Brexit and the New World Order that Wasn't

Someone on CBC TV yesterday morning said something about how Britain would not be the same. The line was something like, for the first time in 44 years, Britons will not be part of the EU. This was followed by some reference to a "new world order" for Britain, free now to sign its own trade agreements, or something like that.

This is actually so bizarrely wrong that it is difficult for me to even get excited about. There are potential important implications to Brexit -- and I will say a word about those -- and important lessons from the Brexit process that can be linked to other challenges to globalization and neoliberalism. But, before doing that let me make the key point I want to make: foreign policy has been a problem for progressive politics for a couple of reasons. First, progressives have opposed neoliberalism but somehow let themselves get caught holding its bag (or, at least the blame for its failures). Second, this is because they have not really had an alternative to it. The result is that the foreign policy of progressives is often intensely moralistic and this moralism (which is, I would argue, a good thing) is not matched by its practice. Progressives cheer, as it were, for the right side. They are on the side of innocents who have suffered (say, refugees or victims of climate change). They oppose totalitarian governments and wants us to have no truck or trade with them; they support diversity and argue for individual rights.

These are all good things, but how does the rubber meet the road? With regard to globalization, it doesn't seem to. Progressive political parties question it, point out its problems, champion the rights of workers, but in the end, they don't really know what they should be building as an international order in its place. For Canada, this is particularly true. For example: how is a global reduction of green house gases going to be accomplished? Saying "the US has to cut" is not going to do much good if the US government chooses to ignore that statement. One of the things that Brexit highlights is the need for a progressive political rethinking of foreign policy and the conception of what an international order might actually look like.

This is important because Brexit is not that new world order. Make no mistake about it. Brexiters and UKIPs, and Conservatives are celebrating, but the next day Britons woke up with the exact same problems they had a week ago. Unemployment did not disappear, the national debt was not suddenly paid, racism and sexism did not resolve themselves, Scottish nationalists did not settle in a comfortable new Britain, pollution did not evaporate, etc., etc. If anyone thinks Brexit is a panacea, they are just wrong. Don't believe me? Look around you in a day, a week, a year.

There is an analogous test case: the US. There were many reasons that Trump won the last presidential election in the US, but one reason was that he said what progressive political leadership should have been saying: NAFTA was a problem.  Its effects were uneven and, to be sure, some people really benefited from it. But, there were a lot of people who didn't. I am not in any way agreeing with the "Mexicans stole our jobs" discourse because there are serious empirical issues with that and I know the anti-NAFTA discourse became intensely racialized.  I am in no way defending that. But, we also need to look at the truth of the matter: the American working class did not do well by NAFTA and it had nothing to offer them. It was a mature trade agreement: there were no more gains to be had by it and whatever gains there were ended passing a lot of people by. And, how did the Democrats respond to this reality? Well ... how did they respond to this reality? Seriously, I honestly don't know.

I'd make the same point about Labour in Britain. I know that the EU was divisive within the Labour Party and among Labour voters. But, what was Labour's policy regarding the EU? What would they have done if elected? In opposing the Tories, they actually came off looking like they were defending the EU and, again, this 44 year old treaty had little to offer British workers. It was not going to provide jobs, improve the standard of living and, in the case of some countries, say Greece, the EU actually imposed draconian measures on the country that caused a general decline in the welfare state and standard of living (particularly for seniors) as the price of helping the country out of the international global economic crisis.

Said differently, if I were a progressive, I'd not look on the demise of NAFTA (a story for another day) or Brexit as something to lament. At the very least, from a progressive perspective, these are international trade (and trade and political) agreements that have run their course. They do not provide inspiration for a new generation. Nor can they address persistent problems in a way that (at least in the case of the EU), they might have in the past. Exactly how progressive politicians have ended up defending neoliberal globalization is a bit of a mystery to me particularly since they did not agree with it (at least discursively) in the first place. What concerns me was the inability of progressive political leaders and parties to put together a viable alternative to neoliberal globalization.

