Trade after Trump (crosspost from Crooked Timber)

The one policy issue that was an unambiguous loser for Clinton was trade[^1]. Her grudging move to oppose the Trans-Pacific Partnership, choice of Tim Kaine as running mate and some unhelpful remarks from Bill Clinton meant that Trump had all the running. How should we think about trade policy after Trump? My starting point will be the assumption that, in a world where Trump can be President of the US, there’s no point in being overly constrained by calculations of political realism.

A few points and some suggestions

* So-called “trade” deals like the TPP were actually devices to enhance corporate power (and, in the case of the TPP, to isolate China), and deserved to be defeated regardless of views on trade

* No matter what policy is adopted, manufacturing jobs aren’t coming back, any more than farm policy can restore an agrarian society. The manufacturing share of total employment has peaked nearly everywhere in the world, notably including Mexico. As is often the case, Chinese data is too opaque to get a clear picture, but there’s plenty of evidence of contraction about

* The idea of manufacturing jobs as “good” jobs is historically specific particularly to the US, and reflects the fact that the dominance of manufacturing coincided with the New Deal and the unionisation of the labour force. It’s unions, not manufacturing that we need to bring back.

* The big problem facing workers, in the US and elsewhere, isn’t competition from immigrants, or from imported goods. It’s the fact that capital is freely mobile and unfettered by any social obligation. So, a profitable plant can be closed down if its owners get a better off elsewhere. Alternatively, the threat of a move can be used to bargain down wages.

So, instead of thinking about tariffs and trade agreements, the big question is: what can be done to change trade and capital flows in ways that yield more good jobs?

Some suggestions over the page

The first and most important step is to reverse the global decline of unionism. The obvious starting point, for the US, would be to repeal the Taft-Hartley Act. More generally, the left needs to go beyond the (justified) demand for a higher minimum wage and seek to restore the wage share of national income to the level that prevailed during the postwar era. That can only be done with strong unions.

That leaves the question of how to handle the ability of corporations to undercut unions by outsourcing, corporate inversions and so on. The only positive element of the TPP was the attempt to impose some recognition of union rights on participating countries. But the better option would be to impose the relevant obligations on corporations themselves. That is, any corporation doing substantial business in the US should be required to respect labor rights, including the right to unionisation, and to impose the same requirement on its suppliers.

This would, of course, be totally unacceptable under the Investor State Dispute Settlement procedures of most existing trade agreements. So, it would be necessary to repudiate those clauses of the agreement and offer the counterparties the option of scrapping the agreements altogether or dropping ISDS.

The power of corporations to relocate capital is greatly enhanced by the massive flows of short-term capital currently amounting to $5 trillion per day, or around 30 times global gross product. The flow required to manage international trade and capital transactions is about 1 per cent of that. The fact that observed flows are so much larger mainly reflects tax evasion/avoidance and regulatory arbitrage. A Tobin tax at a rate of, say 0.1 per cent applied to all financial transactions would wipe out short term flows, so that international capital movements actually reflected shifts in physical capital investment. This would make it much easier to regulate such flows.

None of this could be done easily and much of it might never be achieved. But it’s the kind of program that’s necessary to counter Trumpism and that, thanks to the collapse of neoliberalism exemplified by Trump’s success, is now thinkable.

[^1]: This introductory background is not meant as an invitation to rehash the election result. Any comment that does so will be deleted.

68 thoughts on “Trade after Trump (crosspost from Crooked Timber)

  1. @Ivor

    For sure, I agree.

    At the same time, I think one can hold a narrow and a broad definition of “capital” in one’s head at the same time. The narrow definition, which matches that of orthodox economics or OM for short, is useful for communication purposes. People from two schools (OM and Marxian) can talk about the same thing with the same terminology. Rather than insist on the broader meaning and implications of “capital” as a full phenomenon when talking with non-Marxians I explicitly use the term “capitalism” for the full system. That is where I insist that “capitalism is not just mundane saving, debt and credit, investment, financing, production, employment and supply and demand underpinned by the… “free” market.”

    Technically and more deeply you are right but people have to be guided to that understanding in stages. Heck, even I need to be guided further there as you have seen in this exchange.

  2. Friedmanian pursuit of “pure” capitalism, an uninhibited free market, always struck me as missing the entire point of human existence, to the extent that there is a point, I suppose. Some of us have been fooled into believing that wealth accumulation is the be all and end all of human existence; that shouldn’t mean that the rest of us have to play along with their delusional belief.

    People don’t want to work in jobs that strip them of their humanity, but most people are happy to work hard at some thing or other, given the choice. That one person who is content to sweep the floor of a building should be paid a reasonable fraction of the CEO’s package, say a quarter to 50%. Alternatively, tax the bejeesus out of any salary/package that is more than two times the floor sweeper’s pay. If someone has talent as a CEO, well good for them; if floor sweeping is their thing, well good for them too. This grandiosity in thinking a CEO is somehow so much better than a floor sweeper is the central stupidity of our current capitalist (or is it corporatist?) society; I mean, apart from the CEO, who cares a jot for what he/she/it does? Sweeping a broom for several hours and making the place look spick and span is a pretty good ambition, as far as I can see.

