RICHARD A. EPSTEIN: Elizabeth Warren’s flawed approach to trade
Democrat’s plans likely to trigger a worldwide recession.
October 26, 2019 - 9:00 pm
Sen. Elizabeth Warren is at it again. Her ill-conceived New Approach To Trade proclaims boldly as follows: As president, I won’t hand America’s leverage to big corporations to use for their own narrow purposes — I’ll use it to create and defend good American jobs, raise wages and farm income, combat climate change, lower drug prices and raise living standards worldwide. We will engage in international trade — but on our terms and only when it benefits American families.
As is common with all of Warren’s plans, it is long on denunciation but short on workable solutions. As always, the devils in the story are unnamed “big corporations,” whose narrow-minded actors mysteriously become rich while making their workers, suppliers and customers poor. At no point does she give a nod to the huge achievements of her favorite whipping boys in telecommunications, pharmaceuticals, energy, transportation, health and more. She sees markets solely as instruments for exploitation and never for innovation. She fails to grasp how free trade raises all ships, including the position of American workers and American families, especially today those at the bottom of the income distribution.
Nor does she grasp any of the essentials of international trade. At times she bellows like an America-firster, without realizing that the United States attracts more business with honey than vinegar. She champions the silly proposition that we can secure benefits for American families and workers by using clout to get one-sided deals that force foreign nations to impoverish their own corporations and families. Her explicit “Buy American” policy is just naked protectionism, as is her plea to develop “strong rule-of-origin standards to promote domestic manufacturing.”
These extravagant plans double down on the worst features of President Donald Trump’s erratic trade policy. An efficient market depends on worldwide supply chains. American firms need to import goods and services from abroad to make products that can be sold outside the United States. Warren’s program of domestic subsidies will have the unintended consequence of making American firms less competitive in world markets. Pushed to its limit, her approach will reduce the number of good trade deals for the United States. Unfortunately, her uncritical devotion to unions blinds her to the successes of the hands-off labor policies of the Trump administration in the domestic labor market. The way to improve domestic productivity is to deregulate labor markets at home, which is much more likely to happen if coddled American firms face strong competition from abroad.
As a sign of total intellectual confusion, Warren claims in the next breath that her America-first programs generate worldwide benefits. In her unsurpassed arrogance, she knows what is better for other countries. She wants to “use or leverage to force other countries to raise their standards” on a wide range of labor and environmental issues. No sensible country should ever allow the United States to dictate its internal policy on these critical areas. Thus they would be foolish to increase their support for labor unions or minimum wages, both of which would, to the delight of domestic American competitors, create only labor instability and inefficiency that will make these countries poorer at home and less able to compete in world markets.
Nor are any foreign nations likely to do well if their environmental regulations, including protection against climate change, limit fossil fuel use in the futile effort to decarbonize our economy. The warning signs are all there: the wreckage of this program in blackouts in California and the natural gas shortages in New York. Nonetheless, one of the pillars of her trade position is that our trading partners must sign on to the Paris climate agreement and put themselves on track to meet its standard long-term emissions goals. But it is unwise to tie trade policies to an environmental agreement that has long outlived its usefulness, if it ever had any.
In particular, it is an administrative nightmare of the worst order to impose any border carbon adjustment tax to prevent American firms from relocating overseas to avoid punitive domestic carbon taxes. Nor is there any reason to believe that her preference for a Green Marshall Plan abroad or green energy subsidies at home will prove to be cost-effective, even if temperature increases driven by carbon dioxide are significant, which seems less likely with each passing day.
But never mind the mind-numbing costs. Warren seems to think if we force other nations “to compete fairly, they will thrive.” Dual ruin is a more likely alternative.
With her lofty ambitions, the naïve reader might suppose that she actually has a plan to help American families and workers. But her concrete proposals are futile, dangerous or both. Thus Warren wants to invest more in American workers. But exactly how? Her critique of big corporations rests on the absurd claim that American companies refuse to invest in their workers, all in their desperate quest to boost profits for shareholders, many of whom are the pension funds of American families and workers. But well-run firms (and there are many) know that investments in employees are necessary complements to invest in business. And unlike government, they actually know what skills they need.
Instead of decentralized educational efforts, Warren wants to double-down on the losing strategy of putting worker education into the hands of remote government bureaucrats whose programs lag the market by months, if not years. Either for-profit schools or employees themselves are far better able to discharge this crucial educational function. Warren could do much better to encourage the development of charter schools that have at least a decent chance of equipping young American workers with the basic skills needed to operate in a highly competitive labor markets. But her pro-union stance precludes that option.
In sum, Warren’s approach to international trade does not contain a single suggestion for market liberalization. Instead her so-called fixes on education, labor and environment will have the capacity to generate a global depression — if her domestic policies on corporations, taxation and education don’t get us there first.
Richard A. Epstein is a professor at the New York University School of Law, a senior fellow at the Hoover Institution and a distinguished service professor of law emeritus and senior lecturer at the University of Chicago. His Review-Journal column appears monthly.