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Trade deals boost those at the top, bust the rest

Robert Reich, professor of public policy | February 17, 2015

Suppose that by enacting a particular law we’d increase the U.S.Gross Domestic Product. But almost all that growth would go to the richest 1 percent.

The rest of us could buy some products cheaper than before. But those gains would be offset by losses of jobs and wages.

This is pretty much what “free trade” has brought us over the last two decades.

I used to believe in trade agreements. That was before the wages of most Americans stagnated and a relative few at the top captured just about all the economic gains.

map of free-trade areas

Free-trade areas with three or more participants (Emilfaro via Wikimedia Commons)

Recent trade agreements have been wins for big corporations and Wall Street, along with their executives and major shareholders. They get better access to foreign markets and billions of consumers.

They also get better protection for their intellectual property – patents, trademarks, and copyrights. And for their overseas factories, equipment, and financial assets.

But those deals haven’t been wins for most Americans.

NAFTA flag

Flag of the North American Free Trade Agreement

The fact is, trade agreements are no longer really about trade. Worldwide tariffs are already low. Big American corporations no longer make many products in the United States for export abroad.

The biggest things big American corporations sell overseas are ideas, designs, franchises, brands, engineering solutions, instructions, and software.

Google, Apple, Uber, Facebook, Walmart, McDonalds, Microsoft, and Pfizer, for example, are making huge profits all over the world.

But those profits don’t depend on American labor — apart from a tiny group of managers, designers, and researchers in the U.S.

To the extent big American-based corporations any longer make stuff for export, they make most of it abroad and then export it from there, for sale all over the world — including for sale back here in the United States.

The Apple iPhone is assembled in China from components made in Japan, Singapore, and a half-dozen other locales. The only things coming from the U.S. are designs and instructions from a handful of engineers and managers in California.

rally in NZ against free-trade agreement

Rally against the Trans-Pacific Partnership Agreement, Wellington, NZ (Neil Ballantyne via Wikimedia Commons)

Apple even stows most of its profits outside the U.S. so it doesn’t have to pay American taxes on them.

This is why big American companies are less interested than they once were in opening other countries to goods exported from the United States and made by American workers.

They’re more interested in making sure other countries don’t run off with their patented designs and trademarks. Or restrict where they can put and shift their profits.

In fact, today’s “trade agreements” should really be called “global corporate agreements” because they’re mostly about protecting the assets and profits of these global corporations rather than increasing American jobs and wages. The deals don’t even guard against currency manipulation by other nations.

According to Economic Policy Institute, the North American Free Trade Act cost U.S. workers almost 700,000 jobs, thereby pushing down American wages.

Since the passage of the Korea–U.S. Free Trade Agreement, America’s trade deficit with Korea has grown more than 80 percent, equivalent to a loss of more than 70,000 additional U.S. jobs.

The U.S. goods trade deficit with China increased $23.9 billion last year, to $342.6 billion. Again, the ultimate result has been to keep U.S. wages down.

The old-style trade agreements of the 1960s and 1970s increased worldwide demand for products made by American workers, and thereby helped push up American wages.

The new-style global corporate agreements mainly enhance corporate and financial profits, and push down wages.

That’s why big corporations and Wall Street are so enthusiastic about the upcoming Trans Pacific Partnership – the giant deal among countries responsible for 40 percent of the global economy.

That deal would give giant corporations even more patent protection overseas. It would also guard their overseas profits.

And it would allow them to challenge any nation’s health, safety, and environmental laws that stand in the way of their profits – including our own.

The Administration calls the Trans Pacific Partnership a key part of its “strategy to make U.S. engagement in the Asia-Pacific region a top priority.

Translated: The White House thinks it will help the U.S. contain China’s power and influence.

But it will make giant U.S. global corporations even more powerful and influential.

White House strategists seem to think such corporations are accountable to the U.S. government. Wrong. At most, they’re answerable to their shareholders, who demand high share prices whatever that requires.

I’ve seen first-hand how effective Wall Street and big corporations are at wielding influence — using lobbyists, campaign donations, and subtle promises of future jobs to get the global deals they want.

Global deals like the Trans Pacific Partnership will boost the profits of Wall Street and big corporations, and make the richest 1 percent even richer.

But they’ll bust the rest of America.

Cross-posted from Robert Reich’s blog.

Comments to “Trade deals boost those at the top, bust the rest

  1. A Socially Benevolent Taxation Scheme: When Walmart pays corporate taxes at 35% on its profits and GE pays 0% on its profits, the system of taxation of institutions is out of kilter, candidate for radical revision. When widespread unemployment and low wages predominate a society, the loading up of surcharges on labor (health care costs, social security costs, income tax costs, etc.) do nothing but discourage workers and employers from creating jobs. When 99% of the populous is in perpetual stagnation, while income on wealth is taxed at half the rate of labor, the term “REDISTRIBUTION” is being hawked to be a dirty word.

    For the good of the country henceforth all business-owner-employer-worker entities should be taxed on a progressive sliding scale keyed to the ratio for each entity of its PROFIT DIVIDED BY THE NUMBER OF PEOPLE IT EMPLOYS IN THE U.S. with the taxes increasing as that ratio increases. A Hollywood divorce lawyer with 2 paralegals making $5,000,000 annually would stand to be taxed at the highest rate. (50%? 75%? to be debated.)

    For Warren Buffett with 100 employees in Omaha and $20B/year profit maybe replacing his current 15% tax rate with an 80% tax rate would not be egregious at all, considering the destruction of the middle class during the last 40 years. Society would reap $13B/yr more from that one institution alone ($40 more a year personally for every American), which otherwise goes to Berkshire Hathaway’s hoarding of assets from the general population.

