Home > Uncategorized > Beyond Trump and free trade

Beyond Trump and free trade

from David Ruccio

Now that President Trump has begun carrying out his campaign pledges to undo America’s trade ties, formally withdrawing the United States from the Trans-Pacific Partnership and announcing he will start to renegotiate the North American Free Trade Agreement, it’s time to analyze what this means.

As it turns out, I’d already started to do this before the election, with a series of posts (e.g., here, here, here, and here) on Trump and the mounting criticism of the trade agreements the United States had signed (such as NAFTA) or was in the process of negotiating (the TPP).

It’s clear Trump’s decisions—which he claims are a “Great thing for the American worker”—challenge the view of economic and political elites, as well as those of mainstream economists (such as Brad DeLong), in the United States and around the world that everyone benefits from free trade.*

fredgraph

But, we now know, there has also been a growing counter-narrative, that not everyone has gained from growing international trade and trade agreements, which have generated  unequal benefits and costs. What’s interesting about this alternative story, at least when it comes to NAFTA, is that critics on each side argue the other side is the one that has benefited: U.S. critics that Mexico has gained, and just the opposite in Mexico, that the United States has captured the lion’s share of the benefits from NAFTA.

Here’s the problem: workers on both sides of the border have lost out, and their losses are mostly not due to NAFTA.

We know, for example, that the wage share of national income in the United States has in fact declined after NAFTA was implemented (in January 1994)—from 45.1 percent of gross domestic income to 42.9 percent. But we also have to recognize workers have been losing out since at least 1970, when the wage share stood at 51.5 percent.

grafica24

Much the same has been happening in Mexico, where (according to the research of Norma Samaniego Breach [pdf]), the wage share (the dark green line in the chart above) has been falling since 1978—and continued to fall after NAFTA was put into place. And, as Alice Krozera, Juan Carlos Moreno Brid, and Juan Cristóbal Rubio Badan have shown, economic and political elites in Mexico, much like their U.S. counterparts, have mostly ignored the problem of inequality and resisted efforts to raise the minimum wage and workers’ share of national income.

The fact is, while NAFTA did propel a large increase in trade between Mexico and the United States, it “did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters” (according to a 2015 study commissioned by the Congressional Research Service [pdf]).

The bottom line is, eliminating or renegotiating NAFTA—including in the manner Trump is proposing—is not going to help the working-classes in either Mexico or the United States. It is merely a diversion from the real changes that need to be made, to which the political and economic elites as well as mainstream economists in both countries stand opposed.

 

*The only real debate within mainstream economics is between neoclassical economists who argue free trade generates the most efficient outcomes, within and between countries (regardless of whether countries run trade surpluses or deficits), and their critics (such as Jared Bernstein) who argue that trade deficits lead to a loss of jobs (e.g., in U.S. manufacturing), and thus require interventions of the sort Trump is proposing to change the pattern of international trade.

  1. January 29, 2017 at 8:03 pm

    “Here’s the problem: workers on both sides of the border have lost out, and their losses are mostly not due to NAFTA.
    We know, for example, that the wage share of national income in the United States has in fact declined after NAFTA was implemented (in January 1994)—from 45.1 percent of gross domestic income to 42.9 percent. But we also have to recognize workers have been losing out since at least 1970, when the wage share stood at 51.5 percent.”
    “The bottom line is, eliminating or renegotiating NAFTA—including in the manner Trump is proposing—is not going to help the working-classes in either Mexico or the United States. It is merely a diversion from the real changes that need to be made, to which the political and economic elites as well as mainstream economists in both countries stand opposed.”
    Here’s the solution:
    “INEQUALITY and POVERTY REDUCTION ADJUSTMENT PROGRAM” (IPRAP)

    Capitalism demands inequality as a just proportional reward.
    It is the size of the gaps where the administration of inequality becomes distorted.
    The size of the ‘Gaps’ are a demand of the administration of the quality and quantity of these ‘gaps’.
    Taxation is a ways and means by which a government recaptures currency already in circulation.
    Currency that it can redistribute without changing the quality or quantity of the entire currency.
    American Capitalism would allow everyone to achieve
    ‘The American Dream’ and to retain that “Fair Share”.
    But that dream should not impede the poor and elderly from achieving their FAIR SHARE.
    Nor should it impede the risk and reward which will ultimately lead to a betterment for all.
    A federal taxation of personal income must recognize the sanctity of “The fruits of mankind’s labor”
    A federal taxation of personal income should be used to control the distribution of income to obtain
    a fair and just sharing of the American Dream, a just and fair sharing of the worlds riches while
    maintaining the greatest standard of living.