If Brexit will not solve Britain's problems, it does tell us one thing: disaster does not follow if one challenges the institutions of neoliberalism. NAFTA is another case in point. One of the standard arguments against progressive opposition to globalization and neoliberalism was this: withdrawing from globalization = economic disaster. If one tampers with the EU or with NAFTA, something like the economic end of days is on the horizon.

Did that happen?

Well ... no. In the case of NAFTA there might be other reasons that are worth exploring in another post, but the doom of many prophets did not materialize with Brexit and I have deep doubts it ever will. Get me right: I am not saying Brexit will be good for Britain or the British working class. I doubt it will, although nationalism might cover this over for a while. I am just saying it did not usher in a reprise of the Great Depression.

I find this fascinating. One element of recent history that needs to be written is progressive political figures ambiguous, slow, embrace of the international institutions of neoliberalism, such as NAFTA and the EU (I know that the EU is more than a trade agreement). In some measure, I wonder if the Labour Party, the Canadian Liberals, American Democrats, accepted neoliberalism because they felt they had to. Was it because they believed the discourse of impending economic disaster if they pulled away from the process of globalization?

Turns out that might not have been the case. One of the potentially positive things Brexit does is to make it possible to reconsider the international economic order on a fundamental level. This could be a very good thing. It is time to try to think what a progressive global order might look like in real and practical terms. If progressive political parties don't do this, they may win elections but on the international stage ... would anyone notice?  There are may things about Brexit that should give us pause but one of the good things is that it has shown that we don't have to accept the economic status quo; we don't have to accept globalization. We can think the international order differently. It is time to start.

Life after NAFTA

The Financial Times ran a couple of stories recently about free trade. One was about a new White House economic report -- issued under the name of Donald Trump -- that contradicted much of what Trump had been saying about free trade in general and free trade with Canada in particular. It has some interesting things to say, even if FT reporting on it quickly gets caught up in a numbers game that is, well, neither convincing nor important.  The other piece was about "life after NAFTA" and it is more important. It is important because it suggests that there is life after NAFTA. This make sense, of course, and it is a bit of clarity in otherwise fairly bad public reportage on this issue. What is more, there always was life after NAFTA and that is important to recognize for Canadians because Canada needs to be willing to explore what that life means and where it might lead the country. Some of the tenor of the discussion on free trade can be found here. As I have tried to indicate before, there is a bigger picture here and it is that bigger picture I would like to address.

The Ideology of Trade and Anti-Trade

The first bits of reporting about the US post-Trump trade policy were nothing short of alarming and some still are. They were presented in a stark binary way that was, in fact, conducive to different political agendas. Trump's arguments against free trade (which had always been part of a isolationist sub-set of Republicanism in the US dating back at least to Pat Buchanan), provided rust-belt Americans and Americans in other regions suffering from de-industrialization, with an argument that checked a number of political boxes at the same time. The anti-free trade argument explained American long-term economic stagnation through a conspiracy. It was nothing Americans had done. They were, in effect, sold out by greedy foreigners pretending to be the allies and weak governments at home who off-loaded American largesse.

There was, of course, little truth to this argument. Free trade is part of a broader neoliberal policy orientation that, almost certainly, had hampered growth in family income in the US and Canada (and Mexico and a bunch of other places) but neoliberalism, for Canadians and Americans, is a self-inflicted wound. Or, rather, self-inflicted in this sense: the economic problems that neoliberalism created were the product of largely Canadian- and American-based multinational corporations. Mexicans did not "steal" American jobs, for example. American companies decided to lay off their American workers and move their plants to Mexico because, they reasoned, they could make larger profits. The decision was not taken in Mexico but in American and Canadian boardrooms by American and Canadian chief executives. Mexicans, we know, overall did not benefit from this, at least there is no evidence of any economic benefit for the average Mexican (rates of poverty, for instance, and rates of extreme poverty remain shockingly high).

