The New Rules of the Road: A Progressive Approach to Globalization
Adam Posen: Good afternoon everyone. If I could call the House to some semblance of order. I'm Adam Posen, President of the Peterson Institute for International Economics. And we are very fortunate today to be having a discussion on first off, of course, a presentation of "The New Rules of the Road: A Progressive Approach to Globalization" by Jared Bernstein and Lori Wallach.
We are considered the pro-globalization folks but I like to believe. In fact, I confidently believe we're the honest pro-globalization folks. And the honest pro-globalization folks have to take seriously and engaged with a variety of use as long as people are bringing forth their ideas as a means to make globalization work for all and not as pure protectionism or pure business lobbying or whatever. And there is a large community of people, many of whom in this room who are doing that.
A little over a week ago, we had current House Ways and Means Chairman Wayne Brady—excuse me—Kevin Brady. Wayne Brady is a TV star. Kevin Brady talked about his vision going forward for the US trade negotiations and agenda. And today, I'm grateful to Jared Bernstein for bringing to us his and Lori Wallach's approach, which obviously comes from a slightly different position.
I'm going to go into the bios. Not only do we have the two authors of the report, but we have three very distinguished and, I think, very relevant commentators. So we are going to run this. I always try to be tight on time. We’re going to run this a little more disciplinarian than we usually do even just to make sure that everybody has their say. And then we get to open it up to the audience for discussion.
Leading off, of course, will be Dr. Jared Bernstein who's been with the Center on Budget and Policy Priorities since May 2011. He was previously Chief Economist and Economic Adviser to Vice President Joe Biden, Executive Director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team that, of course, understates his influence. Prior to serving the Obama Administration, Dr. Bernstein was a Senior Economist and the Director of the Living Standards Program at the Economic Policy Institute. He is also is a star of CNBC with a frequency that my stomach could not take, so well done, Jared.
Our first discussant will be Daniel Griswold who is the Mercatus Center Senior Research Fellow at George Mason University. He's also the co-director of the Program on the American Economy and Globalization at George Mason. Many of us know him from his long tenure and forthright views as Director of Trade and Immigration Studies for the Cato Institute where he's been a valued colleague. He previously served as President of the National Association of Foreign-Trade Zones.
Following Daniel will be Jennifer Hillman who is Professor of International Law at Georgetown Law Center and another member of the trade policy community and commentariat who we value highly. Ms. Hillman is not only a faculty member at the Institute of International Economic Law at Georgetown. She is although soon will be ceasing to be a partner in the law firm of Cassidy Levy Kent. More importantly for our today's discussion, she recently completed her term as one of seven members from around the world serving on the WTO’s Appellate Body and, prior to that, served nine years as a Commissioner at the United States International Trade Commission. Her distinguished record of public service in the realm is admirable. And we're glad to have her perspective. She was also previously General Counsel at the office of the United States Trade Representative.
Following Jennifer will be my predecessor, the Institute's Co-Founder and Director Emeritus, Fred Bergsten. Fred was, of course, Director of the Peterson Institute for International Economics from 1981 to 2012, previously Assistant Secretary for International Affairs of the US Treasury from 1977 to 1981. Like Jared that vastly understates his influence both in the US and internationally at the time. I'm not going to go through his entire CV. But we all know Fred has been at the center of many trade negotiations and much trade legislation in the Congress through the last four decades. He is currently serving his second term as a member of the President's Advisory Committee for Trade Policy and Negotiations among many other roles.
Finally Lori Wallach, Director of Public Citizen's Global Trade Watch, will speak. Ms. Wallach has been the Director of the Public Citizen's Global Trade Watch since 1995. She has promoted her views and of the public interest regarding globalization and international commercial agreements in many fora including numerous testimonies before Congress all over the process. She has a law degree and is expert on trade negotiations and trade agreements. In 1993, Wallach was a founder of Citizens Trade Campaign, a US national coalition of consumer labor, environmental, family, farm, religious, and civil groups. And she currently serves on their board.
So to give this some structure, Jared is going to present the report for up to 25 minutes. Our three discussants will then each get to speak for 10 minutes. And then Lori will get to respond to the discussants for no more than 12 minutes. In that way, it's sort of all balanced. And then we will have everybody up here and open it up to questions from the floor. All our thousands, I hope, of people watching on webcast or in the future, obviously the transcript to the report by Jared and Lori and the discussion will be available on the Institute's website. And we encourage you to continue to stay engaged. But now, let me turn it over to Jared. Thank you very much.
Jared Bernstein: Well thanks for that great introduction. It's a testament to Adam, to Fred, my friend Joe Gagnon, and many other folks here at PIIE that I'm even standing here and that Lori and I were invited because these are folks who are open to different viewpoints and willing to mix it up with us in ways that I think are healthy. So thank you again for the invitation and a big shout-out to my co-author Lori who you'll hear from later.
You mentioned the CNBC shtick and how it would turn your stomach to do a lot of that. And I was thinking of a funny thing that happened the other day or at least it was funny to me where I was on CNBC and we were talking about the economy. And in the context of the election, I pointed out many things that were going well. The unemployment rate is falling a great deal. There's been steady job creation. We're starting to see some wage growth. Last year, incomes actually went up for low and middle income folks at a very nice clip.
And yet, there are still great pockets of despair. No question. I don’t want to overstate it. And as I was starting to say it, the CNBC moderator said, "Well, Jared, you know there are two Americas out there." And I've been writing about the two Americas out there for about 30 years while these guys were largely focusing on stock tickers and that's fine. But it kind of elevates the extent to which the issues that motivate Lori and I are so prominent right now.
This is the outline of my talk to you for the next 20 or so minutes. I want to talk about the election and the elevation of international trade in ways that I haven't experienced for decades maybe ever, ways that I think are both unfortunate but also what's the old thing where I don’t know if this is true. But they say in Japan the word for crisis and opportunity are the same or similar.
So I think that this moment of the elevation of these issues in the context of the election presents a great opportunity for us. And it’s one that Lori and I are trying to take advantage of. I think the importance of promoting globalization in the spirit that Adam said in his introductory remarks is critical.
For decades, I'll argue the costs of trade to American workers in their communities were largely ignored. But in the current debate, we risk failing to recognize some of the benefits and that a much more balanced view needs to come out of these both in terms of micro impacts on people, jobs, wages, communities and on macro impacts in ways that I don’t hear enough said about. And I'll get into that a bit.
And then the bulk of my presentation is the proposals that Lori and I put together that make up our paper; ways in which we believe trade agreements can be re-crafted to put workers and consumers and the environment more at the core of the agreements versus the desires and the privileges of investors and corporations. So we think that if we take out some bad stuff and put in some good stuff we can help to achieve that goal.
And finally, I'm going to talk about a very important in my view conclusion which is at that the status quo won't hold. There are absolutely no requirements. And even if I made one, you probably wouldn’t pay attention to it that you have to agree with everything that Lori and I say. But I do think that if your response is we don’t like what you said and we don’t have any ideas of how to do it differently, then you may not be the friend to globalization that you like to think you are.
So, why now given the current context? Why are we having this discussion now? Well, for years, I think elites from the center-left or the center-right pay too little attention to the costs that international competition was meting out on various workers and their communities. This is not a statement about whether trade has net benefits whether winners can compensate losers. And if anything, its connection to trade theory probably has more to do with factor price equalization than comparative advantage.
But finally, I mean it took a long time given many of us and some folks in this room who I know have been working on trying to get people to pay more attention to the costs of trade particularly in imbalance trade on our manufacturing sector. And communities that depend on those jobs, high value-added jobs, have been elevated in an important way. Donald Trump and Bernie Sanders certainly brought that to the floor. And Hillary Clinton is playing a role as well.
So I think the question of why now I mean Lori and I sort of scratched our heads and asked what took so long. To me a much more interesting question is what now. Why now has to do with the fact that as I'll show you in a minute I think that some of the evidence has become pretty compelling, evidence that has actually been presented on this stage recently. Some of the evidence of the costs of trade invoking a more balanced view has been compelling. And people whose voices haven’t been heard for a long time are being heard and I think that’s a positive. What now is the motivation for our paper.
I also think one of the reasons we're hearing about this is because trade and immigration kind of sort of become this rubric under which everything that's going wrong for people gets placed. Income stagnation, inequality, the erosion of labor standards, institutional dysfunction, the erosion of unions, the bargaining power deficits that many workers have -- particularly non-college educated workers -- perceived competition with immigrants. All of that sort of gets stored under the rubric of trade in the international debate. So that's also in the current context.
But the politics of trade have, I think, been pretty destructive. The non-transparency of trade agreements pivots by candidates who say one thing and then pivot to something else, the elites essentially arguing as I said before, well yes, you think you've been hurt by trade. But you just don’t realize its benefits. And here's another trade agreement for you. It's going to be better than the last one because this one has a little bit of Trade Adjustment Assistance in it, which many workers just call burial insurance. So the kind of elites versus those left behind has really been ripped open in the current election.
And this is not just the US thing as Adam and many other folks here have written and talked about obviously. Not only is the Brexit another piece of evidence of concerns about and fears of globalization in that case and one view of Brexit is a plebiscite on migration. But the rise of anti-globalization movement is something we all have to take seriously.
