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With Foreign Trade, Are Progressives and Trump on the Same Page?

By Arthur MacEwan | July/August 2019

Dear Dr. Dollar:

Progressives opposed the Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA). President Donald Trump stopped U.S. engagement in the TPP and redid NAFTA. Similarly, progressives—or at least many progressives—have argued that trade arrangements between the United States and China have hurt U.S. workers. Trump is slapping tariffs on goods from China, which, we can assume will reduce imports from China. So, are progressives and Trump on the same page with regard to foreign trade?
—Anonymous, via email

A headline in the June 23, 2019, issue of The Hill reads: “'Big Pharma' is the big winner of the USMCA.” The USMCA is the U.S.-Mexico-Canada Agreement that would replace NAFTA (though it has yet to be ratified by the U.S. Congress). The gains for the large pharmaceutical companies contained in the USMCA are extensions of the patent protections for their products, protections that would tend to raise prices—and the companies’ profits—throughout North America.

The Hill article goes on to point out that “the pharmaceutical industry is the most active lobby group when it comes to trade agreements. One analysis of the Trans-Pacific Partnership (TPP)—a deal that was scrapped—stated that it ended up having many of the same provisions for pharmaceuticals...that the USMCA has.”

Protecting Large U.S. Firms

This example illustrates that so-called “free trade” agreements promoted by the U.S. government—both the Trump and earlier administrations—are primarily directed toward protecting the interests of large U.S. firms. Beyond patent protections, these trade agreements protect firms by including investor-state dispute settlement (ISDS) provisions.

The ISDS provisions give foreign investors the right to sue a government through private international arbitration if that government establishes restrictions that limit their profits—for example, if the government implements health or environmental rules that curtail the company’s operations. Arbitration is carried out in secret by private “experts,” and are not subject to review by courts. (See box.) The Trump administration did express some skepticism regarding ISDS, based on concern for U.S. sovereignty. Nonetheless, ISDS was included in the final USMCA, but in a curtailed form, and Canada has opted out of this provision. With ISDS and extensive patent protections, U.S. foreign trade agreements are protectionism masquerading as “free trade.”

But they are not about protecting workers. The USMCA does contain provisions that could bring small benefits to some U.S. workers, particularly in the auto industry. For example, the deal requires that 75% of the “auto content” (measured by cost) be made in North America, as compared to 63.5% under NAFTA. It also requires that at least 40% of the value that is added to the raw materials that go into the making of a car come from workers earning at least $16 an hour. However, as economist Dean Baker points out in “A Progressive Trade Policy,” a working paper of the Center for Economic and Policy Research, many cars would already qualify under the 75% rule, and some are close to this cutoff, which might then encourage them to use a bit more parts and labor from the three parties to the agreement; but the cost of not meeting this cutoff is small, only a 2.5% tariff, which companies will likely choose to pay. The $16-an-hour provision is also likely to have little impact in the United States, though it will limit the extent to which Mexico can rely on employment in the auto sector as an important element in that country’s economic growth.

Similarly, while the USMCA includes a chapter devoted to the environment, and other sections include various statements suggesting environmental protections, the provisions are not strong and are unlikely to bring about meaningful changes. Similar provisions existed in NAFTA but enforcement has been lacking. And it is noteworthy, but not surprising, that the USMCA makes no mention of climate change.

The Impact of Tariffs

When progressives criticize these agreements, they are not for replacing them with major protections for business, even when a few small benefits would accrue to particular workers. Indeed, it should be recognized that the direct protection of tariffs, the seemingly favored method of the Trump administration, may protect some jobs but only at a cost—higher prices—for people in general.

When is protecting some jobs worth paying higher prices? Should we charge high tariffs on Japanese cars, because the Japanese firms (which now do much of their production in the United States) figured out how to produce better cars? Or should we place tariffs on apparel from abroad simply because firms in low-income countries pay relatively low wages? If these goods were being produced by workers who were denied their basic rights or being produced in ways that were environmentally destructive, then the answer could well be “yes.” We would have a good reason—a plank in a progressive trade policy—to restrict such imports. (This approach, however, would have to be predicated on the better establishment of workers’ rights and environmental protection in the United States.)

Of course, importing cars or apparel has displaced workers in the United States. The best way to protect these workers, however, is not by having the rest of the population pay high prices for their products. Instead, programs need to be established to provide meaningful retraining and general public support in their transition to new jobs, to say nothing about more effective education in the first place. (Of course, for the transitions to be meaningful, we need a strong commitment to a full-employment economy.) The change that is created by foreign trade—just like the change created by new technology—can be very beneficial, but the cost of change should not be borne by the workers who are displaced.

In other words, a progressive foreign trade policy needs to be combined with a progressive set of domestic policies. (See “What Would a Progressive Trade Policy Look Like?,” D&S, July/August 2017.)

The Conflict with China

As to the trade conflicts with China, President Donald Trump is taking a well-worn road in U.S. foreign policy, attempting to force another country to follow economic policies that are favorable to U.S. firms. For over three decades, China has had enormous success by promoting exports and building up its own firms. One aspect of these policies has been an insistence that U.S. firms share their technology with the Chinese in order to be allowed to operate in China. Also, the Chinese, apparently, are loose in respecting the patents and copyrights of U.S. firms. This current Chinese approach to technology is similar to what was done in the United States during 19th-century industrialization. As the U.S. textile industry was getting started, whatever could be learned from the British, regardless of British laws, was fair game. In any case, if U.S. firms don’t want to share their technology, they can simply stay away from investments in China. But they want their profits and their technology, too. The Trump administration, like previous administrations, is trying to help them along.

There are other aspects of the U.S.-China dispute, but, regardless of Trump’s belligerent practices and bombastic rhetoric, the thrust of the policies does not deviate from U.S. practices over the longer run. Those practices, however, may do considerable damage. Operating on what appear to be his changing whims in foreign economic policy (and foreign political policy for that matter), Trump is creating a great deal of uncertainty in the world economy. Uncertainty, to say the least, is not appreciated by internationally operating firms. By definition, we do not know where this uncertainty will lead, but the situation is not auspicious.

A progressive response to Trump’s policies would focus on workers’ rights and environmental destruction—but would have meaning only if a similar focus was directed toward our own country. It would also point out that U.S. firms—Apple, for example—are beneficiaries of the repression of workers’ interests in China. The progressive position would be class-based, recognizing that the interests of Chinese workers and U.S. workers need not be forced into conflict with one another. It would reject the idea that protecting the interest of U.S. firms—by securing patent rights and ISDS arrangements—is a reasonable approach to international economic relations.

So, no, with regard to foreign trade, progressives and Trump are not on the same page.

ARTHUR MACEWAN is professor emeritus at UMass Boston and a Dollars & Sense Associate.

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