Free trade v populism: The fight for America’s economy

The presidential campaign’s protectionist rhetoric is threatening global commerce

by: Shawn Donnan

On a bright Saturday morning the congressman for Nebraska’s second congressional district is pressing the flesh with his constituency’s growing Latino community. Trailing the loping,
silver-haired Democrat closely as he works the crowd at Omaha’s annual El Grito parade is a translator who repeats quietly in Spanish: “His name is Brad Ashford. He is your representative in Washington.”

Minutes behind, jogging from side to side along the parade route, is Brigadier General (Retired) Don Bacon, a pro-gun, anti-abortion, arch-conservative running as a political outsider to replace Mr Ashford. With “Everybody Loves Bacon” as his campaign slogan, the former US Air Force general’s band of clean-cut, young and overwhelmingly white volunteers is doing everything it can to fire up a Latino crowd that is responding with striking indifference.

“What do we like? Bacon!” one volunteer yells into a megaphone. “Where do we want it? Congress!”
Viewed from the parade route, the race for Nebraska’s second district — whose most famous constituent is legendary investor Warren Buffett — looks like the usual election fare. But this year it is emblematic of a bigger ideological battle. As populist politicians around the world like Donald Trump try to tap into a rich vein of discontent with globalisation, the district is part of a calculated campaign by business and pro-free market groups to fight back.

Time for new arguments

There is no doubt that globalisation is facing its biggest political test in decades. The UK’s June vote to leave the EU and the prospect that this year’s US presidential contest could see the election of an avowed protectionist have raised fears that the model that has governed the global economy for more than 70 years is unravelling.

So too has the growing opposition in the US and Europe to trade deals such as US President Barack Obama’s Trans-Pacific Partnership and the EU-US Transatlantic Trade and Investment Partnership.

But the “globalists” — as Mr Trump dubs them — are fighting back. For all its failings, they argue, globalisation has been good for the world economy, lifting a billion people out of poverty in the developing world and helping to increase living standards in rich economies.
Mr Ashford, who was first elected to Congress in 2014, is embroiled in the fight because he is a rare bird in American politics today: a centrist, pro-trade Democrat.

Unlike most of his party’s members of the House of Representatives — or either of the two main presidential candidates — Mr Ashford is an unabashed backer of the TPP, which Mr Obama negotiated with Japan and 10 other Pacific Rim economies and hopes to pass through Congress later this year.

“Here so many of our manufacturing and [agriculture] related businesses are trade dependent.

The more we expand trade with Asia the more people we are going to be able to employ and wages are going to go up,” Mr Ashford says. “I’m willing to talk about trade and talk about increasing people’s opportunities here. And I don’t know why people don’t put them together.”

The stand has won him the backing of the US Chamber of Commerce and other business groups that normally lean toward small-government Republicans. This year the business lobby is doing everything it can to preserve a pro-trade majority in Congress — regardless of what happens in a presidential campaign in which trade is a toxic Word.

Besides Mr Buffett and his Berkshire Hathaway group, Mr Ashford’s big backers this year include multinationals such as Deere & Co and Honeywell as well as the National Cattlemen’s Beef Association and other big farm groups. Together, they have given Mr Ashford a two-to-one fundraising advantage over his Republican rival, who in any other election year might have been a more natural target of their largesse.

That sort of support is being replicated across the US, with business groups and the Obama administration working particularly hard to secure the 218 votes they will need to get the TPP through the House of Representatives, the lower house of Congress, after the November 8 election.

But the real fight goes far beyond the US and the fate of the TPP. For many business leaders, there is deep concern over the direction of the global economy itself.

Controversial deals 1: TPP

What is it? A trade deal between the US, Japan and 10 other Pacific Rim countries — but not China — was signed in February 2016. It covers some 40 per cent of the global economy and removes most, but not all tariffs and sets new rules for digital trade and the treatment of state-owned enterprises.

Why has it stalled? The TPP still needs to be ratified by parliaments in its member countries. President Barack Obama hopes to get it through the US Congress later this year but is facing stiff opposition, including from both presidential candidates.

