Wayne O’Leary

The TPP Blues

What is it with Democratic presidents and trade deals? Barack Obama, just as Bill Clinton before him, never met a trade deal he didn’t like. As a result, we’re headed down the same dead-end road under the Trans-Pacific Partnership (TPP) that we travelled with NAFTA 20 years ago.

The North American Free Trade Agreement was supposed to change American lives; it did, eliminating a substantial share of the nation’s manufacturing jobs — 845,000, according to the US Labor Department’s Trade Adjustment Assistance program for displaced workers, a figure that almost certainly underestimates the trade pact’s full negative impact.

As I’m writing this, the city of Baltimore is in flames, a social as well as literal conflagration that owes more than a little to trade policy. Although the immediate reason for Baltimore’s reversion to the racial strife of the 1960s is obviously its policing tactics in the inner city, there is a sense in which trade practices play directly into the equation.

Some years ago, one of Baltimore’s premier business firms was the clothier Joseph A. Bank. Bank was originally a manufacturer, as well as a retailer, of men’s wear, but in 1998 it abruptly exited the production end of the business, selling its factory and outsourcing 300 jobs, a typical development in the apparel industry during the era of free trade. (Virtually all American clothing now comes from somewhere else — chiefly China.)

In 2014, Bank was purchased by Men’s Wearhouse, and approving financial advisor Avondale Partners had this to say: “Men’s Wearhouse will be able to capitalize on Jos. A. Bank’s expertise in sourcing product for less overseas. Could Bank’s former manufacturing jobs and others like them have served to maintain a floor under Baltimore’s economy and defused the city’s growing poverty and social strife? It’s worth pondering.

The American apparel-making industry is just one segment of the US economy undermined by free trade in the last two decades. Trade boosters will argue that the jobs eliminated were subpar blue-collar jobs, and good riddance. Americans of the future will work in the New Economy, the economy of services and high-tech, where jobs are cleaner, less arduous, and higher paying.

Maybe so, but the New Economy is also less labor intensive; it simply doesn’t produce the quantity of employment needed, and automation (robotics, for example) is reducing the jobs it does create. On top of that, the New Economy is no less susceptible than the Old Economy to offshoring and outsourcing; anything able to be done through information technology is headed for Southeast Asia, where they work for less.

As far as old-line manufacturing is concerned, the evidence is in on globalization’s destructive impact on American workers. The Economist magazine, by and large a friend of free trade, cites recent academic studies indicating that trade has negatively affected both employment and wages in American manufacturing. One analysis from MIT and the University of California attributes a quarter of the loss in US factory jobs between 1990 and 2007 to Chinese imports; another, from the University of Pennsylvania, finds that median real blue-collar wages would have been 3% higher in 2008 than they were (15% higher for menial workers), had there been no imports.

Our leadership in Washington, being in denial, can’t grasp this reality; it also doesn’t recognize that what free traders call “trade” isn’t trade at all. The simplistic portrayal of free-trade advanced by its supporters goes as follows: American automakers (for example) sell domestically produced Fords or Chevrolets to, say, Japan, and Japan sells Toyotas or Subarus to the US; it’s an obvious “win-win,” with both economies benefiting equally and consumers in each country gaining by virtue of greater choice.

Here’s how free trade works in actuality: American corporations establish manufacturing subsidiaries in underdeveloped countries where labor costs are low; they ship raw materials and/or components to those subsidiaries and assemble finished products there, then ship the products back to the home market for sale. The outgoing consignments to American subsidiaries are conveniently labelled US “exports” and factored into an apparent improvement in the balance of trade.

The International Labour Organization (ILO), a United Nations agency, calls the internal commerce of American-owned multinationals “intrafirm trade,” and in 1995, it accounted for a quarter of all US exports and a fifth of all US imports, proportions that are certainly higher now. How the accompanying transfer of jobs offshore benefits unemployed or underemployed American workers is, of course, hard to explain.

Politicians endorsing this commercial sleight of hand defend it on the grounds of allowing American firms to “compete” or “remain competitive.” Such competition as exists under so-called free trade is really between foreign companies and American foreign subsidiaries. Absent the elimination of trade barriers, the game of deceptive terminology would be unnecessary. If the US were more “protectionist” (to use the pejorative), cheap foreign-made goods couldn’t so easily proliferate here because tariffs would add to their cost; there would consequently be less incentive for domestic firms to offshore their production.

There’s more to the 12-nation TPP than moving production for the American market overseas, however. Only five out of 29 sections in the agreement reportedly relate to actual trade. Equally important to the multinationals are the expanded legal rights ceded to the global corporations under the secret deal, such as the ability to sue participating governments (including state governments in the US) over regulations or legislation threatening to international investors. Modern trade expansion is more a matter of protecting the prerogatives (and profits) of global finance than anything else.

So, what’s behind our president’s head-in-the-sand attitude toward an obviously dubious TPP? The only plausible explanation is that, like many of his contemporaries, he learned his economics in an academic setting dominated by the exaggerated lessons of the restrictive Hawley-Smoot Tariff Act of 1930, credited for generations with intensifying the Great Depression. That conventional interpretation is now being reassessed; in any case, this is not the world of 1930, and it’s the insidious nature of globalized open markets that is the threat today.

Barack Obama and his fellow free traders may well have fallen victim to an affliction memorably described many years ago by John Maynard Keynes: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.

From The Progressive Populist, June 15, 2015

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