John Buell

Trade and the Politics of Backlash

Why is trade among nations now so contentious an issue, both within and among nations? The economic elites who manage trade policy accuse trade opponents of failing to understand basic economics and of seeking to protect special interests to the disadvantage of the vast majority. Yet it is these elites who have misunderstood classical economic theory, misrepresented what these agreements are about, and sought to impose them in defiance of the will of long-standing majorities. Joan Robinson, the greatest of the post-Keynesian economists, pointed out:

“Ricardo’s analysis of comparative advantage is often misunderstood. The comparison is not between the costs of production, in money terms, of particular commodities at home and abroad; it is a comparison between the real costs (in terms of labour and other resources) of different commodities at home. The argument was that, when protection is taken off, resources will move from the production of commodities with high real costs (which can then be imported) to those with lower real costs so that their productivity is increased. (pp102-103)” She adds however, the most important caveat, one consistently neglected by advocates of trade treaties:

“This argument applies when all resources are always employed. It has no force for a country with massive unemployment where the potential surplus is far from being realized. Moreover, the argument requires that exports pay for imports so that an increase in the value of imports (following the removal of protection) will automatically be accompanied by a corresponding increase in exports of the commodities in which the country has a comparative advantage. In fact, the value of exports for any one Third World country largely depends on the state of demand in the world market for whatever primary commodity it can sell (and on the prices offered by rival suppliers). ”

Much in mainstream economics depends on the assumption of full employment. The notion that workers earn wages and salaries commensurate with their marginal productivity (how much additional output an extra unit of labor adds. It is a well known fact that wages in real terms have been stagnant for a generation despite substantial increases in labor productivity. Persistent unemployment both invalidates the classical defense of free trade and undermines labor’s bargaining position.

That bargaining position is further hurt by other features of the modern economy. Workers’ leverage is reduced not merely by unemployment at home but also by modern capital’s footloose character. Jeff Faux, emeritus president of the Economic Policy Institute, points out: “[Free trade advocates] also doesn’t seem to understand how globalization has undercut many of the hoary assumptions of free trade theory. In the tradable goods sectors at issue, not only is capital detached from its national moorings, but labor markets are much more integrated than the Ricardian world … Visit Mexican factories along the border and you will discover that the level of productivity is as high or higher than in equivalent plants in the United States, while the level of wages is substantially lower. Then visit plants in the United States that must compete with those Mexican plants and, surprise, wages have dropped toward the Mexico standards.”

Advocates of trade liberalization are guilty of bait and switch tactics in two senses. The agreements are defended on the basis of abstract classical notions of the benefits of open trade. Nonetheless, they are not primarily trade agreements. In many instances tariffs for the industries under consideration are already low. As Faux points out: “NAFTA was a deal among the investor class of all three nations to expand their power over their working classes and their governments … If the purpose of NAFTA had been “free trade” it could have been written on two pages. Instead it’s roughly a thousand pages, containing extraordinary restrictions on the governments’ ability to regulate foreign corporate investment, to protect workers, the environment, and public health, and to manage their economies. “

Advocates of these corporate trade deals know they face an uphill struggle. Their second bait and switch lies in acknowledging that these deals will have some losers in addition to the many winners. But not to worry. Public policy can compensate the losers with retraining, and new jobs. This argument is naïve at best and disingenuous at worst. Often once the deals are ratified, promises are forgotten or the budget is too tight. And how many 55-year-old metallurgists want to become computer programmers.

Presidential candidate Bill Clinton promised he would not seek ratification of JHW Bush’s NAFTA absent parallel agreements to protect labor rights and the environment. The deals he signed included only broad principles with no enforcement mechanisms, unlike the specific and very punitive corporate property protections. I fear the same charade from Hillary Clinton.

What are the alternatives to these pseudo free trade agreements? Is protectionism, America First, the best or only way to tame capita’s perpetual aggression? Without alternatives that will become the default option for many, with consequences all too familiar to students of twentieth century history. More on alternatives to corporate trade and protectionism in my next column.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@acadia.net.

From The Progressive Populist, October 1, 2016

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