Warren Trade Policy Remakes Free Trade for the 21st Century
By Phillip James Walker, Esq.
August 29, 2019
A further edited version appears in the Union Leader October 20, 2019 https://www.unionleader.com/opinion/columnists/your-turn-nh-phillip-walker—-warren-trade/article_361f28ad-c243-5632-8252-644bb4951453.html
On July 29, Senator Elizabeth Warren issued a policy on international trade, entitled “Trade—On Our Terms”. The policy in a nutshell proposes that countries seeking preferential trade terms with the U.S. meet certain minimum standards, with a special focus on labor rights and environmental protection. Within 48 hours several media outlets served up (mostly negative) commentary that suggested Warren had opted for “Trumpian trade protectionism” to gain an advantage over her pro-trade rivals and to propel her run against Trump in the general elections. Since then many news sources have uncritically accepted this false narrative. These detractors have missed the point. Warren’s trade policy represents a serious attempt to craft a 21st century free-trade system addressing market distortions that have harmed workers and the environment for decades. If anything, Sen. Warren’s reforms would level the playing field by exposing and removing hidden subsidies that render the current trading system less free. Her plans would enhance free trade—exactly the opposite of “Trumpian trade protectionism.”
The cornerstone of the Warren trade policy is just one facet of her larger economic vision, i.e. “making markets work for people, not making markets work for a handful of companies that scrape all the value off to themselves.” This is a market-based approach, not a turn to protectionism. Sen. Warren is an ardent proponent of free-market economics, fairly applied. To level the playing field, she offers a series of actionable proposals to update the U.S. approach to international trade, targeting problems that undermine free trade, especially those that harm American workers or the environment.
In general, free markets are a good thing, and international trade multiplies the benefits of a free market on a global scale. It is a proven recipe for prosperity. Equally important, trade encourages interdependence, reducing the risks of armed conflict. Protectionism, by contrast, is a recipe for corruption and division, by allowing ruling cliques to pick winners and losers in the economy with little transparency and for private gain. For all these reasons, the free world turned decisively away from the protectionist policies of the 1930s to embrace a free-trade vision after WW II, exemplified by the rules of the 1947 General Agreement on Tariffs and Trade (GATT).
The circumstances and needs of 1947 are not, however, the circumstances and needs of the 21st century. The international trade system today, exemplified by the rules of the 1994 World Trade Organization (WTO), operates on a grander scale than GATT, with a truly global membership, and embraces a much larger percentage of all trade. It still, however, still operates according to the DNA of GATT. This has opened the door to abuses that remain unaddressed 70 years later.
At the top of her priority list, Senator Warren takes aim at international labor standards. The key provision of trade policy is to insist that our preferred trading partners “[r]ecognize and enforce the core labor rights of the International Labour Organization, like collective bargaining and the elimination of child labor.” GATT’s provisions governing labor standards were at best vague, and the WTO strictures are not much better. Why does this matter? Because labor is part of the cost of doing business. If the market for labor functions, prices (wages) rise or fall with supply and demand. This in turn makes trading states more or less competitive internationally. If, however, a state prohibits collective bargaining, breaks up labor unions, silences labor organizers, puts children in factories and not schools, or permits forced labor, it does not have a free market in labor. Democracies in the post-war era generally do not murder labor organizers or run slave-labor camps, but such practices are not unknown in some authoritarian states that are current members of the WTO. If a state uses coercive power to keep wages low, it is granting a hidden subsidy to production that gives it a competitive advantage in the world market. Yet under current WTO rules it is very difficult if not impossible to challenge such anti-competitive behavior. That needs to change.
Senator Warren also targets the current nexus between international trade and environmental degradation. Specifically, she ties preferential trade terms to credible implementation of the Paris Climate Accord. GATT had no provisions for environmental protection. The WTO offers lip service to protecting the environment, but no mechanisms penalize countries that despoil the environment in the interest of production. Why does this matter? Because, like labor, air and water are part of the cost of production. Air and water are public property in the most basic sense, and using it without paying for it constitutes a subsidy. In the WTO system, if a state gives a producer no-cost raw materials, and that producer sells goods made from those raw materials on the world market, some competitor somewhere would challenge the practice and probably win. If, however, a state allows a producer to dispose of waste freely into the air or water, there is no consequence under the WTO system, despite the fact that the people of the polluting state are paying the price in terms of their health and well being. It is a subsidy, pure and simple. The environmental subsidy loophole in the WTO rules becomes even more problematic in the shadow of global warming. If the waste product is carbon dioxide, then not only are the people of the polluting state paying the environmental subsidy. The whole world is paying it. It is wrongheaded to suggest, as some commentators do, that promotion of sound environmental policies are a form of “Green Protectionism.” The opposite is true. Truly free trade requires the costs of production be borne by the producers and be reflected in the resulting market price.
Senator Warren’s other related proposals reflect a similar philosophy of leveling the field of competition among trading partners by applying fixes to failures of the marketplace. In short, states that seek preferential trade terms with the U.S. need to observe the “rules of the road” so that markets can function fairly and efficiently for everyone. Her prescriptions may not be perfect (and more on this below) but no other candidates are even talking about lack of transparency in trade deliberations, corruption of foreign officials, currency manipulation, or abuse of foreign jurisdictions to facilitate tax evasion or avoidance. Whoever wins the elections next year will need to deal with all of these issues eventually, and her approach is very credible whoever sits on the oval office.
To call Senator Warrens trade policy ambitious would be an understatement. The U.S. itself falls short of some of her policy objectives; calling upon our trading partners to do what we ourselves will not do is a diplomatic nonstarter. Furthermore, Warren does not spell out how she will achieve her goals, and much work needs to be done to flesh out a strategy to translate aspirations into reality. The great strength of her vision, however, is that it rests upon a rules-based approach to international trade that sets high standards for everyone equally. This is the exact opposite of protectionism. Yes, some countries or industries that benefit currently may suffer setbacks, but those countries or industries are benefitting from hidden subsidies or other unfair trade practices. Even those states and industries that may suffer setbacks in the short run stand to gain in the long term from the recognition of high standards fairly applied. Cynicism is cheap and easy. High aspirations take bravery. Senator Warren aims high. That may be a reason for caution but not for dismissal.
Phillip James Walker, Esq., is an attorney, scholar, legal & political affairs consultant, and former U.S. diplomat. For more information visit www.phillipjwalker.com
Warren Trade Policy Remakes Free Trade for the 21st Century