FEBRUARY 22, 1996
PAUL SOLMAN: Now joining us to discuss the economic angst that Pat Buchanan has topped is four experts--are four experts--sorry--Jeffrey Garten, the dean of the Yale School of Management--he served in the Clinton administration as the Undersecretary of Commerce for International Trade; Carla Hills was the U.S. Trade Representative for the Bush administration; Alan Tonelson is a research fellow with the United States Business & Industrial Council Educational Foundation; and Thea Lee specializes in international trade at the Economic Policy Institute. And welcome to you all. Now, Mr. Tonelson, what's the argument in favor of Pat Buchanan's economic position?
ALAN TONELSON, U.S. Business & Industrial Council: The argument in favor is that we unfortunately live in a world economy that is a lawless jungle where power, national power remains the key to national success. As everybody on this panel knows, most of the rest of the world's governments are engaged in a staggering variety of practices whose purpose is to steal jobs, to steal income, to steal technology, to steal living standards from highly competitive American producers, and the choice that we face is basically between the business-as-usual style free trade policies that have been followed by the last two administrations, in fact going back further than that, with disastrous results, 1.5 trillion dollars of cumulative trade, trade deficits since 1980, staggering job loss, and responding. And what Mr. Buchanan is tapping into is the common sense feeling out there among the American public that a much more vigorous but also much more intelligent response is needed by Washington.
PAUL SOLMAN: And you agree with that?
MR. TONELSON: I agree with the general thrust of it, absolutely.
PAUL SOLMAN: Carla Hills, you're a longtime Republican. We saw you in one of those clips actually. What's the essence of your argument against what Pat Buchanan and Mr. Tonelson are talking about?
CARLA HILLS, Former Bush Trade Representative: We live in a global economy, and that is where we're creating the jobs, the best and the highest-paying jobs are connected with international, about 12 million Americans owe their jobs to their international trade. We are a country of 5 percent of the world's population, and we produce 1/4 of its output. More than 50 percent of our wheat, computers, aircraft, cotton, are sold abroad. We can't consume it all. We need open markets, and we need the rule of law that the trade agreements give us, and if you look carefully at the trade agreements, they have worked, including the North American Free Trade Agreement that you mentioned, even with Mexico's trouble; our exports are up 15 percent, and that is a very different outcome from the '82 debt crisis when Mexico raised its tariff and cut our exports to it by half. This time our exports have maintained their status.
PAUL SOLMAN: Well, we'll get to the evidence in a minute and maybe argue about it, but basically your argument is no choice, we have no choice, it's a world economy, that's it?
MS. HILLS: Absolutely.
PAUL SOLMAN: Jeffrey Garten, you were a member of the Clinton administration, as we've said, and you were also--you are a professor of international trade at Yale. What are the traditional economic arguments for free trade against protectionism that we haven't yet heard from Ms. Hills?
JEFFREY GARTEN, Yale School of Management: Well, in an ideal world, trade would bring growth, it would bring more choice for consumers, it would keep prices down because of the competition, and it would create a lot of jobs. And I think for the most part all of that is happening. I'm somewhere between the first two people, because I think that Mr. Buchanan is tapping into some very legitimate anxieties. On the other hand, I think that the policies he's advocating would be totally disastrous.
PAUL SOLMAN: Okay. Well, you certainly don't think it's an ideal world, do you, Ms. Lee?
THEA LEE, Economist: No.
PAUL SOLMAN: And you're generally considered to be on the left. You were opposed to NAFTA. What do you think Pat Buchanan's saying here? Do you think he's got a point? I guess that's the question.
MS. LEE: I think he clearly has a point, that our current trade policies aren't working to do what they're supposed to do, the most basic objective, which is to raise the living standards of the majority of Americans, and instead, what they're doing is costing us good jobs, putting downward pressure on wages for working Americans, and also limiting our ability to make national policy in a way that--in a democratic process, and NAFTa, I think if you look at the results, has been a total fiasco. It didn't deliver the jobs for U.S. workers, it didn't deliver democracy or prosperity or stability to Mexico. It was a bad development policy and an even worse jobs policy.
