When President Barack Obama delivers his State of the Union address this month, he will surely highlight the issue of growing economic inequality and argue for such remedies as raising the minimum wage. He may also put in a plug for the proposed Trans-Pacific Partnership trade agreement his administration is negotiating with 11 Pacific Rim nations and for fast-track legislation that would limit congressional input in the accord to facilitate its ratification.
If he does both — bemoan rising inequality and promote yet another free-trade agreement — his speech will rate a chapter in the annals of self-negation.
By now, even the most ossified right-wing economists concede that globalization has played a major role in the loss of American manufacturing jobs and, more broadly, the stagnation of U.S. wages and incomes. Former Federal Reserve vice chairman Alan Blinder has calculated that 22 percent to 29 percent of all U.S. jobs could potentially be offshored. That’s a lot of jobs: 25 percent would translate to 36 million workers whose wages are in competition with those in largely lower-income nations. Of the 11 nations with which the United States is negotiating the TPP, nine have wage levels significantly lower than ours.
Trade agreements that promote the relocation of U.S. corporations’ factories to nations such as China and Mexico have played a central role in the evisceration of American manufacturing and the decline in U.S. workers’ incomes. Two out of three displaced manufacturing workers who got new jobs between 2009 and 2012, the Bureau of Labor Statistics reports, experienced wage reductions — most of them greater than 20 percent.
But perhaps the most devastating argument against the kind of trade accords the United States has entered into over the past quarter-century has been that inadvertently made by those defenders of such agreements who have used the 20th anniversary of the North American Free Trade Agreement — it went into effect on Jan. 1, 1994 — to celebrate its achievements. I’ve read many commemorative editorials, columns and speeches in praise of NAFTA, and not one of them has so much as mentioned the agreement’s effect on U.S. employment, wages or trade balance. In October, former World Bank president Robert Zoellick, who was one of NAFTA’s architects in the administration of George H.W. Bush, delivered a lengthy, glowing assessment of NAFTA’s achievements that managed to avoid any of those topics. The champion of avoidance seems to be Commerce Secretary Penny Pritzker. At a San Diego conference in October, a public radio reporter asked her, “And where has NAFTA not lived up to some of the hopes and promises?” Pritzker replied: “I don’t think about where NAFTA hasn’t lived up.”
The one statistic in the deal’s defense that Pritzker cited in that interview is that the total volume of trade among the three NAFTA signatories now exceeds $1 trillion a year. What she failed to note, however, is that the U.S. trade deficit with Canada and Mexico has risen from $27 billion in 1993, the last pre-NAFTA year, to $181 billion in 2012.
By avoiding discussion of the consequences that trade deals with developing nations have on U.S. workers, not to mention our trade balance, defenders of free trade are indulging in the worst kind of imperviousness to facts. But when the case for free trade is coupled with the case for raising U.S. workers’ incomes, it enters a zone where real numbers, and real Americans’ lives, matter. In that zone, the argument for the kind of free-trade deal embodied by NAFTA, permanent normal trade relations with China and the Trans-Pacific Partnership completely blows up. Such deals increase the incomes of Americans investing abroad even as they diminish the incomes of Americans working at home. They worsen the very inequality against which the president rightly campaigns.
There are ways that a developed nation can trade with the developing world without gutting its own economy. Germany has been able to protect its workers not only through the advantage of having the euro as its currency, but also by requiring its corporations to give their employees a major say in their companies’ investment decisions and by embracing a form of capitalism in which shareholders don’t play a major role. Were the United States to adopt this form of stakeholder capitalism, then its trade accords wouldn’t necessarily come at the expense of its workers. Absent such reforms, however, trade deals will only negate our attempts to diminish inequality.
Harold Meyerson is editor-at-large of The American Prospect.