The other day the banner headline of the Wall Street journal was "Globalization on the Skids." The IMF just published a chapter, a very long detailed chapter of slowing global growth—I'm sorry. Slowing of global growth is in there, but it’s slowing growth of trade chapter 2 in the New Outlook. And so there is a real sense that we're at some kind of a turning point.
I think it’s very important to distinguish between trade and trade agreements, by the way. To what extent is trade versus trade agreement is the problem. And here, there's just really a very serious conflation. I mean we have no bilateral trade agreement with China. Pretty hard to imagine we will in my lifetime. And yet, China absolutely dominates these discussions. I won't try to imitate the way Alec Baldwin says China when he's imitating Donald Trump. But it’s just pervasive in the discussion right now.
But David Autor from this stage a few weeks ago presented his paper with Gordon Hanson and others on the China shock and the impact of trade with China particularly in the 2000s of our large and growing deficit with them as China trade penetrated communities in the US. And they show significant loss of manufacturing jobs and wages and incomes. Josh Bivens has done a similar work, again, tapping mostly kind of the factor price equalization dynamics that occur when we have large trade deficits with countries who have many much lower paid workers in their production sector.
And meanwhile kind of in the background of all this is this notion, yes, as long as the winners can compensate the losers, trade is a winner. Not only did the winners not compensate the losers and that's one of the big problems that we've had and one of the reasons we're here today is because folks who've been hurt by trade have been insufficiently helped by any kind of a safety net or a trampoline to help them get back.
It’s not just that the winners don’t compensate the losers. It’s that the winners take their winnings. And in our extremely monetized political system, they further insulate and protect themselves from the losers and argue for the kinds of policies that we argue about today, tax cuts and various types of breaks, that not only will screw the losers further but will continue to enrich the winners.
So even if you believe that the winners can compensate the losers, the extent to which they don’t and in fact build a firewall between them and the losers with their winnings is one of the reasons we're here today and certainly can't be ignored.
If you look at the blue collar manufacturing wage, so the blue line there is the manufacturing production worker wage, compensation actually not just wages, wages plus benefits. I think you really get a feel for what we're talking about here. The other line is the trade deficit as a share of GDP that Y-axis is on the right.
And when the trade deficit was around zero as a share of GDP, the manufacturing compensation for blue collar workers doubled from around $12 to $24 where it's basically been ever since as the trade deficit has become large and negative.
Now, you throw two lines on a graph. People think you're making a causal argument and I don’t blame you for thinking that. And in fact, there is causality in there somewhere. But I'm not at all saying that the trade deficit is determinant of every negative outcome. And in fact, we had a trade deficit that was something like -4 or -5 percent of GDP. The last time we were at full employment at the end of 2000s. So a trade deficit does not keep you from getting to full employment.
But no less than our own Joe Gagnon has said in a presentation I recently saw put it in his typical concise terms. Trade deficits cost jobs in bad times, distort economy in good times. I think the problem with the trade deficit is not that we can't get the full employment with large trade deficits. We do. But that's often invoked bubbles.
When you're at the zero lower bound on the interest rate, it's actually pretty hard to offset the trade deficit because the Federal Reserve can't do much to help you. And these bubbles have been fueled by periods of currency management and other issue that IIE has gotten very much out in front of where some of our trading partners suppress consumption, boost savings, export those savings to us in ways that both depress growth and interest rates and labor demand here. So essentially, exporting savings, importing labor demand, and leading to some pretty bubbly financial activity in the meantime.
Now, this isn't just me talking. This is Ben Bernanke writing in 2005 describing the dynamics of a global savings glut. Bernanke thought it won't last particularly long. But in my view and the view of others it has and it’s now embodied in capital flows that are highly volatile and often on hair triggers such that the Federal Reserve if you read Lael Brainard's work has to think twice about interest rate hikes because they have to consider the impact on pooling and capital flows exacerbating some of these macro dynamics. So these are all, I think, important economic issues with trade much less with trade agreements.
The rest of my talk is going to be devoted to and if it gets a little sloggy I apologize. But this is the kind of down in the weeds part that Lori and I really focused on.
Writing the new rules of the road that put workers and consumers so in with it, so we think—and again, IIE has been in front of this, Joe, Fred, lots of folks here have written about the importance of enforceable rules on currency in a trade deal. Critical in both political terms and in policy terms widely agreed upon. I don’t think the unenforceable side agreements are sufficient. I'd say they're insufficient. I think the IMF and the WTO statutes and rules on this that are never enforced give you a good example of the extent to which that's true.
And I think the objections to putting enforceable rules in a trade agreement fall short. One objection is, well, the China is not suppressing its yuan anymore. They're not suppressing their currency. So we don’t have to worry about that. Well, I bring my umbrella even when it’s a sunny day just because they or anyone else isn't suppressing now doesn’t mean that they wouldn’t later. And by the way, if nobody is suppressing their currency, then let's just put it in the trade deal and humor Lori and I.
So I don’t buy that. I think what we've heard more of lately is that enforceable rules on currency would put the Federal Reserve in the crosshair. I think that's pretty silly. I think it’s unquestionably the case that monetary policy affects the value of the dollar so does fiscal policy, by the way. And I don’t think anyone is saying we shouldn’t be able to do that.
Simon Johnson has written, I think, pretty compelling stuff on this point. When you’re doing domestic monetary policy, you’re buying your own bonds. When you’re intervening in currency markets, you’re buying international assets. And I guess that's hard to tell the difference.
We think we should change the sequencing on labor and environmental standards. Globally accepted labor and environmental standards exist. But again, they lack effective enforcement and need to be strengthened. Labor standards that have been set forth in the ILO conventions, environmental standards provided by a more robust list of multi-environmental agreements should be the minimum requirement that's included in the cortex of the trade agreements. I suspect there are a lot of people in this room who know this level of weedy detail. I know Lori is one of them and she'll be happy to talk more about that later.
But I think our key insight here has to do with sequencing. Joining free trade agreements and continuing trade benefits with countries like ours have to be conditioned on maintaining compliance with the kinds of terms I just stressed, the kinds of labor and environmental standards that I just stressed. So that implies different sequencing has to be incorporated, should be part of these new rules of the road.
If the rules are unenforced or they require a one-time check the box review or if they're just an assumption that once you trade with us you’re going to meet all kinds of environmental and labor standards because that's just the sort of infectious way we are. All of that is insufficient and it makes no difference how progressive these rules are if they're not enforced. So we think the sequencing needs to be altered so that rules are actionably in place on environmental and labor standards before we sign the deal.
Tighter rules of origin. In order for the benefits of our trade agreements to flow to workers in the countries that sign the pacts not just us, but workers in developing countries, there's got to be playing by the rule on rules of origin that can pretty easily be gained right now.
Even under the TPP, a majority of a car's parts could come from China, but a car assembled in a TPP country would still enter the United States with Duty Free privileges that affords signatory to that trade deal. So tightening up the rules of origin. And by the way from lots of people who've read these rules so far, that one has gotten a great deal of agreement. We'll see if the panel is consistent with that.
More logistics in these trade deals and less rent seeking. Trade agreements should focus more on just the basic logistics of trading goods and services across borders rather than investor protections, extending patents, all the kind of rent seeking nonsense that goes on.
And this includes facilitating trade flows with rules to standardize and reduce customs paperwork even with tariffs as low as they are. I think the average tariff rate is something like 3 percent, maybe 5 percent. Even with average tariff rates as low as they are, only 3 percent that we were just talking about this at our table, only 3 percent of small and medium businesses here export to any country compared to about 40 percent of large US firms.
So the kind of logistical changes that would help some of these smaller exports find their way into the global supply chain should be part of these deals. Not investor state protections and patent extensions and so on, which I'll now invade against a little bit about those because here are some things that we think should come out of the deal.
So look, we understand the view that—Lori and I—we understand that absent some form of investor protection there's a potential for suboptimal investments in developing economies where investment risk is high. I mean I think that's common sense. But that doesn’t mean you saw this with the current ISDS or investor-state dispute settlement process where investor's privileges are elevated over sovereign democracy.
Trade agreements provide a backdoor under the current ISDS process imposing extreme concepts of property rights. Concepts that have been repeatedly rejected by our courts and our Congress such as that the notion that government should pay regulatory takings, compensation to property owners for the right to enforce environmental or health standards, standards and safeguards, and again, sovereign democracies have supported.
The problem with the ISDS in our view is that it’s trying to solve the weak rule of law among our trading partners by having the broad public bear the investment risk or by changing fundamental principles of US law that were democratically agreed upon. We believe that investment risk should be borne by the investors themselves. It’s their skin not everybody else's who should be in the game. And operationally to us that means that institutional investors must self-insure against the risk endangered by trading with countries whose legal systems they don’t trust and maybe somewhat snarky. I wrote that in today's innovative capital markets could handle a price such insurance. And if you listen to our USTR, we never lose such a case. So it should be cheap.
Just for the interest of time, I'll go to patents—on food safety because we've actually had some interesting discussions about that. I mean the idea on food safety and consumer product protection is simply that we need to eliminate rules in trade agreements that allow imports in that don’t comply to our safety standards. So this, again, sort of relates to the ISDS discussion. Eliminate rules that allow imports in that don’t comply to our safety standards so that we have to lower our standards to be in compliance with the trade deal. That needs to come out.
