Bill Clinton's Trade Legacy Is Hillary's Burden Too

The real advantage for any of Hillary's opponents in having Bill on the hustings is that his trade record too is not just fair game, but big game -- one that is the top priority of a great many American voters who want to see decades of trade policy failures reversed beginning in 2017.
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Hillary Clinton recently asserted that Americans fare better economically under Democratic administrations than Republican ones. Campaign claims are always suspect. In this case, a lot depends on the definition of "better." Beyond that, there is the issue of the economic conditions and programs that are passed on to future administrations, such as the gathering recession that George W. Bush 'inherited' from Bill Clinton. To see if Hillary's claim holds any water, let's review a little history.

President Bill Clinton, after hinting at a rejection of globalized trade policy during his campaign, fought hard for passage of the North American Free Trade Agreement (NAFTA) in 1993. While NAFTA may seem like a battle in antiquity, it introduced a new corporatist trade model and marked a turning point for America's trade relationships with Canada and Mexico, as well as other countries where the NAFTA model was subsequently implemented.

The U.S. ran a $10.3 billion goods trade deficit with Canada in 1993, but that number climbed to a high of $78.5 in 2005 before settling to a still significant $35.4 billion in 2014. With Mexico, the result has also been severe: A pre-NAFTA trade surplus of $1.7 billion was wiped out and soared to a deficit as high as $74.8 billion in 2007 before settling back to a hefty negative $53.8 billion in 2014.

Yet the damage wrought by Bill Clinton's NAFTA pales in comparison to the economic carnage that followed, thanks to his abysmal legacy trade deal with China. Yes, Democratic president Bill Clinton won a showdown in Congress in 2000 that granted Most Favored Nation status to the People's Republic, which entered the World Trade Organization (WTO) a year later.

The result? In 2001, America's trade deficit with China clocked in at an already substantial $83 billion. In 2014, it reached a stunning $343 billion. For 2015, that trade gap is projected to reach yet another new record-- $366 billion.

Hillary's assertion about Democratic presidents is a calculated election year sound bite that ignores the consequences of her husband's ruinous trade legacy. The simple truth is that Bill's trade policies greatly handicapped the growth and job-creating ability of the U.S. economy by transferring a significant portion of our wealth generation to China and other trading partners and making 2 percent growth the 'new normal.'

In this regard, it is useful to remember that another Democratic president, Barack Obama, spent his entire first term complaining about the economic mess he inherited from George W. Bush. He had a point, but he just didn't grasp its full implications. Obama could have rightly complained that Bush failed to correct the effects of Clinton's bad trade deals, i.e., massively accelerating deficits, in particular with our NAFTA partners and China. He could have pointed out that the foreign borrowing to finance consumption of imports and the recycling of dollars sent overseas in return for cheaper goods helped fuel the housing bubble and created severe imbalances in the U.S. economy that led to the Great Recession.

But he didn't. Obama did not lay the blame where it belonged, at Clinton's feet. That wouldn't have been convenient when he could beat up a Republican instead. And he didn't identify as the true culprit the failure of trade policies that abandoned ordinary Americans and allowed the one-percenters to grow richer by globalizing the American economy and outsourcing a significant portion of our manufacturing base.

Additionally, Obama himself pursued the ineffective chit-chat diplomacy with China favored by the Bush administration, instead of taking the strong corrective action on currency, subsidies, and state-owned industries that Bush neglected. So Obama had a legitimate economic complaint about the Bush administration; he just didn't get it right. And in failing to look at first causes, he doubled down on NAFTA (in spite of the campaign noises he made about renegotiating it) and MFN for China, with the NAFTA-model U.S.-Korea free trade agreement and the Trans-Pacific Partnership (TPP.)

The bottom line is that trade deficits matter, because a country has to finance them -- whether by borrowing from foreigners or selling off its assets. Borrowing abroad to consume is quite different than borrowing abroad to invest. Over the last 40 years, these deficits reflect the failure of Democratic and Republican presidents alike to keep American manufacturing competitive with overseas firms that are state-subsidized, either directly or indirectly through currency manipulation or Value Added Taxes imposed at the border. And so, trillions of dollars in trade deficits have translated into massively higher U.S. national debt, the loss of entire industries, lessened market share for American manufacturers at home and abroad, and, of course, the loss of thousands of U.S. factories and millions of jobs.

In making her case for Democratic presidents, Hillary Clinton may be betting that Americans are naive and perhaps nostalgic, but that hardly seems to be the case this election year. People recognize the severity of the "China problem" because they face it daily in lost jobs and lower pay. Both Bernie Sanders and Donald Trump are channeling voters' anger over trade deals that they believe (correctly) have lessened their standard of living.

Several other leading Republican candidates -- Cruz, Rubio, and Christie -- have called for caution before passing the TPP. But as is the case with Hillary, they were for free trade agreements before they were against them. None of the four has called for a complete review of U.S. trade policy or stated that the current globalized trade regime -- in actual practice, not theory -- is decimating the American middle class. One could well predict that all four would review, amend, and pass a 'new and improved' TPP in the first year of a presidency.

That leaves Trump as the only Republican who truly wants a new approach to U.S. trade policy. Hillary has given him a gift with her phony assertion about Americans faring better under Democratic presidents, but he has not accepted it so far. He jumped at the opening on women's issues Hillary created by putting Bill on the campaign trail. But the Clintons' joint record on that subject, while very troubling, is a relatively minor issue compared to those uppermost in voters' minds. The real advantage for any of Hillary's opponents in having Bill on the hustings is that his trade record too is not just fair game, but big game -- one that is the top priority of a great many American voters who want to see decades of trade policy failures reversed beginning in 2017.

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