This mix of barrier reductions and barrier increases of “free trade” had the unambiguous effect of shifting income from ordinary workers to highly educated workers.
Dean Baker is a Senior Economist at the Center for Economic and Policy Research (CEPR)
Cross-posted from the CEPR Blog
Over the last four decades, administrations of both political parties have pushed trade deals that were designed to redistribute income upward. These deals were routinely referred to as “free trade” deals, implying that they were about eliminating barriers to trade.
This was clearly not true. The trade agreements did remove barriers to trade in manufactured goods, thereby putting downward pressure on the wages of manufacturing workers and workers without college degrees more generally. However, they did little or nothing to remove barriers in highly paid professional services, such as those provided by doctors and dentists. And they increased some barriers, most notably government-granted patent and copyright monopolies.
This mix of barrier reductions and barrier increases had the unambiguous effect of shifting income from ordinary workers to highly educated workers. Stronger patent and copyright protections make people like Bill Gates and workers in the biotech industry rich; they don’t put money in the pockets of retail clerks, truck drivers, and custodians. In fact, patents and copyrights take money out of their pockets since they make them pay more for drugs, medical equipment, software and thousands of other items, thereby reducing their real wages.
It is understandable that the proponents of these trade deals liked to call them “free trade.” After all, that sounds much better than “market rigging” deals. For some bizarre reason the opponents of these trade deals also generally called them “free trade” deals.
Apparently, they felt that it was better politically to attack “free trade” than trade deals that redistribute income upward. That seems close to nuts to me, but hey, I’m an economist, not a political strategist.
Anyhow, with this background in mind, I was very glad to see an NYT piece this morning on the potential risks to the U.S. economy from slower growth in China. Towards the end, the piece discusses the geopolitical implications of a weakening Chinese economy:
Aside from any direct financial and economic spillovers, it’s worthwhile to consider whether a faltering China meaningfully alters geopolitical dynamics and American interests.
Washington has long fretted that a China-dominated trading bloc could limit market access for American companies by setting rules that, for example, contain weak protections for intellectual property. Such a trade agreement came into force in early 2022 after the United States abandoned its push to form the Trans-Pacific Partnership.
Note that the piece very explicitly says that a main purpose of the Trans-Pacific Partnership (TPP) was strong protections for intellectual property claimed by U.S. corporations. This is of course true. The agreement would likely have been finalized at least two years earlier if the United States had not been fighting over rules on data exclusivity for the pharmaceutical industry.
Incredibly, the TPP was often referred to as a free-trade deal, even though it had very little to do with reducing traditional trade barriers. In fact, the United States already had “free-trade” agreements with six of the other eleven countries in the proposed pact and had low tariffs with most of the others. (Vietnam was the exception.)
Anyhow, it is good to see the NYT speaking honestly about the TPP. It was not a free trade deal, it was a commercial agreement that was structured to increase the profits of U.S. corporations.