On patents, I mean, look, trade agreement should avoid protectionism. I mean it's that simple and rent-seeking through patent extensions and intellectual property rights. WTO already requires signatory countries to enact patent and copyright protections, pretty strong ones in my view,. Future trade agreement should limit the competition that brings down the prices of medicines. And this has been obviously a hot debate within the TPP. It’s one of the reasons why Doctors Without Borders came out very strongly against the TPP because of the expense that the extension on the patents on biologics and biosimilars would mean to the prices in developing countries who would be hard pressed to life-saving drugs.
And frankly for our skin in the game, we should not allow trade agreements to limit the ability of governments to negotiate prices with pharmaceutical firms for bulk purchases of medicine. This is something that the Center on Budget where I work has weighed in on because we want the government healthcare programs, Medicare and Medicaid, to be doing precisely that kind of negotiations. So trade agreement should certainly not limit negotiations with pharmaceuticals for bulk purchases of medicines in that regard.
Adam, do you know how much time I have left? Four, are you showing four fingers?
Adam Posen: Four minutes.
Jared Bernstein: Four fingers left. Four minutes. Four minutes. I get you. That's great. Let me skip to process changes because the thing about in financial regulation is exactly the same as everything else I've been saying. Trade agreement shouldn’t prohibit our ability to regulate our financial markets in any ways, again, in the spirit of preserving sovereign law.
So I think the process changes are really important. And my thinking on this is flipped. I used to believe and I worked for the government. I worked on the Korea FTA. But I've thought about this. At the time, I sort of understood this idea that if you negotiate these things in public it’s going to get very gnarly very quickly. And I just think the logic of this is undeniable especially in the current debate.
From the choice of the partners with whom we deal to the formulation of the negotiation positions to all the back and forth that goes on for years when we negotiate these agreements, the process is too secretive. It's too exclusive. It’s too non-transparent. Negotiators can meet with outside interest groups and they do and we've probably all been part of that. But these groups are rarely allowed to see the agreement in progress and have no way of knowing whether their input is heeded.
The process in the United States actually got worse over time as trade documents have been subjected to national security classification code. So it’s become less transparent while the European Union has moved largely in the other direction.
The argument for the current process is that whether negotiators were to be more transparent and this is the argument I used to believe. And this is the argument where the negotiators to be more transparent, stakeholders and political bodies certainly would constantly be challenging negotiator's decisions and they'd never make any progress. I think there's a logic to that.
And this is clearly an untenable and undemocratic position. It’s basically saying if Congressional representatives knew what we were doing, they'd never leave us alone. And that's just fundamentally one of the reasons we're in the mess we're in.
So, look, my final point is this. We are in the midst of non-inclusive growth. So this is the inequality problem. Non-inclusive growth, stagnant trends in middle-class incomes and wages, slowing productivity, and dysfunctional government have contributed to this moment that we're in. Do you really think the status quo can hold given those facts of the case and I strongly argue that those are the facts of the case?
In order to preserve the benefits of globalization and agree strongly with Adam to push back on the protectionist impulses, I think we need to think outside the status quo box. Let me quote and I'll stop here. Let me quote Dani Rodrik, I think, a really insightful Harvard Professor on trade.
Dani Rodrik wrote the other day about a week ago on the Times. We need to rescue globalization not just from populist but also from its cheerleaders. Globalization evangelists have done great damage to their cause not just by underplaying the real fears and concerns on which the Trumps of the world thrive, but by overlooking the benefits of a more moderate form of globalization.
You are not required to agree with Lori and I on anything I've just said. But I will argue that it is time for a rethink. We're completely open to your ideas. Our idea here is to start the conversation not end the conversation. And in fact, I think Adam and others will agree with me. Probably the conversation on trade will never end. So thanks very much.
Adam Posen: Jared, that was awesome. Thank you very much. And also 24 minutes and 41 seconds. Yeah, I know. But more seriously that was really wonderful, open, clean, clear, a great way to get this discussion moving forward. Let me now turn to Daniel Griswold, please.
Daniel Griswold: Thank you very much, Adam, and thank you all coming here today. I think Dr. Bernstein is having a mellowing effect on Lori Wallach. I've never heard her say such nice things about trade expansion than she has in this paper. So keep that up. This is a stimulating paper worthy of a serious thoughtful response. I told Fred Bergsten for somebody like me it's worth at least a couple cups of coffee in the morning reading their paper.
I could respond point by point to a lot of things. But let me in my less than 10 minutes focus on what I think should be an important issue for our progressive friends. And that is the income inequality effects of trade and of their various proposals not just on low income people here at home but low income people abroad.
On that theme, the paper starts with I think currency manipulation is a rather odd issue for progressives to latch onto. They don’t mention China specifically in the paper. And it’s usually the prime suspect when it comes to currency manipulation. I know we have. There have recently been two international institutions charged with pronouncing on foreign exchange rates the IMF and Fred Bergsten who have said that the Chinese currency is no longer overvalued. It has reached a fair value. And if anything, the Chinese are intervening to keep it propped up.
I'm not sure who else would be the target of currency manipulation. Would it be Vietnam, the European Union with TTIP, Britain if we sign a free trade agreement with them? The paper doesn’t address the difficulties of enforcing currency rates. The Treasury Department is currently free to declare a country of currency manipulator. They have not done that for over 20 years. Or the longer-term forces that tend to offset any advantages you get from artificially depreciating your currency.
Notice the paper consider the income distribution effects of currency policies. If we are out there badgering other countries to strengthen their currency that, of course, means by definition a weaker US dollar. That is, of course, of a benefit to certain exporters into global economy, General Electric and other big players, Boeing. But that comes at the expense of tens of millions of American consumers who will pay higher prices for imports because of a lower priced US dollar, depreciated US dollar, against our major trading partners. And of course, higher import prices hit poor families disproportionately because they spend a higher share of their income on such tradable goods as food, clothing, shoes.
And there have been studies that have shown this. The study a few years ago by Broda and Romalis at the University of Chicago found that imports from China were a big reason why inflation was lower on basic consumer products that were important in the budgets of poor people. They determined that our trade with China alone had offset about a third of the growth of income inequality over the period of the study even factoring in the impact on jobs.
A more recent study from the National Bureau of Economic Research found a pro-poor bias in trade expansion of all 40 countries they looked at. They did the counterfactual that if you stop all international trade it would reduce the spending power income 28 percent among the richest 10 percent, but 63 percent among the poorest 10 percent. And they found that a partial reduction in the cost of importing food and manufacturing had a pro-poor bias.
Our highest trade barriers in the United States today are aimed at products that are made by poor people abroad and consumed by poor people here at home. We've largely achieved free trade for the stuff that's important to the richer households. But our highest tariffs are still in place for the stuff that's important to poor households. There's no urgency in this paper for getting those tariffs down.
The paper exhibits a double standard on what they call the people's rights to democratically govern their own affairs. It's very protective of our right to determine our own labor and environmental standards here in the United States. But they're insistent that we threaten through trade withholding trade benefits that we put pressure on less developed countries to change their labor and environmental standards to be more in conformity with what we think they should be.
They even want to dictate minimum wages in other countries. And they say 50 percent of the median wage. Well, I did a back of the envelope calculation. Our national minimum wage in this country is about 25 percent of our median wage here in the United States. Why shouldn’t our trading partners be as free as we are to determine what minimum wage should be if you have one at all? And by the way, minimum wages I don’t think have that much impact on trade in that trade-related jobs typically pay well above the median wage.
In fact one of the cruel ironies of this aggressive approach to trade is that it would stifle the very forces that our increasing wages in less developed countries. The paper repeats the myth of the race to the bottom. Most outward investment from the United States doesn’t go to poor countries; 80 percent or more goes to other rich countries. Environmental compliance is a pretty small part of the cost of production. Labor is becoming a declining share of production. Most of our industries compete not directly with less developed countries but with producers in Japan, the EU, Canada, and other high-wage, high-standard countries.
In fact, over the past 25 years, we've had quite the opposite of a race to the bottom. Since 1990 according to the World Bank, the share of the world's population living in absolute poverty is down by two-thirds from 35 percent to 11 percent.
One billion people around the world in the last 25 years have been lifted out of the worst kind of poverty, most dramatically in East Asia, but also pretty dramatically in South Asia, some progress in Sub-Saharan Africa, Latin America. It’s not because of foreign aid. It’s not because of enforceable labor rights through trade agreements. It’s because of the spread of global capitalism.
I kind of feel sorry for my progressive friends sometimes because they can't share fully in the joy of this achievement for mankind because they haven't contributed all that much to it frankly. Instead, they want to throw sand in the gears of a historical trend that has done so much to lift the lot of our fellow human beings around the world.
Let me just end on the negotiating process. The paper asks who's at the table. Well, I think when it comes to trade negotiations, there should only be one party at the table representing the United States. That's the US Trade Representative. That official represents the elected president of the United States who's acting at the direction of the US Congress, which is charged with our Constitution to determine US trade policy.
