A conversation from The Diane Rehm Show archives with world-renowned cellist Yo-Yo Ma. In 2007, he talked to Diane about his belief in the power of music to cross borders and bridge backgrounds.
President Barack Obama met with senior advisers yesterday on efforts to forge a large Pacific free trade area. The proposed agreement involves 12 countries and represents nearly one-third of world trade. Negotiators are also meeting in Washington this week on a U.S.-European Union trade pact. Both are touted as important strategies for job growth and boosting U.S. competitiveness. Critics say they provide easy ways for corporations to circumvent hard-won health, environmental and consumer protections. Diane and her guests discuss the pros and cons of two trade agreements in the works and lessons learned from NAFTA.
- Simon Johnson Professor of entrepreneurship at MIT's Sloan School of Management, senior fellow of the Peterson Institute for International Economics, former chief economist of the International Monetary Fund, and author of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You."
- Lori Wallach Director, Public Citizen's Global Trade Watch.
- Howard Schneider Reporter, The Washington Post.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Twenty years ago this month, the U.S., Canada, and Mexico signed the North American Free Trade Agreement. Now the Obama Administration is pushing for trade agreements with the European Union and a sweeping 12-nation Trans-Pacific Partnership. Joining me to talk about these agreements and their possible impact: Simon Johnson of MIT and the Peterson Institute for International Economics, Lori Wallach of Public Citizen, and Howard Schneider of The Washington Post.
MS. DIANE REHMDo join us, 800-433-8850. Send an email to firstname.lastname@example.org. Follow us on Facebook or Twitter. Welcome to all of you.
MR. HOWARD SCHNEIDERHow are you?
MR. SIMON JOHNSONHello.
MS. LORI WALLACHThank you.
REHMI'm fine. Thank you. Howard Schneider, give us a brief summary of these two trade agreements and what they hope to do.
SCHNEIDERSure. Well, the one with the European Union, the Trans-Atlantic Trade and Investment Partnership, really is an attempt not to open markets because there's an awful lot of trade between these two parts of the world already. But it is an attempt to, as they say, harmonize regulation so that if you certify a car is safe in the U.S., Europe accepts that certification. If you certify food is safe in Europe, you accept that certification in the U.S. So you're kind of really lowering the cost of doing business.
SCHNEIDERThe Trans-Pacific Partnership, different kettle of fish, there, you're really talking about opening some markets, selling more U.S. autos in Japan, for example, taking Vietnam from being a sort of state-run centralized economy to a more market-based economy and taking -- lowering some tariffs, doing some other things. You've got 12 nations, 40 percent of the world economy there, and the feeling is -- at least on the U.S. trade representatives' side -- that they could boost U.S. exports quite a bit if they open up that area under a free trade agreement.
REHMHow long have these two agreements been in the works?
SCHNEIDERThe one with the European Union just really got off the ground about a year, year and a half ago. The Trans-Pacific Partnership really has been under discussion for, gosh, about eight years now. It started as three or four other countries -- Bernai, Singapore, New Zealand, I believe -- discussing amongst themselves how they could have more trade.
SCHNEIDERThe Bush Administration decided to join that discussion. And since then, the party's grown bigger. You got Japan involved now, Malaysia, Vietnam, Australia, New Zealand, Canada, Mexico. It's quite a big chunk of the world economy.
REHMAnd, Lori Wallach, how far along are these agreements at this point?
WALLACHWell, miraculously, they wanted to sign the TPP last month. It's been negotiated in terms of intense secrecy. And I would say the reason why there's growing opposition in many of the countries is because, as the chapters have leaked out, it's become evident that it's actually not mainly about trade. It's 29 chapters. And only five of them have to do with traditional trade matters. The other chapters are sort of, I don't know, being implementing -- they're implementing domestic policies almost as a delivery mechanism on the brand free trade agreement.
WALLACHSo, for instance, there's a chapter that would limit imported food safety along the lines of the story this morning -- yesterday morning on NPR about Vietnam and unsafe seafood imports. There's a chapter that would limit financial regulation, some of the mechanisms, like capital controls to avoid crises that Simon's talked about in the past, would be forbidden for all countries to implement.
WALLACHThere are rules on investment that would actually make job offshoring easier. There's a chapter that allows challenges of our domestic health and environmental laws before international tribunals.
WALLACHThere's a ban on buy American and buy local procurement. They're rules that would expand medicine patents and increase medicine prices. There's even a part of SOPA -- the Stop Online Piracy Act that you had several shows on, that Congress tanked last year -- that's stuck in a copyright chapter of this agreement.
