No, President Obama, Elizabeth Warren isn’t wrong.
Obama told MSNBC’s Chris Matthews on Tuesday that the populist Democratic senator from Massachusetts is in error in opposing a free-trade agreement his administration has been negotiating with 11 other Pacific nations.
Warren is right: The Trans-Pacific Partnership (TPP) is an abomination — not because of the deal itself, and not because free trade in general is a bad idea. The TPP is an abomination because Obama had a chance to protect American workers from the harm that would inevitably come from such a pact, and he didn’t take it, or at least he hasn’t.
As bad, Obama’s anointed successor, Hillary Clinton, waffled on the trade pact this week, offering only the banality that “any trade deal has to produce jobs and raise wages” — which, of course, they all claim to do.
Clinton, and Obama, should champion the trade bill — but only after congressional Republicans do what’s needed to protect low-wage American workers from the dislocation that will occur: approving some serious new spending on worker training and infrastructure, to keep the United States in line with the rest of the industrialized world.
Now, more than 20 years after NAFTA and 14 years after China joined the World Trade Organization, there is no real question among economists that expanding trade has been good for the world and has helped reduce poverty. It has also unquestionably been good for U.S. corporations as they grow their global reach. But there is equally no doubt that trade liberalization has hurt low-skill manufacturing workers and aggravated income inequality, which is now at its worst since the 1920s.
The top 1 percent of American earners has seen income grow by 200 percent since the late 1970s, according to the Congressional Budget Office, but the figure is only 48 percent for the bottom 20 percent. And there is really no disputing that at least some of that growing divide between rich and poor has been caused by the regressive effects of trade.
Thea Lee, a trade economist who is deputy chief of staff at the AFL-CIO, argues that 40 percent to 60 percent of that growth in income inequality is because of globalization, including free-trade deals. That may be high, but even Peter Petri, a pro-trade finance professor at Brandeis University whose research is often cited by business, estimates 10 percent to 20 percent of the increase in income inequality can be attributed to trade overall.
Trade agreements aren’t the primary culprit; at worst they accelerate a trend from labor-intensive to capital-intensive industry that would have happened anyway. “Trade agreements are fine; they bring rules, and that’s progress,” Council on Foreign Relations trade expert Edward Alden says. “But then the question is: What do you do to make sure your people benefit after those rules are in place? And I think that’s where the United States has really fallen down tremendously. We haven’t done a lot to help our labor force make that transition.”
The United States spends just 0.1 percent of gross domestic product on worker training and similar efforts, the CFR finds, one-eighth of what Germany spends and one-twenty-third of what Denmark spends. Corporate America has all but abandoned the notion of apprenticeships, and Obama, though he speaks often about the issue, has made only modest gains.
At the same time, U.S. policy has compounded the flight of labor-intensive jobs by devoting dramatically less to infrastructure than competitors do. The United States spends 1.6 percent of GDP on transportation infrastructure, for example, while the rest of the developed world spends, on average, 53 percent more.
That’s a huge problem, no matter where you stand on the TPP (and more consequential than whatever labor, environmental and currency provisions are in the trade deal itself). Brandeis professor Petri, who calls the trade deal a “huge opportunity,” believes it essential that the United States combine trade liberalization with more spending on training and infrastructure. “I don’t think we have a choice,” he says, “if only to make sure that we can let our economy keep the innovations and the new opportunities at home and abroad.” Without such spending to counteract the blows American workers have suffered, “you just don’t have the degree of political cohesion you have to run after new opportunities.”
Obama had a rare opportunity to force major congressional action on worker training and infrastructure, by tying it to the Pacific trade pact, which Republicans broadly support. He had leverage — and he failed to use it.
Now the noncommittal Clinton, in deciding whether to weigh in on the trade bill, faces the first real test of her candidacy. Her decision will demonstrate whether the Warren-style populism that has crept into her stump speech is real, or just talk.