Galbraith on progressive trade policy

Echoing his February piece in The Nation, James K. Galbraith writes in The American Prospect:

Senators Byron Dorgan and Sherrod Brown articulated a trade policy that typifies the consensus view of the party’s labor-liberal wing. They criticize “free trade,” call for strong labor and environmental standards in future trade agreements, and argue for aggressive policies to open foreign markets to American goods. Their critique reflects a genuine anger, and the concerns their piece embodies deserve to be met. Their program is populist, nationalist, muscular, and in tune with the mood of the Democratic base.

But it is not reality-based.

Galbraith would like progressives to ditch the narrative that America needs to block manufactured imports (either through standards or tariffs) in order to protect jobs. Why?

Three of our five largest trading partners are Canada, Japan, and the European Union (Germany, France and the UK are all individually in the top ten)… The Dorgan-Brown critique doesn’t apply to them…

Of our five largest trading partners, only China qualifies as a place where manufacturing labor is readily available for “a few dollars a day” and whose status as our trading partner appears to depend on that fact. So it is at China — perhaps alongside minor trading partners such as India and those in the Caribbean Basin — that the Dorgan-Brown argument is basically aimed…

Wages in urban China are indeed low, but living costs are incredibly low. Food, clothing, basic shelter, and utilities cost very little, with the result that people are largely housed, clothed, and fed. Children are mostly in school. Cars are still rare — but they are also unnecessary for most people. Small luxuries, on the other hand, are common. (The country has over 400 million cell phones; what does that tell you?)…

The populist remedy for low-wage competition is to impose standards — labor standards and environmental standards — on the companies who employ them… So let’s discuss how a wage standard, as a theoretical possibility, might work.

There are several options. First, suppose the standard were based on wages measured in dollars. That would certainly penalize China, where the dollar value of the money wage in manufacturing is low, but where nutrition, health, education, and living standards for urban workers are quite high. It would favor (say) Brazil, where the reverse is actually the case. In other words, it would cut against a country where workers do not, generally, live in slums, and in favor of a country where many of them do.

Well, what about a standard based on relative wages in manufacturing? As noted, wages in manufacturing in China are low, compared to other wages in China. Suppose we insisted that they be raised? …

Export-sector manufacturing in China is a place of short-term jobs mainly for young women. It is a tedious, repetitive, low-skill, and low-wage compared to almost everything else (except farming) in China itself. What is relevant for Chinese living standards is not the real wage in manufacturing. It is, rather, the real wage in the society writ large…

So, let’s consider a standard based on average real wages in the trading partner, perhaps measured by such quality-of-life indicators as life expectancy, infant mortality, and literacy. Such a standard would favor China over, say, India or most of sub-Saharan Africa. Should the United States therefore give preferential trade access, in general, to China?…

Should we penalize a country which has raised real wages by a factor of four or five over thirty years without independent unions? Should we favor countries (such as Brazil or Argentina) which have powerful independent unions — and yet have seen falling real wages for two decades?…

So standards are disappointing. What about simply raising tariffs on Chinese exports?

First, blocking trade with China would not bring a single job back to the United States. It would only cause Japan, or Taiwan, or Korea, or American multinationals to shift their out-sourcing from China to some other low-wage country, such as Vietnam…

Second, if blocking Chinese exports to the United States really did cut into our imports overall, that would raise prices and lower real wages here, especially for the lowest-wage Americans who rely most on cheap imports to meet their budgets…

Third, there would be retaliation…

This is a reality-based populism. Our goal should be shared prosperity through egalitarian growth, based on our own efforts and imagination. Let’s therefore stop scapegoating the Mexicans and the Chinese, and accept that they must have their role, which they will largely determine by their own actions, in the world in which we all live. Let’s also stop talking obsessively about trade agreements with tiny countries that don’t really matter much.

Let’s concentrate, instead, on getting things right for workers right here.

It’s a very long piece, check out the full length article at TAP online (registration required).

[HT: Rodrik]