For decades, political and economic elites have arrogantly explained to people who believe they and their communities have been hurt by trade that they simply fail to appreciate the benefits of globalization. If they didn’t like that last trade agreement, the next one was going to be much better! So in a presidential election where anti-establishment sentiments run high, it’s no surprise that international trade has surfaced as a hot issue.
I’ve long wondered why this particular dog hasn’t barked — why those hurt by competition from low-wage trading partners haven’t punished the elites from both parties who continued to push the status quo. Well, now the dog’s not just barking. It’s snarling, and the question of whom it’s going to bite looms large.
In a speech on trade earlier this week, Donald Trump offered an insular vision, in which, by dint of his force of will, toughness on errant trading partners, and high tariffs, he’d effectively reverse all the downsides from decades of globalization.
As he always does, Trump conflates swagger with an actual plan. In this case, however, he’s pointing to a real problem. We can and should have a moratorium on trade agreements. The process by which they’re negotiated is undemocratic, they uplift investor rights over sovereign rights, they reverse the order in which certain challenges should be tackled, and they fail to deal with currency issues.
But globalization cannot nor should not be stopped. Done right, it delivers great benefits to advanced countries through the increased supply of goods, and it helps improve the living standards of workers in developing countries through profits made from trade with wealthier nations. Trump’s tariffs would undermine all of that.
So how can we best realize that potential? If we can avoid the pull of Trump’s empty demagoguery, we may be able to use this moment to derive and implement a new set of rules of the road for trade that represent all drivers on the global highway, not just those in the BMWs.
In a forthcoming paper, trade expert Lori Wallach and I argue that the United States should do the following:
Take action against those who suppress the value of their currencies relative to the dollar
When trade partners manipulate their currency, two negative effects follow. First, with the terms of trade artificially tilted against us, countries with large and persistent trade surpluses subsidize a flood of imports into the United States while unfairly pricing our goods out of their markets. Second, when, in the process, trade-surplus countries send large amounts of their dollar reserves back here, that gives rise to underpriced credit, bubbles, and, ultimately, recessions.
Yes, we get cheap imports out of the deal, but people aren’t just consumers. They’re workers, too, and the cost of persistent trade deficits in terms of job losses and the economic "shampoo cycle" — bubble, bust, repeat — makes this a raw deal.
Our current crop of trade negotiators tells us that the inclusion of actionable rules against currency manipulation is impossible, because they would intrude on the actions of central banks, including our Federal Reserve. Not so. The International Monetary Fund provides tested ways to identify currency manipulation, accepted by countries worldwide, that distinguish between legitimate central bank demand management and currency manipulation. The latter typically involves using persistent, large trade surpluses to acquire foreign reserves, often dollars.
Change the sequencing of labor and environmental rights
Globally accepted labor and environmental standards exist (through the International Labour Organization and the United Nations), but they lack effective enforcement. If rules are unenforced or require a one-time, check-the-box review of whether changes have been made on the books, it makes no difference how progressive they are.
Thus, the sequencing must be flipped: Any benefits to partners in terms of market access must be preceded by confirmation that labor and environmental rights are enforced. That means that countries we enter trade agreements with must offer sustained evidence that conditions on the ground have improved, and that we withdraw trade benefits when there’s evidence of backsliding.
Relocate risk in investor disputes
Absent some form of investor protections, there is a strong potential for sub-optimal investments in developing economies, where investment risk is high. But the current investor-state dispute settlement (ISDS) process is set up in such a way that investors in countries that are signatories to trade deals can, through non-elected tribunals, override the sovereign laws of countries. In so doing, the process elevates and privileges investor protections over the hard-won institutions of sovereign democracy. The answer to this problem is to shift this risk away from the broader public and back to the investors themselves.
The way to accomplish this is by taking ISDS out of future trade agreements and insisting that investors privately insure themselves against investment losses. It’s their skin that should be in this game; the laws of sovereign nations should not be compromised.
Take a public welfare stance toward patent and copyright protections
Trade agreements should not increase protectionism. They should not extend patents or limit the competition that reduces prices and increases access to needed medicines. Nor should they, as the Trans-Pacific Partnership did at the behest of big pharma, limit the ability of governments to negotiate prices with pharmaceutical firms for bulk purchases to be used through government health care programs. To the extent that IP rights holders seek more protection, they should do so through separate agreements that don’t condition trade rights on extending potentially monopolistic conditions.
Similarly, rules that undermine sovereign safety standards, whether targeting consumer products or financial market regulations, must be eliminated.
Sunlight disinfects trade agreements
Finally, the negotiation process must be pried open. The argument for the current process is that, were negotiators to be more transparent, stakeholders and political bodies would constantly be challenging negotiators’ decisions, stalling progress. But this is clearly an untenable, undemocratic position. ("If the people or their congressional representatives knew what we were doing, they’d never leave us alone!")
From the choice of prospective trade pact partners, to the formulation of initial US negotiation positions, to years of back and forth on agreement texts, to final tradeoffs to conclude a deal, the trade agreement process is uniquely secretive and exclusive — and as a result non-representative of the views of millions of people affected by the deal. If anything, the process has gotten worse in recent years, as national-security classification rules pile atop existing diplomatic secrecy.
This level of secrecy must end. We’re not talking about nuclear codes but about the formulation of policies that will affect the everyday economic lives of every American. US-proposed text and then the texts of agreements after each negotiating round ought to be made publicly available.
Somewhere along the way, the twin goals of expanded trade were defined as the following by elites and corporate interests: 1) suppressing labor costs and standards, and 2) protecting investor interests. It took a long time for voters to wake up to that reality. Now that they’re awake, there’s a risk that many will fall for Trump’s unrealistic, insular "solutions." But there’s a better way. We must redefine the goals of trade to reshape globalization in a way that has a much better chance of delivering its benefits to both foreign and domestic workers.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. His most recent book is The Reconnection Agenda: Reuniting Growth and Prosperity, and he blogs here.