When Barack Obama was elected back in 2008, he committed to breaking with the same flawed trade policy the United States has followed for a generation. Obama promised a new page, one that focused on creating American jobs and protecting the environment. Instead, his administration has flip-flopped on these campaign promises and is now pushing free trade agreements (FTAs) that are projected to cost American jobs, undermine U.S. negotiating credibility, and could even dampen the president's electoral prospects in 2012.
For years, U.S. trade policy has ignored America's massive trade imbalance with China and focused instead on expanding the controversial North American Free Trade Agreement (NAFTA) model -- in which corporate profits are protected, but jobs are offshored -- to additional countries. Obama came into office promising to change that; he made specific commitments to alter the NAFTA model going forward, renegotiate NAFTA itself, and take action on China's overvalued currency. These reform promises were partnered with intensive trade-focused member outreach by unions, and they helped move white working-class voters into Democratic majorities in key swing Midwestern states during the 2008 campaign.
But Obama has kept none of his promises. Instead, he appointed Clinton-era officials, such as Larry Summers and Timothy Geithner, who remain staunch defenders of the trade status quo. The administration has tried to push through three FTAs left over from George W. Bush's administration, meeting resistance from Congress and the Democratic political base.
No wonder Americans are angry. Since NAFTA went into effect in 1994 and the World Trade Organization (WTO) began its operations a year later, 43,000 American manufacturing establishments have closed, more than 5 million manufacturing jobs have been lost, median real wages have stagnated, and inequality has skyrocketed to levels not seen since the robber-baron age. Brand-name goods once made in the United States are now being made offshore and imported back for sale, leading to massive, growth-dragging trade deficits. There's not even evidence that the trade agreements do the one thing they're assumed to: boost U.S. exports to foreign markets. U.S. exports to the 17 countries with which the United States has active NAFTA-style trade deals have grown at half the pace of exports to countries with which Washington has not signed deals, putting these pacts into perverse conflict with the administration's stated goal of doubling U.S. exports.
NAFTA-style deals also make it easier to offshore jobs by limiting the risks U.S. firms face when relocating to low-wage countries. Multinational corporations have long complained that foreign judicial systems provide unreliable protection for their overseas investments, not to mention the risk that governments there might introduce new labor or environmental regulations they don't like. Presumably, these concerns are an important barrier to shuttering factories in places like Peoria and Buffalo.
But now, NAFTA-style deals make it easier to offshore, removing this deterrent. They allow corporations to bypass national judicial systems and launch attacks on governments in international tribunals for interfering with their future expected profits. The judges for these cases are selected in part by the corporation, and the trade-pact rules they judge against have been tailored to corporate demands.
Often the mere threat of one of these cases can cast a chill on public-interest regulation. For instance, in August of last year, Canada paid U.S. firm AbitibiBowater $130 million to stop the company's NAFTA arbitration from going forward. The company argued that NAFTA gave it the right to resell its timber-harvesting licenses and water-use permits after having closed down a paper mill in Newfoundland. Canadian legal scholars argued that the federal government's concessions to AbitibiBowater undermined the "concept of water as a public trust" and created new property rights where Canadian law does not usually recognize any. All told, more than $350 million has been paid to date in these cases; there are nearly $9.1 billion in claims in the 14 investor-state cases outstanding under NAFTA-style deals, relating to environmental, public health, and transportation policy.