Levin Remarks at Council on Foreign Relations on Future of U.S. Trade Policy
WASHINGTON, DC – Ways and Means Committee Ranking Member Sander Levin (D-MI) today spoke and participated in a discussion at the Council on Foreign Relations about the need for policymakers to take a fresh look at U.S. trade policy. Rep. Levin’s full prepared remarks can be found below, as well as video of today’s conversation.
(Remarks as prepared)
It is important that the Council on Foreign Relations organized this symposium, as today’s subject reflects a reality that many in Washington have been trying to ignore: the “future of U.S. trade policy” – and indeed global economic integration more generally – is uncertain and needs to be the subject of a thoughtful and inclusive debate.
I have been involved in trade policy since first coming to Congress in 1982, and what is clear is that this situation did not develop overnight – and should not be easily dismissed as election-year “politicking.”
Clearly consensus on globalization, including the role of international trade, has been crumbling as noted recently in The Economist magazine. There are many reasons. Some are not directly economic like immigration flows, though those have economic aspects. But some are directly economic.
Economic realities have overtaken old doctrines and conventional frameworks. And our trade policies have failed to adjust to these realities. International economic policies remain outdated.
The 18th and 19th century notion of comparative advantage tells us almost nothing about modern trade agreements. What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement (ISDS) in our trade agreements? About biologics data exclusivity? About trade flows that are based on the denial of minimum international labor standards and the lack of environmental protections? About currency manipulation? Nothing.
And the ghosts of Senator Smoot and Representative Hawley still haunt us more than 80 years after they passed their trade bill. Its harmful mindlessness about trade helped to nurture an equally mindless approach that assumes more trade is always better, no matter its terms.
That is why New York Times columnist Thomas Friedman was comfortable saying on national television: “I wrote a column supporting CAFTA. … I didn’t even know what was in it. I just knew two words: free trade.”
For decades, efforts to shape trade policy to address its downsides as well as maximize its upsides were easily labeled “protectionism.” Legitimate concerns over what some have called “hyper-globalization” were ignored when they deserved to be addressed. The complexities of the global economy were dumbed down to a polarizing debate between the current laissez-faire approach to globalism and Smoot-Hawley protectionism. It caused many of our economists and trade officials to tout, and often exaggerate, the benefits of exports and ever-expanding trade while ignoring the costs sometimes associated with imports.
And efforts to address the challenges were not followed up on by U.S. officials.
- The legislation granting China permanent normal trade relations included a safeguard mechanism against surges of products from China but the Bush Administration rejected the independent International Trade Commission's recommendation to impose the safeguard each and every time it was asked to do so. The Bush Administration also allowed China to make a mockery out of the provision mandating an annual review to determine whether China was meeting its obligations as pledged when it entered the WTO.
- As the U.S. trade deficit skyrocketed with China substantially because of its currency manipulation, Treasury officials repeatedly refused to designate China as a currency manipulator, as required under U.S. law. Commerce officials refused to apply countervailing duties to address the issue and USTR refused to file a WTO case. Instead, we agreed to give China greater voting shares in the IMF, the organization charged with policing currency manipulation.
- In 2007, Democrats took historic steps to include enforceable labor and environmental standards in U.S. trade agreements. These standards were first incorporated in the US-Peru FTA, including strong and enforceable obligations of Peru to address to illegal logging in the Amazon. But Peru has not satisfied its obligations since the Agreement entered into force over six years ago.
- While the U.S. and Colombia negotiated a Labor Action Plan to achieve compliance with basic international labor standards, Congressional Republicans insisted that the Plan not be referred to in the Implementation legislation when the FTA was voted on by Congress. Colombia has been out of compliance with its obligations since the Agreement entered into force over four years ago.
While most Americans were not aware of these failures, they did feel the consequences of many of them. And these and other failures to follow-up on trade promises contribute to the unease and mistrust felt by the American people. Voters often ask a basic question, “Whose side are you on?” And, too often, government policies have not been on their side when it comes to trade and globalization.
And the research confirms their unease. A recent paper by David Autor, David Dorn, and Gordon Hanson finds that millions of U.S. jobs were lost as a result of imports from China over the past decade- and unemployment rates remain “elevated for at least a full decade after the China trade shock commences.” In the past, economists often simply assumed that the transition to trade liberalization was quick.
Realities have led to increased chinks in the armor of conventional international economic and trade rhetoric and theory. Dani Rodrik has written: “We need to rescue globalization not just from populists but also from its cheerleaders.” Larry Summers noted over the summer: “The willingness of people to be intimidated by experts into supporting cosmopolitan outcomes appears for the moment to have been exhausted.”
It is clear that we need a fresh look at U.S. trade policy.
This is why TPP should not and must not be considered in a Lame Duck session. It would fail.
And a Lame Duck vote would only make matters worse in terms of the needed effort to rebuild the trust of the American people.
What must be included in a fresh look includes:
- Currency manipulation must be meaningfully actionable, beyond the incessant jawboning, using IMF agreed upon principles as to what is and what is not currency manipulation.
