THESE are difficult times for America’s free-traders. Donald Trump has put anger at “globalism” at the heart of his campaign. Even Democrats have turned against the Trans-Pacific Partnership (TPP)—an ambitious new agreement between 12 Pacific-rim countries, and one of Barack Obama’s signature second-term achievements. Hillary Clinton, once a backer, has withdrawn her support, while left-wing activists rail against the deal at every opportunity. The changing structure of global trade is partly to blame for the souring of public opinion. Unfortunately, that evolution will make any new effort to liberalise trade devilishly hard.
Trade between America and China has grown explosively since 2000, over which time manufacturing employment in America has fallen from just over 17m workers to around 12m, while wages for less-skilled workers have stagnated. In a recent paper David Autor, David Dorn and Gordon Hanson examined the performance of cities where industry was most exposed to Chinese competition. They found depressed wages and labour-force participation and elevated unemployment persisted for a decade or more after rapid growth in trade with China began. Resentment at this experience, and at the perception that too little has been done by American leaders to mitigate these harms, certainly motivates some trade warriors. The wonder, arguably, is that politicians have taken so long to exploit these trends.
However, polling actually shows that Americans favour freer trade—more so, in fact, than they did a few years ago, when Mr Obama prioritised the TPP negotiations. But the recognition of the value of trade agreements does not extend to acceptance of TPP. Recent surveys find that the majority of Americans are against it. If worker angst and Sinophobia were determining what people think, then you might expect more anger about overall trade but less hostility to TPP, which excludes China. Instead, the public—and even Republicans, now America’s most trade-hostile party—see more opportunity than cost to expanded trade, while at the same time distrusting TPP.
This odd divergence in opinion may be linked to a globalisation of supply chains. Production of traded goods has become “unbundled”, says Richard Baldwin of the Graduate Institute in Geneva. Firms once tended to design new gadgets and order the supplies needed to build them in a single factory or city. In the past few decades, more efficient global shipping and improvements in communications allowed firms to spread production across far-flung locations: to design a phone in America, source parts from several Asian economies, and assemble it in China. The share of parts and components in trade rose from 22% to 29% between 1980 and 2000. In 2005 trade in “intermediate inputs” accounted for an estimated 56% of trade in goods and 73% in services across rich countries. This dispersion of production chains contributed to a dramatic acceleration in global trade growth. It also changed the way many workers view trade. Where once it meant the choice between Japanese and American gadgetry, it now means iPhones, but built with cheap foreign labour.
As production has spread around the world, countries have specialised in different segments of the supply chain. While those, such as China, with lots of low-cost labour, focused on manufacturing and assembly, more advanced economies followed a different path. Cities like New York and San Francisco enjoyed an initial advantage in the most lucrative bits of the modern supply chain: research and development, engineering and finance. As a result, growth in supply-chain trade has been a boon for the powerful and profitable firms with headquarters in those cities, and for the highly skilled, well-compensated workers they employ. To the extent that further trade integration is seen as likely to reinforce these trends, TPP helps motivate opposition among red-state Republicans who are contemptuous and suspicious of big, blue-state metropolitan areas, and also among left-leaning Americans worried about inequality.
Worse still, from a strictly political perspective, is the focus within new trade agreements on stripping away non-tariff barriers. After decades of multinational diplomacy, tariff rates on most goods traded by most members of the WTO are too low to mention. Yet all sorts of obstacles to free exchange remain. Tradable services—in finance, or information industries—are subject to thickets of domestic regulation, for example conditions that must be satisfied before a firm can invest across borders. Simplifying and harmonising such rules should reduce trade costs. But when voters get a peek at such negotiations, they see their government offering to alter domestic standards—to sacrifice autonomy and sell out domestic interests, even—just to help the big firms make a few more bucks. Multinational companies do indeed exercise plenty of influence over what such pacts will entail. Yet even if they did not, the nature of the bargaining would make such dealmaking politically vulnerable.
What’s in it for me
America’s lot in this new world is, on the whole, a happy one. Many countries envy its fortunate position as a hub for innovative cities. Most studies of the potential effects of TPP conclude that the deal would raise American output by a small but meaningful amount: just under a percentage point of GDP, perhaps, over the next 15 years. But the obstacles confronting new trade deals are formidable. More generous redistribution, perhaps through an expanded programme of trade-adjustment assistance, could help neutralise some opposition. But discomfort with TPP is mostly rooted in a mistrust of the elite. Voters who are sceptical of the value of TPP will be unlikely to change their stripes without some demonstration that pacts of its kind benefit the many rather than just the few.
This article appeared in the Finance & economics section of the print edition under the headline "The problematic proposal"