Robert Scott is a man of the moment. As director of trade and manufacturing policy research for the liberal-leaning Economic Policy Institute in Washington, Mr. Scott has long sounded alarms against the effects that global trade is having on the American economy. For many years, arguments like his were largely pushed to the side by the leadership of both parties in Washington. Freer trade had become an American gospel, and Scott’s Jeremiads were the stuff of backward-looking pro-labor groups, it seemed.
How 2016 has changed the conversation. Presidential candidates Bernie Sanders and Donald Trump have captured the concerns of many voters in turning against free trade. Even Hillary Clinton has been pushed to take a position against the Pacific trade deal, known as the Trans-Pacific Partnership (TPP).
Has the tide been reversed? That’s unclear, but there’s no doubt that economists like Scott are getting new attention. Mr. Trump cited his research 20 times in a July speech on manufacturing in Pennsylvania. Did Trump get it right? “The simple answer is no,” Scott wrote in a response. But the openness to a broader re-consideration of how free American trade should be is certainly welcome.
Scott shared his thoughts with the Monitor. His answers have been edited for clarity and brevity.
Q: In the political debate over the benefits of free trade, what aspects are missing or misrepresented?
There’s too much focus on jobs and not enough on wages. I’ve done a number of widely cited papers on jobs lost due to NAFTA [the North American Free Trade Agreement], China trade, US-Korea free trade agreement, and with the TPP countries. Add all them, and it comes to the order 4 or 5 or 6 million jobs that have been lost due to growing trade deficits. That’s a significant number. But you have to have to put in context of the fact that there are 140 million people working in the United States.
I would like to rebalance trade. I think that’s a key issue. But there’s a much larger issue at stake and that is that trade redistributes income to a much, much larger number of people. Essentially, it redistributes income from everyone who doesn’t have a college degree to those that do, and the population that doesn’t have a college degree makes up a little bit less two-thirds of the labor force. It’s 100 million people.
My colleague Josh Bivens has estimated that for a median-wage, full-time worker, that cost came to about $1,800 per year in 2011. That’s a function, not of the trade deficit per se, but of the competition with imports from low-wage countries. So it’s really a function of the volume of low-wage imports as a share of GDP [gross domestic product], and that has been going up steadily.
This is one of the most important and least understood aspects of trade – trade creates a really tiny amount of benefits. Take the TPP. You’re talking about benefits of $25 [billion] to $50 billion – anywhere from one-quarter to one half percent of GDP in the year 2030. It’s about six weeks of growth in GDP at the current rate of growth. That’s the net of this whole agreement that we’ve spent the last five years fighting about. And yet the growth of trade with low-income countries has transferred a massive amount of wealth to multinational companies and the people that own them.
Q: Supporters of free trade say that it has provided net benefits to most, but not all Americans. Are you persuaded by this argument?
Trade may be good, but the net benefits are tiny compared to the amount of redistribution. Trade has provided net benefits to the country as a whole, but not to most Americans. Most Americans have been on the losing end of the equation; they’re losing $1,800 a year. For most Americans, those losses overwhelm any gains from trade. Some say today you can get a T-shirt for $20 instead of $30 as a net benefit of trade. But income loss experienced by most working Americans is much much larger than any benefits from trade. Frankly, I think most of the benefits of globalization have gone to the top 10, 5, and 1 percent of the income distribution. Those are the people who’ve seen really enormous income growth over the last few decades. Trade played a big role in that.
Q: What would a more equitable trading relationship with the rest of world look like? Should it differ between rich and poor trading nations?
You have to contrast the experience of countries like Germany and Sweden with countries like the US, and to separate out the labor policies and the trade policies.
Let’s start with labor policies. Those countries have massive programs to train and assist workers who have been displaced by trade or have lost their job for any reason, not just trade. They spend as much as 4 percent or 5 percent of GDP. The US has an $18 trillion economy, so 5 percent of that would be $900 billion. If we were really serious about trying to offset some of the damage done by globalization, that’s the level of spending we’d have to engage in, in terms of increasing unemployment insurance, training, and job creation. We have a trade adjustment assistance program that has never received more than $1 billion of funding, and it often runs out of money.