WALLACHThere are immigration visas. So all of this sort of diplomatic legislating of policies a lot of people in a lot of these countries don't want is being done through the secrecy of the negotiating process. I wish it was just about cutting tariffs and more free trade. Then we wouldn't have to worry about it.
REHMSimon Johnson, what do you make of all this lots more about policy than trade?
JOHNSONWell, Lori's right that there's plenty about policy in the negotiations. I think the big picture, though, Diane, is China. China's not in the TPP. We're not negotiating with them, but we're trying to build a trading bloc with other countries in Asia. We're trying to provide -- perhaps it's a counterweight. Perhaps it's a form of positive engagement with Asia.
JOHNSONLori's right. There's plenty of controversial issues here. I would flag the intellectual property rights and the patent protection for medicines which potentially could make some very important lifesaving medicines much more expensive in poorer countries. So there's lots of details that have to become public. We need to have proper debate about them. But the issue of engaging with these Asian countries and helping many of them to develop, helping them to grow their exports, I think that's a sensible goal.
REHMI think very few people are aware of what's going on here, so it does make one wonder when Lori talks about all of these changes that could come to the people in these various countries, and certainly here in the United States.
JOHNSONWell, absolutely. I completely agree with what Lori said, and I also worry that the way this goes through Congress is Congress first agrees -- there'll be something called fast track authority which means you'll do an up or down vote on the trade deal when it comes to you. And then if it comes to you -- there are some things you like and a lot of things that you don't like -- and you have to decide, are we going for this whole package or not? This is not the most democratic way to make policy.
REHMSimon Johnson, he's professor of entrepreneurship at MIT's Sloan School of Management. Lori Wallach is director of Public Citizen's Global Trade Watch. Howard Schneider is a reporter for The Washington Post. Do join us, 800-433-8850. Howard, why is the administration making a push for this now?
SCHNEIDERWell, I think there's a couple big things figuring into this. Simon mentioned China.
SCHNEIDERAnd the fear is that if you don't create what they like to refer to as a web of relationships in that part of the world that the way China does business will de facto become the way everybody does business. So the effort is to try to set standards that eventually China would say, well, we've got to follow this because that's where the weight of economic activity is drifting.
REHMWell, would that mean that the standards set up in these two agreements might really be truly beneficial? Or is there something for some people to like and not others?
SCHNEIDERThat's going to be the case with any treat like this.
SCHNEIDERThere are going to be winners and losers. And I think, you know, one thing to keep in mind, you know, the process may have not have been as clean and transparent as everyone would wish. But it also hasn't finished yet. And there is no treaty yet. So we really don't know where these things are going to end up in the actual text of the agreement.
SCHNEIDERYou've got what's going to be probably a very robust debate in Congress coming up early next year on trade promotion authority, fast track. And, you know, based on conversations on Capitol Hill, this is where a lot of people who are interested in different specific issues are going to exert leverage over the process.
REHMAnd, Lori, that's what you're concerned about.
WALLACHWell, once these agreements are signed -- and if they're implemented -- you can't change a single word unless all the countries involved agree. So it's basically super gluing into place all of these policies, and they're actually enforceable by trade sanctions. So unlike, say, the Multilateral Environmental Agreement or the International Labour Organization rules, this is enforceable global governance. The effective term of this agreement and of NAFTA is all countries shall ensure conformity of all domestic laws, regulations, and administrative procedures.
WALLACHSo we actually have constraints that we put on in the future for Congress to be able to deal or our state legislatures with emerging problems, or for that matter rolling back laws that we already have fought out in public domestically and made a decision about. Now, there have been 600 corporate advisors because while the process is secret, under the old fast track system established by Nixon. It 1974, it was finally enacted.
WALLACHHe cooked it up in '73. Congress and the public got pushback in the trade process, which, for 200 years, the Founders in writing the Constitution gave exclusive authority to trade to Congress. Out of the Boston Tea Party, they wanted to make sure diffuse power had the decision of trade so no president, like King George, could unilaterally put up tariffs -- not tea anymore, but whatever favorite project.
WALLACHSo the Congress controlled trade for 200 years. Fast track took that away, and fast track, for the first time, allowed this diplomatic legislating through trade negotiation. 'Cause before that, the negotiators were only authorized. Congress has to delegate authority to talk about tariffs. So now locking in these backwards rules, making them enforceable, very dangerous process, and then you add to that this legislative luge run of fast track that Simon and Howard both talked about, and you have a really dangerous process.
REHMDangerous process, Simon?
JOHNSONDangerous, certainly. There are also opportunities, though, Diane. Currency manipulation, for example, has been a problem that's plagued our federal regulations with many countries, including with Japan and including with China. Now, as I said, China's not in the TPP, but Japan is.