Are the negotiations secretive? Yes, at certain phases, but I don’t think any more secretive than other negotiations, probably less so than other negotiations our government engages in on climate change and arms control. We know from negotiations you can't make the compromises you need to if every proposal is immediately out there for public inspection. As Jared did mention, the administration does consult with standing committees, not just industry, but labor and NGOs. And of course, the ultimate check is Congress, which is answerable to voters. The Trans-Pacific Partnership text has been out there for about a year now on the internet for everybody to go through. And there is some back and forth about improving it.
So let me just end with this. I think the main argument of this paper is not about process. It's about results. No matter how many clauses are added on labor and the environment, no matter how long and thorough the process is, our progressive friends are never quite satisfied. The next agreement down is never quite good enough. And we have the case with the Trans-Pacific Partnership.
Despite those nice words about trade in general at the beginning of the paper, the authors are still not at peace with the fact that we have more and more freedom to do business and trade with fellow human beings in other countries. Thank you very much.
Jennifer Hillman: Well thank you very much. It’s really a great honor and pleasure for me to be here and a treat to follow Dan in commenting on what I would agree is a really interesting and insightful paper that I too would urge everybody to read.
And I'll start by saying that I have a significant amount of agreement with a lot of the concerns that Dr. Bernstein raises in this paper over our current international economic problems. But will confess to also having a significant amount of disagreement with his prescription for how to fix it. Let me start maybe first with where I would agree.
For me, I certainly would agree that there is a real reason to be very, very worried about the issue of income inequality and the degree to which economic growth and globalization more generally have not been widely shared. I certainly believe that there is very legitimate criticism. And when you think about where is Donald Trump or others sort of gaining points if you will, it is and I think raising again and again the very real concerns over that growing inequality gap.
Where I guess I have some concerns with the paper is how much of the blame for the increasing gap in our inequality can be laid at the feet of trade. And I would say more particularly can be laid at the feet of trade agreement. And what do trade agreements really have to do with increasing the amount of the wealth gap? Particularly, I would say the agreements that have been negotiated in recent years, in years in which we already have a very, very low tariff rate coming into the United States.
So query whether the trade agreement caused any significant shift in the amount of imports coming into the United States, most of those agreements were much more heavily focused out really on gaining access to new markets. So to the extent that you think that in some way contributed to the wealth gap, it is only this notion that when you open a new door when you've opened a new market who walks through that new door; people with capital and people with know-how.
And to the extent that you want to say those with capital and know-how are the haves, then perhaps you have given a greater opportunity for the haves, if you will, to benefit for the trade agreement. But it’s not the same thing as saying you've somehow used a trade agreement to push down the have-nots. And to the extent that that's what Dr. Bernstein is arguing to some degree I would take a disagreement with it.
The second issue that I would certainly agree with was his comments on China. And I think the evidence increasingly that China does represent something quite different and needs to be thought of differently. Then all of us that have grown up looking at all of these studies about trade have done, I was very appreciative of the comments about the Dave Autor study. That is really indicating that there really is something very genuine about a China shock and that China really is, in terms of its size, its speed, the magnitude of its willingness to subsidize major industries has created something that the United States and the rest of the world are really having a great deal of difficulty dealing with.
I mean if you look at just one little sector of steel and you look at what China has done, China added 60 million tons of capacity every single year for over 10 years. Just to put 60 million tons of capacity into some perspective, that's the total output of the United States and Japan combined. And that's China's additive capacity in each year. So, again, I do think he is right in suggesting that we need to at least adjust our thinking to take into account the very different role that China has played in the overall governing system.
The third thing that I would say I would to some degree agree with and on the other hand disagree is this issue of where does labor and the environment play. And there my reaction is that I think some of the comments are a little bit out of date. Most of our recent agreements have contained provisions on labor and the environment. And we are now beginning to see real efforts at least trying to enforce them.
I mean if you think about the DR-CAFTA agreement. It has provisions in there on labor and the environment. And we are seeing—again remains to be seen how it will come—but we're seeing a first real challenge. The United States has brought a case against Guatemala. It's being litigated in front of a panel today. And I think importantly to keep your eyes on in terms of whether or not these disciplines that are in our current trade agreement will work is to look at how does that case come out.
Again, two real big issues arising in that case. I mean the first one is this issue of can you prove, can you actually prove that there has been a systemic violation of Guatemala's law such that you can bring a successful challenge. Because, again, I think the perspective of the progressives all along has been it’s maybe okay to say that we’re going to bind people to be in conformance with their own domestic law because that presumes that Guatemala has a labor law and that you can in fact prove that there have been systemic violations of Guatemala's labor law. So this is a test case. I mean we have brought a case that says, yes, Guatemala does have domestic laws and, yes, we believe there have been systemic violations.
The second important piece of that case is a requirement that you have to be able to prove that the violations of the trade laws caused trade effects in the United States or caused trade effects to all of the DR-CAFTA parties. And here again, the United States has put forward what looks to me to be very compelling evidence that you can show but for these labor violations there would have been stronger labor union fighters in Guatemala that would have been able to produce sort of better wages that would have changed the sort of cause structure such that you can show that, yes, in fact Guatemala's systemic violation of its labor laws has caused trade effects in the United States.
So, again, just to keep an eye on, but my view is I'm not sure we need to go back and redo how we think about labor within the context of trade agreements when we already are beginning in all of the sort of next generation everything since the May 10 Accords. We have these provisions within the agreements. I think we need to make sure that they are working.
Third, I won't comment at great length on currency manipulation given that Dan, I think, has already well and truly addressed it. Well, I would certainly share the concern that you can wipe out all of the benefits of a trade agreement by the way in which you could manipulate your currency.
My own sense is that the real problem has been in both the IMF and at the WTO in terms of how we think about currency is at some level it stems from a standard that says that in order to bring a currency manipulation case you have to prove intent on the part of the government to manipulate their currency in order to gain an unfair trade advantage.
And I think it’s that point that’s been really difficult for governments to get their arms around about whether they want to accuse another government of this intent, this malicious intent if you will, to distort their currency for a trade manipulating purpose. I mean I think that's part of the reason why our Treasury Department has generally not been willing to go there. And it’s why the IMF in its entire existence has never found there to be a breach of the articles of agreement of the IMF is because of this.
So, again, I would say across a lot of these issues I would agree that these are serious problems that are being very appropriately raised with our trading partners, the other sort of with our trade policies.
The other disagreement I guess I would have is with Dr. Bernstein's list of what should be out of trade agreements. I mean you all saw that list go up there; ISDS constraints on food and safety patents, limits on financial regulations, and process changes, this list of which we do not have this in our trade agreements.
I'm not sure I'm disagreeing because I think it’s essential that each of those actually be in agreement. But I'm not sure they're either as problematic or as really important to any of these trade agreements as it sounds if you just sort of read through that list. And part of it is also if you were to take them out of our trade agreements, then what?
I mean let's just pick ISDS. I mean we hear loud and clear a lot of the complaints about ISDS. But let's remember that in every bit that the United States has and every bit that Germany has and every bit that every other country has, there is ISDS language and much of it very rudimentary ISDS language, certainly not as if you will pro-progressive ISDS language as what you’re seeing in TPP or any of the other agreements.
So if you simply say I don’t want ISDS in this trade agreement, are you nonetheless leaving in place much older, much worse, if you will, ISDS language in every bit that would still remain? So not clear to me that, again, that this list of what should be out would remain.
And then I guess the final point I would make in commenting is, I think, there's a couple of at least to me the more serious faults of our trade policy and/or our trade agreements that are not addressed in what Dr. Bernstein said. And the one that I would highlight first and foremost is the lack of effective disciplines on subsidies.
I mean to me this is sort of, if you will, one of the absolute number one problems with our trading system and our trading policies is that we have simply been unable to get our arms around very substantial disciplines on the use of subsidies. And I think a lot of the difficulties that we're seeing in terms of the growth of China in steel, aluminum, chemicals, and all of these raw materials stems from this inability to effectively discipline subsidies.
We don’t have any subsidy disciplines anywhere on subsidies for services. So you start thinking about the fact there's no discipline whatsoever on services. The discipline that exists on goods exists only in the form of countervailing duties which are only helpful if the imports are coming into your market. They're not helping you discipline subsidies more generally out in the rest of the world. So on that score, I think there are some missed things.
Other last comment, a couple of missed things to me, is how we're dealing with the changes brought about by technology. I mean there's presumption that its trade that caused all of the job losses as opposed to sort of the changes in technology and to some degree some of the changes within our corporate governance structures that are not perhaps included within that. And with that, I'll close. Thank you.
Fred Bergsten: I want to start by also congratulating Jared and Lori with whom I've also co-authored and applauding their paper. They recognized that globalization will surely proceed apace. Their words. They provided specific blueprint, practical proposals for us to talk about that can be a basis for a practical policy debate. And that's also the good. And I agree that we can significantly improve the template that we now use to negotiate FTAs. So in broad that's agree.
But I want to challenge the two basic premises that I think underlie their proposals, one of which is analytical and one of which is policy. On the analysis, the traditional analysis of trade and trade agreements reaches two basic conclusions. One is that liberalization produces large net gains for the United States. That's comprised of even larger gross gains offset by modest gross losses.
