The end of free trade?

February 5, 2009

Adam Turl looks at the contradictions of U.S. policy as the global slump revives criticism of free-trade deals.

FREE TRADE is magic, with the power to solve almost any social or economic ill--or at least, that's what we've been told for the past 25 years. It's an argument that's accompanied every free trade agreement (FTA) from the North American Free Trade Agreement (NAFTA) to the formation of the World Trade Organization (WTO).

Now, in the midst of a long and deep recession, FTAs are unpopular. Some members of Congress are attempting to insert a "Buy American" provision into the economic stimulus package, and President Barack Obama is under some pressure to make good on his campaign pledge to "renegotiate" NAFTA and fix other FTAs.

But will the Obama administration really change course on trade? And what kind of trade should working people demand?

In order to assess today's debate, it's worth recalling how we got here. The reality is that "free trade" has never really been free. It's always been used by rich nations as a battering ram to open up poorer nations to economic penetration that benefits transnational corporations.

A cargo ship in the Port of Oakland
A cargo ship in the Port of Oakland

At the same time, these companies leverage lower wage labor abroad to put downward pressure on higher-paid workers at home. And since the U.S. emerged as the dominant economic power following the Second World War, it has often achieved FTAs by combining the stick of economic pressure with the carrot of access to the U.S. market, often to consolidate a strategic alliance with U.S. imperialism.

These FTAs overwhelmingly favor the wealthy "triad" of rich nation-states--the U.S.-Canadian economic bloc, the European Union and Japan.

In recent decades, some developing countries have also managed to grow into major economic powers, including India, Brazil, South Korea and, especially, China. But even in these countries, the economic benefits of FTA have flowed mainly to the tiny minorities that constitute the ruling classes of those nations. In China and India, for example, hundreds of millions of people remain mired in rural poverty, and the environmental costs of economic growth have been devastating.

In the 1990s, the champions of free trade--known as "neoliberals," in the sense that they favored an open, deregulated economy--promised workers in the developing would that this inequality would be overcome over time. To workers in the wealthy countries who found their jobs shifted overseas, the free traders argued that retraining programs to attain higher skills would prepare them to take advantage of globalization.

Today, though, the neoliberal consensus surrounding free trade--already weakened by the relative decline of the U.S. during the last boom--is unraveling in the midst of the global economic crisis.

For its part, the business press is fretting about a return to trade protectionism. A number of Congressional representatives critical of free trade already entered office in 2006 on a wave of working-class disgust with manufacturing job losses. Public Citizen's Trade Watch reports that the November elections increased the numbers of free-trade critics in both houses of Congress.

In part, this reflects pressure from below. Polls show, for example, that nearly two-thirds of the American public think NAFTA has had a negative impact on the economy.

But free trade also creates a strategic conundrum for capitalists in maintaining their economic domination of other nations. They must figure out how to relate to the global market even as the downturn drives wedges between "trading partners" that are desperate to stave off economic disaster at home.

In the U.S., this has led to a series of vacillations and contradictions in U.S. trade policy. These were illustrated by the final actions of the outgoing Bush administration on FTAs with Malaysia and Peru, as well as developments surrounding the incoming Obama administration--on NAFTA and the KORUS (Korea-U.S.) FTA.

BEFORE LEAVING office, the outgoing Bush administration suspended FTA negotiations with Malaysia, figuring the deal would likely be renegotiated by the new administration. At the same time, the Bush White House rushed to announce that the U.S.-Peru FTA ratified in 2007 (with the support of then-Sens. Hillary Clinton and Barack Obama) was now in full effect.

Meanwhile, in early January, the incoming Obama administration held what has become a traditional pre-inaugural meeting with the Mexican head of state, currently President Felipe Calderon of the conservative National Action Party (PAN). The press reported that the one item of contention in the summit was Obama's campaign promise to renegotiate the labor and environmental provisions of NAFTA.

When it was signed into law in 1993 by President Bill Clinton, NAFTA was sold as all things to all people. Mexico, we were told, was to become an advanced industrial economy--while increased trade with Mexico would fuel an economic renaissance in Canada and the United States.