JOHNSONSo if there were to be a chapter, which I don't believe there currently is, but important people, influential people on Capitol Hill, such as Sandy Levin, senior Democrat on House Ways and Means, and Lindsey Graham, senator from South Carolina, and many others, are arguing that in order to participate in the TPP, everyone should agree not to manipulate their currency, not to go for the kind of competitive undervaluation that's really damaged our manufacturing industry and caused us to lose a lot more jobs than we should have.
JOHNSONI think that is an opportunity to bring some order to what has been a very problematic part of international trade.
REHMSimon Johnson of MIT, senior fellow at the Peterson Institute for National Economics. When we come back, we'll talk a little about NAFTA and how it's being talked about now compares with what was negotiated under NAFTA. Stay with us.
REHMAnd welcome back. Here in the studio: Lori Wallach, she's director of Public Citizen's Global Trade Watch, Howard Schneider, reporter for the Washington Post, Simon Johnson of MIT and author of "White House Burning: The Founding Fathers, Our National Debt and Why It Matters To You" -- which leads me to my question. How do these trade matters matter to us, Simon?
JOHNSONWell, they matter in two big somewhat conflicting ways, Diane. On the one hand, as consumers, we benefit massively when cheaper goods are available. And we like to buy the cheaper goods. There's no question about that. On the other hand, as workers, the effects are very -- have been very unequal. There's been a massive increase in inequality in the U.S. over the past 20 to 30 years.
JOHNSONMost of that comes from changes in technology, including the advent of computers. But globalization, trade, offshoring of jobs, call it what you want, has also played a role in increasing inequality. And I'm afraid the TPP in particular -- I think not so much the agreement with the Europeans, but the agreement with the Asian countries...
REHMBut the Trans-Pacific.
JOHNSONYes. I think that one would probably continue to push towards greater inequality. More the gains from these kinds of international trade deals accrue to people at the upper end of the income level. Now, you could redistribute. You could say, well, we're going to deal with that through taxation, but, of course, there isn't really much of a consensus about that in Washington right now.
REHMWould this Trans-Pacific trade deal push more jobs out of this country?
JOHNSONWell, it changes the nature of jobs mostly. So you would probably lose some of the high-end, high-wage manufacturing jobs, for example, in the Midwest, depending on the exact terms. This is one of the issues that Sandy Levin, for example, who's from Michigan, talks about a lot with good reason. So there'll be some jobs created, some jobs that you lose. The fear is that you lose some of the high-end jobs, the high-wage jobs available to people with high school education. And those are replaced by lower-end, lower-wage service jobs if things go well. If things don't go well, of course, you get more unemployment.
REHMNow, there's been debate about NAFTA ever since it was negotiated. Good deal or bad deal for workers here in this country?
JOHNSONWell, it depends on which workers. The high-end workers have done fine, not just from NAFTA but from all the other changes that we've had to the trading system and to the availability -- with regard to the availability to technology over the past two decades. Lower-end workers, people who only completed high school, people who haven't had much college, have not done particularly well. And I'm afraid NAFTA, on the whole, was not particularly to their advantage either.
REHMHoward, do you want to comment?
SCHNEIDERWell, yeah, I think it's the -- the question is, you know, what would the alternative be, OK? You talk about manufacturing in the U.S. You know, a lot of this was being disbursed anyway as companies like GM or Ford decided to manufacture for Chinese consumers in China. So I think it's a little bit, you know, unrealistic to think that we'd be making all the same stuff here today that we made here in the 1950s and 1960s.
REHMBut you're really concerned about it, Lori.
WALLACHWell, NAFTA included specific investor privileges. They actually incentivized offshoring. They made a lot of the risks in costs that would normally be associated with going to a developing country to get the low wages go away. And now the TPP has those same investor privileges expanded.
WALLACHSo the notion now where Vietnam is one-tenth the wage, say, Mexico was -- it's half of China. It's the low wage offshoring alternative -- Vietnam is -- is one of the TPP partners. Now, it's one thing for the natural competition of, look, we're going to make this in another country. It's a different piece of business when you have a trade agreement that literally incentivizes offshoring.
WALLACHAnd that is a serious problem because, for instance, you have those bad incentives, but Simon's mentioned the currency issue, very important issue given the countries involved. The country drops its currency. It can wipe out whatever tariff cut you got, and you can't export from the U.S. So, for instance -- and this is one of the reasons a lot of members of Congress have started to say, we're not doing fast track.