The second conclusion is that the vast majority of the population gains from lower prices from increased consumer choice from improved productivity. Most of those gainers by small amounts, but the vast majority of population gains at a small number of the population loses by bigger amounts because the shock to them is greater. But in terms of the comparison winners and losers, the winners are far ahead both in quantitative terms in aggregate dollar amounts and in terms of the number of people.
Many examples from our work show that, Gary Hufbauer a decade ago showed that the US economy was a trillion dollars a year richer as a result of all the trade expansion of the previous half century. He generously acknowledged there were maybe $50 billion of annual losses, a benefit-to-cost ratio of 20:1. And that was from liberalization as well as technology improvement.
Gary also found that there were available another half trillion dollars of gains from liberalization not tinkering with the rules, but liberalization reductions of barriers, big further gains. Of which, Peter Petri on analysis we released earlier this year showed that the TPP would gain us over $100 billion of annual additional benefits. Robert Ross who did a very detailed analysis for us of the cost side concluded that maybe 50,000 to 100,000 jobs per year might be displaced out of a total labor force of 140 million and monthly job turn of 4 million, again, a benefit-cost ratio close to 20:1. And so those are the analyses that have underlined traditional thinking about trade.
Autor, Dorn, and Hanson say there was a China shock. Indeed, there was a China shock. But Autor, Dorn, and Hanson go on to say it was one shot. It's over. There's nobody else out there that could replicate that. And they support TPP. So it's hard to say that that ought to change the basic way of thinking about trade policy.
Now, Jared and Lori acknowledged the gains. But they seemed to be challenging the received wisdom that the net effects are very positive. Why do I say that? Well, I quote two passages from their first few paragraphs. They talk about changing the subsidy rules so that they will represent the needs of the majority implying that the majority's needs are not now met by trade policy or trade agreements.
They suggest that we should offer the increasingly large portion of the population who find themselves on the losing side, something different again. The implication underlying their analysis that somehow the traditional conclusions are incorrect, but there's no evidence of that. They haven't provided the evidence. Nobody has provided the evidence.
And until somebody does provide that evidence, I'm going to find it hard to disagree with the traditional analytical foundations established over so many years by so many people with such clarity that trade on balance and trade agreement on balance benefit a vast majority of the people both in terms of numbers and in terms of aggregate amounts.
Now turning to policy. Even if you buy their analysis that there's a problem for a large percentage of the country, I find it hard to believe that their policy proposals would do very much about it. And indeed, I think there are notions for tinkering with the trade agreements. At best, it has to be marginal, one of the main problems with trade that are causing political angst in the country and providing support for Trump and Sanders.
Well, it’s not ISDS. It's job loss risks, lower wages, worry about inequality. But none of the proposals that Jared put up on the board with the possible exception of one that I come to at the end really would have anything at all to do with that. Instead, I would have thought that the way to go is to deal with domestic policies that can effectively address wage loss, job loss, job insecurity, and the need for work retraining.
There's a whole long list policies that one could propose and pursue in that respect. Jared and Lori know them well. And they come into the heading of domestic safety nets and real adjustment programs. Wage insurance much more generous than the pilot programs so far. Big improvements and unemployment insurance are only one-third of the unemployed even gets it. And when they do, they only get one-third of what they earned before.
Further improvements in Obamacare. Divorcing health insurance from job increases the mobility of the workforce and reduces the risk of losing a job due to the trade or any other dynamic economic change. Significant increases in the minimum wage. Much more generous earned income tax credits. Serious work retraining and lifetime employment programs.
Now, Jared and Lori rightly say that those things have been promised in the past and not done. But I think the answer is not to throw out the trade program with all the benefits that I suggest it continues to provide, but rather to get serious about those programs. Presumably, President Clinton wouldn't want to do that, anyway. But if she does, then it would add to the defenses against the losses of the big gains from trade that we can otherwise achieve. So it seems to me at the analytical level at the policy level, there really is a need for a new path. But it’s a different path from that that had been suggested to us today.
Finally, all of this does not say that we cannot improve the trade agreement template. Here, of course, I especially agree with Jared and Lori or maybe they agree with me on the problem of currency manipulation. That is a big cause of US economic losses. I was for a while. It’s in remission now. As Dan said in the last couple of years, there's not much manipulation. China is on the other side of the market. So right now, manipulation is in remission.
Nevertheless, Jo Gagnon and I have a book about to come out on it. I'm not going to discuss it much in detail today only to say in response to the proposal by Jared and Lori that it would be good in my view to add currency provisions to trade agreements. It would be very logical. It should be doable, the same way labor and environment have come up into trade agreements over the years.
But again as with safety nets and with worker adjustment, we can do much better by adding to our own domestic policy arsenal. If the US were to adopt one simple measure what I call countervailing currency intervention, it would deal with the problem. If we told the Japanese that every time they bought a billion dollars' worth of dollars to keep the yen weak and the dollar strong, we would buy an offsetting billion dollars' worth of yen to neutralize that effect. It would deter the whole practice because then it would have no impact. It would defend our rights and we don’t have to go out and negotiate with the rest of the world. We should just do it, the Nike approach. Just do it.
So if we put in place countervailing currency intervention and did serious work on the safety nets and the labor training programs, then I think we have a program which would respond to the real concerns which are generated by trade. We could further improve the trade agreements in the future along their lines if those are debated out and found to be practicable.
But I think to deal with the real problems, the ones that have surfaced so much in this political campaign, an approach of changing domestic policy, reiterating the traditional verities that trade as a whole benefits almost all Americans with very large amounts of money is the right way to go. Thank you.
Lori Wallach: Thank you all for holding this event. So my main mission is to comment on the commenters. But I just want to start with an overview of situating the paper, which is that the next president is going to have to create a new approach to trade. And even if you do not like the proposals that we are laying out and are not altogether convinced that we have a big problem with our current trade rules if you’re not convinced where the public is at this point means the status quo model isn't politically viable is.
And as somebody who does not want to see global trade collapse and sees the upsides of trade as compared to a lot of what's in our trade agreements, I think it is a fairly dire warning to folks, who in this town have been strong advocates or our past trade agreement model to recognize the political reality of where we are. And that's not going to be possible to just talk people down in a way educate them out of their thinking that there really has been a shift that needs some kind of redress.
The other piece of that was to say that the people who think of this election as a fluke and things are going to go back to normal afterwards I think that's also a dangerous mistake for the cause of trade expansion. Because if you look at the polling, the trending in the polling, and you look at the trade votes, the votes are getting tighter. The polling was getting more mixed. But the thing that we've seen now is the elevation of the issue has now exposed a lot more people to the details of aspects of the agreements that aggravate people enormously.
And so what the polling has shown consistently is that a lot of people have no clue for instance what TPP was until they had both Sanders and Trump and then Clinton talking about it all the time. And now as a result as awareness has gone up, so has opposition. And that is a reality and that does not go back into the box.
So given that, how do we separate out the cost of trade expansion which has real benefits with some of the stuff that's ended up in our trade agreements that is now weighing down the cost of trade expansion. And the theme of our paper basically is that trade agreement should be for expanding trade. Yehey! And that we should get rid of some of the other baggage. And effectively, our analysis is one of corporate capture.
So the current regime of trade negotiations that was sat in 1974 tweaked, but basically Nixon's fast track with the Trade Advisory Committees is simply in congruent with the reality of what is now in today's trade agreements. So we have an Advisory Committee System premised on sort of the notion of the Tokyo Round, which is we're going to negotiate about tariff cuts on goods, nothing we can't drop on our foot. It's going to be in the trade agreement. It’s about goods.
And over time, a closed system that privileged particular commercial interest resulted in what's effectively the hijack of trade agreements to have the good name of free trade weigh down with all these other stuffs unrelated to trade some of which is sort of classic rent-seeking protectionist. That particular industry got a particular thing and that's now a trade agreement chapter. And they have this vision of Adam Smith and David Ricardo rolling in their graves to look at some of the chapters that are now in free trade agreements. That's the policy point.
There's also the political point. You get rid of people like me in this debate if you get back to trade. Now that's not a 100 percent true because I want the trade rules to be right too. But how did public citizens, the environmental groups, the human rights groups, the LGBT groups, all of these groups that didn’t really intend to get in trade get into the trade fight? It’s because trade got into our business starting with NAFTA when the boundaries of past trade agreements which are about tariff liberalization, displaying subsidies, customs rules were exploded in all this other stuff through this industry capture got super glued into the agreements.
So our basic premise here is, take the non-trade stuff out. There may be reasons to have international rules in intellectual property. That's called WIPO. That fight should be happening in an agency that isn't cross-sanctioning our actual trade relations. There are references that could be made in a trade agreement to WIPO like the WTO does. But our point is don’t add new monopoly protections in a free trade agreement de novo in the name of trade liberalization and then get the rules right on trade.
Now, generally, to shift because Jared did such a great job explaining the paper to shift to some of the responses, I'm generally not going to touch on economics because that would be malpractice. I'm not an economist. That's Jared's gig. That's why we're a team.
However, the one thing I would say is just I'm going to take Fred up on his challenge about show me one point where anyone has said that the problems we're raising are not actually being caused by the agreements and that trade has just created net gains for everyone. And we all know the basic premise. The gains are on the import side. All consumers benefit from the lower prices. But some workers could get hurt. We should help the workers that get hurt.