The political side of the anti-trade argument, however, was that it allowed a critique of trade without a critique of neoliberalism or at least of the substance of it. The anti-trade argument, for instance, ignores a series of other disconcerting trends in the American (and, Canadian) economy and society, including: widening income gaps, persistent and potentially worsening poverty, stagnating average incomes, increased imbalances in political power based on income. It ignored concentrations of ownership and uneasy questions about the role of American capital and the profit motive in shifting jobs to other countries, avoiding taxes, failing public infrastructure, and the like. The critique of trade was not a critique of capitalism or, it turns out, a critique of the lifestyles of the wealthy.

The other side of the coin was Canada which was painted, in this picture, as a pro-free trade country and there have been some polls lately that suggest that Canadians are in favour of free trade. But, exactly how Canada got to be in favour of free trade is not clear. The idea that Canadians embrace free trade and that this embrace is somehow progressive paints Canadians as at ease with neoliberal reforms when, in fact, they are anything but. Canada has attempted to build its neoliberalism differently than has the United States or, rather, what we might say is that Canadian Liberals have attempted to build a different type of neoliberalism than American Republicans (which is almost self-evidently true). Even acknowledging this, Canadians are somehow cast as defenders of neoliberalism and globalized neoliberal trade. Once more, this casting is self-inflicted.

Why mention all of this? Because it shows that the free trade debate ushered in by the Trump administration is actually about things other than free trade. It creates binaries that limit alternatives and which paint unidimensional pictures that are partial approximations of reality and which elide a consideration with the broader historical processes shaping American and Canadian life.

From Canada with Trade

What the discourse ushered in by Trump elided -- and what we now know is that the Trump administration assumed that free trade was the problem and, literally, made up data to confirm their perspective -- was a consideration of the nature of Canadian/American trade. From the Canadian perspective, however, what we have been treated to is a long drawn out quest to find a way to off-set the supposed implosion of the Canadian economy *if* free trade went down the tubes. In other words, a large measure of public discourse on the subject has focused, in Canada, on how Canada cannot economically survive without neoliberalism.

In my view, this is another ideological position and one about which we should be wary because I don't think it has much truth to it. No one is arguing, btw, that trade is bad. The question is how should it be regulated, what should be its objectives, how do we ensure fairness and proper ecological protection?

What is interesting is that we have heard this storyline before: lose neoliberal trade and your economy will go down like a tonne of bricks. We heard it, for instance, about Brexit. Those people who argued for the EU often used this argument: the British economy will suffer serious and deep damage if Brexit goes through. There were a few days of a down stock market but the truth of the matter is that the much predicted big hit did not come. Likewise, the election of Trump, we were told, and an anti-free trade agenda, could send the US economy into a tailspin. It has not. I'm not convinced this lack of a tailspin has anything to do with Trump's policies, but for now the simple and important fact is that trade has not collapsed.

More recently, the Trump government announced a tariff on steel and aluminum. Disaster in the brewing in Canada and, the Cato Institute warned on TV, in the US as well. Yet, Canada -- and Mexico -- has been exempted from the duty. There was an air of last minute reprieve to the announcement and some posturing that a better deal on NAFTA should be forthcoming ... or, else ....! But, catastrophe was adverted.

Reconsidering Trade

Trade is important and that is precisely why I would suggest that a refashioned NAFTA, or even no NAFTA, is not going to have the effect its promoters think it will. I might say "for good or ill" but I want to be clear that I am trying to avoid the simplistic trade = good binary.

The Trump government backed away from a tariff on Canadian steel not out of the goodness of its heart but because it needs Canadian steel, or rather American industry did. According to the Cato Institute the ratio of workers in steel production to workers using steel in other products is something like 1:47. What that means is that for every worker making steel, there are forty-seven workers making things out of steel. The US does not produce enough steel for its needs. Hence, it imports Canadian steel. Moreover, increasing steel production is not something that can be done overnight. If one assumes that the US is not artificially lowering its own steel production (a pretty straightforward assumption), then adding new capacity means mining more ore, building new plants, making new bids, and networking new suppliers. Said differently, it is not an easy thing to do and it cannot be done in the short term. Tariffs can and should be used for a variety of things. I am not, as a matter of faith, opposed to tariffs in all circumstances and for any reason. But, their short term ability to increase production of heavy industrial products that rely on new capital goods is limited owing to the high cost of market entry. Think about it like this, it is easy to create new ice cream stands. You need a freezer, some cones, a scooper, and a cash float. It is a lot more difficult and more expensive to build new steel production facilities. Cato suggested it could take years.

