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Why Did Democrats Give Trump a Win on NAFTA 2.0?

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On Tuesday morning, House Speaker Nancy Pelosi announced that Democrats had reached a deal with the Trump administration to advance the United States–Mexico–Canada Agreement (USMCA), also referred to as “NAFTA 2.0.” In explaining the deal, she said: “There is no question of course that this trade agreement is much better than NAFTA.”

Progressives have criticized Pelosi for potentially handing President Trump a political victory during both an impeachment process and an approaching election. After all, Trump ran on the promise that he would renegotiate NAFTA and now it seems that, with help from the Democrats, he will. That could mean more GOP votes in swing states that have been wracked by the damage of the original NAFTA deal. “It does appear that if Trump gets a win on this new NAFTA, his chances of reelection go up considerable,” wrote The Intercept’s Ryan Grim. “He can say he delivered on his promises, and that Democrats don’t really think he’s that corrupt after all, or they wouldn’t have delivered him such a major victory.”

For her part, Pelosi appears to believe that the deal might ultimately be beneficial for moderate Democrats at election time, and many House Democrats certainly seem happy with the final version of the agreement. “You know what I’ve said: These have been the fights,” Pelosi reportedly told party members during a caucus meeting after the agreement was secured. “And we stayed on this, and we ate their lunch.”

The political implications of USMCA remain to be seen and, since the final text of the agreement hasn’t yet been released, it’s hard to assess its full impact. But we already have a pretty good idea of what kind of relief it will supply for workers: not much. A report by economists Thea M. Lee and Robert E. Scott at the Economic Policy Institute concedes that USMCA is a big improvement from the 2017 version, but concludes that it ultimately adds up to “Band-Aids on a fundamentally flawed agreement and process.”

Using statistics from the U.S. International Trade Commission, Lee and Scott point out that, at best, the deal will only create about 51,000 jobs over the next six years and could raise the GDP by a few tenths of a percentage point. These potential jobs would come in farming, manufacturing and mining. The report cites an International Monetary Fund (IMF) working paper which predicts nothing but bad news for the (already beleaguered) auto-industry. That same paper concludes that, “At the aggregate level, effects of the USMCA are relatively small…effects of the USMCA on real GDP are negligible.”

Trump continually referenced the devastating impact of NAFTA on the campaign trail, while arguing that it desperately needed to be renegotiated. However, the new agreement does nothing to reverse the damage. While USMCA might generate 51,000 jobs, NAFTA eliminated over 680,000 of them.

Still, USMCA was ultimately endorsed by the AFL-CIO, which also infamously supported the construction of the Keystone pipeline and has criticized the Green New Deal. Not only did the AFL-CIO back the agreement, its President Richard Trumka was instrumental in securing an agreement between Democrats and Republicans.

piece detailing the negotiations by Politico’s Megan Cassella reveals that Pelosi refused to move the agreement forward unless Trumka signed off on it. She knew that an endorsement from the group would give pro-labor Democrats enough cover to come out in support of it. “I think everyone would acknowledge that Trumka is key,” working group member Rep. John Larson (D-CT) admitted during the process.

Cassella reports that Pelosi ultimately had Trumka come to Congress to assure lawmakers that he was on the verge of supporting the deal. Ultimately, he got on the phone with Trump and after the president agreed to think about moving a pension bill forward, Trumka slapped the deal with an AFL-CIO endorsement.

At least one AFL-CIO member isn’t waiting for the final text to decide whether or not the agreement is worth supporting. The International Association of Machinists and Aerospace Workers (IAM) released a statement declaring its opposition to the agreement, citing the fact that it does nothing to stem the outsourcing of jobs abroad. “Our ability to comment in detail on this agreement is impaired because in the rush to consider such a proposal, we have not even been given the opportunity to review the full agreement in writing,” said the group’s International President, Robert Martinez Jr. “U.S. workers have been waiting for over 25 years for a responsible trade deal that puts their interests ahead of corporations who are fleeing our shores. They are still waiting. The IAM will oppose NAFTA 2.0.”

Robert E. Scott, co-author of the aforementioned EPI report, told In These Times that IAM’s opposition to the deal wasn’t surprising based on what NAFTA has done to the industry. “The aerospace has been hard hit by outsourcing to Mexico,” said Scott, “Their members are very concerned. I don’t think there’s anything in there for them. Very transactional deal.”

While Pelosi worked diligently to pass USMCA, she’s failed to move a robust pro-labor bill forward in the House. The Protecting the Right to Organize Act (PRO Act) was introduced in May by Sen. Patty Murray (D-WA) and Rep. Bobby Scott (D-VA). The bill would make it easier for workers to join unions, extinguish right-to-work laws, crack down on union-busting, address employee misclassification and provide new protections for collective bargaining. The bill already passed the House Committee on Education and Labor earlier this fall.

