ON JULY 29, Sen. Elizabeth Warren, D-Mass., issued a policy on international trade, entitled “Trade — On Our Terms.” The policy proposes that countries seeking preferential trade terms with the United States meet minimum standards that protect workers and the environment.
Warren’s approach represents a serious attempt to level the playing field by exposing and removing hidden subsidies that tilt trade in favor of a small number of giant companies, at the expense of everyone else.
Warren’s trade policy is one facet of her larger economic vision, “making markets work for people, not making markets work for a handful of companies that scrape all the value off to themselves.”
Warren is a proponent of free-market economics and recognizes that many markets are not really free. To level the playing field, she offers a series of proposals to update our approach to international trade by targeting problems that undermine free trade, especially those that harm American workers or the environment.
Free markets are a good thing, and international trade multiplies the benefits globally. It is a proven recipe for peace and prosperity. The free world turned decisively away from the protectionist policies of the 1930s to embrace a free-trade vision after World War II.
The circumstances and needs of the 1940s are not, however, those of the 21st century. Yet international trade today follows the 1940s playbook, with few updates. This has opened the door to abuses that have remained unaddressed for 70 years.
At the top of her list, Warren takes aim at international labor standards. She insists our preferred trading partners “[r]ecognize and enforce the core labor rights of the International Labour Organization, like collective bargaining and the elimination of child labor.”
Why does this matter? Because labor is part of the cost of doing business, yet current rules governing international trade barely mention labor rights. If a state keeps wages artificially low by prohibiting collective bargaining, breaking up labor unions, putting children in factories and not schools, or using forced labor, it does not have a free market. The U.S. and most other democracies prohibit these practices and workers benefit, but many authoritarian states violate these rights freely.
If a country violates basic human and labor rights to keep wages low, it is granting a hidden subsidy to production that gives it a competitive advantage in the world market. Giant corporations then take advantage of artificially low wages overseas to export American jobs and “scrape all the value off to themselves.”
Under current rules of the World Trade Organization (WTO) these types of actions are rarely challenged. That needs to change.
Senator Warren also targets the link between international trade and environmental degradation by requiring that countries implement the Paris Climate Accord as a precondition of obtaining preferential trade terms with the U.S. Right now, countries that despoil the environment and accelerate climate change in the interest of production face no penalty.
Why does this matter? Because air and water are public property, and using them without paying is a subsidy. Under the WTO, if a country gives a producer no-cost raw materials, some competitor somewhere could challenge the practice and win. If, however, a country allows a producer to dispose of waste freely, there is no consequence, despite the fact that the people of the polluting state are paying the price in terms of their health and well being.
The environmental subsidy loophole becomes even more problematic in the shadow of global climate change. If the waste product is carbon dioxide, then the whole world is paying the environmental subsidy.
Senator Warren’s other proposals reflect a similar philosophy of enhancing competition by closing loopholes and applying fixes to market failures. Her prescriptions may not be perfect, but no other candidates are even talking about lack of transparency in trade deliberations, corruption of foreign officials, currency manipulation, or abuse of foreign jurisdictions to facilitate tax evasion.
Senator Warren’s trade policy is very ambitious. The U.S. itself falls short of some areas. The great strength of her vision, however, is that it rests upon a rules-based approach that sets high standards for everyone — equally. Even states and industries that suffer setbacks in the short run stand to gain in the long term from the recognition of high standards fairly applied.
Cynicism is cheap and easy. High aspirations take bravery. Senator Warren aims high. That may be a reason for caution but not for dismissal.