If everyone has not read it and this paper scared the hell out of me because it's full of high-level Calculus. Google for Professor Samuelson from his last paper " Where Ricardo and Mill Rebut and Confirm Arguments," Journal of Economic Perspectives 2004 where he does the math that basically shows as offshoring has moved up the income level and it’s no longer just low-wage jobs. You actually can net negatively mathematically in his own formula for more liberalization because the loss of wages across the economy actually outweighs the gains in cheaper goods on the import side. And he does his own math and it’s lots of math. It’s pages of math.
However, a more civilian lawyer friendly version of that is a study that the Center For Economic And Policy Research did where they applied more of the actual data in the US looking at consumer prices. Looking at wages, trying to use actually one of the Peterson Institute papers to try and figure out the percentage of influence of greater inequality caused by trade, the 39 percent paper, as compared to other reasons for downward pressure using the higher—they thought it was a higher number but using your number to do the 39 percent. Then did the math what was the net and they found that at the median income people are not losing $3000, basically, more or less, their tax burden from the tax burden because of the wash of greater losses in wages and gains for cheaper goods.
So with that on the side, I want to dive into some of the specific things that Dan and Jennifer said which is—oh one other thing just on the Fred point which is again just in the politics where our people are really upset about ISDS towards the inequality. Well, I think the trade agreement is actually just a whole body of studies about this are contributing to inequality.
But actually the polling in focus group shows the thing that has people's hair on fire about trade right now is not the stuff all of us trade wants or thinking about like rules of origin. It’s the notion that this agreement is captured by companies or corporate capture rigged the rules and investor state actually in focus groups and polling comes out as the thing on a transpartisan basis that makes people the most unhinged, which for strong free traders. You take a demographic that's west coast college-educated, professionally employed, et cetera. You look for the strongest crosstab that is for these agreements in general. And ISDS makes them nuts. So just as a political matter, I say among colleagues that is something for the sake of passing trade agreements that would be wise to jettison.
So onto some of the things that Dan mentioned so when I actually call for double standard in people's rights to determine their own futures, what we're calling for is basically using the standards that sovereign nations have agreed to; the International Labor Organization standards, the Multilateral Environment Agreement standards.
Now I'm sure if I have a magic wand, I could create a standard that may be stronger than that and more immediately pleasing for raising wages, but it’s not my right. Sovereign nations have negotiated and agreed as their sovereign to sign onto those standards. But the problem is a practical one of sequencing which is right now those aren't very enforceable. The trade agreements are.
And in fact if you take an action ostensibly to implement one of your other treaty obligations absent a savings clause, you’re in violation. That's the point that you and I wrote about in part with why we need to actually get our set of rules about how climate rules relate to trade agreements versus letting it be done in the Wild West to dispute resolution.
What we're talking about is sequencing the enforcement. So one of the things we talked about is using the very enticing access to our market as a way for countries, the elite in countries and the governments, to have incentives to improve environmental, labor, and human rights standards served along the readiness criteria that the European Union uses to figure out who new entrants would be. Which is you set some rules. You have countries aspire to our privilege market access and to have incentives to improve their standards. And you only let countries join once you actually have seen the changes as compared to hoping down the road Vietnam is going to have independent labor unions and somehow—I mean just the current sequencing is a problem.
As far as secrecy, the text didn’t show up until 30 days after the agreement was initialed. It was locked. The point is for our proposals if we're going to build support broadly, then we need Congress and the public to have the ability to see what the negotiators are doing in our name at the point where actually there's an opportunity to have a course correction.
So the increased transparency actually in the long run is going to build support. And the stuff that can't survive the Dracula test, the stuff that [human sound] in the sunshine that should not be in the trade agreement. Because you’re going to end up with the kind of food fight we have right now with TPP where there isn't a majority in the House of Representatives because they're knock-down drag-out fights over things, in part, that no one knew were going to pop up in there, some of which could have come out along the way and avoided the total political disaster.
As far as the served notion that we keep moving the ball with demands, actually I just want to point out the demands have been remarkably consistent. Joint house resolution H. Con. Res. 246 1992, Gaspard and Waxman laying out what as NAFTA was being finished ought to be in a good trade agreement. The Trade Act, Trade Reform Accountability Development and Employment Act of 2009, 85 pages of specific language. That more or less spells out the kinds of what goes in and what goes out that we've been discussing.
The problem with TPP is that it actually rolls back, say, the environmental standards Bush had in his last agreements. How did it come to pass that those environmental groups the White House was saying would support TPP; Defenders of Wildlife, Natural Resources Defense Council came out against because it doesn’t even actually measure up to the old standard.
And this gets to an issue Jennifer brought up which is the Guatemala case. So that case is actually under the old rules. That's under the CAFTA rules. That's pre-May 11th or May 10th. And that set of rules is enforce your own laws and that did not work.
The new rules since pro-agreement under the Bush you have to meet ILO not conventions though, but declaration rules. And it’s not the actual ILO conventions. So in the case of Guatemala, that case has been going on for eight years, eight years since it was initially filed and there's been no enforcement. And Guatemala basically never changed its practices from before its obligations in CAFTA to after its obligations in CAFTA. And there have been two administrations, basically, because it started at the very end of Bush and attempt to get enforcement. That case is actually one of the reasons that's fostering the demand for better enforcement.
So I look forward to all of our discussions going forward. I think in the group, I think, one of the things to think about with ISDS instead of political comparative of getting it out of our agreements is the question of that Jennifer had of what comes next. And I think absent an orderly way of dealing with ISDS we’re going to see more major countries just withdraw.
So far, South Africa, India, Indonesia, and a bunch of South American countries have given notice just to dump their ISDS agreements. And I think an approach forward is an overarching treaty that could be passed to actually affect all of those that are now in effect. Thanks.
Adam Posen: Thank very much, Lori. If I could ask all five of our speakers to come up to the table. And thanks to all of them for sticking through their time while being so substantive and forthright. I think this made for a great discussion with many dimensions. I don’t want this, though, to become a debate. We've seen on television lately things called debates don’t go very well if you care about substance.
So what I'd like to do is open it up to the floor. As usual, we have a standing mic in the back to which you can go and a traveling mic up front. When I recognize you, please identify yourself and please try to keep your question brief so that our panelist can respond. Please.
Debra Miller: I'm Debra Miller. And this question reflects me in my capacity over George Mason University as an adjunct professor. Those presentations were all very, very interesting. Thank you. This is a difficult topic and I think that the politics of the moment have been reflected in your remarks. So I'm really grateful for that. And I think there's some great economic thinking here.
I'm going to mention something that has to do with history and that has to do with WIPO, the World Intellectual Property Organization, and the ILO. And so the suggestion is made let's keep intellectual property rights out of trade agreements. Let's keep labor standards out of trade agreements. And as a student of those two international organizations, I can only say historically regarding the ILO the United States for many, many years, 50 or 75 years of things have changed please tell me, didn’t sign the conventions of the ILO. It wasn’t prepared—
Adam Posen: I'm sorry. Can we get this to a question?
Debra Miller: Yes. To enforce them. Will things change with the ILO? The Soviet Union signed them, but compliance was something that the ILO also didn’t do. The second thing is regarding WIPO that was—
Adam Posen: Please state the set of question.
Debra Miller: Thank you. Will WIPO which also isn't an enforcement organization really do the same thing? Thanks so much.
Adam Posen: Who would like to respond? Anybody?
Lori Wallach: Should we take a couple of questions and then—?
Adam Posen: No. We'll do it one at a time and then people can respond.
Jared Bernstein: I think, Lori, you should respond. But one quick point is that we don’t suggest that labor standards should come out. We think they should be contingent on sequencing as we said and that the enforcement should be a much higher level preference in the agreements.
Lori Wallach: And as far as what does or does not belong in a trade agreement, our basic premise is our trade agreement should focus on trade. So things, standards that directly affect the price factors in trade should be included. And basically, this gets to Jennifer's very astute comment on subsidies which actually as I'm thinking back we should have said more about subsidies and SOEs perhaps in our paper because that really is an honest to god trade distorting problem that we touched on with rules of origin and other distortions that perhaps do not dig deeply enough into when thinking about after excising the baggage how to fix the trade part.
Fred Bergsten: The question indicated why these issues have come into the WTO. It’s because the WTO has enforcement mechanisms. So everybody with an interest be it labor standards, environmental standards, now currency wants her or his issue in the WTO because it's got enforcement mechanisms.
That then says of attention because as has been said in the discussion today those are not the traditional trade issues. But they've been dragged in because the institutions that were set up to handle them don’t do anything about it including incidentally the IMF on currency. So everything gravitates to the WTO. It overrode the WTO system and leads to the kind of criticisms we have today. But what I don’t quite understand is why Lori says on the one hand keep all that stuff out of the WTO and put it back in WIPO when we know WIPO doesn’t have any enforcement tool. So Lori, how do you resolve your dilemma?
Lori Wallach: I think that folks who are in the world of intellectual property and want to see stronger enforcement in the agency can have a debate within that agency about how it operates to the extent that price factors in trade are represented by various international standards like labor, like toxics, like pollution control which directly go towards what's the value of a good in international trade will be. It’s appropriate as the original ITO, International Trade Organization, did to link to those agencies.
