The FP Memo

How to Be a Free Trade Democrat

The Democratic presidential nominee must defeat misconceptions about globalization in order to forge a new trade policy that will both boost economic growth and protect workers.

MEMORANDUM:

TO: The U.S. Democratic Party’s Presidential Nominee
FROM:
Gene Sperling
RE:
A Progressive Free Trade Policy

Trade is not much fun, particularly if you’re a Democratic presidential candidate. Many of your key supporters — unions, blue-collar workers, and student activists — oppose market liberalization, and many of your advocates in the business community will congratulate you for your courage only to disappear come election time. In addition, although the benefits of trade — including growth, innovation, higher-quality jobs, and lower prices — are often diffuse, the losses are usually concentrated among hardworking families who are simply in the wrong place at the wrong time.

Worse still, virtually no one seems to want to build a truly pro-growth and progressive consensus on trade. Too many on the left give the false impression that a better economic future is possible simply by inhibiting global competition. Too many politicians on the right are so stuck in a "less government is always better" mode that they refuse to consider how smart government policies can ensure that trade expansion raises the tide that lifts all boats — both in the United States and among U.S. trading partners.

The next U.S. president must break this ideological gridlock. Only a president willing to cut through political, regional, and ideological divisions and speak with brutal honesty to all sides can move the country forward together. Your political advisors will want you to stay away from such a difficult issue on the campaign trail, but you need to outline your vision for both the voters and your future governing mandate.

Embrace the Dynamism Economy: You must counter any notion that most of the job loss and economic dislocation in the United States flows directly from recent trade policies. Much of the dislocation — whether from intense competition, technological advances, outsourcing, or weak economic demand — is not likely the result of recent trade agreements. This "trade over-blame game" paints a distorted picture of the nation’s current economic challenges and will not help produce the broader progressive agenda so critical to the United States’ economic future.

During the coming national campaign, be direct about how future prosperity hinges on how well we prepare for, rather than resist, what I call the "dynamism economy" — the degree to which forces such as information technology and increasing openness in the global economy increase pressure on prices, competition, and innovation. While you must address the recent pain of many families caused by global trade and outsourcing, the largest source of U.S. job woes is not the sudden loss of jobs to global competition but the failure to create new jobs to replace ones lost in the upheaval of the dynamism economy.

Consider the following facts: In 1999, although fierce competition destroyed an astounding 32.9 million U.S. jobs, it also helped create 35.6 million, resulting in a net creation of 2.7 million jobs. At the same time, unemployment fell to its lowest level in 30 years and poverty to its lowest level since 1979. Since the recession ended in November 2001, the force behind the job market’s contraction has not been the destruction of jobs, but a dearth in the creation of jobs. Indeed, in 2002, we saw some 500,000 fewer jobs destroyed in the United States than the average between 1998 and 2000. Trying to slow the pace of dynamism could actually kill the goose that lays the golden egg of shared economic growth in the jobs and industries of the future.

Unfortunately, the trade over-blame game allows even the Bush administration to blame China instead of focusing on failed policies that have done little to spur job creation or prepare U.S. workers for future economic challenges and opportunities. Ultimately, the right progressive agenda for the United States requires investing in areas such as universal preschool, college attainment, basic research, technology infrastructure, and bold adjustment policies, to ensure that the U.S. workforce continues to attract the highest-value jobs and investment. 

Recognize the Progressive Contributions of Open Markets: As a candidate representing progressive values, you are right to shape trade policy to ensure that open-market policies not only increase productivity and efficiency but truly raise all economic boats in both the United States and its poorer trading partners. Yet focusing too much on the downsides of trade and dynamism often obscures how open markets can and do contribute to growth and broader progressive values.

Although it is not popular for any politician to acknowledge benefits from imports, progressives must not be afraid to point out that higher prices resulting from protectionism operate like a regressive tax, hitting the pocketbooks of modest- and low-income families the hardest. For example, imported toys carried a tariff before the U.S. Congress voted to eliminate it in 1994. From December 1997 (the first Christmas for which data is available) to December 2003, the price of toys in U.S. cities fell 24.3 percent, which means substantial savings for families at Christmas time. Greater or lesser savings can be replicated across the vast range of goods the United States imports from abroad.

Even if continued job stagnation or fallout from outsourcing and globalization require you to propose new policies to help protect jobs, wages, and health benefits, why pay for them with protectionism that will impose disproportionate costs on average consumers? Wouldn’t it be preferable to achieve those goals by embracing the dynamism economy and paying for such benefits with revenues from progressive income taxes?

Tackle the Cost-Sharing Crisis: You must be tough on the elitism of free traders who sit in comfortable chairs in comfortable think tanks expounding on why the benefits of open trade mean we simply must tolerate the pain of other people (usually working-class families they do not know, living in communities they rarely visit). If the benefits of trade are so widespread, why is it right to allow the costs to be concentrated upon so few? Neither callous indifference nor token retraining assistance for dislocated workers suffices to address the cost-sharing crisis on trade in the U.S. economy.

