The Selfish Hegemon Must Offer a New Deal on Trade

Jagdish Bhagwati in the Financial Times: 

The selfish hegemon must offer a New Deal on trade, by Jagdish Bhagwati, Commentary, Financial Times: …On the back of economic anxiety in the country, many in both political parties (although far more among Democrats) see freer trade now as a costly giveaway to others at the expense of the US. They ask: “What is in it for me?” Only an agenda for institutional change, one that addresses the true causes of the anxiety in the US today, has a chance of returning trade policy to sanity. …

The US has … muscled in to its … trade agreements (nearly all with small, developing nations) conditions unrelated to trade at the expense of their partner nations. Thus a country that is hardly an exemplar on labour rights, where the right to strike has been severely restrained since the Taft-Hartley legislation more than half a century ago, where union membership in the private sector has declined to less than 10 per cent of the labour force, and which has not ratified all the International Labour Organisation’s core conventions, has had the effrontery to impose standards on others… Why?

It is evidently not because it practises what it preaches and demands. Rather, it is because the labour lobbies believe, without any compelling evidence, that American wages have been stagnant because of competition from the developing nations. … In short, this is what economists call “export protectionism”.

What is doubly offensive about this exercise of political muscle is that it is advanced in the language of altruism: not by saying frankly that it is because “our unions are worried about competition” but by pretending that it is “in your workers’ interests”. …

Senator Barack Obama does not quite get this. By asking, as part of his agenda for change, that the US should now impose even more draconian labour requirements in future PTAs, and that the North American Free Trade Agreement should be revised to incorporate yet tougher labour requirements, he is making export protectionism, and the reputation of the US as a selfish hegemon, worse…

Change is indeed in order, although along totally different lines. It must reflect a holistic view of the new reality that the US confronts. In particular, the economic anxiety that overwhelms US workers today stems from the increased fragility of their jobs.

First, … India and China today are growing and exporting rapidly. … They create tsunamis for specific industries where their exports concentrate.

Second, competition has intensified. … No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. … It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.

Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them…

The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. …

Senator Obama promises change but he needs a deeper understanding of the anxiety-causing “new epoch” to define his new agenda shorn of protectionism. John McCain, the Republican presidential candidate, admirably stands for free trade but shows no evidence whatsoever of comprehending that this needs to be situated in an institutional context that requires a serious overhaul. Who will ultimately offer us the right New Deal?

I don’t like to see workers who are struggling given false hope. The research on this issue does not support that US wages or jobs would be much affected by insisting upon these types of standards, and barriers to trade of any type hurt the US overall in almost all cases (and hurt developing countries as well). If we focus a lot of time and energy in congress and elsewhere debating this issue, it crowds out effort that could be devoted to legislation promising much, much more to help people worried about or actually experiencing job insecurity. So, continuing with the discussion of Obama’s economic policy in the post below this one, I am not in agreement with this aspect of his trade policies.


Originally published at Economist’s View and reproduced here with the author’s permission.