A new trade strategy for the new blue House

A new trade strategy for the new blue House
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Historians are likely to note that the 2016 presidential election marked the end of the decades-long trade policy paradigm of market liberalization and supra-national institutions dedicated to governance of universal open markets for goods and services.

While the collapse was sudden and largely unexpected, in retrospect, one can see telltale signs of advanced decay. From what had once been a broadly bipartisan policy, starting in the 1980s, political support for free trade began a slow but relentless erosion, especially within the Democratic Party.

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By mid-2016, with the election campaign in full swing and the Obama administration launching its full-court press to win congressional approval for the Trans-Pacific Partnership (TPP), the administration found it could count on the support of fewer than two dozen House Democrats.

Ironically, the Democratic president found himself relying overwhelmingly on Republican support for his signature trade project. 

Given its near complete repudiation and calamitous electoral effect in 2016, it is highly unlikely that any Democratic candidate in 2020 will espouse an Obama-style trade policy. Economists will continue to debate theory, but the political debate is over: The 2016 elections demonstrated that free trade as a policy has become politically untenable.

That political reality begs the question: What is the Democrats’ trade policy? This is important since the 2016 election results show that trade has emerged as a key issue among voters. Under Trump, the Dems have been on the defensive, mostly offering qualified critiques of Trump’s initiatives.

With the new Congress, House Democrats have the opportunity to craft their own coherent and politically winning trade policy stance. Agreeing a detailed policy will take time, but it is always best to start with fundamentals. Below is a list of “must-have” principles of a “new-paradigm” trade policy for the Democrats.

Congress must re-assert its constitutional primacy in trade matters. Over the past 30 years, Congress has gradually, via “fast track” or other devices, relinquished much of its constitutionally mandated leadership to the executive branch.

This was okay so long as trade policy wasn’t a big issue among the electorate, and there was a political consensus on the general direction of U.S. trade policy. Neither of these tenets is true today. Members of Congress will have to focus more on trade and become more knowledgeable. 

The policy must have proactive support from the majority of the Democratic party. Amazingly, this would mark a departure from the Clinton/Obama trade policy. Support is especially important from the Democratic Party’s traditional constituents — working- and middle-class Americans, many of whom are part of the organized labor movement.

Since the Clinton era, the center of gravity of the party has shifted from these groups to Wall Street finance types and other corporate billionaires. This has to change.

Rethink the way we assess the real-world effects of trade agreements. Currently, per U.S. law, for any proposed trade agreement, the U.S. International Trade Commission conducts a detailed analysis, which projects likely changes in output, employment and trade, as well as the trade agreement’s impact on specific sectors of the economy.

What is lacking, however, is a comprehensive analysis of distributed employment effect and how this will affect income equality in America. This is important because while there are many causes of growing income inequality in America, external trade undoubtedly has played a role.

Also, the membership of the statutorily mandated trade policy advisory bodies, currently dominated by corporate interests, urgently needs diversification. 

Reform international trade rules. The American working class has not been well served by the current system of global trade policy governance. But World Trade Organization (WTO) reform, while essential, may not be possible given that body’s consensual rules-making structure.

We shouldn’t throw out the baby with the bath water; if the WTO were abolished tomorrow, we would have to immediately create a new world trade governing body because we need the rule of law.

Collective action is likely to prove more effective than a unilateral approach. New arrangements beyond the WTO may be necessary, arrangements that are better tailored to the trade dynamics of the 21st century. 

That free trade creates wealth is not seriously debated, and Democrats should affirm this. But the Democratic trade policy must be more focused on how that wealth is distributed. There was a streak of Social Darwinism in the old trade paradigm: “Yes, some will become extinct, but the larger group will benefit.”  

We need trade policies and agreements that seek to balance the goals of wealth creation with social inclusion, employment opportunities that mirror the diversities in the American workforce and equality.

While there may be a role for worker retraining, the idea that we can fix the negatives of open markets through everyone getting a bachelor's degree is naïve and elitist. With the right principles, the Dems can have a trade policy that will play an important role in again making the Democratic Party the party of the people.

Michael J. Delaney is a trade policy consultant for TransNational Strategy Group, a commercial, economic/political and policy consultancy providing services to private sector and sovereign government clients. Previously, Delaney worked as a State Department foreign service economic/commercial officer and at the Office of the U.S. Trade Representative (USTR) as assistant USTR for South and Central Asia and Iraq.