Your willingness to speak hard truths to those in your own party will give you the credibility to be equally critical of Republicans for their hard-headed opposition to government efforts that would help U.S. workers benefit from the upsides of globalization and cushion them from the downsides. Tell opponents bluntly that with new white-collar groups such as the Organization for the Rights of American Workers and MAD in USA lining up with manufacturing workers to oppose free trade, simply rejecting the government programs needed to alleviate our cost-sharing crisis could easily backfire and erode political support for pro-growth, open-market policies.

THREE CONCRETE STEPS

To forge this new consensus, you must affirm U.S. trade leadership, propose a bold vision for alleviating the cost-sharing crisis, and take your progressive agenda global.

1) Make clear that the United States will still lead: Throughout the campaign, you need to clarify that your presidency will not retreat from the United States’ commitment to push for open markets. Of course, there will be times where temporary relief may be legal and appropriate, but it is critical to understand how fragile the open-market consensus can be, how important trade remains for linking nations, how easily protectionism can spiral downward into retaliation, and how dangerous such outcomes can be for pro-growth and progressive goals.

2) Go bold on cost-sharing: Current U.S. government efforts to deal with economic dislocation and job loss are too reactive and marginal. Threatened workers and communities have virtually no policy options other than a plea for protection after they are already in serious trouble. You must offer these communities a serious alternative early on in the game — a course of action they can take before having to choose between protectionism and devastation. In short, you must propose a "preemption strategy" to address the cost-sharing crisis in the dynamism economy.

What would this strategy look like? While the U.S. government should not be in the business of picking winners — the traditional notion of industrial policy has been rightly discredited — the same is not necessarily true in reverse. We often know with a high degree of certainty when an industry or set of workers is threatened by global competition. What if you proposed a "reverse industrial policy" that delivered early and ambitious support to vulnerable communities and industries? You should propose the creation of new "trade-adjustment zones" in key areas to attract diversified investment before existing industries are completely uncompetitive. You should also offer retraining assistance to workers in at-risk businesses before they are laid off. You could even consider providing lump-sum compensation to buy out small-business owners, workers, and small farmers whenever the intense and threatened interests of a few block clear and broad-based interests of the U.S. economy or global poverty reduction.

When the inevitable dislocations occur, the United States needs a far more straightforward, universal, and generous adjustment strategy to provide real security for struggling families. Of course, even talking about this issue is never politically easy: Adjustment policies are the policy equivalent of a prenuptial agreement. Anyone with a job wants to hear about how to keep it or get a better one, not what a politician has to offer when workers find themselves with a pink slip. You are never going to make dislocation pleasant, but you can and must make it less traumatic.

We must shed the antiquated notion of tying assistance only to economic downturns; dislocation and permanent job shifts are just as real in good times. You should offer to move toward a unified system that allows workers to call a single number or visit one central location for all the reemployment services and unemployment insurance benefits available to them — regardless of whether their jobs were lost to technological changes, a weak economy, or changing consumer tastes. You should propose wage insurance for those who lose jobs after the age of 50, temporary healthcare to all dislocated workers, and even temporary mortgage assistance.

3) Take your message global: The national debate on trade and global poverty is becoming dangerously impoverished. Your leadership is desperately needed in this area. If properly implemented, open-market policies can play a major role in reducing poverty in the poorest countries.

Too many conservatives simply assume free trade will reduce poverty and fail to ask how open-market policies can be shaped to most quickly lift all boats. Too many globalization skeptics look at places where sweatshops, poverty, and open trade coexist and argue that free trade somehow created those conditions. Indeed, the most severe poverty and exploitation often occur in the areas most untouched by globalization.

Boldness and creativity are required to break this deadlock. To the skeptical progressive, you should point to groups such as Oxfam International and activists, including U2 lead singer Bono and U.N. Secretary-General Kofi Annan, who stand alongside African leaders in endorsing open markets as a tool for poverty reduction. To those on the right who support global poverty reduction but think Democrats are unrealistic to push for labor standards tougher than those imposed in the Clinton-negotiated Jordan-U.S. Free Trade Agreement, challenge them to find alternatives. Ask them to support a bold new initiative to provide basic education for poor countries, fight abusive child labor, and fund transition assistance to small farmers and workers hurt by market liberalization in countries with poor safety nets. Ask U.S. companies to develop codes of conduct that allow for independent monitoring of work conditions, and make clear that such companies will encourage safety upgrades, open communication, and the right to associate — even if it means collective bargaining.

CONCLUSIONS

I don’t expect that you’ll be able to lay out this entire pro-growth and progressive agenda on the campaign trail. But do not underestimate the optimism of the American people or their desire to see a political leader willing to engage the future, with all its uncertainties. Dynamism, technological advance, and fierce global competition can raise the tide and lift all boats, but only alongside bold new investments in our current and future workers, and bold new efforts to share costs both at home and abroad. This message should permeate your presidential campaign — and your first State of the Union address.

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