WASHINGTON ― Most Americans have never heard of Lael Brainard. But to Democratic Party insiders already jockeying over the direction of a Hillary Clinton presidency, Brainard is a household name. She is one of a handful of candidates being circulated as a potential Clinton administration treasury secretary, and the implications her appointment may have for trade policy are roiling progressives in Washington.
In an era of extreme congressional gridlock, power in the nation’s capital is heavily concentrated in the executive branch. Personnel choices carry dramatic policy implications. Former Treasury Secretary Timothy Geithner oversaw a foreclosure relief plan that abused families and was designed to help big banks. Labor Secretary Thomas Perez figured out how to use an old law to expand overtime pay for millions of Americans.
And the flood of emails released by WikiLeaks over the past month show that Clinton’s treasury secretary will have an opportunity to sway an inner circle divided over the top economic issues animating progressive Democrats ― financial reform and trade policy.
During the Democratic primary against Sen. Bernie Sanders (I-Vt.), Clinton confidants seriously debated whether she would embrace a new version of Glass-Steagall, the Depression-era law repealed in 1999 that separated traditional boring banking from high-flying securities trades. Emails also show Clinton’s team agonizing for months over what position to take on Obama’s Trans-Pacific Partnership trade pact with 11 other nations. In June 2015, Clinton herself praised ideas detailed by former Treasury Secretary Larry Summers supporting the TPP.
“For more sophisticated audiences or interviews, his points are useful,” Clinton wrote to longtime aide John Podesta, just a few months before she herself would come out against the trade deal.
A voice for monetary policy sanity
Sanders and Sen. Elizabeth Warren (D-Mass.) have been pressuring Clinton to break from the team of centrist Wall Street-friendly personnel who dominated the economic direction of the Bill Clinton and Obama administrations and seek out different voices.
As an alumna of both of those Treasury Departments, Brainard is a member of that old guard. But since 2014 she has served on the Federal Reserve Board of Governors, where she has been a consistent voice for sanity on monetary policy, calling to keep interest rates low to spur economic growth. Until workers see strong wage increases, Brainard has maintained, the central bank should not clamp down on paychecks by hiking interest rates.
Progressive economists have supported this principle for 70 years, but have largely been overshadowed for the past 30 by conservatives more frightened of inflation than unemployment. Brainard has even had to battle other Obama appointees at the Fed over the idea. And she gets results. Interest rates remain near all-time lows, despite caterwauls from the conservative monetary policy establishment.
But Brainard’s record on trade is certain to ignite the ire of the Bernie Sanders base. When she joined Bill Clinton’s administration in 1997, Brainard helped implement the North American Free Trade Agreement and manage China’s entrance on the stage of global commerce as a member of the World Trade Organization. As the top diplomat at Treasury under President Barack Obama, Brainard advocated for disappointing trade pacts with South Korea, Colombia and Panama, and laid the groundwork for much of what eventually became the TPP, while overseeing tepid efforts to thwart currency manipulation in China.
She has, in short, been involved with just about everything progressives have complained about on trade since the 1990s.
“Moving Brainard from the Federal Reserve to Treasury is like telling Michael Jordan to ditch basketball and try baseball,” said Jeff Hauser, director of the Revolving Door Project at the Center for Economic and Policy Research, a liberal think tank.
NAFTA and China
Brainard declined to comment on the record for this article ― sitting Fed governors do not typically talk to the press about matters unrelated to the central bank.
Her early work in the Clinton Treasury focused on Mexico, helping navigate the peso crisis and enforce the economic reforms required by NAFTA, which had been signed into law a few years before she joined the administration.
“With regard to NAFTA, I think right now we’re going at a time of real strength and resilience in the trade relationship,” Brainard told reporters in 1999, during a press conference in which she encouraged further privatization of government services in Mexico. “I think both in Mexico and in the United States there’s substantial evidence to show that NAFTA has worked for both countries.”
That was the consensus view within the the Clinton administration. But progressive critics of the deal who were marginalized in the 1990s note that NAFTA put downward pressure on U.S. wages without raising them for workers in Mexico. Liberal economists at the Economic Policy Institute estimate that NAFTA cost the U.S. economy about 700,000 jobs through 2011. Even when firms didn’t simply move domestic factories into Mexico to exploit cheaper labor costs, the threat of relocation undercut workers’ bargaining power with their managers.
Most serious NAFTA critics in the 1990s were associated with organized labor, which also raised vehement objections in 2000 to granting China permanent normalized trade relations with the United States. At the time, the Clinton administration believed shepherding China into the World Trade Organization was a largely symbolic gesture, one that President Clinton suggested might help foster political reforms in China. Instead, the United States lost millions of manufacturing jobs to China, which continues to be a hotbed of authoritarian human rights abuses.
But these issues have only recently become troubling to the elite bipartisan center of the American political spectrum. Today, centrist experts, including Clinton confidant Anne Marie Slaughter, worry the U.S. trading relationship with China creates national security risks.
