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The Free Trade Consensus

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Above: More beneficiaries of free trade

David Dayen argues that the free trade consensus is dead.

Speaking on Monday at the Milken Institute Global Conference in Los Angeles, U.S. Trade Representative Michael Froman made a familiar argument. The Obama administration has used trade agreements to reshape globalization in the best way, he said. We’ve put labor and environmental standards at the core of the deals, he claimed, and we’ve created a level playing field for U.S. workers.

Froman’s timing was unfortunate. The same day, documents leaked by Greenpeace Netherlands revealed that U.S. negotiators working on a trade deal with the European Union have actually been pressuring their trading partners to lower those same standards.

This distance between Froman’s words and the contradictory reality is at the heart of the disintegration of the global trade consensus. The 2016 presidential election has focused heavily on trade agreements, and the leading basher of them is now the Republican nominee for president. We’re seeing something similar on the Democratic side: You can argue that Hillary Clinton has not moved on any major issue as much as she has moved on trade agreements, publicly opposing a Trans-Pacific Partnership (TPP) agreement she enthusiastically promoted as secretary of state.

In short, the center of gravity holding together a policy framework that prioritizes corporate dominance over democratic governance has collapsed. And this week’s leak is another nail in the free-trade coffin.

The claims that meaningful labor and environmental standards are in these agreements is patently absurd. First, labor and environmental groups played no role in writing the standards. Second, we’ve already seen the Obama administration change Malaysia’s human rights ranking so that it could join the TPP just after the discovery of human remains from a camp of trafficked workers. Third, there’s no way for labor or environmental groups to access the Investor State Dispute Settlement courts that will enforce the TPP or other agreements. The language seems utterly meaningless except as a sop to domestic groups to reduce opposition. That the U.S is pushing European nations to lower their standards in the TTIP, as Dayen details, just goes to show how awful the Obama administration has been on trade.

The U.S. negotiators complained about the European ban on animal testing in cosmetics, calling it an “irreconcilable” difference that would cripple market access. They proposed pre-empting restrictions Europe maintains on genetically modified organisms, euphemistically referring to them as “products of modern agricultural technology.” They sought a dispute-mechanism process for food safety and pesticides that would outsource decision-making to a UN organization, where corporate executives often sit on the national delegations and where rulings have typically been more lax than those from the EU.

The documents also show that the U.S. wants to change the entire EU rulemaking process. In a chapter entitled “Regulatory Cooperation,” U.S. negotiators proposed that the EU inform American companies of planned regulations in advance, giving them an opportunity to influence the rules. They want the EU to limit regulations to those least burdensome to business, and seek out “alternatives to achieve the appropriate level of protection” without a new rule. They would require the EU to take into account the trade effects of regulations; that means that if regulations banning a hazardous chemical would stop a corporation from selling a product containing it in the EU, the European Parliament would have to give those market considerations as much weight as safeguarding public health before approving the rule.

The regulatory proposal would also add layers of bureaucracy and detailed “impact assessments”—the kinds of cost-benefit analysis Washington habitually uses to stop regulations cold. In fact, just a few weeks ago the Obama administration argued against including a cost-benefit analysis in determining whether financial institutions posed a systemic risk to the economy—because it’s too subjective, burdensome, and biased in favor of corporations. Now its trade negotiators want to mandate the same analysis for Europe.

A “science and risk” provision is even more explicit: No prohibitions on products should be implemented, the U.S. demands, without scientific proof that the products are harmful, rather than as a precautionary measure. This is a higher regulatory burden than current EU practice, and would result in overturning several of its laws.

This is just utterly indefensible. It’s outrageous. And it’s a reminder that the biggest obstacle to global justice is the U.S. government. The unwillingness of the American government to pass ILO recommendations on labor rights has long been a major problem in the global injustice of labor exploitation, for instance.

I’m not sure I’d go as far as Dayen and say the trade consensus is dead. Certainly Clinton’s move to the left on the TPP, as least publicly, is significant. What Trump’s bluster actually means is harder to gauge and hopefully we never actually know. But certainly there is a real pushback against these pro-corporate deals that hurt American workers without actually delivering greater justice to other nations.

However, Marshall Steinbaum notes one significant reason that to think that the free trade consensus is dying, if not dead. That’s because the defenders of free trade like Zack Beauchamp are no longer even pretending that globalization actually helps American workers. They have rhetorically retreated into calling free trade a moral crusade to help the world’s poor, while ignoring all the exploitation on the ground that does not have to happen.

In response, a raft of recent articles has come to the defense of globalization, but not on the grounds that we might expect—namely, that the tradeoff thesis is wrong. These include works by Zack Beauchamp, Brian Doherty, Jordan Weissmann, Noah Smith, James Pethokoukis, Annie Lowrey, and Charles Kenny. Globalization may indeed be a zero-sum game, these writers say, but it is one we are morally compelled to play—by perpetuating current trade policy—in order to help the global poor. Milanović himself has strenuously protested reading his work in this way.

The timing of these articles is obviously tied to the U.S. presidential primary, but also more obliquely to a recent research paper by David Autor, David Dorn, and Gordon Hanson documenting the devastating effect that opening up trade with China had on the labor markets where competition with Chinese imports was fiercest. The work of Autor, Dorn, and Hanson only amplifies disappointment at globalization’s failed promise to improve the domestic economy, even if—so the story was supposed to have gone—it cost some jobs at home in the short run. In this sense, their research lags the politics: dissatisfaction with trade and with globalization more generally has driven a populist upsurge—perhaps most concretely in the rise of both Donald Trump and Bernie Sanders, foreshadowed by the Occupy movement. The many elite pundits who scorned the dire predictions of trade liberalization’s opponents in the 1990s have to admit globalization has failed to produce the promised prosperity at home.

But the answer is not to justify globalization by looking to gains made elsewhere. The tradeoff thesis does not stand up to scrutiny, and defending globalization by its success abroad seems doomed to failure. Indeed, it is important to note what a profound rhetorical retreat it amounts to. For decades, the policy-making establishment assured the public that the gains from globalization at home would outweigh the losses, and the winners would compensate the losers. It is hard to make that case now. Hence the retreat to grounding the argument for free capital mobility in the gains to the world’s poor.

Steinbaum goes on to talk about capital mobility, not competition with the world’s poor, is the greatest threat to the working class in wealthy countries. And then he closes with something that is absolutely true:

Politicians responsible to the public cannot sell the idea that the domestic middle class must suffer, to the benefit of foreigners. The tradeoff idea instead serves the folk mythology of an elite class of economic policy consensus–enforcers, who push policies that enrich the already wealthy. Democracy is supposed to operate as a natural check to bring the elite policy-making consensus in line with popular opinion and interest; playing the domestic middle class against a foreign one is one of many ways to keep that from happening. Asking which ought to suffer to benefit the other distracts attention from the real issue: their joint exploitation at the hands of globally mobile capital.

There’s a reason that people like Beauchamp and others don’t articulate an agenda for the American working class, which is that they don’t really care. They actively defend a system of global capitalism that has pitted the working classes of the world against each other, with corporations having figured out how to avoid national legal regimes and workers stuck within their own national legal regimes without access to the new international legal framework. From a political perspective, you cannot justify the export of working class jobs. This is at the core of the populist rise in 2016. Only elites like Beauchamp and Yglesias really believe that globalized capitalism is an unvarnished good in 2016 and that’s because they benefit from it. But most Americans don’t and they are sick of being asked to sacrifice for the rest of the world. That most of the world outside of global business elites is not actually benefiting from the sacrifice does not help the claims of Beauchamp and the like.

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