Trade after Trump

John Quiggin: if Trump is possible, so are a lot of other things.
John Quiggin

The one policy issue that was an unambiguous loser for Hillary Clinton was trade. Her grudging move to oppose the Trans-Pacific Partnership, choice of Tim Kaine as running mate and some unhelpful remarks from Bill Clinton meant that Trump had all the running. How should we think about trade policy after Trump?

My starting point will be the assumption that, in a world where Trump can be President of the United States, there’s no point in being overly constrained by calculations of political realism. A few points and some suggestions:

* So-called ‘trade’ deals like the TPP were actually devices to enhance corporate power (and, in the case of the TPP, to isolate China), and deserved to be defeated regardless of views on trade;

* No matter what policy is adopted, manufacturing jobs aren’t coming back, any more than farm policy can restore an agrarian society. The manufacturing share of total employment has peaked nearly everywhere in the world, notably including Mexico. As is often the case, Chinese data is too opaque to get a clear picture, but there’s plenty of evidence of contraction about;

* The idea of manufacturing jobs as ‘good’ jobs is historically specific particularly to the US, and reflects the fact that the dominance of manufacturing coincided with the New Deal and the unionisation of the labour force. It’s unions, not manufacturing that we need to bring back.

* The big problem facing workers, in the US and elsewhere, isn’t competition from immigrants, or from imported goods. It’s the fact that capital is freely mobile and unfettered by any social obligation. So, a profitable plant can be closed down if its owners get a better offer elsewhere. Alternatively, the threat of a move can be used to bargain down wages.

So, instead of thinking about tariffs and trade agreements, the big question is: what can be done to change trade and capital flows in ways that yield more good jobs?

The first and most important step is to reverse the global decline of unionism. The obvious starting point, for the US, would be to repeal the Taft-Hartley Act. More generally, the left needs to go beyond the (justified) demand for a higher minimum wage and seek to restore the wage share of national income to the level that prevailed during the postwar era. That can only be done with strong unions.

That leaves the question of how to handle the ability of corporations to undercut unions by outsourcing, corporate inversions and so on. The only positive element of the TPP was the attempt to impose some recognition of union rights on participating countries. But the better option would be to impose the relevant obligations on corporations themselves. That is, any corporation doing substantial business in the US should be required to respect labor rights, including the right to unionisation, and to impose the same requirement on its suppliers.

This would, of course, be totally unacceptable under the Investor State Dispute Settlement procedures of most existing trade agreements. So, it would be necessary to repudiate those clauses of the agreement and offer the counterparties the option of scrapping the agreements altogether or dropping ISDS.

The power of corporations to relocate capital is greatly enhanced by the massive flows of short-term capital currently amounting to $5 trillion per day, or around 30 times global gross product. The flow required to manage international trade and capital transactions is about 1 per cent of that. The fact that observed flows are so much larger mainly reflects tax evasion/avoidance and regulatory arbitrage. A Tobin tax at a rate of, say 0.1 per cent applied to all financial transactions would wipe out short term flows, so that international capital movements actually reflected shifts in physical capital investment. This would make it much easier to regulate such flows.

None of this could be done easily and much of it might never be achieved. But it’s the kind of program that’s necessary to counter Trumpism and that, thanks to the collapse of neoliberalism exemplified by Trump’s success, is now thinkable.


Professor John Quiggin is an Australian Laureate Fellow in Economics at the University of Queensland. This article is republished with permission from Crooked Timber and johnquiggin.com.


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