Democrats’ blind spot on trade
Few things are more difficult for political leaders than learning from history without becoming trapped by it. This challenge looms over the coming House vote on President Obama’s request for “fast-track” legislative authority to complete the 12-nation Trans-Pacific Partnership trade agreement. Disappointment over the last major free-trade agreement is blinding many in Congress — particularly Democrats — to the opportunities the TPP could create for an evolving U.S. economy.
Just as government-surveillance policy split Senate Republicans this week, trade is dividing congressional Democrats. Though a bipartisan Senate coalition narrowly approved fast-track authority, resistance, mostly from Democrats, could still sink that authority — and the Pacific agreement itself — in the House.
For Obama’s Democratic critics, the first reason for opposing the TPP is the conviction that the North American Free Trade Agreement with Mexico and Canada, which President Clinton completed in 1993, undermined U.S. manufacturing jobs. No one disputes that NAFTA prompted U.S. companies to shift some manufacturing to Mexico. But that analysis doesn’t tell the entire story.
In a relentlessly globalizing world, those manufacturing jobs likely would have moved to some low-wage country, even without NAFTA. By channeling manufacturing jobs toward Mexico, the treaty encouraged more firms across North America to knit together their operations into a seamless supply chain. That has preserved more high-value activities, such as product design and research, in the United States. If U.S. companies shifted their manufacturing operations elsewhere in the world, rather than relocating to Mexico, the U.S. would retain fewer of those related activities — and the jobs they create.
Even the TPP’s supporters agree it could threaten more U.S. manufacturing jobs. But the pressure on U.S. manufacturing will continue with or without the deal. Despite encouraging signs of revival, no one should bet on manufacturing increasing its share of domestic employment significantly above its current 8%. Growth now centers more on services, which employ about four-fifths of American workers. Service exports have increased sixfold since 1980, much faster than manufacturing exports.
But while service exports now exceed $700 billion annually, they still account for only three-tenths of all U.S. sales abroad. Some personal services obviously can’t be exported. But there is clearly room to grow: As the White House Council of Economic Advisors recently reported, foreign sales of U.S. services could accelerate because reduced transportation costs and the increasingly digital nature of global commerce have “facilitated a strong rise in trade in services like education, health care, tourism, … telecommunications, finance, distribution, insurance and more.” America is strong in all those industries.
Because the congressional debate has largely looked through the rearview mirror at NAFTA’s impact on manufacturing, it has slighted the TPP’s potential role in promoting exports in services and intellectual property, such as entertainment and software. Yet the agreement could have its greatest impact on that front not only by eliminating discriminatory local regulations but also by strengthening protections for copyright, patents and digital commerce.
Manufacturing remains critical to the U.S. economy, but advanced services represent a more likely engine of future prosperity. If Congress blocks a Pacific agreement that could bolster service and high-tech exports because NAFTA intensified pressure on manufacturing, it “would amount to refighting the last trade war — beggaring the future as retribution for the past,” as prominent labor economist David Autor and two colleagues wrote in the Washington Post this spring.
In political terms, the trade debate among Democrats is also oddly backward-looking. The party has almost entirely focused on trade’s impact on industrial blue-collar workers at a time when more than three-fifths of noncollege whites are consistently voting Republican. Democrats are increasingly dependent on the support of white-collar workers, who mostly support free trade and who are preponderantly reliant on the urban areas most integrated into the global economy: Almost two-thirds of House Democrats represent just the 20 metropolitan areas that generate the most jobs from exports. In their opposition to the TPP, House Democrats devalue those interests.
As with NAFTA, it’s easy to overstate the economic stakes in the Pacific trade debate. Peter Petri, a Brandeis University professor who supports the agreement, has projected that the TPP would not increase or decrease total U.S. employment a decade after implementation. But Petri does forecast that more workers would shift to export-related industries, which pay more than other jobs, raising overall incomes.
Signing or sinking the agreement won’t eliminate the longterm pressure on U.S. living standards. But the TPP represents a bet on opening more doors for America’s most dynamic industries in the world’s most economically dynamic region. A confident nation would help the workers the agreement might displace — and then boldly barrel through that doorway.