PAUL SOLMAN: Okay. You want to quickly take on Mexico. Yes. Just for a second.
MR. GARTEN: Well, I just want to say that I think NAFTA was the right decision at the time. I think that the verdict over time will be that it is an excellent treaty, that we are much better off without it over a decade than we would have been--with it than we would have been if there had been no treaty.
PAUL SOLMAN: Okay. I think we probably aren't going to slug out Mexico or come to any conclusion about it, but let's get to some of the specifics here. Carla Hills, what's your reaction to Pat Buchanan's suggestion basically we should get out of NAFTA and the GATT?
MS. HILLS: He'd be cutting off the best source of economic growth that we have because if you just look at the Labor Department study that was recently completed, it shows that the fastest growing sector of our economy is in international and it is the highest-paying job, so that's the area that we want to encourage so that we do raise the standard of living for our people.
PAUL SOLMAN: Okay. So it would kill growth. Now, Mr. Tonelson, what do you think?
MR. TONELSON: Our trade policy is manifestly not contributing to higher living standards; quite the opposite. It is impossible, impossible for a trade policy that's racking up record merchandise trade deficits year after year to be contributing to economic growth and in fact--and to higher living standards for most Americans--and, in fact, the living standards for the great majority of citizens of this country have been going down for the last 20 years, not up. I don't see how in the world you can say trade policy has been a job-creating and living standard-boosting success.
PAUL SOLMAN: Mr. Garten gets in here for a second.
MR. GARTEN: In 1990, about 8 million American jobs were associated with exports. By the end of this decade, it will be 16 to 18 million jobs.
MR. TONELSON: But, Jeff, imports exist too, and they're much higher, and they've been much higher for a long, long time.
MR. GARTEN: But you cannot associate imports with lack of jobs.
MR. TONELSON: It's got to work both ways.
MR. GARTEN: I think one of the problems here is that trade is not the entire panoply of economic policies. What trade has done has been beneficial, but there are a lot of other things that have to be done, such as a pro-growth policy.
PAUL SOLMAN: So you say we're having trouble but it's not trade's fault. That's the basic position.
MS. HILLS: I would agree with that. I would further say that you cannot take the statement that trade deficits are connected to unemployment, because if you look at the trade deficits that were in existence in the--after 1987, in fact, we had--we crept up, and we cut the deficit by 50 percent in the five years before 1987, and our unemployment plummeted from 10 percent to 6 percent, and after 1987, as our trade deficit went down, in fact, our jobs did not increase.
MS. LEE: But the point is what's happened to the quality of those jobs, and that's mainly where you see the increase, dramatic increase in inequality in wages for Americans, that some of the good jobs that we had, good blue collar jobs, have, have been displaced in the manufacturing sector, and we've seen both the stagnation of the average wage and then an increase in inequality of wages, so those new jobs are not good jobs. What we're doing is displacing manufacturing workers into the service sector where productivity growth is lower and, in fact, that has slowed--
MR. TONELSON: And that's why I said living standards, not jobs.
PAUL SOLMAN: So you guys--just a minute--you guys think that trade is the culprit; you guys think that trade isn't the culprit. Everybody agrees there's a problem.
MS. LEE: Trade is one culprit.
MR. TONELSON: Not entirely. It's not helping.
PAUL SOLMAN: It's not helping. Well, but you were blaming it, weren't you?
MR. TONELSON: It's probably hurting.
PAUL SOLMAN: Not helping?
MR. TONELSON: Probably hurting.
MS. LEE: I don't think anyone would say trade is the only problem in the U.S. economy, and that's the important part.
PAUL SOLMAN: But it's a problem?
MS. LEE: It is a contributing problem, and I think most economists actually agree with that now, that trade has contributed--
MR. GARTEN: Well, I don't think that's right.
MS. LEE: No, that is true. Even from Paul Krugman, who is a free trader, has said that trade is responsible for about 10 percent of the increase in inequality since 1980.
PAUL SOLMAN: There's a huge debate.
MS. HILLS: There are differing points there.
