How The Left Should Think About Trade

As the Democratic primaries start to heat up, it’s become clear that Bernie Sanders wants to hit Joe Biden hard on trade:

When people take a look at my record versus Vice-President Biden’s record, I helped lead the fight against NAFTA—he voted for NAFTA. I helped lead the fight against permanent normal trade relations with China—he voted for it. I strongly opposed the Trans-Pacific Partnership—he supported it.

Since 2016, American politics has focused quite heavily on immigration. It’s a much more visible issue than trade. Immigrants and refugees are physical people you can see, or even interview. The border is a place you can go, a wall is a physical thing that either gets built or it doesn’t. Some of us are friends of immigrants, some of us are immigrants, but all of us are descended from people who came over here at some point. Trade is different. The effects of trade are hard to see and hard to measure. You can see stuff in your local big box store stamped with “Made in China,” but otherwise trade doesn’t make itself obvious to you unless you’re one of the people who loses a job to outsourcing. So the mainstream press doesn’t write about trade very much, unless it’s implying that President Trump is going to visit unspeakable horrors on us through a trade war with China. Even the left press is typically quiet about it. This is a shame, because trade has much larger impacts on ordinary American workers than immigration does.

Many economists love free trade. They love to point out that free trade means that goods are made in the places where it’s cheapest and most efficient to make them. That drives down consumer prices and it increases headline economic growth rates. If you want GDP growth, free trade is great. The trouble is that this “efficiency” is all too often achieved by lowering labor costs and offering firms tax breaks and loose regulations. An American worker is expensive compared to a worker from a poor country. If we recklessly remove trade barriers, our workers lose negotiating leverage with their employers. Some Americans lose their jobs and others see their wage growth decrease, halt, or reverse. And in the meantime, the race to the bottom on taxes and regulations means less money for public services and infrastructure. It often means poorer quality goods, unsafe working conditions, and all manner of abuses great and small.

But not every job is tradeable. You’d be hard-pressed to outsource teachers, or doctors, or the waiter at your local diner. Trade now accounts for about 27 percent of U.S. GDP:

If you’re in a non-tradeable sector, initially trade just lowers the cost of your consumer goods. It’s only when the people who are laid off in tradeable sectors begin competing for jobs with you that you start to see trade erode your negotiating leverage. It’s only when the state lowers taxes and regulations to compete to hold onto jobs that you notice budget cuts to public programs and sliding standards. If you’re not thinking about it, it’s easy to not even recognize these things as related to trade.

Trade also inhibits investment in labor-saving technology. If you can reduce labor costs by outsourcing, you don’t need to make more expensive investments in automation to get costs down. So while trade increases economic growth rates and makes consumer goods cheaper, it also reduces the bargaining power of workers and slows technological development. The short-run growth comes at a long-run productivity cost. It’s difficult to predict or measure how much technological development and worker bargaining power we give up when we sign free trade agreements, and this makes it very hard for economists to account for these things when estimating the consequences of trade deals. It’s much easier to focus on headline growth increases and drops in consumer prices.

At the same time, if we refused to trade with other states, we’d make it much harder for their economies to develop. Many countries are able to goose development by exporting goods to the United States. Their workers are paid inhumane and substandard wages by our standards, but even these meagre wages are often more than they would have been paid for the subsistence agricultural jobs that often predated the arrival of American firms. The right loves to point out that workers in sweatshops are still often paid more than they were paid when they were peasant farmers. But this wage increase doesn’t necessarily make these workers happier. As countries industrialize, there are massive increases in the number of hours expected from workers, especially in places where labor laws are weak. This is visible in the history of western industry. British and American workers saw their hours increase dramatically before labor laws intervened:

Industrialization was so miserable for most workers that they were compelled to organize to a degree never before seen. Medieval peasants didn’t build trade unions, and neither did the rural peasants of today’s developing states. So while sweat shops might put more money in peasants’ pockets, they’re not necessarily make their lives better, at least not in the short to medium-term.

What about the long-run? In the long-run, developing countries might hope that by sacrificing the lives of their peasants to the corporate behemoths they can one day achieve prosperity comparable to what the rich states experience. For them, free trade with the western states is a form of indentured service—they hope that by turning their people into slaves for the west, eventually enough western investment will trickle in to enable them to make “the leap” and become rich themselves.

What right do we have to deny them that choice? We might point out that given the reality of climate change, the choice is suicidal—it’s not possible for everyone to live like Americans. But this doesn’t stop developing countries from trying. India’s carbon emissions increased by 6.3 percent in 2018. A few weeks ago I discussed this with a couple Indians who support the Modi government, and they made the understandable point that India faces crippling poverty today, poverty it can erase with economic development. They say they’ll worry about the environment later. Can we blame them for feeling that way?

Yet at the same time, we are socialists and that means we’re meant to care about American workers. Our workers face job loss, wage stagnation, and austerity if we trade with countries without making any provision for the race to the bottom on wages, taxes, and regulations. Eventually, they face the consequences of climate change too. If we won’t defend them from these forces, why should we expect them to support us? And what good is a socialist movement that doesn’t care enough about its workers to defend them?

This is what the right wants—a false binary choice between helping poor people in developing countries and defending poor and working people at home. It wants to frame trade as a dichotomy between free trade policies that lift poor countries out of poverty while making consumer goods cheap for us and protectionist policies that defend American jobs while keeping poor countries poor and expensive goods expensive. The right wants to use your compassion for postcolonial peoples to make you stab your neighbors in the back. And before too long, it won’t just be your neighbors who suffer—you too will end up afflicted with the consequences of austerity, poor quality products, and chronic under-investment in infrastructure and productivity. It’s already happening. Look around you.

So what is to be done? We don’t have to accept this false choice. We can trade with other countries on terms that protect our workers and force other states to treat their workers better than we treated ours in the 19th century. Rich states should demand, as a condition of trade agreements, adjustments in wages, taxes, and regulations to reduce or eliminate disparities in the treatment of rich workers and poor workers. It’s one thing if we import stuff from a foreign state because that state has real productive advantages in making the stuff. It’s quite another if we’re importing stuff from a foreign state because that state is treating its workers like meat.

Right now, free trade agreements are being used to run down workers in rich states while giving workers in poor states far too little compensation for far too much hardship. The USA and the EU command access to gigantic consumer markets, and they have a lot of leverage over governments in developing countries. Instead of using that leverage to push these governments to offer up their workers on a platter for transnational corporations to devour at their leisure, we ought to use our leverage to secure workers around the world fairer deals. Beyond this, we ought to demand that developing states take action to ensure they fight poverty in a clean, sustainable way—and supply them with the investment and extra help, where necessary, to do this.

This is what a socialist trade policy looks like—not unadulterated protectionism, but trade deals that put workers first by creating strong international minimum standards on wages, taxes, and regulations. This must be led by the USA and EU, because only they command enough market share to successfully push governments in poor countries to adopt more humane and sustainable models of development.

Joe Biden has made his position clear—he supported trade deals that exacerbated these problems, making life more difficult for workers in both rich and poor countries. A Biden administration will never use American power to create a fairer world for workers. Instead, he’ll use it the same way American presidents have used it for decades—to help American companies get rich off the backs of everybody, both at home and abroad. In the hands of a socialist administration, this could all be turned around, and the same power we’ve been using to immiserate the workers of the world could instead be used to empower them. That’s why trade matters, and that’s why Bernie Sanders is talking about it. Will we listen?

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Photo by Steve Gibson.