The idea of more open, global trade has been sold as necessary for economic success. Yet today we hear calls to “build a wall” and to break up trading partnerships. Turns out we’ve seen the pendulum swing between free trade and protectionism many times before. Our series Trade Off looks at key moments when trade barriers have been built up or torn down and at globalization’s winners and losers.
Free trade has always been a hard sell. Consider the acrimony over international trade deals like the Trans-Pacific Partnership or NAFTA. President Trump called the TPP “a horrible deal” when he campaigned for office and he’s threatened to terminate NAFTA. Controversy over free trade has even worked its way into the scripts of popular TV shows. In 2004, “The West Wing” devoted an entire episode to it, complete with Martin Sheen’s character quoting Austrian economist Joseph Schumpeter.
Some long time defenders of free trade say the current backlash is due, in part, to weak labor policy. Compared to other advanced economies, U.S. efforts to compensate globalization’s “losers” have been tepid. Americans spend just a tenth of one percent of GDP on helping their fellow citizens who’ve lost jobs to trade and technology. The programs are all well-intended, but researchers say they’re disjointed, too restrictive and underfunded. One 2011-2012 study of the most generous of these programs, Trade Adjustment Assistance, found that participants, on average, ended up earning less than those who hadn’t gone through the program.
Longtime advocates of free trade, like Marina Whitman, say we need to spread more of the gains globalization produces to “compensate those it displaces.”
“We’ve always tended to be less generous to the losers from any particular change than most other industrialized countries,” she said.
Whitman, 82, is a former adviser to Richard Nixon and a former General Motors executive. She was a fierce advocate of free trade in the ’70s and ’80s, before free trade had become an article of faith among U.S. political and business leaders. In her book, “The Martian’s Daughter: A Memoir,” she recalls finding out that a labor leader referred to her as “that free trade bitch.” She took it as a compliment. She strongly believed that free trade expands the economic pie and increases prosperity. “But what we didn’t pay enough attention to was the fact that while the winners were widely spread, for the losers it tended to be very up close and personal,” Whitman said.
Marina Whitman sits to the left of President Richard Nixon at the White House in 1972. Whitman was the first woman on the President’s Council of Economic Advisers.
It’s not that Whitman and her fellow free traders didn’t anticipate a working class backlash to free trade. In the early 1970s, the U.S. Chamber of Commerce was so alarmed by some protectionist trade bills, it created a task force to craft a better policy to help laid off industrial workers.
The business lobby group asked a rising young economist to chair it. Fred Bergsten, now 76 and founder of the Peterson Institute for International Economics, said the task force came up with wide-ranging recommendations.
At that time, there was a small trade adjustment assistance program for displaced workers but it was so ineffective labor leaders called it “burial insurance.” The criteria were so narrow that for the first six years of the program, not one single American qualified for the benefits. So Bergsten, in his report, proposed a huge expansion of benefits; more money for a broader range of workers, relocation assistance, even funds to help entire communities hurt by trade.
Bergsten said he was stunned by the reaction.
“I argued that it was essential that the Chamber of Commerce, speaking for American business, support that, in order to provide a foundation for a continued free trade policy in the United States,” Bergman recalled. “Very, very vigorous debate ensued.”
Bergsten said the directors whose industries weren’t threatened much by free trade at that time supported his ideas. But the ones that were vulnerable to foreign competition, like steel and textiles, argued against them. Bergsten said those men realized any effective program would just undercut their efforts to raise trade barriers to protect their own industries. In addition, some free trade supporters in the room feared a big government program to help dislocated workers would just draw unwanted attention to the human costs of of free trade and undermine support for future trade deals.
An excerpt from the 1973 task force report that Fred Bergsten drafted for the U.S. Chamber of Commerce. It criticized the existing program for workers affected by free trade and recommended a generous expansion of benefits.
“To me that was dramatic,” Bergsten said. “And we’ve seen that more or less in the 40-plus years since, where politicians who support free trade are often unwilling to draw the logical inference that you have to take care of the downsides and the costs and the losers if you’re going to sustain free trade politically.”
Congress did end up liberalizing benefits for free trade’s “casualties” but always half-heartedly. Edward Alden is author of “Failure to Adjust: How Americans Got Left Behind in the Global Economy.” He said President Reagan cut the program dramatically, although he noted that by the early ’80s, Trade Adjustment Assistance did need reforms. Alden said later on retraining was reduced to a kind of bargaining chip in free trade deals, “thrown out as a kind of carrot to try to buy the votes of a handful of Democrats.”
Those Democrats were mostly worried about backlash from labor unions, who were never enthusiastic about retraining programs in the first place. Labor wanted to focus on preserving the union jobs that still existed. Still unions did lobby to expand retraining wherever they could, according to Alden. “But as the unions have weakened there simply is no effective lobby pushing for stronger work force support and training programs.”
Essentially, retraining and other aid for workers displaced by globalization has never enjoyed a passionate and powerful political constituency. That, in turn, has led to half-hearted programs that don’t live up to expectations. Which, arguably, has led to more resentment of free trade. In an editorial in the Detroit Free Press in 2016, Whitman argued for changes and recommended a closer look at Denmark’s labor policy of “flexicurity.”
“Most crucial are measures to make wage insurance and employment support more generous in both amount and duration,” Whitman wrote. “It is also crucial to extend such measures to all workers displaced by change, rather than singling out those who are the losers from trade agreements.”