Warren’s Trade Plan Does Poor Nations No Favors
JC News|Aug. 13, 2019
(Bloomberg Opinion) -- On both sides of the political aisle, there is a newfound suspicion of trade deals. As soon as he got into office, President Donald Trump pulled out of the multilateral Trans-Pacific Partnership -- something that Senator Bernie Sanders had also called for during the 2016 election campaign. Now, presidential candidate Senator Elizabeth Warren has come out with a plan that would substantially raise the hurdles that future trade deals would have to clear. It would require much more transparency during negotiations, increase the input of labor and environmental groups, and eliminate dispute resolution mechanisms that allow corporations to evade oversight by the courts. And it would impose a tax on the carbon emissions embedded in imports.
Most importantly, the plan would require that any country that enters into a trade deal with the U.S. would have to meet the same environmental, labor and safety standards as the U.S. And it would force a renegotiation of any trade deal that doesn't already include these provisions.
These terms are intended to address the danger of a race to the bottom. For years, labor and environmental activists have feared that if the U.S. trades with countries with lax regulations, American companies will be forced to adopt equally weak standards in order to remain competitive.
This is a reasonable fear -- some evidence does exist linking globalization to regulatory competition. But Warren’s plan is the wrong solution, and risks causing harm to people in the world’s poorest countries while offering little benefit to American workers.
Poor countries tend to have fewer rules for both working conditions and the environment. For example, economist Alan Krueger found that as per capita incomes begin to rise, child labor rapidly vanishes. As countries get richer, local pollution (though not carbon emissions) also tend to decline. That’s consistent with the U.S.’s own history -- horrific industrial accidents, terrible pollution and awful labor standards were all common when the nation was in its early stages of development.
So as developing countries get richer, their citizens will generally demand cleaner air and water and safer, more humane working conditions -- just as happened in the U.S. But closing off U.S. markets to developing-country products could stymie this process.
Much of the work questioning the free-trade consensus has focused on the importance of industrial policy -- poor countries increasing productivity by exporting. The U.S. is a key market for global exports:
In recent years, poor countries such as Bangladesh and Vietnam have been successfully following the export-oriented strategy. A number of countries in Africa may soon follow. This could be crucial to continuing poverty reduction in the developing world.
Forcing poor countries to raise their regulatory standards to rich-country levels before they develop could backfire. If their exports become uncompetitive, this will hold back their industrialization, and they may stay not only poor but dirty, unsafe and cruel.
Proponents of Warren’s plan might argue that this would benefit workers in the U.S., by saving jobs from unfair overseas competition by countries that abuse their workers and despoil their environments. But the upside of clawing back market share in garment or textile manufacturing from Bangladesh or Ethiopia is very limited; if these industries ever return to the U.S., they will almost certainly be automated and produce few new jobs.
Nor is there much to indicate that U.S. environmental and labor standards would improve by curbing globalization. Ronald Davies and Krishna Vadlamannati, the economists who found evidence of a race to the bottom in labor regulation, concluded that it’s mainly among poor countries in Latin America, East Europe and the Middle East where this competition happens. There’s also little evidence that lax regulations make poor countries more competitive vis-à-vis the developed world. Meanwhile, even in the age of globalization, the U.S. has managed to steadily reduce most local pollutantion as well as the number of fatal workplace injuries, suggesting that it hasn’t been hit hard by any race to the bottom.
Enforcement of Warren’s plan could also lead to intrusion into poor countries’ internal affairs. Davies and Vadlammanati found that most of the regulatory race to the bottom came in terms of lax enforcement. In order to verify that Ethiopia or Bangladesh was meeting American environmental and labor standards, a Warren-style system would probably involve extensive U.S. monitoring and investigation into conditions there, as well as unilateral imposition of penalties on countries that failed to enforce the laws imposed by the U.S. treaties. Such a regime could smack uncomfortably of colonialism.
Thus, despite worries over regulatory competition, using U.S. power to enforce domestic standards in impoverished countries is the wrong idea. A better idea is to use independent, multilateral bodies like the International Labour Organization to press poor countries to raise their standards as soon as they are able to do so. Attacking the process of globalization that has done so much to alleviate world poverty is just not worth the meager benefits that might result.
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Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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