The big talk in Washington today is the 50th anniversary of the war on poverty -- still being fought with only limited success as 15 percent of the population is stuck in poverty -- and the related issue of income inequality. Both of these subjects will likely be a big part of the upcoming State of the Union message by President Obama, due next Tuesday. But I would urge the president to also take up one other issue which has a lot of bearing on the first two: the current state of our international trade.
It is hard to see our trade policy as a place where we are having much success. We have an unceasing $700 billion trade deficit, and we have lost 5.2 million manufacturing jobs since the year 2000. These facts contribute both to poverty and income inequality. The traditional road up from poverty into the middle class -- a good long-term job in a factory -- has now been blocked. Those jobs do exist, but because of our trade policy they are not in the United States; they are in China, Vietnam and other low wage, long-hour sites.
I'm certain the president will talk about the TPP (Trans-Pacific Partnership) talks he hopes to finish this year, a very large free trade agreement encompassing countries from Japan to Peru. He will also praise the new TTIP (Transatlantic Trade and Investment Partnership with Europe), another President Obama initiative. But it is very hard to see that either of these initiatives will help in the war on poverty or on remedying income inequality. In fact, free trade agreements have traditionally increased trade deficits for the U.S. and moved more jobs off-shore.
There are certainly positive aspects of trade and trade agreements: providing better foreign market access for many of our service companies, rising up the standard of living in many of the poorest countries of the world, contributing to our foreign policy goals. Unfortunately, helping the average worker, particularly the entry level factory worker in the United States, does not appear to be one of them. NAFTA was heralded as a great job creator when it was signed in 1994. But in that year we had a trade surplus with Mexico of $1.3 billion. Today we have a trade deficit of $62 billion. In 1994 we had a trade deficit with Canada, our other NAFTA partner, of $14 billion. Today that trade deficit is $31 billion. When China joined the WTO in 2001 we had a trade deficit with them of $83 billion. Today the deficit with China is over $315 billion, almost all of it in manufactured goods.
A number of studies have worked to quantify the relationship between international trade and job loss. The Progressive Policy Institute estimated 1.3 million jobs were lost due to imports from 2007-2011. Another think tank -- The Economic Policy Institute -- calculated the jobs lost because of the China trade deficit at 2.7 million from 2001-2011, with job losses in every state. However you look at it, it's major. It's incredibly hard to work your way out of poverty when millions of U.S. workers have lost those factory jobs.
The solution is not to end trade or to end trade agreements. The solution is to put into the trade agreements the factors which will make them beneficial to U.S. workers, particularly those starting out or at the bottom of the ladder, i.e. the poor and those suffering most from income inequality.
President Obama and his trade team need to look hard at four fundamental issues in any trade agreement (those already in effect or those we are about to enter into): (1) Does the agreement prohibit or at least curtail subsidies that cause U.S. plants and jobs to move offshore? It is not enough to have legal causes of action against the subsidies, the subsidies must be prohibited in the first instance; (2) Does the agreement prevent currency manipulation, the largest subsidy practiced by China, Japan and others that has devastated the U. S. manufacturing base; (3) Does the agreement address the incredible wage disparities between the U.S. and many of our trading partners? We cannot eliminate these disparities but our trade policy needs to address the effects of them and require steps to ameliorate them; and (4) Is there a fast, automatic set of trade remedies to make sure the agreements are enforced?
In preparing the State of the Union, President Obama should look hard at the interrelation between trade, poverty and income inequality. The way we're doing trade deals, we're not creating more jobs and economic opportunity. Instead we are opening our market to enormous amounts of manufactured imports, without many of the commensurate benefits that are supposed to result from international trade. The result is a very large, continuing burden on that segment of our population President Obama most wants to protect and defend.
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