Trade, Globalization & the U.S. Economy

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Let’s face it, we as a nation absolutely must have international trade in order to grow our economy and enhance individual prosperity.  Trade has many benefits, not least of which, is providing markets outside our borders for goods and services produced here at home.

But international trade also has its pitfalls.  Chief among them, at least from the perspective of the U.S. labor market, has been the exporting of quality manufacturing jobs – once the backbone of American wealth – and the importing of cheaply produced goods and services from abroad.  This is a complicated and thorny issue, but laying out some basic parameters helps to sort through the noise.

First, there is a big difference between ‘international trade’ and ‘globalization.’ International trade has been going on for thousands of years, since the Greeks and Egyptians, and even before there were any nations or empires to speak of.  The most modern iteration was an international trade framework set up after World War II as part of the Bretton Woods treaties. Those treaties which, included the establishment of the World Bank, IMF and GATT (General Agreement on Tariffs and Trade), were designed primarily to aid in rebuilding Europe and setting a level playing field with some ground rules for international trade.  One of those principles was neutrality – countries under GATT could not impose discriminatory requirements on imports.  This was good, because if, for example, Ecuador did not place limits on the use of pesticides on domestically produced crops, it could not impose those limits on crops being imported from the United States.   These were good rules, and directly related to enhancing fair global commerce.

But over time, trade morphed with an emerging political framework called ‘globalization.’  Most people believe globalization a natural outgrowth of trade and advances in production and distribution technology.  That is not the whole picture.  Globalization is a political framework that seeks to expand markets for multi-national corporations by coordinating and streamlining laws within individual nations. So, for example, the GATT was eventually subsumed by several agreements now enforced by the World Trade Organization.

The news is most of these agreements pursuant to the WTO are not directly related to trade.  They govern the internal laws, regulations and policies of member nations on everything from how they can run their municipal water systems, to what types of chemicals their farmers must be allowed to use on their crops.  And this is where the devils live in the details of trade.  For example, the WTO increased the term of patent protections for pharmaceuticals manufacturers from 17 years to 20 years.  This has nothing to do with trade between countries, and the importance of this cannot be overstated.  Firstly, many consumers of critical medicines rely upon generic formulations of the drugs because they are cheaper.  By extending the term of patent protection under the WTO, large drug makers were able to extend the term of their monopolies by three years – without submitting the idea to the U.S. voter for approval.

And that leads to the second devil in the details.  WTO rules are developed and enforced by non-elected bureaucrats, economists and trade lawyers who do not have to answer to the democratic process of the WTO member nations.  Moreover, the WTO rules give the organization superseding enforcement authority when democratic processes within those nations go against the WTO rules.  So, for example, Europe has tried to protect its domestic farming industry by banning the use of artificial hormones in beef production.  That restriction also extended to imports of beef from the United States. Under the GATT rules, this would have been fine; imported goods and domestic goods would be treated the same.

But under the WTO rules, this was a punishable violation of the ‘precautionary principle.’ What in the world is that? It is a set of rules that say that unless the government or complaining organization can prove that an imported product is harmful, it cannot ban the importation of that product.  This is really, really absurd, and turns the notion of food safety on its head.  Under current FDA rules, producers must prove the substances they want to sell in the marketplace are safe – it is not incumbent upon the government to prove the company’s products are harmful.  And here is where it gets really thorny. The WTO has tribunals that rule on disputes between countries and importing companies. These tribunals not only have the authority to impose fines and sanctions, they meet in secret and have very little in the way of accountability.  At the end of the day, the European Union had to pay the WTO over $150 million per year in fines just to keep hormone-laden meat out of its economy.

The individual trade agreements, including NAFTA and now the TPP (Trans-Pacific Partnership) as constructed using the same blueprint as the WTO (indeed they are also governed by WTO rules as well).  That is to say, they contain provisions that have nothing to do with trade, they force the U.S. to harmonize its’ own internal laws and regulations to conform to the agreements (circumventing the democratic process), and they are subject to sanctions by secretive external tribunals that are not accountable to the American people.

Most people think the problem with Trade is that they can reduce jobs and wages for Americans.  In some cases that is true. There is certainly an argument to be made the Korean Free Trade Agreement that the U.S. entered into in 2014 did just that. Over 100,000 U.S. jobs were lost, and the trade deficit with Korea increased dramatically.

But by far the biggest problem with the current regime of globalization is the effect on national sovereignty. These outrageous tribunals enable foreign corporations to sue the U.S. Government, forcing it either to circumvent the democratic process by forcing changes in and laws and regulations, and/or costing the U.S. tax payers hundreds of millions of dollars in fines and compensation.  This has wide-ranging effects, from food safety, to environmental protection, to labor rules.

The bottom line is that trade is a critically essential part of the U.S. economy. But globalization – specifically the sovereignty-reducing effects of trade agreements and treaties – pose a real threat to U.S. prosperity and growth.  We have to begin to decouple the two if we are to rebuild our economy.

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