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In Argentina under the previous pro-protectionist government, President Cristina Kirchner and the cabinet secretly carved up deals with local businesses and international investors behind their protected economy, the author points out. (Photo: Afscar)
Monday, September 19, 2016
Perspectives

The Latin American Case for Free Trade in the US


A populist argument for free trade - from Latin America.

BY CHRISTOPHER SABATINI

I come from rust-belt upstate New York, and I’ve watched the hollowing out of my hometown’s (Horseheads, NY, population: 19,000!) industrial core. I understand why many of my high school friends, once-moderate Republicans who believed in Reagan-era free trade, have come to blame their economic insecurity on the distant, mysterious forces of global trade and a political and economic elite that talks down to them.

As a friend of mine once said to me as we drove around town, “Look at this place. We don’t make anything anymore. All we do is sell things made from other places to each other to earn enough money to buy from each other.” He’s right. But the service economy that has kept my friends and their families hanging on to the middle class dream by a thread—if at all—is here to stay. Those jobs that gave my father and my friends’ fathers a stable job with benefits aren’t coming back.

Getting those manufacturing jobs to return would require one or a combination of three things: closing off U.S. manufacturing to outside competition, paying U.S. workers less to better compete with workers overseas, or shoveling out massive taxpayer dollars to U.S. companies to stay here or come back.

Each of these—or worse, all of them together—would not just bring factories back the way they were in the 1960s or 1970s, they would increase inequality, give the government even more power over our lives and further enrich lobbyists, politicians and corrupt businesses.

It’s the worst thing we could do. And there’s no better example than the region I study: Latin America. Here’s why:

You know those lobbyists that have sucked off the teat of the U.S. government for so long, peddling nothing more than contacts? Wait until they get to cut deals in a closed economy:

It’s true. Washington is a closed, one-industry town based only on access to power. The revolving door between government and crony capitalist K Street lobbying firms has allowed thousands to make millions simply by negotiating tax cuts, regulatory exceptions and fat public, tax-payer-funded subsidies all beyond the public eye and our ability to do anything about it.

But that will be peanuts if those same jerks are allowed to carve up markets and tariff rates behind closed doors on behalf of business clients. That’s the power and control that an economy that is closed off to international competition would give to those bureaucrats and business lobbyists.

I’ve seen it in Latin America. To take just one example: it was a closed market and the ridiculous policy of requiring 35 to 55 percent of all investment in Brazil’s oil industry to use local products that contributed to the $3 billion (and counting) corruption scandal that is wracking the country right now. In that case, the largest Brazilian infrastructure companies colluded to rip off the government, and then bribed politicians to support it. Good for the politicians and the company owners, a disaster for average Brazilians and now a crisis for Brazilian democracy.

To take another example, in Argentina under the previous pro-protectionist government, the president and the cabinet secretly carved up deals with local businesses and international investors behind their protected economy. As a result, a series of investigations have revealed a massive corrupt network involving the president and her ministers including one who was trying to hide $9 million and the former first family that has mysteriously accumulated $8 million.

Imagine if those same guys were cutting deals with our congress and bureaucrats to determine how much U.S. citizens should pay for your basic consumer products (U.S. or foreign). Not only would we all pay more for the goods, it would also set the scene for huge kickbacks to the politicians and bureaucrats who set those rates to play favorites.

Those labor unions that are fighting free trade? They are actually only protecting the 7 percent of the private sector workers that belong to them:

Worker unions helped create our modern labor system, with all the safety, vacation guarantees and benefits many of us enjoy.   But today unions only represent a fraction of the U.S. workforce—in 2013, 6.7 percent of the private sector workforce; combined with public workers union membership in the U.S. still only reaches a paltry 11.4 percent.

The arguments you hear by AFL-CIO leaders and their advocates against free trade agreements are based on the interests of protecting that narrow segment of the national workforce that they represent. They are not defending the rights of those of us who don’t belong to unions—like many of the underemployed millennials who support Bernie Sanders or Donald Trump.

Rather than defend the rights of a labor elite, the AFL-CIO and other unions activists should be doing what they did originally in the early 20th century: organizing existing workers for better pay and stable employment and benefits. Service sector workers—contractors, salespeople, waiters and waitresses, etc.—are the new labor force in the U.S. but they are ignored by unions.

