"Free Trade - Unions, 1; Economy, 0"

Sydney M. Williams

Thought of the Day

“Free Trade – Unions, 1; Economy, 0”

May 18, 2011
Free trade agreements with South Korea, Colombia and Panama appear to have been sacrificed on the altar of politics. On Monday the White House said it would not seek Congressional approval, as the New York Times put it, “…until Republicans agree to expand assistance for American workers who might lose jobs as a result.” (Italics mine.) The hold up is over an expansion of the Trade Adjustment Agreement (TAA) program that expired last February. The TAA is a program designed to provide training and assistance to those whose jobs have been displaced because of foreign competition. Two years ago, as apart of President Obama’s stimulus package, the program was expanded. It is this expansion that has become the source of conflict.

Thus, the question facing Congress is one of measuring the costs of the expanded program versus the jobs and dollar revenues that would be created with an expansion of trade. Prior to the expansion of the TAA, annual cost estimates were about $800 million. Against those costs (and ignoring the costs of the plan’s expansion,) about 380,000 jobs would be added and increased revenues from exports would be in the range of $10-12 billion.

Increasing employment should be the number one goal of Congress and the President, and these free trade agreements would add jobs. In January 2009, five months before the recession officially ended, there were 11.6 million unemployed in the U.S. The unemployment rate was 7.6%. Today, twenty-six months later and almost two years into the official economic recovery, there are 13.7 million unemployed and the unemployment rate is 9.0%. If increasing exports adds to GDP and increases net employment, the decision to approve these trade pacts would seem obvious. It is unfortunate that some workers will be displaced, but permitting unions to dictate policy that benefits the few at the expense of the many seems foolish. The U.S. labor market is extremely dynamic. According to Robert Nichols, President and COO of Financial Services Forum, the U.S. economy in 2007 created 30 million jobs, while losing 29 million – in other words, about one quarter of all jobs in the U.S. terminate every year and about the same number are created!

Nevertheless, there is no question that providing assistance and training to those who lose their jobs because of specific governmental actions should be the responsibility of that government. The Trade Adjustment Agreement program was authorized under the Trade Expansion Act of 1962. It was formed at a time when President Kennedy was interested in expanding free trade. He said at the time: “When considerations of national policy make it desirable to avoid higher tariffs, those injured by that competition should not be required to bear the full brunt of the impact. Rather, the burden of economic adjustment should be borne, in part, by the federal government.” The statement still holds, but it must be balanced against costs and incentives.

The “expanded” TAA program in 2009 provided idled workers a total of 156 weeks of “income support.” That is in addition to existing retraining programs and the 99 weeks of unemployment benefits available to all who lose their jobs. There is a fine line between providing needed necessary help and providing disincentives to seek new jobs. Five years seems a long time to pay someone for looking for a new job, even if government created the vacuum. Welfare reform, a popular program in the 1990s, addressed similar concerns by adding a workforce development component to welfare legislation, encouraging employment among the poor. The Bill (the Personal Responsibility and Work Opportunity Reconciliation Act of 1996) was introduced by the Republican Congress and signed into law in 1996 by President Clinton, fulfilling his promise to “end welfare as we know it.” Something similar should be a focus of the Administration, as it applies to the TAA program.

It seems odd that this turnabout on the part of Mr. Obama, in backing away from these three free trade agreements, happened at this moment – so suddenly and without warning. On April 7th, a month and a half after Congress repudiated the expansion of the TAA, President Obama referred to the agreement with Colombia as a “win-win” victory. Three weeks later, on April 28th, Mr. Obama commended Panama’s President for his leadership in resolving issues that had stalled the free trade agreement with that country. It’s hard not to conclude that unions, emboldened by the NLRB decision, enjoining Boeing from establishing an assembly line in South Carolina, decided to play hardball with the President.

The advantages of expanded free trade certainly outweigh the disadvantages. Unfortunately in a dynamic economy, especially one that has become increasingly global, there is no way to treat all parties equally. The government has a responsibility to provide equal opportunity to all, but it cannot (and should not) guarantee equal outcomes. There is much that government can do in terms of education and much that they should do in terms of immigration, but to deny the global competitiveness of the world in which we live – to deny businesses and farmers from potential markets and to disallow consumers from less expensive and more varied goods – is to move backward, not forward.

Unions served a valuable purpose, as our country was industrializing; they were instrumental in establishing fair rules, in providing a living wage and elevating workers from the desperate conditions of their workplace. They created the means, via pension funds, that allowed workers to share in the wealth they helped create. However, things have changed. Union bosses are using their clout to maintain relevance in a rapidly changing world. They have become the single largest provider of funds to either political party. They have encouraged the elimination of secret ballots. They are attempting to deny the right to work to the 90% of the labor force who have chosen not to join their unions. The world has moved on, and they have remained mired in the past. What remains is a symbiotic relationship between union leaders and the leadership of the Democratic Party – the effect is damaging to an economy that is facing increased global competition. The setback on the free trade agreements is only the latest example.