No respect for the TPP.

Photographer: Andrew Harrer/Bloomberg

How to Make Free Trade an Easier Sell

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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Until recently, most Republicans believed that free trade was good for jobs, profits and the U.S. economy overall. Democrats, never big fans of free trade, went along if the federal safety net provided for workers who were harmed by import competition. In this presidential election, however, those positions no longer hold: Neither party’s candidate supports the trade deal now on the table, the 12-nation Trans-Pacific Partnership, which President Barack Obama negotiated and which awaits an uncertain fate in Congress. 

Does this mean the treaty is dead? Or can it be reincarnated? Robert Reich, the U.S. secretary of labor under President Bill Clinton, explains how the agreement can be fixed and made more politically palatable. This is a lightly edited transcript of our e-mail exchange.

Q: You used to believe in trade agreements, but you oppose the Trans-Pacific Partnership. What happened?

A: The TPP is less about free trade than it is about foreign direct investment, and it contains an investor-state dispute mechanism that would potentially undermine domestic health, safety, environmental, labor or investor protections. It establishes an outside tribunal that has the power to compensate global corporations for any loss of profits due to these protections. Obviously, that could make it difficult to increase such protections. This investor-state dispute mechanism is, to me, the game-stopper. 

Q: Haven’t countries always settled their trade differences that way? And doesn’t the U.S. have an unblemished record of winning cases brought against it?

A: So-called “non-tariff barriers” have been treated in many different ways, and no treaty has been nearly this expansive or generous to global corporate entities with regard to them.

Q: Hasn’t the official language of the TPP clarified that countries have a right to regulate in the public interest, thus barring companies from challenging financial, health, safety or environmental laws? In the U.S., banking rules under the Dodd-Frank Act, or regulations to control carbon emissions, couldn’t be challenged, for example. Why haven’t these changes dissuaded you?

A: The language must clarify that global corporations have no right to sue a nation for these sorts of protections. Without it, plaintiffs’ lawyers will still mount such challenges, claiming, for example, that a nation is not really regulating in the “public interest” because the intent or effect of a particular regulation is not to protect public health, safety or the environment. The TPP shouldn’t undermine national sovereignty over health, safety, environment and other protections.

QuickTake Free Trade Feud

Q: The latest figures show that median household income last year rose 5.2 percent to $56,500, the biggest increase since 1967, when the U.S. began collecting these numbers. The incomes of workers on the bottom of the rung rose the most. Will this change the political climate for getting the TPP approved after the election?

A: I doubt it. For one thing, the median household is still poorer than it was in 2000, adjusted for inflation. The typical family’s net worth is 14 percent below what it was in 1984! So most Americans don’t feel as if they’re doing well.

Q: David Autor, an MIT economist, published an influential paper saying that China’s 2001 entry into the World Trade Organization eliminated about a million U.S. jobs by 2007. A more recent study by Autor concludes that the harder a U.S. district was hit by exposure to Chinese competition, the more likely it was to vote for extreme liberals or extreme conservatives. How important have such findings been in reducing support for free trade? 

A: With all due respect to David Autor, most Americans have no idea of his findings. But according to polling data, Americans do blame free trade for their economic stresses. That’s not entirely fair, of course, because technological advances have displaced at least as many, if not more, workers than trade. 

Q: Some economists say wage insurance or wage subsidies would help make the TPP more acceptable. Do you agree? Would you enlarge the earned-income tax credit (which low-income workers can claim on their tax returns)? Or would you favor a new program of wage insurance (which partially compensates laid-off workers who take lower-paying jobs)? 

A: There’s no question that America must enlarge the EITC, adopt wage insurance, and provide far better job retraining, job-search assistance and job counseling to workers who lose their jobs -- for whatever reason. We need to move away from a sole reliance on unemployment insurance toward a system of re-employment insurance. 

Q: The Trade-Adjustment Assistance program (unemployment insurance and retraining for workers laid off because of increased foreign competition) traditionally was the program Congress used to win Democratic votes for trade deals. It is a much-maligned program, but would broadening and reforming it help the TPP?

A: I don’t think so. Trade-adjustment assistance is very difficult to administer because it’s almost impossible to know for sure why someone lost a job -- whether because of trade, technological change or micro-economic conditions unique to the particular company he or she was employed by. That’s why we should get away from tying such assistance to any particular cause of unemployment, and do a better job helping the unemployed get a new job regardless of the cause. 

Q: You’ve also written that the core problem is the demise of an entire economic system in which people with high-school degrees could count on getting good jobs. In many ways, this is the proving ground on which the 2016 election is being fought. How can the next president address this?

A: The “re-employment insurance” system I refer to above would include job training but also job-search assistance, job counseling, wage insurance and relocation assistance. One of the perverse consequences of our current labor and housing markets is that as jobs disappear in a particular city or region, housing prices plummet, making it harder for people who have lost their jobs to afford housing in cities or regions where jobs are increasing -- and, too often, where housing prices are increasing. 

Q: Donald Trump often brings up other trade-related issues, especially his (outdated) allegation that China is a currency manipulator. Could anti-manipulation language add to the TPP’s political appeal? Could that boomerang on the U.S. if, for example, the Fed lowered interest rates and that effectively devalued the dollar? 

A: I do think we’re going to have to grapple with currency manipulation in a more systematic way than we’re now doing it, but I don’t think anti-manipulation language is going to improve the TPP’s political appeal.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net