Trade Policy and the American Worker

“Globalization is dramatically disconnecting the relationship between American corporate employers and their employees,” says Jeff Faux, EPI founding president and distinguished fellow. Faux has written extensively about the ways so-called free trade agreements have benefitted the world’s largest corporations at the expense of the average worker, and shown how the winners and losers of trade agreements line up not along national borders, but according to their economic status. In 2006 Faux published the book The Global Class War, and co-authored EPI’s paper, Revisiting NAFTA, where he argued that 1993’s North American Free Trade Agreement (NAFTA) had served to “protect the interests of large corporate investors, while undercutting workers’ rights.” With growing concern over China’s trade policy again putting world trade and globalization in the spotlight, Faux spoke about U.S. trade around the world and outlined how many U.S. trade policies had undermined the American economy.

Q. A recent EPI report shows that China’s trade policy — and its currency manipulation in particular — has cost millions of American jobs. However in The Global Class War and other publications, you are critical of U.S. trade policy as well. How has our domestic trade policy also been a factor in the loss of jobs and the depression of wages in the United States?

Faux: In 2000 the United States government opened up the U.S. market to China by granting it what used to be called “Most Favored Nation” trade status, on a permanent basis. In exchange, the Chinese loosened restrictions on U.S. investment in China. It was one of a series of so-called “free trade” agreements negotiated by both Republicans and Democrats over the last 30 years that effectively gave other countries a free pass to flood American markets with low-priced goods and services produced under conditions we would not tolerate here. The results lost jobs, lower wages, chronic trade deficits, and a huge and growing foreign debt—should have been no surprise.

Q. Certainly you and others had warned of China’s oppression of worker rights and its power “to manipulate its currency in order to increase its trade balance.” Why didn’t more American policy makers see or take these warnings seriously?

Faux: Some of them actually believed in — or were intellectually intimidated by — the “free-market” fundamentalism that has dominated American politics since the Ronald Reagan era. Many considered themselves sympathetic to workers and believed free trade would enable both the United States and China to concentrate on their “comparative advantage.” They conceded, in private at least, that jobs in apparel, shoes, and similar American industries would leave. But they insisted more trade with China would produce many more high-paying jobs here in America in advanced sectors, such as electronics, computers, and silicon chips.

Among many things they did not understand was that in today’s global economy, government industrial policies can dramatically change a nation’s comparative advantages. American political leaders at the time lectured us that in a global economy, “the era of big government is over.” Meanwhile the Chinese government was subsidizing new sectors, protecting their industries from foreign competition, and demanding that U.S. companies doing business there share their technology. Now, contrary to what the free-traders confidently predicted, we are running a chronic trade deficit with China in high-tech products. Most American workers are not climbing up the global job ladder, they are falling behind.

Q. So it was a case of naïve economic analysis?

Faux: For some. But I think for most politicians economic theory conveniently rationalized their support of the interests of corporate CEOs over their workers. Remember, over the last 30 years, the share of campaign contributions representing big business has grown dramatically — as has the number of ex-administration officials and members of Congress who go to work for corporations as employees, consultants, and lobbyists.

Q. Why would American business corporations support policies that would undercut the American economy?

Faux: Because globalization is dramatically disconnecting the relationship between American corporate employers and their employees. There has always been conflict over the shares of the benefits of worker productivity going to profits and wages. But until recently, you could assume that both workers and businesses had a common interest in producing in America. As companies became multinational, whether they actually produced in America was irrelevant to their investors and top managers. The boss might be an American by birth and culture, but he or she no longer identified the future of the company with the future of America. They were paid to invest where the cost of labor and environmental regulation was cheapest.

Corporate leaders have not been shy about admitting this. In 1995, the head of Ford Motor Co. observed that “Ford is not an American company.” A decade later, the CEO of Cisco Systems — a poster-child company for U.S. technology — explained the company’s corporate strategy this way:  “What we are trying to do is outline an entire strategy of becoming a Chinese company."

This reality has not yet seeped into our political consciousness. When the CEOs of these multinationals or their lobbyists walk into the White House or the office of a member of Congress or hold a press conference to rail against “protectionism,” the media often assumes that they are representing American interests. Those days are over.

Q. Explain what you meant when you said “so-called” free trade agreements?

Faux: Their major purpose is not to promote trade by making it easier for each country to export what it does best. Rather, these agreements provide global corporations with the opportunity to outsource production for the U.S. market. When the recent trade deal with Peru was signed, that country’s president told the U.S. Chamber of Commerce, "Come and open your factories in my country so we can sell your own products back to the U.S." This is not what Adam Smith, David Ricardo, and the classical advocates of free trade had in mind.

We are no longer just talking about simple trade among economies defined by national frontiers. Today’s globalization represents the creation of a world market without the enforceable rules that make markets work for everyone’s benefit. Led by multinational corporate interests, American policy makers pushed American workers into a brutally competitive market that resembles not so much the future, but the past: the 19th century dog-eat-dog robber baron era.

Q. In your book, The Global Class War, you write that it is important to remember that there are rich people in poor countries and poor people in rich countries. Explain.

Faux: The disconnect between rich and poor — between investors and workers — is happening all over the world. Increasingly, this means that the owners and managers of global corporations have more in common with each other than with workers who happen to share their nationality. The experience of the North American Free Trade Agreement since its implementation in 1994 illustrates the point. Every so often a poll is taken in all three countries — the United States, Mexico, and Canada. They ask the respective publics which countries they think “won” economically from NAFTA and which “lost.” Typically, the people of each country say workers in the other two nations gained and workers in their country lost.

But if you look at the numbers you find the same pattern in each country — a growing gap between labor productivity and real wages. Workers are working more efficiently, but getting a smaller share of the benefits. In other words, the bargaining position of working people in each of the countries declined. One reason is that free trade permitted employers in Canada and the United States to move production to lower-wage Mexico, or to threaten them with moving to Mexico if they do not agree to lower wages and other concessions.



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