Do We Need Free Trade?

What the US presidential campaign is showing is that the free trade consensus no longer holds. Bernie Sanders for the Democrats, and Donald Trump for the Republicans, both make the point that free trade has harmed the American working class, and that it is urgently necessary to cancel the various free trade agreements that were drawn up in the last 20 years. In addition, these candidates also view TPP and TTIP, which are US trade agreements with Asia and Europe, as suspicious agreements.

The question that needs to be asked is whether we should agree with Trump and Sanders, and claim that we no longer need free trade, because we need to protect US middle class jobs from cheap labor imports from Mexico, China and other countries. The labor protectionist left and nationalist right agree that importing goods from cheap labor countries undermines the interests of the US working class. They claim that a reinvigoration of the US working class and democracy requires a cancellation of the free trade agreements.

I am quite split on the trade agreements, because to the extent that different countries start to trade with each other, it is the case that consumers can substantially benefit from cheaper prices (though strangely those cheaper prices only occur at the capitalist core, i.e. in Europe and US, rather than the capitalist periphery, where many commodities are produced; another issue is whether producer prices come down faster than consumer prices, which shifts surplus income to private capitalists rather than consumers). The losers are the workers in export-competitive industries, which tends to be manufacturing and textile. But most of the jobs that are created in today’s economy are to be found in the non-tradeable sector, such as transportation, education, health and retail. These jobs are rather unlikely to be offshored by companies. (Though there is a risk that shifting workers from the tradeable to the non-tradeable industries will increase labor competition in the latter sector, which pushes down wages and pushes up profits.)

But there is no doubt that free trade results in economic losses for workers, while the capitalist bosses always win, because they see their short term profits increase. It is not surprising that the stock markets are rallying when the executives can submit substantial cost savings to their shareholders, which is coming on the backs of the workers who have lost their jobs with open trade. Every standard economic textbook praises free trade, but they also add the proviso that nothing principally prevents the government from redistributing the concentrated gains of trade to the overall population either in the form of tax, public-sector hiring or social transfer benefits. But international economists tend to be silent on the political mechanism as to how such transfer is to be achieved in a political system, where the rich dominate.

I am principally in favor of free trade agreements if we have a political economy that ensures that workers who lose their jobs receive job training and new jobs (perhaps in the public sector) financed from a surtax on multinational corporations, who are reaping the rewards of a globalized labor market. But simply because this is not the case today does not mean that we have to roll back free trade and reintroduce tariffs. An economic nationalist agenda might benefit a part of the working class for a certain time, and can at most be considered temporary sand strewn at the wheels of private capital accumulation. The capitalist will find new ingenious ways to bring the free trade agenda on the table. The challenge is to negotiate free trade agreements with substantial social protections and national accountability of multinational corporations, who are trying to play one country off against another.

This is a segway to the current free trade agreement, TTIP and TPP, which are currently negotiated in secret by the US, EU and many Asian countries. Free trade agreement might be somewhat of a misnomer here, because the traditional understanding is that those agreements revolve around tariff protection. Worldwide tariffs tend to be rather low (though Japanese farmers still receive substantial protection for instance). TTIP and TPP go beyond the simple trade agreements, because they prioritize on legal protections for investors, who seek recourse when national governments decide on policies to protect their people (health, safety, environment and labor). President Obama has claimed that the US needs to take the leadership in negotiating free trade agreements, because otherwise the Chinese will do it.

This makes it seem as if Obama was really interested in protecting US national interests. But what is national interest anyway? It is the ability of multinational corporations with headquarters in the US to reap the maximum profits possible with little regard for the national interests (including their health, safety, environment and labor standards) of the countries that agree to such agreement. TPP and TTIP, therefore, directly consolidate corporate power, and create a world that is more unequal than what we see today.

What is the way forward for the left? There are basically two rational positions that individuals can hold: (1) accept the new agreements and expect the dialectics of history with growing inequality, concentrated corporate power, disenfranchised, poor, angry and unemployed masses to move forward until we create a more acceptable equilibrium condition at some future point. (2) Oppose the new trade agreements, and use that victory to mobilize for new and more progressive objectives in international trade.

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