That's not how things panned out. While NAFTA undoubtedly made a lot of money for U.S. corporations--and made a smaller number in Mexico very rich--it was a disaster for most North American workers.

In Mexico, NAFTA pushed more than three million peasants off their land because of cheap U.S. food imports, lowered wages and decreased the number of manufacturing jobs, despite the growth of low-wage maquiladoras producing exports for the U.S. market. Meanwhile, NAFTA contributed to the loss of hundreds of thousands of union manufacturing jobs in the U.S.

During the spring primaries, both Clinton and Obama railed against NAFTA--while failing to discuss the impact of NAFTA on Mexican workers and peasants--and raised the prospect of renegotiating the environmental and labor provisions of the agreement. Many on the left thought this was just rhetoric aimed to win over hard-pressed workers in an increasingly tight campaign.

The left was proven right when a memo was leaked about a meeting between an Obama economic advisor and Canadian officials--the memo said the message from the Obama campaign was that anti-NAFTA comments by the candidate "should be viewed as more political positioning than a clear articulation of policy plans."

As Obama has assembled his cabinet, it seems to confirm a continuity of neoliberal free trade policies. For example, Ron Kirk--a major free trade booster and former mayor of Dallas, who once declared his city "the capital of NAFTA"--was appointed to be U.S. trade representative. Only Obama's appointment for Labor Secretary, Hilda Solis, has been a major critic of NAFTA.

Nevertheless, when Obama met with Calderon, he actually raised the question of "revamping" the labor and environmental provisions of NAFTA--according to some reports, to the consternation of the Mexican president. Obama's initiative can only be understood in the context of the global economic crisis that has unfolded since the summer.

Even if parts of the deal were reopened, it is very unlikely that the changes would be sufficient to reverse the devastating impact NAFTA has already had on U.S. workers--let alone Mexican workers and peasants. And the industrial structures of the U.S. and Mexico--the so-called "real economy"--are so intertwined that they can no longer be separated in any real way without major economic chaos.

However, the fact that revamping NAFTA is even seen as a possibility is a result of growing pressure from below, as well as worries among sections of the U.S. ruling class about other FTAs pending with Colombia and especially South Korea. In fact, preserving the "real economy"--in particular, the auto industry--is one of the main reasons the Obama administration and Congress may be willing to risk letting the biggest trade deal since NAFTA--the KORUS FTA--go down in flames.

THE KORUS FTA was signed a year and a half ago by the South Korean government and the Bush administration. However, it has yet to be voted on either in the South Korean National Assembly or the U.S. Congress because of a confluence of grassroots opposition (mostly in South Korea) and the economic crisis.

The South Korean government--led by President Lee Myung-bak and the Grand National Party (GNP)--is aggressively pursuing a series of FTAs with various countries in an effort shore up lagging exports. Exports are only expected to contract further as a result of the recession, creating deep worry among South Korean capitalists.

In December, Myung-bak's GNP moved to ratify the KORUS FTA in order to put some pressure on the U.S. Congress to approve the agreement before the end of the Bush administration. But opposition legislators occupied the National Assembly--controlled by the GNP--for 12 days to prevent that vote. At one point, the opposition broke down doors to a committee meeting with an ax. The GNP finally agreed to delay the vote.

The opposition's tactics were a reflection of widespread public pressure against the FTA is substantial in Korea. There have been a series of strikes and protests against the agreement dating from before June 2007, when the deal was signed.

While the deal is considered to be somewhat favorable to South Korean auto manufacturers--Korea exports 10 times as many cars to the U.S. as it imports from the U.S.--it would have a devastating impact on the service, finance and agricultural sectors of the South Korean economy, largely to the benefit of U.S. companies.

Nevertheless, the Korean government is desperate to shore up exports. In the U.S., the economic crisis appears to be having the opposite effect on government officials when it comes to the KORUS FTA. The Obama administration is openly criticizing the agreement, and Congress has already held up the deal for 18 months, citing insufficient labor and environmental standards.