The ITO, the thing that was before the WTO which the US Senate tanked right when the gap was created after World War II had links to the ILO because it had to do with the production cost. I think that is the standard as compared to caboosing something -- protections for a particular kind of property unrelated to trade.
I mean my joke for years has been the chapters in WTO that don’t have anything to do with trade are all prefaced by the phrase trade-related, trade-related intellectual property standards. Because someone looking at the actual text would say, "Why are there rent-seeking monopoly protections in a trade agreement?" If it needs to have trade-related in front of it, it shouldn’t be in the agreement.
Adam Posen: Yup. Dan.
Daniel Griswold: A quick point. One, I think the impact of domestic labor and environmental laws on trade is exaggerated. I don’t think nations can gain some sort of long-term advantage. And secondly, what raises those standards? It’s not the rich countries waving a billy club telling poor countries to raise their standards. It’s a rising standard of living in those countries propelled in part by trade. And study after study shows that as incomes rise, people demand better labor standards, better environmental standards.
The best thing we can do if we want to raise labor and environmental standards around the world for our sake and for the sake of other people, is to trade with them. Buy their products. See their incomes rise. See their standards rise.
Adam Posen: Okay. Next question, please, and then in front here.
Bob Vastine: Bob Vastine, Georgetown Center for Business and Public Policy, thank you. Dr. Griswold, what proportion of unemployment is actually caused by trade? Secondly, Dr. Bernstein, I think it's become fashionable and unfair to label TAA in such a way a burial insurance. In fact, Labor Department says that 46,000 people were aided by—individuals were aided by TAA last year. Now that doesn’t mean it meets the need. The law is flawed. They're operating under four different statutes. There's not enough money. But it's what we've got and maybe we can improve it along with adding some of the ideas that Fred has mentioned, wage insurance and earned income benefits.
Adam Posen: Okay.
Jared Bernstein: So those are great points and I very much stipulate to what you said. I probably inelegantly was trying to say that if you actually go out as I have to the Rust Belt and talk to people about TAA that's their response. I take your point. Wait, I wouldn’t shrug my shoulders and say that doesn’t matter. That's precisely what we're talking about today. Oh okay. Sorry.
It’s precisely that kind of conception that is motivating our work. But your point is very well taken. And I also very much appreciate the connection you made to all the great points Fred made about an actual improvements in the safety net that could really make a difference. I think TAA remains a very incomplete safety net for people who have lost high value-added jobs.
I will say that in my day job in the Center on Budget and Policy Priorities is I work on that stuff about 90 percent of my waking hours. So don’t think because we're talking about this stuff today that those safety net issues are immaterial to me.
Daniel Griswold: Just to respond first so I'm not accused of malpractice. I'm not a doctor. I have a lowly master's degree. But about trade and unemployment, first I think in the longer run trade isn't about more jobs or fewer jobs. It's about better jobs. So I think the impact on the overall unemployment rate is pretty much zero.
In terms of the job turnover in various studies, but I think it’s somewhere in the neighborhood of maybe 3 percent of job displacement in the United States has to do with trade. The other 97 percent is technology. It’s changing consumer taste which goes to, I think, a point of consensus that you're seeing is that we need to do more in terms of crafting the right policies to help people adjust to the jobs being created, a job retraining, better unemployment, I think more labor mobility.
I like the idea of divorcing insurance and pensions from a particular job. The bottom line is we need to help our fellow citizens prepare for the jobs being created today and tomorrow, not bring back the jobs from some romanticized past that wasn’t all that great.
Adam Posen: Okay. Jennifer.
Jennifer Hillman: I had one little data point just because you raised questions about it is the OECD obviously studies sort of interesting data to think about how much public spending there is on active labor market programs, meaning the panoply of job training et cetera. And I think there it’s very clear that the United States ranks at the absolute bottom of the OECD numbers.
If you look at where something like 0.3 percent of public spending on again active labor market programs as compared to Spain that's over 3 percent, Denmark at 3 et cetera. So on the sort of broader picture of are we spending enough in terms of long-term training and other help for our workers, the answer I think is unequivocal no.
But my own point would be it shouldn’t all be laid at the feet of Trade Adjustment Assistance. I mean it should be again available for everybody. And I will say that the backlog of cases at the Court of International Trade for people to prove that their job was lost to trade as opposed to lost to technology or something else is sort of absurd as a waste of money. In other words, you only get adjustment assistance if you can prove in getting the cue at the CIT to prove that your job was lost to trade to me makes no sense. We ought to be opening up to anybody that lost their job and wants to be retrained for a better one. And we ought to shift this dynamic in terms of the overall percentage that this country is willing to invest. And again in active labor market programs, we need to be better on that scale.
Adam Posen: I can't resist saying that I am very heartened that this in a sense is one of the emerging points of consensus from today's discussion. I think that’s where a lot of us are and where Jared knows I am personally. And from an economist point of view, obviously, the arbitrariness however you decide what's a trade-related job versus a technology-related job loss and the unfairness of saying certain people have certain types of access as opposed to all citizens I think is very evident.
So if that in addition to all the other good ideas come out of here today if we have a somewhat united front that the US has failed its workers full stop I think that would be a good starting point.
Jared Bernstein: Look, let me just say quickly, Adam. That's a great point. I just want to add because we're having these fiscal discussions that we're not going to be able to accomplish even a small percentage of those goals unless we start to see budgets that rely far less on lots of tax cuts and more on revenues.
Adam Posen: Yes. And front here and then we'll go to the back mic.
Kim Elliott: Thanks Adam. Kim Elliott with the Center for Global Development. And Jared mentioned briefly Dani's piece in the Times a few weeks ago and I kind of wished he'd been on this panel because I think what we're not discussing is democracy and the role of democracy in what is the appropriate scope of trade agreements.
And so I would agree with a lot of the things actually that were on Jared and Lori's out list. But I also think labor and environment are mostly about countries' own situation what's happening with their workers and their environment. Many environmental spillovers are local and not international and so I think of paring back on those areas as well that we should really do what Lori said which is really return to let's focus on trade and what are the barriers to trade. And I think the way to make this politically viable because we're just going to get into a fight. And why are we going to have a fight?
How are we going to regulate the global economy by institutions that are not democratic? And I think that was the core of Dani's point. So we should be leaving more to societies in dealing with the actual trade-related spillovers where they occur so a much narrower approach, not to leave labor and environment out entirely. But just like IP, it should be a much narrower trade-related if they are spillovers sort of akin to Dani's idea of a social clause. So it seems to me that's the only we're going to have any chance at all along with the labor side, adjustment programs, safety net, and so forth that deal with these effects—
Adam Posen: Okay. Since Kim who knows better didn’t ask a question, I'm going to move to the back.
Kim Elliott: No, I would just want to know if anybody would—
Jared Bernstein: I strongly agree. It’s exactly where Dani is coming from and I commend his paper to that. Dani argues that the bigger worry today is that unmanaged globalization is undermining democracy. And I think that's kind of a profound point.
Adam Posen: And for the record, democracy is not just defined by pandering to whatever is unpopular or popular. Democracy is also defined by certain processes and certain rights. And so I actually completely disagree with Dani's article. I think it’s a shallow pandering to some very bad politics that [inaudible 1:32:19] that they have to be taken seriously and that they're inherently legitimate.
As a veteran of the Brexit war, I know that the vast bulk of people who voted for Brexit voted for racist xenophobic reasons. Legally that's their right. But the pretense that that doesn’t collide with other aspects of democracy and rule of law is wrong. So I just don’t buy—
Kim Elliott: In defense of Dani who is not an associate, I know him by reading his papers. His trilemma paper, which lays out this basic problem predates when it was popular to be concerned about responding to the political moment.
Adam Posen: Thanks to Fred, we published Dani's "Has Globalization Gone Too Far" before he was even known. So we're well aware of Dani's arguments. His most recent stuff I do not find convincing. At the back, please.
Cullen Hendrix: Hi, Cullen Hendrix, here at the Institute. And I'm asking this question as somebody who grew up in Michigan in the 1980s. We didn’t talk at all today about sort of the regional mismatches between the winners and losers that have been created by increased trade exposure in the United States. Could you talk a little bit how the clustering of some of the pain and then the clustering of some of the benefits maybe on the coast and then clustering of pain in the Rust Belt how that complicates policy interventions in the politics around those policy interventions in trying to move the ball forward on a new compact on trade? Thank you.
Jared Bernstein: You expressed the challenge very eloquently. And it is very much in play right now. And to me, the question demands a much longer answer than I have time for. But it does come back to a couple of things and disagreements I have with Fred. While it may well be the case that the net benefits of trade are positive, I would certainly dissociate trade and trade agreements in this regard. And I think trade agreements have been particularly tough. This comes out of Autor et al.
But it also comes out of Bivens' work which finds it in fact for the vast majority of non-college educated workers which are still two-thirds of the work force. They've taken a negative hit. Lori cited some of the same things. But it's much more concentrated in precisely the communities you referenced. And in fact, I'm not sure how accurate these indices are. But indices of the relative paths of different geographies now show that in fact what you're describing is getting worse, not better. There's a very nice paper by a guy out at Berkeley whose name I'm blocking on right now, Nate something, on this point.
