Sunday, March 2, 2008

Democrats Should Listen to Robert Reich on Trade

In last week's Democratic debate, Tim Russert, in his customary fashion, pressed Barack Obama and Hillary Clinton on their criticisms of the 1993 North American Free Trade Agreement (NAFTA):
MR. RUSSERT: ..[I]n the debate that Al Gore had with Ross Perot, Al Gore said the following: "If you don't like NAFTA and what it's done, we can get out of it in six months. The president can say to Canada and Mexico, we are out. This has not been a good agreement." Will you as president say we are out of NAFTA in six months?

SEN. CLINTON: I have said that I will renegotiate NAFTA, so obviously, you'd have to say to Canada and Mexico that that's exactly what we're going to do. But you know, in fairness --

MR. RUSSERT: Just because -- maybe Clinton --

SEN. CLINTON: Yes, I am serious.

MR. RUSSERT: You will get out. You will notify Mexico and Canada, NAFTA is gone in six months.

SEN. CLINTON: No, I will say we will opt out of NAFTA unless we renegotiate it, and we renegotiate on terms that are favorable to all of America.

But let's be fair here, Tim. There are lots of parts of New York that have benefitted, just like there are lots of parts of Texas that have benefitted. The problem is in places like upstate New York, places like Youngstown, Toledo, and others throughout Ohio that have not benefitted. And if you look at what I have been saying, it has been consistent....

...But let's talk about what we're going to do. It is not enough just to criticize NAFTA, which I have, and for some years now. I have put forward a very specific plan about what I would do, and it does include telling Canada and Mexico that we will opt out unless we renegotiate the core labor and environmental standards -- not side agreements, but core agreements; that we will enhance the enforcement mechanism; and that we will have a very clear view of how we're going to review NAFTA going forward to make sure it works, and we're going to take out the ability of foreign companies to sue us because of what we do to protect our workers....

MR. RUSSERT: But let me button this up. Absent the change that you're suggesting, you are willing to opt out of NAFTA in six months?

SEN. CLINTON: I'm confident that as president, when I say we will opt out unless we renegotiate, we will be able to renegotiate.

MR. RUSSERT: Senator Obama, you did in 2004 talk to farmers and suggest that NAFTA had been helpful. The Associated Press today ran a story about NAFTA, saying that you have been consistently ambivalent towards the issue. Simple question: Will you, as president, say to Canada and Mexico, "This has not worked for us; we are out"?

SEN. OBAMA: I will make sure that we renegotiate, in the same way that Senator Clinton talked about. And I think actually Senator Clinton's answer on this one is right. I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced. And that is not what has been happening so far...

The Canadians are not amused. The Canadian Broadcasting Corporation reported:

Prime Minister Stephen Harper issued a friendly warning to Democratic presidential hopefuls south of the border on Thursday, saying it would be a "mistake" for the United States to reopen the North American Free Trade Agreement...

"If any American government ever chose to make the mistake of opening that, we would have something we would want to talk about as well," the prime minister said with a smile, in response to a question from NDP Leader Jack Layton.

He didn't elaborate, but earlier this week, Trade Minister David Emerson and Finance Minister Jim Flaherty said U.S. officials should not forget the benefits of the agreement and hinted Canada could respond to a NAFTA pull-out by renegotiating U.S. access to Canada's oil.

There have been reports that Obama economic advisor Austan Goolsbee has been quietly reassuring the Canadians that he doesn't really mean it... (see also Andrew Leonard's take).

If the Democrats wanted to say something intelligent about trade, they might listen to former labor secretary Robert Reich, who writes:

...It’s a shame the Democratic candidates for president feel they have to make trade – specifically NAFTA – the enemy of blue-collar workers and the putative cause of their difficulties. NAFTA is not to blame. Consider the numbers. When NAFTA took effect, Ohio had 990,000 manufacturing jobs. Two years later, in 1996, it had 1,300,000 manufacturing jobs. The number stayed above a million for the rest of the 1990s. Today, though, there are about 775,000 manufacturing jobs in Ohio. What happened? The economy expanded briskly through the 1990s. Then it crashed in late 2000, and the manufacturing jobs lost in that last recession never came back. They didn’t come back for two reasons: In some cases, employers automated the jobs out of existence, using robots and computers. In other cases, employers shipped the jobs abroad, mostly to China – not to Mexico.

NAFTA has become a symbol for the mounting insecurities felt by blue-collar Americans. While the overall benefits from free trade far exceed the costs, and the winners from trade (including all of us consumers who get cheaper goods and services because of it) far exceed the losers, there’s a big problem: The costs fall disproportionately on the losers -- mostly blue-collar workers who get dumped because their jobs can be done more cheaply by someone abroad who’ll do it for a fraction of the American wage. The losers usually get new jobs eventually but the new jobs are typically in the local service economy and they pay far less than the ones lost.

Even though the winners from free trade could theoretically compensate the losers and still come out ahead, they don’t. America doesn’t have a system for helping job losers find new jobs that pay about the same as the ones they’ve lost – regardless of whether the loss was because of trade or automation. There’s no national retraining system. Unemployment insurance reaches fewer than 40 percent of people who lose their jobs – a smaller percentage than when the unemployment system was designed seventy years ago. We have no national health care system to cover job losers and their families. There's no wage insurance. Nothing. And unless or until America finds a way to help the losers, the backlash against trade is only going to grow.
Reich also has some scoop on Clinton's claim that she privately opposed the deal during her husband's administration.

In any event, hopefully this primary race comes to an end Tuesday. If it continues on to Pennsylvania we may get the unedifying spectacle of Clinton and Obama trying to outdo each other in praise of our "antidumping" rules, which are often applied to protect the steel industry.

The first person I ever voted for was Paul Tsongas; if only were still with us to call out the "Pander Bears", sigh...

Update (3/3): New details emerge on l'affaire Goolsbee. Also, Jagdish Bhagwati believes an Obama administration is the "less disturbing prospect" for trade.

Update #2 (3/5): Willem Buiter weighs in, responding to Bhagwati.

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