The Politics of Trade and Pie

Grappling with the Seismic Realignment

As both of America’s political parties swing decisively against free trade in their convention platforms this summer, a cockeyed optimist may be tempted dismiss the documents as the meaningless quibbling of ideologues.

That would be a mistake.

Increasingly, the great political divide between left and right has blurred, and the fiercest debates are no longer about whether the country’s problems are best solved by more government involvement or less. The new battle lines are now drawn more around the consequences for Americans of rapid communication, cheap transport and growing global trade flows over the last two decades. The new divide separates those emerging as beneficiaries of these changes and those who are its victims.

And rooted deep within that conversation is some version of the classic economic metaphor about pie — whether commercial exchange makes the pie larger for all or whether more pie for some means less pie for others.

While the pro-trade forces can muster overwhelming economic evidence that free trade makes the pie grow, it does not grow for everyone and the immediate losers have been offered precious little support to navigate the forces of globalization.

Small businesses can now find new buyers overseas with a fresh website and a package delivery service, but large manufacturing plants now sit idle because of excess capacity in China. Immigration brings new workers and fresh ideas, but it also brings competition for jobs that makes integration difficult and and fuels resentment.

And it seems that the urge to build barriers — or at least slow the pace of integration — has been gaining beyond America as well.

— In Europe, the Brexit referendum may be the most dramatic expression by voters attempting to resist the forces of globalization, but Europe’s broader efforts to negotiate trade deals took a further blow this month when member states insisted on the right to vote separately on the EU’s new trade agreement with Canada.

— Tanzania’s government shocked its neighbors in recent weeks by pulling out of a trade deal with the European Union, ostensibly so that it can better protect its manufacturing industries with new tariffs. Uganda soon followed suit.

— The World Trade Organization, whose multilateral negotiations have delivered precious little lately, reports that the G-20 economies have rolled out nearly 150 new protectionist measures since last fall in spite of repeated pledges by their leaders to resist the temptation.

President Obama’s signature trade agreement, the Trans-Pacific Partnership, may just sneak through Congress in a lame duck session after November’s presidential vote, but we will likely be left with a country that is even more divided on trade than ever.

Pitting, as it does, Republicans against Republicans and Democrats against Democrats, America’s entire political system faces seismic realignment over trade. Europe’s does too.

If this debate focuses on real measures that can help protect the losers from globalization or prepare them from the inevitable forces of change, then workers and voters across the political spectrum will benefit.

How, for example, can we design an educational system that prepares people for several different careers across their time in the workforce? How do we better control immigration, while remaining open to new flows of people and ideas and skills that fuel economic growth? How can we encourage our trading partners to raise labor standards, defend intellectual property rights and protect the environment? (Spoiler Alert on this last question: TPP requires binding commitments on all three areas.)

On the other hand, the current discussion centers more around attempts to claim control over forces of globalization that are uncontrollable, which makes the debates so dark and caustic. They promise a return to an America of yesteryear that either never was or cannot be recreated in the current configuration of the global economy.

There will always be some form of buying and selling among people and countries regardless of whether we have trade agreements. The trade deals simply try to make the exchanges fair and the playing field level. Abandoning agreements will not stop trade, let alone the grand readjustments in the global economy that come from the arrival of the Internet and rise of emerging markets.

Successful political leaders in the current grand realignment will need to be open to an honest discussion. They will need to explain that trade discussions should be a constant conversation among partners rather than a volley threats meant to extract one-off concessions. They will need to focus creatively on programs to help workers in industries that are hurt by globalization and will likely be hurt with or without an agreement.

Most importantly, they will need to champion the idea that the more we shape the forces of integration rather than ignore them, the more pie there will be for everyone.

Christopher Smart was a 2016 Spring Fellow in the Institute of Politics (Harvard IOP) and will be a Senior Fellow at the Mossavar-Rahmani Center for Business and Government (@HKS_BizGov) at the Harvard Kennedy School of Government. An international investment manager with long experience in Emerging Markets, he served in senior roles in the Obama Administration at the Treasury and the White House. Follow him on Twitter at @csmart.