NAFTA revisited

I was sad but not surprised recently to read that the leading Democratic candidates are distancing themselves from NAFTA. The article speculates that NAFTA-bashing is code for “We’ll protect you from those brown foreigners” designed to appeal to anti-immigration voters. But I think it’s simpler than that: very many people assume that the stagnating wages for low-income workers is due to wage competition from poorer countries such as Mexico. Therefore, reversing some aspects of globalization should boost the wages of the working poor in the U.S., right?

Seems to me that restricting trade is a very indirect way to preserve wages. I would expect an economically savvy progressive candidate to say something like:

“The combination of globalization and technological progress have combined to give us many fine results: lower prices, a much greater variety of consumer goods, higher productivity and more economic growth than we would have had otherwise. We should promote free trade as much as possible for the net benefit of the country (and our trading partners). However, while there have been tremendous wage gains for technologically skilled labor, lower-income workers in America have seen their wages stagnate as a result of their reduced bargaining power in the new economy. That’s why I support redirecting some of that marginal economic growth in the form of higher taxes which will pay for an increase in the earned income tax credit, to help spread the gains of the 21st century economy to the entire labor market.”

So why don’t I ever hear something like that? Is saying that globalization is a net positive force for America too pro-business for Democratic audiences? Do candidates reflexively avoid saying anything that can get them stuck with a tax-and-spend label? Or perhaps I’m missing an entirely different objection about NAFTA. Educate me, qt3 progressives, because I would be ecstatic to give my money and my vote to a Democrat who said something like the quote above.

It has the words “higher taxes” in it.

Clinton was obviously a big proponent of globalization, and the U.S. economy has basically been one extended boom for the last 15 years as a result, aside from a brief hurdle in 2000-2001. Presumably his wife feels similarly, no?

There’s little evidence NAFTA was a contributor of any significance to economic growth rates or lack of recessions over that period.

Myself, I’m all for free trade, with some exceptions for industrial policy (which the US, Japan, and basically ever other first-world nation has used to get rich). However:

That’s pretty much what Clinton said and tried in the 1990s. Didn’t work out so hot; the GOP has zero interest in compensating the people who take a hit from freer trade, among other problems -taxes! Intervention in the market! Rich people might have slightly less money! Reagan famously advised a Detroit auto guy who’d lost his job in the 1980s to buy a bus ticket - I wish I could find the exact version of the story online.

Anyway, the Democrats don’t say that anymore because 1) Democratic primary voters aren’t going to believe them unless they have a better explanation of how they’d make it work this time, and 2) they don’t push the boundaries on the issue and try to get it actually done because they’re still so damn inexplicably cautious about challenging the DC political consensus and really pushing for meaningful help for people the market screws. The 1980s/1990s Reaganite market love is still incredibly entrenched.

So you get a milquetoast hypothetical opposition to future free trade agreements, but it’s effectively just the status quo.

Myself, until like probably most Democrats, I’m not buying any of this new trade deal shit unless they prove they are serious about changing how the winners run off with a bag full of money while the losers get fired.

A policy of raising taxes - i.e. taking more money from “people who are smarter and work harder” may have some populist appeal, but it’s not a winning economic or even political platform.

If free trade results in a better situation, Pareto optimality implies that the winners can compensate the losers while still having more than they started with.

Consumers are benefiting from lower real costs of most goods due to free trade.

Laborers are dealing with stiff international competition against individuals with lower standard of living expectations, reducing their real wages. While laborers are a subset of consumers, the costs to them of competition outweigh the gains from lower prices.

The winners in the global economy (people in the service sectors, people with lots of capital, and people with big throbbing… brains) can and should do their part to retrain and provide support for laborers. Sure, it costs money – but everyone benefits when more people are happy and working and spending money.

Besides, if we don’t offer income supports of some sort for people who are hurt by free trade they’ll vote against it and call for isolationist policies that hurt consumers in order to reduce the competition in their market. Which would suck big fat balls because it would mean higher prices for everyone.

Yes, these are the issues I was thinking about. Even people who accept that free trade is a net positive for the U.S. (and it’s hard to get that message with people like Lou Dobbs spewing every night) are not going to vote for globalization policies that seem likely to cut their wages or unemploy them. Maybe it would take a progressive Republican to spread the love around? Bloomberg seems like he’d be the kind of technocratic President who would promote free trade in combination with a package containing an EITC bump, tax credits for mid-life retraining and work-based relocation, etc.