Thus, despite the threat of the tariff, there was no real threat to Canada. Hurting Canada through a tariff (which would limit Canadian exports to the US), would simultaneously hurt Americans and it would be done in the name of helping a small group of workers by harming much much larger (almost 50 times larger) number of workers (by increasing the costs of the key raw material in their product).

There can, and likely should, be a vigorous debate about international trade, its merits, who benefits, how and why. In having this discussion, we should not make the simplistic assumption that everyone necessarily benefits from trade. A rising tide, it turns out, does not float all boats. But, we can also start to ask about why certain nations look to solidify trading relationships with others. Here, there is likely a diverse range of views. One can argue whether or not Canada or the US has benefitted more from NAFTA (I actually think this is a silly debate, but I'll save my thinking on that for another day. I'm just saying here that one can allow that debate.) The point is that the benefits of trade, on a national level, are not all one way. As the Politifacts piece I cited earlier shows, Canada accounts for over 18% of US exports in good by itself. Limiting trade with Canada, then, creates problems because one cannot or should not assume that such exports will continue at the same level. In the absence of trade with the US, Canada would have to put its market (which is a lucrative market) on the block in deals with other countries.

This is not a threat. It is simply a fact.

It also means that even if we don't have NAFTA -- and we might want to change it -- Canada/ US trade will likely continue. The truth is that Canada is, overall, not ripping the US off on trade. In fact, the man who claimed we were now concedes that he has not checked the facts. We might find individual products where Canada has a surplus but that is really getting deep down in the weeds. The point of a trade agreement is not that one country has a surplus in every good. In fact, under capitalist economics, the opposite is true. I won't get into the details on this but the point of capitalist trade is that it is supposed to make use of comparative advantage. I can make shirts cheaper than you can; you can make pants cheaper than I can, so I focus on making shirts; you focus on making pants and we then trade so we all actually have more of products that we both need. Comparative advantage suggests, in this model, that I am supposed to have a deficit with regard to you in pants and you are supposed to have a deficit with regard to me in shirts. That is the point of the trade.

A capitalist breaking down trade into individual products and then claiming that a deficit in one product is an example of trade gone wrong is, in fact, making a statement that runs deeply against the grain of capitalism.

And, this is the reason America companies trade with Canada. They don't do it to be nice. They do it because we buy their products. Likewise, Americans buy Canadians products not to be nice but because they need them. Much is made of the Canadian energy sale surplus with the US, something I think will draw to a close for its own reasons, but it is a case in point. Americans buy Canadian energy because they need more energy than they produce. Ipso facto, hey, those Canadians have a lot!

Trade After NAFTA

So ... what happens if NAFTA goes down the tube. Well, not nothin', but perhaps a lot less than people think. If NAFTA goes down the tubes, it will be a clear sign that the US government has become a lot more interventionist and protectionist and is willing to, in effect, harm itself and its allies. This is not a new trajectory.  America's allies have been wondering about its governments for a long time. That might surprise Americans (or, I guess it might not) and there is more to say on that, but not here. That being the case, allies like Canada will have little choice but to search for economic opportunities elsewhere. Canada might, for instance, need to seriously consider (or, reconsider) a northern gateway for oil shipments to East Asia. But, let us not over-estimate this. It may happen but let's not assume we are going to suddenly see China as Canada's number one trade partner.

I also expect that the collapse of NAFTA would be felt unevenly across Canada.  Some provinces will be harder hit than others.