So the first thing we have to do is adopt labor policies that would ensure high and rising living standards for all workers. If you want to engage in more trade, that’s the first thing you’ve got to do.
The second thing you’ve got to do is, we need to rebalance global trade. In the normal economic development model, capital should flow from rich countries like the United States to poor countries like China or Vietnam. And we’ve allowed China and other currency manipulators to stand that model on its head for the past 20 years. China has been buying up foreign assets, principally US Treasury bonds, but also stocks and entire companies. In doing that, they have artificially depressed the value of the currency, which becomes a subsidy on everything they send to us, and a tax on everywhere we export, and China has become our No. 1 export competitor. The other countries who pursue similar policies include Japan, Korea, Singapore, Taiwan, Malaysia, but also, interesting enough, Germany has effectively been manipulating its currency as well.
Trade is a good thing. It just needs to be reframed. Part of the problem we have is that we put in the White House this Office of the United States Trade Representative, we give them cabinet status, and we give the license to go out and negotiate trade deals.... What we got in the TPP is an obscene deal that would prop up profits for pharmaceutical makers and people who produce software and movies. The tariff effects are trivial. Thirty chapters in this agreement are about creating greater monopoly rents for specific industries. This kind of model has to be ended. We need a new kind of model. We have to go back and find a model that’s going to move us in the direction of raising labor standards and environmental standards, ending the crisis in greenhouse gas emissions.
Q: Automation has contributed to declining employment in manufacturing in the US and other rich industrialized economies. What should policymakers do in response to this structural change?
Nothing. Automation is good. It has not caused job loss, that’s a fallacy. We’ve had automation and high levels of productivity growth in manufacturing for decades…. What happened in late 1990s was the Asian financial crisis and the beginning of currency manipulation and then we did the China WTO [World Trade Organization] deal, and that really begat the globalization that we’ve seen in the last two decades that’s decimated manufacturing. It’s really trade that has destroyed those jobs, it’s not productivity.
Output of manufactured goods has declined in real value-added terms between 2007 and 2015. The reason is that goods being consumed by US consumers – all the growth is being absorbed by imports. If we rebalance trade, we’d have more demand for manufactured goods and productivity and employment would be in balance.
Q: The 2016 election campaign has surfaced antitrade views within both parties. Do you see a new consensus emerging on what sort of trade policy makes sense for the US?
I think we have work to do. I don’t think we have antitrade views, we have opposition to the trade deals that have been negotiated, such as the TPP. They aren’t trade deals alone, they are trade and investment deals. Most of what they do is increase the monopoly power of multinational companies to extract excess profits from consumers in the US and other countries.
We haven’t worked out policies to appropriately deal with labor market problems. We need labor market policies to sustain workers through periods of unemployment, give them training, give them job creation.
We need trade policies to rebalance trade and new kinds of approaches to trade deals. That kind of thinking is not taking place. I think that’s in part because of the breakdown in our political system where action on far-reaching policies is difficult or impossible given the scorched-earth politics that exist between the two parties in Congress.
Q: Donald Trump has cited your research data in his attacks on US trade policy. Where do you differ with him on the proper response to the effects of trade?
Trump rails about currency manipulation but his solution is to impose tariffs. Tariffs are not the answer. We need to take other steps like I’ve outlined here, like direct intervention in currency markets. He says he’s going to hire the best trade negotiators and negotiate the greatest trade deals. The last thing in the world we need is more trade deals. That’s not going to fix our trade problem.
I’m glad that Trump is talking about trade and its effect on workers. This is not the first time. My work has been cited by presidential candidates and candidates for Congress for both parties…. They cite it [currency manipulation] and they never do it. It’s important to highlight the issue but I do not agree with what he [Trump] proposes to do.