For Working Americans, We Need a New Deal for the Global Economy

May 5, 2017

The following remarks were delivered to a congressional panel by Roosevelt Fellow Todd Tucker on May 3, 2017.

Good afternoon, Leader Pelosi, Co-Chair DeLauro, Co-Chair Swalwell, and esteemed members of the Committee. Thank you for the chance to share some assessments on trade opportunities and challenges as you look to shape a better future for working America.

Last year’s debate over the Trans-Pacific Partnership (TPP) made clear that policies sold as foreign policy prerogatives have become increasingly untenable as a matter of domestic politics. We in the U.S. are not alone in this. Across major economies, we see a growing contestation by forces on both the left and the right that are questioning the value of post-war trading arrangements.

The specific concerns arounds “trade” stand-in for a variety of economic anxieties.

For communities in the Midwest, trade is a symbol of decades of being left behind. A growing body of economic research has shown that those negatively affected by trade displacement are not only the immediate workers that lose a factory job. It is also the local service sector worker and public sector resources that experience a strain. As “The Sustainable Equitable Trade Doctrine”, a recent Roosevelt Institute report showed, the result of these economic changes has polarized politics. In the absence of multi-racial labor unions, we see an increasing pull of authoritarianism.

Concerns about trade policy are not limited to the Midwest. Greenberg Quinlan Rosner has found that while Democratic base voters favor trade agreements by a wide margin when these deals are described in generic terms, they rapidly shift to opposition when learning about asymmetric litigation rights these pacts provide to foreign investors. For these demographics, trade deals can be a stand-in for broader concerns about corporate power.

What are the elements of an alternative agenda that can address these concerns? We should recognize that there are at least three problems we’ve been trying to solve with trade policy. An alternative approach will require some changes to trade agreement negotiating objectives, but are really part of a much broader complementary agenda in our domestic and international politics.

First, we are trying to improve the efficiency of the allocation of economic resources. Standard theory predicts great gains from trade, but unequal distribution. We are in a quandary now, because redistribution and adjustment assistance were nowhere near scale. Yet, as the White House is discovering, even hinting at upsetting this order leads to an outpouring of opposition from virtually all quarters. This is both the genius and the curse of these arrangements: once in place, they are very hard to undo. Thus, addressing economic anxieties is going to have to come through addressing rent-seeking and monopolies at the top of the income distribution, and through unionization and higher wages for the rest of us. Also important is tackling persistent multilateral trade imbalances – currency-based or otherwise. This would be good for surplus country consumers and deficit country workers alike. Finally, a concerted strategy to compete with the hundreds of billions China is putting into industry is also essential.

Second, we are attempting to address so-called non-tariff barriers to trade and investment. The fundamental problem here is that it is impossible to come up with a formula beforehand that can predict which policies are democratically legitimate and which are protectionist. The workaround we’ve employed for decades now is to delegate substantial decision-making power to unelected adjudicators. This makes a certain amount of sense, but it comes at a price: the rules of the economy are being set in response to business grievances by lawyers who are more versed in business contracts than social contracts. This certainly characterizes the now infamous investor-state dispute settlement (ISDS) lawsuits, but so too is it true of the tenured adjudicators at the World Trade Organization, and the process envisioned by the Investment Court System. Some of the major cases coming down in these systems – from tax benefits for Boeing, to China’s market economy status, to the case against dolphin-safe tuna labeling – have not or are unlikely to be precedents that will find wide acceptance. There is a growing consensus on the need for fundamental reform of these systems.

Third, we are trying to solve a foreign policy problem. All of our State Department desk officers need something to talk about with their counterparts, and for many years trade has been the default. Yet there is no reason we couldn’t affirm the depth of our alliances through joint work on climate, tax evasion, and financial instability. The key is to pitch these efforts with the same tenacity; the press will begin to cover them in much the way they do trade.

In sum, this alternative agenda should in term focus on equity and balancedemocracy, and diplomacy. In closing, we are approaching the 75th anniversary of the classic work of political economy: Karl Polanyi’s The Great Transformation. Polanyi was reflecting on the previous large-scale experiment in dis-embedding economic policy from society. He knew this was not the way great trading nations had developed, and that denying this fact precipitated deep social and political breakdown. Let us remember this lesson and not repeat these mistakes. We must ensure that a New Deal for the global economy is not only tolerated by working Americans, but actively embraced and defended by them. Fragility is the only alternative.