    As for Trump, if he tears up the TPP, I for one won’t be crying.

  3. @Troy Prideaux As I said before, unions as they have been traditionally run are redundant.

    As I see it the problem is that the loss of unions is not a win for capital; without proper representation labour will feel as if they have been discarded giving rise to anti establishment feelings. Thatcher may have broken the unions and turned the UK around and now we have Brexit. Reagan broke the unions in the US and now they have Trump.

    It’s in business’ interests to maintain a proper dialogue with labour and ensure that participation and benefits are satisfactory. Dumbing down the workers can only lead to a loss of social cohesion.

  4. rog :
    @Troy Prideaux As I said before, unions as they have been traditionally run are redundant.

    A statement doesn’t become true just because you say it’s true; and if it wasn’t true the first time, repeating it doesn’t change that.

  5. As I see it the problem is that the loss of unions is not a win for capital; without proper representation labour will feel as if they have been discarded giving rise to anti establishment feelings.

    Yeah, look. People shape their strategy by how they think the world is, not how it actually is: a person who doesn’t think about second-order effects won’t plan with an eye to second-order effects and will with complete confidence act so as to wrap themselves in utter failure.

    An awful lot of people, and thus an awful lot of small/medium business owners, are prone to externalising their failures and poor choices, blaming whatever other they can find that’s disagreed with them for the poor outcomes. “If only everybody had done what I wanted [==”if only everything had fallen out as I’d planned”, only without the self-awareness.

    So, yeah. Unions exist explicitly to tell business owners they’ve got it wrong. Of course people are going to hate them.

  6. @James

    It is entirely naive to think that a billionaire capitalist is going to care about workers and the little people. We only have to look at Trump’s own history to see how he has abused workers and workers’ rights. In fact, he abuses and mocks almost everybody from women to blacks to latinos to disabled people.

    Obama and Clinton were the smooth, liberal, hypocritical face of neoliberal capitalism. At a basic level they had some humane and civilized values directed toward their own US constituency but none for other peoples like Iraqis, Afghanis, Libyans, Syrians or Yemenis.

    Trump is “politically incorrect” which is actually code for free license to be vicious and nasty to domestic minorities. Trumps policies are a mishmash of populism and protectionism. (I actually agree with a degree of protectionism if it is implemented wisely on a case by case as needs basis. We can be pretty sure Trump won’t be so discriminating in his judgement.)

    Trump is also a blatant, unrepentant liar as are all modern politicians. The sole difference is that in his case is he disdains to lie about lying. His explicit attitude is “Yeah I lied about everything in the campaign. So what? I am in power now.” Trump has a completely narcissistic and solipsistic personality formation. Only Donald exists and only Donald matters. All of this is all about Donald Trump and about absolutely nothing else. Donald Trump cares only about Donald Trump. To imagine he cares about anything else is the height of naivety.

    From the point of view of hoping for the collapse of US imperialism and capitalism and hoping for a sea change of some kind (hopefully reasonably peaceful) towards at least a bit more democratic socialism, the election of Trump could be a catalyst. The bull is in the capitalist china shop now. When he makes a total mess as he will, people will want permanent institutional change for the better so that this kind of thing (ultra-right populism) cannot happen again.

  7. @Collin Street
    I once asked one of the government’s independent arbiters (whose job it was to hear & rule on employee vs employer disputes/claims) about what the ratio was for who (employees or employers) are generally at fault or in the right in general for such disputes.
    His answer was quite clearly – “it’s pretty much 50:50”.

  8. People who vote for rightwing populists are just like people who vote for the left or the conservatives; if their candidate craters, they don’t switch to the other camp, they look around for different, better, more effective left/conservative/populist candidates. You haven’t been listening closely enough to our host’s analysis of our progression into pure tribalism, where all that counts is that our champions hate the same people we do.

  9. @James

    But, as I said, even if our worst fears about Donald Trump are realised, the carbon footprint would only be a small fraction of the carbon footprint that would be caused by the conventional wars that Hillary Clinton was planning to launch, let alone the thermo-nuclear war that might ensue.

    Well, it depends who you include in the first person plural when you write about ‘our’ worst fears. Some people’s worst fears about Donald Trump are precisely the same as your worst fears about Hillary Clinton; that is, the possibility that he might trigger a thermonuclear war.

    What the consequences of a Trump Presidency will be is something we are about (for good or ill) to find out (well, sort of — when bad things happen, anti-Trump people will blame Trump and pro-Trump people will blame other causes; when good things happen, pro-Trump people will credit Trump and anti-Trump people will credit other causes). But what the consequence of a (Hillary) Clinton Presidency would have been is something we will never find out. Nobody can stop you from believing whatever you like, but there’ll be no confirmation.

    I think it’s time that the unjust demonisation of Donald Trump ended.

    Do you? What about the just demonisation of Donald Trump? Is it okay with you if that continues? And what about the unjust demonisation of Hillary Clinton, and of Barack Obama? do you think those should end?

