The United States for decades now has racked up large and growing trade deficits with the rest of the world. These deficits could contribute to much lower U.S. living standards in the future. Repaying this accumulated debt–at the end of 2007, the United States owed $2.4 trillion more to foreigners than it held in foreign assets abroad–will become increasingly costly to our nation’s standard of living because it will come at the expense of making needed investments in other parts of our economy. But what should policymakers do about it?
Today’s global economy, or what many call globalization, has a growing impact on the economic futures of American companies, workers, and families. Increasing integration with the world economy makes the U.S. and other economies more productive. For most Americans, this has translated into absolute increases in living standards and real disposable incomes. However, while the U.S. economy as a whole benefits from globalization, it is not always a win-win situation for all Americans. Rising trade with low-wage developing countries not only increases concerns of job loss, but it also leads U.S. workers to fear that employers will lower their wages and benefits in order to compete. Globalization facilitated by the information technology revolution expands international trade in a wider range of services, but also subjects an increasing number of U.S. white collar jobs to international competition. Also, globalization may benefit some groups more than others, leading some to wonder whether the global economy is structured to help the few or the many.
The current wave of globalization is supported by three broad trends. The first is technology, which has sharply reduced the cost of communication and transportation that previously divided markets. The second is a dramatic increase in the world supply of labor engaged in international trade. The third is government policies that have reduced barriers to trade and investment. Some recent research examines whether these trends are creating new vulnerabilities for workers.
Source: Robert E. Scott with research assistance by Emily Garr, Economic Policy Institute, Economic Snapshot, July 30, 2008
Unbalanced U.S. trade with China since 2001 has had a devastating effect on U.S. workers. Between 2001 and 2007, 2.3 million jobs were lost or displaced, including 366,000 in 2007 alone. These jobs were displaced by the growth of the U.S. trade deficit with China, which increased from $84 billion in 2001 to $262 billion in 2007.
From the summary:
Brussels, 9 June 2008: The ITUC presents today its biannual report on core labour standards in the US, coinciding with the Trade Policy Review of the US at the WTO, taking place on 9 and 11 June. It reveals a poor and worsening record on worker protection, particularly in the areas of trade union rights and child labour, areas in which serious violations continue to take place.
A wide gulf exists today in American politics. On one shore are voters increasingly anxious about globalization and its effect on their jobs and communities. On the other are economists, policy makers, and pundits who maintain that trade is good for the economy, that the wider public is simply misguided about its benefits, and that politicians who sympathize with those concerned about globalization are pandering to special interests at the expense of the wider economy. This latter group relies heavily on the suggestion that “all economists believe” globalization is good for the vast majority of American workers.
This reliance is odd given that mainstream economics actually argues that there are plenty of reasons for concern about globalization’s effect on the majority of American workers. This primer highlights two issues in particular that should worry American workers about globalization: job losses stemming from growing trade deficits; and downward wage pressure for tens of millions of American workers. These problems are not unexpected consequences of expanded trade; quite the opposite, they are exactly what standard economic reasoning predicts.
Presidential candidates are calling for tougher labor standards in trade agreements. But can such standards be enforced? Here’s what I learned from my old job.
I remember one particularly bad factory in China. It produced outdoor tables, parasols, and gazebos, and the place was a mess. Work floors were so crowded with production materials that I could barely make my way from one end to the other. In one area, where metals were being chemically treated, workers squatted at the edge of steaming pools as if contemplating a sudden, final swim. The dormitories were filthy: the hallways were strewn with garbage–orange peels, tea leaves–and the only way for anyone to bathe was to fill a bucket with cold water. In a country where workers normally suppress their complaints for fear of getting fired, employees at this factory couldn’t resist telling us the truth. “We work so hard for so little pay,” said one middle-aged woman with undisguised anger. We could only guess how hard–the place kept no time cards. Painted in large characters on the factory walls was a slogan: “If you don’t work hard today, look hard for work tomorrow.” Inspirational, in a way.
…Today, labor standards are once again in the news. Barack Obama and Hillary Clinton have criticized trade deals such as NAFTA as unfair to American workers, and the new thinking is that trade agreements should include strict labor standards. Obama has cited a recent free trade agreement with Peru as an example of how to go forward. I hope he’s right, but let’s remember that NAFTA was also hailed, in its day, for including labor protections. Our solutions on paper have proved hard to enforce. Peru attempts to remedy some of the problems of NAFTA, but we’re still advancing slowly in the dark….
From the press release:
Public Citizen today identified changes needed to World Trade Organization (WTO) rules and the investment provisions of the North American Free Trade Agreement (NAFTA) to implement a dozen of the presidential candidates’ key health and climate policy proposals.
The changes were detailed in a report, “Presidential Candidates’ Key Proposals on Health Care and Climate Will Require WTO Modifications, Overreach of WTO Highlighted by Potential Conflicts with Candidates’ Non-Trade Proposals.”
Although they have nothing to do with trade, key health care cost containment proposals on the creation of health insurance risk pooling mechanisms, reduction of pharmaceutical prices and electronic medical record-keeping, a proposal to expand coverage by requiring large employers to provide health insurance and a proposal to establish tax credits for small employers as an incentive to provide health insurance fall within WTO jurisdiction. In addition, proposals that address climate policy, such as increasing Corporate Average Fuel Efficiency (CAFE) standards, banning incandescent light bulbs, establishing new regulation of coal-fired electric plants and establishing national renewable portfolio standards (RPS), green procurement proposals and green industry subsidies come under the jurisdiction of existing U.S. WTO commitments.
From the press release:
The U.S. Department of Labor today released its sixth annual report on the worst forms of child labor in 141 countries and territories that receive U.S. trade benefits.
ILAB prepared the department’s 2006 Findings on the Worst Forms of Child Labor under the child labor reporting requirement of the Trade and Development Act of 2000. The act requires trade-beneficiary countries and territories to implement their international commitments to eliminate the worst forms of child labor.
As defined by the International Labor Organization Convention 182, the worst forms of child labor include any form of slavery, such as forced or indentured child labor; the trafficking of children and the forced recruitment of children for use in armed conflict; child prostitution and pornography; the use of children for illicit activities such as drug trafficking; and work that is likely to harm the health, safety or morals of children.
This report presents information on the nature and extent of the worst forms of child labor in each of the 141 countries and territories and the efforts being made by their governments to eliminate these problems. The bureau’s Office of Child Labor, Forced Labor and Human Trafficking collected data from a wide variety of sources, including U.S. embassies and consulates, foreign governments, nongovernmental organizations and international agencies. In addition, bureau staff conducted field visits to some countries covered in the report.
In a special report issued today, the National Foreign Trade Council (NFTC) provided a detailed guide to state legislators on how international trade benefits every state economy. “The United States and Global Trade: A State Legislator’s Guide to Maximizing Economic Opportunity through Trade,” also provides an outline for legislators on the role states can play in developing U.S. trade policy and how state governments can maximize the benefits of trade for individual state economies.