But, I also expect that, in other circumstances, not a lot will change. In the shorter run, the US will still need to buy Canadian steel and energy. Multinational corporations have integrated cross border production facilities. I read somewhere that the part in the average car cross the border multiple times (something like 10 or more) before the car is finished. That will not change. Nor will American companies stop seeing Canada as a market for their products. It is doubtful, for instance, that the US will want take a pass on almost 20% of its goods exports.

What this means is that the US and American companies have good, built in reasons, for keeping up positive trading relations with Canada.

Other things won't change either. I don't expect Canadians to stop vacationing in the US and vice versa. I don't expect educational exchanges to stop (the US is the number one destination for foreign schooling for Canadians). I don't expect Canadians to stop watching American TV or Americans to stop seeing a peaceful Canadian border as a real plus in their national life. I don't expect American comics to stop making fun of Canada.

NAFTA may not be here to stay. I honestly don't know. Canadian-American trade, however, is. Why? Because both Canada and the US, Canadians and Americans benefit from it. 

The Left, Brexit, Trump and the Future of Political Economy

Outside of Canada, the last year has not really been kind to progressive politics and ... even in Canada ... there are signs of worry. No one is going to defend -- or, no one who thinks of themselves as a progressive individual (see earlier blogs for what this might mean) -- can or should defend the British Conservative Party nor the current incarnation of American Republicanism. Both have become more stridently extreme. Both have stripped away the veneer of respectability in politics to pander to very base ideas. And, if left in power very long, both will wind up causing just tonnes of problems.

This said, one might ask: what can we learn from these developments? There are, I want to contend, important lessons for progressive (or, leftist) thinkers in these developments because the success of more extreme right wing politics is, simultaneously, the failure of progressive politics.  Most commentary -- at least the stuff I have read -- has focused on explaining why Trump or Brexit occurred. The general conclusion -- for good or ill -- involves a combination of factors that amount to strategic miscalculations one the part of party establishments or moderates or the general public. I strongly suspect that large sections of the US and UK population will, very shortly, have a serious case of buyer's remorse but in the meantime learning only this lesson is detrimental to progressive politics because it is about how to win elections. And, again for good or ill, progressive movements have been not bad at this. I know ... I know ... progressives have not gotten all they wanted. But, they managed to elect Obama to two terms despite intense reactive racism in the US; they got rid of Harper; kept the Labour Party in power in Britain for years. The record, overall, is not all that bad.

The problem progressives have is that they often don't know what to do with power when they get it. (Now, to be honest, it seems the British Conservative Party has the same problem.  They didn't like Labour governments but once they had settled in ... well ... what came next never seemed very clear. There is a standard script -- cut taxes, talk about people getting soft, say environmentalism has "gone too far" -- but, we have all heard that a bunch of time and ... seriously ... how much lower you gonna cut taxes on the wealthy? How much less can they pay? How much less environmental protection can one actually have?) And, this is where the left can learn from Trump and Brexit.

One of the odd things about the election of Trump and about Brexit is that the left was left (ha ha) holding the bad of the old right. The left never supported neo-liberalism and campaigned long and hard against it. Organized labour railed against free trade, said that the working class would pay the price for multinational corporation super profits, indicated that mobile capital created a race to the bottom in terms of environmental protection, etc. Said differently, progressives were always the ones who said that government needed to rethink (or, renegotiate) NAFTA and who said that there was nothing wrong with protecting domestic markets to ensure high employment rates, and that one did not need to embrace globalization (in the form of the EU or of NAFTA or the TPP) in order to have a vibrant economy. So ... how did progressives end up fighting a rearguard action in favour of the very policies they opposed while right-wing populists scooped up victories adopting leftist ideas about putting big business in its place?

I recognize that this right-wing populism was mixed with a lot of racism. Said differently, right-wing populists were able to mobilize a racist language about (in the US) Mexican "stealing jobs" (when in reality it was American corporations in their quest for super profits who were creating the rust belt) but ... you see the point. One need not embrace racism to be concerned about the fate of working people and to raise questions about neo-liberalism. Indeed, most progressives I know raised precisely these questions and were vibrantly anti-racist. And, here is the thing, in theory, progressive thinkers raise concerns about neo-liberalism all the time. In practice, in government, running the show, they tend to make their peace with it. This is the lesson that progressives need to learn. Why make peace with the very thing that you oppose? Is this a case of "only Nixon could go to China"?