PAUL SOLMAN: There's a huge debate about that, and we could, we could argue that point alone all night long. Mr. Garten, what about Buchanan's proposal? I want to get back to the specifics here. Buchanan has a proposal to slap a 10 percent tariff on Japanese goods, and I've seen estimates of 20 to 40 percent tariff on China because we have such a negative balance of trade with them. What would happen if those policies went into effect?
MR. GARTEN: Well, let's just set aside the fact that it's totally unworkable because selective tariffs would only mean those products would come in from some other country being transshipped.
PAUL SOLMAN: Transhipped mean--they'd send it to Thailand and then it come in from there.
MR. GARTEN: That's right, but let's just talk about the tariffs. That's a great way to raise prices for everybody in the United States. That's a great way to increase inflation. That's a great way to restrict the choice that consumers have. This is going--this is gunboat economics. This is going right back to the 19th century. It makes absolutely no sense. I'm not denying that there are problems and that there are real anxieties, but Buchanan's approach, his proposed remedies are, are disastrous.
PAUL SOLMAN: But, Ms. Hills, even you supported or threatened Japan with retaliation. I mean, we have used techniques like this in the past, have we not, when we thought there was unfair competition?
MS. HILLS: The aim is to get the market open, and there are all kinds of ways to negotiate market opening because that is what creates greater opportunity and in the long run economic growth. I don't say trade is a panacea but trade is creating more and better-paying jobs than in the overall economy and so that is the sector we want to nurture.
PAUL SOLMAN: Do you support these tariffs, Ms. Lee, or tariffs like 10 percent on Japanese goods, 20, 40 percent on China?
MS. LEE: I don't think it makes sense to do it by country necessarily but I think possibly a temporary tariff in a certain industry where we're having trade problems would not be out of line, but it's a temporary solution. It's not the whole solution. I think the main thing that we need to do is to change the whole set of rules governing trade and investment. We need to put the interests of workers and protecting the environment right at the top of our trade negotiating agenda, not at the bottom, where it's been in the past.
PAUL SOLMAN: Okay. That leads us into this whole issue of insecurity we heard about earlier in the discussion about the Fed. So let's talk for a moment about what's behind all this. Carla Hills, don't many people have a really good reason to feel insecure about their economic future here in America?
MS. HILLS: Absolutely. There are a number of well-known corporations who had lifetime employment who have laid off not fifty workers but thousands of workers, and it has really created enormous anxiety, but the solution is not to cut off trade, which creates good jobs, but the solution is to have regulatory and tax reform that encourage job creation. What government can do is to create a climate so that business develops. If you look at smaller businesses, those with under 500 employees, they've created 8 million jobs in the last half decade. That's incredible.
MR. TONELSON: And most of them don't export.
MS. HILLS: That does not--that is absolutely incorrect. It's incorrect.
PAUL SOLMAN: Well, I don't know the answer, so I can't adjudicate, but let's stay with insecurity for a second, and Mr. Tonelson, everybody's insecure, right? I mean, you agree with Ms. Hills on this point?
MR. TONELSON: No. No. The people who are doing well at the top of the ladder are feeling very secure. Why shouldn't they?
PAUL SOLMAN: Fair enough. And Ms. Lee?
MS. LEE: Absolutely. The economic insecurity is real, and it's affecting the bottom probably 75 percent of the American work force.
PAUL SOLMAN: And you blame trade, not the only culprit, but trade significantly. What do you blame for the economic insecurity, assuming you agree too that we have plenty of it?
MR. GARTEN: We have plenty of it. I think that the American economy is going through a very dramatic transition. New industries are popping up. Everyone has to be much more competitive, and I think this is creating a new kind of work force and during that transition a lot of people are going to be out of work or fear that they're going to be out of work. I think there are things that can be done.
PAUL SOLMAN: Okay. So talk about some. Talk about them specifically, if you wouldn't mind, with regard to trade. I mean, what do you do?
MR. GARTEN: That's the problem. You see, that's the problem is that, if you want to, if you ask me, what should we do in trade, it would be more of it, it would be promote exports even more aggressively than we do.