WALLACHThey haven't negotiated currency provisions in TPP. We know this. The trade representative said this a week ago, nope, we're not raising it. But 60 U.S. senators and 230 House members in June said, we agree on one thing. That TPP has to have these currency disciplines.
WALLACHAnd if you look at NAFTA and what ended up happening, you know, the goal of NAFTA was to create jobs. So the Institute for International Economics back then said, we are going to get 170,000 more jobs a year in the first five years. That didn't happen in any year. And even the official government data shows we've lost over 700,000 manufacturing jobs to Mexico and Canada since NAFTA.
WALLACHYou can actually look on our website TradeWatch.org. On our trade data center, you can put in your zip code. And we've got the data sorted so you can look at the certified NAFTA job loss in your community.
JOHNSONWell, I want to go back to a point that Howard made, which was that we're going to lose the jobs anyway. Now, to some degree, that's true if you're talking about information technology, automation. That's where we've lost many manufacturing jobs, many middle-skill, middle-income jobs. But -- and also to some extent, trade has had this effect, as I said. But the Chinese currency issue, keeping the currency undervalued over the past decade-and-a-half, has greatly exacerbated and, in my view, in an unfair and unreasonable way, the job losses.
JOHNSONAnd that has big issues for income inequality because while until recently or until 2008 we were quite good at creating jobs, not all jobs are created equal. So people were losing the high-end manufacturing jobs Lori's talking about. Other jobs were becoming available, but they were not with the same sort of incomes and the same sort of benefits.
REHMIn addition to the issue of currency, Simon, the question that Lori raised is, to what extent would the trade pact with the Pacific group allow companies to skirt U.S. laws?
JOHNSONWell, I think it's more -- the issue is more that you're changing U.S. laws and changing U.S. regulations through a back door. So I don't think anybody's skirting any laws here, but you're entering into an international agreement that has some -- well, the extent to which countries can threaten the U.S. for trade sanctions is rather limited.
JOHNSONBut there is some pressure there. And you're trying to build this bloc that's somewhat counter to China, so the U.S. would be adhering to those rules presumably. And all of these issues are, without question, very big issues. So we should worry a lot about the transparency.
WALLACHThere is something though in the TPP that is worse than trade sanctions, and that is a system called investor state dispute settlement. That is a set of rules that would allow any individual company to privately enforce a public treaty, basically elevating them to the level of a nation state by dragging a U.S. government or any other country's government...
WALLACH...to tribunals set up under United Nations and World Bank rules, where three private sector attorneys who rotate between suing countries for governments and being the judges, get to decide if a government -- the U.S. government has to pay taxpayer dollars for any domestic action that undermines the expectations of the foreign investor to get privileges under the agreement.
REHMClearly, Lori has been reading what she has seen very carefully, Howard. How do you see it?
SCHNEIDERWell, I would say two things. I don't know that there's a lot of evidence yet that these tribunals have led to any gigantic horrible changes in international law. If I'm wrong on that, please, correct me.
WALLACHThere's been a Bloomberg expose series that actually goes through all the cases where laws have been canned. Hundreds of millions of dollars have been paid to corporations over toxics bans, food safety, patent rules, forestry, water rules, banking regulations. So it is starting -- it's so secretive, it's hard to track. But I recommend folks look at this Bloomberg series of exposes about this sneaky investor state system.
REHMSimon, is it possible to look back and sort of look at the world and the United States and its job situation if NAFTA had never happened?
JOHNSONYou can certainly look at it. There are plenty of hypothetical ways to evaluate it. The biggest issue is China, though, Diane. That's what was the big change to our trading patents and to the income inequality. The net effect of NAFTA, as Lori said, the initial predictions of positive gains in jobs were somewhat exaggerated. I agree with that.
REHMAnd, indeed, negative job loss came out of it.
JOHNSONYou lose some jobs. You create some jobs. The question is, the mix of jobs and the income inequality, who's getting what kind of opportunity based on this skill? And there's been a huge shift in the United States. But I would go back -- go back further, Diane. Go back to the 1940s and 1950s. The world that the U.S. tried to build with its partners after World War II was a world in which there was more rules-based trading. And we tried to provide opportunities initially to the Europeans but then to these newly independent aspiring developing countries.
JOHNSONThere was a lot of gain -- mutual gain for countries that could figure out how to participate, how to export to us and to whom we could export. And there were a lot of middle class jobs created in the United States in the '50s, '60s, arguably into the '70s. There has been a shift. There has been a shift in technology mostly. This is 70 to 80 percent of what's happened to income inequality.
