Globalization has conferred benefits on everyone from lower prices, given massive benefits for the winners, but placed heavy burdens on the losers.
Bernie Sanders said so-called free trade has been “a disaster for American workers.” Since 1985, America has signed 15 free-trade agreements covering 20 countries and areas. Presidential candidate Ross Perot warned of a “giant sucking sound” when the North American Free Trade Agreement (NAFTA) was signed in 1994. He was right. It cost 879,280 American jobs (Economic Policy Institute). The factories remaining turned to automation to survive, causing further job losses.
NAFTA was sold by President Bill Clinton as a free-trade agreement creating 200,000 new jobs. It simply made it easier for America’s corporations, however, to outsource production using Mexico’s cheap labor. And it lowered working-class wages and employment exactly as predicted by Labor Secretary Robert Reich.
Imagine golf without the handicap system. Duffers would get slaughtered. But handicaps give everyone a sporting chance. Tariffs (taxes on imports) are similar. American workers cannot compete with Mexican workers without tariffs to give them a sporting chance. That is why so many lost their jobs. In the Brave New World of unrestricted trade, no mechanism was put in place to compensate laid-off workers. “America in particular makes little attempt to assist people [to] find new jobs to replace lost ones” (The Economist, Special Report, The World Economy). How so?
How the world works depends on whose thumb on the scales is bigger. In America, is it labor’s thumb or capital’s thumb? Take a wild guess.
The top 1 percent control economic policy with their campaign contributions. Nobel prize-winning economist Joseph Stiglitz said that American economic policy is “of the 1 percent, for the 1 percent, by the 1 percent.” From around 1975, “shareholder value” for the favored few became America’s mantra. Our trade policy was driven by Republicans. Democrats followed, for the sake of those juicy campaign contributions.
Certainly, free trade can produce economic growth. But displaced industrial workers are not like those Portuguese sheep farmers who turned to growing grapes. They become unemployed. Millions of workers are missing from the employment rolls due to job-killing cheap imports.
No effort whatsoever has been made to redeploy workers displaced by free-trade agreements into fixing America’s crumbling infrastructure. The super-wealthy ferociously obstruct such an obvious policy, as it would increase their taxes. They are largely insulated from our miserable infrastructure in any event.
Unrestricted trade has also increased the deficit on current account (not to be confused with the domestic budget deficit). Every nation has such an account showing how it performs in the global economy. It is mostly the excess of imports over exports. Ours is massive, almost $500 billion of red ink, year after year. Former Representative Alan Grayson says it has caused one-seventh of America’s wealth to become foreign-owned. How so?
Both parties have pushed “fake trade” whereby goods come in but goods do not go out. Ships go back to China empty, resulting in red ink on the trade ledger. Red ink does not go away if you ignore it (Accounting 101). Green ink is taken from the Capital Account to balance it. To scrape up the green, America has been resorting to the usual deadbeat measures:
- Flog the family silver. Famous companies are no longer American-owned. They were sold to foreigners, e.g., Budweiser, Learjet; the list is immense.
- Pawn the furniture. Public bodies sell infrastructure (e.g., ports, turnpikes) to foreign “partners” who rent it back to us.
- Take in lodgers. Foreigners build factories and employ people. Fine, but we become second-class citizens in our own country, and profits go abroad.
- Tap rich uncles. America has been in hock to rich foreigners since 1981.They buy our IOUs to finance our overspending.
Our current account has been miserable for years, with the last surplus being in 1976. In 1992 NAFTA gave us a torrent of red ink as imports surged and exports lagged. When we allowed China into the World Trade Organization in 2001, the imports, and red ink, really surged. Nearly 2.4 million jobs were lost from China alone (Economist, Special Report). It devastated America’s working classes.
So is Grayson saying that America’s super-rich are becoming even richer by selling American workers down the river? He is. Red ink means asset transfers to foreigners, and job losses here. The numbers from the current account prove it mathematically. Democrats cannot get this message across.
Churchill said, “However brilliant the strategy, it is wise to occasionally check the results.” Bernie Sanders did. A billionaire with golden toilets did. But a former board member of Walmart did not.