Obama's About-Face on Trade
October 20, 2010 · By Roger Bybee
Candidate Obama wanted to stop U.S. companies from sending jobs overseas. President Obama appears, however, to have drunk the free-trade Kool-Aid.
On a frigid Wisconsin day in February 2008, the rapier-like rhetoric of Democratic presidential candidate Barack Obama slashed away at "free trade" deals that have cost thousands of Wisconsin jobs. He bemoaned the overseas flight of U.S. jobs and connected viscerally with thousands of mostly blue-collar workers at a rally at an imperiled General Motors plant in Janesville, Wisconsin that would ultimately close 10 months later.
Obama memorably blamed the economy's unfolding crisis on "a failure of leadership and imagination in Washington.” In this Washington, Obama continued, "decades of trade deals like NAFTA and China have been signed with plenty of protections for corporations and their profits, but none for our environment or our workers who've seen factories shut their doors and millions of jobs disappear; workers whose right to organize and unionize has been under assault for the last eight years."
Throughout the remaining primary season, both Obama and rival candidate Hillary Clinton continued to focus on free trade and the flight of jobs off-shore. They felt compelled to do so in order to keep up with Democratic voters infuriated by corporations abandoning U.S. workers and communities. These perceptions are validated by data from the Public Citizen organization estimating that the United States has lost about 4.9 million jobs and 43,000 factories because of free trade deals like the North American Free Trade Agreement and normalization of trade relations with China. Obama sustained this barrage against free trade during the campaign despite widespread condemnations in elite media.
But now in a startling turnabout, even as the Democrats face a potential electoral disaster in the upcoming mid-term elections, Obama has almost entirely jettisoned his powerful and popular critique of government and corporate policy on jobs and trade. Any public discussion of restructuring the architecture of corporate globalization and reshaping trade deals disappeared once Obama took office.
As president, Obama has surrounded himself with advisors like Treasury Secretary Timothy Geithner, former Goldman Sachs executive Lawrence Summers, and Rahm Emanuel (a key player in Bill Clinton's 1993 drive for NAFTA passage). These advisors hold "free trade" to be an unquestioned article of faith. In 2004, some of the same circle of Wall Street figures--like Robert Rubin and Roger Altman-- persuaded Democratic nominee John Kerry to entirely drop his potent rhetoric about "Benedict Arnold CEOs" responsible for the export of jobs. This advisor-influenced turnaround on trade issues promises to be devastating for U.S. workers as well as the Democratic Party itself.
Defining Down the Problem
As president, Obama has down-sized the issue of free trade and off-shoring. And the issue has gone nowhere in Congress. Denying tax deductions for the costs of relocating equipment overseas and ending the tax deferral on overseas income would have been welcome but modest steps, as would have a tax holiday on payroll taxes for firms bringing jobs back. This proposal, the Create American Jobs and End Offshoring Act, failed at the end of September thanks to unanimous Republican opposition and a handful of pro-corporate Democrats.
But making a relatively small-scale tax change falls far short of what’s needed to stem the outflow of U.S. jobs that Obama raised during his campaign and the expectations he generated among the public. More fundamental than U.S. tax policy are the CEOs seeking wages in Mexico that are about 10 percent of U.S. pay and 3 percent of U.S. pay in China. General Electric has closed at least 18 plants in the past year and off-shored tens of thousands of jobs (GE’s CEO Jeff Immelt, not coincidentally, serves as an advisor to Obama). In his State of the Union speech, Obama sidestepped this issue of overseas wages and CEO decisions to focus instead on the secondary factor of the tax code. He declared, "It is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America." But this, at least, was a strong statement about offshoring.
However, in the same widely broadcast address, Obama deftly slipped in a contradictory message: his intent to carry forward three unconsummated free trade deals left over from the George W. Bush administration. Obama has quietly championed three free trade agreements with South Korea, Panama, and Colombia. The deal with Colombia is particularly noxious given the country’s consistent record of assassinating labor leaders.
Bailouts and Lack of Enforcement
Obama's transformation on free trade, rather than being merely rhetorical, has profoundly shaped policies that undermine U.S. workers' standard of living and the vitality of their communities. These policies – the bailouts of auto companies, the expansion of free-trade agreements – have reinforced the off-shoring of jobs even in the name of rescuing blue-collar jobs in the United States.
The Obama administration's bailout of struggling GM and Chrysler was driven by a philosophy of saving the ocean liner by tossing a huge chunk of the crew overboard. Wall Streeter regulars like Lawrence Summers and Treasury Secretary Timothy Geithner headed up the bailout operation, treating Chrysler and GM as business-school exercises in "turnarounds" that required the ruthless slashing of plants, product lines, and workers. The Automotive Task Force entirely overlooked the opportunity to train tens of thousands of skilled workers and empty plants to build mass transit equipment and clean energy-generating machinery like windmills.
"The administration hasn't come up with anything but a traditional downsizing plan,” observes Frank Emspak, professor emeritus of labor studies at the University of Wisconsin. “You can't just outsource to Mexico and call it a plan for revitalization. It's the exact opposite of what Obama says that he wants to do in terms of stimulating the U.S. economy."
Like the Wall Street bailout loans, the auto bailouts were largely unconditional, in contrast to deals struck by several European governments with their domestic firms. Specifically, U.S. auto firms were not required to maximize employment within the United States. The bailouts will thus mean bringing in 98 percent more components and cars imported from abroad, especially China and Mexico.
