Dems Had Better Listen to the Public's Anger Over Our Failed Trade Policy

After long, frustrating years of republican-lite economics, many Democrats have finally found the ability -- and the language -- to connect with average Americans. They talk of "two Americas," of the economic pain -- the "squeeze" -- felt by the middle class and of inequality that's reached heights not seen since the era of the robber-barons.

One of the most potent issues in the 2006 elections was trade. Candidates across the United States won races by standing in opposition to more trade deals based on the NAFTA-WTO model and in favor of fair trade policies that can uplift the middle class and safeguard the environment. But despite the fact that the world is moving away from the kind of corporate-written trade deals that has marked the Clinton-Bush era, there remains a group within the Democratic establishment that appears to be unmoved both by public opinion against our current trade policy and hard data that reveal its failure.

A recent intervention from the Democrat-aligned Center for American Progress provides a case in point. In a recent CAP publication, Daniel K. Tarullo, a Clinton administration official who had previously advised the Mexican government on NAFTA, tried to make "The Case for Reviving the Doha Trade Round" of the WTO. In the past, CAP produced top-notch work on a wide range of domestic economic policies, as well as reports critical of CAFTA and the U.S. trade deficit. But the group seems out of step with the majority of the Democratic base and with progressive thinking worldwide on the WTO, with a 2005 report even calling WTO escalation "critical to our future prosperity and security."

Tarullo makes four main arguments for WTO escalation. First, he argues that the Doha Round represents a "back-to-basics trade agenda" that is focusing on "reducing tariffs and trade-distorting subsidies" (mostly in agriculture) instead of on "undermin[ing] legitimate regulatory prerogatives in service sector and investment policy." Tarullo is more keenly aware than many of the implications of "trade" pacts dipping too deeply into the domestic policy sphere. The attacks on domestic environmental, food safety, drug-pricing and other regulatory policies caused by the enormous overreach of the WTO and pacts such as NAFTA have given "trade" a bad name.

Yet a review of the actual agenda now under negotiation in the Doha Round WTO talks belies Tarullo's back-to-basics claim. For instance, the service sector negotiations include proposals to deepen WTO jurisdiction over U.S. immigration policy. Demands from India and other countries in the Doha Round go even further, calling for a global guest worker program that is opposed by both immigrant advocates and critics alike. And developing country opposition to WTO escalation goes far beyond agricultural tariffs and subsidies. In fact, development groups like Oxfam have termed the Doha Round's proposals for manufacturing a threat to "developing countries' right to a future."

Tarullo also argues that Doha offers a political "opportunity to begin bridging the partisan divide over trade that grew wider in the past decade." But what Tarullo labels a "partisan" divide is rather an increasing class divide that is a direct result of those failed trade policies. As has been noted by the pro-WTO Peterson Institute, Paul Krugman and other prominent economists, trade policy could easily account for 30 percent or more of the increase in income inequality in recent decades (PDF). To build a greater consensus on trade policy, the Bush administration should develop a trade policy that benefits the majority, rather than stay the course on a policy that's benefited only a few special interests.

Tarullo's two remaining points are interrelated. He claims that WTO escalation -- and in particular Doha's agriculture provisions -- would be an economic and environmental boon here at home and argues that it will also accelerate growth and thus development in poor countries. Finally, he says, it will advance U.S. "leadership."

If the current failed WTO model were actually delivering increased prosperity at home and abroad, there would be little opposition. In fact, in the era of relentless trade liberalization, per capita growth rates have declined except in the countries that have remained largely outside the system like China and Vietnam. Economists agree that current trade policies have played a major role in contributing to the 30-year stagnation of U.S. wages. It is highly doubtful that an escalation of the same pro-corporate managed trade policies will remedy the plight of the eroding U.S. middle class. If improvement in U.S. living standards is the primary goal, we would be better served pursuing many of the thoughtful domestic policy proposals proposed by CAP and others instead of proposing more race-to-the-bottom international trade deals.

Moreover, as studies from the pro-WTO World Bank have shown, WTO escalation would actively harm poor country development. Analysis of the bank's numbers from Tufts University has shown that projections of developing country gains are shrinking over time, highly unequal, and even a net negative for the majority of poor countries. These meager and even negative growth projections of the likely Doha Round outcome come on the heels of a slowdown in poor country growth rates during the NAFTA-WTO era that is unprecedented in modern history, proving that recent increases in trade have not led to more growth.

Implementation of WTO-style policies has already hurt rural economies around the world. After NAFTA and the WTO, 1.3 million Mexican farmers were displaced, many of whom then risked the dangerous U.S. border crossing in desperate seek of work. India has seen tens of thousands of farmers commit suicide annually because WTO-style trade policies have driven them to bankruptcy. As U.S. foreign policymakers know, such economic and social dislocations -- abhorrent by themselves -- also have a way of becoming immigration and security issues.

Furthermore, a widely cited Carnegie Endowment report estimated that subsistence farmers would see tiny gains or net losses if the WTO were escalated in the way envisioned under the Doha Round, and that the temporary protections used by developing countries to ensure that imports do not rapidly overwhelm rural populations would be prohibited. Promoting development in U.S. trade policy is a laudable goal, but the facts on the ground of the negotiations have led some developing country negotiators to call Doha the "Everything But Development" round.

Tarullo does not review actual or projected impacts of the negotiations, instead calling for India and other poor countries to "improve their market access offers" in agriculture so as to garner U.S. support, and for the United States to "express leadership" by jump-starting the talks. Carnegie's Sandra Polaski recently explained why such a position is both bad for development and U.S. policy:

Current U.S. demands for maximum access to developing country agricultural markets, even at the risk of displacing desperately poor farmers, are not only unseemly from a foreign policy perspective but they are also likely to backfire in the real world, as depressed incomes for the large portion of households dependent on farming force them to buy less, not more, U.S. goods.

And as we know from other foreign policy misadventures, real leadership doesn't mean escalating a failed policy that has hurt people in the United States and around the world.

There certainly is a strong need for the United States to be more of a fair player in the global economy. But the new Democratic Congress is far more likely to help achieve that goal -- as well as the goal of its own reelection -- if it calls on the administration to not escalate WTO talks that are likely to lead to worsening income distribution at home and economic and social instability abroad.