    “THE NEW ONE PAGE:Federal Personal Income Tax: 2017”
    “Inequality and Poverty Reduction Adjustment Program”(IPRAP)
    Brackets & Rates for Married-Joint filers:
    Less than $100,000: 12%
    More than $100,000 but less than $225,000: 25%
    More than $225,000: 33%
    *Brackets for single filers are ½ of these amounts.
    ALL income is taxable and must be reported.
    Tax Group One (12%)
    Income up to $50,000;JOINT Income up to $100,000 taxed at a rate of…12%
    Tax Group Two (25%)
    Income from $50,001 to $225,000; JOINT Income up to $100,001 to $225,000 will be taxed at a rate of …..25%
    Tax Group Three (33%)
    Income from $225,001 up to any amount will be taxed at a rate of ..33%

    NO exemptions. NO loopholes.Period.

    Deductions
    This plan will increase the standard deduction for joint filers to $50,000, from $12,600,
    and the standard deduction for single filers will be $25,000.
    Tax must be paid, any claim of injustice may be filed for a proportional refund which would become a tax credit if approved.
    ***The Tax Group One (12%)
    A… will receive a 6% distribution to replace their loss caused by sales taxes which are a detriment to their ‘standard of living’. This 6% will also replace any Social Security loss.The rebate will help grow our economy as well as allow wage earners to keep their share of the American Dream and raise the standard of living.
    B… will receive a 15% ‘take home’ pay increase.There will be no FICA payment taken out of their pay.This is at ZERO cost to production (The minimum wage concept would cost jobs as well as increase production cost). This merely places what was earned into their paycheck; it is the 15% F.I.C.A. that was withheld from them; now going directly into their take home pay.
    ***The Tax Group One (12%) and Tax Group Two (25%)
    A… will receive a direct tax credit as provided for ‘Child and Home Care’(Up to $2500).
    Tax credits that become ‘overages’ will become an immediate cash refund.
    B… will receive a direct tax credit of $2,000 for each child under the age of 18 for HEALTH AND EDUCATIONAL MAINTENANCE.
    C… VETERANS WHO SERVED; DESERVE a direct lifetime tax credit of $2000.

    This will be a direct increase in wages, an increase in Social Security, a direct increase in income to more than 50% “of the people.” and it will be done “along with a reduction in National Debt”.
    We must mandate that the Executive branch and the Legislative branch, Reverse an economic privileged program that has lead to increases in wealth inequality.
    Reverse that program, make the money FLOW to “…help form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
    Justaluckyfool (https://bestsolutionsfl.wordpress.com/2017/01/23/)

  2. January 29, 2017 at 8:40 pm

    If the US and Western European economic elites want to continue the Utopian Project of Globalization (written in the spirit of John Gray’s critique, “False Dawn”) then it seems to me they would be well advised, in order to hold their countries together, to adopt a good portion of FDR’s Second Bill of Rights, especially the ones to health care and the right to a job, a permanent commitment to full employment via new CCC’s and WPA’s, the greener the better.

    Let me pause while the laughter dies down; we know that even Bernie Sander’s could not quite make this explicit…and of course the German Bankers will hear of no such thing for the Eurozone: they have rejected James Galbraith’s and Yanis Varoufakis’ “Modest Proposal” for a new New Deal for Europe to help the periphery.

    Of course, we all know that there are very rigid ideas which would block anything like what I am proposing here, despite the logic of the results of international trade, growing inequality and deindustrialization – at least in the West – calling for it.

