With the winds of trade war blowing as they have not done in decades, and Left and Right flirting with protectionism, leading economist Kimberly Clausing forcefully shows how a free and open economy is still the best way to advance the interests of working Americans in her new book Open: The Progressive Case for Free Trade, Immigration, and Global Capital. We asked her a few questions about the book to help us navigate the debates currently convulsing national and international economics and politics.
We're living in a time of political polarization, but many on the left and the right are in agreement in their hostility to globalization. Is this agreement misleading? Are they concerned about the same things?
Those that are hostile to globalization are often worried about legitimate concerns: the difficulty of supporting a family in today’s marketplace, the fiercely competitive nature of labor markets, and the sense that future generations may be left behind by forces they cannot control. Both groups are skeptical of trade agreements that they view as putting business interests before workers’ interests, and they are inclined to blame foreign competition for many of the difficulties facing workers.
In America today, while these themes are seen on both the left and the right, there are still differences. The right is far more skeptical of immigration than the left, and more likely to view foreign workers as a threat. The left is far more skeptical of international business than the right; they are more likely to be concerned about too much power in the hands of multinational corporations.
What would you say each side is missing?
There are three crucial arguments that both sides need to carefully consider. First, while the worries of American workers are very real, global markets are not the sole force responsible for the present state of affairs. Many other factors are more important, including dramatic technological change, increased market concentration (i.e., more companies with “market power”), changes in social norms, and changes in policy.
Second, global markets come with benefits for workers that are insufficiently celebrated. We all are heavily reliant on trade as consumers, but beyond that, trade is also an integral part of our work lives in positive ways; some workers have jobs that produce exports, and many other workers rely on imports as key parts of their production process. Immigration has been a great strength of the U.S. economy in the past, and it is absolutely a great strength at present. Immigrants spur innovation, entrepreneurship, and job creation, and they provide skills that are not easily found in the native population. Immigrants also ease the budget pressures of our swelling retirement-aged population.
Third, curbing global integration is more likely to harm than help American workers. Tariffs are regressive taxes that fall much more heavily on the poor than on the well-off. Trade barriers and trade wars create new labor market “shocks” that cause job loss and hardship; both farmers and auto workers risk losing jobs. Trade wars also alienate our allies, distancing us from important partners that we need to address issues like climate change and tax competition. Finally, America and its workers will be stronger with more, not less, immigration.
Most of us are familiar with arguments in support of free trade from right of center. You think there are good reasons why those on the left should also support it. Could you explain?
As just described, curtailing globalization is a foolish policy response to the problems of American workers. And, importantly, it distracts us from far easier and more effective ways to help workers. For example, consider the new tax law that just took effect in 2018. That law will create additional deficits of over $1.5 trillion (over ten years) in order to pay for tax cuts that mostly benefit those at the top of the income distribution, and the bill provides egregious new loopholes (such as the pass-through deduction) that make our tax system both less equitable and less efficient.
A far better approach would be to genuinely support workers with changes in tax policy. For example, expanding the earned income tax credit and providing wage insurance for displaced workers would be great first steps in that direction. Investing in workers through adequate funding of infrastructure, research, and education is crucial. Expanding the safety net to make health insurance more secure is an essential step. In contrast, the tax bill moved in the opposite direction by repealing the individual mandate to purchase health insurance, an important pillar of the Affordable Care Act.
In terms of economic policy, we can do a lot better. Protectionist trade policies, and the gratuitous blaming of immigrants, are not only wrong on their face, but they also distract us from urgent economic policy priorities.
But you're not complacent about the effects of globalization. You admit it has real victims. Is the question for you, then, not whether or not there should be globalization, but what sort of globalization we should have and how to change or compensate for it?
Exactly. We should remain open to the world economy, but there are many important policy steps that we can take to make our global economy more compatible with the needs of workers, responding to decades of wage stagnation and surging income inequality.
As one step, we can also work to foster better trade agreements that counter policy competition and address areas that require global cooperation. But many key responses are steps that the United States can take on its own. We can do a far better job supporting workers and communities by making investments in workers, infrastructure, and education. We can reform the tax system to make sure that growth in national income benefits nearly all Americans. This means lower taxes for those at the bottom, and it also means higher contributions from those at the top, but careful reforms can reduce the gimmicks and shenanigans that litter our present tax system, creating more tax revenue at reasonable tax rates. And, importantly, we can pursue a better partnership with the business community, where we address undue market power and encourage transparency and social responsibility on issues like taxation and labor. The business community, in turn, will benefit from open markets and fair, simple regulations and taxes.
Are you optimistic that we can shape globalization so that it serves progressive, as well as more conservative, goals?
At present, political polarization is a big hurdle. In the book, I have a few starter ideas for how to combat that. Foremost, it is important for policy makers and thinkers to focus on pragmatic policy options that respond to the needs of workers without turning to extreme or counterproductive solutions. Raising barriers and walls are steps that are likely to harm American workers. Socialism (defined traditionally) is not a remotely viable solution, but there are many smart, reasonable things we can do to help workers and keep America economically strong and open.