    Conversely, if Walmart’s tax on its $130B/yr profit is reduced from 35% to 5% because it employs 600,000 workers (a socially good thing, were it not for the exploitive wages) it then has $39B/yr more after taxes with which it can afford to raise each of its 600,000 workers salary by $65,000/yr. And pressure to hire workers created by such a change in tax incentives would bring such higher income levels to become the general wage norm for a resurgent middle class, sweeping Walmart along as it competes for workers who have been given an upper hand. And such a tax regime would nullify the current incentives for companies to shed U.S. workers and relocate overseas for foreign labor, which foreign workers would not be counted in their ratio of profit divided by the number of their American employees.

    Increasing foreign workers to the detriment of U.S. workers would only drive up their ratio and raise their tax rate. And it’s a sure bet that turning on a dime, Warren Buffett will be doing public private bridge repair and infrastructure finance with a private army of one million workers, while reducing his tax rate to 5% on his profits, thanks to the new on shore tax haven to be found in the hiring of American workers in America’s heartland.

    Taxation should not be based on the old warring concepts: consumption tax vs income tax, progressive tax vs flat tax, property tax vs tax on labor. The new purpose for taxation in our time has to be the maximizing of work for all and the rewarding of work for all.

  2. Samsung and LG build their phones in Korea.

    The Korean government grants concessions to its large corporations, but it does so with the expectation that those corporations will confer benefits to the nation, like manufacturing jobs. It acknowledges that some things have to be made off shore, but not all things.

    There is an upside for building in the country: smaller transaction cost. They can set up and make changes quickly which in the cell phone environment is important – cell phones are generally obsolete in 6 months. Samsung is pumping out cell phones for every market, every price and feature point, and every size. I they make something that’s a mistake they can fix the change quickly. Some say their new Galaxy S5 is a mistake becaues you can’t pop the back off and change the battery and add memory. It that turns out to be the case, they’ll be able to fix it in short order because the engineers and the factory are near each other and they all speak the same language, and that way they don’t have to worry about protecting their intellectual property rights.

    Notice that Korea is not part of the PPT. With steel, shipbuilding and increasingly autos and cell phones being made in China, The Korean government can’t afford to lose too many jobs. Samsung can’t be a dilettante that floats around and dances with the country with the cheapest manufacturing cost. The local government would make life very difficult. Moreover, Samsung knows its job is to deliver jobs and export profits into Korea. Economically speaking Samsung is a patriot.

    The reason Apple’s stock price and profits are so rediculously high is, they make everything in the cheapest place possible. They could make there stuff anywhere and still make fantastic profits. But, fantastic profits isn’t enough for Apple. They are no patriot. They are just a corporation that just happens to be head quartered in California.

  3. Robert Reich minimizes Apple’s presence in the U.S. with a glib, fictionalized statement: “The only things coming from the U.S. are designs and instructions from a handful of engineers and managers in California.”

    However, any informed person in the Bay Area has a different perception: “The new Apple campus, on a site now totalling 175 acres (0.71 km2), is planned to house up to 13,000 employees in one central four-storied circular building of approximately 2,800,000 square feet (260,000 m2), which will include a café for 3,000 sitting people.” (See the Wikipedia entry.)

    A person who utters untrue statements causes many people to believe that a preconceived agenda is trumping objectivity. And so that person making the untrue statement can appear to be a quack, which is unfortunate because the tax avoidance which Apple and other multinationals profit from is real and significant and needs to be a cause for concern, and alarms on this need to be believed.

    • You didn’t prove Reich wrong. Apple has a lot of engineers working in the USA, but very little % of its manufacturing. It recently helped a supplier install a factory in the Pheonix area, but that was because it wanted to protect the IP going into that manufacturing. It chose Phoenix because of its proximity to a malquiadoro factory in Cuidad Juarez across the border in Mexico that uses that component that will be made in Phoenix.

      Those engineeers will produce design and manufacturing specs that will be sent overseas.

      Moreover, Reich LIVES N THE BAY AREA – HE’S ON THE FACULTY AT UC BERKLEY – AND – he is extremely well informed as that’s what he spends his time doing, as it is part of his job as a professor. And as a former high office government official, he has access to information that many wouldn’t even know existed. He is the epitomy of a well informed person living in the Bay Area.

      A person who utters untrue statements causes many people to believe that a preconceived agenda is trumping objectivity. And so that person making the untrue statement can appear to be a quack, which is unfortunate because the jobs that Apple and corporations are exporting to other countries is real and significant and needs to be a cause for concern and alarms such as Reich posts here, need to be believed.

      America has a deficiency of demand. Demand comes from wages. By outsourcing jobs to overseas, American corporations are undermining their own country and their own communities. How much of this can go on until America resembles Haiti?

  4. Prof. Reich, as you conclude: “But they’ll bust the rest of America.” No wonder very large majorities of regular folks don’t believe anything experts say anymore.

    See latest National Geographic News report on Pew Polls:

    Poll Reveals Rift Between Scientists, Regular Folks

    When it comes to food, energy, and education, Americans don’t follow experts’ lead.”

    Berkeley, we’ve got a problem!

    How do we fix this, Prof. Reich, when no one has enough credibility anymore and the long-term future of the human race depends on intellectuals like yourself making the right things happen? Because, as you say, politicians are controlled by “lobbyists, campaign donations, and subtle promises of future jobs to get the global deals they want.”

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