of the border, a side-bar agreement with Japan to reduce North America's total trade deficit in auto and domestic policies to help U.S. workers might economic integration lift up workers and communities rather than destroy them.

I returned to the U.S. Labor Department in late 1992 and got drafted to help negotiate the NAFTA labor side agreement promised by President Clinton in his campaign. I argued on both political and policy grounds for a big departure from the Bush NAFTA, including managed trade with Japan to increase U.S. auto jobs.

Politically, President Clinton had won the election using the slogan "people are tired of working longer for less." The first-world productivity and third-world wages and living conditions in northern Mexico made NAFTA a symbol to blue-collar communities of a frightening future in which Americans would work "even longer for even less."

Unmoved, Labor Secretary Robert Reich took the position that NAFTA wasn't the real threat. Factory workers - "routine producers" - would be out of luck anyway. But even if NAFTA was mostly a messenger that more downward mobility lay ahead, this message was so dire that people would blame the messenger - and the politicians seen as responsible for NAFTA.

Predictably, President Clinton in 1994 lost much of the white working class that he had won in 1992, and the Gingrich revolution took over Congress.

Trade is also one of the few negatives in President Obama's otherwise remarkable record. In the 2008 campaign, he promised a "time out on NAFTA" while campaigning in Ohio. That idea was then forgotten.

The most basic point that Democrats need to get to win people back on trade is that people in factory towns know more about the impact of trade than traditional economists in their Ivory Tower. Manufacturing communities also know more than lawyers in Washington, D.C., or editorial board writers that blithely parrot the "gains from trade."

Bernie Sanders got this basic point, and Donald Trump does a good imitation of someone who does. Hillary Clinton needs to make crystal clear that she gets it, too. And then to make the case that only she will put in place genuinely "fair trade" policies - a very different set of rules governing globalization that ensure, rather than assume, that trade benefits people generally.

Stephen Herzenberg is an economist and the executive director of the Keystone Research Center.


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