Brexit has sent a cold chill down the spine of the world's economy, but it warmed the heart of Donald Trump and his isolationist campaign. Free trade isn't free, but Trump mistakenly thinks it's all about deal making. He misses the mark. We don't need a tougher negotiator to protect America's economic interest. We need tougher enforcement measures for existing trade agreements.
The United States has fair labor standards and enforceable environmental laws to protect our quality of life, but our trade partners don't necessarily play by the same rules. Steel manufacturers may move plants to Mexico in part to avoid the high labor and regulatory costs of producing steel in the United States. If Mexico has a comparative advantage in steel production, it might be because U.S. environmental and labor standards have conferred that advantage on Mexico. That's an artificial kind of "comparative advantage" that distorts world trade.
Free trade agreements include labor and environmental standards to insure that free trade is also fair trade. But our trade partners have often ignored these standards, and we do not have a way to enforce those fair trade standards on imports. What we need is the capacity to impose tariffs on imports that fail to meet the standards we've agreed upon.
Our existing antidumping duty law offers an efficient and effective way to enforce labor and environmental agreements without creating any new government bureaucracy. For more than a century we have imposed antidumping duties on imports that are not fairly priced. Our concept of what's a fair price should be expanded to include internationally recognized labor and environmental standards.
For example, the 187 member countries of the International Labor Organization (ILO) have agreed that workers should be paid a living wage. If foreign producers are not paying a living wage according to the standard of living in their own country, we should impose antidumping duties that would raise the cost of the good to the price it would have cost if workers were paid fairly. By eliminating any cost advantage to cheating, we will give exporters an incentive for raising wages. This is the basic idea behind the Level the Playing Field in Trade Agreements Act co-sponsored by Senators Jeff Merkley and Tammy Baldwin.
One might object to the United States unilaterally imposing standards on foreign countries. But if we apply internationally recognized fair labor and environmental standards, we are simply holding exporting countries to the promises they've made. What prevents countries from improving labor or environmental standards is the risk of losing market share to other competitors. If the United States enforced international standards on all exporting countries that would make it possible for countries like Vietnam to raise wages without losing market share to countries like Bangladesh or Pakistan.
How would the United States go about determining fair wages in other countries? Some foreign governments have already determined what a living wage should be in their country. Our antidumping laws are administered by the Commerce Department, which has decades of experience determining the cost of production in foreign countries. It would not take more effort for commerce to determine a living wage in those countries.
Finally, would this enforcement mechanism raise prices for U.S. consumers? In general, the cost of labor is a small percentage of the final price of most imports. For example, workers in industries like agriculture, mining, fishing, clothing and textiles, which are the principal exports of most developing countries, earn only about 2-3% of the final price consumers pay. Foreign producers could double wages without significantly raising the price for U.S. consumers.
Trump has struck a cord with many voters by acknowledging that our free trade agreements have given foreign exporters an unfair advantage at the cost of U.S. businesses and workers. We don't need wheeler-dealers promising to fix these trade agreements, and Brexit has taught us the cost of isolationism. We only need to enforce regulatory standards. The way to defeat isolationists is to hold our trading partners to their promises