The Peterson Institute for International Economics had a lunch event on March 29th, 2011. The guest was Sander Levin, Congressman from Michigan and currently Ranking Member of the House Ways and Means Committee speaking on Reshaping U.S. Trade Policy in a Globalizing Economy. It is always interesting to hear a Democrat speak on trade issues. The party as a whole seems deeply divided on international trade: it agrees that other countries should buy lots of American products, it just does not think that we should buy any of theirs. In an other time this policy was called mercantilism.
Rep. Levin did not say much new. It was three things he did not say that struck me. The first the lack of any mention in his prepared remarks about consumers. An objective discussion of the merits of trade would look at the costs and the benefits of any trade policy. And one of the large benefits of open trade has been the massive savings realized by the American consumer, including many from Michigan. The ability to buy products cheaply from other countries has helped consumers in two ways. The first is through the direct benefit of lower prices and greater selection. The second is through the reduced prices and higher productivity of American producers responding to foreign competition. Yet Rep. Levin seems to discount this benefit entirely. While he talked a great deal about worker’s rights, there was no hint of any possible right that consumers might have to purchase the best products for the lowest price wherever they might find them.
I would argue that the American economy has encouraged consumers too much. But that is not the fault of other nations. It is our own desire to live beyond our means and to borrow against the future that has led to trade deficits, low national savings, and heavy debt. The solution to these problems is certainly not to limit sources of supply.
The second oversight was the plight of workers in developing countries who seek access to our markets. Here Rep. Levin did have something to say, but it reflected a skewed view of worker welfare. Over the last few decades a remarkable transformation has occurred in parts of the developing world, centered around China and India. Hundreds of millions of individuals have gradually escaped poverty. They are certainly not wealthy, and by Americans standards they might still be regarded as poor. But their lives have been unquestionably altered for the better and the size of the middle class in these countries has grown significantly from very low levels. Much of this could not have happened without access to trade, including American markets. Trade has created markets for new industries, expanding employment. But it has also opened up domestic markets to competition, weakening the privileged status of existing business interests who often have a stranglehold on economic opportunity. This is why aggressive advocacy for lowering foreign trade barriers helps foreign workers as well as our own.
Yet Rep. Levin distrusts most trade agreements because they do not guarantee “worker rights.” By that he means the ability of union officials to organize, tax, and speak for a certain set of workers. But laws to enable this would not help many workers. More likely the unions would collude with domestic businesses to restrict trade. The gains from restricted trade would then be shared by a narrow set of privileged workers as well as the business class, but the mass of workers would no longer see much economic progress. That would suit American unions fine, because for the most part they see free trade agreements as a threat to their jobs. The plight of workers in developing countries is a cause for great concern. But it is the result of a lack of economic opportunities and political systems that deny citizens both economic and legal rights. Trade weakens those barriers. Trade restrictions protect them.
The third omission was somewhat understandable. Rep. Levin several times referred to the need to protect workers who are hurt by foreign competition. While it would be good to have a more efficient safety net in place, two points are worth making. First, an efficient safety net would probably not look like anything Rep. Levin would support. It would not pay people to be unemployed for long periods of time, it would not depend on an official government declaration, and it would offer workers a lump sum which they could spend on training as they saw fit. Second, technological innovation has been a far greater source of job loss (and economic growth) than has trade. Even in heavily unionized industries such as autos, steel, and airlines, it was new, lower-cost domestic competitors who did much of the damage to the traditional union model. Yet few people would propose slowing technological progress in order to preserve jobs. Yet trade is somehow different. The economic consensus that freer trade benefits a nation remains valid. Yet some of the gain also goes to THEM as opposed to US and for some people that makes all the difference.
Finally, Rep. Levin several times criticized the Republican party for its reluctance to pass the Korea Free Trade Agreement recently renegotiated by the Obama Administration. Although Republicans by and large support the Agreement they are insisting that the President also submit Free Trade Agreements that the Bush Administration negotiated with Panama and Colombia. This is somewhat awkward. Democrats had a large majority in both the House and Senate for the last two years yet neither they nor the president seemed to place much emphasis on trade. More to the point, a majority of Rep. Levin’s own party is likely to oppose the Korea agreement, largely due to the continued opposition of most unions. Free trade by and large depends upon Republicans, if Rep. Levin could deliver his own party the President’s negotiating position would be far stronger.
The welfare of the average worker both here and abroad is furthered by opening up trade as much as possible and as fast as possible, wherever and whenever possible.
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