Those jobs that the AFL-CIO is trying to protect or bring back aren’t coming back and those that are still here will leave eventually. Yes, it’s a depressing thought, but even if we were to erect new tariff barriers, there will always be cheaper labor elsewhere. All the efforts of the AFL-CIO to stick their finger in the dike would be much better spent advocating for better pay and conditions for workers under the new economy. Unfortunately, it’s easier (and better paying) to protect the well-paid workers that already have advantages.

Be skeptical when those unions claim they are defending workers’ rights against free trade; they are, but only a very small segment of privileged workers.

Across Latin America this rigged system has created corrupt labor unions that have become little more than protectors of the status quo; their call for protection leaves behind the more than 90 percent of the work force that doesn’t have the advantage of belonging to a union. The result is both a local economy that can’t compete for higher end jobs internationally and a labor elite out of touch with the vast majority of workers but one that is so in-bed with corrupt unions that many can’t modernize.

Good luck having access to the cheap goods we all have become accustomed to:

We all pine for a time when the televisions and cars were made in our hometowns and our families and friends had full-time, stable jobs for life. But yet we all have better goodies now than we did.   Microwaves, big screen T.V.s, even cheaper and trendier furniture are all with our reach much more than they were just 30 years ago. And that isn’t just because of technology.

According to The Economist, in the U.S. clothes now cost the same as they did in 1986 and furnishing a house is as cheap as it was 35 years ago. At the same time, trade has also brought choice—something that any of us who have shopped at a Walmart, HomeDepot or supermarket knows. According to the economists, Robert Lawrence and Lawrence Edwards, trade with China alone put $250 a year into the pocket of every American by 2008. Those gains from cheaper stuff have disproportionately benefited the less well-off, because the poor spend more of their incomes on goods than the rich.

In Latin America when goods are made behind walls thrown up and governed by bureaucrats, the effect has not just been to make products more expensive but also crappier. Electronics, cars and clothing in places, like Brazil, that do not face competition over quality from other countries are just inferior. (Back in the day when we still needed electrical transformers, when I was Argentina doing my dissertation research my Argentine-made transformer melted down and started a fire in my room that almost burned down the whole hotel.)

If our goods are produced behind higher walls that prevent competition, those luxury goods that are now available to a wide spectrum of U.S. consumers will become once again just that, luxury goods—available only to the rich—but often of inferior quality.

Closing off trade will mean the end of U.S. leadership and values in the world;

Since the U.S. vanquished fascism in World War II, free trade agreements have been the basis of U.S. leadership globally against anti-American forces like communism and helped keep the peace. Indeed, our victory in the Cold War was due in no small part to the system of free trade that made for a stronger economy that the closed, top down Soviet communist state-run economy simply couldn’t keep up with.

Today we face a similar threat from China. Like the Soviet Union, China is a rising world power seeking to challenge the rules of the game with its own geopolitical designs, many of them threatening U.S. allies like Japan and South Korea. Even within our own hemisphere, China has become the number one or two trade partner of countries like Brazil, Argentina, Chile, and Peru. And Chinese leaders now travel frequently to the region giving away bridges, roads, sweet trade deals and—in 2014—promising $35 billion in loans all in an effort to increase their presence just south of the U.S. border.

The Trans-Pacific Partnership (TPP) that Trump loves to bash is more than just a free trade agreement. It will bring together 12 countries around Asia and the Americas in a common bloc, sharing common views of the importance of the market and economic freedom. And despite what you hear, the TPP will not represent a threat to U.S. jobs going overseas. Truth be told, most of the jobs that would leave the U.S. to set up shop in other TPP countries have already left. Instead, without trade barriers many of the investors in those other economies would move to the United States. 

But that’s just a side issue. The fact is that if the U.S. walks away from its allies in the Pacific, it will be surrendering the future of trade in the region and globally to a country that represents in many ways the opposite of U.S. values globally and domestically on everything from capitalism to human rights. Worse, for the first time in almost a half-century the U.S. would be giving away its leadership role to a new, rising power.

Christopher Sabatini is editor of Latin America Goes Global and Lecturer of International and Public Policy at Columbia University’s School of International and Public Affairs.

Originally published in Latin America Goes Global. Republished with permission from the author.

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