Moreover, the Obama administration stood by while Chrysler violated a formal agreement with the United Auto Workers calling for the retention of Chrysler's new engine line in Kenosha, Wisconsin. Instead of honoring the deal, Chrysler transferred 850 jobs from Kenosha to a new low-wage plant in Saltillo, Mexico, a breach of faith with the public that received almost no media attention.
Meanwhile, the denial of labor rights in Mexico remains the cornerstone of its low-wage manufacturing strategy, with government officials and "protection unions" collaborating with corporations to hold down wages. The U.S. and Canadian governments have been unwilling to enforce side agreements established under NAFTA that prohibit violations of labor rights. The Bush administration never filed a single complaint on these grounds. More shocking is that the ostensibly pro-labor Obama administration has also failed to push for recognition of labor rights. "We of the Mineros filed a complaint under NAFTA in 2006 that the Bush administration rejected as premature," notes Carlos Ezquer of the Mineros union. "But in the only case filed since Obama took office, involving Mexican electrical workers, the Obama administration has also postponed taking action."
If Obama's attacks on free trade agreements and the export of U.S. jobs resonated in 2008, public opinion surveys suggest that that a similar appeal would find an even more responsive audience in 2010. The nation is currently enduring more widespread pay cuts than at any time since the Great Depression. Prolonged unemployment is having disastrous effects on the physical and mental health of its victims, and the foreclosure rate is 10 times higher than during the Depression. However, Obama has failed to mobilize public outrage over the Great Recession--which has galvanized around the off-shoring issue--with a sustained and high-profile push for the Create American Jobs Act.
Instead, Obama has relied on a mantra of "private-sector job growth." This at a time when corporate America has largely recovered its profitability and sits on a $1.6 trillion surplus of cash. Yet corporations are not buying the new equipment or hiring the new workers that could decisively end to the recession. "Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll,” reports The New York Times.
Corporate America's strategic focus is also reflected in the observations of John E. Silvia, chief economist at Wachovia. “These jobs aren't coming back,” Silvia said. “A lot of production either isn't going to happen at all, or it's going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, and fewer financial services operations. Firms are making strategic decisions that they don't want to be in their businesses,” These decisions translate into fewer jobs. There are 3.4 million fewer private-sector jobs in the United States than 10 years ago. Job growth in the United States over the past decade has been under 1%, compared with 20-38 percent for every decade since 1940. Meanwhile, production in high-value jobs is increasing largely in repressive low-wage places like China or Mexico. The Fortune 500 firm Johnson Controls, for example, is planning on adding 10 new plants to the 40 it already has set up in China.
The Obama administration did act quickly to save a large number of jobs. The Troubled Asset Relief Program and Obama's stimulus plan prevented an additional loss of 8.5 million jobs on top of the 8 million that had already been lost, according to a study by economist Alan Blinder and former McCain economic advisor Mark Zandi. At the same time, however, corporate America has been carrying out a de facto counter-stimulus program by shutting down profitable, productive plants in the United States to search for higher profits elsewhere.
As Thomas Frank noted in his book What's the Matter with Kansas?, the Republicans have skillfully exploited election-season social issues – gay rights, gun control, abortion – that touch the "anger points" of poor and middle-class voters who would otherwise be inclined to vote Democratic if economic issues were more prominent. This year, the Democrats have belatedly tried to exploit their own opportunity for a major wedge issue on the highly salient off-shoring issue to pull away Republican votes. Even with Obama backing away from his condemnation of free trade deals, the Democrats have had an opportunity to both mobilize their own disappointed base and divide the Republican voters this fall.
Remarkably, nearly three quarters of self-described Tea Party supporters would support a "national manufacturing strategy to make sure that economic, tax, labor, and trade policies in this country work together to help support manufacturing in the United States," according to a 2010 poll conducted by the Mellman Group and the Alliance for American Manufacturing. In other words, the overwhelming majority of "anti-government" Tea Partiers actually favor an activist government approach to preserve and strengthen the nation's industrial base. Moreover, much of the Republican base actually favors action against off-shoring. The second most popular idea regarding jobs on the Republican website called "America Speaking Out" turns out to be ending tax breaks for companies that ship jobs overseas.
At least 29 congressional candidates, overwhelmingly Democratic, have recently found that TV ads denouncing the off-shoring of jobs resonate with a public deeply insecure about its economic future. Meanwhile, Democratic candidates have been hit with a deluge of attack ads funded heavily by the Chamber of Commerce. “The Chamber has an agenda, and it’s aimed at promoting outsourcing of American jobs," explained a top Democratic official.
Until recently, President Obama had avoided criticizing corporate outsourcing, with its minimal job creation at home and outflow of U.S. jobs abroad. The Right has jumped into the breech to provide the dominant narrative on the Great Recession, blaming the ongoing recession on excessive government spending and intrusion, with giant transnationals helplessly forced by excessive federal intervention to relocate outside the US. According to Sarah Palin, for instance, government "overreaching [and] overregulation strangles our small businesses and…is killing jobs and killing the American Dream because they're forcing outsourcing of jobs and opportunities to other countries.”
However off-base Palin's claims are about the size and scope of government, President Obama clearly needs to offer a powerful narrative of his own that reclaims the off-shoring issue for the Democrats by excoriating major corporations for their role in prolonging the recession. That would necessarily include a strong indictment of corporate America's investment strategy of using the shield of free trade agreements to protect their ever-growing empire of plants in Mexico, China, Indonesia, and countless other countries. A well-framed message targeting corporate America would play well to the Democratic Party base as well as to independents dissatisfied with the country’s economic performance. It’s not too late for the president to dust off his candidate speeches on trade and begin to recapture support from those who have suffered the most from the economic downturn.