So Donald Trump and Bernie Sanders won their respective New Hampshire primaries.
BY: Ian Fletcher| February, 09 2016
From a fair-trade point-of-view, the news couldn’t be better. However the Eccentric Billionaire from Queens and the Eccentric Socialist from Brooklyn may differ, on this they agree.
Both Trump and Sanders are for real on this issue. Their positions on trade are fundamental parts of their respective strategies. Sanders has a long voting record on this issue, and Trump has been talking the talk since at least 2011.
Unlike, say, Hillary Clinton, who’s trying to sound like a trade hawk without the track record to back it up. Let alone the other Republican candidates, who are still self-professed Kool-Aid drinkers of the “free” trade fantasy, faithful to their corporate funders.
So after two decades of abuse of working Americans by unregulated globalization, finally the political response seems to be here. Maybe, of course, it will fizzle out, but I for one think it’s the start of something big. Indeed, with the U.S. the world’s leading importer, this is a harbinger of change for not just the U.S. economy, but the entire world economy. Lots of people have been waiting for this for a very long time.
Does America have a serious chance of getting the trade policy it needs? The best way to hazard a guess at the issue’s political future is to look at its underlying social dynamic. The key is to grasp the way free trade is experienced by ordinary voters:
Free trade is cheap labor embodied in goods.
Although, as we have seen, our trade problems cannot all literally be reduced to cheap foreign labor, this is still the aspect that dominates public consciousness and thus mass political opinion.
The first rift this implies is between people who obtain most of their income from work and those who obtain most of their income from returns on capital. People in the latter category obviously want all labor to be as cheap as possible. People in the former category want the labor they consume (directly or embodied in goods) to be as cheap as possible, but the labor that they produce and sell, namely their own wages, to be expensive.
This implies the possibility of an electoral coalition in which one part of society treats itself to cheap foreign labor at the expense of another. As long as the self-perceived enjoyers of cheap labor exceed the self-perceived victims in number, this coalition is politically viable. For example, there can be a coalition of everyone who is not a manufacturing worker (91 percent of the labor force today, up from 66 percent in 1950) against everyone who is. While manufacturing workers suffer competition from cheap foreign labor, everyone else enjoys cheap foreign manufactured goods, so a majority is happy. The indirect effects of a decline in manufacturing are either not noticed–partly because they are not understood–or they are postponed for years by America’s ability to accumulate debt and sell assets.
This doesn’t mean, however, that these indirect effects aren’t real. As we have seen, they are inexorable. But what if we go from 10 percent of the population harmed and 90 percent benefited to 20/80? Or 30/70? Or 50/50? Or 70/30 the other way? Our coalition will start to fall apart. Where are we now on this scale? It is impossible to quantify precisely, but commentator Kevin Phillips estimated in 1995 that free trade was “obviously beneficial to perhaps 10 to 15 percent of the population, detrimental to some 30 to 50 percent,” and things have clearly shifted considerably since then.
Free traders will respond by claiming that even if we reach 90 or even 100 percent of the population being harmed by competition with cheap foreign labor, Americans will still be better off because goods will be cheaper. The problem, as is obvious to any laid-off worker who has ever contemplated the cheap goods on sale at Walmart, is that a drop in the cost of merchandise never means as much as a lost job. How many people have voted against incumbents because they were unemployed or underemployed? Compare this to how many have done so because they couldn’t buy a pair of scissors for $.99. Has there ever been a demonstration in the streets about the latter? And, there is no law of economics that guarantees that free trade’s benefits in the form of lower prices will exceed its cost in job loss and lower wages for most people.
There is not much left of the American economy that is invulnerable to pressures from trade. Even large parts of the 70 percent of our economy that is in non-traded sectors are inexorably becoming tradable due to off-shoring, and workers displaced from tradable sectors are driving down wages in non-tradable sectors. The remaining sheltered occupations are these:
- Jobs that must be performed in person, such as policing, cooking, bagging groceries, teaching school, being a criminal, etc.
- Jobs, like construction, performed on physical objects too large or heavy to be shipped from abroad.
- Jobs performed on or relative to objects fixed in place: agriculture, mining, and transportation.
- Jobs where America enjoys significant technological superiority tied to oligopoly industries or specialized local labor pools, a shrinking category.
- Jobs, like law or advertising, which depend on uniquely American knowledge. But even this is breaking down as law firms, for example, start to offshore work.
- Jobs dependent upon sovereign power, such as the military. But given our use of “civilian security contractors” in our wars, this can be nibbled away at in surprising ways.
The trouble is, these categories are not enough. In particular, they don’t add up to enough high-wage jobs because most (not all) of these jobs are relatively low paid. So our beggar-my-neighbor coalition starts to fall apart.
I think the beggar-my-neighbor coalition died in the snows of New Hampshire.
Ian Fletcher was Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.