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How trade policy failed US workers— and how to fix it

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Institute for Policy Studies | 18 September 2020

How trade policy failed US workers— and how to fix it

by Sandra Polaski | Sarah Anderson | John Cavanagh | Kevin Gallagher | Manuel Pérez-Rocha | Rebecca Ray

Introduction

Over the last several decades, U.S. trade policies have failed most Americans. Under the guise of “free trade,” special interests have captured trade policy to extract wealth at home and abroad and left working people to bear the costs.

In 2016 Donald Trump campaigned on a promise to change the course of U.S. trade policy. He hasn’t. Instead, he’s doubled down on the pro-corporate approach, doing nothing to improve the quality, security, and wages of U.S. jobs, all of which have tumbled downward in key Rust Belt states like Ohio and Michigan.

There has been a larger trade deficit each year of Trump’s presidency than when he took over, and his tariff wars have made things worse. This saber rattling hasn’t stopped U.S. offshoring or investment in China, which is higher now than it was when Trump took office.

Now more than ever, we need a new trade policy to support an economic recovery from the pandemic and to start building an economy that works for everyone. But a hostile, us-against-them attitude towards the world jeopardizes our own welfare, increases the likelihood of a long global recession, and threatens serious conflicts abroad.

A new policy should emphasize international cooperation — rather than counterproductive tariff wars — to lift up working families around the world, stabilize the global economy, and provide a global order that protects public health and builds a green economy, now and for future generations.

Key Findings

  • Trump’s trade policies have hurt U.S. workers — especially in the Rust Belt states where he vowed to “bring back” jobs.
  • In Michigan, investments by auto firms have declined by 29 percent under Trump. At least three major auto plants have closed.
  • Even before the pandemic, total employment growth in Michigan was by far the lowest in a decade. The state’s farmers have also lost out, requiring a series of expensive, taxpayer-funded bailouts.
  • In Ohio, annual job growth plummeted from 36,200 in 2016 to just 3,700 in 2019. Average weekly earnings for Ohio manufacturing workers also declined during this period.
  • By a nearly 9 to 1 margin, Ohio manufacturers reported being negatively impacted by Trump’s trade tariffs in 2019.
  • Despite Trump’s China-bashing, U.S. firms invested $14 billion in China in 2019 — more than the year Trump was elected.
  • There has been a larger trade deficit each year of Trump’s presidency than there was when he took office.
  • Trump’s tax and trade policies are making the problem worse. In fact, his own administration expects the economic impact of NAFTA 2.0 to be negative.

Recommendations

Workers in hard-hit U.S. states have been devastated not only by years of pro-corporate trade policies, but also now by policies that scapegoat China and other countries instead of providing real security to workers.

A more cooperative international approach based on guaranteeing rights for workers in all countries could remove incentives for employers to shift jobs to places where workers are less protected. And it could create larger domestic markets to sell goods and services in more countries, leading to more shared prosperity.

We recommend the following steps to lift up working families around the world, stabilize the global economy, and protect the planet and public health.

Key Priorities

  • An immediate moratorium on all international trade and investment rules that restrict government responses to the crisis. These include intellectual property rules that limit the availability and affordability of medicines and medical equipment, as well as trade rules against policies that subsidize industries or regulations that promote public health.
  • Renegotiation of all trade rules that constrain pro-worker and pro-environment domestic policy agendas. Recovery from the pandemic will require significant support from the government for job creation and health and social services. Many current trade rules forbid policies like these. These need to be suspended and then renegotiated.
  • Elimination of investor-state dispute settlement. This anti-democratic system allows private foreign corporations and investors to sue governments over public interest laws and regulations. It also encourages the offshoring of U.S. jobs by restricting the ability of foreign governments to improve labor and environmental regulations.
  • A new mechanism for screening foreign investments to ensure they contribute to real security. This would go beyond “national security.” We also need to ensure foreign investors make concrete commitments to providing decent jobs and benefits for local workers and communities, particularly vulnerable groups, in an environmentally sustainable manner.
  • Strong new enforcement mechanisms to hold individual corporations accountable for violations of labor, human, and environmental rights. U.S. trade agreements put the responsibility for protecting these rights and standards on governments. However, it is usually private firms that commit the violations and they, too, must face real penalties.
  • Elimination of monopoly protections for essential medicines and new rules that encourage innovation and cooperation in the pharmaceutical and medical product industries.
  • Incentives for goods and services that prevent, mitigate, and help adapt to climate change. Trade rules should complement domestic agendas for a just transition to a clean energy economy that does not leave workers behind.
  • Elimination of trade and investment rules that prevent policymakers from controlling footloose capital. Without a full toolbox of financial tools, governments are limited in their ability to prevent crises like the 2008 crash and the economic impact of the current pandemic from spreading.
  • Renegotiation of trade deals to include effective penalties for tax dodging by multinational corporations and the wealthy. The U.S. government should work with global partners to forge an international agreement to stop the global race to the bottom in corporate taxes and allow countries to raise the revenue needed for recovery and to finance inclusive societies for the future.
  • Overhaul of the current anti-democratic trade policy-making process. Corporate lobbyists have called the shots on trade policy for too long. A new trade policy must expand the power of workers and other public interest stakeholders over decision-making and oversight.

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 source: Institute for Policy Studies