JOHNSONThere's also been a shift in the effect of trade. And the effect of trade unfortunately is to exacerbate the income inequality that comes out of the technology change. Now, you could address that through public policy. You could redress it. You could have some redistribution of income or in some other ways, through Social Security, for example. We haven't done that. And I think that should absolutely now be a central part of the debate.
WALLACHOne very interesting way to look at that is a study that was done by the Center for Economic Policy and Research, where they tried to make very concrete -- what you're trying to do, Diane -- what did it mean for people's lives? And so they actually looked at what share of increased income equality is caused by trade. They took a very low estimate, one that a lot of other scholars support, and they applied that to the actual real inflation-adjusted median income, what most of us, the biggest number of us make.
WALLACHAnd what they found is -- after NAFTA, but also China being in the world trade organization, 20 years of this model of globalization, what they found is that actually the income inequality damage to our wage levels outweighed the gains we would get as consumers with lower prices by $3,300 at the median. Now, that's higher than, by far, most people's tax burden, for instance, $3,000 of lower wages.
WALLACHAnd part of the data they used is the Department of Labor data, which shows that when a worker in manufacturing and now increasingly high-end service jobs, are being offshored, engineering, computer, design, architecture -- when those jobs get offshored, Department of Labor found the person who gets rehired typically loses 20 percent of their income.
SCHNEIDERIf I could, just on the NAFTA point and just a comment here, you know, most of what we've been saying here has been from a U.S. perspective. And I would like to say that, you know, one of the results of not having NAFTA would be a lot more pressure on our border for people from Mexico trying to get into this country because they can't afford food. And there is a -- well, they've got jobs in a developing middle class. A lot of that is because of the auto industry jobs that went down there to help out.
WALLACHBut immigration doubled after NAFTA because NAFTA wiped out...
SCHNEIDERLegal immigration or...
WALLACHIllegal. The department -- basically if you look at our own data...
SCHNEIDERBut, Lori, you know it would've been worse if you hadn't had the trade and the income development down there.
WALLACHBut NAFTA wiped out 2 million peasant farmers. Now, you could say they were inefficient. You could say all kinds of things, but it was a livelihood in the countryside. There was a mass migration -- I mean, look at the Pew Center on Hispanic issues. They have the data that shows, almost exactly when the corn tariffs went, the immigration went through the ceiling because people were desperate. They were wiped out.
REHMLori Wallach, director of Public Citizen's Global Trade Watch. And you're listening to "The Diane Rehm Show." We're going to open the phones now, 800-433-8850, first to Oregon, Ohio. Hi, Bob. You're on the air.
BOBYes. Thank you for taking this call.
BOBLet me start by saying that I practiced international trade and international trade finance law from the '70s to the '90s. And I taught international business law at the university level in the '90s. Both Adam Smith and George Washington taught us that the component of a nation's wealth is domestic manufacturing.
BOBGeorge Washington particularly in terms of armament. I watched in the '70s and '80s as our Congress stripped the laws that protected our domestic manufacturing and our domestic technology. These trade agreements seem to be really good for corporations, but they really don't do much for our national security.
REHMAll right. What do you think about that, Simon Johnson?
JOHNSONWell, it's certainly true that we've lost jobs in some parts of manufacturing, textiles, for example. Textiles and apparel were very big employees of the United States in 1960. And not only did those jobs decline in part because of trade, but also in the negotiation of the world trade round known as the Uruguay Round. We agreed to more liberalization on textiles and apparel in return for getting some advantages that would help other sectors, including software, including media, including pharmaceutical.
JOHNSONThat's the reality. That's the reality of trade. Big companies have a lot to gain. And the ones that are powerful, the ones that have more representation in Washington, are pushing for trade agreements that will favor them. And declining sectors, such as apparel and textiles, they did not disappear overnight. There were some phasing out of those protections, but those protections have now largely gone.
SCHNEIDERWell, you know, national security difficult concept in some ways. Is the world more stable today because there are tens of millions of fewer poor people in it, partly as a result of the shift of wealth around the world? You know, there's an argument to be made that the world is a more stable place because of that, because of the process of globalization.
WALLACHI would say that, just looking at the caller's point on the manufacturing, since NAFTA and WTO, government data shows we've lost over 5 million U.S. manufacturing jobs. That's one out of every four manufacturing job in our country that existed before. Forty-two-thousand plants closed.
REHMWhat he said specifically was that these agreements have been bad for textiles and good for corporations. Is that true in your view?
WALLACHIt's been bad for manufacturing writ large.