PAUL SOLMAN: Because--
MR. GARTEN: Because that is one of the single biggest forces for growth in the economy and one of the single biggest job creators. Let me come to the other things. As long as you just talk about trade, you've got it in such a narrow channel that there really isn't an issue, as far as I'm concerned.
PAUL SOLMAN: There isn't an issue for you, you mean?
MR. GARTEN: Well, there aren't very many choices because the Buchanan type choices would just backfire on everyone. But there is--there are some things. For example, I do subscribe to the theory that we should have policies that produce faster growth. I think we are in a new world economy. I think the danger of inflation is much less than it was before, and I'd like to see the United States in conjunction with the other major countries stimulate more economic growth.
PAUL SOLMAN: Maybe we saw that. If Alice Rivlin is going to the Fed--
MR. GARTEN: That's right.
PAUL SOLMAN: --there's a possibility that that would happen.
MR. GARTEN: That's right. I think secondly there are huge opportunities in the area of training and retraining the American work force, and incidentally, I don't think that's a government responsibility. I think the government can play some role, but here is an area where American business really should step up to the plate.
PAUL SOLMAN: Okay. Well, let's talk about it to somebody who disagrees with you about this. Ms. Lee, do you really think that trade policy can make a difference, that is it can lower economic anxiety in this country?
MS. LEE: I think it could. I think the right kind of trade policy that--for one thing--when we're running chronic trade deficits year after year, growing trade deficits, I think it's hard to say that we're generating a lot of great new jobs. I mean, it's true that export jobs are good jobs, but import competing jobs are also good jobs because they're also manufacturing jobs for the most part. But I think that for one thing that if we're not protecting labor and environmental standards in our trade policy what we're doing is we're sending the wrong incentives both to U.S. companies and to our trading partners. What we're doing is we're rewarding the worst kind of behavior instead of the best kind of behavior. We reward the companies and the countries that deny workers the right to organize unions, that hire children, that trash the environment, and instead, if, if we built those rules, labor and environmental standards, minimum labor and environmental standards, into our trade policies, we would reward the countries and companies that performed best, not worst.
PAUL SOLMAN: Do you expect Pat Buchanan will do that?
MS. LEE: I don't know.
MR. GARTEN: Pat Buchanan is not--I mean, what you say I subscribe to 100 percent, but I believe that's really at the margin of the kinds of problems that we have. Of course, we should have more rules on the environment and labor standards, but when we talk about the size of the trade, you know, at the beginning of this decade, about 12 percent of the American economy was involved in trade. By the end of the decade, it's going to be 25 to 30 percent. This is an economy that is s, such an international force that we can't turn back the clock. The issue is how do we deal with the effects?
MR. TONELSON: It's precisely because of that. It's precisely because of that, precisely because as Amb. Hills said, we're in a global economy today. We need to use international economic policy, including trade policy, to ensure that that global economy unfolds in ways favorable to American values and to American interests. If we lack the national power, if we strip ourselves of it, we'll never do it.
PAUL SOLMAN: Do you think we--you really think that we would be able, using trade policy, to lessen the anxiety and, and help solve the problems you guys are talking about and everybody agrees to?
MR. TONELSON: Using international economic policy, which includes policy on foreign investment, on promoting technology development. There's a wide variety of policy tools, not simply tariffs and quotas. It's not building walls. It is enabling the United States to have the economic strength. We need to compete successfully.
PAUL SOLMAN: But Pat Buchanan is talking about building walls, at least that's the rhetoric.
MR. TONELSON: No, he's not talking about building walls. No. He's talking about--
PAUL SOLMAN: He's talking about literally building a wall, I thought, between Mexico and the U.S..
MR. TONELSON: As you pointed out, the Clinton and Bush administrations both threatened other countries with severe tariffs in order to open markets. I don't understand what it is that Pat Buchanan is proposing that is so dramatically different from that. Bill Clinton--
MS. HILLS: Well, he is proposing the pull-out of the North American Free Trade Agreement.
MR. TONELSON: Which is a fantastic idea.
PAUL SOLMAN: This is great.
MR. TONELSON: It's been an abysmal failure.
PAUL SOLMAN: We've got to go. Thank you all very much. We'll continue some other time.