NIGHTMARE FOR THE CORPORATE DEMS
It rated one paragraph in the New York Times and passed under the radar of most people on the Hill. But the AFL-CIO’s major change in its trade policy, passed at the recent Executive Council meeting, may have more impact on the political front than its $40 million election year budget.
The AFL-CIO issued a call for the U.S. to exercise our rights under Article 12 of the W.T.O. and impose a temporary, across-the-board tariff increase to reduce America’s trade deficit. Contrary to popular belief (Rep. Charlie Rangel recently told a reporter it was illegal), W.T.O. rules allow tariff increases, but only for the purpose of closing a persistent trade deficit. We can’t raise tariffs to gain a trade surplus, but we can do so to close a deficit.
Things Have Changed
After the passage of NAFTA, labor responded by raising the banner of labor and environmental rights in trade treaties – a move which, among other things, allowed us to shed the label of ‘irrelevant protectionists’ and get back in the debate.
This successfully changed the trade debate. But, while valuable, we were never under any illusion that this would turn around the trade imbalance.
Now things have changed:
1) The rapid entry into the global capitalist workforce of a billion low-wage workers has combined with rapid changes in technology to put almost any job at risk of being sent offshore. The main defense of NAFTA – we’ll send the ‘crummy’ jobs overseas and keep the ‘good’ jobs here – wouldn’t pass the laugh test today with almost every job that doesn’t require physical presence (retail, burger-flipping and hands-on health care) already on its way out the door.
This changes the political dynamic of the issue, putting millions more workers in economic jeopardy and expanding the base of any popular movement to deal with it.
Trade Deficit: Looming Disaster
2) This change has produced a second change. The balance of trade deficit has increased steadily since 1992 in both absolute terms and relative to the size of our economy. Americans are currently living 7% beyond our means (i.e., consuming 7% more than we produce). And this is expected to continue to rise. The U.S., which was a creditor nation in the 90’s, has become a debtor nation, slipping further and further into debt.
Elites: Current Imbalances Unsustainable
3) This has in turn changed perception. Among the elites (economists, Wall Street types, etc.) there is now broad consensus that this trend is unsustainable. (In the words of Warren Buffett, “If something can’t last forever, it won’t.”) There is further agreement that any resolution will involve decreased purchasing power of the dollar along with higher interest rates, decreased consumption and a lower standard of living for most Americans. This changes the debate from ‘should we do something?’ to ‘what should we do?’
The WTO rule is made specifically for situations like ours – where severe imbalances in one country threaten global economic stability. It was first suggested in a different form by Warren Buffet in an October 26, 2003 Fortune magazine article. The economic rationale can be found in an article by Wayne Godley, et. al of the Levy Institute, “The United States and her Creditors: Can the Symbiosis Last?”
Controlled Change vs Chaotic
The bottom line is this: everyone agrees the U.S. massive, growing trade deficit cannot continue. There are only two options – let the free market ‘solve’ it with potentially catastrophic consequences to our currency, interest rates and inflation or try to manage the process by an across-the-board tariff increase.
Of course the elites will scream. The Tom Friedman’s of the world will call us protectionists and worse. They will say (incorrectly) that it’s illegal. Unable to argue with the plain language of WTO article 12, they will say it’s unprecedented – again incorrectly. (It has been used twice, when the rule was part of GATT – once by Richard Nixon in 1971, once by Great Britain in the mid-60’s.)
But this time they are the Neanderthals, living in the past. There is no doubt this imbalance will be stopped. The question is whether it is done chaotically by the marketplace or in a controlled manner by the use of Article 12.
There is also a powerful national security argument. China’s stash of U.S. dollars (over $800 billion and counting) gives them the potential leverage to strangle the U.S. economy at a time of their choosing. Our growing trade deficit not only will stop. It has to stop – and sooner rather than later.
Time for Dems to Put Up
Supporting labor rights in trade agreements has been a relatively easy lift, allowing Democrats and other to pose as friends of labor without really having to take a position on the trade issue. Those days are over.
Democratic candidates are now going to face the uncomfortable choice of breaking with labor or facing the wrath of the NY Times editorial board. That choice will be more difficult than before with outsourcing now bringing tens of millions of white collar workers into a fight that was previously limited to blue collar types.
I expect genuine friends of labor like Sherrod Brown and Bernie Sanders will have no problem. And Democrats in safe seats, especially House members, may sign on. The real test will be Senate incumbents and Presidential aspirants.
Expect this issue to be front and center in the 2006 election campaign. The timing couldn’t be better with family economics in a downward spiral and the conflict between national security and corporate trade opportunities hitting the front pages as we speak.
This is an issue with the power to swing key states like Ohio, Pennsylvania, Michigan, Wisconsin, Minnesota and Illinois. And the power to expose and isolate the business-Democrats.