WALLACHAnd one of the most interesting things you can see, which totally surprised me, is now TradeWatch.org database of all the trade adjustments in the systems, the certified trade job loss, how many jobs were from aerospace, high tech, computers, things that you thought of as the jobs of the future. Not that many of them actually were those low-end jobs 'cause a lot of those had gone in the '80s. It was investment shifts in the fancy stuff that you needed these offshoring incentives to make you safe, moving your fancy equipment. It was high-end manufacturing.
REHMLori, are you arguing that these kinds of trade agreements are generally drafted in ways that are bad for U.S. workers and consumers and good simply for corporations?
WALLACHHeartbreaking, that is what I'm saying.
REHMThat is exactly what you're saying. And, Simon, you would say that there are always tradeoffs, and it's all about China and sort of global balance of power.
JOHNSONWell, I would certainly agree with Howard that providing opportunities to other countries is important for our national security, important for many reasons. I think I would characterize the winners and losers slight differently from Lori. I would say it's people with more income, people who are wealthier who do well. You can call them corporations. I think it's more broader than corporations. It's lower-income, lower-educated people who do less well.
REHMSimon Johnson, short break. We'll be right back.
REHMAnd welcome back. We're talking about international trade, treaties being talked about, being discussed. A long way to go. And here's an email from Martin, who says, "The TPP, the Trans-Pacific Treaty, is a Tea Party supporter's dream. It's anti-labor, anti-regulation. It rolls back regulation that protects from bad food, drugs, and products. We need to kill this treaty." Howard, how would you respond to that?
SCHNEIDERWell, the politics of this are getting pretty interesting and, I think, in a sense, difficult for the Obama administration. The Tea Party, in fact, is taking a very kind of opposing view on the Trade Promotion Authority because they…
SCHNEIDER…don't want to see the power to President Obama. They feel that it's a succession of their constitutional authority, as Lori mentioned, and they don't want to do it.
REHMBut you're saying it's not because of bad food, drugs, and products?
SCHNEIDERThey haven't gotten to the TPP issues yet.
SCHNEIDERAnd I think this is one issue where Lori and the Tea Party are kind of in consort in this, right?
WALLACHNot actively, but it is the case, interestingly, that improbable folks like Allen West and other super conservatives -- Michelle Bachman -- have pointed out TPP's problems banning buy American, that's a trans-partisan issue. I mean, the polling shows 90 percent of Americans want local procurement that sows our tax dollars back into our communities. They don't like the international tribunals, where U.S. law can be attacked with extra territorial decisions rating our Treasury. And they don't like the idea of locking-in law through international diplomatic legislatives.
REHMAll right. Here's another email from Jack, in Gainesville, Fla. He says, "Trade agreements that the U.S. enters into create markets and jobs. They also add to the tax base. The jobs and markets are overseas and the taxes go to the Fed. In order to compete, business must pay lower wages to Americans and demand tax incentives from the states. These trade agreements increase global wages and the global economy at the expense of U.S. wages, the U.S. economy and the environment." How do you react, Simon?
JOHNSONWell, that's a long complicated statement. I'm not sure we have time to go through it all. I think the person is against these kind of trade agreements and they're concerned about the effect on American workers. As I was saying before the break, it's about distribution. The people at the high end of the income distribution in the United States have done very well from globalization over 50, 60 years.
JOHNSONAnd over the last 20 years, people at the lower end, high school educated people, low wage jobs, people who in a previous generation might have had a lifelong job in one or two manufacturing enterprises, those people have been hurt by technology change and globalization on top of that. So, you know, I think the sentiments being expressed by through that email are legitimate.
REHMBut if the Obama administration is focusing on job growth in the last three years of its administration, why would it then be focusing on European trade agreements, Trans-Pacific trade agreements that take jobs out?
SCHNEIDERWell, I think part of it is kind of lack of alternatives. They don't know where else to go at this point. And I think there's some frustration that some of the other international institutions, like the World Trade Organization, have not done more to sort of open markets and regulate things. So they feel that they've got to go out. They have talked about export jobs, you know, 6,000 jobs for every billion dollars of exports. I think that number is probably, you know, gone down, going down over time.
REHMSix-thousand jobs here in this country?
SCHNEIDERThat's the figure that the Commerce Department uses, that every billion dollars of exports creates 6,000 jobs. Now, you know, whether they've updated that for supply chains, for technology, things like that, I don't know. I've got a feeling that's overstating it.
REHMSo do you see this more about the power struggle between the U.S. and China, than it is about the creation of jobs, either here or overseas?
SCHNEIDERNo. I think they're, you know, equal priorities right now. I think there is a geo-political element to this for sure. But certainly in the case of the Transatlantic Trade and Investment Partnership, I mean, that's about trying to -- I'm sure Lori would feel -- bring down, you know, least common denominator, trying to ease regulation on businesses. But I think it's more, you know, synchronize these two economies that do a lot of business anyway.