A trade-deal advocate
But none of this posed problems for Brainard when Obama nominated her to be Treasury’s top diplomat in 2009. She weathered a Senate confirmation hearing touting her work “to shape China’s entry into the WTO.”
Once at the Obama Treasury, Brainard took a cautious approach to China, resisting calls to formally label the country a currency manipulator. China exacerbates the U.S. trade deficit by hoarding about $3 trillion in currency reserves. This depresses the value of China’s yuan against the dollar, making U.S. exports more expensive in China and Chinese exports cheaper in the United States.
In congressional testimony, Brainard repeatedly argued that the yuan was appreciating steadily against the dollar through more informal pressure, and that this progress was not worth risking by deploying more confrontational tactics. Since 2005, the Chinese currency has indeed generally risen against the dollar. But progressive economists maintain this movement has been much too slow, as evidenced by the sheer size of the currency reserves China still holds today. And despite the general upward trend, when the Chinese government has faced sluggish growth, it has intervened in currency markets to devalue its currency, as it did last year.
The old guard of D.C. economists tolerated the problems associated with this type of trade for a reason. The prevailing bipartisan ideology inside the Beltway held that the benefits of lower prices from free trade (and even currency manipulation), outweighed the costs of job losses. You might lose your factory job, but you could find another gig and shop at Wal-Mart. Higher taxes on the wealthy could supplement your income with social services.
It’s not clear that this redistribution was ever really delivered, but it is clear that entire communities were hollowed out, and that a lot of people got angry. For many, frustration has been channeled into ugly political attitudes. According to a massive study by The Wall Street Journal, in the Republican primaries, Donald Trump won 89 of the 100 counties most negatively affected by expanded trade with China.
But as unions and liberal economists piled up evidence that the 1990s trade model wasn’t working, Obama, Geithner and Brainard pushed ahead with the same basic platform.
As Obama’s treasury under secretary for international affairs, Brainard’s diplomacy included advocating for a new slate of trade pacts that, once again, drew progressive criticism and, once again, worked out much as critics had predicted. When Obama signed three trade deals with Korea, Panama and Colombia into law in October 2011, Brainard celebrated with a Treasury Department blog post saying the new agreements would “level the playing field and create new opportunities for our workers, businesses, farmers and ranchers.” The Korea deal has cost the U.S. 95,000 jobs in its first few years, according to Economic Policy Institute, while the pact with Colombia has forced U.S. workers to compete with jobs in a country where the murder of union leaders is routine.
‘Serious imprint’ on TPP
Brainard viewed the Korea pact as a step toward a much more ambitious goal ― the 11-nation TPP.
“We are sort of back in the game in the region and it is extremely important that we can develop a trade agreement through the Trans‑Pacific Partnership that is highest standard in that region of the world,” Brainard said in a hearing before the House Ways and Means Committee four days after Obama signed the Korea trade deal. “That is our strongest suit in terms of having a good offense.”
Brainard continued to promote TPP until she left office in the fall of 2013. This advocacy wasn’t unusual or controversial within the Obama administration. As secretary of state, Clinton called TPP “the gold standard” for trade pacts, and Obama views it as one of the most important elements of his foreign policy legacy, despite his own party’s revolt against it. The actual negotiation of the deal was carried out by the Office of the U.S. Trade Representative, not the Treasury Department, and was not completed until long after Brainard left Treasury for the Fed. Still, as the chief Treasury diplomat, Brainard helped set the pact’s goals, just as Clinton did at the State Department.
“Structurally a lot of this fell under her,” one former Treasury official told HuffPost. “The fact that she had influence and a serious imprint is pretty cut and dry.”
And the terms of TPP are clearly out of step with both progressive thinking and the shifting bipartisan center of elite opinion. Doctors Without Borders, the Nobel Prize-winning humanitarian group, opposes TPP, arguing it will raise the price of medicine in poor countries. The elite drift is even more apparent on a process known as Investor State Dispute Settlement, or ISDS, which permits corporations to challenge the laws and regulations of sovereign nations if they believe these rules unfairly hurt their investments. Under ISDS, corporations can wholly circumvent a nation’s court system and directly challenge laws before an international arbitration panel.
The Shifting Center
In September, 223 law professors and economists signed a letter calling on Congress to reject TPP so long as ISDS is included in the deal. The signatories included liberal globalization critics like Nobel Prize winner Joseph Stiglitz alongside previous free trade advocates like Jeffrey Sachs.
“Through ISDS, the federal government gives foreign investors – and foreign investors alone – the ability to bypass that robust, nuanced, and democratically responsive legal framework,” the letter reads.
But just as ISDS was becoming the subject of centrist skepticism, TPP expanded its scope by allowing financial services firms to make use of the process for the first time in any U.S. trade deal.
From her primary battle with Sanders, to her swing-state stumping with Sen. Elizabeth Warren (D-Mass.), Hillary Clinton has presented clear, progressive objections to TPP. When Clinton insider Virginia Gov. Terry McAuliffe (D) said at the Democratic National Convention that Clinton would reverse her opposition once elected, the Clinton campaign unloaded on him, insisting she was dead serious about her trade complaints. She can prove it with appointments.