Jeff Immelt, the chairman and chief executive of General Electric, warned in May of the dangers of a raucous US presidential election and a rise of protectionism. “A transformational change in globalisation” was coming, he warned, and the way to respond, for GE at least, was a strategy of “localisation”, which in many cases would mean a shift away from US-based manufacturing.

Emma Marcegaglia, the chairman of Eni, Italy’s largest listed entity, as well as the president of BusinessEurope, argues that if opponents of globalisation manage to stop trade deals like the TPP or the TTIP they risk killing prospects for the very growth that many major economies need.

“If we don’t fight this wave of protectionism we will have less growth and less jobs,” she says.

Damaging effects

Yet the backlash against globalisation has also forced some of its strongest proponents to acknowledge that it has had painful collateral damage, particularly for manufacturing-dependent communities in the US and Europe that have suffered as a result of competition from China, and the low-skilled workers that have been left behind.

Addressing the UN on Tuesday, Mr Obama called for a “course correction” in the march to global integration.

Too often, he said, “those trumpeting the benefits of globalisation” had ignored inequality and other real problems, leaving room for “alternative visions” ranging from “crude populism” to “religious fundamentalism” to take advantage of a very real dissatisfaction among citizens.
He also, however, hailed the power of globalisation to reduce poverty and warned against protectionism.

“The acceleration of travel and technology and telecommunications — together with a global economy that depends on a global supply chain — makes it self-defeating ultimately for those who seek to reverse this progress,” he said. “Today, a nation ringed by walls would only imprison itself.”

Controversial deals 2: TTIP

What is it? The EU and US launched negotiations on what could be the largest regional trade deal in history, the Transatlantic Trade and Investment Partnership, in 2013.

Why has it stalled? The TTIP has faced increasing political opposition in Europe based on concerns over everything from different rules on food safety to its inclusion of an international investment dispute resolution mechanism that opponents claim would give US companies special rights to sue EU member governments and block environmental and other regulations.

Christine Lagarde, the IMF’s managing director, has also been among those calling for more to be done to help those left behind by globalisation. In the US she has provocatively urged a policy shift to “redistribution” — including higher taxes on the rich, more focus on education and job training and even an increase in the federal minimum wage.

“What we need is a globalisation that works for all,” she said this month.

The shift in rhetoric resonates with Angus Deaton, winner of the 2015 Nobel Prize for economics. In research published last year, the Princeton economist and his wife, Anne Case, documented an alarming surge in deaths among poorly-educated middle-aged white men in the US largely due to suicides and drug overdoses. One explanation lay in the rising economic insecurity in parts of the country hit by losses of jobs to automation and globalisation, they suggested.

Mr Deaton remains a staunch defender of globalisation’s benefits. “What is crazy is that some of the opponents of globalisation — including some people that ought to know better — forget that a billion people have come out of poverty largely because of globalisation,” he says.

But he also argues that economists and other advocates have a moral responsibility to no longer ignore those left behind. “What is happening right now is a very sharp kick in the shins to tell us that you are not entitled to do that,” he says.

There are also those who argue for a radical rethink — and who view the sort of mea culpas offered by Mr Obama and Ms Lagarde with scepticism.

In his 2011 book The Globalisation Paradox, Dani Rodrik, a professor at Harvard’s Kennedy School of Government, offered what he called the “fundamental political ‘trilemma’ of the world economy: we cannot simultaneously pursue democracy, national determination and economic globalisation”.

Today, Mr Rodrik argues his point is being made for him by volatile politics. And yet, he says, technocrats like Ms Lagarde still miss the bigger picture by continuing to push for trade agreements and ever more open economies despite the protests.

“The main constraint on the global economy right now is not that it is not sufficiently open. It’s very open. The main constraint is really that the system lacks legitimacy,” he says.

Expedient politics

Amid such debates the drive to defend the cause of free trade is creating unusual political alliances.

In a meeting last week to promote TPP, Mr Obama was joined at the White House by John Kasich, the former Republican presidential candidate, and business executives including Michael Bloomberg and IBM chief executive Ginni Rometty.