REHMAll right. Let's go to Traverse City, Mich. Hi, Susan. You're on the air.
SUSANThank you so much for having this discussion today, Diane.
SUSANFirst of all, I was an executive with a top Fortune company in the 1980s and 1990s that went from using prison labor in the United States to the opening of NAFTA and creating manufacturing in Mexico and Canada and then moved to China. And now the new frontier is to go around China, as you said before, to build this web because China is our financial economic bank. They own our debt. And if we can't control, from a corporate standpoint, of what's happening there, we're going to go around it, from a strategy standpoint, and try and build this consolidation pact of other traders.
SUSANAnd I want to make three points real quickly. First of all I believe these are treaties and not trade agreements. And I think they should be handled differently through our country. I think the consolidation of corporate power and taking away the -- first of all, the consolidation of the corporate power that was built on the back of the taxpayers here in our country -- is trying to take away the powers of other countries' ability to make choices for themselves, in order to try and fight this China syndrome that we have with debt.
SUSANAnd in the face of the new reality of the American worker who is becoming the independent consultant of the small business person, this takes away our ability to make consumer choices and to be able to negotiate our own deals internationally with those of us that do trade internationally on a small business scale.
REHMSimon, do you want to comment?
JOHNSONWell, I think that the caller's making some good points. I don't like this term corporate power because I think it's people. It's individuals. And corporations are just a fiction. And so what we're talking about here is distribution and distributive effects. And the fact…
REHMBecause people in corporations are part of the high end?
JOHNSONWe're talking about executives. We're talking about people who are well compensated. We may be talking about people who own shares.
JOHNSONOr own a lot of shares, absolutely, some of which, broadly help, but a lot of it is very concentrated, as you know, the wealth in this country. And I think the concern is that these trade agreements, while they may generate some benefits, they are unequally distributed, and we are not good or not interested right now, at redistributing in the United States.
JOHNSONSo you should recognize this reality and say, do you want to enter into these -- the TPP, I think, in particular has these concerns. I have less concerns about the agreement with the Europeans, as long as we leave financial services out of that. That is the Achilles heel of that agreement.
JOHNSONBecause the people who control financial services, those corporations, or the people's whose interests are represented there, would like to use this TPP agreement with the Europeans to water down all the financial regulations that we've worked very hard to put in place after the financial crisis. And that would be extremely dangerous.
WALLACHYou know, the outcomes of these agreements depend on the rules. So we have now 20 years of experience with one version of the rules, NAFTA. And the TPP is effectively NAFTA on steroids with most of Asia and Latin America. So if we had the rules right for trade, I think you'd see broader public support. But the polling shows what your callers have been saying, which is Democrats, Republicans, Independents have not liked the lived results of job offshoring, lower wages, unsafe imports of that old model. And that gets us back to the whole business with Congress and fast track.
WALLACHSo this may be one of those rare instances where there's actually bi-partisan agreement. Last month 152 House Democrats and 27 House Republicans sent letters to President Obama saying, we are happy to have some kind of trade authority, we're never giving away our authority with this big blank check of fast track. And in fact, since NAFTA and WTO sort of revealed what can be done with that authority, there's only been fast track authority for five of the ensuing 18 years since NAFTA and WTO.
REHMSo politically these agreements -- perhaps less so the European one, but TPP has a long road.
SCHNEIDERI think it may actually have a short road in terms of the decision because I think they want to try to land this sometime in the first half of next year. They don't want this to drift off to the midterm elections when it really does get probably politicized. But trade promotion authority, that's going to be the first battle. And that's probably early next year.
REHMAll right. Let's go to Steven, in Fort Myers, Fla. You're on the air.
STEVENI have a statement, I guess, basically, that I grew up -- well, my father was in World War II. He received the Flying Cross, Distinguished Flying Cross, other air medals. He was shot down over Czechoslovakia, all this other stuff. I was in the Marine Corps. My brother was in the Air Force.
REHMSteven, let's get to trade.
STEVENWhat I'm getting to is that I'm an American citizen in this country. And I've watched this country just export jobs, our freedoms, and everything else. I had a skill back in -- I became a machinist in '67. I had confidence in my abilities and I had power. Now, we have corporations that are considered to be people. We have individuals with money controlling state elections, gerrymandering, et cetera.
REHMOK. So clearly you're concerned about these kinds of trade agreements, and I think that that's what's being demonstrated here this morning.