And so I think that the solutions must be geographically specific. We have to find ways not only to get some of the safety net kinds of ideas that Fred was talking about to places where the pain is most pronounced. But issues of raising the minimum wage, creating more opportunities, investments, I mean Hillary Clinton actually has some interesting ideas to invest in manufacturing communities that have been hit by precisely these dynamics including a $10 billion plan to see if these manufacturing hubs can actually play off and make a play for advanced manufacturing often with investment in green technologies. So that's a short answer to a good tough question.
Jennifer Hillman: I'll only add that you see this also in how this plays out in the sort of Republic and Democrat who's a free trader or a protectionist et cetera. If you look at the most recent data out of, for example, the [inaudible 1:36:07] trust polling data, sort of interestingly to me to look at those numbers. And what you see now is that the majority of Republicans are protectionist anti-trade and the majority of Democrats I do have that right. The majority of Democrats are far more pro-trade.
And when you then ask why is that since it sort of goes against a lot of people's whatever urban myths and everything else and their actual history past. Why? Because of who trade is perceived as hurting. Because if you then look at the data, what it shows the people that are the most against trade are to put it perhaps not correct the old white men. So they poll by gender, by age, and by region.
And so what you see is the old white men in the mid-west are vehemently against trade and are now vehemently pro-Trump and Republican. And a lot of that is because of exactly these issues that their life has not worked out how they thought. I mean they grew up where their fathers could make enough money to support the family. And now, they have themselves and their wives working full time and they're not able to adequately support their children. And so for them, trade and the global economy and globalization has not worked out.
So I think you see it both in the more real numbers that Jared Bernstein is citing. But I think you clearly see it in the political numbers that would come out of the polling data as well.
Lori Wallach: I think an interesting thing for some of the economists in the room to think about is also looking at the data of the trends both regionally, but sectorally that the Trade Adjustment Assistance database provides because what's an interesting and I've looked at it but not ever done a formula to figure out distributionally over time the sectors and the regions of certifications.
And it's a really under sample of the actual trade job loss because not only do you have to get certified, but up until 2002 it didn’t cover any service sector work. So like the service sector part of a car plant that shut down, relocated the whole thing, went to Mexico since NAFTA couldn’t be covered. But what the sample does show you is right in the beginning of NAFTA, a lot of the mid-west jobs went.
But now the biggest numbers are actually in high-end, high-wage areas. And it’s also part of the coast which is not what you'd expect given Jennifer is right about where the polling shows. So you have aerospace on the west coast. You've got a lot of jobs in Texas and also in the east coast relating to high-tech jobs. They're the ones now being certified.
So I think it would just be very interesting because it goes to the question Kim pointed out by others about the overall effects of having—of the agreements on inequality et cetera. You can't compensate your way out of a trade policy if it's causing broad net losses. So to the extent, the offshoring is moving up in the pay scale. What are the policy parts? And this is the economic twist. I would love someone to tell me the answer for it.
The data shows our exports to our FTA partners, the growth rate is 29 percent lower than the countries we don’t have FTAs with, totally counterintuitive. We get rid of all tariffs, but the growth rate of exports is lower. And I have always wondered if that has to do with the thing the CATO Institute once pointed out, which is how the investment rules lower the risk burden of offshoring. Are we now incentivizing companies to make the stuff there and send it here so we both have fewer exports and now have more imports? And I'm wondering if we can put together the TAA databases but also that export growth data to try and figure out some quant person there. Because getting the policy right is going to be key for who gets compensated and what regions of the country think they're winners and losers.
Fred Bergsten: On this question of trade and inequality, I think it’s really worth underlying something Dan said, which is that the biggest winners from trade agreements and trade expansion are the lowest income groups. The biggest winners are the lower income groups. He pointed out and our studies have shown that too that the fact the imports are a much bigger share of the market basket of low income folks means that they are the big winners from opening markets.
But even more surprising, Mark Noland recently did a study for us here—some of you were here when we released it a few weeks ago on Trump economics. Suppose Trump's protectionist proposals went into effect, who would be the biggest losers? Who would lose jobs? Well, the fascinating and surprising answer was retail workers, the employees at Wal-Mart, low income folks.
Why? Because the people that they sell to, the people that they cater to would lose lots of jobs and the pass through to retail would be huge. So they would be the biggest losers. Now, I'm sure they don’t know it but that's the fact. And if we think seriously about the distributional effects of trade, we better keep in mind that we would be hurting the poorest people if we fail to liberalize further.
Jared Bernstein: So just I have to point out something quickly. The whole point of this exercise it’s gotten a little bit lost in the discussion. The whole point of this exercise by Lori and I is that if given the unsustainability of the current status quo—
Male Speaker: That's what my questions was about, by the way.
Jared Bernstein: Oh good. If you want trade liberalization to proceed apace, we think you have to deal with the challenges we raised. You have a question so I don’t want to get—
Adam Posen: Yeah and this will be the last question.
Male Speaker: [Inaudible 1:41:53] a long time trade reporter. And I have a question about actually liberalizing something related to trade because I thought quite frankly that Dan Griswold kind of flopped the challenge of providing what Jared seemed to want some fresh air in this debate about what should be included in trade agreement.
And here let me throw out something for you, which is legal services, ridiculously expensive in this country. And there are all sorts of things that could be done. Germany uses notaries for a lot of simple legal services. You could imagine telelegal services, all sorts of interesting things. A great libertarian argument because it would prove your cred as a free trader. And those of you on the other side of this debate might also get away to sort of chip away at what you call the corporate capture of trade policy. Now don’t be—[overlapping conversation]
Yeah. Here's the question, Adam, which is that on the heels of the great recession where law firms compete on price, you introduced liberalization. Don’t be surprised if lawyers start sounding like steel workers. But that's a real challenge. What can you do to liberalize the things that actually cost money in the side?
Adam Posen: While I'm sure probably everyone wants to get their legs in on this, I'll just say the single thing Dean Baker ever wrote that I most agree with was his calling out the hypocrisy of the protected professional classes of the US like lawyers specifically. I think it’s a great idea to think about. Please.
Lori Wallach: I was going to direct people to that paper. He goes through back of the envelope math that what would happen if you liberalize in lawyers, doctors, et cetera. It's a very good point.
Daniel Griswold: I just want to say I'm all for it. And that's kind of what outsourcing is about. Remember all the worries 10 years ago about Indian radiologists looking at charts over in India. I think that would be a great way to dampen cost.
But let's just remind ourselves all the fears about outsourcing 10 years ago. People like Alan Blinder who's written a lot of great stuff on trade talking about whatever the figure was 40 million jobs at risk. Somebody should revisit that. Those fears never came true. I think a lot of the fears we hear today are going to look as silly as that 10 years from now.
Adam Posen: Jennifer, do you want to comment on this? You don’t have to. Okay, Fred.
Fred Bergsten: Nope.
Adam Posen: Okay, Jared.
Jared Bernstein: Well, I just want to—you criticized Dan's position and I agree that in many ways Dan's presentation was kind of the poster child for keeping the status quo the way it is. But in his defense that's certainly not uncommon in this town. I think and maybe this is a useful sort of summary kind of comment. What Lori and I are stressing here is that the type of status quo that Dan is defending won't stand.
That if that's the way that you hope things will proceed, not only will you be disappointed, but I fear you'll undermine the drive to tap the benefits of globalization while trying to make the kinds of adjustments we suggest. But we might be wrong. We might come back here to IIE a couple of years ago and all this will have fizzled into the ether. And that's one of the reasons this debate is ongoing. I strongly don’t believe that to be the case, however.
Adam Posen: And why don’t we end it there with thanks to Fred, to Jennifer, to Dan for engaging so forthrightly and clearly, but especially for Lori and Jared for giving us today, but more generally the public debate A Constructive Way To Think About Moving Globalization Forward And Not Losing All The Gains. Thank you all very much.
Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, outlined his new paper coauthored with Lori Wallach, director of Public Citizen's Global Trade Watch, “The New Rules of the Road: A Progressive Approach to Globalization,” on October 13, 2016. C. Fred Bergsten (PIIE), Daniel Griswold (George Mason University), and Jennifer A. Hillman (Georgetown Law Center), provided their comments on the opportunities for rethinking trade policies.
Bernstein has been with the Center on Budget and Policy Priorities since May 2011. He was previously chief economist and economic adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to serving the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute.
Bergsten was the founding director of the Institute from 1981 through 2012. He was previously assistant secretary for international affairs of the US Treasury during 1977–81. He is currently serving his second term as a member of the President's Advisory Committee for Trade Policy and Negotiations.
Griswold is Mercatus Center Senior Research Fellow and the codirector of the Program on the American Economy and Globalization at George Mason University. He previously served as president of the National Association of Foreign-Trade Zones (NAFTZ). Prior to NAFTZ, Griswold was director of Trade and Immigration Studies for the Cato Institute.
Hillman is a faculty member in Georgetown's Institute of International Economic Law and a partner in the law firm of Cassidy Levy Kent. She recently completed her term as one of seven members from around the world serving on the World Trade Organization’s Appellate Body and, prior to that, served nine years as a commissioner at the United States International Trade Commission. She was also previously general counsel at the office of the United States Trade Representative.