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1 August 2019

Elizabeth Warren threatens a lose-lose US trade policy

by Oliver Wiseman

Originally published by CapX.

For all the undeniable disadvantages of Donald Trump’s unhealthy obsession with trade deficits, a possible silver lining has always been that it could move Democrats in a pro-trade direction.

A costly trade war with no end in sight might at least force the left, and Americans more generally, to dust off their economics textbooks, turn to the chapter on trade and discover a newfound appreciation for the power of liberalisation.

There is plenty to suggest that the voters have done exactly that (perhaps minus the textbooks). A survey by the Chicago Council on Global Affairs last year found that the percentage of Americans who think trade is good for the US economy rose from 59% to 82% in the two years after the last presidential election. 85% think international trade is good for ‘consumers like me’, up from 70% in 2016, and 67% think trade is good for creating jobs in America, up from 40% two years earlier.

Those numbers are even higher among Democrats. More recent polling suggests that a majority in both parties now think free trade agreements have been good for the US. By toxifying protectionism, it looks like the President has detoxified trade.

Even in Rust Belt states where Trump’s criticism of international trade and his promise to bring back manufacturing jobs are thought to have been central to his success in 2016, there is evidence that patience with tariffs is wearing thin.

It is in this context — a costly trade war with no end in sight and growing support for free trade — that Elizabeth Warren, the wonky professor turned Senator-with-a-plan-for-everything, sets out her stall on the subject.

But rather than taking the opportunity to champion free trade, she has done the opposite, yet again delivering Trumpist economics disguised as progressivism by promising to “completely transform” America’s approach to trade.

In a Medium post explaining her position, she argues that US trade policy in recent decades has come at a high price:

“We’ve lost millions of jobs to outsourcing, depressed wages for American workers, accelerated climate change and squeezed America’s family farmers. We’ve let China get away with the suppression of pay and labour rights, poor environmental protections, and years of currency manipulation. All to add some zeroes to the bottom lines of big corporations with no loyalty or allegiance to America.”

Warren would insist on higher minimum standards for trading partners in a range of areas from labour regulations to climate change before signing any new deals. The bar Warren has set is so high that, by her own admission, the United States itself would not qualify. And so high that her proposals amount to a de facto ban on any new trade deals.

But Warren wants to go further, “renegotiating any agreements we have to ensure that our existing trade partners meet those standards as well”. If that means anything at all, it means creating new barriers to trade unless and until countries return to the negotiating table — otherwise what incentive would there be for them to do so?

While the parallels with Trump’s promise of better trade deals are obvious, Warren’s protectionism has a distinctly internationalist flavour to it.

It isn’t just that trade deals haven’t benefited American workers in the way they might have done. Warren is also worried that that “millions of people in our trading-partner countries don’t gain the benefits of higher standards — and companies can easily pad their profits by shifting American jobs to countries where they can pay workers next to nothing and pollute the air and water freely”. If America were to use its leverage, Warren claims, it could “boost American workers and raise the living standards across the globe”.

Trump’s protectionism is zero-sum, Warren wants you to think hers is win-win. Of course, nothing could be further from the truth.

Higher living standards, as well as the better working conditions and improved environmental standards that Warren will insist on, are all the product of greater prosperity, not the stroke of a regulator’s pen.

And time and again, trade has proved to be a driver of growth and all the benefits that brings. Warren’s plan would mean less trade and less prosperity, not just for America but its trading partners too. Far from being win-win, it’s lose-lose.

Hopefully we will soon be reminded once again of the awesome power of trade liberalisation on the continent that needs it most. Earlier this month African nations finally launched the African Continental Free Trade Area, and the expectation is a massive increase in cross-border business. Unlike Warren, African policymakers do not have the first-world luxury of ignoring arguably the most important economic lesson of the last quarter of a century.



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