“I don’t know exactly what the holdup is—it is taking longer than it should given the number of co-sponsors that we have,” Rep. Pramila Jayapal (D-WA) told The Intercept’s Rachel Cohen earlier this month, “Many other bills have come to the floor with fewer co-sponsors than this one.”

This article was originally published at In These Times on December 11, 2019. Reprinted with permission. 

About the Author: “Michael Arria is the U.S. correspondent for Mondoweiss. Follow him on Twitter: @michaelarria.


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Trump’s Trade War with China Benefits Big Corporations—Not Ordinary Workers

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Some events give extraordinary insights into the biases of the economics profession. The trade war with China clearly fit the bill.

The origins of the trade war can be traced to campaign promises Trump made to go after China over its large trade surplus with the United States, which he attributed to “currency manipulation.” The argument was that by intervening in currency markets (buying up U.S. dollars), China was propping up the value of the dollar against its own currency.

This makes Chinese goods and services relatively cheaper to U.S. consumers and makes U.S. goods more expensive to Chinese purchasers. The net effect is to increase U.S. imports of Chinese goods and reduce U.S. exports to China, thereby leading to a large trade deficit.

While most economists now acknowledge that China was intervening in currency markets in the last decade (they did not acknowledge the currency intervention at the time), they insist that this is no longer an issue. China is no longer a large net buyer of dollar denominated assets, so the argument goes, therefore it is not currently keeping down the value of its currency against the dollar.

As I have argued elsewhere, this argument ignores the effect of China holding well in excess of $3 trillion worth of dollar denominated assets. Its decision to hold a massive stock of dollar assets depresses the value of the Chinese yuan against the dollar, thereby maintaining the competitive advantage from a lower valued currency.

This is the same logic that applies with the Fed’s decision to hold trillions of dollars worth of assets that it acquired as part of its quantitative easing program. Even though the Fed is not currently buying assets, most economists argue that its holding of assets still works to keep down interest rates. Perhaps in the next decade they will acknowledge that the same relationship holds with China’s massive stock of dollars and the relative value of the dollar and the yuan, but for now they insist that currency intervention was only an issue in the past.

This is important background, because currency values will directly affect our trade balance with China, and thereby impact the number of manufacturing jobs in the United States. While reducing the trade deficit will not get back most of the relatively high paying manufacturing jobs that were lost in the last decade, it would likely still be a plus for relatively less-educated workers who still rely on manufacturing as a source of higher paying jobs.

Although currency is mostly off the table in Trump’s trade war, intellectual property is very much on the table. And here Trump has the support of economists across the political spectrum, who argue that he has a legitimate complaint, even if they don’t endorse his go it alone cowboy tactics.

The complaint is the China is not respecting “our” intellectual property. This lack of respect takes two main forms. One is simply not honoring the patents, copyrights, and trademarks of U.S. corporations. The other is requiring technology transfers by U.S. corporations that locate operations in China. This usually means taking on a domestic Chinese company as a partner, which will then gain expertise in the use of the U.S. company’s technology.

It is very impressive how the bulk of the economics profession has been willing to legitimate the switch in focus of Trump’s trade war. He had run around the country in his campaign denouncing China as a world class currency manipulator. He pledged to take punitive actions against China for its currency practices on Day One of his administration. Getting China to raise the value of its currency against the dollar actually would have provided some benefit to U.S. workers. But now currency is off the table and we are fighting a trade war to protect “our” intellectual property.

If it’s not obvious already, it is not “our” intellectual property that Trump and his bipartisan crew of economist cheerleaders are interested in protecting. It is the intellectual property of large corporations like Boeing, GE, Pfizer, and Microsoft. Very few people in the United States are in a position where they have to worry about China using their patents or copyrights without compensation. This is a real concern to many large U.S. corporations. The question is whether it should be a concern to the rest of us.

Most immediately, the concerns of ordinary workers are likely to go in the opposite direction. If companies like Boeing and General Electric don’t have to worry about being forced to transfer technology to Chinese companies when they outsource to China, they will have more incentive to outsource to China. That’s about as straightforward as it gets. Instead of reducing our trade deficit in manufacturing goods, this change is likely to increase it.

But this goes to an even deeper issue. We have seen a massive increase in wage inequality over the last four decades. Most economists probably believe some version of the skills biased technical change story – that new technologies have placed a greater premium on skills like math, science, and engineering – while reducing the value of less-educated workers.

Trump’s trade war gives us an insight into the real story. It was not technology that led him to focus his efforts on protecting intellectual property to the neglect of currency issues; it was a political decision made in response to the political power of the most affected groups. And, Boeing, GE, and the rest have far more political power than the workers who labor in their factories or indeed, less-educated workers as a class.

