Expert Advice: Free-Trade Benefits Must Be Sold, Not Imposed
Free trade is broadly positive for the U.S. economy, though not everyone benefits. Economist Tyler Cowen, a Bloomberg View columnist, and Robert Zoellick, a former U.S. trade representative, talk to View editor Paula Dwyer about improving the outlook for future free-trade deals by helping workers left behind. This is a lightly edited summary of the second part of their Aug. 12 conversation. Part 1 considered the effects on Apple and Wal-Mart if Donald Trump's trade policies were in force. The complete transcript is available here.
Dwyer: Is the U.S. really "losing" to other countries because of poorly negotiated trade agreements?
Zoellick: There are many reasons why the world economy is richer today than it was 40 or 50 years ago. But no doubt the expansion of trade and global supply chains, to say nothing of expanded choice, are among them. Americans have gotten used to better goods at reasonable prices. When I grew up we didn't have fresh fruits and vegetables year round. Now we do, partly because of the supply chains that have been set up under trade agreements.
The problem with Trump's notion is this zero-sum idea -- one wins, one loses -- and he thinks the U.S. is losing. In economics, people can grow together. Indiana might sell something to Illinois and Indiana might have a surplus with Illinois. That doesn't really matter to the state or the overall U.S. economy if consumers have more choice and people can produce more and they can be more efficient.
His frame of reference of winners and losers is going to make everybody a loser. We have about 11 million people whose jobs depend on exports. In the farm sector, we have another million people. He's playing with a lot of people's lives.
Dwyer: What goes through your mind when Trump says the deficit with China is $500 billion (that's high -- in 2015 it was $367 billion) and that the Chinese are eating our lunch?
Cowen: He is poorly informed and doesn't understand economics. There is a genuine issue with some parts of the middle class in this country who have seen lower or negative wage growth because of Chinese imports. I accept that. But it's still been a significant net plus for the American economy as a whole.
Zoellick: What goes through my mind is that Trump is always looking for someone to blame. Trade relationships can be mutually beneficial. Instead of trying to solve a problem, which is how do you help American workers with their education, skills, job relocation, getting them back into jobs or supplementing their wages, he says it's the fault of the Chinese, I'm going to sock them. Well, they may sock you back.
Cowen: Bob, did you ever think it would come to this, where a party's nominee would place the foundations of the world trading order into such question?
Zoellick: No, I never expected this. But I also don't believe he will become president. The problem is, even Hillary Clinton says she's against the Trans-Pacific Partnership, which she once called the gold standard.
An even bigger issue will be the Trump effect. He has undercut Republican support for open markets. Much of the Democratic Party -- the elected ones -- had already moved against free trade.
The Trump effect means we are going to have less Republican support unless people come back and explain how these trade agreements have worked and, as Tyler and I have suggested, help people adjust to change.
A lot of the transformation that we're talking about in the economy is driven as much or more by technology than trade. And the two are clearly interrelated, but I think Trump is lying to people by pretending that raising tariffs or threatening other countries is going to solve the problem. At the same time, I don't think Hillary Clinton's approach is going to be successful, either.
Let me give you two practical examples. I was always struck that Boeing aerospace workers were against our trade agreements, even though Boeing probably sells 90 to 95 percent of its products abroad.
I talked about this recently with Mike Froman, the current U.S. trade representative. Neither of us could get the two congresswomen from Silicon Valley to vote for trade, and you would think that the technology industry would have some interest in open markets.
So businesses are going to have to explain the effects of trade and open markets. And I think younger people want more choice in where they travel, the food they eat and where they work. The technology industry should use some of its Big Data to understand how to make this case more effectively, because Trump is capitalizing on anxieties that are deep and have infected Clinton and other Democrats.
Dwyer: How long before the U.S. enters into another trade deal?
Cowen: I don't expect America to be signing new trade agreements anytime soon. Maybe 20 years.
Zoellick: It comes down to presidential leadership. I've watched this since the Ford administration. I'm pleased that Obama is fighting for TPP. But for his first five years, he did nothing on this. Last year, when he went to Congress to get trade-negotiating authority, he expected his own party caucus to turn on a dime. To be fair to them, he hadn't been making the case for six years.
So ultimately it's the responsibility of a president to make the case. Clearly, that's not going to be Trump. It doesn't look like it's Clinton, either.
Cowen: Politicians in other countries face their own interest groups. Trade agreements aren't always popular in their countries. They have to do a lot of heavy lifting even to bring one to the table. But they do, because they think there's something at the end of it for them, namely, the U.S. signs the deal and they get some goodies. When we send mixed signals, though, they drag their feet. That's why I say it could be 20 years.
Zoellick: Modern trade agreements are much more than tariffs and quotas and the things we're talking about. They're for intellectual-property rights, access for service industries and better transparency to fight corruption. Not surprisingly, because the U.S. is a more advanced economy, it has usually been on the cutting edge in trying to get high quality rules for its producers.
Take the TPP. It includes 12 economies. Six of them we already have free-trade agreements with. So we're building on top of it. The big addition really is Japan. But you also have Vietnam, Malaysia, New Zealand and Brunei. One of the real questions, and Prime Minister Lee of Singapore made this point in his recent visit to the U.S., is whether the U.S. wants to make the rules for these new areas, or wants to let somebody else do that.
In the case of East Asia, that's going to be China. There will be security implications to that, too. And that's the case that the president has tried to make. So it doesn't have to be hostile to China. There are people in China who also want better rules for investment and other things.
Dwyer: A lot of the commentary today concerns research showing the communities that suffered the most when China entered the WTO in 2000 haven't recovered. What can be done to make trade deals go down with a spoonful of sugar?
Cowen: I'm typically willing to do whatever it takes. What actually works is people leaving distressed areas. That's a tough political sell, but that's more effective than retraining or phasing things in or all the other ideas you hear. It's a fig-leaf issue. What you need to do to sell the trade agreement, within reason, is figure out the cheapest way to do it.
Zoellick: If you want an open economy that adapts to change -- whether that change is driven by technology or trade -- it's good policy and good politics to have a range of activities that help people make that adjustment.
Part of the problem is that we've had a bunch of programs but we haven't done what most business or academic researchers would do, which is to have pilot programs and measure effectiveness.
The most important thing is to help people get back into the workforce. I would be comfortable with ideas to offer a wage subsidy for a certain period of time to those who get a new job but take a pay cut. Or use the Earned Income Tax Credit to get people back in the workforce and supplement their income, because work is part of dignity and probably the best way to learn additional skills. It's an economy-wide responsibility.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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