Despite the U.S. Boom, Free Trade Is Off Track

Support for free trade is dropping fast. In a recent poll, 58% of Americans agreed with the statement that foreign trade is “bad for the U.S. economy because cheap imports hurt wages.” Only 32% agreed with the statement that trade is “good for the U.S. economy; it creates foreign demand, economic growth and jobs.”

Presidential aspirant Pat Buchanan may be the most vocal isolationist, but few other politicians these days dare push for free trade. Until recently, Bill Clinton was lobbying Congress to allow China into the World Trade Organization and to pass fast-track legislation so that he could get new trade treaties approved without amendment. But now, with an election season looming (and after NATO’s accidental bombing of China’s embassy in Belgrade), the president has changed his tune. Last weekend, during a commencement address at the University of Chicago, he said he’d support new trade agreements only if they were linked to strong guarantees on worker rights. “We have to build a system that is both free and fair and not just to workers in the United States,” he said. Future free-trade agreements have to “lift everybody up, not pull everybody down.”

Nice sentiments. But how do you pull everybody up when millions of people around the world are eager to work for a few dollars a day? Should we demand that every nation’s workers be paid at least the equivalent of America’s minimum wage, work no more than 40 hours a week (with time-and-a-half for overtime) and be as safe at the workplace as Americans? Poorer nations couldn’t possibly afford these things. Such requirements would effectively ban most imports and cost American consumers a fortune.

Why is free trade losing support at a time when the American economy is soaring? Because the vigorous economic expansion of the 1990s hasn’t helped all Americans. The share of U.S. income going to the bottom 60% of American families has continued to fall, while the share going to the top 5% has reached a postwar high. Only workers above the 75th percentile of the wage-and-salary scale--almost all of them college graduates--have enjoyed significant real increases in their take-home pay. The higher one goes up the wage distribution ladder, the larger the rise in pay.

The rate of corporate layoffs, meanwhile, has steadily increased. There were more layoffs last year than in any year since 1993, when the nation was emerging from recession. And so far this year, the rate is running ahead of last year’s. To be sure, with very low unemployment, most people who lose their jobs don’t have great difficulty finding new ones. But if they’re among the three-quarters of working Americans who lack a university degree, the new job is likely to pay 20% less than the old.

Trade isn’t the only force underlying these trends, of course. Technological change is as important, if not more so. But trade is more visible. A job that goes abroad packs a bigger political wallop than one that’s automated out of existence.

If a larger portion of the American public is to support free trade, they’ll need better assurance that trade will work to their advantage. Here are three key steps:

* Turn unemployment insurance into wage insurance. Unemployment insurance was originally intended as temporary income support during economic downturns, until the old jobs returned. But it’s less relevant today, when most workers who lose their jobs never get them back. Their major worry is that the new job will pay less. Wage insurance would would make up a portion of the difference between old and new for a fixed period of time.

* Make job training part of a broader social agenda to help ensure that working people stay out of poverty. Retraining is helpful, but it’s not the whole answer. When I was secretary of Labor, I used to hear the same cynical refrain: “Sure, there are plenty of jobs to be retrained for. I should know. I’ve got three of them.” A broader agenda would include a larger and more generous earned income tax credit, a higher minimum wage and more affordable health care.

* Make sure foreign workers get progressively higher wages and better working conditions as they become more productive. Rather than try to “lift everybody up” to American standards, a more reasonable objective would be to lift foreign workers up to a standard their nations can afford. As nations become wealthier and more productive, such standards would rise. This would help assure Americans that all nations were playing by the same rules and building strong middle classes along the way.

Trade is too important to fall victim to election-year politics. But it’s certain to be a casualty unless it’s combined with policies that spread its benefits more widely.