President John F. Kennedy defended his support for trade liberalization in what became known as the Kennedy Round by arguing that “a rising tide lifts all boats.” That was not the philosophical background during the U.S. Trade Promotion Authority (TPA) debate last month.
The TPA sought by President Obama, which would give Congress the right to approve or reject but not amend any trade deal, passed only after a rancorous debate in which opponents — mainly members of the president’s own party — said it serves corporate greed, hollows out the middle class, exports American jobs, drives down wages and sends environmental protection spiraling downward. At one point Democrats split out President Kennedy’s trade policy innovation — trade adjustment assistance — in a misguided and failed attempt to defeat TPA by removing the safety net for displaced workers, industries and communities.
The TPA debate occurred just after the World Trade Organization (W.T.O.) declared that the “country-of-origin-labeling” (COOL) law for beef and pork that Congress passed seven years ago was inconsistent with global trade rules. The W.T.O. decision prompted Canada to request permission to retaliate against $2.5 billion of U.S. exports to it; the other successful plaintiff — Mexico — is expected to pursue a similar course. It is a far-reaching rebuke of U.S. agricultural protectionism from two countries critical to the Trans-Pacific Trade Partnership (TTP) President Obama hopes to negotiate.
Lessons to be learned
So, what can be learned from these developments? One lesson certainly must be that protection of powerful or vulnerable sectors of the economy is deeply ingrained. Both the TPA debate and the COOL decision illustrate how strongly these impulses are embedded in the American trade landscape. No one, however, has clean hands in this regard, as Japanese rice, Korean beef and Canadian dairy and poultry policies illustrate.
A second lesson is that completing any trade negotiation in today’s world is difficult. President Obama’s hopes for a TPP agreement with 11 other countries along the Pacific Rim (excluding China) must still overcome two large hurdles: negotiating market access, intellectual property protection and environmental and labor standards provisions; and then convincing a clearly divided, skeptical Congress to accept the deal.
Further down the road is a similar initiative with Europe (the Trans-Atlantic Trade and Investment Partnership, or TTIP). Scarcely mentioned is the still languishing Doha Development Round negotiations, begun in 2001. Indeed, no significant trade agreement involving the United States has been concluded since NAFTA and the Uruguay Round some 20 years ago.
The third, and perhaps most important, lesson is that a rising tide does not lift all boats. There are winners and losers in trade or trade reform. There also are winners and losers in other forms of economic change, such as technology (e.g., automation, computerization of the office, robotics) and de-regulation (e.g., airlines, telecommunications, etc.). The economist Joseph Schumpeter called “creative destruction” a necessary and generally beneficial aspect of markets and capitalism, but it is encountering growing resistance as both the scope and pace of change accelerate.
The alternative, protecting the leaky boats from being inundated by change, however, is not an attractive alternative. It locks people and communities into dead-end jobs, while the industries involved become increasingly difficult and costly to insulate from the forces of change. “Protectionism’s” political appeal exceeds its economic benefit.
Where does this leave the U.S.?
Unless the United States — and other democratic, market-based economies — can find better strategies for managing change, trade and trade reform will face even greater resistance. Moreover, this concern is not limited to trade-based dislocation. The march of technology, entrepreneurialism and globalization create rising tides that benefit many but not all. It is vital that societies do a better job in managing rather than deflecting change.
This will not be easy, and this essay is not likely to break new ground on this critical front. But there are some ideas that deserve highlighting. First, it may be time to get past the requirement that adjustment assistance requires showing that trade is a principal or major cause of economic dislocation. That requirement reinforces the false impression that trade is the leading cause of such economic and social turbulence. It also slows the response to harm and often limits that response to a small sub-sector of those actually experiencing dislocation.
Second, it should be possible to maintain living standards temporarily while a breadwinner is being re-tooled for competitiveness. Where communities face adjustments, help with financing and installing the public infrastructure needed to be competitive should be available. The goal is to restore competitiveness, not avoid it through protection.
Finally, policy should reward adjustment, not resistance. Economic change — Kennedy’s “rising tide” — is a reality in this world. Protection of vested interests retards progress and imposes costs that are real, however hard they are to measure. The economically preferred option — helping adjust to change — can only become the politically preferred option if it meets the needs and expectations of those bearing the burden of change for the greater good. In a word, America’s generally fluid and beneficial labor markets needs more creative and generous support as the scope and pace of economic change accelerates.