    Direct governmental interference in labor markets, where the Western “reforms” all seem to run in one very opposite conservative direction – work longer for less – as in the higher circles of the French Socialist party – the irony being that it is now right-wing nationalists who are picking up Tony Judt’s death bed wish to keep Social Democracy alive. John Gray maintained that it was impossible under the dominant American version of capitalism…the financial markets of globalization…I think he may have been too dogmatic on that, but it may take extreme trauma under Trump and another economic calamity to bring us back to something like FDR’s Second Bill of Rights.

    I don’t see how the US is governable now under the clash of incompatible economic ideas.

  3. Jim Stanford
    January 29, 2017 at 9:33 pm

    Another interesting point from the Grafica 24 you re-posted, David, is that the level of real wages in Mexico has not grown appreciably since 1994 when NAFTA was implemented. It’s not just that labour’s share of GDP has fallen (as in the US and Canada), but also the absolute level of compensation (for those Mexicans employed in the formal sector covered by these stats … it’s worse for those in informal jobs) has not increased. So while jobs have been created by the inflow of capital to Mexican export-oriented manufacturing (largely offset by losses elsewhere, especially agriculture), and productivity in that sector has skyrocketed, Mexican workers have been unable to win a normal share of that output. The continued repression of independent political activity, unionism, and journalism has contributed to the relative impoverishment of Mexican workers, and that is another broken promise of NAFTA (which was supposedly going to usher in democracy to Mexico). This would be a good time to get progressives from all three countries together, to document the failure of NAFTA to lift living standards anywhere, show what’s wrong with Trump’s answer, and put forward a progressive vision for continental integration.,

  4. January 30, 2017 at 12:17 am

    Jim:

    I’m pretty certain Jeff Faux in the US would second your closing idea…esp. in “The Global Class War: How America’s Bipartisan Elite Lost our Future – and What It will Take to Win It Back.” (2006).

  5. Daniel Linotte
    January 30, 2017 at 1:49 am

    MISSING WAGE-RENTS? — As mentioned by David Ruccio, there are problems with FTAs. The fact that (‘marshallian?’) wage-rents are not included in the dominant discourse on trade policy causes a systematic bias toward the liberalization of commodity exchanges between countries. Thus, so-called producers’ surpluses are limited to profit, as if: 1) workers were NOT producers and 2) their incomes had NO welfare dimension – for more details see http://etdiscussion.worldeconomicsassociation.org/?wea_paper=marshalls-producer-surplus-and-value-added-a-case-for-protectionism-a-short-note

  6. January 30, 2017 at 6:14 pm

    It seems to me that you have ignored the other variable–“Average real salary” in the Mexican graph. This I believe accurately defines mostly the middle class both here and in Mexico. If the graph applies to American salaried workers as well as Mexican salaried workers, then the “next 9%” have done well as reported in this linked article (http://www.wsws.org/en/articles/2017/01/18/pers-j18.html). Hence the middle classes have benefited as well as the rich 1%.

  7. February 3, 2017 at 9:46 am

    Humans have invented all sorts of societies, communities, and individual identities over the last 70,000 years. At the base of all these is a single species with a genetic predisposition to cooperate and help one another. We’ve screwed that up by putting on layer after layer of imagined differences and hatreds among the species’ members. Now we’re fighting about “job creators,” “derelicts,” “dependents,” and “tough guys.” This is all made up. But the consequences of all this mythology are real and often dangerous. The “rich” abuse the “workers,” the “free traders” hate the “isolationists.” To quote the Crosby, Stills, Nash, and Young song by Joni Mitchell, “we’ve got to get back to the Garden.” They mean the “Garden of Eden.” I mean a fundamental reawakening of an anthropological and historical understanding of human collective life. The very things that make humans human. We’ve gotten so far from this that at this stage it may be unrecoverable. Today we more frequently live in “Chimp” society. Chimp society is characterized by aggressiveness, taking advantage, hurting and killing one another, fear, and rage Sound familiar? Economists as chimps. Now there’s an interesting picture.

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