Winners and Losers in Fast-Track Trade Negotiations

Winners and Losers in Fast-Track Trade Negotiations

Washington has been stirred for months by the president’s efforts to secure fast-track trade negotiation authority for a multi-nation Pacific trade deal.

Thursday (today as I write), cloture on the measure passed with a couple of votes to spare.  That ended the threat of filibuster. Next up: a series of amendments that will be introduced, debated and, most likely, defeated (either due to lack of institutional support or the president’s promised veto of the bill if certain amendments are approved). It may well clear the Senate by the close of business Friday. Once it clears the Senate, the House is committed to moving it quickly forward for the president’s signature.

Trade negotiations have created odd bedfellows in Washington before. It was the Clinton White House that worked hand in glove with Republican leadership in the House to lift China from under the heavy shadow of various trade sanctions, allowing China to become a major trading partner and, not coincidentally, a major economic rival.

Generally speaking, presidents of both parties seek fast-track authority for three clear reasons. One, presidential authority in the area of international affairs is far greater than it is over domestic matters to begin with. Two, with fast-track, that authority is expanded even more substantially, nearly guaranteeing that any successful negotiation of a trade agreement will lead to its passage, avoiding any risk of defeat and embarrassment. The combined effect of these two reasons is that the president can look forward with much greater confidence to a political “win” in trade negotiations than in most other areas.

Third, presidents since the end of the World War II have tended to view the expansion of “free trade” globally as a net good, economically, diplomatically, and in terms of national security.

There’s evidence that they are in good company, particularly among scholars in the field and among better-educated citizens. But no one who understands the realities of these trade deals, and of global trade more generally, will argue that they benefit everyone.

They work, in simplistic terms, because the countries that are party to the agreement each expect to gain economically in some way. One typical benefit is access for the country’s goods to previously closed or restricted markets. The other most common benefit is lower prices on products (whether raw materials or finished goods, and whether for business or for consumers) to be obtained from the trade partner.

Looked at in aggregate, these outcomes may be good for the economy. They may lead to job creation. They certainly may lead to increased profits for companies now able to sell their goods. They also may help to reduce costs, either in production (again benefitting the business bottom line) or to the consumer (improving the quality of life for millions by making some products more affordable), or both.

But underneath these aggregates, of necessity, there are winners and losers.

If the U.S. suddenly is able to sell a certain product in a new market, that flood of U.S. goods is likely to stifle the domestic production in the recipient country.

If cheaper goods can be imported to the U.S. than can be produced domestically, that means that those goods will not be produced in as great a quantity in the U.S., reducing jobs and profits.

Much of the loss in recent years has been in job opportunities for the less educated and less skilled. This helps explain the decline in median income over the last 40 years for those with only a high school education.

chart 5.21

Perils of Globalization When Factories Close and Towns Struggle, New York Times 5/18/2015

We also can see this loss in geographic terms, in communities dependent upon industries that are net losers in the shadow of free trade.

Similar differential wins and losses can be found closer to home, when local communities offer incentives for business relocation or expansion. And that reality needs to inform how and when we make our own deals.

More to come . . .