Maybe. Right-wing populists can talk tough to big business in a way that progressives no longer can (and, in the US, maybe have not since the days of Kennedy) because they know that the right-wing media will not mobilize against them, in the US Tea Party activists will stay silent, Fox News hosts will have nothing to say, and that the moderate mainstream media won't do a very good job reporting this and so will do one of their standard "some people say this; some people say that" reports. Progressive politicians, in other words, have been worried about a bad media, about protest, and about business reaction. If Obama or a Labour PM had raised questions about NAFTA or the EU, the right would have been all over them. Fox would have predicated a  disastrous recession; would have talked about  "government over-reach", would have explained the price consumers would pay for "special interests." I recall FTA reporting of US Democrats who raised questions about free trade. One right-wing journalist calmly explained that if Democrats had been in charge of lightbulbs, we would still be using candles to protect unionized candle makers. Nothing of this sort has gone on in opposition to British Conservatives and American Republicans raising similar types of concerns.

But, there is more than biased, two standards media spin going on here. For a variety of complicated reasons progressive, moderate, reformist, and leftwing thinkers embraced internationalism and globalization but in the process became heavily confused about it. They embraced it because they wanted to win elections and felt that they wouldn't without it, but they embraced it because they really were committed to internationalism and, on one level, you can see why.  Progressive internationalism involved evening out standards of living (improving economic development) in marginalized economies; diversity at home, respect for difference and acceptance of refugees, among other things, including finding ways to address common international problems (human rights, climate change, e.g.). Said differently, moderate (Democrat) and progressive (Labour) leaders confused neo-liberal globalization (bringing down barriers to business) with a different form of globalization that approached issues from a humanistic and ecological perspective. Defending the latter became defending the former but ... it actually ain't really so. And, in the process, in the wake of this confusion, centrist and left-wing politicians were left holding the bag for policies about which they were -- or, should have been -- deeply suspicious.

Let me give you an example: Hilary Clinton  was, more or less, silent on the issue of NAFTA. Instead, she focused on another job-creation strategy. This strategy might have made sense. I don't actually know because I didn't investigate it. She could have maintained this strategy but she also should have taken aim at NAFTA and, I think, she could have done so in a way that did not "scapegoat" Mexicans. I think a lot of Bernie Saunders' popularity arose from the fact that he did precisely this.  The Democrats could, for instance, have pointed out that Mexicans did not "steal" jobs, rich people elected to move companies south of the border. They could have argued that this is a reason to strengthen the labour and environmental side agreements to NAFTA. They could have argued that this is a reason to better regulate business. Said differently, instead of keeping (more or less) silent on the issue while taking about the importance of international openness (which is a good but vague thing), Clinton and other Democrats could have pointed out that it is the very weakness of these agreements that harms both Mexican and American workers. Strengthening them would allow for higher wage rates and better environmental protection. Regulating business -- say, the mobility of plant and capital -- would allow for public good assessments of relocation and whether or not they are actually needed. It would have allowed and open and needed discussion on this issue: how much profit is enough? After all, if a company is leaving Ohio or Michigan or Missouri to make *more* money elsewhere ... should one not discuss exactly how much money one should be making? Surely, in a day and age of widening income gaps such a question is of some importance?

Said differently, the new right (let's call them that) has caught moderate, progressive, leftist politicians by surprise. The new right is deeply unpopular with some sections of the old right but that does not matter too much. Perhaps, in fact, moderates and leftists made too much of the dislike of, say, Republicans for Trump or British Tories for Brexit. The success of this new right, however, highlighted a problem with the political centre and left. Instead of demanding changes to international trade agreements, they missed an opportunity to shape discourse and, in the process, it took on nasty racist tones. As Labour and the Democratic Party rethink their politics, they would do well to bear these points in mind.