The laws of free trade are not immutable after all

from Jim Stanford

For years, we’ve been told the dictates of globalization, and the intrusive and prescriptive terms of free trade agreements in particular, are immutable, natural, and unquestionable.  When workers were displaced by the migration of multinational capital toward more profitable jurisdictions, we were told there’s nothing we can do about it except join the race to the bottom in a desperate attempt to hang onto our jobs.  When investment and employment were undermined by lopsided trade and capital flows, and employers and financiers utilized the leverage afforded them by unrestrained international mobility to ratchet the distributional structure of the economy ever-more-blatantly in their own favour, we were informed this was just the logic of markets.  And anyone who questioned that logic, or pointed out that it didn’t work in the real world like it is described in the economic textbooks, was labelled either economically illiterate or protectors of vested interests.

Now, suddenly, on the strength of a few tweets from a President who hasn’t even taken office yet, it seems that those rules are not so immutable, permanent, or natural after all.  Now, global corporations will move billions of dollars of investment, and thousands of good jobs, just because a President-elect wants them to.  If there is one crucial lesson from the extraordinary developments this month in the North American auto industry (including Trump’s threats against Ford, GM, and Toyota, and Ford’s stunning decision to completely cancel its new assembly plant in Mexico), it’s that politics matter.  Nothing about the economy is ever natural or permanent — and the immense resources invested in convincing us they are, are actually trying to disempower and silence the potential power of those being hurt by the current system of globalization. We’ve now seen that when it suits powerful forces, global rules can be rewritten in an instant; decisions of global megacorps overturned swiftly and effectively; provisions of trade deals simply ignored.  

None of this is remotely to celebrate or endorse Donald Trump’s coming rule, which will be destructive to working people, will reinforce the elite power of the plutocracy which he railed against (but then installed in his cabinet), and will fundamentally threaten human civilization and the environment along many axes.  Personally, I am most worried about his plan to destroy nascent climate regulations (both in the U.S. and globally), and his imminent plan for national “right-to-work” laws (which would be another big nail in the coffin of the U.S. labour movement).  And there are many other of grotesque things to fear from Trump’s rule — and to resist.

But the stunning way in which he is wading into the private investment decisions of enormous corporations, overruling their established global strategies, and simply ignoring the supposedly sacrosanct rules of trade deals, is an important reminder for all of society that the “economy” is nothing more or less than the conscious decisions which human beings make about how to work, produce, and distribute.  Those conscious decisions always reflect power and competing interests, they are never “natural” or “automatic” or “omnipresent.”  If Trump can rewrite international economic treaties on the strength of a few tweets, before even taking office, then we can do the same thing — but only if we build a political movement with the same confidence and power.  And it’s harder for us to do that, since we don’t have the power of wealth and everything that comes with it (including the power to construct ideas and ideology through the private media and other means).

I think there’s an important analogy here between trade policy (now being re-written as we speak) and recent revolutions in both monetary and fiscal policy.  For a quarter-century we were told that monetary policy was a technocratic, rules-driven process, best governed by so-called “independent”central banks, immune from political pressures.  Of course, those central banks were never independent: their role, and the policy edifice they oversaw, was always profoundly biased in order to elevate the interests of financial wealth (through strict inflation control) over other economic and social priorities.  The GFC and its aftermath, however, laid bare that those supposedly untouchable “rules” were arbitrary, temporary, and discretionary.  The advent of quantitative easing policies, in particular, proved what lefty critics had been saying all along: namely that money is created out of thin air every day (by commercial banks and central banks alike); the big issue is who controls that process, and what is the money used for? Now the genie is out of the bottle, and there is new space for progressive visions of unconventional monetary policies to address persistent stagnation and unemployment — like using the central bank’s money-creating powers, for instance, to underwrite useful investments in public physical and social infrastructure.  The idea that monetary policy rules and inflation targets are binding, natural, and permanent has been destroyed.

The same is true of the tenets of neoliberal fiscal policy: including both specific rules (like the Maastricht targets, now rotting on the scrapheap of economic history) and the general identification of debt and deficit-reduction as government’s central priority.  The ideology of debt-phobia still wields considerable power, of course, including in Canada. But past claims that the world as we know it would end if deficit targets were not met have been destroyed.  In the wake of the GFC, enormous deficits suddenly became legitimate again — and that rediscovered flexibility was applied in a biased manner (with bailing out banks being the first, and by far most expensive, priority). The fact that the Trump administration is now pledging to dramatically expand the U.S. deficit (to pay for corporate and high-income tax cuts and public infrastructure), and more tellingly that a Republican Congress will endorse that shift (after 8 years of handcuffing a Democratic President’s more modest deficit stimulus measures), confirms that in this realm, too, it’s all about politics and power — not about “rules” or “necessities.”

Trump has already proven that trade deals can not only be overruled — they can simply be ignored outright.  Of course, that’s easier for a big country to do than a small one.  But even smaller countries (like Canada) have lots of capacity to directly intervene in and regulate trade and investment flows, using their own markets, their own financial capacity, and their own ability to produce goods and services as collateral.  To be sure, Trump’s rewriting of NAFTA and other trade deals (and his cancellation of the TPP) will be applied in a particular, biased manner: in ways that most benefit U.S. capital (like the pharmaceutical giants who complained loudly that the TPP and other deals weren’t aggressive enough in protecting and extending drug patents).  He isn’t doing this for U.S. workers, that’s for sure.  Dean Baker’s recent RWER blog makes this point convincingly.

But by proving that trade deals are no more permanent or immutable than the paper they are written on, Trump has pulled back the ideological veil which disguised pro-corporate global policy as somehow “natural” and unchallengable.  We now have a big opening (just as we do in the realms of monetary and fiscal policy) to define and advocate a vision of international economic exchange (obviously not autarky) that would be balanced and socially beneficial.  If Donald Trump can browbeat global corporations into keeping investments and jobs in America instead of moving them abroad, why can’t other leaders do the same?  The clear truth is that they can.

In this regard, I look forward to the coming work of progressive research networks to help define and advance a progressive alternative to NAFTA and other neoliberal deals, so that the distinctions between our critique and Trump’s can become clearer.  Another crucial priority will be to engage participation from Mexico and other low-wage, exploitive export platform jurisdictions, in order to counter the implicit racism that has fueled Trump’s anti-free-trade bandwagon.  In Mexico, too, there will now be an enormous opening for progressives to expose the betrayed promises of NAFTA (living standards have not risen there, and human and labour rights are more in threat than ever), and to highlight the limits of the export-led race-to-the-bottom which neoliberal Mexican governments have followed so enthusiastically (at the expense of well-rounded economic and social development).  I would love to see Canadian, U.S., and Mexican progressives get together quickly to formulate a hopeful vision of balanced, mutually beneficial, sustainable continental trade and development.  That could become the lightning rod for our interventions in the coming battles.

Here are a couple of additional resources to supplement this argument:

My column in Canada’s Globe and Mail on Ford’s decision to cancel its Mexican investment, and the opportunities and risks facing Canada’s auto industry as Trump moves to address the huge U.S.-Mexico trade imbalance.

A joint column in the Toronto Star by Unifor’s President Jerry Dias and the Council of Canadians’ Maude Barlow on the key principles of a progressive alternative to NAFTA.