  10. No allowing that unions as they currently are could have problems (e.g. with their existing structure/role/actions/political allegiances)?

    Instead, “bring back unions” can only be a reference to needing more of them/more membership/more “strength” (whatever that really means) and more influence for them….in something.

  11. ‘I can’t quite figure out who or what nastywoman is arguing with’

    I was arguing mainly with two points.
    The idea ‘no matter what policy is adopted, manufacturing jobs aren’t coming back’ –
    AND the idea ‘that manufacturing jobs as “good” jobs is historically specific particularly to the US’ – or implying that manufacturing are not (that) ‘good’ jobs.

    And so referring to your first point:
    Yes – there might be countries – which by a combination of factors at play — policy, culture, education, and simple historical advantages – have advantages in certain ‘industries’ –
    but that shouldn’t be the case anymore in the so called advanced countries – where there is the possibility in every field -(even in the software industry) to be competitive.

    And as our issue is ‘manufacturing’ and ‘manufacturing’ is (was) generally ‘working’ in every country -(just with different dimensions of success)- it seems to make a lot of sense to try to figure out what makes very successful manufacturing so successful.

    And I used the example of Germany mainly to counter the misconception of some commenters who seem to think that successful manufacturing only can be done by paying workers the lowest wages and salaries and having NO strong Unions.

    And to focus on manufacturing as “good jobs.” I gladly also make the argument – that there are reasons why manufacturing jobs are likely to be “good jobs.” if you work at Italian companies like Ferrari or Gucci or if you produce the best Espresso or Coffee Machines in the world.

    And for sure we can’t generalize that – as much as we couldn’t generalize that manufacturing are ‘bad’ jobs – and forgive me if I was under the impression that some commenters really think that
    manufacturing jobs are ‘bad’ jobs – or not desirable (anymore)

    And as this whole discussion is (was) based on the erection of Trump and that he promised American workers to bring their jobs back – and ‘realism’ – and ‘policies’.
    Yes! –
    there are realistic chances to bring back manufacturing jobs to American workers -(without the bad tariffs or building walls ideas of a F…face von Clownstick) and we don’t have to sing some praises of some German corporate culture at all.

    Just think ‘Tesla’ – and if you like let’s sing his praise to the utmost degree!

  12. @D

    No allowing that unions as they currently are could have problems (e.g. with their existing structure/role/actions/political allegiances)?

    On the contrary; yes, allowing that unions as they currently are could have problems.

    Instead, “bring back unions” can only be a reference to needing more of them/more membership/more “strength” (whatever that really means) and more influence for them….in something.

    Yes, that’s right, ‘bring back unions’ means more members and more influence for unions.

  13. What can be done?

    “A Tobin tax at a rate of, say 0.1 per cent applied to all financial transactions would wipe out short term flows, so that international capital movements actually reflected shifts in physical capital investment. This would make it much easier to regulate such flows.”

    I am not convinced that a 0.1 per cent Tobin tax would wipe out all short term international financial capital flows and I don’t believe wiping out all short term financial capital flows would be a useful objective (a lot of international trade of physical goods involves short term financial capital flows; international tourism also involves short term financial capital flows; insurance companies and pension funds).

    However, I have been in favour of a Tobin-type tax for a very long time, not because Tobin was a general equilibrium theorist, although I won’t miss an opportunity to point out that useful ideas do emerge from this type of work. I am in favour of a Tobin-type tax – also known as financial transactions tax for several reasons. Firstly, due to the so-called financial innovation, the international financial system is fragile – to put it mildly. There is too much junk in the system, which all amounts to an almost impenetrable fog of debt. Debt bubbles burst and the costs are shifted to the public. This should be avoided. A Tobin-type tax can act like an insurance premium on the speculative debt generation and debt trading industry. Second, such a tax slows down the speed of financial transactions, hence it works toward increasing synchronisation between physical and financial transactions technologies. Third, it is a source of tax revenue that could be used to reduce government debt incurred during a financial crisis. Obviously, which of the reasons given is dominant depends on the state of affairs.

    The EU (some member countries more than others) has been considering a Tobin-type tax for quite a while and with increased enthusiasm since the GFC. There is some progress.

    On 5 December 2016, 10 EU countries (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) are going to decide on the introduction of the Financial Transactions Tax. 9 out of the 10 have to agree to pass it. The proposed tax rate is 0.05%.

    There is still some uncertainty in the public press as to the specifics of the proposal that is to be voted on. For example, which types of securities are to be subject to the tax? (Derivatives and shares are in the basket; government securities not – I understand at present.) Is there a transition period and if so, for how long? How is shifting security transactions into non- member countries to be avoided? My latest information regarding the latter is: There are two principles which are aimed at mitigating tax avoidance by means of choice of a juristiction. These are:
    a) The principle of residency of the financial institution (eg if the Deutsche Bank trades the relevant financial securities in say Australia, the tax is still applicable because the Deutsche Bank’s residency is in Germany.)
    b) The principle of issuance of the securities. (eg Mercedes issues shares then, irrespective of where the shares are traded, financial transactions tax applies.)

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