But it’s a shame that raising taxes is so politically tetchy. An economically savvy progressive can point out that the little guy is getting squeezed by wage competition, but can’t promote the most direct and economically sensible way to help them out. I guess it makes sense though – everyone can see the drawback of higher taxes, but much less immediately obvious are the costs of protectionism, so only the latter is politically viable.

Desslock: You would think that Hillary would be running on the economic policies that are associated with Bill and the economic boom of the 90’s, but at the moment, not so much.

Yeah, that does surprise me. So what’s her current economic platform?

Other people here will know her current stance better than I do. I mainly know that she’s proposing nationwide health care coverage (but apparently a saner system then what she tried to push through in the 90’s) and is saying things like “NAFTA was a mistake to the extent that it did not deliver on what we had hoped it would.” Of course back in '94, Bill had to side with the Republicans to get NAFTA passed against the opposition of the left.

Her web site is comfortably vague on economic matters. For example: “4. Restore the basic bargain. Hillary will restore the basic bargain that if Americans work hard and take responsibility, government will do its part to make sure they have the tools to get ahead.”

It does say she will lower taxes on the middle class and “move back toward a balanced budget and surpluses”, which implies steep spending cuts and/or raising taxes on the wealthy. Holding the line on budgetary spending is something that Bill took a lot of risks for. I don’t know of any way to tell which of the current candidates would be equally hawkish on the deficit when push comes to shove. I certainly don’t remember it being clear in 1992 that Bill would spend so much political capital on economic issues that went against the normal Democratic grain.

The problem with free trade are the corporations likely to take advantage of it.

How so? I’d say we generally want corporations to take advantage of free trade to our benefit, through lower prices and more goods.

Although I can think of one exception: where they “export” America’s pollution to undemocratic countries by building cheap’n’dirty factories there to make things to ship back to the States. It’s one thing if elected politicians in poor countries keep environmental standards low for the time being to encourage foreign investment; it’s a whole 'nother level of unsavory if the population has no voice in the tradeoff between pollution and economic growth.

The basic problem with the trade imbalance today is that what America creates for export is essentially intellectual property, which is easily stolen or copied. This includes media, technology, software and medicine.

We compensate for it with obscene margins on all of those very things. If it wasn’t profitable, companies wouldn’t do it.

Besides, copying generally stifles home based innovation by creating a culture that accepts piracy as legitimate.

The advantages of free trade are the following:

Deflationary pressures exerted by lower cost production (lower prices!)
Economies of scale in “monopolistically competitive” industries
Across the board efficiency gains
An increase in the variety of available goods
A decrease in the incentive to collude amongst corporations
An increase in competition among corporations

Free trade has tons of benefits and is full of big fat sexy awesome. However, it does hurt the people who are employed in areas in which the country is comparatively at a disadvantage – in this country, manufacturing. Steps should be taken to ensure that everyone gets a good deal out of what is without a doubt a good thing for all involved.

If copying is stifling home-based innovation then most likely home-based innovation couldn’t compete in the first place. And as people copy, they learn what works as well as building up an economic infrastructure that can fuel future innovation.

Eh? Where did that come from?

That’s not really true. Here’s a link to the latest numbers:

So it sounds like Trump is actually going to pull out of NAFTA. This is big. Too be honest, I have no idea whether it’s going to be good or bad (I suspect the latter) but it’s definitely going to be big when it happens.

Peter Navarro, head of Trump’s National Trade Council, drafted the executive order in close cooperation with chief White House strategist Steve Bannon. The order was submitted this week to the staff secretary for the final stages of review, according to one of the White House officials.

The draft executive order could be a hardball negotiating tactic intended to pressure Mexico and Canada to come to the table to renegotiate NAFTA and make concessions that are more to Trump’s liking. But once Trump sets the withdrawal process in motion, the prospects of the U.S. turning its back on two of its most important trade partners suddenly become real.

Early returns from Capitol Hill lawmakers on both sides of the aisle were not encouraging and suggested that a go-it-alone move from the White House without Congress’ backing could cause trouble down the road, as the administration looks to strike a series of nation-to-nation “America First” trade deals.

It is, of course, a totally illegal Executive Order: Presidents have no authority to withdraw from treaties; only Congress does. (Whether a GOP-led Congress will take Trump to court over it is a different question.)

Not to mention that protectionist actions like this ultimately screw over consumers. All those folks championing getting rid of “cheap Mexican imports” will be singing a different tune when they go to Wal*Mart and find those pants that used to cost nine bucks now cost $23.