Mr Bloomberg and Tom Donohue, the long-time president of the US Chamber of Commerce, lambasted both Mr Trump and his Democratic rival Hillary Clinton for opposing the TPP, pointing out that international trade had benefited Americans for decades by bringing down the cost of consumer goods.

“When was the last time you heard a candidate say you ought to pay more for groceries and underwear?” they wrote before the White House meeting.

Also lining up improbably with Mr Obama are political arch-enemies such as Charles and David Koch, the billionaires who have spent millions opposing the president’s agenda over the past eight years.

The Koch brothers have pointedly refused to back Mr Trump, in part due to the businessman’s protectionist trade rhetoric. This year their fire is instead aimed at congressional races and ensuring opponents of “economic freedom” do not make gains, says Tim Phillips, president for Americans for Prosperity, their political vehicle.

They are also trying to ensure that after its flirtation with Mr Trump the Republican party returns to its pro-market roots by opening a special “leadership academy” for activists and candidates that includes lectures on the benefits of free trade. “It is easy to demagogue free trade and it is easy to point to where there are problems. We are going to point out what the virtues are,” Mr Phillips says.

Controversial deals 3: Ceta

What is it? The Comprehensive Economic and Trade Agreement has been negotiated between the EU and Canada and aims remove tariffs and other obstacles to trade.

Why has it stalled? Opponents in both Europe and the US see the CETA as a proxy for the much larger TTIP and object to its inclusion of a controversial mechanism to resolve investment dispute that they argue gives too much power to international corporations.

The case for trade and the TPP has largely been won in Nebraska, a proud farm state that sends beef and soybeans around the world.

“We are the 38th largest state, population-wise, but we’re the fourth-largest agricultural exporter. So you don’t have to study economics very long to figure out that we have to look at markets outside the borders of the United States,” says Greg Ibach, director of the Nebraska Department of Agriculture.

Barb Cooksley, a fourth-generation rancher who is president of the Nebraska Cattlemen Association, says TPP would provide a badly needed boost at a time of rising international competition and lower prices. A recent trade agreement between Australia and Japan, which gives Australian producers easier access to the Japanese market, is costing US exporters $400,000 per day, she says.

But times have been tough for many Nebraskan farmers as a result of the collapse in commodity prices. For that reason Mr Ibach says the tough-on-trade message of candidates like Mr Trump is appealing to many in farm country.

An overwhelmingly Republican state, Nebraska last voted for a Democrat for president in 1964.

Although Mr Obama won a lone electoral college vote in the second district in 2008 and Mrs Clinton campaigned with Mr Buffett in Omaha this summer, there are few signs Mr Trump will lose the state.

Mrs Cooksley’s conservative loyalties are overwhelming her pro-trade economic beliefs. “Who am I voting for? I’m voting for Donald Trump,” she says.

That is in part because she hopes that Mr Trump will change his policies on trade. “I feel there’s an education cure there,” she says. “He is a businessman. If we can show him how this [the TPP] is good business for the nation maybe we can convince him.”

A timeline of world trade deals

1 1944 More than 700 delegates from 44 countries gather at the Mount Washington Hotel in Bretton Woods, New Hampshire, to hash out the terms of a postwar economic order

2 1948 The General Agreement on Tariffs and Trade takes effect, lowering more than 45,000 tariffs. It remains the basis of global trade rules

3 1957 The Treaty of Rome creates the European Economic Community, which eventually forms the basis of the world’s largest free trade zone

4 1986-94 Uruguay Round leads to the creation of the World Trade Organisation

5 1994 North American Free Trade Agreement comes into force

6 1999 Anti-globalisation protests break out at the WTO’s ministerial meeting in Seattle

7 2001 China joins the World Trade Organisation

8 2008-09 Global financial crisis leads to the biggest collapse in world trade since the 1930s

9 2011 “Occupy” protests break out in the US and other countries

10 2013 US-EU negotiations over a Transatlantic Trade and Investment Partnership launched. They quickly draw fierce opposition in Europe

11 2015 The US, Japan and 10 other countries conclude talks over a Trans-Pacific Partnership. It is opposed by Republican Donald Trump and Democrat Hillary Clinton, who hailed it as a “gold standard” for trade agreements while serving as secretary of state

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