SCHNEIDERSo a couple of things. He mentioned he was a machinist. There are jobs for machinists out there. And one of the things you hear from manufacturing companies is the skill mismatch. You know, part of Simon's discussion about redistribution involves education, involves retraining, involves taking people and making sure they can be competitive and do the jobs that companies like Seamans or G.E. need done. You go to these places, and they are all searching mightily for skilled manufacturing employees.
WALLACHYou know, I think the key thing for everyone is just to get informed to make an opinion about the agreement. The key is just not to let it sneak through without us knowing. And one useful place to help with that is a website called Expose the TPP. It has fact sheets on each of the different issues, be it food safety or the sneaky backdoor SOPA internet privacy rules. And you can look there and then you just decide and tell your member of Congress whether or not you want them to support fast track.
REHMAll right. Now, earlier, Simon, I asked Lori whether -- considering all the concerns she has raised -- that she is against moving forward on this TPP. Where are you? What do you believe are the tradeoffs here that would ultimately benefit the U.S.?
JOHNSONWell, there needs to be a chapter on against currency manipulation. And without that I wouldn't do the TPP, frankly.
REHMAnd how likely is it that there's going to be?
JOHNSONIt depends on the U.S. Congress. Now, Lori said, once you've signed the deal you've got a deal, that's true. But we are the largest country in this deal or actually, economy-wise, in the world. If we want to have a binding enforceable agreement that prevents currency manipulation, it can happen. And it can happen in the context of the TPP. Don't take no for an answer. And this is not just me.
JOHNSONIt's Rep. Sandy Levin. It's Sen. Lindsey Graham. It's bipartisan, and it should be taken very seriously by the administration. So far they're trying to ignore it. So far they're saying, well, we'll let the IMF and other people handle it. I used to work at the International Monetary Fund. I used to work on this issue, and they cannot handle it. That's the point. It has to be in the TPP, measures against currency manipulation, or the TPP should not pass.
REHMShould not pass because you feel that there is just way too much at risk.
JOHNSONWe've had too many problems with currency manipulation by trading partners in the past.
REHMAnd you're listening to "The Diane Rehm Show." Let's go to Michael, in Hickory, N.C. You're on the air. Michael, are you there?
MICHAELYes. Yes, I'm here.
REHMGo right ahead, sir.
MICHAELRegarding drug prices, I remember reading an article by Malcolm Gladwell several years ago that talked about how the United States basically subsidizes the research and development for new drugs because of the largely artificial pricing of countries in the rest of the world, because of the way their government is structured. And I'm wondering if this agreement will increase, specifically, the drug prices around the world, not specifically in the United States, so that there's more of a share of research and development, and thus, maybe a lowering of prices in the United States.
JOHNSONWell, it would likely push up prices in other countries. I don't think you'd get much of a break, necessarily, in the U.S. So don't hold your breath on that. That is mostly about Congress having decided, in its wisdom, not to use the pricing power Medicare and Medicaid, not to use the fact that the U.S. government buys healthcare for 100 million Americans already, before you get to Obamacare.
JOHNSONWe don't use that power, vis-a-vis the pharmaceutical companies. Now, the issue of compensation for research and development is a legitimate one. But that's the heart of the issue. Don't be distracted by the trade part of it. In fact, worry about pushing up the price of drugs, cancer drugs for example, in low-income countries.
WALLACHAlthough, last week a group of members of Congress sent a letter because another chapter of TPP leaked. It's called transparency on medical device and medicine pricing -- cynical. And it would allow pharmaceutical companies to challenge the pricing decisions that do happen in Medicare, Medicaid, the TRICARE program in the U.S., as well as the national healthcare systems in New Zealand and Australia.
WALLACHSo those members of Congress said -- in addition to the patent extensions -- that from another leaked text -- we know Pharma got into TPP. There's this crazy board to challenge even the few pricing decisions that could happen.
REHMSo if the Congress is likely to move forward quickly, how are these concerns that have been raised here going to be taken into account?
SCHNEIDERAll have got to balance out that really complicated equation there. I'd just point out, for example, that when you think about this biologics patent, for example, that extends out to 12 years the patent on biotech products, you know, to one degree that seems like bad thing. May raise the prices for drugs in Vietnam, but if that goes back into a research budget and you have more researchers hired here in the U.S., that's the tradeoff. That's where the jobs would come from.
REHMAll right. And we've got lots of tradeoffs we've heard about today. Just watch this space because obviously there's going to be a little more debate before any of this becomes reality. To Simon Johnson of MIT, Lori Wallach of Public Citizen, Howard Schneider of the Washington Post, thank you all.
REHMAnd thanks for listening, all. I'm Diane Rehm.
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