During the presidential campaign, two things topped the list of things Donald Trump didn’t like: the North American Free Trade Agreement and the Trans-Pacific Partnership.
One of Trump’s first actions as president was to pull the United States out of the partnership. Another was to announce plans to renegotiate NAFTA.
Therefore, it was shocking that the administration’s recently released objectives for NAFTA negotiations included the single most objectionable provision of the Trans-Pacific Partnership: a requirement that each country maintain so-called minimum wage laws that require each government to control entry-level workers’ take-home pay.
NAFTA’s been great for U.S. workers. Thirty million net new jobs have been created in the United States since NAFTA took effect, and average compensation per worker has doubled.
Who, then, would want to include minimum wage laws in so-called “free trade” negotiations?
The bootleggers and Baptists theory provides one possible explanation. Both groups wanted to limit liquor sales: Baptists for moral reasons, and bootleggers for business reasons.
In this case, instead of bootleggers and Baptists, it’s progressives and protectionists teaming up to advocate bad policy.
Progressives want to include minimum wage laws in trade agreements because they see them as a way to help low-wage workers in other countries by magically increasing wages. For example, President Barack Obama repeatedly called the Trans-Pacific Partnership the “most progressive” trade deal in history, and never the “most free” trade deal in history.
Protectionists like the idea of imposing minimum wages on other countries because it is a sneaky way to restrict competition.
Economist Burton Folsom has explained how in the United States, Northern politicians proposed minimum wage laws to handicap Southern factory workers. In the 1930s, Gov. Charles Hurley of Massachusetts called for a national minimum wage so that “Massachusetts [would] have equal competition with other sections of the country, thus affording labor and industry of Massachusetts some degree of assurance that our present industries will not move out of the state.”
According to Rep. Sam McReynolds, D-Tenn., at the time: “Northern industries are trying to stop the progress of the South, and they feel if they can pass this [minimum wage] bill it will really be a tariff against Southern goods.”
That may help explain why progressives and anti-trade interest groups both want to include a minimum wage in NAFTA.
To be fair, the United States Trade Representative proposal just requires countries to mandate a minimum wage. It doesn’t say what that wage should be. But it wasn’t long ago that Dick Gephardt proposed using trade deals to establish an “international minimum wage,” and it’s not hard to imagine similar proposals being included in future agreements.
All NAFTA countries have minimum wage laws on the books, so dropping this proposal from U.S. negotiating objectives wouldn’t result in any substantive changes to each country’s policies. But it would allow the federal government and the 50 states to maintain control of their labor laws. And it would allow negotiators to focus on reducing government barriers to economic freedom instead of erecting new ones.