While this plays well for the electorate, there are more important--for the ruling class--reasons to put the kibosh on the KORUS FTA in its present form. For example, Charles Rangel, chair of the House Ways and Means Committee, recently criticized Bush trade officials, complaining, "If they fought as hard for cars as they did for beef, we wouldn't have had [a] problem."

Secretary of State Hillary Clinton wrote during her confirmation process:

Because the FTA gives South Korean auto exports essentially untrammeled access to the U.S. market, ratification of the agreement in its present form would mean the United States would lose its remaining leverage to counteract.

If the South Koreans are willing to re-engage negotiations on these vital provisions of the agreement, we will work with them to get resolution.

Clinton's statement signals that Democrats are looking for a more coherent approach to what used to be called "industrial policy" in order to maintain within the U.S. industries that actually produce value--like auto manufacturing. Ultimately, this isn't out of particular concern for U.S. workers per se, but a reflection worries over the functioning of the overall U.S. economy.

However, this tougher line on KORUS is wrought with contradictions for U.S. economic and imperial power--not to mention that it opens up a wider ideological debate.

For example, the KORUS FTA is not simply about trade. It is also about the strategic interests of U.S. imperialism. As Myron Brilliant of the U.S. Chamber of Commerce pleaded, KORUS is central for U.S. "economic expansion in East Asia."

This is why President Obama signaled that "in the long run," he will support KORUS. That's because of the "strategic relationship" between the U.S. and South Korea--which has everything to do with checking the rising power of China, and containing the perennial North Korean bogeyman in Pyongyang.

Moreover, there is still intense pressure to ratify other outstanding FTAs. Rangel argued that Obama "wants to see ratification of free trade agreements that are currently pending, with South Korea, Colombia and Panama," even though "the two agreements with South Korea and Colombia are in need of additional measures."

Thomas Donohue, the president of the U.S. Chamber of Commerce has all but guaranteed that the KORUS FTA will eventually be ratified, complaining that, "if we started putting up free trade agreements and voting them down, we would lose a lot of credibility in trying to open markets around the world."

THE U.S.-Colombia FTA--which has also languished in Congress since the summer of 2007--reflects many of these problems for U.S. trade policy. Colombia is a nation in which the murder of trade unionists has become commonplace, and U.S. labor has strongly condemned the U.S.-Colombia FTA.

In terms of domestic politics, the FTA is a non-starter. Economically, the agreement is not that important (for the U.S., that is--Colombia is desperate to increase exports because its industrial output declined by 13 percent in November alone). Furthermore, members of both the administration and Congress have indicated that the deal should be renegotiated.

However, Colombia is a major strategic asset for U.S. imperialism in South America--especially in light of growing social movements and left-of-center governments such as those in Venezuela and Bolivia.

Colombia's Vice President Francisco Santos argued, "Colombia plays such a vital role in the continent for U.S. interests that it would be geostrategic suicide to make a decision like that [to renegotiate]. I wonder who wants to be the one who loses Colombia like they lost China in the 1950s."

Yet while the U.S. tries to reshape FTAs, the massive government intervention into the U.S. economy contradicts the terms of the free trade agreements that it has imposed on other nations in the past. As Laura Carlsen recently wrote in Foreign Policy In Focus, "It hasn't been lost on the rest of the world that the U.S. government is adopting measures such as massive subsidies and bailouts it has sought to deny to developing countries under free-trade rules."

It's very unlikely that the U.S. will be forced by any foreign nation--any time soon--into abandoning any economic policy it believes necessary. However, the U.S. will find it harder and harder to maintain neoliberalism abroad and some sort of financial state capitalism at home. As unemployment grows, it will also become more difficult to use access to the U.S. market as leverage to incorporate client states abroad into the fold of U.S. imperialism.

We are at a major turning point. Like most of neoliberal ideology, free trade has lost its allure. However, what will replace it isn't entirely clear. There are many possibilities, and they all depend on the level of class struggle.

In the U.S., the most crucial question is whether workers get pulled into a nationalist, protectionist "Buy American" campaign--or whether they take an internationalist approach in concert with workers in other countries. But with the unraveling of the neoliberal consensus, the future is up for grabs.

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