Democrats’ blind spot on trade

Los Angeles Times - - OP-ED - RON­ALD BROWN­STEIN Ron­ald Brown­stein is a se­nior writer at the Na­tional Jour­nal. rbrown­stein@na­tion­aljour­

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.

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