- ISDS must be addressed beyond terms in TPP. The increasing use of arbitration by private corporate and moneyed interests to undermine legitimate governmental regulations relating to the environment, health, and beyond, was evidenced in the recent 18 month investigation by Pulitzer-prize journalist Chris Hamby.
- Worker rights provisions must go beyond rhetoric and become reality before Congress votes.
In a recent speech, the former Mexican Foreign Minister Jorge Castaneda described how the Obama Administration missed an opportunity by not requiring Mexico to have a Labor Action Plan in TPP, rather than accepting Mexico’s adamant stand that labor rights not be linked to trade agreements. In Mexico today, in most cases there are so called “protection agreements” contrived between the labor organization and the government to which it is linked and the employer. They have never been voted on by the employees and were often crafted before there were any of them- really “protecting” a company against a real union. And the labor boards at both the federal and state levels are run by the same three parties, usually leaving dissatisfied workers with no recourse. Mexican workers today are paid a fraction of those in the United States.
Trade agreements must assure that as trade and competition grows, they must be increasingly on a level that works for American workers as well as workers in other nations, surely in the case of Mexico with its heightened trade and competition with the U.S. And the TPP as negotiated with its Rules of Origin weaker than NAFTA will further encourage the shift of production to Mexico where their producers will be able to get cheap inputs from China and other low wage countries not in the TPP.
As to Vietnam, unlike Mexico, the labor standard provisions are a formal part of TPP. But will they ever become realized when the reality today is that workers who tried to form an independent union remain in jail and those who continue those efforts have been beaten?
While many of the products coming into the U.S. from Vietnam with a lowered or zero tariff are not produced in the U.S., some are. And there is a basic need for trade policy to ensure that competition and the flow of goods and services are not based on the lowest common denominator. That has been painfully evidenced in the human tragedies occurring in Bangladesh, in the conditions recently described in India, and in the mistaken movement by the U.S. to upgrade Malaysia from Tier 3 to Tier 2 regarding its grievous record on human sex and labor trafficking.
A fresh look will also give us a chance to make the process more democratic. We need much better ways to get the public’s input during the negotiating process. There needs to be a revamping of the structure of advisory committees, to make them more balanced and their work more open. There also needs to be revised structure that guarantees meaningful Congressional participation throughout negotiations.
A fresh look also requires new and improved economic analyses of trade and trade agreements. We need to better understand their impact on inequality, on workers’ ability to negotiate decent wages, and on specific sectors of the economy. I urged the International Trade Commission (ITC) to address these and other new issues in its TPP report, but that report falls short. The ITC’s study doesn’t even consider the transition period when new trade flows displace workers. It only models what happens after that painful adjustment process is over, in the “long run.” But as John Maynard Keynes said, “the long run is a misleading guide to current affairs. In the long run, we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.”
With the acknowledged benefits of reduced tariffs and barriers in other countries to American agricultural products and services failing to carry the debate, two arguments have become prominent in urging support of TPP as negotiated.
One is that technology, not trade, is the fundamental cause of American job loss and income stagnation. But that constant argument that it is not trade but some other factor bumps into the realities facing the American economy. A recent vivid example is what has been happening in global steel production. The U.S. and China 15 years ago produced about equal amounts of steel. China has since ramped up its production to ten times that of the U.S. and more than the combined total of the United States, the European Union, Japan, and Russia. During the negotiation of the Uruguay Round, former Republican Congressman Amo Houghton and I actively worked in Geneva, sometimes over the skepticism of USTR, to preserve strong anti-dumping and countervailing duties provisions. These provisions have been actively utilized by the Obama Administration. But they are not enough. A new trade policy must face up to how to respond. China is using its state owned enterprises to swamp American steel production.
What’s at stake is a basic issue – whether the U.S will continue to maintain a strong manufacturing base.
The second argument is that TPP must be approved as negotiated out of geopolitical necessity. There has been a tradition of effort to sell trade agreements on geopolitical grounds and I appreciate these considerations. But we must also remember that trade negotiations were moved from the State Department to USTR in 1962 for a reason. Policy makers wanted our government to better look after our economic interests around the globe.
There are geopolitical aspects to TPP but trade agreements must be able to stand on their own two economic feet. An agreement that is not in our economic interest cannot be in our national security interest because our national security depends on our economic strength, including in manufacturing.
Take for example, the argument that TPP is important to contain the influence of China. That we should “write the rules” and not let China do so. Okay, but then we need to improve the rules of state-owned enterprises (SOEs) and currency. As negotiated, TPP lacks any enforceable commitments on currency, and the disciplines in TPP on SOEs don’t apply if a government controls that enterprise but through less than a majority of the shares. TPP’s weak rules of origin also mean that China gets some of the benefits of TPP – duty-free access to our market – without having to sign up to its obligations. For example, a car assembled in Mexico of mostly Chinese parts will enter the United States duty free under TPP.
Hillary Clinton will surely be sensitive to geopolitical factors but not at the expense of the needed fresh look at American international trade policy.
A comprehensive and constructive fresh look must be the first order of business in the next Administration on all outstanding issues relating to trade.