WASHINGTON, June 15, 2015 − Compelled belatedly to take a position on the Trans-Pacific Partnership (TPP) free trade agreement, 2016 presidential candidate Hillary Clinton urged President Obama to work with his Democratic allies in Congress. Democrats on the Hill hope either to derail TPP entirely or to strengthen labor protections as part of the agreement.
If Clinton had been addressing existing trade agreements like the infamous NAFTA, which is frequently blamed for massive job losses in the U.S., her response would have been perfect and might have resulted in some long overdue to reforms.
Unfortunately, the reality is that TPP cannot be used to impose guarantees on issues like workplace safety regulation, wage standards and outsourcing. Free trade is what exacerbates and accelerates these consequences of globalization. That’s because free trade is what makes it cost-effective to circumvent labor laws and outsource jobs.
The only effective means for avoiding these undesirable consequences is to engage in free trade only with nations whose economies are similar to our own and/or to limit free trade to sectors of the economy where there is a clear benefit to both economic partners.
That said, any presidential candidate interested in fostering a thriving U.S. economy needs to focus on the lifeblood of all modern economies: innovation. The economies of the world depend upon innovation to create the new technologies and industries that drive consumption, growth and job creation.
Unfortunately, the patent process and the enforcement of patent protections in the U.S. have only grown more complicated with globalization, an issue further complicated by the advent of today’s cyber economy.
Although for the first time since 1952 Congress made significant revisions to U.S. patent laws with the Patent Reform Act of 2011, that law did not address many of the critical issues faced by companies looking to protect their innovations. Instead, the 2011 legislation focused on the concerns of entrenched innovators, yet did very little to provide protections to budding inventors as they work through the innovation and patent processes.
Meanwhile, enforcing U.S. patents in international trade is problematic. Businesses and other patent holders need clearer options, enabling them to better deal with violations of their patents. This can only be accomplished, however, if foreign governments respect American patents and patent laws, and it is clear that many do not. The United States needs to lead the charge in solving this global threat to progress and economic development.
In another area involved in the free trade debate, proponents of a reduced capital gains tax have looked to the historically strong performance of the financial sector as a bright spot in the U.S. economy. Regrettably, however, the financial sector only employees a relatively small number of individuals.
Where individuals like this writer have voiced concerns about the potential distortions a reduced capital gains tax may have on the value of financial capital, it would be wise to harness that same effect when it comes to bolstering the value of intellectual capital in any free trade agreement.
When free trade agreements were first embraced in this country, policymakers and economists assumed America would develop an economy fueled by the service sector and intellectual property. Clearly, however, this model does not support the interests of most working Americans, as most do not own significantly valuable intellectual property and service industry jobs are often at the bottom of the wage scale.
At the same time, improved business models, technological advances, economic uncertainty and a lack of demand have created an economy that does not need the skills and labor of millions.
Innovation and the spread of new technology can, however, create more high-paying jobs by sparking the development and growth of novel industries. Coupled with improved patent laws, offering a tax discount for royalty payments on novel technologies and other innovations on a par with current capital gains tax deductions would make such innovations far more valuable to a company.
By making patents and other intellectual property more valuable, financial capital would be steered toward innovation, ultimately leading to the creation of new industries and jobs.
Hillary Clinton and her fellow presidential hopefuls need to focus on tearing down barriers to innovation around the world instead of focusing blindly on the issue of free trade.