Trump and the political elites more generally are prepared to have a trade war to protect the intellectual property of large U.S. corporations, and indirectly to benefit the more highly paid segment of the labor force. They would not do the same to increase the employment and wage prospects for less-educated workers, the two-thirds of the labor force without a college degree.

To be clear, there is an issue that we should not be allowing China to take at no cost the technology that we spent hundreds of billions of dollars to develop. That is a reasonable argument, but that hardly implies that we need to force them to respect patent and copyright protection.

We need to ensure that China and other countries share in the cost of developing new technologies. There are far more modern and efficient mechanisms than patent monopolies, which are a relic of the Medieval guild system. While negotiating sharing mechanisms may be a difficult process, it is not obviously more difficult than preserving the patent system. President Obama likely would have had the Trans-Pacific Partnership completed and approved by Congress before he left office if it had not been for haggling over terms of drug patent-related protections.

It is also important to recognize that we will likely have far more to gain from having access to China’s technology than the other way around. China is already far and away the global leader in clean technologies, with as much installed solar and wind energy as the rest of the world combined, and an electric car industry that now produces as many cars as all other countries put together.

China currently spends roughly the same share of its GDP on research and development as the United States. Its economy is already 25 percent larger than the US economy and will be more than twice as large in less than a decade. Rather than focusing on bottling up U.S. technology, a forward-thinking trade agenda would be focused on ensuring our access to Chinese technology.

Unfortunately, trade policy is not crafted in the national interest, it is crafted with the goal of making the rich richer. This is what Donald Trump’s trade war is all about. And, as is the case with so many other wars, it is about working class people being forced to sacrifice by paying high tariffs to advance the goals of the rich.

This blog was originally published at CEPR on May 29, 2019. Reprinted with permission. 

About the Authors: Dean Baker co-founded CEPR in 1999. His areas of research include housing and macroeconomics, intellectual property, Social Security, Medicare and European labor markets. He is the author of several books, including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich RicherGetting Back to Full Employment: A Better Bargain for Working PeopleThe End of Loser Liberalism: Making Markets ProgressiveThe United States Since 1980Social Security: The Phony Crisis (with Mark Weisbrot), and The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. His blog, “Beat the Press,” provides commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in Economics from the University of Michigan. Brian Dew holds a B.A. in Psychology and Organizational Sciences from the George Washington University and an M.A. in Economics from American University. His previous research has focused on international trade, network analysis, and open-economy macroeconomics, while his current research interests include domestic trade, employment, and monetary policies. Brian worked previously for the International Monetary Fund.


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Working People Have 17 Recommendations for NAFTA. Here’s #2

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By now, you’ve probably heard of the North American Free Trade Agreement (NAFTA). You might have heard that some businesspeople think it’s a great deal, while average working families—and those who stand with us—think it only works if you’re already at the top.

If you’ve been reading our blog regularly, then you know NAFTA is being renegotiated. That means working people like us have an opportunity to fix it. And we laid out the first step: open the negotiations so that average citizens, not just corporate lobbyists and CEOs, can participate. So far, it’s not clear the negotiators heard us—but you can help us keep up the pressure.

Even if they do keep the doors closed on the talks, we have to address the rules of the deal. The first rules that need replacement are the labor rules. The labor rules determine whether the playing field is fair for all workers or whether global corporations can treat us like pawns, bidding down our wages and working conditions as they increase their profits at our expense.

Given our long experience of trying to use trade rules to protect rights and freedoms for working people, we know what works and what doesn’t. We won’t fall for vague promises about NAFTA being the best deal ever for working people. Instead, we will be looking for specific provisions.

A fair North American deal will:

  • Ensure that all three countries protect fundamental labor rights as set for in the International Labor Organization’s eight core conventions.

  • Establish an independent monitoring and enforcement entity so that governments can’t use delay tactics to deny our rights.

  • Establish prompt enforcement tools.

  • Ensure that goods traded between the countries are made by workers being paid living wages.

  • Protect migrant workers from fraud and abuse.

  • Protect all workers from discrimination and trafficking.

  • Contain effective tools to continually lift our wages and working conditions, rather then putting a ceiling on what we can achieve.

  • Ensure that no communities are left behind—we must all prosper together or we won’t prosper at all.

Since the dawn of the modern trade era (roughly 1990), no trade deal has ever put working families first. But we know the rules we need to make it happen. But no one will fight for those rules if we don’t lead.

Are you ready to join us? Urge your representative to call for open, transparent NAFTA renegotiations.

This blog was originally published at AFL-CIO on August 22, 2017. Reprinted with permission.

About the Author: Celeste Drake is the trade and globalization policy specialist at the AFL-CIO, where she advocates for reforms to U.S. trade policy to create shared gains from trade on behalf of working families. She has testified before the Senate Foreign Relations Committee, various House subcommittees and the U.S. International Trade Commission, and made presentations before the European Union’s Economic and Social Committee.


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