I Heart Hawley-Smoot
Ahem, it's time to get off my little neoliberal fence and join the far left on a trade issue. Really, though, this stuff is important. Nathan Newman has a post
noting the growing opposition to CAFTA—the Central American Free Trade Deal—and I, for one, am hopping aboard. Pile on all the platitudes you want about the benefits of free trade and comparative advantage and blah and blah, but CAFTA just plain sucks. The brunt of the matter is that the agreement would allow Central American countries to maintain (or even weaken!) their current labor standards—the exact same standards, mind you, that the State Department has already criticized
for being nigh inhuman.
At any rate, it's time to repeat my basic and somewhat contrarian line on trade issues: This stuff really just isn't
all that important on a macroeconomic level. Indeed, rifle through the statistics if you please, but it's extremely hard to find clear benefits or downsides to free trade; usually the effects are swamped by other factors. (Can anyone tell me what effects NAFTA has had on U.S. labor markets, prices, or wages in the late '90s? No, not really.) Certainly as far as the U.S. is concerned, I tend to agree with economists like Richard Freeman that immigration has far bigger economic effects, for fairly intuitive reasons (e.g. immigrants compete with workers in all sectors, not just tradable ones). Abroad, meanwhile, the important economic factors tend to be immigration, technology transfers, and (usually destructively) capital flows. Historically, the current rank
of developed nations (even, no, especially
Britain) mostly used protectionism to get a leg up, and various measures of openness are weakly related to growth. Or just listen to someone who's run the regressions, like Robert Feenstra: "[T]he hard evidence supporting such gains from trade, either in a dynamic or static sense, is suprisingly thin." (pdf
So trade. Who gives a crap? Well, that's not exactly true. One thing we have
legitimately seen throughout the latter half of the century is that increased trade usually leads to an increase
in labor standards in a given country. Multinationals entering developing countries, after all, usually offer better wages and labor rights than what preceded them. Likewise, David Kucera of the International Labor Organization (ILO) has found that higher rates of unionization usually accompany higher investment inflows. And so on. Nevertheless, even ardent free-traders like Jagdish Bhagwati admit
that there needs to be some sort of extant pressure
on companies and developing countries to improve labor standards. Improvement can happen, and it usually does happen alongside expansions of free trade, but there needs to be pressure from either activists abroad or organizing native workers or what have you. CAFTA, as we can see, removes some of that pressure from Central American countries in question. In fact, it allows a good deal of backsliding, which obviously makes a huge difference to the individual workers being chained to their sewing machines, for instance.
Now the pro-CAFTA argument here, much-loved by free-traders, would be that developing countries need
crappy labor laws, because if they had higher standards, all of the sudden they wouldn't be able to compete with countries that repress their workers, like China. But that argument has always sounded dubious to me. Very, very dubious. Again, citing David Kucera, there's no evidence
that multinationals or foreign investors favor countries with lower labor standards.
And, at any rate, who are we kidding with this "competitive disadvantage" line? Nowadays, please remember, the world enjoys free-floating exchange rates in the currency market. So say Guatemala wants better rights for its workers, better health and safety regulations, less child labor, etc. than China. Fine. Initially, firms in Guatemala will have higher costs and be at a disadvantage to firms in China. But then—like magic!—the Guatemalan peso declines relative to the remnibi, and the costs shift onto… ordinary Guatemalan workers, in the form of more expensive imports. In other words, if Guatemalan citizens want higher standards for themselves, they can choose to do so and pay for it out of their own pockets. There's no fear that multinationals will flee the country and leave everyone destitute. So the solution is to just give Guatemalans the right to unionize, and speak out in the workplace, and let them choose
for themselves. CAFTA wouldn't allow that—indeed, it allows employers to "harass, intimidate, fire and blacklist workers who try to organize unions." Ergo, it's no good, and ought to be renegotiated.
So that's the view on trade from my little corner of blogland, and I'm sticking with it. By the way, I've heard lots of liberals claim that the real
split in the Democratic party is between free-traders and protectionists. Perhaps, though I think the view I outlined above is a perfectly sound compromise position that would appeal to most liberals. That is: Lower barriers, sure, but make sure workers can organize and speak out in the workplace. In fact, I think the main reason the "divide" seems so acrimonious is that "free-traders" imagine that whenever labor unions or other activists call for higher labor standards or environmental protections, it's really just a Trojan Horse for outright heavy tariff action. In other words, that they're arguing "in bad faith"
. But seriously, why would protectionists bother with the Trojan Horse? When unions want real tariffs, they usually just ask
for real tariffs, as steelworkers did in 2002. But most union workers don't even work in low-wage import industries—I certainly don't—so you may as well believe us when we say we're sincere about finding a workable middle ground.