Fair Trade Policies Should Help Not Punish

Matthew Slaughter of Tuck Business School wrote an op-ed today in the Wall Street Journal titled, "Let's Have a Real Debate on Globalization." His central point is that globalization has in balance helped the U.S. economy. And that instead of trying to punish countries that appear to be cheating, the U.S. should focus on making sure Americans are equipped to compete in and cope with a globalized economy.

Here is the key quote:

"The preferred course is to complement open borders with a mix of domestic policies to help those that are hurt. But is this what we hear being discussed on the campaign trail? No. It is about fair trade, not free trade. It is about pulling back on previous trade agreements. It is about new laws to hit 'currency manipulators' with new trade barriers."

I totally agree.

In an article I wrote a few months ago titled "The United States Must Redefine Fair Trade" I tried to make the same point. My point is that fair trade policies should start with the freedom to trade and add ethical principles, based on the fair trade movement.

It is fair to give the world the opportunity to benefit from the international trading system. It is also fair to try to protect labor and environmental standards--and it is fair to build human capacity and potential to innovate and prosper. Punishing regimes that we don't like or manipulate their currencies have very little efficacy.

This is how I put it:

"Notice that tariffs and competitive devaluations are not on the list [of desirable policy tools]. Although both of these approaches are advocated under the guise of protecting fairness and even human rights, history and economics tend to dispute those claims. Instead, openness—with the proper safety net—can help advance human rights."

Policy Innovations interviewed Matthew Slaughter recently. Read our interview, titled "Pushing against the Protectionist Drift."

Downward Pressure on U.S. Wages - Trade Not All to Blame

Grant Aldonas of CSIS, Matthew Slaughter of Dartmouth, and Robert Lawrence of Harvard recently wrote a report entitled "Succeeding in the Global Economy: A New Policy Agenda for the American Worker" sponsored by the Financial Services Forum. While the report finds that openness and globalization has added more than one trillion dollars annually to U.S. GDP, the debate has been too narrow, unfairly blaming trade for workers' woes. Here is an excerpt:

Since 2000 U.S. corporate profi ts have nearly doubled, from $817.9 billion in 2000 to $1.62 trillion in 2006. This rise has not been concentrated in one particular sector, but rather has been enjoyed quite widely across many industries. As a share of total national income, these corporate profits are today near 60-year highs at about 14 percent. The concentration of equity ownership in America means that higher corporate profitability may have contributed to the just discussed skewness of total-income growth.

To summarize: in recent years the large majority of American workers has seen poor income growth. Indeed, 96.6 percent of Americans are in educational groups whose mean total money earnings have been falling, not rising, since 2000. Only a small share of workers at the very high end has enjoyed strong growth in incomes. The strong U.S. productivity growth of the past several years has not been reflected in wage and salary earnings, and instead has accrued largely to the earnings of very high-end Americans and to corporate profits.

Read the full report here.